Challenges Under Voter-Approved Prop 103 Could Save $50 Million for 110,000 Fireman’s Fund and Geo Vera Policyholders
Santa Monica, CA — The Department of Insurance ordered hearings this week into proposed earthquake rate increases by Geo Vera and Fireman’s Fund in response to filings by consumer advocates at the Foundation for Taxpayer and Consumer Rights (FTCR) to block those rate increases as excessive.
The Department of Insurance granted two hearings in response to FTCR’s rate challenges this week:
– FTCR’s petition to block a 6.8% rate increase proposal by Geo Vera, California’s largest independent earthquake insurer, could save policyholders a minimum $44 million.
– FTCR’s challenge to a proposed 25% increase in Fireman’s Fund‘s earthquake insurance rates could save each of the company’s earthquake policyholders $356 a year.
"Earthquake insurance customers with Geo Vera and Fireman’s Fund must be protected from these excessive and unjustified multi-million dollar rate hikes," said Carmen Balber, consumer advocate with FTCR.
A previous challenge filed by FTCR saved Safeco‘s California earthquake insurance policyholders $19.3 million; FTCR has saved over $800 million for drivers, homeowners, and doctors through rate interventions since 2003. See the chart here.
Both hearings were granted under the rules of voter-approved Proposition 103, which requires insurance companies to justify rate changes prior to imposing increases, and allows consumer groups like FTCR to challenge excessive rates and request public hearings. The Insurance Commissioner must grant a hearing if a requested rate change exceeds 7%, as was the case with Fireman’s Fund‘s proposed increase.
FTCR challenged Geo Vera’s rates as excessive primarily because the insurer seeks to pass through $44 million in unjustified reinsurance costs to its policyholders, an amount which makes up over 50% of its requested rates. FTCR’s petition also alleges that Geo Vera failed to disclose information about costs of the company’s reinsurance despite a clear requirement for the company to provide it under new prior approval regulations effective April 3, 2007. It also challenges the company’s failure to provide any evidence that its catastrophe model used to predict future losses uses the best available data or meets the appropriate actuarial standards.
"Geo Vera is trying to slip a rate hike by the Insurance Commissioner by refusing to disclose its costs. Prop 103 requires insurers to open the books and justify premiums to protect consumers from such unwarranted increases," said Balber.
Experts working with FTCR found Fireman’s Fund‘s requested earthquake rate hike is excessive, includes unjustifiable profit margins and does not use a credible model to determine future losses.
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The Foundation for Taxpayer and Consumer Rights is a leading nonprofit and nonpartisan consumer watchdog group. For more information visit us on the web at: www.ConsumerWatchdog.org.