Financial services: Firm says aging housing stock justifies fifth increase in California homeowners’ premiums in two years. Consumer advocates express outrage.

Los Angeles Times

Farmers Insurance Group of Cos. has applied for a premium increase of 6.9% for homeowner insurance–its fifth rate hike request in California in two years and one that has sparked outrage from consumer advocates.

If granted, the increase would mean customers of the state’s second-largest insurer would pay on average 37% more for homeowner insurance than they did in January 2000.

A Farmers spokeswoman said Tuesday that the rate request, made public this week, was made because of increased costs from water-damage claims.

“The frequency of water-related claims has dropped, but the severity has gone up,” spokeswoman Mary Flynn said. She said aging roofs and pipes were largely to blame.

California’s three biggest insurers have asked for permission to increase homeowners’ premiums in recent months. State Farm Insurance Cos., the state’s No. 1 insurer, was granted a 6.9% increase in December. Allstate Corp., the third-largest insurer, is waiting for regulatory review of its 22.3% request.

A consumer group denounced the rate increases as excessive and said Farmers was attempting to “fly below the radar” by asking for multiple increases of 5% to 6.9%.

Requests for rate increases of less than 7% do not require a public hearing and typically are approved by the state Department of Insurance.

“This is a sneak attack by Farmers and other insurance companies who want to massively increase our premiums,” said Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

The state Department of Insurance “will be very carefully scrutinizing this latest increase,” department spokeswoman Nanci Kramer said.

The Los Angeles-based company’s four earlier rate increases were warranted because of the insurer’s rising costs and relatively low rates, Kramer said.

Farmers “definitely needed to increase its rates” because its premiums were so far below competitors’, she said.

Insurers throughout the country have been complaining about higher costs and an increased number of mold-related claims.

State Farm, Farmers and Allstate have stopped offering comprehensive homeowner policies in Texas that cover mold-related damage after suffering severe losses in 2001.

Farmers, a subsidiary of Zurich Financial Services Group, lost a $32-million lawsuit last year over its handling of a mold claim in Texas. The company expects water- and mold-related losses in Texas to exceed 2001 premiums by more than $300 million.

Flynn, however, said the company’s latest increase request in California was not prompted by mold concerns. Instead, she cited an aging housing stock, including homes built in the 1960s and 1970s with galvanized pipes are now are breaking.

Regulators approved Farmers‘ request for a 6.6% increase in 2000 and two 6.9% increases and a 5% boost in 2001.