State Farm homeowners to see a 20 percent drop, state says
Sacramento Bee (California)
State Farm policyholders are ringing in the year with an surprise bonus: A bigger-than-expected price break on their homeowners insurance premiums for 2007.
The change nearly doubles the savings initially proposed by California’s largest homeowners insurance company last summer, state Insurance Commissioner John Garamendi announced Wednesday.
Under a final plan hammered out between regulators and the Illinois-based insurer, about 1.4 million State Farm Mutual Automobile Insurance Co. customers in California will see an average 20 percent rate cut, or about $164 a year, on their homeowners policies. That compares with a 10.6 percent decrease originally proposed in September.
Garamendi called the new lower rates, which could go into effect as early as April, a New Year’s gift to State Farm customers.
“Our analysis of their claims indicated the reductions should be significantly greater. We forced them to essentially double what they wanted to do,” Garamendi said during a teleconference from San Francisco.
State Farm spokesman Bill Sirola said the changes reflect an increasing drop in costs.
“We base our rates on what our claims data has looked like,” Sirola said. “The rate situation in California has gotten progressively better. The trends are encouraging.”
In 2005, State Farm cut rates by 6 percent for homeowners and renters.
In the past year, Garamendi has pressured major insurers to reduce their homeowners rates, accusing the industry of reaping excessive profits at the expense of consumers. He cited a study reporting most of the state’s 20 largest carriers paid in claims less than 50 cents for every $1 in premiums collected. Historically, the average payout is 60 to 65 cents.
Garamendi’s campaign has prompted State Farm and other major insurers such as Farmers, Safeco, Hartford, USAA, Nationwide and Kemper to slash rates.
On the other hand, Allstate Insurance Co., the state’s No. 3 carrier, is seeking a 12.2 percent rate increase, saying it needs to prepare for the growing financial risk from natural disasters.
“We have not increased our rates in three years in California. We have seen pretty significant cost increases,” said Rich Halberg, an Allstate spokesman in California.
Even with the higher rates, he said, the company’s prices will remain competitive in the state.
But Garamendi chided Allstate and accused the company of trying to abandon the California market. He predicted Allstate‘s rates ultimately would go down this year, and his office indicated the reduction could be as large as 20 percent.
“I don’t see any way in the world that Allstate is going to get anything except a rate reduction similar to what the other big companies have already agreed to,” said Garamendi, who is completing his final week as insurance commissioner. On Sunday he will be sworn in as lieutenant governor.
Consumer groups have asked incoming Insurance Commissioner Steve Poizner to conduct a hearing to review Allstate‘s proposal.
Allstate is “running counter to reality. They have managed to remain hugely profitable despite catastrophes,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.
During the first nine months last year, Allstate Corp. posted $3.8 billion in earnings, up from $724 million in 2005.
“When they report their profits for 2006, it’s going to be staggering,” Heller said. “We expect their rates will decrease.”