Specifically, CFA asked that the Committee adopt the Department’s recommendations to retain an agent fee line as a new source of operating funds, create two additional administrative positions, and implement a 9% increase in ASF (appropriated special funds) authority for mandatory expense increases.

By providing more resources to the Insurance Department, Delaware will see substantial benefits in the form of better consumer protection, more efficient regulation and a stronger insurance market.

The post Consumer Federation of America Testifies in Support of Increased Funding and Resources for Delaware Insurance Department appeared first on Consumer Federation of America.

Auto insurers use numerous socioeconomic factors, such as credit scores, education, and occupation, to unfairly discriminate against consumers and charge them higher premiums. DISB has written a report on unfair bias in auto insurance, but it has not yet been released and has been sent to the Mayor’s Office for questions and approval. CFA is eager to review the impending report and calls on DISB to issue the report without delay.

CFA also urged the Department Committee to work with the DISB to protect DC residents from the risks of climate change posed by the insurance industry. Insurance companies should not be funding fossil fuel projects that increase climate change and harm consumers, and Travelers Insurance especially should not be funding them. They should play a constructive, not a destructive role in solving this crisis.

The post Consumer Federation of America Urges DC Insurance Department to Release Auto Insurance Report and Protect Consumers From Risks of Climate Change appeared first on Consumer Federation of America.

The post Report: The Thousand Dollar Insurance Penalty: How Insurance Companies’ Credit Scoring and ZIP Code Rating Push Up Premiums for Safe Drivers in New York 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.

“As three of the leading national organizations focused on protecting and advocating for property insurance consumers, we write to urge aggressive action against any insurer that has defrauded, abused, or otherwise mistreated Floridians in the aftermath of Hurricane Ian,” the groups wrote. “The stories of homeowners who paid premiums for protection but who are now living in trailers, shelters, and their own cars are heartbreaking and unacceptable. Your agency needs to be investigating and prosecuting the insurer fraud that contributed to this situation.”

In March 2023 the Washington Post published an exposé revealing that insurers and their adjusters were rewriting damage reports and slashing damage estimates to avoid paying claims for homes damaged by Hurricane Ian. The reported fraud by insurance companies has left some Floridians living in shelters or unsafe houses while the insurers refuse to provide the claims payments that are due.  The letter also highlighted the fact that over 33,000 Florida claims linked to Hurricane Ian are still open without payment, long passed the payment deadline, in addition to over 125,000 claims that have been closed without payment.

“Market Conduct Exams have been critical to penalizing and remedying illegal claims practices after past disasters, and it is critically important that Florida’s OIR undertake them now on Ian claims,” said Amy Bach, Executive Director of United Policyholders.

“Articles and witnesses indicate that insurance companies are cheating consumers in order to deny claims and avoid payouts,” said Michael DeLong, CFA’s Director of Insurance. “This all happened while, instead of worrying about insurance company accountability,  OIR and the Florida legislature were focused on special sessions to weaken consumer rights and diminish consumer access to Citizens Insurance. It is time for OIR and the legislature to prioritize consumer protection.”

In the letter, the groups call for OIR transparency about the investigations it has begun, a broad investigation of the industry’s behavior after Ian, real accountability for bad actors, and legislative reform that will strengthen consumer protections and increase transparency about claims handling.

The post Consumer Advocates Call for Strong Action Against Florida Insurers After Hurricane Ian Fraud Scandal 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.

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.

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.”

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“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.

The post CFA Calls for Quick Implementation of Washington States proposed Ban on Insurance Credit Scoring That Will Protect Vulnerable Consumers appeared first on Consumer Federation of America.

“The unfairness of using credit history to determine insurance prices was not only made worse by the pandemic, it became incoherent as some people were able to use pandemic rules to prevent credit scores from falling while others with the same credit history saw their credit fall and their premiums rise,” said Douglas Heller, CFA’s Insurance Expert. “Because of systemic biases that were amplified by the pandemic, the insurance problems that will persist without Commissioner Kreidler’s proposed rule will hit communities of color the hardest. These protections should be implemented as soon as possible.”

In its letter, CFA explained that, whether or not one thinks credit scoring is valid in normal times, in the wake of a pandemic credit-based insurance scoring violates Washington’s insurance laws. The group said that without the rules many consumers will face massive premium increases or coverage denials in the coming months and years. According to premium data acquired by CFA from Quadrant Information Services, when auto insurance companies have used credit scoring to set premiums for Washington drivers, drivers with perfect driving records but poor credit see premiums rise by 79% on average and by as much as 185%.

