Insurance Department Must Protect Public's Right to Scrutinize Insurance Rate Increases Consumer Watchdog Says in Letter to Commissioner Lara After Abrupt Approval of GEICO Rate Hike

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Dec 07, 2022, 15:46 ET

LOS ANGELES, Dec. 7, 2022 /PRNewswire/ -- The California Department of Insurance has approved a $268 million increase in auto insurance premiums for GEICO customers without following the public participation requirements of Proposition 103. Overall, the 6.9% rate hike will impact 2.1 million GEICO policyholders who face an average $125 annual premium increase. In a letter this morning, Consumer Watchdog – which had formally challenged the rate increase as unjustified – called on Insurance Commissioner Ricardo Lara to meet with the organization to discuss the importance of enforcing rights of consumer participation in the rate review process. Major auto insurance companies are now demanding rate increases, even though many have not yet paid refunds to motorists who were overcharged during the pandemic.

Read the letter sent today to Insurance Commissioner Ricardo Lara.

Contrary to its own long-standing procedures, the Department failed to require GEICO to turn over most of the information requested by Consumer Watchdog, which was necessary for its actuary to fully evaluate the proposed rate increase. Instead, the agency abruptly approved the increase late yesterday.

"The Department of Insurance failed to comply with rules and procedures dictated by the voters that authorize public participation in the rate review process to prevent insurance companies from overcharging their customers. The agency's premature approval prohibited Consumer Watchdog from exercising its rights to advocate on behalf of policyholders and forces GEICO customers to pay potentially excessive premiums. Commissioner Lara must step in to protect the public's right to participate in the rate review process," said Daniel L. Sternberg, lead lawyer for Consumer Watchdog in the case.

Moreover, Consumer Watchdog pointed out that the Commissioner's calendar reflected a meeting with Geico on October 27, and stated, "If GEICO urged you to fast track the pending rate increase at that meeting they violated rules prohibiting ex parte communications and undermined the consumer protections adopted by the voters in Proposition 103."

Under California's Proposition 103, insurance companies must 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. This long-standing process ensures that the Commissioner is presented with the views of consumers, the Department, and the company before making his final decision on a rate application.

GEICO requested a $268 million rate increase in the auto insurance premiums its customers pay, saying it needed the money to cover post -pandemic accidents. Consumer Watchdog petitioned for a public hearing in August, noting, among other things, that GEICO may not have fully refunded its customers for overcharges during the pandemic and is continuing an unfairly discriminatory occupation-based rating system charging low-income workers more than higher paid professionals like investment bankers, consultants, surgeons, and attorneys.

Read about Consumer Watchdog's Petition for Hearing and Petition to Intervene challenging GEICO's requested rate hike.

The Department has long recognized that Proposition 103 gives consumer groups who challenge excessive rates through the rate review process an equal chance to scrutinize companies' data backing up proposed increases. In this case, GEICO, the Department and Consumer Watchdog agreed last week to a schedule for GEICO to provide Consumer Watchdog with the information it requested pursuant to Proposition 103. Two days after that agreement, the Department reversed course. GEICO refused to provide most of the data and information requested by Consumer Watchdog and the Department approved the increase yesterday without requiring GEICO to produce the information.

Voter-approved Proposition 103 prohibits the Department from approving rates that are excessive, inadequate, or unfairly discriminatory. Auto insurance premiums must be based primarily on three mandatory factors – driving safety record, annual mileage, and years driving experience, and other optional factors adopted by regulation. Education and occupation are not approved rating factors.