The action, involving regional insurer Erie Insurance, highlights how the company has created incentives and disincentives for agents to selectively and subjectively choose consumers in a manner that is intended to reduce Erie’s business and discourage policies in mostly Black and Hispanic neighborhoods.

Some background: Based in Pennsylvania, Erie Insurance is a $15.29 billion insurer that sells auto, homeowners, business, and life insurance through a network of independent insurance agents. It has over 6 million policies and operates in twelve states, including Maryland. Erie markets itself as offering policies that are often cheaper than those of other insurance companies. According to reporting, the company has somewhat loose underwriting standards that should make it easier for customers to qualify for coverage, but the company relies on its agents to make subjective decisions about who gets coverage in order to keep its loss ratio from getting too high. (An insurer’s loss ratio is the relationship between the claims it pays out and the premiums it collects. The higher the loss ratio, the lower the insurance company’s profits).

Recently independent agents in Maryland accused Erie of punishing them for selling insurance policies to Black and Hispanic consumers, most of whom lived in dense areas of cities like Baltimore. Erie claimed that these areas were too risky to insure. Baltimore agent Bj Borden stated that “they [Erie] had us create separate guidelines to weed out some of the people they didn’t want us to write in inner cities.” He stated that over several years, Erie managers punished him for selling policies to Black consumers in Baltimore by docking his commissions and threatening to cancel his sales contract. Other agents reported similar behavior and abuse from the company, indicating that it didn’t want Black or Hispanic people as customers.

One of Erie’s practices is called “frontline underwriting”—essentially, insurance agents have to determine, often based on subjective factors, whether a consumer is risky and should be insured. Agents evaluate a consumer and are supposed to decide if they are honest and reliable, and can be trusted to pay their premiums. This method of underwriting is especially vulnerable to unfair bias and racism, because it isn’t based on fixed data points.

Concerned by these agent reports, the Maryland Insurance Administration (MIA, Maryland’s state agency in charge of overseeing the state’s insurance market and, among other things, preventing unfair discrimination) started investigating these accusations. And in May 2023 the MIA issued four public determination letters where they found that Erie terminated its agreements with insurance agents because they were writing policies in certain areas. In the letters, MIA concluded that Erie adopted practices “designed to target agencies writing business in urban areas and to reduce the volume of business being written in those areas.” MIA also ordered Erie to pay the agents compensation that was improperly withheld.

How did Erie respond to this investigation? By digging in its heels and refusing to admit responsibility. The company filed a lawsuit against Maryland insurance regulators in federal court, claiming that the regulators made confidential business information public. This isn’t the first time Erie has been accused of racist and unfair discrimination. Federal authorities in New York and Pennsylvania accused the company of redlining—but Erie only faced minor fines as a result. But the MIA is now conducting a broader review of Erie’s underwriting methods to see if there is additional unfair bias. If it finds additional bias, Erie could face substantial penalties and have to undertake major reforms.

Insurance costs are expensive and even unaffordable for many consumers, and in certain communities it is almost impossible to get insurance. In the past, insurance companies engaged in redlining, where they would not provide insurance to communities because of the race, color, or national origin of residents in those communities. Black neighborhoods in Baltimore were especially affected by this behavior, which widened the wealth gap. Since Black and Hispanic consumers couldn’t easily get loans or insurance, they missed out on many opportunities to build wealth and accumulate equity. Anti-discrimination laws have formally banned these practices but Erie’s behavior shows how it used punitive actions against agents to achieve the same, unacceptable ends.

The MIA must, of course, continue to pursue and defend its actions to hold Erie accountable; it should consider revoking Erie’s license to do business in the state of Maryland. The Maryland findings should also be a wake-up call to other state regulators in whose jurisdiction Erie operates. And it should be a reminder that there is a lot of work to be done and investigations to be pursued if regulators and policymakers take the problem of racial discrimination in insurance markets seriously.

The post Insurance Companies Frequently Prefer Certain Customers Over Others. That Often Results in Racist Discrimination appeared first on Consumer Federation of America.

According to August’s Consumer Price Index, auto insurance costs are up 19% compared to 2022. Meanwhile, six of the major insurance company CEOs each received over twelve million dollars in compensation in 2022, and in total, these ten insurance executives were paid over $130 million in 2022. The two-year haul of these ten CEOs amounted to more than a quarter billion dollars ($253,493,931) between 2021 and 2022.

“CEOs are living high on the hog while increasing insurance premiums for people living paycheck to paycheck,” said Michael DeLong, CFA’s Research and Advocacy Associate. “Insurers are telling regulators that ordinary consumers have to pay much more for auto and home insurance because the companies are struggling with inflation and climate change, but they are quietly handing CEOs gigantic bonuses. Drivers are required to buy auto insurance and homeowners have to buy coverage to satisfy their loan requirements, so there needs to be more scrutiny of the rate hikes companies are demanding and the huge CEO paydays that are funded with customer premiums.”

The chart below shows insurance executive compensation paid for both 2021 and 2022. The data come from Nebraska’s Department of Insurance, which requires insurance companies by law to provide information about the salaries, bonuses, and other compensation of their top officials. Since the data reported to the Department may exclude compensation paid to the executives by affiliated companies, it is possible that the compensation figures below underrepresent what the executives actually earned.

These exorbitant compensation packages for insurance executives come as the companies impose punishing charges on their customers and employees. For example:

• While Farmers’ executive Jeff Dailey got a nearly $2 million raise in 2022, his company increased homeowners insurance premiums by over $575 million across 42 states, limited its availability in the company’s home state of California, stopped renewing almost a third of its homeowners insurance policies in Florida, and laid off 11% of its workforce.
• Liberty Mutual paid its CEO David Long over $15 million in 2022—and recently increased its homeowners insurance rates by $729.8 million.
• State Farm paid its CEO Michael Tipsord over $24 million while hiking auto insurance rates in its home state of Illinois four times in a single year, increasing auto rates by 17% in Louisiana, and raising homeowners insurance rates by 28.1% in California while also halting new California applications for homeowners insurance.

[1] 2021 compensation to Kirt Walker is inferred from filings with the California Department of Insurance in which the Nationwide discloses the compensation of its five highest paid executives. The filings (for example, California SERFF# NWPP-133468845) do not name the executives, so the total compensation to the highest paid executive of the Nationwide insurance group is presumed to be Mr. Walker in this table.

[2] The data on Progressive’s 2022 executive compensation come from its 10-K report to the Securities and Exchange Commission, which is available here: https://www.sec.gov/ix?doc=/Archives/edgar/data/80661/000008066123000017/pgr-20230327.htm#i8fa803af503545f28c651644ccb9491b_184.

The post As Insurance Rates Skyrocket, Executives Pull in Millions appeared first on Consumer Federation of America.

“On average, a consumer with poor credit has to pay twice as much for auto insurance as a driver with excellent credit, even if everything else, including their driving safety history, are the same,” said Douglas Heller, CFA’s Director of Insurance and the study’s co-author. “Not only is this unfair to safe drivers, because of longstanding and institutional biases, the use of credit history for insurance pricing leads to disproportionately higher premiums for lower-income drivers and people of color.”

The report found that nationwide, American consumers with clean driving records and excellent credit pay an average annual premium of $470 for state-mandated auto insurance. But consumers with fair credit pay an average premium of $701—with the same driving record. And good drivers with poor credit pay an average premium of $1,012—a $542 or 115% increase compared to drivers with excellent credit.

“Your auto insurance premium should be based on your driving record, not your credit score,” said co-author Michael DeLong, CFA’s Research and Advocacy Associate. “You shouldn’t have to pay more in premiums because of a factor unrelated to your driving, and as long as companies are allowed to use credit this way, millions of safe drivers in America are being overcharged for their auto insurance.”

The overwhelming majority of auto insurers practice this discrimination. Only California, Hawaii, and Massachusetts prohibit the use of credit information in auto insurance pricing. In Florida, consumers with poor credit pay 143% more than drivers with excellent credit for auto insurance. In Minnesota, consumers with poor credit pay 172% higher premiums. Michigan consumers with poor credit pay 263% more for auto insurance, with an average statewide premium of $2,667, and in many ZIP codes across the country, consumers with poor credit pay even more just to comply with their state’s mandatory insurance law.

Evidence also shows that insurers, on average, consider credit information a more important rating factor than a consumer’s driving record. In most states, consumers with perfect driving records and poor credit pay more for auto insurance than drivers with a conviction of driving under the influence of alcohol.

The report concludes that state governments should put consumers first and ban the use of credit information in auto insurance. States should also devote more resources to analyzing rate filings, reject rate filings that unfairly discriminate based on credit information, and enact reforms to combat unfair discrimination and bias in information, data models, and algorithms that insurers use.

The post Report Details Severe Credit Score Penalties in Auto Insurance appeared first on Consumer Federation of America.

The post The One Hundred Percent Penalty: How Auto Insurers’ Use of Credit Information Increases Premiums for Safe Drivers and Perpetuates Racial Inequality appeared first on Consumer Federation of America.

The Revolving Door: How a Florida Insurance Commissioner is Going on a Lucrative Career as an Insurance Lobbyist — Likely at the Expense of Consumers

Rock n’ Play Recall Demonstrates How Secrecy Provision of Law Hides Product Dangers from Consumers

Group Letter to Chairman Gensler Spotlights Climate Risks in Private Markets

In the Face of FDA Inaction on Harmful Food Dyes, California Offers Hope of Protecting Consumers

By: Thomas Gremillion, Director of Food Policy

For far too many parents, navigating the food system feels like traversing a minefield. CFA is working to address one source of this anxiety: artificial dyes.

For decades, researchers have suspected that several artificial dyes contribute to hyperactivity and attention deficit disorder in children. These suspicions were recently confirmed by the California Office of Environmental Health Hazard Assessment. After comprehensively and systematically reviewing the evidence, the agency concluded in 2021 that several dyes “cause or exacerbate neurobehavioral problems in some children.” Specifically, the agency’s report fingers the color additives FD&C Blue No. 1, FD&C Blue No. 2, FD&C Green No. 3, FD&C Red No. 3, FD&C Red No. 40, FD&C Yellow No. 5, and FD&C Yellow No. 6.

Last year, CFA joined consumer advocacy partners in petitioning the California Department of Public Health (CDPH) to require a warning label on dye-containing foods and supplements to alert consumers about the adverse effects these dyes have on children’s neurobehavior. Earlier this month, I testified with other petitioner representatives, and experts including toxicologists, epidemiologists, and pediatricians, at a public hearing that CDPH held on the group’s petition. We sought to counter industry trade groups’ and paid consultants’ arguments against acting on the science.

One common argument was that these dyes are safe because the U.S. Food and Drug Administration (FDA) has approved them, and FDA is the expert. However, FDA’s approval of these dyes happened in the 80s or even earlier, before the dawn of the personal computer, never mind the genetic analysis technologies that have shed light on why food dyes appear to cause hyperactivity in some children, and even appear to have as large an effect on children’s behavior as lead does on children’s IQ.

