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Farmers Insurance Group pressed, will cut $27m from rate increase

Staff Writer |
Following Consumer Watchdog’s challenge to excessive rate hikes proposed by Farmers Insurance Group for 1.2 million renters, homeowners, and condo owners in California, the company has agreed to cut $27 million from its rate increase.

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Renters will see the greatest relief; their rates will drop by an average of 40.6% for an annual rate savings of $11 million from the rates requested by Farmers.

However, Consumer Watchdog informed the California Dept. of Insurance that the group could not join in the settlement of the rate challenge because the agency failed to enforce Proposition 103 rules that require public disclosure of data submitted by Farmers as part of any application for a rate change.

Under Proposition 103, California’s voter-approved reform law, insurance companies must open their books and justify their home, auto and business insurance rates before they take effect.

Consumers are authorized to request a public hearing when proposed rates for a company appear excessive and are entitled by law to a hearing if the proposed rate increase for that company exceeds 7%.

To allow the public to monitor insurance companies’ rates, Proposition 103 also requires the public disclosure of all items in an insurance company’s rate application.

Three corporate affiliates wholly owned and controlled by Farmers – Farmers Insurance Exchange, Fire Insurance Exchange, and Mid-Century Insurance Company – initially proposed rate hikes of 5.2%, 6.6% and 7.3% for each company.

After carefully reviewing Farmers’ application, Consumer Watchdog objected to the requested increases and exercised its right to demand a hearing involving Mid-Century Insurance Company, because the overall rate increase requested by that company exceeded 7%.

Consumer Watchdog objected to Farmers’ request to charge policyholders of its three affiliates nearly $2 billion for “management agreements and service contracts,” fees for which Farmers would reap a 50% profit.

Consumer Watchdog also objected to Farmers' proposal to force policyholders to pay for advertising of the Farmers logo, including its sports sponsorships, because under state law the cost of advertising that does not provide information related to a person’s decision to buy insurance is the responsibility of Farmers stockholders, not customers.

Finally, Farmers refused to file and publicly disclose detailed data concerning its contested advertising expenditures when it filed its rate application, which prevented public scrutiny of the application.

Farmers subsequently gave the information to the Department in secret, but the agency failed to disclose the information to the public. This is a violation of Proposition 103.

In response to Consumer Watchdog’s intervention and analysis, Farmers agreed to reduce the amount of rate changes it proposed for each company, resulting in a total annual rate savings of $27 million for policyholders.

Renters in particular would see overall rate decreases of -40.6% instead of the -9.9% decrease proposed by Farmers – an annual savings of $11 million.

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