SACRAMENTO, Calif. — California’s homeowners insurance market is in crisis. What – or whom – to blame can devolve into finger-pointing.
In a first-of-its-kind fight spilling out onto the pages of publicly available documents, the insurance industry is pointing at Consumer Watchdog, a consumer group that often intervenes in companies’ requests to raise rates, saying these interventions have stoked the current crisis. Consumer Watchdog says it's fighting to keep rates affordable for customers.
Passed narrowly by 51.13% of voters in 1988, Prop 103 requires insurers to get permission from the California Department of Insurance (CDI) before raising rates. It simultaneously established the intervenor process, for when a person or consumer group believes an insurer’s requested rate hike is unjustifiably high.
“Today, Consumer Watchdog’s legal team and advocates scrutinize all major rate hike proposals made by auto and home insurers in California and play an integral role in many of the regulatory actions enacted by the California Department of Insurance,” Consumer Watchdog’s website says.
The author of Prop 103 and one of its biggest champions is a man named Harvey Rosenfield, who founded Consumer Watchdog and is involved with the nonprofit to this day.
PAID TO INTERVENE IN RATE-HIKE REQUESTS
Prop 103 allows an intervenor to get reimbursed by the insurance company in whose rate filing it intervenes if CDI determines their intervention led to a “substantial contribution” to the proceedings.
Since Consumer Watchdog is, by far, the most frequent user of the intervenor process, critics say its interventions not only slow the rate approval process - keeping premiums artificially low and hurting the market - but also are money-grabs for the organization.
In the 11 years between the start of 2013 and end of 2023, according to CDI data, Consumer Watchdog intervened in more than 70 rate proceedings resulting in compensation. In a recent public document (pg. 38), the nonprofit said more than 42% of its funding comes from intervenor and attorney fees, though Consumer Watchdog executive director Carmen Balber points out some comes from other litigation, not just from Prop 103-related challenges.
Figures on CDI’s website show Consumer Watchdog was compensated a total of more than $10.6 million across those 11 years – an average of nearly $1 million per year, most of which comes from insurers but some coming from CDI itself, through its Prop 103 Fund. Consumer Watchdog points out it’s not pocketing everything; a portion of the money goes to pay outside attorneys and experts – all in pursuit of fighting for fair insurance rates for Californians, it says.
“More than half of that money ends up going out-of-house,” said Balber, adding it’s because the organization has paid an outside actuary and, on occasion, outside attorneys and subject matter experts in the course of filing challenges to requested rate increases.
UNPRECEDENTED CHALLENGE
But now Consumer Watchdog’s ability to make money off the intervenor process is in jeopardy. The organization is facing a contentious and unprecedented challenge to its ability to seek compensation.
Every two years, intervenors have to reapply with the state for eligibility to seek compensation. Over the past dozen years, there have been just nine different intervenors eligible to seek compensation, according to CDI’s website, with Consumer Watchdog being the most frequent and consistent intervenor. Balber said Consumer Watchdog is currently waiting on requests for compensation totaling more than $1 million. She said this is why more people and groups don’t intervene: many “don’t have the capacity to carry that much sit-and-wait” cost.
This year, Consumer Watchdog submitted its eligibility application on June 3. Instead of approving it, as CDI has always done in the past, the department published a notice – something Balber said the department has never done before. The notice called for comments on Consumer Watchdog’s pending Request for Eligibility, including “Whether or not Requester represents the interest of consumers.”
“Part of our strategy for fixing California’s insurance crisis has been looking at our long-standing practices and making them clearer and more transparent,” CDI spokesperson Gabriel Sanchez told ABC10. “This is the Department holding all parties to the rate filing process accountable, including intervenors. We are holding hearings and inviting public input in all areas. We don’t want the intervenor process to continue to be a black box.”
For Insurance Commissioner Ricardo Lara to invite the public to weigh in on whether Consumer Watchdog represents the interest of consumers “is, frankly, pretty outrageous,” Balber told ABC10.
“It is not up to the industry to decide whether a consumer group represents the interests of consumers, and a finding of eligibility certainly does not hinge on whether the insurance companies or the Department agree with a consumer group’s positions,” Consumer Watchdog said in a brief, responding to public comments.
THE FIGHT GOES PUBLIC
For years, insurers have chafed at Consumer Watchdog’s interventions in the rate proceedings, saying it prolongs the approval process and results in lower-than-needed rate increases. For its part, Consumer Watchdog says it has saved consumers more than $6 billion since 2002, between auto and home insurance.
Now the spat is out in the open, with five insurance groups submitting letters in opposition to Consumer Watchdog’s continued eligibility. Sixteen consumer advocacy groups have come out in support of the nonprofit.