The table below shows the average statewide premiums for basic auto insurance coverage of ten Washington insurers based on policyholders’ credit history.

“By enacting this three-year ban, Washington State will make the insurance market fairer for consumers who may have faced major financial challenges because of the pandemic, but didn’t suddenly become reckless drivers or unsafe,” said Michael DeLong, a Research and Advocacy Associate with CFA. “Your auto insurance premium should be based on your driving record, not your credit history after a once in a century pandemic. The proposal will protect drivers, homeowners, and renters from unfair insurance prices, and we hope other states will follow in Washington’s footsteps.”

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

The post Washington Commissioner Kreidler’s Proposed Ban on Insurance Credit Scoring Critical to Preventing Unfair Pricing in Wake of Pandemic appeared first on Consumer Federation of America.

State-by-state required additional auto insurance pandemic relief is itemized in Table 2 attached to this release.

Despite analyses and warnings from CFA and CEJ starting in March 2020, when it was clear that the reduction in driving had made then-current insurance prices excessive – and in violation of the law in almost every state – the vast majority of insurance regulators took no action to compel insurers to return the illegal profits.  Relying on insurers’ financial statement data for premiums and losses and additional analysis by A.M. Best regarding insurers’ “premium relief,” CFA and CEJ show insurers should have returned $42 billion of premium overcharges to consumers, but actually returned just one-third of that amount.

“In virtually every state, auto insurance premiums – by law – cannot be excessive.  The inability or unwillingness of almost all state insurance regulators to enforce the law and protect consumers raises serious questions,” said J. Robert Hunter, CFA’s Director of Insurance. “As we pointed out in letter after letter to insurance regulators throughout 2020, it was crystal clear that insurers’ premium relief was woefully inadequate.  The attached document lists, with links and thumbnail descriptions, all of the letters and press releases we issued urging states to take action to reduce illegally excessive auto premiums in their jurisdictions.”

According to the insurers’ financial reports reviewed by CFA and CEJ, between 2016 and 2019, auto insurers paid 67.4 cents of every premium dollar for claims.  The remaining 32.6 cents – plus investment income earned from holding policyholders’ money – covered insurer expenses and profit. In 2020, the amount spent on claims dropped to 56.1 cents per dollar of total premium reported.  Total premium of $250.6 billion reported by insurers is net of $7.9 billion in premium relief accounted for by some insurers as a reduction in premium.

Table 1 shows that from 2016 through 2019, insurers paid 67.4 cents of every premium dollar for claims.  But claim payouts in 2020 were just 56.1 cents per net premium dollar – or $33.6 billion less than if insurers had continued to pay 67.4 cents in claims per dollar in premium.    To provide some perspective, a reduction in claim payments of $33.6 billion is a per-vehicle reduction in claims of about $150.

Table 1 shows that the $33.6 billion reduction in claim payouts by insurers translates into $42.1 billion of excess premium charges out of a total of about $258.6 billion in total personal auto insurance premium.[2]  Yet, according to A.M. Best, insurers returned just $13 billion in premium relief[3] – less than one-third of their pandemic windfall – while pocketing the remaining two-thirds.  As a result, insurers shortchanged policyholders by an average of over $125 premium per insured vehicle.

State Insurance Commissioners Have Statutory Responsibility to Protect Consumers from Excessive Auto Insurance Premiums – But Most Failed to Act

 As a result of the sudden change in exposure covered by auto insurance, premiums became excessive virtually overnight in mid-March 2020. However, most regulators did not take – and have still not taken — action to require the necessary premium relief from auto insurers.  Table 2 shows the additional premium relief needed in each state.[4]

In April and May of 2020, most of the nation’s large insurers did provide refunds or credits to consumers in response to the pandemic, but very little of the excess premium was given back after last spring and our research showed that even this two-month payback to policyholders was only about half of what should have been refunded.[5]

California, Michigan, New Jersey, and New Mexico were the only states to require premium refunds during the spring of 2020. But only California continued requiring refunds beyond the first few months of the pandemic. In March 2021, California’s Insurance Commissioner Ricardo Lara determined that auto insurers still overcharged California drivers during the pandemic and ordered them to return additional premium to consumers. In June and July, respectively, Washington State and New Mexico announced industry data calls about auto insurance losses during the pandemic that will hopefully lead to additional premium refunds for consumers, but other regulators have not taken initial steps, let alone further steps, to recoup money for drivers by enforcing their states’ laws against excessive rates..

