Safeco Seeks Nearly 20% Rate Hike to Resume Selling Home Insurance;

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The request for a fourth increase in three years comes just days after the company said it would halt sales because of a new state regulation.

The Los Angeles Times

Safeco, which said earlier this week that it was ceasing the sale of homeowners insurance to new customers in California, said Friday it was filing for a 19.7% homeowners rate hike and would resume sales if it got the increase.

Mike LaRocco, chief operating officer of Safeco Personal Insurance, said the request for an increase — the fourth Safeco would receive in three years — was based “on our previous loss history and indications of future losses, needs for capital and a fair return.”

If Safeco receives the increase, he said, not only will it resume sales to new customers, it will increase sales, “targeting a wider range of California consumers.” The company is the seventh-largest seller of homeowners insurance in the state, with 240,000 customers.

The move comes just two days after Safeco announced it would halt the issuing of new policies in California in reaction to a regulation by Insurance Commissioner John Garamendi. The regulation restricts the ability of insurers to choose their customers on the basis of past claims they have filed.

Safeco‘s request for higher rates drew a vitriolic reaction from the Foundation for Taxpayer and Consumer Rights, a consumer group that is asking for hearings on the proposed increase. “This is exactly what Enron did during the energy crisis, when power companies refused to make electricity available if we refused to pay exorbitant prices,” said Doug Heller, a spokesman for the group.

Safeco, he said, is making “a totally outrageous threat, in which an insurance company is telling the Department of Insurance that it must raise rates to whatever level the insurer desires, regardless of appropriateness.”

Heller said, and Safeco confirmed, that the company had received a 6.2% homeowners rate increase in May, 10% in November and 5% in December 2001. Such a record, when combined with the new rate increase, “should send a message to California consumers that Safeco isn’t interested in playing fair,” Heller said.

The reaction at the Insurance Department was mild.

“There will be an opportunity for Safeco to go through the public hearing process established by Proposition 103” — the 1988 insurance reform initiative — to justify the request, said Norman Williams, communications director for Garamendi. “The department will decide on that request just as we do with any other company.”

Safeco, meanwhile, distributed information compiled by the industry’s Insurance Information Network of California, saying that the cost of household water damage in California has been “growing at an alarming rate.”

These statistics showed that water damage claims paid by the industry have mounted steadily from $224 million in 1997 to $562 million in 2002, while all insurer payments to homeowner policyholders increased from $1.1 billion in 1997 to $1.7 billion in 2002.

LaRocco declined to respond to Heller’s comments, although before Heller spoke he observed, “I find it interesting that a consumer group thinks they’re doing good by blocking us from opening the market.”

The Foundation for Taxpayer and Consumer Rights is headed by Harvey Rosenfield, the consumer advocate who wrote Proposition 103. The group receives substantial intervenor fees from insurance companies for representing consumers in public hearings on rate increases.

Consumer Watchdog
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