Responding to consumer complaints about auto insurance coverage, the state insurance commissioner said Thursday that insurers could face penalties for creating unlawful barriers for California drivers.

Ricardo Lara issued a bulletin to auto insurers, reminding them that they cannot change their policies’ terms and rates without formally filing for state review and approval. The bulletin also reminded companies that they must offer coverage to all motorists in California who meet the state’s legal definition of “Good Drivers.”

“These alleged passive-aggressive tactics by insurance companies to slow down drivers’ access to coverage are unacceptable, dangerous, and will not be tolerated,” Lara said in a statement. “I am taking action today to ensure these insurance companies are acting according to the law and giving drivers the coverage they are paying for at the rate they qualify for. We will continue to monitor the situation and take any and all steps necessary to protect California consumers.”

The commissioner acted in response to numerous complaints the department received about insurers imposing requirements that are not allowed by state law, including Proposition 103, the 1988 ballot measure that regulated property and casualty insurance sold in California. Issuing the bulletin, the department said, makes the legal requirements clear to insurers and “sets the stage for future enforcement actions, if warranted.”

Frustrated by state regulations, a number of insurers have limited the new policies their agents can sell in California. And for California drivers who already have policies, the challenge for many has been a sharp increase in premiums when they renew.

California drivers are now running into speed bumps to coverage because insurers say they were hurt by Lara’s pandemic-related orders, including those requiring partial refunds to policyholders who were driving less and denying approval for rate increases through most of 2022.

Big-name insurers have been saying for months that they “can’t get the rates they need from the state Department of Insurance,” said Mike D’Arelli, executive director of American Agents Alliance, a national association of independent insurance agents and brokers.

The companies complained they were losing money despite being profitable as recently as 2022, according to Department of Insurance market share data.

The complaints that reached Lara’s desk include claims that some auto insurers may not be offering “Good Driver” discounts to those who qualify. According to the department, California law requires insurers to offer a policy with such a discount to any driver who’s held a license for the last three years, has no more than one point on their driving record and was not principally at fault in a motor vehicle accident that resulted in bodily injury or death.

Consumers also have complained about “having to complete unnecessarily lengthy and/or confusing questionnaires, verify employment or school information, respond to physically mailed questionnaires despite applicants electing to receive documents electronically, provide information regarding excluded drivers living at the same address, and/or submit copies of applicants’ utility bills, vehicle registrations, and/or photos of driver’s licenses or vehicles, among other examples,” the department said Thursday.

These barriers in many cases “discourage, inhibit or delay” motorists from completing an application for insurance, especially in a timely manner, the department said.

In addition to the requirement to offer coverage to good drivers, the bulletin issued by Lara highlights the limits on what insurers can demand from applicants. “The Insurance Commissioner may initiate administrative enforcement actions and/or seek penalties against any and all insurers failing to offer and sell automobile insurance to all qualified Good Drivers,” the bulletin states.

The bulletin also reiterates that, under Proposition 103, auto insurers in California are required to submit complete rate applications to the insurance commissioner for review and approval “any time they seek to implement new, or changes to existing, programs, coverages, rates, rating factors, underwriting guidelines, rating rules, forms, and fees, or make any other changes that may have a rate impact,” even if they think there won’t be any impact, according to the Department of Insurance.

“An insurer’s failure to file proposed underwriting guidelines prior to implementing the proposed guideline may result in an administrative enforcement action against the insurer leading to restitution and/or penalties,” the bulletin says.

Proposition 103 gave the insurance commissioner the power to review property and casualty insurance premiums before they go into effect, known as a “prior approval” system. It also sharply limited the factors insurers could consider when setting rates, requiring that they show data connecting each factor to their risk of loss. The goal was to prevent insurers from setting discriminatory premiums that didn’t reflect a driver’s potential for claims. Prior to the law, insurance companies weren’t regulated.

If a requested premium increase exceeds 7%, the commissioner makes an independent determination of the allowable rate change based on data provided by the insurance company. Proposition 103 also allows consumer advocates and other third parties to intervene with their own analyses and arguments.

As if high gas prices weren’t making life miserable enough, California drivers are being buffeted by higher auto insurance premiums — if they can find coverage at all.

Frustrated by state regulations, a number of insurers have limited the new policies their agents can sell in California. Barbara Caudana, a personal line account manager for Conrey Insurance Brokers and Risk Management in Orange, said she and other agents at Conrey are having to turn away at least three potential customers a day.

“We’re working really hard to not ever say to a person, ‘Jeez, I’m sorry there’s nothing we can do,’” she said.

