While State Farm Lowers Rates, Consumer Group Challenges Farmers’ Insurance Group’s Proposed 5.8% Rate Hike
Santa Monica, CA — California’s largest auto insurer, State Farm, has agreed with the California Department of Insurance to decrease its California auto insurance rates by 7.6%, after the company originally proposed a 4.0% reduction. This agreement is in line with an analysis by the Foundation for Taxpayer and Consumer Rights (FTCR), which reviewed the data and calculated that a 4.0% decrease was insufficient and that approximately an 8% reduction would be required under Proposition 103.
According to State Farm, this rate reduction will lower premiums by $215 million total, approximately $100 million more than was originally proposed
“State Farm‘s auto insurance rates were too high and needed to be reduced in order to comply with the regulatory protections of Proposition 103,” said Douglas Heller, Executive Director of FTCR. “If the company had not reduced its rates to comply with Prop 103, it could have been challenged for charging customers too much. We applaud State Farm for initiating and agreeing to this substantial rate reduction.”
Under California’s Proposition 103, insurers must first seek the approval of the Department of Insurance before raising or lowering insurance rates. Any member of the public can challenge any company’s request to change rates.
FTCR Challenges Farmers‘ Proposed Auto Insurance Rate Hike
While State Farm lowers its rates, the state’s second largest auto insurer, Farmers‘, has proposed a 5.8% rate hike for its customers. The proposed hike would cost Farmers‘ customers in California over $100 million dollars.
In California, under Proposition 103, a 1988 voter-approved ballot initiative that governs the California insurance industry, insurance rates are subject to public scrutiny and any changes require the prior approval of the insurance commissioner before a decrease or hike can take effect. The rules do not allow rates to be excessive. Using California’s Proposition 103, FTCR has challenged this rate hike as excessive and filed a formal challenge to Farmers‘ proposal with the California Department of Insurance earlier this month.
The law allows consumers and advocacy groups such as FTCR to request hearings on a rate hike proposal, as FTCR has requested for Farmers‘ rate increase.
According to FTCR’s analysis of the Farmers proposal, the rate hike is excessive for a series of reasons including:
‘ Farmers‘ seeks a 15% after-tax return on surplus, which far exceeds rates of return previously allowed by the California Department of Insurance;
‘ The insurer’s actuarial projections concerning losses are excessive;
‘ Farmers‘ includes excessive payments that it makes to an affiliated company, which inappropriately inflates its expenses.
New Data Shows Profit Increases Across Insurance Industry
A report issued by Weiss Ratings today shows that underwriting profits are at their highest in seven years and that insurers’ capital gains in the first quarter of 2004 increased by 182% over the same period in 2003. For example, State Farm Automobile Insurance net income for the first quarter increased by more than 1000% to $876 million according to Weiss Ratings. The dramatically increased profits for the insurance industry points to the need for rate decreases to protect consumers against gouging, according to FTCR.