In addition to little or no action by most states, there has been no action at the National Association of Insurance Commissioners (NAIC) to examine the issue of auto insurers’ pandemic windfall profits, to collect data during 2020 to monitor the situation or to develop guidance for states to bring needed relief to consumers – again despite repeated calls by CFA and CEJ.

As the NAIC conducts its national meeting this week, CFA and CEJ call on state insurance regulators to take action to address the $30 billion overcharge to auto insurance consumers. This news release has been sent to the President and other top officials of the NAIC urging them to act immediately to begin the process of returning pandemic premium overcharges to customers.

CFA AND CEJ LETTERS AND RELEASES CALLING ON STATE REGULATORS TO ENFORCE THEIR LAWS FORBIDDING EXCESSIVE RATES DURING COVID-19

March 18, 2020 letter to Commissioners: “We write to urge you to direct auto insurers in your state to provide premium offset payments to policyholders whose driving has been affected by COVID-19.”  https://consumerfed.org/wp-content/uploads/2020/03/COVID-19-Auto-Premium-Relief-Letter.pdf

March 30, 2020 letter to Commissioners: “We urge you to take action on key P&C insurance consumer protection issues arising from COVID-19 and federal and local government responses to the pandemic, particularly the excessive premiums being charged to individuals and businesses for lines of insurance that base rates on factors such as miles driven, payroll, and receipts.”  https://consumerfed.org/wp-content/uploads/2020/03/COVID-19-Auto-Premium-Relief-Letter-3-30-20.pdf

April 6, 2020 Press Release: After praising Allstate and American Family for their shelter-in-place paybacks, “The groups noted that they had sent a letter to state insurance commissioners on March 18 urging the regulators to act to get industry wide premium relief for auto insurance consumers – and have seen virtually no action to date other than suggestions to insurers by the insurance commissioners in Alaska and Pennsylvania. https://consumerfed.org/press_release/consumer-groups-applaud-allstates-and-american-familys-shelter-in-place-paybacks-urge-other-auto-insurers-to-follow/

April 13, 2020 Press Release: Issued a Report Card on insurer actions in granting paybacks due to COVID.  The release said: “Given that hundreds of millions of Americans pay for auto insurance and spend more on auto insurance than any other type of insurance other than health insurance – $250 billion in 2019 – we are puzzled by the lack of activity to date by insurance commissioners.”  “There is still a need for the regulators to step up, as critical guidance for current and future relief is needed,” said CEJ’s Birny Birnbaum, Executive Director of the Center for Economic Justice.  https://consumerfed.org/press_release/report-card-to-date-on-the-6-5-billion-promised-to-auto-insurance-customers-as-people-drive-less-due-to-covid-19/

April 23, 2020 Press Release updating the payback situation. “For those insurers providing premium relief, the relief ranges from just over 10% to 35% of two months premium with the vast majority of insurers providing only 15%.  With some data showing motor vehicle accidents down 50% or more, more relief is needed for March, April and May from nearly all insurers,” said Douglas Heller, CFA’s Insurance Expert. “It’s clear that premium relief of 30% or more will be needed for these months.”  But we also pointed out the failure of state regulators to act. https://consumerfed.org/press_release/auto-insurance-premium-relief-update-more-insurers-to-return-premium-as-refunds-and-credits-top-7-billion-through-may/

On May 7, 2020, CFA and CEJ issued a letter to all Commissioners, “Auto Insurance Premiums are Excessive in Your State.” The letter stated, “Consumer Federation of America and the Center for Economic Justice just released a major report detailing the current situation in auto insurance in America and the fact that, throughout every state in the country, consumers are still paying excessive premiums even after the recent voluntary relief granted by most auto insurance companies.”  https://consumerfed.org/wp-content/uploads/2020/05/COVID-19-Auto-Premium-Relief-Letter-5-7-20.pdf  The report attached to the letter, “Personal Auto Insurance Premium Relief in the COVID-19 Era” made clear that “State insurance regulators have largely been absent from personal auto insurance relief and the state auto insurance regulatory system has proven to be unprepared for an event like COVID- 19…Motor vehicle accident data indicate a minimum average 30% premium relief payment starting March 18, 2020 through the end of May, even after accounting for offsetting cost factors.”  https://consumerfed.org/wp-content/uploads/2021/07/Auto-Insurance-Refunds-COVID-19-Update-Report-5-7-20.pdf

