Safeco Puts Halt on New Calif. Homeowners Policies

By | August 18, 2003

Seattle-based Safeco Corp. has stopped selling homeowners policies in California due to its ongoing tussle over rates with the state insurance department and Commissioner John Garamendi’s emergency regulation restricting insurers’ use of the CLUE database.

The action, which Safeco spokes-man Paul Hollie described as temporary, became official July 22. Safeco’s re-quest for a 19.7 percent increase in homeowners’ rates was rejected by the California Depart-ment of Insurance (CDI), and the company said current rates are inadequate for expansion. Safeco will continue to service current policies, Hollie said.

“We’re looking to work with the Commissioner’s office on this,” Hollie told Insurance Journal. “Assuming that there can be some sort of a compromise that could come from working with the Commissioner’s office, we’d hope to resume writing business in California. We’ve been there since 1933 so it’s obviously important to us.” Hollie went on to clarify that no personal meeting with Garamendi has been granted or sought, but that Safeco has refiled its request for the 19.7 percent rate increase.

Two Safeco subsidiaries sell about 2.8 percent of California’s homeowners’ policies, or about $128 million in written premium, according to data from the National Association of Insurance Commis-sioners. About 19 percent of the property/casualty business Safeco writes in California is homeowners. The company said it covers 240,000 homeowners in the state.

Direct writer State Farm Mutual Insurance Co. stopped issuing new homeowners policies last year, and the Safeco announcement is likely to only worsen an already hardened market bruised by increasing mold litigation and the lingering asbestos problem.

Industry groups are appealing the Garamendi regulation in the courts, arguing it exceeds the Commissioner’s authority, but a judge refused to stay the regulation in the meantime, meaning insurers must decide now whether they can live with the new limits until the matter is resolved by the courts. The case will be heard by a California appeals court Aug. 22.

The Comprehensive Loss Underwriting Exchange (CLUE) is a national industry database tracking property’s claims histories and is used by insurers in evaluating risks. Garamendi said the system is unfair because it tracks properties rather than the individual property owner’s claims history. The emergency regulation requires insurers to certify the accuracy of computerized databases such as CLUE and bans insurers from relying solely on claims and loss history when making underwriting decisions.

In a news conference Aug. 4, Garamendi defended the action, criticizing CLUE as error-ridden and saying its use often amounts to a policy of “use it and lose it” when it comes to making claims on homeowners policies.

Joseph Annotti, president of the National Association for Independent Insurers, said CLUE, which is administered by ChoicePoint, has a very low error rate—”a fraction of a percent.” He also claimed errors are easily fixed and that if insurers cannot document a particular loss item it is deleted from the databse.

More generally, Annotti defended the use of loss and claims history as a valid underwriting tool. “It always has been considered,” he said. “[CLUE] just makes it more efficient for everyone involved to access that data.”

To comment on this story, e-mail: koreilly@insurancejournal.com.

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