Consumer Watchdog Challenge to Farmers Insurance Rates Ends with Rate Cuts for Renters

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Santa Monica, CA – Following Consumer Watchdog’s challenge to excessive rate hikes proposed by Farmers Insurance Group for 1.2 million renters, homeowners, and condo owners in California, the company has agreed to cut $27 million from its rate increase. Renters will see the greatest relief; their rates will drop by an average of 40.6% for an annual rate savings of $11 million from the rates requested by Farmers.

However, Consumer Watchdog informed the California Dept. of Insurance that the group could not join in the settlement of the rate challenge because the agency failed to enforce Proposition 103 rules that require public disclosure of data submitted by Farmers as part of any application for a rate change.

Under Proposition 103, California’s voter-approved reform law, insurance companies must open their books and justify their home, auto and business insurance rates before they take effect. Consumers are authorized to request a public hearing when proposed rates for a company appear excessive and are entitled by law to a hearing if the proposed rate increase for that company exceeds 7%. To allow the public to monitor insurance companies’ rates, Proposition 103 also requires the public disclosure of all items in an insurance company’s rate application.

Three corporate affiliates wholly owned and controlled by Farmers – Farmers Insurance Exchange, Fire Insurance Exchange, and Mid-Century Insurance Company – initially proposed rate hikes of 5.2%, 6.6% and 7.3% for each company. After carefully reviewing Farmers’ application, Consumer Watchdog objected to the requested increases and exercised its right to demand a hearing involving Mid-Century Insurance Company, because the overall rate increase requested by that company exceeded 7%.

• Consumer Watchdog objected to Farmers’ request to charge policyholders of its three affiliates nearly $2 billion for “management agreements and service contracts,” fees for which Farmers would reap a 50% profit.

• Consumer Watchdog also objected to Farmers' proposal to force policyholders to pay for advertising of the Farmers logo, including its sports sponsorships, because under state law the cost of advertising that does not provide information related to a person’s decision to buy insurance is the responsibility of Farmers stockholders, not customers.

• Finally, Farmers refused to file and publicly disclose detailed data concerning its contested advertising expenditures when it filed its rate application, which prevented public scrutiny of the application.  Farmers subsequently gave the information to the Department in secret, but the agency failed to disclose the information to the public. This is a violation of Proposition 103.

In response to Consumer Watchdog’s intervention and analysis, Farmers agreed to reduce the amount of rate changes it proposed for each company, resulting in a total annual rate savings of $27 million for policyholders. Renters in particular would see overall rate decreases of -40.6% instead of the -9.9% decrease proposed by Farmers – an annual savings of $11 million. Consumer Watchdog pressed for these reductions to ensure policyholders did not pay for the excessive management fees. Under the settlement, policyholders also don’t pay for any of the company's advertising expenses.

However, in reaching a settlement with Farmers, the Department permitted the company to withhold its advertising expense data from public scrutiny. The Department also refused to honor Consumer Watchdog’s statutory right to a hearing. Both are violations of Proposition 103.

As a result, Consumer Watchdog refused to join the proposed settlement, explaining, in a letter to the Department, that “there were serious concerns over specific problems” with the applications, “as well as the procedures followed by the Department of Insurance.” However, in order to expedite the proposed rate decreases worth millions of dollars that many consumers would receive, Consumer Watchdog agreed to not challenge the settlement.

Consumer Watchdog said it would challenge future violations of the rules. “The voters enacted these laws to ensure that consumers have a say in the rates they pay, especially when insurance companies are requesting huge rate increases. Keeping information secret and using loopholes to get around the rules undermines these consumer protections and ultimately leads to higher rates," said Consumer Watchdog staff attorney Jonathan Phenix.

Farmers customers can expect rate changes to begin going into effect on May 30, 2017.

According to a 2013 report by the Consumer Federation of America, Proposition 103 saved California motorists over $100 billion in the twenty-five years after the measure passed – approximately $8,000 for every family in California.  Read about the CFA report here:

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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