Industry has argued that FDA’s ongoing market surveillance should suffice to ensure public protections against these food dyes remain up-to-date. However, FDA’s market surveillance of the harms caused by these dyes has let consumers down, in part because FDA is underfunded and under resourced. The entire FDA Office of Food Additives Safety—responsible for regulating more than 10,000 chemicals in food and a multi-billion-dollar industry—has just over 100 full-time technical staff. And it does not currently have a director.

According to a 2013 study of over 4,000 chemicals purposely added to food such as flavors, preservatives, and sweeteners, less than 22% had sufficient data to estimate how much is safe to eat, and less than 7% were tested for developmental or reproductive effects. FDA may not even know that a chemical is in the food supply, thanks to the Generally Recognized as Safe (GRAS) process, under which food companies have been allowed to determine themselves that over a thousand food chemicals are Generally Recognized as Safe.

Unfortunately, FDA is not going to stand up for consumers on food dyes, but California can. And one big reason for doing so is to establish a level playing field for companies that want to do the right thing. A few years ago, several large companies including General Mills, Kellogg, and Mars made bold pledges to remove artificial colors from their products, but most of them have not followed through. And no wonder! If a company’s competitors can save money and otherwise take advantage of using these chemicals, it’s hard to make the business case for change.

In Europe, public health authorities have required a warning label on most dyed foods for 15 years. The experience of many leading U.S. companies “across the pond” shows that reformulating foods to remove dyes is feasible and economical. If we arm American consumers with accurate information about food dye harms, we can be confident that it will move the market on this issue just as it has in Europe. Consumers have a right to make educated choices about what foods they purchase and consume. If the FDA can’t stand up to protect consumers, particularly young children, from harmful food dyes, then individual state public health departments should. California, CFA urges you to lead by example and put consumers first.

The Revolving Door: How a Florida Insurance Commissioner is Going on to a Lucrative Career as an Insurance Lobbyist — Likely at the Expense of Consumers

By: Michael DeLong, Insurance Research Advocate

The fifty-one state Insurance Departments are responsible for regulating insurance, protecting consumers, and making sure that insurance rates are not excessive, inadequate, or unfairly discriminatory. Some commissioners are determined to help consumers. Others, less so. Some regulators seem to treat their time in government as a slow-moving job interview for a high-paying positions within the insurance industry. They exit their Department of Insurance through the “revolving door” that connects the agency with the industry, taking lucrative jobs as lobbyists or “government affairs” executives in the insurance sector after they leave their public post.

As the doors are revolving, we also see former industry staff moving into the public agencies as well. The problem is not just limited to the Commissioners—top-level insurance department staff also pass through too often, and it can result in an unhealthy relationship between the insurance industry and the departments that are supposed to oversee them. Not surprisingly, the revolving door can undermine consumer protection and enforcement of the laws. If an Insurance Commissioner plans to get a job at an insurance company after they leave office, they may avoid taking actions that would upset that company. Regulators may even take actions or make decisions enabling them to cash in later, when they join insurance companies that they have regulated. Insurance companies, in turn, hire former Commissioners and regulators to gain personal access to government officials, to seek favorable legislation and regulations, and to get inside information on what Insurance Departments are doing.

A recent poster child of this phenomenon is former Florida Insurance Commissioner David Altmaier, who abruptly resigned late last year to join an insurance lobbying firm.  For fourteen years, Altmaier worked in the Florida Office of Insurance Regulation (OIR), and from 2016 to 2022 he was Florida’s Insurance Commissioner, a period marked by hostility to consumer advocates and consumer protection, and, as his last year concluded, the extraordinary lapse in regulatory oversight of insurers that were low-balling and defrauding policyholders dealing with Hurricane Ian claims.

In late 2022, Altmaier urged the Florida legislature to pass sweeping law changes, claiming that they would stabilize Florida’s troubled property insurance market. The Florida legislature held a short special legislative session in 2022 and enacted these reforms, which created a new layer of reinsurance funded by the state, banned one-way attorneys’ fees in insurance claims litigation, and made it harder for policyholders to bring litigation against insurers.

In a December 2022 letter to Governor Ron DeSantis, Altmaier praised these new laws and wrote that “we have worked with the Florida Legislature to meet historic challenges with historic reforms.” But some observers were more skeptical, doubting that the reform would reduce property insurance costs. In a Twitter post, Florida House Democratic spokesman Jackson Peel asked, “What do you think will be announced first: The next insurance company leaves Florida’s collapsing market or his new high paying job in the insurance industry?”

The answer was the latter, with a slight twist: Altmaier obtained a high paying job at a lobbying firm, as a lobbyist, excuse me, “advocate,”  for the insurance industry. His new is quite explicit about the value of the revolving door: “I leverage over a decade of experience to help insurance and insurance-adjacent entities navigate the complex world of regulation and regulatory policy.”

In that same letter mentioned earlier, Altmaier submitted his resignation, which took effect on December 28^th, 2022—only a couple of weeks later. Why did he depart so quickly? Because on January 1^st, 2023, a new anti-lobbying law took effect. Before then, former Florida agency heads (including former Insurance Commissioners) would be banned from lobbying for two years, and this law extended that lobbying ban to six years. By resigning before the law became operational, Altmaier could avoid this extended ban.

And in March 2023, Altmaier announced that he had a plum new job: he would be joining the Southern Group, the top-earning lobbying firm in Florida. Florida Politics reported that Altmaier “will be utilizing his network of contacts to build a national insurance advisory practice.” Insurance Journal reported that the former Commissioner “will be ‘an extraordinary effective advocate’ at a time that insurance companies need those skills the most.” With no sense of irony or impropriety, the Southern Group’s website announces that “Today, the sharp lines between government, business, and constituencies have blurred.”

In his new job, Altmaier is taking advantage of another loophole in Florida’s anti-lobbying law. The law bans Florida agency heads from lobbying their former agencies—but not from lobbying Florida legislators. Altmaier’s salary is not listed. But we suspect that his new position is quite a bit more lucrative than his old position as Florida Insurance Commissioner.

To summarize: former Florida Insurance Commissioner David Altmaier, in charge of regulating insurance and safeguarding consumers, abruptly resigned from his job, where he was hostile to consumers and cozy with the insurance industry. And not even three months later, he joined Florida’s largest lobbying firm to advocate for insurance companies by using his former contacts and knowledge. This case is a perfect example of the revolving door, where some insurance regulators move seamlessly from public service to very profitable lobbying and influence-peddling.

We invite Florida’s new Insurance Commissioner, Michael Yaworsky, to chart a different path and pledge not to work for the insurance industry when his time at the agency ends.

Rock n’ Play Recall Demonstrates How Secrecy Provision of Law Hides Product Dangers from Consumers

By: Courtney Griffin, Director of Consumer Product Safety

The Consumer Product Safety Commission continues to find recalled Rock n’ Play sleepers listed for sale on Facebook Marketplace, despite representations from Meta, Facebook Marketplace’s owner, that it would take steps to prevent the re-sell of recalled products on its platform.  In his second letter to Mark Zuckerberg, CEO of Meta, CPSC Chair Alex Hoehn-Saric once again urged Meta to do more to stop the illegal sale of recalled consumer products.

In another letter to Mattel and its subsidiary Fisher-Price, Hoehn-Saric also urged the company to take additional steps to protect babies from the hazards posed by recalled Rock n’ Play infant sleepers.  Hoehn-Saric called on the company to announce the recall again and do more to remove Rock n’ Play sleepers from the resell market and homes. According to the CPSC, the average listed price of a Rock n’ Play sleeper on the secondary market is $25, more than what some consumers will receive if they act on the recall.

The CPSC issued a recall on Rock n’ Play sleepers in April 2019 and again in January 2023 because of poor results.  The sleeper has been linked to the deaths of almost 100 infants, with at least 8 occurring after Fisher-Price recalled the product. In a letter to members of Congress in March 2023, Fisher-Price stated that it has “completed more than 465,000 cumulative corrections related to recalled Rock n’ Play sleepers, including product in manufacturer inventory, retailer inventory, and with consumers.”  This amounts to less than 10% of the 4.7 million recalled Rock n’ Play sleepers.

In addition to highlighting how easy it is to purchase dangerous recalled products, the Rock n’ Play saga also demonstrates how dangerous products flood the market because of the unique restrictions that govern the CPSC’s public disclosure of information.  Section 6(b), 15 U.S.C. § 2055(b), a provision of the Consumer Product Safety Act (CPSA), prohibits the CPSC from disclosing information about a consumer product that identifies a manufacturer or private labeler unless the CPSC has taken “reasonable steps” to assure that the information is accurate, the disclosure is fair and reasonably related to effectuating the purposes of the CPSC.  As such, the CPSC must provide the manufacturer or private labeler with an opportunity to comment on the accuracy of the information, and the CPSC may not disclose such information for at least 15 days after sending it to the company for comment.  The reality, however, is that the process between the CPSC and manufacturers or private labelers often takes many years before the information can be disclosed to the public.

In the case of the Rock n’ Play, it remained on the market for a decade despite infant deaths tied to the product.  The CPSC issued an alert in May 2018 regarding “infant deaths associated with inclined sleep products,” but did not identify specific products in a way that was helpful for most caregivers.  However, it was an accidental disclosure of information that prompted the events leading to the Rock n’ Play’s recall.  While reviewing data it requested from the CPSC, Consumer Reports found several infant fatalities linked to the Rock n’ Play and similar products.  Under section 6(b) that data should have been redacted but the agency had made a mistake and released the information to Consumer Reports.  By the April 2019 recall, approximately 4.7 million Rock n’ Play sleepers had flooded the market.

Recently the CPSC issued a Supplemental Notice of Proposed Rulemaking to update the regulation interpreting section 6(b).  The Supplemental Notice of Proposed Rulemaking did not in any way repeal or significantly alter the main restrictions of section 6(b), but the proposed changes would streamline and modernize the regulation interpreting the statute.  CFA submitted public comments supporting the minor changes, but stated that repeal of section 6(b) is necessary to promote consumer safety and transparency.

Senator Richard Blumenthal (D-CT) and Representative Jan Schakowsky (D-IL) reintroduced the Sunshine in Product Safety Act in March 2023. In a related press release, Senator Blumenthal said: “This measure removes the regulatory straight jacket that deprives consumers of vital product safety information. Current regulatory requirements give companies the right to veto vital CPSC warnings and deny the truth to consumers. By repealing Section 6(b), our measure would free the CPSC to swiftly warn the public about hazardous products and require companies to put people ahead of profits.”

In the same press release Congresswoman Schakowsky said, “Section 6(b) of the Consumer Product Safety Act prevents the Consumer Product Safety Commission (CPSC) from telling the public about potentially dangerous products without the company’s permission. Simply put, it protects companies over consumers. This cannot stand.” 

Blumenthal and Schakowsky previously introduced the Sunshine in Product Safety Act in April 2021 after reports that Peloton obstructed the CPSC’s investigation following injuries and a child’s death.

CFA strongly supports the Sunshine in Product Safety Act, stating in the bill’s press release: “It is time for Congress to stop allowing companies to put the lives of consumers, especially our most vulnerable, in danger.  We applaud Senator Blumenthal and Congresswoman Schakowsky for valuing transparency and the lives of consumers by introducing the Sunshine in Product Safety Act. It is past time to repeal the gag order that is Section 6(b) and allow the Consumer Product Safety Commission to do its life-saving work to the best of its ability.”