On May 21, 2020, we sent a letter to all Commissioners, “More State Action Needed to Address Excessive Auto Insurance rates.  In it we pointed out that “other than the commissioners in California and New Jersey, no other state regulators have ordered insurers to provide any relief, let alone a minimum amount of relief… Whatever the cause of this regulatory inaction to date, consumers need – and your statutory duties demand – action now.”  https://consumerfed.org/wp-content/uploads/2020/05/Auto-Insurance-Commissioner-Letter.pdf

On May 26, 2020, our Press Release stated, “While commissioners in California and New Jersey have ordered premium relief and are collecting data to ensure relief is adequate, most state insurance regulators have done nothing to secure auto insurance premium relief, even as they have often inappropriately taken credit for insurers’ actions. The inaction by state insurance regulators has particularly harmed those low-income and minority consumers forced to purchase insurance from so-called “non-standard” carriers.” https://consumerfed.org/press_release/allstate-and-usaa-show-how-insurers-should-provide-ongoing-covid-19-premium-relief/

In a June 25, 2020 letter to all Commissioners we said, “Our review of company announcements indicates that many insurers who offered premium relief for April and May are not continuing to offer relief for June and beyond – despite the reduction in miles driven and crashes from the levels assumed for rates in effect on March 1. It is no less urgent for you to take action now as it was in mid-March to meet your statutory requirements to ensure consumers do not pay excessive premiums.” https://consumerfed.org/testimonial/consumer-groups-urge-insurance-commissioners-to-follow-californias-lead-on-insurance-premium-refunds/

On July 15, 2020 we specifically called on Arizona and Texas to extend the paybacks beyond the insurer’s voluntary paybacks of April and May 2020.  https://consumerfed.org/wp-content/uploads/2020/07/Arizona-Insurance-Commissioner-Letter-7-15-20.pdf     https://consumerfed.org/wp-content/uploads/2020/07/Texas-Insurance-Commissioner-Letter-7-23-20.pdf

On August 6, 2020, we issued a Press Release, “Consumers Still Being Overcharged for Auto Insurance as Pandemic Continues to Reduce Claims.”  We said, “While a couple of states took action to order premium relief, most state insurance commissioners took no action.  As predicted, auto insurers are now reporting windfall profits.”  https://consumerfed.org/press_release/consumers-still-being-overcharged-for-auto-insurance-as-the-pandemic-continues-to-reduce-claims/

On August 11, 2020 our Press Release pointed out that GEICO was pocketing windfall auto insurance profits on billions of dollars from COVID.  We said, “According to CFA and CEJ, state insurance commissioners need to do more to ensure that auto insurers return more of their excess income to their policyholders and former customers. At this time California, New Mexico, Michigan and New Jersey are the only states requiring auto insurers to return pandemic-driven excess premium to customers.”  https://consumerfed.org/press_release/consumer-advocates-call-on-geico-to-give-back-much-more-after-2-1-billion-earnings-bonanza-due-to-covid-19-pandemic-impacts/

On September 21, 2020, we again wrote to all Commissioners in which we said: “The pandemic has shown once again how systemic racism permeates personal auto insurance and penalizes minority consumers. Millions of Americans are currently struggling and facing economic hardship, whether due to unemployment, reduced hours and wages, business closures, or a decline in business activity. This makes it all the more important that you ensure that the insurance companies you monitor and regulate are returning consumers’ excess premium on an ongoing basis.”  https://consumerfed.org/wp-content/uploads/2020/09/COVID-19-Auto-Premium-Relief.pdf

September 22, 2020 Press Release subtitled, “Insurance Commissioners are Asleep at the Wheel When It Comes to Putting this Money Back in Consumer Pocketbooks Where It Belongs.”  https://consumerfed.org/press_release/auto-insurers-reap-tens-of-billions-in-covid-windfall-profits-due-to-reduction-in-miles-driven-and-crashes/

December 22, 2020 letter to all Commissioners, “Extremely High Insurer Profits and New Accident Data Show that Auto Insurance Companies Need to Provide More Pandemic Refunds; Your Constituents are Suffering by Your Inaction.”  We stated: “With the economic pain that has accompanied this pandemic, the fact that most Insurance Commissioners allowed insurers to set the terms for refunds and have not ordered more has been a failure of leadership.  But action on behalf of consumers today is still much better than none at all.”  https://consumerfed.org/wp-content/uploads/2020/12/Auto-Insurance-Commissioner-Letter.pdf

