GeoVera Insurance Settles with State

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The California Department of Insurance has settled a noncompliance action against GeoVera Insurance Co. following an investigation that started after some customers complained about steep increases in their earthquake insurance premiums.

Although the investigation found the premium increases were "justified and legitimate, we also uncovered other underwriting practices that we thought were illegal," says Bryant Henley, assistance chief counsel for the department.

GeoVera denied that its actions violated the law but has agreed to change some practices, provide refunds to customers and pay a $235,000 fine to the Insurance Department, which eventually will go into the state's general fund.

It's too early to say how much the refunds will be. "GeoVera is under an obligation to engage in a self-audit which the department will review," Henley says.

"It will cover policies from April 1, 2009, up to the present." At the end of the audit, GeoVera has 90 days "to refund premiums where they discover certain practice were engaged in."

Second largest

GeoVera is the second-largest provider of earthquake insurance in California, with about 7.5 percent of the market. The largest, with almost half the market, is the state-sponsored California Earthquake Authority.

In a January 2010 column, I quoted GeoVera policy holders who were stunned to see their premiums double or triple in one year.

Henley says the rate increases stemmed from a 2008 agreement between GeoVera and the Insurance Department that required GeoVera to use a third-party company to estimate the replacement cost of customers' homes. GeoVera had been doing this in-house.

The department believed it was underestimating replacement costs. Because premiums are based on replacement costs, it feared that GeoVera might not be able to pay all claims after a large earthquake.

New calculator

In 2009, GeoVera switched to a calculator developed by Marshall & Swift/Boeckh, which caused some customers to see sharp increases in their home values and thus their premiums.

"Much of the premium increase that customers experienced was due to the fact that GeoVera was undervaluing the worth of those homes. Once they started properly valuing them, the premium consumers was forced to pay was more in line with the value of their homes," Henley says.

In the process of investigating premiums, the department found numerous violations of the Iinsurance Code, some of which were related to the switch to Marshall & Swift, Henley says.

In some cases, GeoVera allegedly sent out rate renewal notices, which caused customers to be charged improper premiums, and automatically charged some customers' credit cards for renewal premiums without their approval, Henley says.

It also did not give "proper consideration" to some customers who said the information GeoVera had obtained about their homes from public records was incorrect, Henley says.

It also found cases where GeoVera allegedly charged twice for the same risk. For example, if a customer had a crawl space, it might levy one surcharge for having a foundation with a crawl space and another surcharge for having a basement level, when it should have imposed only one surcharge, says Doug Heller, executive director of Consumer Watchdog.

GeoVera's attorney did not return phone calls.

Henley could not say how much customer refunds might be, but guessed the total could be "hundreds of thousands" of dollars.

'We will contact you'

A recording on GeoVera's customer service line says its actions did not violate the law and it expects to finish reviewing the majority of cases during the next 90 days. It adds that "you do not need to do anything. If you are affected, we will contact you directly."

That said, it would not hurt to let GeoVera know where you are.

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