Caregivers have an expectation that the products they purchase, especially products for babies and children, are safe.  Yet the CPSC cannot share critical, sometimes life-saving information.  CFA and other product safety advocates support the Sunshine in Product Safety Act for this reason.  It is important that we let our elected officials know that companies should not be able to hide or delay critical safety information.  Consumers deserve timely information about the potential hazards in their homes and babies deserve to sleep in safe products. It is imperative that Congress passes the Sunshine in Product Safety Act to protect consumers.

Group Letter to Chairman Gensler Spotlights Climate Risks in Private Markets

By: Dylan Bruce, Financial Services Counsel

On April 4, a diverse group of organizations, including investor protection and shareholder advocates, climate advocates, and businesses, wrote to Securities and Exchange Commission Chairman Gary Gensler to highlight how private markets contribute to and exacerbate climate-related risks for investors and our financial system and what the Commission must do to meet these growing risks.

Specifically, the letter discusses the troubling and emerging trend of public companies shifting carbon-intensive, “dirty” assets from their balance sheets into private markets, a practice known as “brown spinning.” These transactions, which can effectively remove high emitting assets out of publicly available disclosures and into the shadows of private markets, are increasingly being employed in emissions-intensive industries, often to meet seemingly altruistic climate goals. Regrettably, the net effect is that the climate impacting assets and activities continue unabated while the associated climate-related risks for investors and markets become worse and more difficult to assess. As the letter states, “The ability of private companies to stay dark and of public companies to shift dirty assets into the dark could mean that the overall levels of emissions and climate impacting activities could remain the same, or perhaps even grow. If private markets become a de facto risk repository for the dirtiest assets, then despite the Commission’s best efforts to facilitate relevant climate-related information, investors would remain in the dark about these risks, unable to price these risks effectively or ascertain their true exposure to these risks.”

To address this issue, the letter urges the Commission to take decisive action to limit companies’ ability to hide climate-related risks in private markets and to promote the health and vitality of public markets generally. This can be done in part by reining in the excessive growth of private markets. Accordingly, the SEC should move forward with several regulatory proposals that are currently on the Agency’s agenda, including updating the Accredited Investor definition, making modest changes to the Regulation D framework, and making long overdue changes to Section 12(g) of the Exchange Act. The letter observes that “these updates would stem the growth of private markets and encourage companies to go public, where they would be subject to public disclosure requirements, including disclosure of their climate- and other Environmental, Social, and Governance-related risks.”

Unless the structural problems that allow companies to effectively hide dirty assets in private markets are addressed, “the Commission’s efforts to improve climate disclosures [for public issuers] will, at best, be a partial success, leaving a wide swath of investors and our markets vulnerable to the profound risks of climate change, and compounding the unhealthy imbalance between public and private markets that exists today.”

The post CFAnews Update – April 27, 2023 appeared first on Consumer Federation of America.

As the doors are revolving, we also see former industry staff moving into the public agencies as well. The problem is not just limited to the Commissioners—top-level insurance department staff also pass through too often and it can result in an unhealthy relationship between the insurance industry and the departments that are supposed to oversee them. Not surprisingly, the revolving door can undermine consumer protection and enforcement of the laws. If an Insurance Commissioner plans to get a job at an insurance company after they leave office, they may avoid taking actions that would upset that company. Regulators may even take actions or make decisions enabling them to cash in later, when they join insurance companies that they have regulated. Insurance companies, in turn, hire former Commissioners and regulators to gain personal access to government officials, to seek favorable legislation and regulations, and to get inside information on what Insurance Departments are doing.

A recent poster child of this phenomenon is former Florida Insurance Commissioner David Altmaier, who abruptly resigned late last year to join an insurance lobbying firm.  For fourteen years, Altmaier worked in the Florida Office of Insurance Regulation (OIR), and from 2016 to 2022 he was Florida’s Insurance Commissioner, a period marked by hostility to consumer advocates and consumer protection, and, as his last year concluded, the extraordinary lapse in regulatory oversight of insurers that were low-balling and defrauding policyholders dealing with Hurricane Ian claims.

In late 2022, Altmaier urged the Florida legislature to pass sweeping law changes, claiming that they would stabilize Florida’s troubled property insurance market. The Florida legislature held a short special legislative session in 2022 and enacted these reforms, which created a new layer of reinsurance funded by the state, banned one-way attorneys’ fees in insurance claims litigation, and made it harder for policyholders to bring litigation against insurers.

In a December 2022 letter to Governor Ron DeSantis, Altmaier praised these new laws and wrote that “we have worked with the Florida Legislature to meet historic challenges with historic reforms.” But some observers were more skeptical, doubting that the reform would reduce property insurance costs. In a Twitter post, Florida House Democratic spokesman Jackson Peel asked, “What do you think will be announced first: The next insurance company leaves Florida’s collapsing market or his new high paying job in the insurance industry?”

The answer was the latter, with a slight twist: Altmaier obtained a high paying job at a lobbying firm, as a lobbyist, excuse me, “advocate,”  for the insurance industry. His new LinkedIn profile is quite explicit about the value of the revolving door: “I leverage over a decade of experience to help insurance and insurance-adjacent entities navigate the complex world of regulation and regulatory policy.”

In that same letter mentioned earlier, Altmaier submitted his resignation, which took effect on December 28^th, 2022—only a couple of weeks later. Why did he depart so quickly? Because on January 1^st, 2023, a new anti-lobbying law took effect. Before then, former Florida agency heads (including former Insurance Commissioners) would be banned from lobbying for two years, and this law extended that lobbying ban to six years. By resigning before the law became operational, Altmaier could avoid this extended ban.

And in March 2023, Altmaier announced that he had a plum new job: he would be joining the Southern Group, the top-earning lobbying firm in Florida. Florida Politics reported that Altmaier “will be utilizing his network of contacts to build a national insurance advisory practice.” Insurance Journal reported that the former Commissioner will be “’an extraordinary effective advocate’ at a time that insurance companies need those skills the most.” With no sense of irony or impropriety, the Southern Group’s website announces that “Today, the sharp lines between government, business, and constituencies have blurred.”

In his new job, Altmaier is taking advantage of another loophole in Florida’s anti-lobbying law. The law bans Florida agency heads from lobbying their former agencies—but not from lobbying Florida legislators. Altmaier’s salary is not listed. But we suspect that his new position is quite a bit more lucrative than his old position as Florida Insurance Commissioner.

To summarize: former Florida Insurance Commissioner David Altmaier, in charge of regulating insurance and safeguarding consumers, abruptly resigned from his job, where he was hostile to consumers and cozy with the insurance industry. And not even three months later, he joined Florida’s largest lobbying firm to advocate for insurance companies by using his former contacts and knowledge. This case is a perfect example of the revolving door, where some insurance regulators move seamlessly from public service to very profitable lobbying and influence-peddling.

We invite Florida’s new Insurance Commissioner, Michael Yaworsky, to chart a different path and pledge not to work for the insurance industry when his time at the agency ends.

The post The Revolving Door: How A Florida Insurance Commissioner Is Going On to a Lucrative Career as an Insurance Lobbyist—Likely At the Expense of Consumers appeared first on Consumer Federation of America.

A new report by Consumer Federation of America (CFA) and the Center for Justice and Democracy (CJ&D) – INVENTING SOCIAL INFLATION 2023 – details the two key lies in the story industry executives and lobbyists are pitching. When we look at the data, the theorized “social inflation” does not exist and claims payouts by insurers are not skyrocketing. Instead, insurance companies are hyping up this assertion as an excuse to price-gouge businesses and consumers.

In recent years commercial insurance premiums have risen substantially and insurers are pinning the blame on the invented phenomenon of social inflation. This phenomenon, depending upon who is telling the story, stems from:

• #MeToo and child sexual abuse claims
• Lawyer advertising and case funding
• Securities class actions
• Millennials as jurors
• Big verdicts resulting from worsening truck crashes
• Growing number of lawsuits brought by shareholders, especially activists

Despite the new term, we have heard this before. As the CFA/CJ&D report (and the 2019 report it updates) explains, this is all part of the insurance industry’s economic cycle in which companies raise rates, blame the litigation environment for the hikes, push for restrictions on consumer legal rights, and – win or lose those battles – eventually forget about the problem when the economic cycle turns.  This has happened about every 12 to 13 years over the last half century.  The only thing different this time is the name.

Importantly, the basic underlying arguments don’t stand up to scrutiny. CFA and CJ&D reviewed claim and premium data from A.M. Best, which is the largest credit rating agency for insurance companies. Our review found that over the last twenty years, after adjusting for inflation and population growth, insurance claims payments have stayed essentially flat (and for some lines of insurance, payouts have gone down), while premiums have gone up and down in sync with the insurance industry’s economic cycle.

Furthermore, the number of lawsuits against insurance companies has not increased. Before the COVID-19 pandemic, the frequency of cases against insurance companies was flat for the prior three years and in 2019, the average settlement value dropped to the lowest in a decade. During the COVID-19 pandemic, case filings sharply declined, and the number of lawsuits filed in 2022 was even lower than the amount filed during 2021.

When we looked at some of the insurance coverages in which businesses face some of the most severe rate hikes, the data contradict the industry narrative.

For example, insurance companies say that medical malpractice premiums are rising because of growing pressure from lawyers, lawsuits, and jury awards. But, in fact, there has been a substantial decline in medical malpractice lawsuits over the last few years. According to a survey of over 4,300 doctors across 29 specialties conducted from May 21 through August 28, 2021, “U.S. physicians saw a decline in malpractice lawsuits during the pandemic.” But more than 6 in 10 medical groups reported that their doctors’ malpractice premiums went up since 2020, with an average increase of 14.3%.

So, if lawsuits are not driving up claims costs for medical liability insurers, what is? Nothing!  2021 saw the smallest level of claims payments, on an unadjusted basis, in more than a decade and the lowest level, on an adjusted basis, of all 23 years in the dataset.

Truckers hear the same thing. There is a real safety issue in the trucking industry that needs to be addressed, as CJ&D explained in a report last year. The trucking industry’s own studies show that horrifying large truck crashes are increasing while oversight is weakening, and further studies show that too many trucking companies knowingly disregard public safety. But less than 2% of trucking insurance claims turn into lawsuits. And while there are not many large jury verdicts, some are necessary to get a bad company’s attention and to alert an industry that reckless disregard for public safety will not be tolerated. And when you evaluate the data, claim payments on commercial auto policies (including those that cover long-haul truckers) are up about 34% over the last decade, but the premiums charged have increased by about 70%.  That disconnect is evidence that insurance company greed is the real inflationary pressure facing policyholders.

For fifty years, businesses and consumers have been the victims of periodic eruptions in insurance premiums, and insurers try to convince people that lawsuits and juries, or “social inflation,” are to blame. But historical data and our new report show that this has never been true, and it is not true today. Insurance costs are not going up because of large jury verdicts, frivolous lawsuits, or because Millennials are sympathetic to consumers and biased against large corporations. Instead, insurance premiums are rising because of insurer avarice, mismanagement, and inefficiencies. All the while, the insurance industry sits on a mountain of surplus cash and invests millions in lobbying campaigns to tame the chimerical social inflation by trying to squelch the ability to file lawsuits against them, and to reduce any payouts they would have to make if they are found liable.

