Farmers Insurance Increases Homeowner Rates In California
California Insurance Commissioner Steve Poizner has allowed two of California’s largest home insurers –State Farm and Farmers – to increase premiums by a combined $115 million. State Farm customers will soon face an average 6.9% hike and Farmers policyholders’ rates will climb 4.1%, according to recent decisions by the Commissioner. In both cases, the nonprofit Consumer Watchdog had formally challenged the rates and petitioned Poizner to hold hearings pursuant to Proposition 103, but the commissioner rejected those requests.
In an economy like this, Californians are relying on the insurance commissioner to keep premiums as low as possible, but Commissioner Poizner refused to hold a hearing to investigate rate hikes that will affect more than 2.5 million homeowners. We reviewed the proposed rate increases and concluded that they were unjustified. The commissioner should not have allowed these insurers to jack up prices like this.
At least $20 million of the increase for State Farm was allowed as an exception to Proposition 103’s strict limit on excessive insurer expenses in order to let the insurance giant charge customers for “higher quality of [customer] service.” Included in Farmers’ rate hike was a special exception to the expense limit for millions of dollars allegedly spent on the company’s fraud prevention efforts. According to our review, the company did not meet the standard required to pass those costs on to policyholders.
We’ve noted that both State Farm and Farmers are financially well-positioned to pay claims resulting from the recent Southern California wildfires and do not need premium increases to address those losses. We intend to challenge the Commissioner’s decision allowing Farmers’ rate hike and is reviewing the propriety of the State Farm increase.
If the rates take effect, policyholders with State Farm will see an average increase of about $60 per year and Farmers customers will pay about $30 more on average.
With sinking economy, insurers turn to rate hikes
Insurance company profits are tied to their investment income and when the economy weakens companies try to push premiums higher in order to maintain high profits. We are concerned that other insurers will press the Department of Insurance for more rate hikes as their investment portfolios tank. As evidence, consider Allstate, which was forced to lower its California homeowners’ insurance rates by about $250 million last spring. Allstate requested a 6.9% rate hike increase for homeowners in September. That proposal is still under review by the Department of Insurance.
While everyone is feeling the sting of a bad economy, insurance companies want to pass the pain on to homeowners and other policyholders. The insurance commissioner stands between these companies and our wallets and Californians need him to be there.
California’s insurance reform law, Proposition 103, requires insurance companies to open their books and submit to public hearings to prove their rates are adequate without being excessive. Members of the public can challenge rate hike proposals, and the commissioner must grant a hearing if the requested change exceeds 7%. It is left to the commissioner’s discretion whether or not to initiate a full hearing for changes less than 7%, as was the case in the State Farm and Farmers matters.
In recent years, Consumer Watchdog has successfully challenged several insurance rate proposals, resulting in more than a billion dollars in savings for California policyholders.
Consumer Watchdog is a non-profit, non-partisan public interest group. In addition to being their Executive Director, Doug Heller is Consumer Watchdog’s lead legislative and regulatory advocate on insurance and energy issues. Heller spearheaded the two-year battle for the nation's strongest whistleblower protections, which are now California law.