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OLDWICK, N.J. (BestWire) – While the three biggest homeowner insurers in California raise rates, a consumer group is asking the California Department of Insurance to put a moratorium on rate increases.

The Foundation for Taxpayer and Consumers Rights also is questioning how Zurich/Farmers Group, the second-largest writer of homeowners insurance in the state, has been able to raise its rates by 25.7% since January 2000 by requesting several increments of 6.9% or 5%.

Zurich/Farmers currently has another 6.9% increase pending, which would mean its policyholders could pay 32.6% more for homeowners insurance this year compared with two years ago.

When companies are allowed to raise their rates in small steps, the public isn’t allowed to fully participate in the process, said Pam Pressley, staff attorney for the foundation.

For increases 7% and greater, third parties, such as the foundation or members of the public, can ask the insurance commissioner to hold a hearing.

For proposed increases of 6.9% and under, third parties aren’t allowed to ask for a hearing, although the commissioner can order a hearing any time he chooses.

“Our plea to the department is to put a moratorium on rate increases,” Pressley said. “We think insurers may be taking advantage of the market, and these rate increases may not be necessary. Maybe it’s time insurers tighten their belts, too.”

State Farm General Insurance Co., the state’s largest writer, has also recently received permission to raise rates by 6.9%, according to the insurance department.

Allstate (NYSE:ALL), the third-largest homeowners insurer in the state, is seeking a 22.3% increase, according to a request filed with the department (BestWire, Jan. 2, 2002).

Scott Edelen, deputy commissioner of the insurance department, said all rate increases are scrutinized, no matter what their size. “If an increase isn’t warranted, it isn’t granted. It’s not rubber stamped,” Edelen said. “We use the same criteria no matter what the increase requested is.”

As for Farmers, which has requested a total of five increases since January 2000, Edelen said the state laws don’t restrict how many times in any given period a company is allowed to request a rate change. He said it’s likely that a hearing on Allstate‘s requested rate hike will be held.

Farmers spokeswoman Mary Flynn said the increases are needed because the cost of repairs has risen. When Farmers applied for a 6.9% increase in April, the company said it was paying out $1.37 in claims for every $1 in premiums it received in California (BestWire, April 19, 2001). The company said under the new rates, some homeowners might see their insurance bills increase by as much as 15%, while others could see no increase at all.

The insurance department approved Farmers‘ last increase in June, Edelen said.

Allstate said its rate increase is the first it’s asked for in eight years, the last one being a 6% increase in 1994. The increase is necessary to offset several years or rising loss costs, attributable to increases in fraud costs, building materials and constructions costs, said Allstate spokeswoman Lisa Wannamaker.

State Farm has seen its claims costs increase by 30% in the past three years, company spokesman Bill Sirola said. “To call for a moratorium isn’t going to help consumers at all. If companies can’t get their prices to match what they are paying out in claims, there is only one option, and that’s to close off business,” Sirola said. He said water damage to property has been a main driver of the added increase. “We don’t have a claims code for mold yet, but it might be driven by mold or the fear of mold,” Sirola said.

Earlier this month, 21st Century Insurance Group (NYSE:TW) said it would stop writing homeowners insurance in California altogether (BestWire, Jan. 7, 2001). It had a 6.9% increase approved in 2001, and it had applied for a second increase of 28% later in the year, according to the Foundation for Taxpayers and Consumer Rights.

State Farm has a 22.1% share of homeowners multiperil coverage in California, according to A.M. Best Co. State/Line product information for 2000. Zurich/Farmers holds a 19.6% market share, while Allstate has a 15.4% market share. State Farm Group is rated A++ (Superior) by A.M. Best Co. Allstate Insurance Co. and 21st Century Insurance Co. are rated A+ (Superior). Farmers‘ A+ rating is currently under review.

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