Conrey is currently working with four insurers that limited coverage opportunities for new clients, a common dilemma for drivers who are newly licensed or shopping for another insurer. Drivers can lose coverage even for seemingly small offenses, such as missing one payment — Caudana said there are no more grace periods.

If a driver is matched with a coverage plan, the second hurdle is waiting sometimes 15 days before coverage kicks in. Laine Caspi, an agent for Paratus Insurance Services in Granada Hills, said she worries that people are driving without coverage during these waiting periods.

For California drivers who already have policies, the challenge for many is the sharp increase in premiums when they renew. Caspi said she’s gotten calls from people who can’t afford the increase and are dropping their coverage.

How did we get here? It started when California Insurance Commissioner Richard Lara ordered insurers to make partial refunds to policyholders who were overcharged for March and April in 2020, when the pandemic’s stay-at-home orders effectively decluttered California’s roadways and lowered the risk of being on the road, according to a study by UC Davis. The requirement to lower premiums remained in effect as the pandemic continued.

“At this point we’re up to $2.6 billion in returns of premiums, so that’s money saved thanks to the strong actions we took and the protections that we have,” said Michael Soller, a spokesman for the Department of Insurance.

It was a priority for the commissioner to make sure drivers weren’t being overcharged, Soller added.

On top of the pandemic-related refunds, the commissioner also refused to approve any rate increases for automobile insurance providers for most of 2022.

Big name insurers have been saying for months that they “can’t get the rates they need from the state Department of Insurance,” said Mike D’Arelli, executive director of American Agents Alliance, a national association of independent insurance agents and brokers.

The companies complained they were losing money despite being profitable as recently as 2022, according to Department of Insurance market share data.

At the tail end of 2022 and the beginning of 2023, Geico, Mercury Insurance, Allstate and several other insurers were approved for 6.9% increases, and some smaller insurers got larger hikes. Nevertheless, D’Arelli said, by the time the rate-approval process was completed, the increases did not keep up with the rise in costs in the current economy.

“That really brought things to this fever pitch,” he said.

According to S&P Global Market Intelligence, private auto insurers across the U.S. are “racing to increase premium rates as they seek to offset historically poor underwriting results,” which reflect the difference between premiums collected and claims paid.

It reported that the average increase for private auto insurance was 11% in the U.S. through August 2023. The rate change process and the amount of premium increase approved differs in each state.

Companies then tapped the brakes and started limiting agents to no more than two to five new policyholders a month, D’Arelli said, adding that some insurers were going as far as disciplining agents for exceeding their quota.

To request rate increases, insurers have to present their case to the California Department of Insurance and undergo a review process established by Proposition 103, the premium-rollback initiative that voters approved in 1988.

Proposition 103 gave the insurance commissioner the power to review property and casualty insurance premiums before they go into effect, known as a “prior approval” system. It also sharply limited the factors insurers could consider when setting rates, requiring that they show data connecting each factor to their risk of loss. The goal was to prevent insurers from setting discriminatory premiums that didn’t reflect a driver’s potential for claims. Prior to the law, insurance companies weren’t regulated.

If a requested premium increase exceeds 7%, the commission typically replies with a counteroffer based on its calculations of the insurer’s risks. Proposition 103 also allows consumer advocates and other third parties to intervene with their own analyses and arguments; one group that frequently does so is Consumer Watchdog, a nonprofit founded by attorney Harvey Rosenfield, the author of the ballot measure. If there’s no agreement, the insurer can continue to push for a higher increase through a hearing, although hearings are rare, Soller said.

This system has affected how insurance companies behave because “they want to be competitive with other insurance companies,” Soller said.

There have been rumblings about insurers leaving California and taking their business to states with fewer regulations; two examples are Kemper Independence Insurance and its subsidiary Unitrin Auto and Home Insurance, which will stop covering California drivers in January. If a company does take its business elsewhere, Rosenfield said, the insurance commissioner has emergency authority under Proposition 103 to bring it back.

“Lara has recently really pushed back on the intervention process because it contributes so dramatically to the cost and time involved in getting rate filings approved,” D’Arelli said.

Doller and D’Arelli said inflation helped drive the larger premium increases, but Rosenfield chalked it up to greed.

“[Insurers have] been looking for a way to get either the insurance commissioner or the courts, the voters, the legislature or the governor on board to derail Proposition 103 and its protections for years,” he said. “And it’s not just because [they’ll be] able to rip us off like they used to in California, but because Proposition 103 has become a model for reform all over the country.”

Rosenfield also said that blaming Proposition 103 is preposterous, and that not adhering to the law will make auto insurance even less affordable.

“[With Proposition 103,] no rate can be approved unless it’s a fair and reasonable rate,” Rosenfield said.