The move represents a significant conclusion to Garamendi’s term as Insurance Commissioner and to his efforts to bring California homeowners insurance rates down this year by more than $439 million dollars
SACRAMENTO - State Insurance Commissioner John Garamendi today announced that Farmers Insurance has requested an 18% overall reduction in homeowners insurance rates for California policyholders. The $171 million in proposed rate decreases by the state's 2nd largest homeowners insurer will impact nearly 1 million homeowners and renters. The decreases will likely take effect in June.
The Commissioner applauded the rate filing and proposed cut in premiums by Farmers. This action and previously filed homeowner rate reductions by State Farm, Safeco, Hartford, USAA, Nationwide and Kemper insurance companies totaling $439 million, brings a significant conclusion to Garamendi's term as Insurance Commissioner and his campaign to bring down homeowner rates for California consumers. Garamendi will become California's Lieutenant Governor on Sunday, January 7, when he takes his oath of office in a 2:00 p.m. ceremony in the Senate Chambers of the State Capitol.
"This is good news for nearly one million of Farmers California policyholders and customers," said Commissioner Garamendi. "I applaud Farmers Insurance for filing a rate decrease with this Department and joining with many of the state's largest insurers to significantly reduce their homeowners premiums," he said. "Farmers is to be commended for working with us to provide this New Year's gift to their policyholders and give their customers much-needed financial relief."
The Farmers rate cuts will benefit their Special Form, Protector Plus, Renters and Condominium Owners customers. It will increase the dual auto / home discount for customers who carry these policies from 12% to 15% and provide substantial discounts for newer homes and newly renovated homes as well.
As part of the new rate reduction filing, Farmers is also introducing a "claim forgiveness" policy for customers who remain "claims free" with the company for six or more years prior to filing a single claim.
In August, the Department of Insurance approved a new policy line for Farmers customers called "The Next Generation" homeowners policy, which included a lower average premium for these policyholders. The new policies provide an option to purchase extended dwelling replacement cost coverage up to 150% of the base policy, enhanced coverages such as identity fraud expense protection and increased sub-limits on many categories of personal property insurance.
"As Insurance Commissioner for eight years, I have worked diligently to make sure this industry remains healthy and competitive in California," said Garamendi. "As its regulator, I have upheld the law that requires that insurance company profits not be excessive. I was 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."
In June, Commissioner Garamendi ordered Allstate, State Farm, Farmers and Safeco Insurance to justify their homeowner rates. The move was prompted by the Department of Insurance comprehensive study of homeowners and auto insurance rates which revealed 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 insurers have experienced over the past two years.
The Department study was launched in response to an emerging trend in which insurance carriers have experienced dramatic reductions in the percentage of premium dollars used to pay claims.
In 2003, for example, State Farm paid out 104.9% of its collected premiums to settle claims, yet still managed to make a profit due to investment and other income. The following year it kept 68% of collected premiums after making payments to settle claims. In 2005 it kept 62.4%. Other companies mirrored this trend.
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