Insurance coverage trade teams have referred to as it a “bomb-throwing bogus advocacy” group, a “publicity-seeking, darkish cash entrance,” and a company out to guard its personal “monetary $elf-interest$.”
These are the sorts of assaults that Harvey Rosenfield and Shopper Watchdog, the advocacy group he based almost 40 years in the past, have come to anticipate.
However within the final 12 months, as dwelling insurers have stopped writing new insurance policies and retreated from components of the state susceptible to wildfire, a brand new voice has joined the ranks of critics who say Rosenfield and Co. are making issues worse: California’s elected insurance coverage commissioner, Ricardo Lara, whose workplace has referred to as Shopper Watchdog an entrenched curiosity group “defending its personal piggy financial institution.”
If attacking a public advocacy group looks like an odd stance for an elected official, it’s made even odder by the truth that Lara wouldn’t have his job if it weren’t for Shopper Watchdog.
To grasp the meat, it’s good to perceive Proposition 103, a California regulation governing the insurance coverage trade.
The marketing campaign for that poll measure in 1988 was one of many first missions of Shopper Watchdog, which shaped within the wake of Ralph Nader’s success in spurring new client regulation.
That proposition, which Rosenfield helped write, enacted a number of the most stringent insurance coverage trade regulation within the nation. First, it created the workplace of an elected insurance coverage commissioner to move the state Division of Insurance coverage. Any time an insurance coverage firm seeks to boost costs, Proposition 103 requires that the agency apply to the commissioner for prior approval.
The objective, in response to the textual content of the act, is to offer transparency into the insurance coverage market and forestall insurers from charging policyholders “extreme, insufficient or unfairly discriminatory” charges.
Practically 35 years after Proposition 103 went into impact, Californians pay much less for auto and residential insurance coverage than most People, with the state rating among the many backside half of states for costs in each classes. However insurers say that lengthy processing instances for fee will increase, amongst different rules, have made it tough to do enterprise within the state as inflation and wildfire dangers are on the rise.
One particular criticism of Shopper Watchdog revolves round a singular proviso of Proposition 103. The regulation permits public teams similar to Shopper Watchdog to intervene in an insurance coverage firm’s utility for a fee improve and argue — alongside the Division of Insurance coverage — for what the final word worth ought to be.
When teams similar to Shopper Watchdog intervene, Proposition 103 stipulates that they’ll receives a commission for his or her efforts. After paying the intervening teams, insurance coverage firms wind up passing these charges alongside to shoppers. Insurance coverage firms argue that this gives Shopper Watchdog and others a perverse incentive to show each fee submitting right into a battle with the intention to receives a commission their charges.
“No different state has this type of public participation and scrutiny constructed into the regulatory course of, which is why Prop 103 is their No. 1 goal,” Rosenfield mentioned. “It drives them nuts.”
“It comes all the way down to the cash, proper?” mentioned Carmen Balber, Shopper Watchdog’s govt director. “Because of the intervenor course of, shoppers pay much less for his or her dwelling and auto insurance coverage than they might in any other case, and the trade has sought to claw again these earnings for many years now.”
There was friction between the insurance coverage trade and client teams for many years, however issues have just lately began to boil over.
The American Property Casualty Insurance coverage Assn., the nation’s largest insurance coverage lobbying group, in late 2023 bankrolled a web site attacking Shopper Watchdog . Representatives of the Insurance coverage Info Institute and the Private Insurance coverage Federation of California commonly opine to reporters that Rosenfield, Balber and Shopper Watchdog President Jamie Court docket, are wrenches within the underwriting equipment.
“The trade goes after Shopper Watchdog more durable than regular,” mentioned Patrick Sullivan, senior editor of insurance coverage trade publication Danger Info. And the feud between the group and the Division of Insurance coverage retains escalating. “I’ve by no means seen the connection degrade to the purpose it’s at now,” Sullivan mentioned.
The trade teams have been pushing for adjustments in Sacramento and on the Division of Insurance coverage — and on the shut of final 12 months’s legislative session, noticed some ends in the types of guarantees to loosen rules.
Lara, the state’s insurance coverage commissioner, has had a rocky relationship with Shopper Watchdog from the beginning. After he pledged to not settle for marketing campaign funds from insurers in his first run for the workplace in 2018, a San Diego Union-Tribune investigation revealed that Lara had accepted a whole bunch of 1000’s of {dollars} in marketing campaign contributions from folks and corporations with ties to the insurance coverage trade. Shopper Watchdog filed a public data request for communications between Lara’s division and the insurance coverage firms linked to the donations, after which sued the commissioner for allegedly failing to reply to the request in full. The group misplaced its preliminary lawsuit, however is continuous to battle it within the state Courts of Attraction.
Since then, the group has accused Lara’s workplace of ramming by means of fee will increase with out ample evaluate or alternative for public enter, and referred to as his plans to alter rules with the objective of bringing extra insurers again to the state market a “sham.”
Lara, in flip, famous in a information convention saying his proposed reforms that “bombastic statements from entrenched curiosity teams” assist nobody, and that “one entity can unreasonably extend fee filings” whereas “materially benefiting from a course of that’s meant for broader public participation.”