The only way to stop these premium hikes is through better oversight and regulation of the industry and stronger consumer protections. Policymakers and regulators should reject insurance industry propaganda and focus on increasing industry accountability in order to better protect American businesses, nonprofits, and other consumers.

The post Unpacking the Insurance Industry’s “Social Inflation” Lie appeared first on Consumer Federation of America.

• In 2015, we found that in the densest urban communities, the average premium in predominantly African-American ZIP codes was 60% higher than the average premium in equally dense predominantly white urban ZIP codes.
• In 2018, CFA detailed racial and economic disparities in auto insurance pricing along adjacent ZIP codes.
• Between 2020 and 2022, the New York Times reported a series of stories of unfair treatment of Black customers in the claims handling process.

However, the industry has long denied even the possibility that institutional bias affects insurance markets and has fought reform efforts at every turn, usually claiming that (notwithstanding CFA’s research) there is no evidence of racially biased outcomes in the insurance market. And that leads us to the important work that is percolating in a few insurance departments around the country (and the need for other state regulators to start testing these insurance industry arguments).

The District of Columbia Department of Insurance, Securities, and Banking is expected to issue a data call requiring insurance companies to provide information on their underwriting, rating, and claims payments that could shed light on the nature and extent of unintentional bias in the auto insurance market. The Department is working with the algorithm auditors at ORCAA, founded by Weapons of Math Destruction author Cathy O’Neil, to conduct the review.

The call will collect information on the following topics:

• Insurance quotes—whether certain people or groups of people are being quoted higher prices
• Underwriting decisions—whether certain groups are more likely to be rejected for coverage, or given more expensive insurance options
• Premiums—whether certain people or groups are paying higher premiums
• Loss ratio—whether certain groups are getting unfairly charged higher premiums compared to the insurance losses they sustain

Why should consumers care about this? Because discrimination and racism are rampant in auto insurance, but so far auto insurance companies have fought hard against transparency and accountability. For years consumer advocates and racial justice groups have called for investigations of bias and discrimination in insurance. Consumer Federation of America’s investigations have found considerable bias in auto insurance premiums. Moreover, bias doesn’t have to be explicit to harm consumers. An algorithm or practice can be unintentionally biased if it uses bad data, which can result in Black consumers paying higher premiums or being unable to get affordable insurance at all. And the Department’s data call will not only allow us to look at the whole auto insurance market in Washington D.C., but determine how serious the abuse is and decide what to do about it.

While CFA offered some important suggestions for improving the data call, we applaud the Department’s efforts to collect data on unintentional bias in auto insurance, and to determine how to reduce this bias. This data call is a sign that the District of Columbia insurance regulators, like the Colorado Division of Insurance which is developing rules for bias testing of the state’s insurance companies, are taking on the challenge of rooting out the legacy of structural racism and other institutional biases from the insurance market.

Consumer Federation of America submitted comments on how the D.C. data call can be made even better. First, the Department could use the standardized data request that the National Association of Insurance Commissioners developed to collect information, which will make the process simpler and more familiar to the insurance companies when they report data. Second, the Department should collect information about various socioeconomic factors that auto insurance companies use in their business models that (according to CFA’s research) often lead to unfair discrimination against certain classes of consumers. These factors include:

• Someone’s education level (whether they graduated from high school or college);
• Employment status and their job/occupation;
• Homeownership status (whether they own or rent their home);
• Credit information (auto insurers charge people much higher premiums to safe drivers who have fair or poor credit) ;
• Whether their car was purchased new or used; and
• Whether they previously bought minimum insurance coverage or a more robust policy, among others.

Additionally, the Department should collect information about whether insurance claims were flagged for further investigations due to potential fraud, and whether that results in unfair bias.

Finally, we urged the Department to ask insurance companies if any of their divisions maintain information about the race, ethnicity, or national origin of their consumers, and if they do have that information, to provide it. The Department is using an analysis known as BISG (Bayesian Improved Surname and Geocoding) to match demographic data to the insurance data, which is considered an effective and useful way to conduct this type of analysis. However, if insurers – for example, in their marketing divisions – have precise data on the race of their customers, it would allow for an even more precise analysis of the biases in their pricing and practices.

We’ll continue advocating in support of the D.C. and Colorado regulators’ efforts to identify and reform the systems that lead to or exhibit unfair discrimination and bias in the insurance industry. But American consumers need more than two regulators working to fix this problem; there are 49 other state insurance commissioners that need to be challenging insurers in their states to eliminate the unfair and costly impacts of both internal and systemic biases in the insurance system.

The post What Might a Concerned Regulator Do About Systemic and Unintentional Biases in Insurance Markets? Collect and Test the Data appeared first on Consumer Federation of America.

Ferguson told reporters that he had opened an investigation into auto insurers’ use of consumer credit history in pricing and selling insurance. In response, PEMCO Mutual Insurance Company and Progressive Insurance filed a lawsuit in court, attempting to secretly quash this investigation. But a Thurston County Superior Court judge rejected this attempt—and the insurers’ effort to block the investigation wound up making it public!

The Attorney General also commented that unfair and discriminatory business practices are illegal and “that significant evidence shows that using credit history to price insurance disproportionately affects people of color.” He cited past studies on this by the Consumer Federation of America (CFA) and concluded, “My office has a responsibility to investigate race discrimination against Washingtonians. I intend to do that.”

Auto insurers use many non-driving related factors to unfairly discriminate against consumers and charge them higher premiums. One of the worst factors is someone’s credit history, which results in people paying far more for auto insurance and disproportionately harms Black and Latino consumers.

Last year CFA conducted a study of auto insurance in Washington State and found the following startling examples of unfair discrimination based on someone’s credit history. Washington consumers with poor credit paid, on average 79%, or $370 more, for auto insurance than consumers with excellent credit, even if both sets of consumers had a perfect driving record.

Progressive charged its consumers a more significant penalty. People with excellent credit paid an average of $311 for auto insurance, while people with poor credit paid $648—108% more!

And PEMCO charged consumers even greater credit penalties! On average, PEMCO consumers with fair credit paid 68% higher premiums, and consumers with poor credit wound up paying 183% higher premiums, almost three times more! It is important to remember that these drivers had a perfect driving record, with no tickets, crashes, or claims filed. Consumers should not be paying such outrageously high premiums—your auto insurance premium should be based on your driving behavior, not your credit history.

However, it gets worse: because of past and present discrimination, Black consumers are less likely to have access to financial services and more likely to have poor credit. Using information from the U.S. Census Bureau 2018 American Community Survey, we found that Black consumers are more likely to have a credit score below 620, meaning they experience a significant penalty. 5.4% of white consumers have a credit score below 620, but 21.3% of Black consumers have a credit score below that threshold. And Black consumers have an average credit score of 677, significantly lower than the average credit score of 734 for white consumers.

As a result, when insurance companies discriminate against consumers and charge them higher premiums based on their credit, this discrimination disproportionately harms Black consumers and perpetuates systemic racism. They often have to pay more for auto insurance even though they often earn less. And this is the case not just in Washington State, but in every state that allows auto insurers to use someone’s credit history.

But the situation gets even worse! After the Washington State Attorney General’s office opened an investigation into potential racial discrimination against drivers in general, and the use of credit histories in particular, PEMCO and Progressive decided to thwart the investigation secretly. The companies didn’t stand up and provide evidence that their using credit history wasn’t harming Black consumers, because the evidence was overwhelming. Instead, they did something far more shameful. They filed a secret court case in an effort to block the Attorney General from even gathering information. Instead of being honest with their policyholders and the general public, PEMCO and Progressive turned to the judicial equivalent of the “smoke-filled room.”

Thankfully the court slapped down the insurers’ attempt. Consumers need all the information about insurance that they can get. And since Washington State requires drivers to purchase and maintain insurance, regulators (including the Attorney General’s Office) have a responsibility to ensure that insurance is affordable and that consumers don’t encounter unfair discrimination. When consumers can’t afford auto insurance, they either can’t drive at all and are forced rely on public transportation, or they drive without insurance, breaking the law and putting themselves at risk of getting fined, having their car impounded, or going to jail.

The Washington State Attorney General’s investigation of auto insurers for potential race discrimination, especially based on credit history, is a welcome development. We look forward to seeing what the investigation finds—and the secretive attempts by PEMCO and Progressive suggest that where there’s smoke, there’s fire.

Anyone with information about PEMCO’s or Progressive’s use of credit history in auto insurance, or racial discrimination, especially people who think that this use has resulted in them being discriminated against, should contact the Attorney General’s Office at AutoInsurance@atg.wa.gov.

The post Insurance Companies Fail to Quash Investigation of Possible Racial Discrimination Against Washington Drivers appeared first on Consumer Federation of America.

“When auto insurers price drivers based on their credit history, people of color tend to pay more because of systemic bias and discrimination in our nation,” said Douglas Heller, CFA’s Director of Insurance. “The Attorney General’s investigation of racial discrimination in this market is especially important because Washington law requires all drivers to buy car insurance. Our research found that consumers with poor credit pay 79% more on average than excellent credit customers, even if the lower-credit driver has a perfect driving record. Some insurance companies charge credit-based penalties on the order of 185% surcharge on safe drivers.

“The attempt by at least two insurers to stop Attorney General Ferguson from investigating the relationship between the use of credit and drivers’ race or ethnicity suggests that these companies are concerned about what will be uncovered. Of course, the Attorney General should be allowed to investigate business practices that appear to disproportionately harm consumers based on their race or ethnicity, and he should bring legal action against any company violating Washington law. The use of credit scoring, which impacts not only insurance pricing but also marketing and claims handling, has been a tool of unfair discrimination in the insurance market for many years, and we look forward to the findings from the Attorney General’s investigation.”

The post Washington State Attorney General Investigating Possible Racial Discrimination Due to Auto Insurers’ Use of Credit Scores appeared first on Consumer Federation of America.

Consumers and regulators should keep a sharp eye out for problems and insurer misbehavior in the storm’s wake. While there will inevitably be many unique challenges and frustrations for Floridians in the wake of Ian, an overarching concern lies with a not-always-simple question: Water or wind? That is, was the damage to a home caused by flood waters, including tidal surges, or was it caused by hurricane winds and falling rain?

This will doubtless prove to be a billion-dollar question, because any damage caused by floods requires a home to have separate flood coverage. Additionally, some insurers have tried to impose so-called “anti-concurrent causation” clauses that claim to allow them to deny a claim for wind damage if a house also sustained flood damage. While these provisions should not apply in the wake of Ian, some insurers may aim to deny claims under this anti-consumer theory.

Many central Florida homes in counties affected by Ian did not have separate flood insurance, and inland areas that experienced massive rainfall and resulting flooding were not prepared. Flooding caused by Ian stretched far beyond the Federal Emergency Management Administration’s (FEMA) designated flood zones. Consumers without flood insurance can still get assistance from FEMA and other programs, but FEMA’s payments are capped at $38,000, which likely only covers part of the damage. Additionally, some families who do have flood insurance are discovering that it won’t cover all of their damages, since federal flood payouts for a single-family home are capped at $250,000. As a result, many consumers will struggle to recover from Ian.

