Trial Begins Today in Consumer Groups’ Challenge to State Farm Request for Higher Homeowners Insurance Rates

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San Francisco, CA – State Farm’s request for a 6.9% increase in its homeowners insurance premiums goes to trial this morning in San Francisco. Consumer Watchdog, one of two organizations bringing the legal challenge before the California Department of Insurance, says the company’s rates are already too high, and should be reduced by 12-13%. At stake is $210 million a year in excessive premiums that the company wants its customers to pay.

State Farm has made $1.5 billion in profits from its California homeowners line over the last 5 years, according to State Farm’s annual financial statements. Yet California’s largest homeowners insurance company now claims that unless it gets a special “financial hardship” exemption, its constitutional rights will be violated.

“The issue in court today isn’t about a rate increase, it’s about rates that are already excessive and refunds to State Farm policyholders who are paying too much,” said Harvey Rosenfield, the author of Proposition 103, and one of Consumer Watchdog’s lawyers in the case.  

“State Farm has no constitutional right to overcharge consumers, and voters passed Proposition 103 to make sure they don’t,” said Todd Foreman, of the Zohar Law Firm, P.C in Los Angeles. “State Farm is turning the law upside-down, using rules that are meant to protect consumers to justify hundreds of millions in excess profits for a very profitable insurance company.”

"We believe the evidence will convince the Department of Insurance that instead of approving a rate hike, it should order State Farm to reduce the amount it charges 1.7 million Californians for homeowners insurance," stated Richard Holober, Executive Director of the Consumer Federation of California, which has also challenged State Farm’s application.

Previous Unjustified Rate Increases Blocked by Proposition 103

State Farm has a long history of attempting to charge excessive homeowners insurance rates.  In 2006, after the Department of Insurance initiated an action against the insurer to justify its rates and Consumer Watchdog intervened, State Farm agreed to decrease its overall rates by 20%, resulting in a savings of $266 million for renters and homeowners.  In 2011, after Consumer Watchdog showed that State Farm’s requested overall rate was excessive, the Department of Insurance ordered the company to decrease rates by 12.6%, or by $157 million.  In 2013, State Farm sought another 6.9% overall rate increase, but the Department ordered the company to further reduce these rates by 1.2%, resulting in $86 million in savings to policyholders, in response to petitions from Consumer Watchdog and the Consumer Federation of California.  Since 2006, State Farm policyholders have saved more than $508 million dollars as a result of Proposition 103.  

In the current proceedings:

– State Farm wants four exceptions from the rules that bar excessive rates.
– State Farm says it cannot be required to issue refunds to policyholders for overcharges.   
– State Farm claims that if they cannot obtain an additional $210 million a year from policyholders, it will cause the company deep financial hardship.

Proposition 103
Proposition 103, approved by California voters, requires insurance companies to open their books to public scrutiny and justify auto, home and business liability insurance rate changes before they take effect, using rules that limit each insurance company’s profits and expenses to fair levels. Under the law’s public participation system, consumers may request a hearing when an insurer applies for a rate that appears excessive. According to a 2013 report by the Consumer Federation of America, Proposition 103 has saved California motorists over $100 billion since it took effect.

Consumer Watchdog has used the public participation process under Proposition 103 to save auto, home and medical malpractice insurance policyholders over $3 billion since 2003.

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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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