The largest player in the No. 2 U.S. private-passenger auto market is pushing back against the latest in a series of objections issued by a Texas agency tasked with representing the interests of consumers in connection with insurance rate filings.
A representative of The Progressive Corp. denied an allegation by the Office of Public Insurance Counsel, or OPIC, that the requests of Progressive County Mutual Insurance Co. to raise rates on its books of Texas private auto business produced through the direct and independent agency channels in average amounts of 4.9% and 4.7%, respectively, were "excessive." Instead, wrote Jay Thompson of the law firm of Thompson Coe Cousins & Irons LLP, "Progressive has some of the most competitive rates in a very competitive personal automobile insurance market in Texas."
The dialogue highlights the challenges auto insurers face in attempting to anticipate emerging trends in claims frequency and severity amid ongoing pandemic-related uncertainties. It also highlights the potential for regulators and consumer advocates like OPIC to take issue with the actuarial methodology carriers opt to employ. Further complicating matters, average claims severity continues to climb as repair costs rise and used vehicle values soar at the same time claims frequency is returning toward pre-pandemic levels.
Under the Texas file-and-use rate filing system, Progressive's higher rates were scheduled to take effect for new business on July 2 and for renewal business on Aug. 5. OPIC, which previously said it saved Texas drivers more than $85 million during 2020 through objections to rate increases filed after the declaration of a pandemic, alleged that the Progressive rates would "produce a long-term profit that is unreasonably high in relation to the auto insurance coverage provided to Texas consumers." The agency served notice that it was conducting a full actuarial review of the rate requests and recommended that the Texas Department of Insurance initiate disapproval proceedings. According to Thompson's letter, OPIC also made what he alleged to be "unreasonably overly broad" requests for information that "may require the creation of documents that are not in existence; require [the] creation of documents or responses that may be very burdensome and time-consuming to produce and may offer little in the way of additional information necessary for review of the filing."
Thompson said that Progressive has always attempted to cooperate with OPIC. The attorney also provided support for the actuarial methodology underlying the rate filing, arguing among other things that "rapidly increasing inflation across a wide variety of sectors in the economy, especially the automotive sector, [makes] expectations of future costs much higher than longer-term historical trends would indicate."
Within the past 12 months, there have been several other examples where OPIC issued similar allegations of "excessive" private auto rates, including for a program written on behalf of a third-party managing general agency by Redpoint County Mutual Insurance Co., business written by Foremost County Mutual Insurance Co., a filing with an overall rate level impact of 0% by The Allstate Corp.'s Allstate Fire & Casualty Insurance Co., and the introduction of a multivariate rating program by Central Mutual Insurance Co. It also objected to a previous set of filings by Progressive County Mutual.
Allstate's Direct General Insurance Co. fielded a letter on July 20 from OPIC alleging that its loss trend selections in a filing for a 6.7% rate increase did not appear to be supported by the trend data provided. In response, the company submitted updated information that it said highlights the "tremendous projected frequency increase observed in recent quarters" in a "young program."
The number of objections raised by OPIC appears to be unique, based on a review of pending, closed, withdrawn and disapproved private auto rate filings archived by S&P Global Market Intelligence, and it remains to be seen whether — and to what extent — the Texas Department of Insurance follows the agency's recommendations. That is not to suggest that regulators in other states have not in some circumstances been questioning the actuarial indications produced by private auto carriers seeking rate increases.
The Nevada Division of Insurance, for example, recently objected to a Nationwide Mutual Insurance Co. request for a 9% increase. It argued in the objection that the carrier "does not have the ability to predict a clear end of the pandemic during the effective period of the rate filing;" that "trying to 'catch up' to pre-COVID rate levels does not appear to be an appropriate objective in cost-based pricing," and that the filing needs to focus on the actual level of losses that have emerged as opposed to "a level that essentially assumes away the events of the past 1.5 years." The division asked Nationwide to focus on actual Nevada experience in the filing as it argued that the state had been particularly hard hit by COVID-19 and that the virus "continues to wreak havoc on the unvaccinated population, hampering employment and economic growth which continue to stifle the state."
Nationwide complied with the regulator's request, but its revised indication of 13.5% when including a credibility adjustment still exceeded the level of rate increase it is seeking.
Progressive President and CEO Tricia Griffith said during an Aug. 4 conference call that the company would pursue the rate actions necessary to achieve management's goal of growing as fast as possible while achieving a 96% combined ratio.
"It's hard for me to be in the seat of a regulator," Griffith said. "... I think they always want to make sure that there is affordability for the consumers that they represent."
Griffith said the company seeks to share data and engage in discussions with regulators, with the ultimate goal of trying "to do the right thing" for customers.
On a companywide basis, Texas ranked as Progressive's second-largest private auto state in 2020 behind only Florida. It became the No. 1 writer of Texas private auto business in 2020, surpassing both the group led by State Farm Mutual Automobile Insurance Co. and GEICO Corp. parent Berkshire Hathaway Inc.
Other Progressive subsidiaries have filed for rate increases in Florida — where the company ranks behind GEICO as the No. 2 writer, with a 21.5% market share — of 6.1% in the agency channel and 6% in the direct channel.
