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California DOI to investigate possible auto insurance violations

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The California Department of Insurance is investigating “numerous complaints” it has received from customers claiming they’ve struggled to secure auto insurance.

Insurance Commissioner Ricardo Lara issued a bulletin last week in response to claims consumers were subjected to questionnaires, waiting periods, and other practices while seeking coverage in the state.

“These alleged passive-aggressive tactics by insurance companies to slow down drivers’ access to coverage are unacceptable, dangerous, and will not be tolerated,” Lara said in a press release. “I am taking action to ensure these insurance companies are acting according to the law and giving drivers the coverage they are paying for at the rate they qualify for. We will continue to monitor the situation and take any and all steps necessary to protect California consumers.”

According to California’s DOI, delaying coverage could violate state laws requiring insurance companies to offer and sell policies for all applicants qualifying as good drivers. To qualify as such, a person must have been licensed for three consecutive years, have no more than one point on their driving record, and not have been at fault in an accident that caused injury or death.

It said in some cases good drivers have been required to, among other things:

    • “Complete unnecessarily lengthy and/or confusing questionnaires;
    • “Verify employment or school information;
    • “Respond to physically mailed questionnaires despite applicants electing to receive documents electronically;
    • “Provide information regarding excluded drivers living at the same address; and/or
    • “Submit copies of applicants’ utility bills, vehicle registrations, and/or photos of driver’s licenses or vehicles, among other examples.”

“These waiting periods, questionnaires, and other practices may serve as barriers to the acceptance of otherwise qualified drivers and are being used as roadblocks to slow down, restrict, non-renew, or outright refuse auto insurance coverage,” the bulletin said.

It added that it has also received complaints from consumers that some insurers aren’t offering good driver discounts while imposing “unreasonable application requirements” that could prevent them from securing timely coverage.

Under California’s Proposition 103, also known as the Insurance Rate Reduction and Reform Act, insurers are required to submit complete rate applications to the insurance commissioner for review and approval before implementing any change to existing rates.

The law requires carriers to open their books to public scrutiny and justify requests for changes in their rates. Consumers are entitled to independently analyze the requests, obtain additional information from the insurance company, and request a full public hearing if they believe the rate request is unjustified.

The law, passed by voters in 1988, requires the insurance commissioner to notify the public of any application by an insurer for a rate change. If the commissioner denies a request from the public for a hearing, that decision must be accompanied by the commissioner’s written findings. A hearing is required if the proposed rate adjustment exceeds 7% of the then-applicable rate for personal lines.

Earlier this month, Allstate CEO and President Tom Wilson said, during a Goldman Sachs Financial Services Conference that the company would exit California, New York, and New Jersey if its auto insurance rates weren’t increased in the states.

About a week later, Allstate announced double-digit rate increases for auto insurance in California (30%), New York (14.66%), and New Jersey (20%).

A number of insurers have already scaled back coverage, particularly in states they deemed unprofitable, in recent months. Kemper Corp. announced in August that it’s exiting the preferred home and auto market to enhance its returns and “support profitable growth” in core businesses. Its specialty business Kemper Auto was not affected by the shakeup.

Farmers Direct Property and Casualty Insurance, a division of Farmers Insurance, stopped writing new policies in California in September.

In its bulletin, California’s DOI reminded insurers of Proposition 103, noting it also requires personal auto insurers to write all qualified, good drivers within 15 days after receiving a completed application.

Now that the bulletin has been published, Lara said it sets the stage for “further enforcement actions” against companies that fail to comply with state regulations.

“In general, companies found to be violating insurance law and regulations after a bulletin is issued may be subject to enforcement actions such as market conduct reviews, fines, and other penalties,” the press release said. “Once directly informed by the Department, several insurance companies have since stopped their waiting periods, questionnaires, and other practices, filed their revised underwriting guidelines with the Department for review, and reversed several previous actions made on their policyholders to restore their auto insurance coverage.”


Featured image courtesy of choness/iStock

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