State Farm's proposed 6.9% homeowners' insurance rate increase for 1.7 million California homeowners faces a challenge from Consumer Watchdog, which claims the rate would overcharge consumers $210 million annually if it takes effect.
But State Farm defended the hike, saying exposure to catastrophic losses in California is possibly "the most challenging factor in doing business in this state."
Consumer Watchdog and the Consumer Federation of California conducted analyses showing the rate request is excessive and said State Farm should cut its current overall rates by 12%-13%. The challenge sets up a Nov. 16 Department of Insurance hearing in San Francisco that could determine the rate and whether
State Farm policyholders can get refunds if the Department of Insurance orders a rate decrease.
State Farm's request was filed on behalf of State Farm General Insurance Co., a company subsidiary dedicated to California property risks. The rate request followed State Farm homeowners decreases of 1.2% in May 2014; and 12.6% in April 2013 (Best's News Service, Feb. 8, 2013). State Farm General rates increased 6.9% in both 2009 and 2010, but followed cuts of 20% in 2007 and 6.2% in 2005, State Farm media relations specialist Sevag Sarkissian said in a statement.
"We view exposure to catastrophic loss in California as potentially the most challenging factor in doing business in this state and that is the focus of this rate filing," said Sarkissian. "In order to live up to our mission of helping people manage the risks of everyday life and recover from the unexpected, State Farm must be financially solid. To be clear, the State Farm General Co. is a subsidiary dedicated specifically to California property risks."
Insured losses from two California wildfires in September top $1.1 billion, according to Aon Benfield's global catastrophe report. Economic losses from the Valley and Butte fires are estimated at $1.95 billion in the monthly report (Best's News Service, Oct. 8, 2015). In Napa, a 6.0-magnitude earthquake caused nearly $1 billion in insured losses a year ago (Best's News Service, Sept. 1, 2015).
The April 2013 rate cut was the result of an insurance department order that followed Consumer Watchdog's argument the proposed overall rate hike was excessive. In 2013, State Farm had also sought a 6.9% rate hike, but the department in response to a petition by Consumer Watchdog ordered it to reduce its rates by 1.2%. "State Farm has systematically tried to overcharge consumers for years," said Carmen Balber, Consumer Watchdog executive director. "Given that State Farm's current rates are excessive, this case is no different."
The legality of the rate regulations has been the subject of legal battles.
Consumer Watchdog said a Sacramento Superior Court ruling in June upheld the use of the rate review regulations.
State Farm General Insurance Co. currently has a Best's Financial Strength Rating of A (Excellent).
The top five writers of homeowners multiperil insurance in California during 2014 were State Farm Group, with a 20.52% market share; Farmers Insurance Group, with 16.01%; Allstate Insurance Group, with 8.11%; CSAA Insurance Group, with 6.52%; and Liberty Mutual Insurance Cos., with 5.61%, according to BestLink.