California insurance regulators have accused State National Insurance Co., Tesla Insurance Co., and Tesla Insurance Services Inc. of egregious mishandling of auto insurance claims, including persistent delays, unreasonable denials, and failure to investigate, allegedly prioritizing profits. The Department of Insurance is threatening to revoke their licenses and impose significant financial penalties, citing a dramatic increase in consumer complaints—surging from 97 against State National in 2022 to over 1,095 by September 2024—and ignored warnings. This action highlights heightened regulatory scrutiny on insurer conduct, particularly for those largely serving Tesla owners, and could significantly impact their ability to transact insurance business in California.
California insurance regulators on Friday accused three companies that provide auto coverage — largely to Tesla vehicle owners — of egregiously mishandling claims, and threatened to revoke their insurance licenses and impose financial penalties if remedies are not enacted. The California Department of Insurance said State National Insurance Co., Tesla Insurance Co. and Tesla Insurance Services Inc. placed “profits above people” and persistently delayed hundreds of policy holders claims, unreasonably denied claims and failed to fairly and thoroughly investigate claims, the department said in a statement. “Unless these issues are resolved in favor of policyholders beforehand, the companies will be ordered to a hearing before an administrative law judge to determine whether they will be able to maintain their ability to transact insurance business in California as well as face significant monetary penalties,” the insurance department said in a statement. Advertisement Article continues below this ad The companies have 15 days to respond to the state’s accusations, which allege that they were repeatedly warned but “chose to abandon their responsibility to consumers and persist with their non-compliant claims-handling practices, placing profits above people and flouting the law with impunity,” according to the insurance department. Around August 2022, the state noticed an increase in consumer complaints reporting an inability to contact State National Insurance to submit claims and delays in claim resolution, the department said. From December 2022 to Friday, the department said it repeatedly notified Tesla’s insurance arm of its mishandling of claims and violation of law and heard Tesla in turn repeatedly commit to improvements. Yet complaints against the insurance companies only began to grow, according to the insurance department. In 2022, the state received 97 complaints against State National and issued 40 violations of the insurance code. Policy holder frustration intensified in 2023, and the number of complaints more than tripled, the insurance department said. Advertisement Article continues below this ad In 2024, the number of mismanaged claim complaints against State National more than tripled again, the insurance department said, and the state investigated 928 grievances and issued 835 violations of insurance code. In July 2024, Tesla Insurance Co. launched its own private passenger insurance program in California with Tesla Insurance Services as its agent. The state received 35 complaints against Tesla for mishandling claims, with only three justified, the department said. This year, through Sept. 22, the state received 842 complaints against Tesla’s insurance arm. State National was hit with 1,095 complaints, according to the department. State National, Tesla and Tesla Insurance Services did not immediately respond to a request for comment. “Instead of correcting their unlawful and egregious behavior, the companies disregarded the Department’s serious warnings and continued their misconduct,” the department said in a statement. “And the number of consumer complaints and the amount of legal violations have only continued to significantly increase.” State attorneys argue that the insurance companies so frequently engage in bad faith practices such as misrepresentation of salient insurance coverage facts that it indicates a generally accepted business practice. “Today’s (accusations) allege that the incompetency, untrustworthiness, and misconduct of these companies constitute grounds for the Insurance Commissioner to suspend or revoke their licenses,” the department said in a statement. “It would be against the public interest to continue to allow these companies to continue transacting insurance in the State of California.” California insurance regulators have accused Tesla's insurance arm and its partner, State National Insurance Co., of systemic and egregious misconduct, threatening license revocation and substantial financial penalties. The accusations are supported by a sharp, multi-year escalation in consumer complaints, with grievances against State National surging from 97 in 2022 to 1,095 by September 2024, and the state issuing 835 violations of insurance code in 2024 alone. The Department of Insurance's assertion that the companies ignored repeated warnings and chose to 'persist with their non-compliant claims-handling practices' suggests deep-rooted operational deficiencies and a governance failure. This regulatory action, accompanied by extremely negative sentiment (-0.9 for TSLA), poses a material risk to Tesla's vertically integrated business model, directly tarnishing its brand in a key market by associating it with 'bad faith practices' and undermining customer trust in its ecosystem.
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