State Farm cutting its rates

Published on

Inside Bay Area (California)

State Farm customers can expect their homeowners insurance rates to drop an average of 20 percent and auto insurance rates to fall 10 percent under a proposal announced Wednesday that calls for the biggest rate cut in the company’s California history.

Outgoing Insurance Commissioner John Garamendi, who has pushed insurance carriers to lower their rates, announced the proposal at a news conference in San Francisco.

“This is good news for millions of State Farm California policyholders and customers,” Garamendi said.

State Farm is the state’s largest provider of homeowners and auto insurance. The proposal is the latest move by several carriers, large and small, to lower rates for homeowners and auto insurance.

Garamendi’s office has pressured the carriers the past year to justify their homeowners insurance rates in the wake of a study that found the carriers were not cutting premiums even though fewer claims had been filed in recent years.

Last week, Farmers Insurance proposed cutting homeowner rates by an average of 18 percent for its nearly 1 million policyholders. Allstate, however, has filed for a 12 percent increase, arguing that higher rates are needed in part to reflect the state’s vulnerability to natural disasters.

State Farm‘s proposed 20 percent homeowner rate cut is expected to result in $230 million in annual savings for the carrier’s 1.4 million homeowners, renters and condominium policyholders. Auto insurance rates are expected to drop an average of 10 percent — about $259 million in savings — for most of the carrier’s 3 million auto insurance policyholders.

“It’s an extraordinary amount of money,” Garamendi said.

The new auto insurance rates are expected to take effect in March, with the new homeowner rates to follow in late April. The biggest decreases will go to policyholders with combined auto and homeowners insurance, the company said. State Farm‘s 20 percent homeowner rate reduction is almost twice what the carrier originally proposed last year.

But the Insurance Department and consumer groups pushed for a bigger rate cut.

“This is a substantial savings for customers and, frankly, long overdue,” said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights, who believes that State Farm has room to lower its rates further.

State Farm spokesman Bill Sirola said the 20 percent reduction resulted from negotiations with the Insurance Department.

State Farm initially filed for an average 8 percent drop in auto insurance rates in August at the same time it agreed to revise its auto insurance rates to comply with a court order that was a victory for Garamendi’s office and a defeat for the insurance industry. The court order requires carriers to come up with new rate plans to reflect Proposition 103, a 1988 voter initiative requiring auto insurance to be based primarily on driving records and not residence. The reductions are tied to lower claims costs, according to the carrier.

“The individual cost of claims is still growing, but the number of claims is stabilizing,” Sirola said.

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