Santa Monica, CA — Three rate proposals from State Farm – California’s largest commercial multi-peril insurer – to increase commercial multi-peril insurance rates by up to 9.0% on average, or $6.6 million combined, will lead to overcharges, Consumer Watchdog said in a legal challenge filed with the Department of Insurance today. This commercial multi-peril insurance provides both liability and non-liability (e.g., property) coverage for nearly 100,000 businesses.
On February 26, 2016, State Farm filed three rate applications seeking rate increases for different businesses.
• Wholesale, retail, and service business, like barber shops and book stores, would pay 5% more on average.
• Professional offices, like accountants, would pay 5.5% more on average.
• The largest increase – an average overall 9.0% – would affect many other miscellaneous businesses, ranging from day care centers to caterers.
“California’s small businesses have barely recovered from the economic collapse in 2008,” said Jonathan Phenix, a staff attorney at Consumer Watchdog. “They can’t afford to pad State Farm’s pockets with these unjustified rate increases. Proposition 103 protects small business owners from having to do so.”
Under Proposition 103, insurance companies are barred from charging excessive auto, home and business rates. The measure also authorizes consumers to challenge illegal rates and other insurance practices. This system has saved California policyholders over $100 billion since it took effect in 1989, according to the Consumer Federation of America.
Consumer Watchdog’s challenge to State Farm’s excessive rate increase is the latest in a series of attempts by State Farm to overcharge policyholders. Last week, State Farm submitted a legal brief in another rate case, arguing that being forced to reduce its homeowners insurance rates would deprive the company of its constitutional rights, despite the undisputed fact that the company has made billions of dollars in profits. During 2015 alone, despite the unusually large amount of wildfires, State Farm had another extremely profitable year, with after-tax profits of $174 million. Nevertheless, State Farm asked for a $94 million increase over its current rates. However, as Consumer Watchdog pointed out in its own legal briefing, State Farm has no constitutional right to overcharge consumers and an analysis of State Farm’s financial operations shows that policyholder’s rates should actually be decreased by over $100 million.
The current filings are part of a pattern by State Farm of attempting to overcharge policyholders. In 2013, State Farm tried to increase overall homeowners insurance rates by 6.9%, but the Department of Insurance, in response to petitions from Consumer Watchdog and the Consumer Federation of California, ordered the company to reduce these rates by 1.2%, resulting in $86 million in savings to policyholders. In 2011, after Consumer Watchdog showed that State Farm’s requested overall rate was excessive, the Department ordered the company to decrease these rates by 12.6%, or by $157 million. And in 2006, after the Department of Insurance initiated an action against the insurer to justify its rates and Consumer Watchdog intervened, State Farm agreed to decrease its overall rates by 20%, resulting in a savings of $266 million for renters and homeowners
For a copy of Consumer Watchdog’s request for a hearing, click here: http://www.consumerwatchdog.org/resources/2016-04-20_cwd_petition_for_hearing.pdf
To read more about Proposition 103, click here: http://www.consumerwatchdog.org/focusarea/prop-103-california-insurance-reform
About Consumer Watchdog
Consumer Watchdog is a non-profit non-partisan organization. It has invoked the public participation process under Proposition 103 to save auto, home and medical malpractice insurance policyholders over $3 billion since 2003.
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