Another concern to watch out for is insurance companies trying to take advantage of their (very conflicted) role as not only the adjuster of the home insurance policy but also the organizations responsible for making flood claims decisions for those customers who do have a National Flood Insurance Policy. This becomes an opportunity for serious fraud by insurers that try to avoid paying out claims by shifting the burden to flood insurance, even if the damage was caused by wind and other causes. After Hurricane Katrina, State Farm defrauded consumers and the federal government by pushing many of their claims to federal flood insurance when they should have been paid by private wind insurance. Consumers sued and won, and State Farm recently agreed to pay the federal government $100 million in restitution. Insurers may attempt similar schemes regarding claims from Ian. State insurance regulators and FEMA should carefully monitor claims to ensure that insurers aren’t cheating consumers and taxpayers by shifting state wind insurance claims to flood insurance.

The Florida Office of Insurance Regulation (OIR) and the South Carolina Department of Insurance should closely monitor insurers and investigate consumer complaints and reports of bad behavior. Some insurance companies resort to all sorts of unscrupulous methods to unfairly delay or deny valid claims. These methods range from intentionally confusing and obscure contracts to misleading people about their rights to simply delaying or low-balling claims in the hopes that consumers will get discouraged and give up or settle for lower payouts. The OIR should create a public-facing online tool that reports how each insurer is doing in terms of meeting important claims handling benchmarks – including the number of claims filed, the number of claims with partial payment, the number of claims closed with payment, the number of claims closed without payment, and the number of claims pending. The Florida Office of Insurance Regulation posted data on the first batch of insurance claims from Ian, which showed almost $474 million in losses. While that’s helpful, a company-by-company detailing of their responsiveness will go a lot further in terms of keeping consumers informed and holding insurers accountable.

CFA, in its recent tips for consumers, recommends that consumers with property insurance and damaged homes take the following steps:

• Contact your insurance company and report your claim as quickly as possible. Depending on the damage to your home, your claim may be covered by wind insurance or flood insurance, or both. Keep your claim number in a safe place—it is the most prompt way for insurance companies to locate your claim.
• Document damage in photos and videos as thoroughly as possible, but only to the extent that it is safe to do so. Do not climb up on the roof—leave that to the professionals! And do not allow damaged items to be removed before they have been photo-documented.
• Keep a daily journal, noting each time you speak or meet with insurance company adjusters, repair pros, or anyone you are considering hiring. Note their name and the date and time of the contact.
• Keep receipts for every cost you incur; this includes hotel and food costs when you evacuate, any alternative living arrangement costs if you cannot return to your home, and anything you spend on making initial repairs to your home to prevent further damage. This may be covered under your home or private flood insurance policy. Temporary living expenses are not covered under National Flood Insurance Program (NFIP) policies.
• Check references and license status before you agree to hire or assign any of your insurance benefits to any professional. Post-disaster scams are common. Local help is preferable but if not available, be careful vetting out-of-the-area pros before you sign on the dotted line.
• Contact your Insurance Department or FEMA if you run into problems. Contact information is below. And if you are being treated poorly by your insurer, do not hesitate to file a consumer complaint.

Florida Office of Insurance Regulation
1-877-693-5236
200 E Gaines St, Tallahassee, FL 32399
Consumer.Services@myfloridacfo.com
File a complaint: https://apps.fldfs.com/eService/Newrequest.aspx

South Carolina Department of Insurance
803-737-6180
1201 Main St #1000, Columbia, SC 29201
consumers@doi.sc.gov
File a complaint: https://sbs.naic.org/solar-web/pages/public/onlineComplaintForm/onlineComplaintForm.jsf?state=SC&dswid=3785

Federal Emergency Management Agency
1-800-427-4661
500 C St SW, Washington, DC 20024
https://www.fema.gov/about/contact

The post Consumer Tips: How to Get Your Payments from Insurance Companies and Hold Them Accountable appeared first on Consumer Federation of America.

Progressive calls these high-value customers the Robinsons. The Robinsons represent households who own their home and car and bundle their homeowners and auto insurance with the same company. An even more ideal Robinson household for Progressive would have multiple vehicles and drivers.

Progressive considers these customers extremely profitable for several reasons:

1. The company believes they tend to remain with their insurance companies for a long time, with 45% of Robinsons having been with their insurer for eleven years or more.
2. Many Robinsons (41% according to J.D. Power’s auto insurance survey) select their insurance company in order to bundle homeowners insurance and auto insurance, so they purchase additional products.
3. Progressive has already designed and streamlined its quoting system for these bundles, in order to attract Robinsons and make their shopping and signing up as quick and painless as possible.
4. 53% of Robinsons intend to renew their insurance policies with their current company, a much higher percentage than any other category of consumers.

For Progressive, the Robinsons are its ideal insurance customers and the company devotes significant time and effort enticing them to purchase policies. Insurance Journal notes that “they all represent the ideal scenario for lifetime value;” i.e., the total worth to an insurer of a customer over the whole period of their relationship. Progressive and other companies know that it is easier and cost effective to keep existing customers than to acquire new ones. Therefore Progressive goes to extreme lengths to specifically enroll the Robinsons, offering them discounted auto rates to begin a relationship, then encouraging them to bundle that initial policy with their homeowners insurance, and then suggesting additional policies and products.

If Progressive can successfully recruit the Robinsons, entice them to bundle their policies and is able to keep them happy and loyal, the Robinsons will wind up paying auto and homeowners insurance premiums to Progressive for years. If the Robinsons are wealthy, that opens up even more opportunities for products such as life insurance, a second home, a motorcycle, an RV or even boat insurance. These ideal customers are the foundation of Progressive’s profits since they tend to remain loyal, their premiums can go up year after year, and they buy more than one policy.

If, however, you are not a Robinson, Progressive will adopt a less favorable attitude, considering you of lower value. The Wrights are similar to the Robinsons except they do not bundle their insurance policies, and so aren’t as loyal or lucrative. Below them are the Dianes, who rent their homes instead of owning them, and have auto insurance and other products. And finally there are the Sams, who only have auto insurance. These customers are more inclined to shop around for different products and less inclined to remain with one company. The Wright families renew their policies with the company at a rate of 45%, and the Dianes and Sams are sensitive to price increases. So if Progressive increases the premiums for these customers, it runs the risk that they will investigate other insurance companies and switch to them if those companies offer better deals. Progressive prefers not to invest in serving the type of customers who are too price-sensitive to buy more and more coverage or to stick around when rates rise.

Progressive values customers who stick with them for a long period of time and who buy multiple products, and so the insurance company lavishes attention on their Robinsons. But the other customers that are savvier or that buy fewer products are considered less important and deserving of less attention. What Progressive blurted out during its finance call serves as a reminder that while the insurers present their good neighbor faces in the advertisements, they are not out there to make friends: they will track you, classify you, and slice and dice you before deciding how they treat you when you knock on their door. And if you’re a Sam or Diane, well there are no Cheers for you!

Even if you are a Robinson getting the best treatment, don’t forget that what they see in you is the opportunity to make the most profit. But with escalating premiums, consumers of every category are getting increasingly frustrated. We strongly encourage all consumers, Sams, Dianes, Wrights, and Robinsons alike, to take a careful look at their insurance company and comparison shop. Your insurer, despite their claims to the contrary, only views you as a source of revenue. And you should likewise be pragmatic. If they think of us as Dianes and Sams, you should consider them a Gordon Gekko or Mr. Burns.

The post Meet the Robinsons: Progressive’s Ideal Insurance Customers—And Woe to All Others appeared first on Consumer Federation of America.

“Getting claims paid after Hurricane Ian must not become a second disaster for the policyholders who will rely on the insurance companies in the weeks and months ahead,” said Douglas Heller, CFA’s Director of Insurance. “We hope insurers will be good partners in the recovery and rebuilding to come, but history tells us that policyholders and regulators must stay vigilant to ensure fair treatment.”

“Home and flood insurance funds should be the fastest and best source of recovery help for the home and business owners who’ve been devastated by Ian,” said Amy Bach, Executive Director of United Policyholders. “Finding trustworthy repair pros and temporary living arrangements will be very hard – the last thing victims need is insurers balking at paying in full and on time. Through our Roadmap to Recovery program, UP and our Florida-based partners are mobilizing to deliver guidance and advocacy services aimed at making sure all available funds flow as they should. Visit: www.uphelp.org/IAN early and often.”

Many Ian victims will be underinsured and uninsured for flood damage, and there will be big fights over whether the damage was caused by wind (covered in a home policy) versus flooding (excluded in a home policy). Home insurers should pay for damage from hurricane winds and falling rain.

The two leading national consumer groups recommend that insured property owners with damaged homes take the following steps:

1. Contact your insurance company and report your claim as soon as possible. Depending on what caused the damage to your home, your claim may be covered by wind insurance or flood insurance, or by both.
2. Document damage in photos and video as thoroughly as possible, but only to the extent that it is safe to do so. Do not allow damaged items to be removed before they have been photo-documented.
3. Keep a daily journal, noting each time you speak or meet with insurance company adjusters, repair pros, or anyone you are considering hiring. Note their name and the date and time of the contact.
4. Maintain receipts for every cost you incur; this includes hotel and food costs when you evacuate, any alternative living arrangement costs if you cannot return to your home, and anything you spend on making initial repairs to your home to prevent further damage. This may be covered under your home or private flood insurance policy. Temporary living expenses are not covered under NFIP policies.
5. Check references and license status before you agree to hire or assign any of your insurance benefits to any professional. Post-disaster scams are common. Local help is preferable but if not available, be careful vetting out-of-the-area pros before you sign on the dotted line.
6. Contact your Insurance Department and FEMA (for flood claims) if you run into problems::

Florida Office of Insurance Regulation
1-877-693-5236
200 E Gaines St, Tallahassee, FL 32399
Consumer.Services@myfloridacfo.com
File a complaint: https://apps.fldfs.com/eService/Newrequest.aspx

South Carolina Department of Insurance
803-737-6180
1201 Main St #1000, Columbia, SC 29201
consumers@doi.sc.gov
File a complaint: https://sbs.naic.org/solar-web/pages/public/onlineComplaintForm/onlineComplaintForm.jsf?state=SC&dswid=3785

Federal Emergency Management Agency
1-800-427-4661
500 C St SW, Washington, DC 20024
https://www.fema.gov/about/contact

Contacts:
Doug Heller, 310-480-4170
Amy Bach, 415-713-3040

The post Tips To Help Consumers Get Fair Insurance Treatment After Hurricane Ian appeared first on Consumer Federation of America.

However, numerous consumer advocates have pointed out that insurance has a long history of unfair discrimination, bias, and racist practices that result in unrepresentative workforces and injustices in the marketplace.

On Tuesday, September 20th, the House Subcommittee on Diversity and Inclusion held a hearing examining diversity and inclusion at the biggest insurers across the nation. They requested data from insurance companies that received direct premiums of $7 billion or more to report and comment on their practices and policies.