Michael Soller, the Division of Insurance coverage’s spokesperson, is much less coy in regards to the “entity” in query. After Shopper Watchdog accused Lara of putting a secret cope with insurance coverage firms within the fall, Soller put out an announcement saying that the group’s “cynical claims cover the reality that [it] has earned thousands and thousands of {dollars} signing off on fee will increase — whereas denying the truth that insurance coverage has grow to be unattainable for some Californians to search out at any worth.” He added that the group “is popping a blind eye to shoppers’ wants whereas defending its personal insurance coverage piggy financial institution.”
Sure, they’re a giant ache, however that’s their job.
— Rep. John Garamendi, describing Shopper Watchdog
Though different client teams similar to United Policyholders and the Shopper Federation of California have taken a extra measured method, Rosenfield has been blunt. “A commissioner extra disposed to guard the trade has come alongside,” Rosenfield mentioned. “Finally, there’s accountability for that inside our system of democracy.”
“He’s type of out just a little bit on his personal on this by way of opposing what Lara’s doing,” mentioned Sullivan of Danger Info.
More and more, Shopper Watchdog is among the solely client advocates even collaborating within the Proposition 103 course of. Within the early days of the regime, half a dozen or so main client teams had been prepared to enter the fray. However over time, the pool of devoted teams with the sources to battle lengthy regulatory battles and solely receives a commission months (and generally years) after their work begins, has dwindled to a handful. Now state data present that 75% of the time, if there’s an intervening entity in a fee submitting, it’s Shopper Watchdog.
That is the place the accusation of self-interest involves bear. Since Rosenfield helped write Proposition 103, he additionally wrote within the payment mechanism that pays his wage at Shopper Watchdog. In keeping with critics, that quantities to self-dealing on the shoppers’ expense.
State data present that over the past 20 years, the group has been paid $11.6 million in charges by the state for its interventions in fee filings, or a median of $575,000 every year. Proposition 103 isn’t Shopper Watchdog’s solely coverage focus, neither is it the group’s solely income. Shopper Watchdog introduced in $3.75 million in income in 2022 from donations, grants and different sources, in response to public filings.
For that $11.6 million Proposition 103 payout, the group has been occasion to saving shoppers $5.51 billion within the final 20 years, in response to an evaluation produced by Shopper Watchdog. Within the final 5 years, Shopper Watchdog says its actions have contributed to $2.1 billion in financial savings for Californians. The group arrived at these figures by evaluating the greenback worth of fee will increase that insurance coverage firms sought within the final 22 years in opposition to the ultimate quantity they obtained when Shopper Watchdog challenged their request.
Within the final two years, when Shopper Watchdog intervened in an organization’s request to boost its charges, the ultimate end result for ratepayers ended up 38% decrease than what the businesses requested for dwelling insurance coverage, and 29% decrease for auto insurance coverage, on common. When Shopper Watchdog didn’t enter the fray, the ultimate quantity permitted by the state insurance coverage division was solely 2-3% decrease than what firms requested on common, in response to the report.
Soller of the insurance coverage division calls these numbers “deeply flawed.”
“Based mostly on our evaluate, their claims are extremely inflated,” Soller wrote in an announcement. “They in contrast the quantity initially requested by the insurance coverage firm to the quantity permitted, with no accounting for what the division’s function was in that three-party negotiation.”
In different phrases, it’s unattainable to attribute all of these financial savings to the group’s intervention as a result of state insurance coverage regulators in all probability would have argued down the businesses’ requests by itself.
However the scale of California’s insurance coverage market means even small concessions can have a giant impact on ratepayers. If Shopper Watchdog’s interventions contributed 0.3% of these $5.2 billion that insurance coverage charges have been pushed downward, then the group has saved Californians thousands and thousands greater than it’s been paid in charges.
Rep. John Garamendi (D-Walnut Grove), who served because the state’s first and fourth elected insurance coverage commissioner, finds the makes an attempt to discredit Shopper Watchdog disturbing, if not stunning.
“Sure, they’re a giant ache, however that’s their job,” Garamendi mentioned. “These organizations are completely important within the technique of a rational insurance coverage market, with premiums which are pretty priced, insurance policies which are clearly understood and written, claims which are paid.”
“It has nothing to do with the issues within the state,” Sullivan mentioned. “They’re combating amongst themselves over little or no — it isn’t the intervenor course of inflicting the lengthy delay instances” which are on the root of the trade’s issues with the regulatory system.
The basic downside, in response to trade teams and observers, is that fee filings typically take a 12 months or extra to work their manner by means of the system, which may result in a punishing lag between prices and revenues for insurers.
Many insurers are nonetheless limiting the variety of new insurance policies they write in California. If adjustments do come, it could take many months, and possibly years, earlier than they might ripple by means of to insurance policies and alter insurers’ enterprise choices about working within the state, Sullivan mentioned.
Commissioner Lara is hiring extra workers and altering submitting guidelines with the objective of dashing up the method. His workplace additionally plans to roll out new guidelines that would enable insurance coverage firms to lock in greater costs additional upfront, by permitting them to make use of algorithmic modeling to set greater costs for wildfire threat zones and go by means of a number of the prices of reinsurance — insurance coverage insurance policies that insurance coverage firms themselves purchase to cowl their very own losses.
Shopper Watchdog, in a shock to nobody, has some sturdy opinions about Lara’s plans.