March 11, 2021 Press Release, “California Insurance Department Ends Auto Insurers’ COVID Windfall Profits; Consumer Groups Ask Why Other States Don’t Keep Insurance Companies from Raiding Consumer Pocketbooks with their Windfall COVID Profits.”  “Consumers rely on their state insurance commissioners to protect them from being ripped off by insurers, but most have let auto insurers collect massive windfall profits, while the millions of Americans struggled through the pandemic,” said CEJ Executive Director Birny Birnbaum.  https://consumerfed.org/press_release/california-insurance-department-ends-auto-insurers-covid-windfall-profits/

[1]  See Table 1 for analysis, methodology and data sources.  The “premium relief” amounts come from the insurer rating agency A.M. Best in an April 20, 2021 report.  A.M. Best compiled the “premium relief” from statutory financial statements in which insurers self-reported the amount of “premium relief.”  The $13 billion of “premium relief” reported by A.M. Best includes $3 billion in claimed “premium relief” from GEICO.  In fact, GEICO never paid any premium relief to existing policyholders.  Rather, GEICO promised a 15% reduction upon renewal and even to new customers – an action which simply reflected lower expected claims in the future.  GEICO never provided premium relief to consumers who paid premium for March, April or May 2020.    In contrast, State Farm provided real premium relief though policyholder dividends to offset premiums paid by policyholders in March, April and May, 2020.  State Farm also filed a prospective rate reduction in expectation of lower claims in the future which averaged nationally was 11%.  Despite GEICO not providing any premium relief, we included all the amounts reported in the A.M. Best analysis, including GEICO.

[2]  The $250.626 Billion in reported earned premium after premium relief plus $7.949 Billion in premium relief treated by insurers as a reduction in premium equals $258.575 Billion

[3] A portion of the $13 billion in refunds was provided to policyholders with coverage other than personal auto insurance, but Best’s does not break out the refunds by line, so our calculation likely overstates the personal auto premium relief provided by insurers and understates the additional relief due for policyholders.

[4]  By using industry aggregate expense provisions across all states, the CFA / CEJ estimate of additional premium relief needed is, again, conservative.  In a state with expense efficiency requirements for auto insurance rates, such as California, the additional premium relief needed would be significantly higher than indicated in Table 2.  Consequently, the additional premium relief needed for California is much greater than the $3.5 Billion indicated in Table 2.

[5] “Personal Auto Insurance Premium Relief in the COVID-19 Era: A Report By the Center for Economic Justice and the Consumer Federation of America.” Center for Economic Justice and Consumer Federation of America. May 2020. Available at https://consumerfed.org/wp-content/uploads/2021/07/Auto-Insurance-Refunds-COVID-19-Update-Report-5-7-20.pdf.

Contacts:
Robert Hunter, CFA, 703-528-0062
Birny Birnbaum, CEJ, 512-912-1327
Michael DeLong, CFA, 925-708-1135

The post Auto Insurers Reaped Nearly $30 Billion Pandemic Windfall Profit in 2020 as State Insurance Regulators Fail to Protect Consumers appeared first on Consumer Federation of America.

The ‘Statewide Average Premium’ represents the average of rates for a 25/50/10 policy charged in every Washington ZIP code to male and female drivers with poor, fair, and excellent credit. Under emergency consumer protection rules recently issued by the Office of the Insurance Commissioner, insurers are currently prohibited from varying rates based on consumers’ credit history.

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The Consumer Federation of America (CFA) said the bill places a spotlight on pricing practices – such as the use of credit scores – that tend to result in higher premium for consumers of color.  The bill, supported by State Insurance Commissioner Michael Conway, will be sent to Governor Polis.

“This bill holds insurers accountable for systemic biases built into company practices by requiring that they test their data systems, algorithms, and models to identify unfairness that has historically been ignored and accepted,” said Michael DeLong, CFA’s Insurance Advocate. “The bill creates a process to ensure that insurance markets are more equitable. With its enactment, Colorado has an opportunity to be a leader in the national effort to reduce systemic bias in insurance and other financial services.”

CFA has conducted research about the implications of several pricing practices by insurers that will likely be subject to review under the new bill. Noting that data show Black, Latinx, and Indigenous Americans have lower credit scores on average than white Americans, CFA pointed to data it acquired from Quadrant Insurance Services, LLC about the impact of credit history on auto insurance premiums in Colorado. Using premium quotes for a 35-year-old with a perfect driving record, from ten of the largest insurers in Colorado for every ZIP code in the state, CFA found that:

• A driver with EXCELLENT credit pays an average annual premium of $592.11 for basic auto insurance coverage;
• If that driver has FAIR credit, their premium rises to $785.67, a 33% credit penalty; and,
• A good driver with POOR credit, sees the average annual premium increase by 72% to $1,019.59 for the same coverage.