Consumer Watchdog “takes pride in mindlessly pushing for absurdly low rates that degrade the ability of insurers to serve all consumers,” the Personal Insurance Federation of California wrote. “After taking credit for pushing rates lower and triggering the inevitable market constriction, they attempt to blame insurers for being unwilling to operate at a loss…They thrive on conflict and paralysis – all with an eye towards maximizing the billing opportunities.”
The nonprofit calls this an attack on its right to challenge unjustified rate hikes.
“Consumer Watchdog has previously been confirmed as a consumer representative by the Department of Insurance 15 times, including in 2022 by Insurance Commissioner Ricardo Lara…No previous commissioner has ever sought industry opinions on who represents consumers,” Consumer Watchdog wrote in a news release Monday, calling on CDI “to stop erecting roadblocks to public oversight and confirm the organization’s eligibility to challenge excessive insurance rates and abusive practices on behalf of consumers without further delay.”
CDI tells ABC10 anyone can participate in the intervenor process, but they cannot seek compensation unless the department grants them eligibility to do so.
“The original language of Prop 103 literally allows for consumer participation in any proceeding before the Department so Consumer Watchdog’s opposition to this public participation and having to respond to such public participation is baffling,” CDI’s Gabriel Sanchez said. “As the primary intervenor that has significantly, monetarily benefitted from a system of public participation it created, it doesn’t make sense that Consumer Watchdog opposes answering questions regarding how it represents consumers when they seek eligibility for compensation as an intervenor in the Department’s ratemaking process.”
The American Property Casualty Insurance Association (APCIA) took issue with Consumer Watchdog’s assertion it has saved consumers more than $6 billion in the past 22 years, saying it “rests on several flawed assumptions.”
In a June 12 letter, APCIA said – in part – Consumer Watchdog “assumes intervention in a rate proceeding always benefits consumers, without accounting for delays, added costs to the system, and resulting market deterioration…assumes it is always better for rates to be approved at amounts lower than requested without regard to insurer solvency and the impact that inadequate rate can have on insurance availability.”
In the past several years, seven of the state’s largest home insurers have paused or limited business in the state, citing an increased risk of wildfires and other natural disasters due to climate change, the rising cost of home-rebuilding materials and cumbersome state regulations barring companies from raising rates quickly and adequately enough, only in part due to the intervenor process.
As a result, hundreds of thousands of homeowners statewide have found themselves with sharply rising premiums, at best, or getting dropped by their insurer and having no other option but to turn to the expensive, bare-bones ‘insurer of last resort,’ the California FAIR Plan. In response, Insurance Commissioner Ricardo Lara unveiled his Sustainable Insurance Strategy back in September, as ABC10 has reported on – an overhaul of the state’s insurance regulations, with an implementation deadline of the end of 2024.
Fellow consumer advocacy groups say Consumer Watchdog’s work is a vital part of determining fair insurer rate increases.
In a collective letter to Commissioner Lara, 14 such groups wrote, “Prop 103 created the public intervenor process to give consumers a voice in rate oversight, to provide the Commissioner with a diversity of perspectives and expertise, and to act as a check on the Department when the Commissioner is not exercising their own power in consumers’ interests.”
They said the insurance industry wants intervenors out of the ratemaking process.
“The only purpose for soliciting such comments, and threatening an unauthorized hearing on such objections, is to provide the insurance industry a forum to further its specious, self-serving complaints to keep consumer organizations from objecting to their unjustified rate hikes or advocating for stronger consumer protection regulations,” the letter says. “The best way to give insurance companies more power is to allow them to decide who can challenge their rates and practices.”
Balber worries Lara has been walking increasingly in lockstep with insurance companies in the past few years and says this is why the public needs an independent voice more than ever.
CDI says its regulation of the insurance industry remains steadfast.
“Commissioner Lara is doing things differently. Doing the same things for the past 30 years in the wake of climate change has resulted in the insurance crisis we have today,” Sanchez said. “Under his leadership, the Department of Insurance’s experts will not rubber stamp any part of the rate regulation process. This requires the Department to examine and hold all parties to the rate filing process accountable, including intervenors.”
Consumer Watchdog submitted a response Thursday to the comments opposing its eligibility.
Insurance Commissioner Ricardo Lara says he will decide on the matter by Aug. 2 or determine whether a hearing is necessary.
For more ABC10 news and weather coverage on your time, stream ABC10+ on your TV for free:
► Roku - click here
► Amazon Fire - click here
► Apple TV - click here
WATCH MORE ON ABC10: California Insurance Commissioner answers homeowners questions, talks possible reforms
