The companies already are cutting back and say they can’t continue operating at a loss while Insurance Commissioner Ricardo Lara delays rate cases filed by companies representing three-quarters of the California market. Allstate, Geico, Kemper, Liberty Mutual and State Farm all reported paying more in claims than they collected in California premiums in the first half of the year, though they were profitable as recently as last year.

It’s part of Lara’s effort to compensate consumers who he says were overcharged during the pandemic’s early months, when traffic all but disappeared after California imposed the nation’s first stay-home order. His office couldn’t say how much it thinks insurers still owe, but the advocacy group Consumer Watchdog puts the amount at more than $3 billion.

“Data we collected directly from the insurance companies themselves shows many of them failed to fully return premiums that they overcharged consumers,” said Deputy Insurance Commissioner Michael Soller. Part of the department’s effort is “to make it right for consumers who continue to have been overcharged on premiums during the pandemic.”

But a state appeals court ruled last year that Lara can’t impose “retroactive rates and refunds.” The state Supreme Court declined review, and while Lara’s office interprets the ruling narrowly, insurers say it’s a blanket ban on his attempts to require further refunds.

The dispute comes as Lara runs for reelection against Republican Robert Howell, who is not expected to pose a serious threat to Lara’s re-election.

“The commissioner is an elected official and he’s trying to serve his constituents in a way that does not favor market forces,” said David Russell, a professor of insurance and finance at California State University, Northridge. “But if you suppress rates, you’re going to get availability problems.”

It’s similar to the dilemma companies face in insuring homes in wildfire-prone areas or along the Florida coast, he said.

“There is an obvious, and avoidable, market crisis looming,” three associations representing insurers writing more than 90% of California auto insurance premiums warned Lara in April.

“Auto insurers cannot operate indefinitely in California without the ability to collect adequate rates,” the National Association of Mutual Insurance Companies, the Personal Insurance Federation of California and the American Property Casualty Insurance Association (APCIA) said in their joint letter. “Criticism of decisions made during the pandemic, including allegations by some that insurers should have provided more relief for customers, do not justify ignoring the financial realities of the present.”

Since pandemic restrictions eased, traffic is back nearly to what it was in 2019 before the coronavirus struck, while drivers have become less safe so crashes, injuries and fatalities increased, said Bob Passmore, an APCIA vice president and auto claims expert. Deaths fell slightly last spring for the first time in two years, but any drop in those payments is offset by supply chain shortages and rapidly rising inflation.

Insurers should pay back their pandemic windfall, but Lara hasn’t proposed the regulations needed to make them do so, said Consumer Watchdog founder Harvey Rosenfield.

“In fact, it’s not clear to us exactly what the commissioner is doing other than … he’s not approving rate increases,” Rosenfield said. “So while I don’t think any company should get a rate increase until they’ve paid back what they illegally took from California motorists, it’s got to be done through a formal process.”

Thirty-eight rate increase filings are now backed up, along with five new requests filed this month.

Since then, Geico in August closed its three-dozen brick-and-mortar storefronts in California and stopped allowing drivers to buy insurance by phone, although it’s still allowing online sales.

Progressive President and Chief Executive Officer Tricia Griffith said in an earnings call last month that the company was slowing its growth in California because of the moratorium, while Allstate has stopped using independent agents and tried to limit customers’ payment options until it was blocked from doing so by Lara’s office.

“To have them doing things here in California that indicates a pulling back as much as they feasibly can, that’s an indication of an unhealthy marketplace, and we think that’s directly tied to the fact that the insurance commissioner has not reviewed a rate filing in 2 1/2 years,” said Denni Ritter, APCIA’s vice president for state government relations.

Massachusetts and New York also stopped considering rate increase requests during the pandemic but have now started again, the insurers said.

Insurers “are becoming increasingly less willing to write new business” in California because of the moratorium, Joseph Lacher Jr., Kemper’s president, chief executive officer and chairman said during an earnings call last month.

“In the relative short order, my personal belief is we’ll start to see the markets seize up,” he said. “And I just hope the commissioner doesn’t push it to that point because it will take a long time to restart it.”

Rosenfield doesn’t think the industry is in trouble, but he fears that Lara’s inaction may give insurers grounds to challenge him in court.

“If there’s one tactic the insurance industry has perfected, it’s trying to blackmail the public by threatening to pull out,” he said.

Rosenfield thinks the companies are using the opportunity to cherry-pick their best customers to boost profits by making it tougher for higher-risk consumers to buy insurance. But he criticized Lara for “sort of precipitating a crisis” by not using his regulatory authority to block what he believes to be insurers’ discriminatory behavior.

Insurers collectively refunded $2.4 billion to California drivers during the pandemic, though Lara calculated that the rebates fell far short of what consumers were owed. The state has 137 licensed insurance companies that collected more than $17 billion in private passenger auto insurance premiums in 2020, Soller said.

“Californians have many choices today for auto insurance in this highly competitive market and we will make sure it remains that way,” Soller said.