State Farm and Allstate want to block judge’s decision on rate increases

CALIFORNIA – Consumer Watchdog announced, November 15, that State Farm, Allstate and insurance lobbyists want to block an administrative judge’s decision on rate increases.

California Department of Insurance Chief Administrative Law Judge (CALJ) Kristin I. Rosi’s ruling focuses on how rate increases were approved without proper judicial oversight, as required by Proposition 103.

Rosi demands for procedural adherence to ensure fairness and transparency.

“Neutral judges are a central principle of the rule of law, which is why the voters intended that administrative law judges oversee how rates are set under Proposition 103 to prevent political interference,” said Consumer Watchdog founder and author of Proposition 103 Harvey Rosenfield.

State Farm’s income of $436 million not consistent with large rate increase

In an October ruling, Rosi identified an instance where State Farm submitted an application for an excessive rate increase.

State Farm sought a 28.1% rate increase to its Homeowner Program line, in February 2023.

Consumer Watchdog intervened on behalf of the public and petitioned the court stating the proposed rate change was excessive.

“The Petition raised a number of issues. Specifically, Consumer Watchdog noted that State Farm’s net income in 2021 of $436 million, which was more than 20% of premium, was not consistent with the large rate increase being proposed, but instead would be consistent with a rate decrease,” said Rosi in the court document.

State Farm and Consumer Watchdog eventually reached a settlement.

They agreed to an overall rate increase of 20%, however, Rosi said the settlement was not submitted to an administrative law judge for a proposed decision on its fundamental fairness.

According to Consumer Watchdog, CALJ rulings – in six separate rate cases – confirm that the commissioner’s staff, insurance companies, and consumer groups that challenge excessive rates or unlawful practices must present an agreement on a rate change to the administrative judges, for their initial review.

State Farm says judge wants to take over commissioner’s authority

In a court filing dated November 12, State Farm requested California Department of Insurance (CDI) commissioner Ricardo Lara to reject the judge’s decision stating Rosi seeks to usurp the Commissioner’s authority to approve submitted rate applications.

“An Administrative Law Judge cannot wield the Commissioner’s executive power,” said State Farm in the court filing.

Allstate said in their court filing that the decision questions the longstanding guidance followed for decades by insurers and consumer intervenors that encourages parties to settle rate disputes without the burden and cost of formal adjudicatory proceedings.

The two major insurance companies along with four insurance industry Sacramento lobbying firms request the commissioner to reverse the chief judge.

Prop 103 ensures consumer protections

Proposition 103 is a California law passed in 1988 that requires insurance companies to get state approval before changing rates and ensures consumer protections against unfair pricing.

It also allows public challenges to proposed rates and mandates that the insurance commissioner is elected to oversee the process.

Consumer Watchdog says the CALJ’s rulings come as Lara has proposed new regulations based on proposals by the insurance industry that will cause insurance rates to skyrocket for home, renter, auto and small business insurance.