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By Timothy Darragh, BESTWIRE

May 21, 2019

http://news.ambest.com/newscontent.aspx?altsrc=108&refnum=217240

Farmers Insurance Exchange and an affiliate will face a public hearing next month to answer allegations they systematically overcharged their long-time California automobile insurance customers.

A panel of Los Angeles Superior Court judges May 17 denied a request by Farmers and its affiliate, Mid-Century Insurance, to issue a preliminary injunction in the case, setting up the June 10 hearing.

The case goes back to a 2015 class-action lawsuit filed against the companies, charging they did not give long-time customers discounts to which they were entitled. Specifically, the plaintiffs charged the companies were improperly calculating auto insurance premiums based on a policyholder's willingness to tolerate a price increase.

Pricing based on elasticity of demand, also known as "price optimization," is prohibited under California law, court records said, saying the practice "does not seek to arrive at an actuarially sound estimate of the risk of loss."

In 2016, the California Insurance Department initiated an investigation, the records said.

According to the notice of hearing, the department asked Farmers to respond to written questions and data requests to determine if it was using price optimization in setting rates. The department determined its answers were insufficient to make a ruling, the notice said.

An attempt to reach Farmers for comment was unsuccessful. Farmers Insurance Exchange is a unit of Zurich Insurance Group.

The latest ruling keeps the initial lawsuit on hold while the administrative hearing process occurs, which ultimately will result a decision to be given to Insurance Commissioner Ricardo Lara for his consideration, the department said.

According to Harvey Rosenfield of Consumer Watchdog, which has joined lawyers for Farmers' customers, Farmers and its affiliate allegedly failed to give policyholders who had been with the companies nine or more years a full discount to which they were entitled. Customers paid between 4% and 13% more in premiums each year than they should have paid, totaling $26 million to $29 million in overcharges, it said.

A company that violates the state insurance law faces penalties of $5,000 to $10,000 per person overcharged, as well as possible refunds, Consumer Watchdog said. Rosenfield said Farmers would have the right to appeal Lara's decision.

The hearing will be held in San Francisco.

State Farm in 2017 paid $13 million in refunds to California customers who were overcharged (Best's News Service, May 11, 2017).

The top five writers of all private passenger auto insurance in 2017 in California were State Farm Group, with 14.34% market share; Farmers Insurance Group, with 11.59%; Berkshire Hathaway Insurance Group, with 9.18%; Allstate Insurance Group, with 8.97%; and Auto Club Enterprises Insurance Group, with 8.48%, according to BestLink.

(By Timothy Darragh, associate editor, BestWeek: [email protected])