Does watchdog group actually represent Californians when challenging insurance prices?

In the annals of California’s Insurance Wars, the number of feuds between Consumer Watchdog and industry groups are almost too many to count.

For decades, the organization has consistently challenged companies trying to raise their prices for home and automobile coverage in the state. It uses a process created by California law that has many times forced insurers to charge people less than they originally wanted.

In the state’s tumultuous market, where prices are spiking and coverage is harder to find, the Department of Insurance is now considering a question that goes to the heart of the group’s work: Does Consumer Watchdog actually represent the interest of Californians?

For industry groups the answer to that question is an emphatic “No.” They argue the organization is using the process for its own financial gain.

“I think it’s not too strong to say that insurance companies hate Consumer Watchdog,” said Dave Jones, who served as the state’s insurance commissioner from 2011 to 2019. “And they would rather it just go away.”

The state law at the center of the latest dispute requires companies to receive the department’s approval before they can raise their prices. It also allows groups and people to challenge those proposed cost increases.

While open to everyone, protesting rate filings is a complicated task that requires a specialized level of insurance expertise. Few have the resources to get involved.

Last year, companies submitted more than 500 requests to change the price of their policies. Challenges were filed in 18 of those applications. All were put forward by Consumer Watchdog.

The leaders of the Personal Insurance Federation of California, a major industry lobbying firm, say the organization loves stirring up conflict in its challenges because it can make more in fees the longer it takes to resolve a rate approval.

“Representing the ‘interests’ of insurance policyholders takes a backseat to their primary focus on maintaining a system of conflict that provides billable hours while keeping the marketplace impaired.”

Carmen Balber, Consumer Watchdog’s executive director, scoffed at those who doubt the organization serves the interests of insurance policy holders in the state. Companies don’t like the group, she said, because it is holding the industry accountable.

“The entire mission of this organization is to represent the interest of consumers against big corporations.”

The new quarrel involving Consumer Watchdog is about more than just one state agency’s decision. It is fueled by frustration – a desire from insurance companies to clear what they see as a barrier on the path towards a more stable future.

Rising risks to homes from climate change and catastrophic wildfires, as well as inflation, have led to chaos in California’s market for home insurance.

Major companies claim they are struggling financially and have paused and pulled back business in the state in recent years. They want to speed up price increases to make up for losses. They view Consumer Watchdog as a flamethrower, rather than a genuine collaborator looking for solutions to the issues plaguing California’s insurance market.

Consumer Watchdog’s leaders accuse companies of drumming up the state’s insurance troubles to make more money. To prove the organization’s bona fides, they point to a report they released earlier this year that claims the group has saved Californians billions of dollars by protesting price hikes.

State law allows those challenging price changes to be compensated if they contribute to the process, and as long as the department certifies they represent the “interests of consumers.” The agency grants that title, which Consumer Watchdog has earned many times, and it must be renewed every two years.

That is where the recent fight began.

New approach to key question

In June, Consumer Watchdog re-applied for the consumer designation, arguing its staff and consultants were “some of the nation’s foremost consumer advocates and experts on insurance ratemaking matters.”

Then, the department did something new: It offered outside groups the chance to comment on the request.

Balber said the move was unprecedented.

“The whole precept that the insurance industry should be invited to weigh in on who represents consumers is absurd.”

Gabriel Sanchez, a department spokesman, said Insurance Commissioner Ricardo Lara is trying to do things differently in the face of California’s insurance struggles.

State lawmakers, companies and residents are all pressuring Lara to do more. In response, he is supporting rule changes meant to speed up reviews of proposed rate increases. Lara blames delays on companies – but he also claims Consumer Watchdog has slowed the process down by copying department work when it protests price hikes. He has accused the group of holding the reviews hostage at times.

“Department of Insurance’s experts will not rubber stamp any part of the rate regulation process,” Sanchez said in a written statement. “This requires the Department to examine and hold all parties to the rate filing process accountable.”

He said it was “baffling” that Consumer Watchdog was opposed to allowing public comment on its request.

Insurance groups were eager to air their frustrations.

“We have not been invited to comment before, so we weren’t going to miss that opportunity,” said Denni Ritter, a lobbyist for the American Property Casualty Insurance Association.

Ritter sent a letter to the department that took issue with Consumer Watchdog’s claim that it has saved Californians $6 billion since 2002 by challenging rate filings.

That figure is flawed, Ritter wrote, because it assumes that companies being forced to charge less for their coverage is solely a good thing. It does not, she said, factor in the financial health of companies or account “for delays, added costs to the system, and resulting market deterioration.” And, she added, it doesn’t give department staff credit for its role in the reviews.

Balber countered by again referring to the organization’s report from this year, which said companies got a larger share of the cost increases they wanted in cases the organization didn’t dispute.

“It’s very clear that the rate increases are lower when we’re involved,” Balber said. “Do we know exactly what it would have been if we didn’t challenge? No.”

Alan Smith, president of WIAA Group, which includes the Western Insurance Agents Association, was more disparaging in his criticism. He said the organization acts more like a for-profit law firm than a consumer advocate.

He pointed to Consumer Watchdog’s 2022 tax filing. It shows the organization paid Harvey Rosenfield, its founder, $450,000 as an independent contractor.

“We’re in this crisis, quite frankly, in our opinion because of Harvey Rosenfield,” Smith said in an interview. “We believe he’s an entrepreneurial lawyer.”

It’s the type of critique Rosenfield has faced for decades. In 1985 he founded the group that became Consumer Watchdog. He also wrote Proposition 103, the 1988 ballot measure that made companies have their rate hikes approved and allowed people and groups to dispute them. Leading up to the election, political advertisements sponsored by the insurance industry labeled him as an attention-seeking “Santa Monica activist.”

In response to the latest attacks, Rosenfield acknowledged he makes a lot of money but said he works very hard.

“My entire career has been about public service,” he said. “If money was my motivating object I would have gone to work for an insurance company.”

Still, critics see a troubling connection: That Rosenfield and the organization he started benefit from a state law he wrote. They view the more than $9.4 million Consumer Watchdog has received since 2013 for disputing rate hikes as a sign of his group cashing in. Last year alone, it collected $533,245.

But that only came after Consumer Watchdog was found to have contributed to the reviews. The companies that ask for the rate changes pay for the money awarded to challengers. Industry representatives say the costs are passed onto policy holders.

There is no doubt Consumer Watchdog’s finances rely heavily on challenging the disputes. Over the last two years, more than 42% of its funding came from attorney fees and payments generated by protesting rate changes, the organization reported. Losing the ability to collect money for those protests would likely lead the group to challenge fewer of them — something insurers would welcome.

But does all of that mean Consumer Watchdog doesn’t represent Californians?

“They’re not always right, and I’ve had my disagreements with them,” said Jones, the former insurance commissioner. “But there’s no question that what motivates them — and what their strong advocacy is about — is advancing the interest of consumers.”

Representatives for 14 environmental, legal and other groups co-signed a letter to Lara that said it was “outrageous” for companies to suggest Consumer Watchdog wasn’t working on behalf of residents. It called on the department to grant the organization’s request immediately.

“The fact that the insurance corporations are going after Consumer Watchdog, means Consumer Watchdog is doing their job extremely well,” said Mark Toney, executive director of The Utility Reform Network, and one of the letter signers. “In fact, I would call it a badge of honor.”

The criticism, Rosenfield said, “just shows that Consumer Watchdog is doing exactly what we’re supposed to do, which is standing up to protect the people of California.”

The department plans to decide by early August if it agrees.