State Farm Insurance must reduce rates by an average of 7 percent for 1.7 million homeowners and renters in California while it challenges Insurance Commissioner Dave Jones' findings that its rates were excessive, a judge ruled Monday.
Jones said the decision would save Californians $84 million in the next year. The commissioner has also ordered State Farm to refund an additional $110 million it has collected from homeowners and renters since July 15, 2015, but San Diego County Superior Court Judge Katherine Bacal, in her ruling Monday, put the refunds on hold while the case continued.
Consumer groups had brought the case to Jones after State Farm sought a 6.9 percent rate increase. The groups relied on Proposition 103, the 1988 voter initiative that required insurers to seek the state commissioner's approval for new rates for property and casualty coverage. The proposition also authorized the commissioner to limit charges to the amounts needed to cover claims costs, expenses and a reasonable rate of return.
If Jones' order to reduce current insurance rates were to be suspended while State Farm challenged it, Bacal said in her ruling, "consumers would be required to continue paying rates that the commissioner found to be excessive. In this regard, a stay contravenes the public interest that Proposition 103 was intended to protect."
Jones said the company's lawsuit challenging his order was "an attempt to weaken consumer protections provided by Proposition 103 while simultaneously continuing to overcharge consumers."
"State Farm customers have been overpaying for home, condo and renters insurance for a year and a half, and we are pleased that State Farm won't be able to delay fair prices any longer," said Richard Holober, executive director of the Consumer Federation of California.
State Farm said it would comply with the rate reduction while considering whether to appeal.
"We do not believe the commissioner's decision is lawful, and will continue taking the necessary legal steps to challenge the mandated rate reduction and rate refund," said company spokesman Sevag Sarkissian.
After a public hearing on State Farm's rate increase request, Jones concluded Nov. 7 that the company's rates were too high and ordered reductions of 5.37 percent for homeowners, 20.39 percent for renters insurance and 13.81 percent for condominium policies. Because most of the policies are for homeowners, the statewide average was 7 percent.
He applied the same 7 percent reduction to rates charged since July 2015, requiring $110 million in refunds. In granting the company's request for a stay of the refunds, Bacal noted that if she eventually upholds Jones' order, policy holders would be paid in full, plus interest.