LOS ANGELES: After several years of steady or even declining insurance costs, Californians now face rate increases that could cost them hundred of dollars a year for car and homeowners coverage.
The rate hikes have triggered bad memories of soaring auto insurance rates in the 1980s that led to statewide reforms as well as the insurance crisis that hit homeowners in the wake of the 1994 Northridge earthquake.
“I don’t believe they’re doing it for legitimate reasons,” said Larry Cole, 65, a Glendale biochemist who said he saved about $1,000 a year by going to an out-of-state company for car insurance. “They’re the one institution I probably trust the least.”
However, California insurance regulators, who must approve most rate hikes, say their reviews generally show the insurance industry has kept prices stable for several years while costs have jumped.
“Auto rates have been pretty flat since about 1995,” state Insurance Commissioner Harry Low said. “The factors we use to review rates are indicating that the requests for increases have generally been justified or partly justified.”
Across the nation, tornados, toxic mold and stock market losses are being blamed by insurance companies for higher rates and, in some cases, decisions to stop writing money-losing polices altogether.
– In New York, 34 insurers offering homeowner policies have filed for rate increases in the past 16 months.
– In Arizona, 23 companies have sought approval this year to raise homeowner rates, while more than 50 auto insurers have done the same.
– In Hawaii, State Farm recently raised auto insurance rates for the first time in 10 years.
In California, insurers are raising rates and in some cases becoming more selective. State Farm has refused to write new homeowner policies in the state.
The hikes come at a time when the median price of a single-family home in the state has broken the $300,000 mark, making protection even more critical.
Homeowners are also facing tighter underwriting requirements concerning homes likely to suffer water damage.
“The bottom line will be a more expensive product covering less,” said James Joseph, co-owner of Century 21 Grisham-Joseph in Whittier.
Some insurers are even refusing coverage to people who own certain breeds of aggressive dogs in the wake of a recent highly publicized dog mauling case in San Francisco.
It’s a situation that has residents and consumer activists afraid that insurers may use current conditions as an excuse to raise rates even higher.
“This is just the beginning,” said Harvey Rosenfield, executive director of the Foundation for Taxpayer and Consumers Rights. “Inevitably, they provoke public anger, which they seek to deflect by finding some scapegoat.”
Stock market gains by insurance companies in the late 1990s helped keep rates low even as the cost of claims increased, industry officials say. Repair and health care costs associated with car accidents, as well as nationwide homeowner claims stemming from ice storms, tornados and other natural disasters, were offset by insurance company investments.
But starting in 2000, stock market losses and dropping interest rates vastly reduced company reserves.
About the same time, courts began to award millions to homeowners suing insurance firms for mishandling toxic mold claims. A June, 2001 Texas verdict for $32 million was upheld on appeal.
Since then, people from Erin Brockovich to Ed McMahon have said their homes and their health suffered when water leaks produced mold. McMahon sued his insurance company, claiming mold led to the death of his dog.
In Texas, toxic mold claims filed against Farmers Insurance Group rocketed from 12 in 1999 to more than 8,000 in 2001.
The combination of investment losses and increased claims led State Farm Insurance Co. to report a loss of $5 billion in 2001.
Last month, State Farm said it would stop writing new homeowners policy in California, where it has a 20 percent market share.
Commissioner Low doesn’t think State Farm‘s decision will lead to the kind of crisis the state experienced after the Northridge earthquake, when insurers withdrew from the market after facing payments of billions of dollars in damages.
“There are enough healthy companies with good earnings that are going to be competing for this business,” Low said. “There may be out-of-state companies that will step into this market, particularly if they can write a cap on certain coverages or might exclude some coverages that create higher risk of loss.”