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Commissioner Lara Should Reject Farmers’ Auto Insurance Rate Hikes and Stop Surcharges Aimed At COVID-19 First Responders and Emergency Workers, Says Consumer Watchdog

Tue, 03/31/2020 - 11:15
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Insurance contract

Los Angeles, CA – Insurance Commissioner Ricardo Lara should reject Farmers Insurance Group’s proposed 6.5–6.9% auto insurance rate increases and its 3-tiered rating system based on occupation under which first responders and essential workers on the front lines of the battle against COVID-19 pay higher rates, wrote Consumer Watchdog in a letter to the Commissioner today. Farmers’ request comes as a deadly pandemic sweeps California, for which virtually every California business has been ordered to close and residents ordered to stay home.

Under Farmers’ proposed rates, grocery clerks, delivery drivers, janitors, and warehouse workers will see their auto insurance rates increase by another 6.9% – on top of a 6.9% rate hike approved in December 2019 that took effect March 10. Farmers’ request also includes a 6.8% rate hike on police officers, firefighters, nurses, and other emergency workers – our coronavirus first responders.

“The last thing Californians should have to worry about when they are trying to keep themselves, their families, and the community safe during the COVID-19 pandemic is whether their auto insurance rates are going up,” said Consumer Watchdog staff attorney Daniel L. Sternberg. “These are the very workers that can least afford to pay higher premiums, especially during the current COVID-19 pandemic.”  

“The Commissioner needs to use his voter-enacted authority under Proposition 103 to protect Californians from unnecessary rate increases in the middle of a pandemic. Parked cars and grounded drivers cannot get into car accidents. Farmers and other auto insurance companies are pocketing the savings,” said Sternberg.

Low-income and minority drivers, many of whom are the first responders and emergency workers keeping us safe during the COVID-19 pandemic, are paying the highest rates at 7 of the top 10 insurance companies, including Farmers.

Farmers’ own data suggests that it could lower its present rates by 5–17% under the minimum permitted premium established by the Proposition 103 ratemaking formula.

Read Consumer Watchdog’s letter to the Commissioner.

Farmers’ proposed rate increases are on top of another overall rate hike of 6.9% for all its customers that took effect barely three weeks ago on March 10, 2020. At the same time, Farmers proposes maintaining its unfairly discriminatory rate surcharges of up to 14% between groupings of its customers based solely on occupation. Under Farmers’ 3-tierd rating system, police officers, firefighters, and nurses in its “Business and Professional Group II” pay up to 7% more for their auto insurance than engineers and accountants in its “Business and Professional Group I.” All other Farmers customers, including those in lower wage occupations such as janitors, grocery clerks, delivery drivers, and warehouse workers, pay up to 14% more than engineers and accountants in Group I for all coverages combined, all other characteristics being equal.

Low-income drivers who can least afford it should not have to pay more based solely on their occupation, which has never been approved by regulation as a lawful rating factor under Proposition 103, said Consumer Watchdog. Farmers’ unfairly discriminatory 3-tiered occupational rating system means lower income and less-educated drivers continue to pay the highest premiums based solely on their occupation.

Farmers’ own rate analysis shows that its current rates are providing ample revenue – meaning another rate hike is not necessary. And that calculation does not take into account the windfall accruing to insurance companies every day that California motorists are sheltering in place and not driving their vehicles.  

Under Proposition 103 if an insurance company seeks a rate increase that exceeds 7%, and the application is challenged by the public, the Department must hold a hearing. In its letter to the Commissioner, Consumer Watchdog said Farmers’ serial rate increase requests that fall just below the 7% threshold make it appear as if Farmers is gaming the rate application process in order to avoid a public hearing.

Consumer Watchdog and 10 community and civil rights organizations challenged auto insurers’ illegal and discriminatory use of job and education to set rates in February 2019. In September 2019, a Department of Insurance investigation confirmed those concerns, finding “wide socioeconomic disparities” created by insurance companies surcharging California drivers based on nothing more than their occupation or educational status. In December, the Department proposed rules to address this unfair discrimination. However, those rules have not yet been implemented.

The Department’s analysis of industry data shows that drivers in the highest per capita income ZIP codes are more than twice as likely to receive occupational-based discounts than drivers in the lowest per capita income ZIP codes; and only 29% of drivers in predominately minority ZIP codes receive such discounts as compared with 47% of drivers living in ZIP codes with a predominately white population. In addition, 75% of drivers in Underserved Communities as defined by Department of Insurance regulation do not receive these discounts.

Voter-approved Proposition 103 requires auto insurance premiums be based primarily on three mandatory factors – driving safety record, annual mileage, and years driving experience – and prohibits unfairly discriminatory rates. Proposition 103 prohibits this kind of unfair rate discrimination based on income or race.

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