Farmers to slash premium fees in 2007, leading to significant savings for owners and renters

Contra Costa Times (California)

Nearly 1 million California homeowners and renters can look forward to a significant reduction in their home and renter insurance rates after a decision by Farmers Insurance Group to slash premium fees in 2007.

Farmers, the Golden State’s second-largest homeowners carrier, has proposed an 18 percent reduction in homeowners rates. The decision by Farmers means that seven carriers, which together control more than half of the California market for homeowners insurance, have proposed lower rates starting next year. Several minor carriers also have proposed rate reductions.

The largest homeowners insurer, State Farm, already had proposed a 10.6 percent reduction in homeowners premiums. Among the major carriers, the only proposal for a rate increase has come from the third-largest firm, Allstate, which seeks a 12 percent increase.

The state’s Department of Insurance is putting Allstate through an exhaustive hearing process.

“We blew the whistle on the insurance companies and called them for illegal procedure,” John Garamendi, California’s insurance commissioner, said Wednesday. “All but one of the major companies came forward and reduced their rates.”

Coupled with auto insurance rate cuts announced separately, the reductions by the homeowners carriers means that homeowners, renters, and motorists are in line for savings that will total $1.5 billion by the end of 2007, according to the Department of Insurance. That represents what Garamendi, in his final days as insurance commissioner, describes as a successful year of cutting expenses for consumers.

The homeowners rate reductions came in the wake of a Department of Insurance study that found that four of the state’s largest insurers were paying an average of far less than 50 cents to settle homeowners claims for every premium dollar they collected. After the study, the commissioner ordered Allstate, Farmers, Safeco and State Farm to justify their homeowner rates.

The decision by the insurance companies on homeowners policies means that customers with policies from the major carriers in the state can expect reductions that total $439 million. The Farmers reduction alone accounts for $171 million of that.

Executives with Farmers, though, say market forces played at least as big a role as pressure from the commissioner.

For instance, Farmers said it had already been testing new types of insurance policies that enable lower average premiums for some homeowners.

People could buy extended dwelling replacement coverage and identity theft coverage under some of the new policies. Farmers also has started offering discounts for newer homes, newly remodeled homes and for customers who obtain both homeowners and automobile policies from Farmers.

“We continually look for innovative products in homeowners, auto and other insurance lines,” Davies said. “Innovation is what is driving this.”

Some consumer groups say the reductions, though widespread, don’t go far enough.

“Even though it’s great they are decreasing rates, we thought customers were owed even more reductions than what they are getting,” said Pamela Pressley, litigation director for the Foundation for Taxpayer & Consumer Rights. “There should have been deeper cuts.”

Garamendi, elected earlier this year as lieutenant governor, has succeeded in forcing both homeowners and auto insurance rates down on a broad front. Garamendi pointed out that 90 percent of the auto insurance companies serving California are reducing rates. Many will primarily use driving records rather than ZIP codes to determine premium rates.

“The real winners are consumers who will reap the benefits,” said Gary Gartner, an insurance department spokesman.
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George Avalos covers the economy, jobs, financial markets, insurance and banks. Reach him at 925-977-8477 or [email protected]