Consumer Group Challenges Farmers Insurance’s California Homeowners Rate Increase

December 7, 2007

A California consumer group is challenging Farmers Insurance Co.’s request for a rate increase of 6.9 percent.

The Foundation for Taxpayer and Consumer Rights (FTCR), in a petition filed Monday with the state Department of Insurance, claims that Farmers is seeking exemptions to state rules that could allow it to charge 1 million Californians almost $250 million extra per year for homeowners insurance, when the company’s data indicates customers should receive an approximately 19.6 percent rate decrease. The rate increase request comes less than a year after then Insurance Commissioner Garamendi ordered Farmers to decrease prices by about 18 percent, FTCR said.

According to Farmer’s rate filing, it wants Insurance Commissioner Steve Poizner to grant three variances to the rules limiting excessive insurance premiums. Among the exceptions the company seeks, Farmers wants $120 million in excess premiums for its “superior customer service,” FTCR said. Company executives claim the nation’s third largest insurer should be compensated for the work it did to improve service. Farmers also is seeking two additional variances. One would reward the company for its investment in underserved communities, the other is an attempt to increase premiums in response to a law passed in the wake of the 2003 wildfires clarifying that the cost of labor does not depreciate for purposes of determining the payment to a policyholder rebuilding a home, FTCR said. The variances are worth approximately worth $125 million to the company.

FTCR’s petition was filed under Proposition 103, which requires insurance companies to justify rate changes prior to imposing increases, and allows consumer groups like FTCR to challenge excessive rates and request public hearings.

Farmers is one of a handful of homeowners insurers, including Allstate and Fireman’s Fund, that are seeking exceptions to the regulatory formula that prevent excessive rates under Proposition 103, FTCR said.

FTCR request for hearing on Farmers’ proposed rate increase:

Farmers’ rate increase request:

Source: FTCR, DOI

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