State chief will hold hearings this summer
The San Diego Union-Tribune
California Insurance Commissioner John Garamendi yesterday accused homeowners’ insurers of “price-gouging” consumers and said he plans to hold hearings this summer.
At a news conference in San Diego, Garamendi charged that over the past two years some of the state’s largest insurers have taken in far more money from their customers than they have paid out in claims.
“Homeowners and automobile insurance companies in this state have profited immensely at the expense of consumers,” Garamendi said. “The more money these companies keep from your premiums, the less they pay out in claims.”
But insurers say that even if they have been paying below-average claims over the past two years, they need to build reserves to be ready for major tragedies, such as the Southern California wildfires of 2003.
“In the insurance industry, you’re going to have years in which you wipe out your reserves and then you’ll have years of recovery in which you rebuild your reserves,” said Candysse Miller, a spokeswoman for the Insurance Information Network of California. “A healthy company has to have profits in order to handle the billion-dollar losses.”
A study released by the Insurance Department yesterday showed that in 2004, the top five insurers in California took in roughly $3 billion in premiums and paid slightly more than $1 billion in claims, with an average payout of 38 cents per dollar.
In 2005, the top five insurers took in roughly $3.5 billion in premiums and estimated that they would pay out $1.5 billion in claims, with an average estimated payout of 46 cents per dollar. Half of the top 20 homeowners insurers last year paid out 45 cents or less per dollar of premium.
“It used to be that insurers would pay out close to a dollar in claims for every dollar they take in premiums, since they make most of their money through investments anyway,” said Harvey Rosenfield, a longtime critic of the insurance industry who heads the Foundation for Taxpayer and Consumer Rights in Santa Monica.
Garamendi — who is campaigning for lieutenant governor ‘ is currently weighing a regulation that would require the Insurance Department to conduct an automatic review of an insurer’s policy rates any time payouts drop below 50 cents on the dollar.
Rosenfield, who stood by Garamendi during yesterday’s news conference, proposes an even stiffer threshold of 70 cents on the dollar. Last year, only one major insurer in the state — the Interinsurance Exchange of the Auto Club — would have come close to matching that threshold, with payouts of slightly less than 69 cents.
Safeco Insurance Co. paid the lowest ratio of claims. For every dollar Safeco charges for homeowners’ insurance in California, it pays out slightly more than 26 cents in claims, according to Insurance Department data.
“We’ve taken steps to make homeowners’ insurance profitable,” said Safeco spokesman Paul Hollie. “We’ve automated our underwriting to make our business more efficient and effective.”
Garamendi called Safeco‘s low level of payouts “unconscionable.”
Garamendi’s attack on insurers comes as the auto insurance industry — mostly involving the same companies as the homeowners’ segment — is fielding a $2.4 million campaign to block his attempts to rewrite the way they calculate fees on their policies.
Following the dictates of Proposition 103, a ballot initiative passed in 1988, Garamendi proposed last month that auto insurance rates should reflect drivers’ safety records more than the ZIP code in which they live.
Currently, most auto insurers put their primary emphasis on ZIP codes, so that a bad driver in a favorable ZIP code in La Jolla will pay less than a good driver living in a poorly rated ZIP code in Chula Vista.
Garamendi charges that the insurers use ZIP codes as a marketing tool so they can sell more insurance to affluent neighborhoods. But in the past two weeks, auto insurers have aired TV commercials and newspaper ads saying his changes would push rates sky-high.
“They’re using the same kind of language that they did in 1988 when the voters passed Prop. 103,” said Rosenfield, who spearheaded the ballot initiative. “The voters were smart enough to ignore them back then.”
PAYING CLAIMS
LOWEST PAYOUT RATIOS:
Safeco: 26.31%
Pacific Casualty: 27.82%
USAA: 31.82%
Liberty Mutual: 33.66%
Allied Property: 34.71%
HIGHEST PAYOUT RATIOS:
Auto Club: 68.97%
Century: 52.85%
Mercury: 52.74%
First American: 51.60%
Hartford: 50.53%
SOURCE: California Department of Insurance
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Contact the author Dean Calbreath at: (619) 293-1891 or [email protected]