The results were not pretty. Despite a flurry of statements and pledges, from 2017 to 2021 there was little change in racial, ethnic, or gender representation among insurance company employees. In 2021, the largest insurers had a lower percentage of employees of color (30.5%) compared to banks or the biggest investment firms. People of color were underrepresented in executive level positions, making up only 16.2% of those positions. Women were underrepresented as well, making up only 33.5% of those positions. Both groups were underrepresented on insurance boards.

Actions speak louder than words; despite insurers proclaiming their commitment to diversity and inclusion, the Committee found that the average budget insurers allocated to these subjects was $5.3 million, or 0.24% of their average total budget. That means that out of every $100 in an insurance company’s budget, the company is spending 24 cents on promoting inclusion and recruiting diverse candidates.

Members of Congress were not impressed. Chairwoman Joyce Beatty (OH) called the report’s findings “disappointing” and told the witnesses “none of you are doing well enough.” When an Allstate representative attempted to spin these facts and claimed that the situation wasn’t too bad, Beatty sharply pointed out that 24 of 27 insurance CEOs were white men. Rep. Maxine Waters (CA) lectured the insurers that “your response is not very good. You have to do better. All the insurance companies have to do better.” Finally, Rep. Chuy Garcia (IL) called out the insurers for their abysmal record on Latino employees—Latinos make up 8.8% of the insurance workforce and only 3.1% of insurance leaders.

While strong on the problems that insurers have with internal diversity and inclusion, the House subcommittee did not specifically focus on the deep-seated inequities in the insurance marketplace that punish tens of millions of consumers of color who are required to purchase insurance products by the government, lenders, and landlords. Whether through unfair pricing practices that use socioeconomic factors to jack up premiums or built-in biases that disproportionately flag policyholders in Black communities for fraud, insurance tends to cost more and provide less to people of color in America. The only member to mention this was Rep. Rashida Tlaib of Michigan, who gave a powerful speech about how the lack of diversity in insurance companies has harmed consumers. She listed a number of harmful nondriving factors—education level, occupation, credit score, gender, homeownership status, ZIP code/neighborhood—and asked rhetorically, “What do these have to do with being a safe driver?” The Allstate representative responded that she would connect Tlaib with people who could explain this.

The House hearing demonstrated how weak and dishonest insurers’ commitment to diversity and inclusion is. But the subcommittee could and should have gone further by looking more deeply at the way this interacts with the daily injustices consumers face in the market. In comments submitted for the record, Consumer Federation of America emphasized that

Congress must also investigate the inequities and discrimination that plague the insurance industry… we cannot wait and hope that examining diversity and inclusion will change the patterns and outcomes of decades of industry practices and biases. A hearing on diversity and inclusion at large insurance companies is not enough to address the inequities that are a chief target of this subcommittee. Therefore, we urge the subcommittee to follow this D&I hearing with a subsequent hearing on the biases, discrimination, and inequities faced by consumers.

For example, in March 2022 a whistleblower at State Farm, the nation’s largest insurer, told the New York Times that she was witness to discriminatory practices aimed at Black policyholders and claimants that resulted in disproportionately large numbers of claims denials and anti-fraud investigations for Black customers. The whistleblower alleges that the company’s practices were “simply a means of denying payment of millions of dollars to African Americans and other minority policyholders.” Yet the House committee did not discuss this allegation—and it should have.

When auto insurers use socioeconomic factors to underwrite and rate their prospective customers, these factors often serve as proxies for income and race. CFA and other consumer groups have conducted many studies over the years and found overwhelming evidence that these factors consistently lead to higher rates for safe drivers who are also disproportionately people of color and who have lower incomes.

The House hearing was a good beginning. But in order to uncover the true harm caused by the lack of diversity and inclusion in insurance and the high costs paid by consumers as a result, the subcommittee will need to probe deeper.

The post A House Committee Examined Diversity and Inclusion at America’s Largest Insurers. The Results Were Not Pretty. appeared first on Consumer Federation of America.

Nearly everyone in Washington State deals with some type of insurance—drivers are required to purchase auto insurance, banks require homeowners insurance for mortgages, and consumers purchase numerous other products that require insurance. Often, premiums can go up for no apparent reason at all, frustrating policyholders and leaving them in the dark, grasping for information.

The Washington State Office of the Insurance Commissioner wants to counter this. They have drafted a new regulation, R 2022-01, which requires property and casualty insurance companies to provide their customers with a detailed breakdown of premium increases, the factors that affect those increases, and a breakdown of each factor and how much it impacts their premium.

Consider this case: if someone adds a new car to their insurance policy and their premium increases, the insurer has to tell them how much that affects their new premium. If a consumer is convicted of a moving violation and their premium increases, the company has to follow similar procedures. And if someone is widowed and loses their married customer discount, or sees a decline in their credit and their premium goes up, the company has to spell that out for them.

Washington consumers currently spend over $7.5 billion annually on the kinds of insurance that this rule will cover. But the lack of clarity and understandable disclosures means that consumers often have no idea what factors are causing their premiums to go up. Worse, many insurers charge people more based on characteristics that aren’t closely related to risk. And consumers have no idea that these characteristics – their job title, education level, marital status, credit history, and others – can be used for setting initial premiums and then changing premiums from one renewal to the next.

For example, auto insurers, use credit information to discriminate against certain consumers and charge them more. Consumer Federation of America found that on average, Washington consumers with excellent credit and a perfect driving record paid an average annual premium of $468. But consumers with the exact same driving record but fair credit paid an average annual premium of $633–$165 or 35% more. Consumers with poor credit paid an average annual premium of $836–$370 or 79% more.

Plus, some of Washington’s largest auto insurers charge consumers significantly more based on their credit information. Allstate charges consumers with poor credit 89% higher premiums than consumers with excellent credit. Progressive charges consumers with poor credit 108% higher premiums, and State Farm charges consumers with poor credit 185% more. These insurers have an obvious interest in keeping the impact of credit information and other factors hidden from policyholders. If most consumers don’t know about this discrimination, they can’t take steps to counter it and find better deals.

Washington State is saying: Enough! This rule will dramatically improve consumer understanding of the cost drivers impacting their insurance and give them more information. Consumers should know the reasons for auto insurance premium increases and decreases. And if their credit declines, possibly due to circumstances beyond their control, they should know its impact on how much they pay every month. If a consumer’s annual premium increases by $200, $400, $600 or more because of changes in their credit score, they deserve access to that information.

The Office has been receiving comments on this rule for over a month and is currently finishing up a second draft. Consumers have a right to know the reasons for auto insurance premium increases and decreases, and they should get a detailed description of all these characteristics. For the benefit of all Washington State residents, we hope this regulation is adopted soon.

The post Consumers are In the Dark About Reasons for Their Premium Increases, Washington State Is Proposing to Change That appeared first on Consumer Federation of America.

“As the economic pain of the pandemic starts showing up on consumers’ credit scores, it’s critical that the Insurance Commissioner’s consumer protection rules take effect.” said Doug Heller, Director of Insurance for Consumer Federation of America. “So many safe drivers and responsible homeowners and renters are facing insurance premium hikes simply because the pandemic wreaked havoc on their finances and credit. That’s not fair, and as the Commissioner has rightly pointed out, it’s illegal under Washington law, which is why the Court must uphold these rules and end the insurance industry’s obstructionism.”

The Commissioner’s rule temporarily blocks insurance companies from using the credit history of customers when setting insurance premiums, in light of the impact the pandemic will have on the credit history of Washington residents, especially as relief programs and credit protection rules set up during the pandemic expire. Because the pandemic has disproportionately harmed communities of color and lower-income consumers, using credit scores at this moment will illegally amplify unfair discrimination in the state’s insurance markets.

“This temporary prohibition on the use of credit history to determine rates for private passenger automobile coverage, renter’s coverage, and homeowner’s coverage is necessary to address the unfair discrimination caused by the impact of the pandemic and related public policy responses on consumer credit histories, as well as the pandemic’s amplification of racial disparities caused by the use of credit history in insurance underwriting, pricing, and other practices,” the groups explained.

The brief details why crafting such a rule is within the Commissioner’s authority, granted by the state law that prohibits unfair discrimination in insurance markets. The brief also explains that legal services organizations, such as the Northwest Justice Project based in Seattle, are encountering a swelling number of personal bankruptcies and credit impairments stemming directly from the financial havoc wrought by the pandemic.

As one example of this growing crisis, Northwest Justice Project shared the story of a single mother, Jane Doe 1 (JD1), who lost her job in spring 2020 due to pandemic-related closures and saw her credit score decline because she had to prioritize payments. In the brief, they reported, “Almost immediately, she noticed her score decline by 74 points. Within a month, she got notice from her auto insurance carrier that her monthly rate was increasing by approximately 43% from $70 per month to $130. JD1 has never made a claim against any auto insurance policy and has a clean driving record…For JD1, already budgeting to the penny each month, the increased cost of auto insurance remains a substantial financial hardship.”

In Washington State, auto insurers have historically used consumers’ credit history to charge higher premiums to lower credit drivers, even when they had lifelong perfect driving records. CFA’s analysis of premium data charged by ten large auto insurers in every ZIP code in the state shows that consumers with excellent credit-based insurance scores and a perfect driving record pay an average statewide annual premium of $468. But if those exact same consumers have fair credit, their average annual premium increases to $633—a 35% or $165 increase. If, instead, those clean-record drivers have poor credit, their average annual premium rises to $838—a 79% or $370 increase compared to consumers with excellent credit.

A hearing in the case ­– No. 22-2-00180-34 – is scheduled for July 8, 2022 in Thurston County Superior Court.

Contacts:
Douglas Heller, CFA, 310-480-4170                                                                     
Scott Kinkley, NJP, 509-324-9128
Amanda N. Martin, NWCLC, 206-805-0989

The post Consumer Advocates Urge Court to Protect Washington State’s Temporary Ban on Use of Credit History in Insurance Pricing appeared first on Consumer Federation of America.

To begin with: what exactly is homeowners insurance? It is personal property insurance for homes, condos, apartments, and mobile homes and includes a bunch of protections, which can include the losses occurring to your home, its contents, and the loss of use (additional living expenses, like if you have to stay in a hotel while your home is being repaired). Homeowners are not legally required to have homeowners insurance, but banks and other lenders, as well as the federally backed mortgage companies Fannie Mae and Freddie Mac, require it as a condition for mortgages, so the vast majority of homeowners have this insurance. A number of factors affect how high your homeowners insurance premium is — history of past claims, the neighborhood and its crime rate, how widely available your building materials are, coverage options and the coverage amount you want, the condition of the home, and a consumer’s credit history, among others.

This market, like the housing market itself, is tarnished by a history of unfair and discriminatory practices that directly or indirectly target people based on their race, color, national or ethnic origin, religion, or sex or disability. Practical examples of this discrimination can happen at the individual level, where they include:

· Offering insurance policies with inferior coverage

· Not returning calls or requests for information from consumers interested in getting policies

· Denying coverage completely based on someone’s race.