While the bill does not prohibit the use of credit scoring in insurance, it bans insurers from using any external consumer data or information, algorithms, or predictive models that disproportionately harm members of any protected class. Under the law, the Insurance Commissioner will adopt rules to ensure that insurance carriers’ use of data and models does not lead to unfair discrimination, while giving companies the opportunity to mitigate any biases in their algorithms.

“This bill does not automatically change any insurance company practices, but it creates an important process to determine if unfair discrimination occurs in the Colorado insurance market and ensures that it will not persist if it is found,” said DeLong.

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

The post Colorado Bill to Address Discriminatory Insurance Pricing Heads to Governor Polis’s Desk appeared first on Consumer Federation of America.

 In this paper, Watch Where You’re Going: What’s Needed to Make Auto Insurance Telematics Work for Consumers, CFA concludes that without effective oversight, telematics programs could result in unfair pricing, improper use of personal information, racial and ethnic discrimination, and data insecurity, among other concerns. We have distributed the paper to state insurance commissioners and to the Federal Insurance Office. 

The post Watch Where You’re Going appeared first on Consumer Federation of America.

In the paper – Watch Where You’re Going: What’s Needed to Make Auto Insurance Telematics Work for Consumers – CFA explores telematics programs’ promise of reducing the number and severity of car accidents and incentivizing safer driving, as well as the significant possibility that these consumer data harvesting programs increase insurer opportunities to profit at the expense of their customers. Without effective oversight, telematics programs could result in unfair pricing, improper use of personal information, racial and ethnic discrimination, and data insecurity, among other concerns detailed in CFA’s paper. CFA has distributed the paper to the nation’s state insurance commissioners and the Federal Insurance Office.

“Auto insurance telematics, subject to proper oversight, could lower costs for safe drivers and replace unfair, non-driving factors used by many insurers today,” said Doug Heller, CFA’s Insurance Expert. “But before we let insurance companies ride shotgun every time we get behind the wheel, we need guardrails in place, so telematics is not just a wild west of data harvesting, unfair discrimination, and unjustified pricing.”

In Watch Where You’re Going, CFA drew three overarching and intertwined conclusions:

1. Telematics programs have the potential to usher in a new era in auto insurance pricing that would lower costs for safe-driving Americans and incentivize safer driving generally;
2. Insurers and the third-party vendors that develop telematics systems must do much more to explain and justify their algorithms, demonstrate they are not unfair, and ensure consumer privacy, and;
3. State insurance departments must establish rules regarding use of telematics, pricing transparency and fairness, and consumer privacy to build confidence in these programs.

The paper highlights the fact that very few states have adopted any rules for the use of telematics in auto insurance, which is also sometimes referred to as “usage-based insurance (UBI).  CFA, after detailing the various potential problems and abuses of unchecked telematics programs, urged strong oversight of insurance telematics by state regulators and the adoption of several consumer protections, including:

• Insurers must demonstrate and explain the actuarial basis for the data to be collected and used as part of a telematics program;
• Insurers must obtain informed consumer consent for use of consumers’ data and shall not use, sell, rent, or share telematics data for non-insurance purposes;
• Insurers must test for and minimize disparate impact on protected classes such as race and ethnicity in the offer and application of telematics programs;
• Consumers must be able to review all collected data and access the data for use in claim settlements;
• If telematics data are shared with or among carriers through a contributory database exchange, the exchange must be subject to the Fair Credit Reporting Act (FCRA) and oversight by both Consumer Financial Protection Bureau and state insurance regulators, and;
• Third-party telematics algorithm developers should be licensed as insurance advisory organizations and subject to state insurance department regulation.

“Most auto insurers currently base rates, in part, on socio-economic characteristics such as education, occupation, and credit history rather than exclusively on driving-related factors,” said Michael DeLong, a Research and Advocacy Associate with CFA and co-author of the white paper. “Telematics programs could move away from those harmful practices and really help consumers, but that means insurers must stop using these non-driving factors and demonstrate that telematics do not create different forms of unfair discrimination in the market. States must step up and ensure that auto insurance telematics improves consumer outcomes without making customers vulnerable to new abuses.”

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

The post New White Paper Released: Auto Insurance Telematics Programs Require New Consumer and Privacy Protection Standards to Achieve Safety and Pricing Promises appeared first on Consumer Federation of America.