Consumer Watchdog accuses insurance industry of collusion for refusing new homeowners policies

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CALIFORNIA – Consumer Watchdog issued a letter, September 5, to California Attorney General Rob Bonta, urging an investigation into whether insurance companies are colluding with each other to force higher prices, in violation of California law. 

“Insurance companies doing business in California are orchestrating shortages to pressure state officials to boost insurance premiums and authorize a massive bailout of the insurance industry that will likely cost Californians billions,” says the Consumer Watchdog letter.

The letter goes on to state that an agreement among competitors to withdraw from a market in order to command higher prices constitutes a group boycott in violation of both state and federal antitrust laws. 

No new policies

This year, State Farm, Farmers, Allstate, GEICO, Berkshire Hathaway, Mercury, USAA – and others – have announced their decision to refuse to sell new policies.

Allstate previously said that the cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums.

However, the Consumer Watchdog letter notes that California home insurers’ annual profits have been four times the national average over the last twenty years. They say this negates the insurer’ contention that market withdrawals are necessary due to the 2017-2018 wildfires they say wiped out all the profits made in 25 years. 

Goal of Collusion

According to Consumer Watchdog, insurance company executives have insisted to the Insurance Commissioner and the staff of the California Department of Insurance (CDI) that they must have immediate rate increases.

“This would not be the first time the insurance industry has colluded to create shortages in the marketplace in order to undermine California law and public policy. In 1988, the industry targeted Proposition 103, which was on the California ballot in the November election,” states the Consumer Watchdog Letter.

Proposition 103 helps protect California consumers and keep insurance prices reasonable.

The letter goes on to state that on the morning of the election, the insurance companies filed a lawsuit before the California Supreme Court challenging the constitutionality of Proposition 103. The report, Collusion and Market Power in the Insurance Industry, explains that the insurance industry knew that “the success of their lawsuit would be aided by a mass withdrawal, creating a crisis in which insurance would become unavailable.”

RELATED: Allstate confirms no new CA home insurance following State Farm’s announcement last week

After a 2-year investigation, California Attorney General John Van de Kamp concluded that insurance companies colluded in their unsuccessful attempt to pressure the California Supreme Court, through what he called the “Proposition 103 Boycott.” 

Call for Investigation

Consumer Watchdog says the insurance industry is executing the final steps of its plan to instigate and coordinate shortages in California’s insurance markets for its financial benefit.

They are calling for an investigation including subpoenas to and depositions of insurance company executives, lobbyists, and any state officials who have been working with the insurance industry. 

To read the Consumer Watchdog letter visit https://consumerwatchdog.org/wp-content/uploads/2023/09/2023-9-5-Consumer-Watchdog-Letter-to-AG-Bonta.pdf

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