State Farm Agrees to Reduce Dwelling Insurance Rates by $100 Million Following Consumer Watchdog Challenge

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Santa Monica, CA – Answering Consumer Watchdog’s call on State Farm to drastically reduce its dwelling insurance rates, California’s largest homeowners insurance company has agreed to slash these rates by 40%.

State Farm’s dwelling insurance protects policyholders who need to insure a home other than the one they occupy. Unlike traditional homeowners insurance, dwelling insurance covers only the home structure, not the home’s contents. Over 280,000 policyholders currently purchase dwelling insurance from State Farm. The rate reduction, effective for policies sold after February 1, 2017, will save policyholders who buy this type of coverage about $101.1 million annually.

Under Proposition 103, California’s voter-approved reform law, insurance companies must justify their home, auto and business insurance rates before they take effect; consumers are authorized to demand a public hearing when proposed rates appear excessive. Prop 103 also requires insurance companies to immediately reduce existing rates if they become excessive. In June 2016, State Farm submitted a filing at the request of the California Department of Insurance and applied for a 26% rate reduction on its dwelling insurance.

After analyzing State Farm’s application, Consumer Watchdog found that State Farm had overestimated claims costs and also sought exemptions to Prop 103’s rate regulations to which the company was not entitled. Consumer Watchdog’s analysis showed State Farm would have to reduce overall rates by 40% to avoid overcharging policyholders and comply with Proposition 103. Therefore, in August, Consumer Watchdog requested that the Insurance Commissioner hold a hearing on State Farm’s application. After discussions with Consumer Watchdog and the Department of Insurance, State Farm subsequently voluntarily agreed to the reduction, and no hearing was necessary.

“We applaud State Farm for agreeing to reduce its rates by the full 40%,” said Consumer Watchdog staff attorney Jonathan Phenix. “This is the latest in a series of major cuts in insurance premiums that the voters mandated when they passed Proposition 103.”

Prop 103 Protections Save Californians Billions

The 40% reduction in State Farm’s dwelling insurance rates is the most recent victory for California consumers under Proposition 103. Earlier this year, State Farm agreed to abandon proposed rate hikes on small businesses and instead implemented an average overall rate decrease, saving policyholders $7.8 million. Since 2003, policyholders with State Farm insurance have saved more than $850,000,000 after Consumer Watchdog challenged the excessive rates initially proposed by State Farm.

In a challenge to State Farm’s excessive renters and homeowners insurance rates that went to a full hearing, an administrative law judge recently issued a proposed decision recommending that Insurance Commissioner Dave Jones reject State Farm’s 6.9% overall rate hikes and order State Farm to decrease its overall rate by 7.0%. The administrative law judge also recommended that State Farm refund its homeowner policyholders over $85 million in premium overcharges from July 1, 2015 to date, plus interest. Insurance Commissioner Dave Jones has not yet issued a final order adopting the proposed decision. On August 8, 2016, he referred the matter back to the administrative law judge for further briefing on whether State Farm should be required to pay interest on any refunds of excessive premiums, and if so, what the appropriate interest rate would be.

But insurance companies do not always readily comply with Proposition 103. Los Angeles based Mercury Insurance Company has appealed a 2009 order that it reduce its homeowners insurance rates by $16 million. A lobbying group representing California’s largest insurance companies, including State Farm, has joined Mercury’s appeal, and is asking the Court of Appeal in Sacramento to undo several components of Prop 103’s rate regulations, though the state Supreme Court has previously upheld them. Mercury has also sued to overturn a $27 million penalty it was required to pay when it was caught charging its customers an unlawful fee. After a superior court sided with Mercury, that case is expected to go to the Court of Appeal in Orange County.

About Consumer Watchdog

Consumer Watchdog is a non-profit, non-partisan organization established in 1985. It has invoked the public participation process under Proposition 103 to save motorists, homeowners, physicians and other business insurance policyholders over $3 billion since 2003.

Read State Farm’s October 19, 2016 Agreement to reduce its dwelling insurance rates:

Read Consumer Watchdog’s August 1, 2016 Petition challenging State Farm’s dwelling insurance rates:

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Carmen Balber
Carmen Balber
Consumer Watchdog executive director Carmen Balber has been with the organization for nearly two decades. She spent four years directing the group’s Washington, D.C. office where she advocated for key health insurance market reforms that were ultimately enacted into law as part of the Affordable Care Act.

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