California Announces State Farm’s Request for a 10.6 % Reduction in Rates – 1.2 Million California Homeowners and Renters Will Benefit

SACRAMENTO – Insurance Commissioner John Garamendi today announced that State Farm Insurance has requested a 10.6% reduction in homeowners’ insurance rates, amounting to $123 million in savings for 1.2 million California homeowners and renters. The average policyholder would save $103 annually.
The rate reduction filing, which must be reviewed by the Department of Insurance before any approval is given, comes on the heels of the Commissioner’s June order requiring four major insurers to justify their rates. An earlier study by the Department determined that insurers have been paying far less in claims than they collect in premiums.

“This is good news for State Farm policyholders and for all California insurance consumers,” said Commissioner Garamendi. Noting that USAA sought a decrease earlier this year, the Commissioner said he expects even more savings for consumers. “As more large companies file for decreases, others will be forced to follow suit in order to compete.”

Wednesday’s announcement is in sharp contrast to Allstate’s announcement last week that it would seek a 12.2 percent increase in its homeowners insurance rates. In June, the Commissioner ordered Allstate, State Farm, Farmers Insurance and Safeco Insurance to justify their rates. The move was prompted by the Department study’s finding that four of the state’s largest homeowners’ insurers were paying far less than 50 cents of each premium dollar to settle policyholder claims. The four insurers account for 51% of the California homeowners’ insurance market.

The study, called “Lower Claims, Higher Profits: Where Do Your Premium Dollars Go?” disclosed the historically low loss ratios that the insurers have experienced over the past two years. For instance, in 2005 State Farm kept 62.4% of each premium dollar after making payments for claims; Allstate kept 59%; Farmers kept 62.3%; and Safeco kept 73.7%. In light of that extraordinarily low percentage of premium dollars used to settle policyholder claims, Commissioner Garamendi ordered the four insurers to provide data showing their current rates are not excessive.

“As Commissioner I want this industry to remain healthy and competitive in California,” said Commissioner Garamendi. “However, it is my duty to uphold the law that requires that insurance company profits not be excessive. I am determined to fulfill my responsibility, ensuring that premiums paid by California homeowners do not exceed what is necessary for insurers to pay claims and earn a reasonable profit.”