California regulator issues rules for rate hikes

The California Department of Insurance responded on August 9 to the critics changes to the FAIR state assurance “of last resort” and its efforts to review insurance company rate proposals, with a the 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 change request review and approval times in ways that are beneficial to consumers, the Department and the insurance market.” CDI also stated that it will create a data reconciliation tool to verify insurance companies’ rate requests.

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

• When an insurer requests a rate change, CDI must review the request within 60 days.
• If more time is needed to communicate about outstanding issues in the application or to obtain more information, up to two additional 30-day extensions may be granted. Notices of such extensions and issues in question should be distributed to the insurance company and any intervenor participating in the rate change consideration. (Intervenors are consumer advocacy groups or individuals who are authorized to participate in rate change discussions.)
• After two 30-day extensions, CDI will provide the insurance company and interveners with a calculation of an estimated rate in accordance 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, it would have 10 days to accept or reject CDI’s proposed rate.
• Also, with these rate change thresholds for which an insurer has requested, an intervenor has requested a hearing, the insurer still has the same 10 days to decide on the CDI rate. However, the insurer must have the intervener’s written consent before implementing an accepted rate. Otherwise, the insurance company cannot implement the CDI tariff.

The provisions in CDI’s bulletin are similar to those in a “bill” that the California state legislature has been trying to pass in late 2023, said Carmen Balber, executive director of Consumer Watchdog. “Trailer Bills” in California are budget bills proposed after the state’s main budget, usually targeting specific actions or policy priorities.

Consumer Watchdog responded to the CDI bulletin proposal with the following objections:

• It reduces consumer voice in rate increases below 7% by preventing public participation before a rate increase is approved.
• It requires the insurance commissioner to make rate decisions based on incomplete information.
• It encourages insurers to request three 7% increases each year to avoid public hearings.