But this discrimination can also take place on an institutional level. Examples of this include:

· Imposing different terms and conditions based on someone’s neighborhood

· Refusing to write policies for homes in these neighborhoods

· Refusing to underwrite buildings based on age, which often disproportionately impacts mostly Black neighborhoods

· Requiring inspection reports in certain areas but not others

· Fewer/inferior options compared to wealthier neighborhoods, and

· Discouraging applicants in these neighborhoods.

Discrimination in homeowners insurance dates back many years. In the 1930s the newly created Federal Housing Administration, founded to help homeowners by providing federal insurance for mortgages, drew up appraisal maps of neighborhoods and based its underwriting policies on those maps. The FHA limited or refused to provide mortgage insurance for people in neighborhoods deemed risky — and Black neighborhoods, immigrant neighborhoods, and neighborhoods that had people of different races living together were all considered risky.

This discrimination in homeowners insurance continued. In the late 1990s, the housing nonprofit Housing Opportunities Made Equal (HOME) investigated Nationwide’s homeowners insurance policies in and around Richmond, Virginia. HOME found dramatic evidence of racist discrimination and excessive prices, and sued Nationwide for unfair discrimination.

What forms did Nationwide’s discrimination take? The company did the following:

· Nationwide used racial profiling to identify “target markets” that were white and excluded Black consumers

· Nationwide labelled every ZIP code in Richmond with lots of Black residents undesirable and withdrew most of its agents from those areas

· Nationwide actively discouraged agents from selling in Black neighborhoods, and limited its hiring efforts to draw from mostly white neighborhoods

· Nationwide denied insurance to owners of insurable homes in Black neighborhoods, and

· Nationwide used actuarially unsound underwriting criteria that excluded older homes (most of the homes in urban, black neighborhoods).

When all these facts came out, an appalled jury required Nationwide to pay $100 million in damages, although this later got struck down by the Virginia Supreme Court. Eventually Nationwide agreed to pay a settlement of $17.5 million.

Another example of unfair discrimination in auto insurance is when insurers more frequently deny claims made by Black homeowners, or assume that their claims are more likely fraudulent. Recently the insurance giant State Farm has been accused of using fraud as a pretext to deny the insurance claims of Black consumers and is facing multiple lawsuits. In one case, Dr. Carla Campbell-Jackson, a Black woman who worked for State Farm for twenty eight years, recounted how senior executives pressured investigators to investigate and deny as many claims from inner city neighborhoods as possible. When she tried to fix this, she was fired.

And there is another contributing factor to discrimination in homeowners insurance: someone’s credit history. A recent study by Bankrate found that people with poor credit pay on over 77% more on average for homeowners insurance than people with excellent credit ($2,180 annually vs. $1,232 annually). Most states allow insurers to charge homeowners more based on credit history; only California, Maryland, and Massachusetts ban this.

The impacts of unfair discrimination in homeowners insurance are substantial. Consumers wind up paying higher premiums, and if they are denied insurance coverage, they can’t get the mortgage to buy a home in the first place. Since homeownership is one of the biggest avenues to wealth accumulation and intergenerational mobility in America, this perpetuates racial inequality and the wealth gap. If unfair pricing leads an insured homeowner to miss a payment and have coverage canceled on them, then their mortgage company will “force place” insurance on the property that protects only the lender. The lender will add the (high) cost of that force-placed coverage onto the homeowner’s mortgage payments. Additionally, insurers undervalue Black homes and often pay often fewer and less generous claims. And neighborhoods are affected as well; expensive insurance policies can burden homeowners and contribute to foreclosures, which can cause neighborhoods to deteriorate.

How can we stop racism in homeowners insurance? Here are several reforms that consumers should advocate for:

1. State Insurance Departments should launch in-depth investigations of insurers if they hear complaints from homeowners.
2. They should test premiums of various homeowners insurance policies in areas around their states, to get a better picture of the market and identify correlations between premiums and demographic make-up of communities. They should also use secret shopper tests to determine if applicants of color and white applicants are provided different company and coverage options or otherwise face different treatment.
3. Departments should aggressively prosecute and punish company lawbreaking — fines should be substantial enough to deter repeat offenses and not just be a cost of doing business.
4. States should ban the use of socioeconomic factors in insurance pricing, such as credit history.
5. Companies should be required to demonstrate that the models they use in each segment of their business — marketing, underwriting, pricing, claims handling, and fraud fighting — do not have built in biases or disparate impacts.

These same concerns, of course, apply to renters and mobile or manufactured home insurance as well. It is critically important that everyone living in the country can access the insurance market in order to protect their home free from the systemic bias and racial and ethnic discrimination that has plagued America’s housing markets for generations.

The post How Racial Discrimination in Homeowners Insurance Contributes to Systemic Racism and Redlining appeared first on Consumer Federation of America.

In April 2021, Governor Greg Gianforte signed into law HB 379, which repealed a long-standing ban on sex-based insurance pricing in Montana. CFA criticized this bill and pointed out that in neighboring states that allowed gender-based pricing, including Idaho, North Dakota, and South Dakota, women paid more on average for auto insurance. At the time, the bill’s sponsor, Insurance Commissioner Troy Downing, claimed that “[n]ot allowing the consideration of sex in rate-making has artificially inflated insurance premiums for women, particularly in life and auto insurance.”

“Montana law requires every driver to purchase insurance, so it’s important that the pricing is fair,” said Douglas Heller, CFA’s Director of Insurance.  “It used to be that Montanans with good driving records paid the same price regardless of gender, but now women are often charged more to buy the same coverage as men. Commissioner Downing should explain why he is allowing companies to charge female drivers more than male drivers since he promised just the opposite.”

Through its testing of four insurers – GEICO, Farmers, Liberty Mutual, and Progressive,  (accounting for about 40% of the state insurance market) – CFA found that 40-year-old Montana women are now being charged higher premiums on average, but that the application of gender as a rating factor was inconsistent and contradictory. The chart below illustrates how the new gender-based pricing rule has impacted premiums in several cities in the state.

In supporting the move to sex-based pricing, Commissioner Downing said “this new law helps consumers who will now be priced more accurately according to risk.” But, as the premium quotes show, some companies think that women are higher risk, another company thinks men are higher risk, and yet another sees no need to alter rates by gender. Farmers and Progressive charge women between 8% and 17% more, while Liberty Mutual charges men 22% more, and GEICO charges men and women the same premium. Putting aside whether or not the use of gender in pricing is fair these substantial differences indicate that gender is not a reliable factor in risk-based pricing, as insurers do not agree on gender-based risk of loss.

Several other states ban gender in auto insurance pricing, resulting in fairer auto insurance markets and better outcomes for consumers, according to CFA. They include California, Hawaii, Massachusetts, Maine, Michigan, North Carolina, and Pennsylvania; the Delaware Legislature is also currently considering a ban.

“Your auto insurance premium should be based on your driving record, not whether you are a man or a woman,” said Michael DeLong, a Research and Advocacy Associate with Consumer Federation of America. “Allowing unfair discrimination based on gender was a mistake, and Montana drivers would be better served by a return to gender neutral auto insurance pricing.”

Contacts:
Michael DeLong, 925-708-1135
Doug Heller, 310-480-4170

The post Montana Auto Insurers Often Charge Women More Since State Repealed Ban on Sex-Based Pricing, Despite Commissioner’s Promise appeared first on Consumer Federation of America.

“While Americans struggle to pay higher insurance premiums and deal with two years of pandemic challenges, insurance executives have taken corporate excess to a new level,” said Douglas Heller, Director of Insurance for CFA. “The four largest auto insurers paid their top executives a combined $196.8 million between 2020 and 2021. At the same time, they are demanding rate hikes from consumers who are required by law to purchase the product they sell.”

Using data gathered through filings made with the Securities and Exchange Commission and the Nebraska Department of Insurance, CFA has compiled the reported compensation to the highest-paid executives at several of the nation’s largest auto insurers for 2020 and 2021. Because the data reported to the Nebraska Department of Insurance may exclude compensation paid to the executives by affiliated companies, it is possible that the compensation figures below underrepresent the executives’ earnings.

The $77 million golden parachute that GEICO paid its former CEO Olza “Tony” Nicely, who served as the company’s Executive Chairman during the period, stands out as the biggest pandemic payout. In August of 2020, CFA called out GEICO for its “worst-in-the-nation” covid-refund program. At the time, CFA said the company should return much more premium to drivers, as driving levels remained low and also that GEICO should end its practice of requiring customers to renew policies before they received their pandemic refund.

CFA also highlighted the massive bonuses paid to State Farm CEO Michael Tipsord in both 2020 and 2021.  According to filings with the Nebraska Department, while State Farm paid its Chief Executive a salary that ranged between $1.94 and $2.15 million in 2019 through 2021, the company dramatically raised the bonuses paid to Tipsord from $8.3 million in 2019 to $18.1 million in 2020 and $22.4 million in 2021.

“Consumers should have received additional premium refunds during the pandemic, when we were all stuck at home and roads were empty. Instead, auto insurers paid huge dividends to investors and awarded mega-bonuses to their CEOs,” said Michael DeLong, a Research and Advocacy Associate with Consumer Federation of America, highlighting that companies including Progressive and Allstate paid their largest ever shareholder dividends during the pandemic. “When these insurance companies say that they need higher and higher rates to account for inflation, regulators should ask: If times are so tough that companies need to raise rates, why has there been so much inflation in executive compensation?”

Departments of Insurance Should Collect Executive Compensation Data and Prevent Insurers from Adding Excessive Executive Compensation to Policyholder Premiums

 Since consumers and businesses are often required to purchase insurance by law or by banks in order to get a loan, states must do more to protect consumers from excessive executive pay. CFA pointed to regulatory practices in Nebraska and California as models for assessing executive compensation practices (Nebraska) and protecting consumers from executive gluttony (California).

Under Nebraska law (NE R.S. Section 44-322), insurance companies must report, in a public document, the salaries and other compensation of the company’s executive officers. Longtime insurance industry analyst Joseph Belth, who reports on the compensation on his industry-focused blog, explains that because some companies allocate executive salaries to different subsidiaries, it is often difficult to calculate the entire compensation package for some executives, which is why some of the data above may be an understatement of the total pay package. Still, the Nebraska disclosure law is a valuable tool for policymakers, regulators, and the public who want to know how insurance companies are spending the premium that consumers pay.

Under regulations for California’s voter-approved consumer protection law known as Proposition 103, a formula calculates the maximum permissible executive compensation for the top five executives at each insurer – the amount differs depending upon company size. Once the permissible compensation is determined, while insurers may pay their executives whatever they choose, any pay above the maximum is figured into another formula that reduces insurance rates to account for the excessive compensation.  For example, in a 2021 rate filing, State Farm reported that the “maximum permissible” pay to its top five executives was a combined $7,231,925 for 2020. Because the five highest-paid executives actually received $43,199,446 in that year, the insurance rates it could charge California policyholders were reduced to account for the nearly $36 million in excess compensation that year. Notably, State Farm’s executive compensation average during that pandemic year was over twice the excess calculated in 2019 and quadruple State Farm’s 2018 excessive compensation amount.

“Americans spend a quarter trillion dollars each year on auto insurance alone and another half-trillion on other property and casualty insurance policies,” said CFA’s Douglas Heller.  “States should do more to ensure that our premium dollars are not being used to fund wildly excessive pay packages for executives.”

