Tasked with protecting consumers from “excessive, inadequate, and unfairly discriminatory insurance rates” while ensuring the marketplace is accessible and competitive, the insurance commission’s review process includes examining applications and moving the process forward as quickly as possible within a 60-day timeline, according to rules established by Proposition 103—passed by voters in 1988.
Reviews have extended beyond Prop 103’s timeline in recent years, according to Lara, in part due to incomplete applications from insurers, duplicative requests from those challenging rate hikes, and the complexity of the process, according to the press release.
“I expect more from insurance companies in the form of complete rate filings,” Lara said in the press release while also calling on his department to follow the rules and fast-track reviews. “I am holding everyone in the process accountable.”
The new order creates a “data reconciliation tool” to organize information, which should expedite reviews and increase transparency, Lara wrote in the memo.
“Reducing unnecessary delays is critical to getting our state’s insurance marketplace back on track,” Lara said in the press release.
The insurance department is now expected to review applications for rate increases and either accept or reject them within 60 days of filing. If more information is needed, two 30-day extensions are permitted.
The department is then ordered to provide those challenging the increases in writing with how much the insurance company wants to raise rates. If the rate change sought equals 7 percent or less for personal insurance or no more than 15 percent for commercial insurance, insurers would have 10 calendar days to accept or reject the commission’s decision.
For increases more than 7 or 15 percent for such coverage, respectively, insurers would need written consent from any intervenors—those challenging the requests—before implementing rate changes.
“My action gives insurance companies greater certainty on their pending filings so we can restore a competitive insurance marketplace and close protection gaps,” Lara said in the press release. “Above all, my action strengthens our review process, which is integral to my ongoing reforms. Let me be clear: The Department of Insurance is the public’s check on rates and market solvency.”
State funding in the fiscal 2023-24 budget allowed for consultants to review insurance rate applications, and the commission is contracting with multiple firms for such, according to the press release. A request for information from the commission on the amount of the funding was not returned prior to publication.
Additionally, the commission hired more staff to expedite the review process.
Recent rate hikes approved by the department include more than 15 percent for Travelers earlier this year and hikes ranging from 3 percent to 40 percent for more than a dozen insurers in 2023.
Applications being reviewed include a 34 percent increase request from Allstate and a 30 percent spike for State Farm.
Rate increase requests have been more frequent than in past decades due to significant losses due to wildfires which have impacted insurers since 2017.
California Gov. Gavin Newsom has repeatedly requested a sense of urgency and for improvement of the state’s insurance market. He said the new guidelines are a step in the right direction.
“We’ve been working closely with the Insurance Commissioner and fully support these actions to modernize the rate application processes, consistent with the timelines outlined in Prop 103,” Newsom said in the insurance commission’s press release. “It’s part of the state’s larger package of solutions to ensure Californians have adequate access to insurance and combat market exodus that hurts consumers.”
The commission’s new rules come as fires are burning across multiple areas of the state—including the Park, Borel, and Gold Complex fires which are straining resources and destroying structures.
Newsom has issued emergency declarations for the fires, among others, to help secure federal funding and protect residents.
Lara issued a mandatory moratorium for insurance company cancellations and non-renewals, set to last one year from the date on the governor’s emergency declarations. Such will impact more than 185,000 policyholders.
Over the past year, dozens of insurance companies—including some of the state’s largest—have pulled out of California citing difficulty in recouping costs due to regulatory practices.
Such has left more than 350,000 Californians stuck with the state’s FAIR plan—an insurer of last resort that many say is far more expensive than their prior insurance with less coverage.
