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Consumer group calls for denial of Allstate rate increase in California, pushes instead for refunds

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Public interest organization Consumer Watchdog (CW) has called on California Insurance Commissioner Ricardo Lara to deny Allstate’s request for a 6.9% auto insurance rate increase, and to instead pressure the carrier to return more of its pandemic-era premium windfall to the Golden State’s drivers.

The new rates, filed by Allstate in March, would affect more than 900,000 policyholders and generate an overall $165 million in additional premium per year, according to the organization.

In a September 22 letter to Lara, CW senior staff attorney Pamela Pressley and staff attorney Daniel L. Sternberg contend that the rate application includes a “discriminatory two-tiered rating system” under which “specialized professionals” would be charged a 4% lower rate. Included under “specialized” professions are education or library science, science, engineering, and information technology, according to Allstate documents filed with the CDI.

“This system is illegal under Proposition 103 and the Commissioner’s regulations, which do not permit the use of occupation and education as rating factors,” the letter contends.

Proposition 103, also known as the Insurance Rate Reduction and Reform Act, states in part, “Rates and premiums for an automobile insurance policy, as described in subdivision (a) of Section 660, shall be determined by application of the following factors in decreasing order of importance:

“(1) The insured’s driving safety record.

“(2) The number of miles he or she drives annually.

“(3) The number of years of driving experience the insured has had.

“(4) Those other factors that the commissioner may adopt by regulation and that have a substantial relationship to the risk of loss. The regulations shall set forth the respective weight to be given each factor in determining automobile rates and premiums. Notwithstanding any other provision of law, the use of any criterion without approval shall constitute unfair discrimination.”

CW argues that low-income and minority drivers are especially harmed by Allstate’s “unfairly discriminatory occupation-based rating system,” and that voters enacted Proposition 103 “to stop this kind of unfair rate discrimination based on income or race.”

The letter also calls on Lara to hold a public hearing “to determine the amount of additional premium overcharges that Allstate has yet to return to California policyholders based on their reduced driving” while COVID-19 pandemic stay-at-home orders were in effect.

On October 5, 2021, Lara ordered Allstate, Mercury and CSAA to return to drivers more of the excess profits collected from them during the pandemic, or face legal action. An analysis by the California Department of Insurance (DOI) of new data showed that these three companies “have the greatest gap between what they initially refunded drivers, and what they should have refunded, to provide proper premium relief to their policyholders since the start of the COVID-19 pandemic,” the insurance commissioner said at the time.

CW said the order “confirmed that ‘the PPA policyholders of Allstate Northbrook Indemnity Company … should have received substantial additional PPA premium refunds or credits.’ But to date, you have taken no further action publicly to ensure that Allstate’s policyholders receive the refunds they deserve.”

According to CW’s analysis, Allstate has so far provided premium credits totaling less than half of the amount that the carrier “overcharged customers during that time period, leaving hundreds of millions of dollars still owed.”

CW’s investigation showed that insurers raked in a $5.5 billion windfall because a vast majority of Californians drove far less in 2020. So far, insurance companies have returned more than $2 billion in premium relief to California drivers.

Lara’s ability to enforce his order was called into doubt on Oct. 29, 2021, when a California appeals court ruled that he had no authority to order State Farm to pay more than $100 million in refunds to Californians who the commissioner found were overcharged for homeowners, condo and renters coverage.

In the case, State Farm General Insurance Company v. Lara et al., the California Court of Appeal rejected the commissioner’s contention that the state’s Proposition 103 gives him the authority to order rate refunds as part of his responsibility to ensure that Californians are charged fair rates.

CW filed an appeal with the California Supreme Court, which declined to review the lower court’s ruling.

More information

Text of California Proposition 103

Calif. orders Allstate, Mercury, CSAA to refund excess profits to drivers


Featured image by gguy44/iStock

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