California insurance regulator issues rules for rate increases

The California Department of Insurance responded August 9 to criticisms of its changes to the state’s FAIR plan insurance “of last resort” and its efforts to review insurance companies rate proposals, with a bulletin of new provisions to enforce insurance law and regulations.

In an accompanying statement, CDI said its efforts will “increase the transparency and speed of rate change application review and approval times in ways that are beneficial to consumers, the Department, and the insurance market.” CDI also stated it will create a data reconciliation tool as a check on insurance companies’ rate applications.

Ricardo Lara, California Insurance Commissioner.

The statement emphasized that CDI commissioner Ricardo Lara is holding all parties accountable for meeting the requirements of Prop. 103, a 1988 referendum meant to protect consumers from arbitrary insurance rates and practices. The bulletin includes these provisions:

When an insurer applies for a rate change, CDI must review the application within 60 days.If more time is needed to communicate about unresolved issues in the application or get more information, up to two additional 30-day extensions may be granted. Notices about such extensions and issues in question should be shared with the insurance company and any intervenor participating in the consideration of the rate change. [Intervenors are consumer advocacy groups or individuals who are certified to participate in rate change discussions.]After two 30-day extensions, CDI will provide the insurance company and intervenors with a calculation of an estimated rate compliant with Prop. 103. If the insurance company sought a rate change of 7% or less for personal lines, or 15% or less for commercial lines, they would have 10 days to accept or reject the CDI-proposed rate.Also, with these thresholds for rate changes an insurer has applied for, an intervenor requested a hearing, the insurer still has the same 10 days to decide on CDI’s rate. However, the insurer must have written consent from the intervenor before implementing an accepted rate. Otherwise, the insurance company cannot implement CDI’s rate.

The provisions in CDI’s bulletin are similar to those in a “trailer bill” the California state legislature tried to pass in late 2023, stated Carmen Balber, executive director of Consumer Watchdog. “Trailer bills” in California are budget bills proposed after the state’s main budget, usually aimed at specific policy actions or priorities.

Consumer Watchdog responded to CDI’s bulletin proposal with these objections:

It curtails consumers’ voice in rate increases below 7%, preventing public participation before a rate increase is approved.Requires the insurance commissioner to make rate decisions based on incomplete information.Encourages insurers to apply for three 7% increases each year to avoid public hearings.