Contacts:
Michael DeLong, 925-708-1135
Doug Heller, 310-480-4170

The post While Drivers Face Rising Auto Insurance Rates, Top 4 U.S. Auto Insurance Executives Received $196.8 Million in 2020-2021 Pandemic Paydays appeared first on Consumer Federation of America.

A recent New York Times investigation revealed detailed allegations of discrimination against Black policyholders at State Farm, the nation’s largest insurer. Fraud investigators at State Farm were pressured to investigate claims in Black neighborhoods and deny them because they were supposedly at higher risk for fraud.

The post Groups Urge State Insurance Departments to Investigate Racial Bias in Insurance Claim Handling appeared first on Consumer Federation of America.

“This temporary prohibition on the use of credit information to determine insurance rates for personal lines insurance is necessary to address the unfair discrimination created by the impact of the pandemic and related public policy responses on consumer credit histories, as well as the pandemic’s exacerbation of racial and ethnic disparities caused by the use of credit information in insurance underwriting, pricing, and other practices,” the groups wrote.  The brief can be read here.

The brief was submitted pro bono by Debbie Leonard at Leonard Law, PC, an attorney who focuses her work on advocacy and mediation.

As a result of insurers’ use of consumer credit information becoming unfairly discriminatory in 2020 Nevada Insurance Commissioner Barbara Richardson issued Regulation R087-20, which bans the use of credit information to increase insurance premiums starting on March 1, 2020 and extending until two years after the end of Nevada’s emergency declaration. Insurance companies sued to block the regulation, which is currently the subject of review by the Nevada Supreme Court.

CFA’s research found that Nevada drivers with fair and poor credit paid hundreds of dollars more per year than drivers with excellent credit, even when the drivers with worse credit have perfect driving records. Nevada drivers with excellent credit-based insurance scores and a perfect driving record paid an average statewide annual premium of $770. But consumers with fair credit paid an average premium of $1,044—a 36% increase. And consumers with poor credit paid an average premium of $1,349—a 75% increase compared to consumers with excellent credit.

Insurers’ use of credit information also disproportionately harms African-American and Latino consumers, since their credit scores tend to be lower due to systemic biases and structural barriers to financial resources. Additionally, communities of color have been more likely to suffer from lost income due to the pandemic, more likely to face housing insecurity, and less likely to have benefited from government pandemic protections and assistance.

The Nevada Supreme Court should uphold this regulation, the groups said, as it is in the public interest to prevent unfair discrimination in insurance markets while consumers recover from the financial shocks created by the pandemic.

The post Consumer Advocates Urge Nevada Supreme Court to Stop Unfair Discrimination in Insurance Pricing appeared first on Consumer Federation of America.

In early 2020, Insurance Commissioner Barbara Richardson issued this Regulation R087-20, which forbids the use of credit information in insurance starting on March 1, 2020 and extending until two years after the end of Nevada’s emergency declaration. Insurance companies sued to block the rule, which is currently being reviewed by the Nevada Supreme Court.”

The post Groups urge Nevada Supreme Court to uphold Regulation Temporarily Banning the Use of Credit Information from Increasing Insurance Premiums appeared first on Consumer Federation of America.

“Bob built the consumer advocacy presence in the American insurance industry from scratch, and anyone who has purchased insurance owes him tremendous gratitude,” said Jack Gillis, CFA’s Executive Director. “By virtue of the problems he exposed, the reforms he spurred, and the changes to industry practices that came from his work, we calculate that his research and advocacy have saved American consumers hundreds of billions of dollars.”

“Continuing in the advocacy tradition of Bob Hunter, I’m thrilled to announce that CFA’s Insurance Advocate, Doug Heller, will take on the role of Director of Insurance,” added Gillis.

The Remarkable Career of J. Robert “Bob” Hunter

After 10 years as an insurance actuary in the private sector, Hunter was hired by the United States Department of Housing and Urban Development (HUD) in 1971 as the Chief Actuary of the Federal Insurance Administration, an agency he would lead under Presidents Gerald Ford and Jimmy Carter. His work was instrumental in achieving the flood insurance program’s early goals, creating the Liability Risk Retention Act, and making insurance available in the inner cities through the implementation of the Riot Reinsurance Program and the Federal Crime Insurance Program.  He received the Award for Excellent Service from the Secretary of HUD. Hunter was later appointed by Governor Ann Richards to serve as Texas Insurance Commissioner.

As Hunter recalls, “When I got my first paycheck, it said ‘The people of the United States Pay to: J. Robert Hunter…’ When I read that, it was a deeply moving, life-changing moment. I thought to myself, ‘now I have to think about insurance from the people’s perspective.’”

In 1980, with financial support and encouragement from Ralph Nader, Hunter founded and led the National Insurance Consumer Organization, a nonprofit insurance consumer advocacy organization, for 13 years prior to joining CFA in 1995 as Director of Insurance. He viewed his role as his contribution to improving society and therefore never sought any compensation for his 40 years of work with NICO and Consumer Federation of America.

During his career, Hunter won several significant legislative and regulatory reforms of the insurance industry and led the way to changes in the way the industry operates; the trade magazine National Underwriter named him among the “25 Living Legends of Insurance.”

• In the 1980s he successfully pushed for a significant change to insurance ratemaking – getting insurers to include their projected investment income in ratemaking – saving policyholders an estimated $500 billion since that time.
• In one twelve-month period, Hunter testified in every state in the Union to combat the industry’s effort to use the macro-economic insurance cycle as an excuse to spike rates and diminish consumer legal rights.
• In 1986, under contract with the California Legislature, he wrote a seminal paper on California’s insurance market, which served as the basis for 1988’s historic “Voter Revolt” that enacted Proposition 103. The nation’s strongest insurance consumer protection law, CFA calculates that Prop 103 has saved California drivers alone over $150 billion since enactment.
• When Hurricane Andrew devastated Florida in 1992, he proposed the moratorium on cancellations and rate hikes and a series of other reforms the state adopted to protect policyholders in the storm’s wake.
• Hunter helped uncover and reform abusive claims handling practices associated with the Colossus computer software program used to calculate the amount the insurer would offer for car crash injury claims.
• He uncovered, in the early 2010s, the practice of price optimization, where insurers charge certain customers higher premiums based on their shopping habits, particularly harming the most loyal customers. His work spurred action against the practice in twenty states and at the National Association of Insurance Commissioners (NAIC).

Over his career, Hunter has been at the forefront of efforts to eliminate unfair and discriminatory pricing in the insurance markets, especially where those practices punish lower-income consumers. During the pandemic he has continued his fight for consumers, with calls for insurance refunds to auto insurance customers as companies reaped windfall profits while Americans were stuck at home.

Hunter also encouraged other consumer advocates to focus on insurance consumer protections, creating connections and campaigns that have expanded the reach of many of the reforms Hunter first developed. Among those advocates are Harvey Rosenfield, author of California’s Prop 103, Birny Birnbaum of The Center for Economic Justice, Amy Bach of United Policyholders, Joanne Doroshow of The Center for Justice & Democracy, and Doug Heller of Consumer Federation of America.

“Bob has been an unrelenting advocate for four decades, whose work has dramatically changed the way insurance in America is priced and how claims are paid,” said Doug Heller, who has worked with Hunter at CFA since 2013. “For the past forty years, the insurance industry has always had to ask themselves ‘what’s Bob going to say?’ whenever a consumer issue was on the table. It is impossible to quantify fully the impact Bob Hunter has had on the insurance market, its regulation, and its public policy. We are deeply grateful for his work and thankful that he will continue to provide his insights and expertise even in his retirement.”

Contact: Doug Heller, 310-480-4170

The post J. Robert “Bob” Hunter to Retire After 27 Years as CFA’s Director of Insurance appeared first on Consumer Federation of America.

CFA’s analysis showed that in 2020 and early 2021, auto insurance companies earned massive profits of at least $29 billion by overcharging consumers as auto crashes and insurance claims fell. While most insurers provided some refunds, it was nowhere near enough, and consumers were shortchanged by an average of $125 per vehicle. In Illinois, consumers should have received an additional $896 million in premium relief.

The Department should issue a data call to collect information about auto insurers, rates and premiums, and losses since the beginning of 2020. It should then analyze the data to determine how much consumers have been overcharged. And finally, the Department should call on insurers to provide further premium givebacks to drivers.

The letter was signed by the Chicago Urban League, Consumer Federation of America, Financial Inclusion for All Illinois, Heartland Alliance, Illinois PIRG, Legal Action Chicago, New America Chicago, Shriver Center on Poverty Law, and the Woodstock Institute

The post Groups Call for Illinois Department of Insurance to Collect Data on Insurance Premiums During the COVID-19 Pandemic appeared first on Consumer Federation of America.

In 2020, auto insurers across the country earned massive profits as Americans drove fewer miles while “sheltering in place” and working from home, which meant fewer vehicle crashes and auto insurance claims. While most large insurers, in response to public pressure, provided some refund or credit to consumers, the Consumer Federation of America (CFA) estimates that insurance companies still owe Illinois car insurance customers $896 million in pandemic relief.

“It’s unconscionable for any company to make windfall profits by overcharging consumers during the pandemic, but it’s even worse for a provider of a product such as insurance, which drivers are legally required to purchase,” said Illinois PIRG Director Abe Scarr. “Illinois-based State Farm has issued additional refunds to customers in California. The state Department of Insurance should work to get additional refunds for Illinois consumers.”

The CFA analysis of insurers’ 2020 premium and claims results found that insurers obtained $42 billion in excess premiums while refunding only $13 billion — meaning they overcharged consumers $29 billion. In effect, insurance companies shortchanged their customers by an average of $125 per insured vehicle nationwide.

“Too many insurance companies tried to maintain business as usual throughout the pandemic, despite less driving and fewer claims in Illinois and across the U.S.,” said state Sen. Jacqueline Collins. “Business as usual often means higher auto insurance prices in Black communities like those I represent even when there have been fewer crash related injuries.”

The letter encourages the Illinois Department of Insurance to take three actions:

• Issue a “data call” to auto insurers to provide statistics about rates and losses since the beginning of March 2020.
• Analyze the submitted data to determine if and how much Illinois drivers have specifically been overcharged.
• If the facts, as expected, mirror those in other states that have already issued data calls, urge insurers to give additional premium refunds to policyholders.

“During the COVID-19 pandemic, Illinois drivers have paid massively overcharged premiums, about $896 million more than usual,” said Michael DeLong, a research and advocacy associate with CFA. “This greed is appalling, especially since many consumers are currently struggling to make ends meet. The Department should hold a data call and demand that insurers refund this premium to consumers.”

The California, New Mexico, and Washington Departments of Insurance have issued similar data calls to more fully assess the impact of mileage reductions on the exposure to risk of loss during the pandemic. California further directed the insurers Allstate, Mercury, and CSAA to refund excess premiums to California drivers or face legal action, a power the Illinois Department of Insurance does not have.

The post State Senators, Consumer Advocates: Illinois Department of Insurance Should Investigate Car Insurance Overcharges appeared first on Consumer Federation of America.