State pressures top companies to reduce rates; many residents will get double-digit declines in annual costs

Sacramento Bee

Pressed by the state to slash premiums, California’s largest homeowners insurance company today will propose a double-digit rate cut that would save customers a total of $123 million a year.

State Farm Mutual Automobile Insurance Co. will ask the Department of Insurance to approve rate cuts averaging 10.6 percent, or $103 a year, for 1.2 million policyholders in California.

The move, to be announced today by State Farm and Insurance Commissioner John Garamendi, comes as the state’s No. 3 carrier, Allstate Insurance Co., seeks a 12.2 percent rate increase.

Nevertheless, Garamendi is counting on State Farm‘s decision to ratchet up the pressure on other major carriers to give millions of consumers a price break on their homeowners coverage.

“It’s a good start. Homeowners are going to see significant reductions in the cost of homeowners insurance,” Garamendi said Tuesday.

For months, he has locked horns with the insurance industry, accusing carriers of charging excessive rates and pocketing hefty profits on homeowners’ policies. In June, the commissioner ordered four of the state’s largest homeowners insurance companies — State Farm, Allstate, Farmers Insurance and Safeco Insurance — to justify their rates.

Officials at Safeco and Farmers declined to disclose their plans, saying they are in talks with the Insurance Department. But Garamendi indicated that they could be asking for rate cuts.

State Farm, which commands more than 22 percent of the state’s homeowners insurance market, becomes the second major insurer to propose lower rates. USAA, the state’s fifth-largest carrier, proposed cuts averaging 22 percent for 182,000 policyholders. Premiums would drop by an average of $308 a year.

Consumer advocates predict similar moves in the coming months.

“This is the opening gambit by the insurance companies. We all knew rate decreases were coming,” said Doug Heller, executive director for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “We have to make sure that these rates come down to a price that is fair to consumers.”

For State Farm, based in Bloomington, Ill., the decrease dovetails with a 6 percent cut in 2005. The latest proposal would mean savings for about 86 percent of its California policyholders.

As Garamendi does with all carriers, he will review State Farm‘s financial numbers and determine the final rate. If insurers disagree, they can appeal the decision.

“It’s possible we will demand a larger decrease,” Garamendi said.

Bill Sirola, a State Farm spokesman in Sacramento, said the cuts are the result of a slowdown in claims costs.

“We are not seeing the number of claims that we expected. Right now, our loss trends are very favorable,” he said.

An Insurance Department study this spring reported that most of the state’s top 20 insurers paid out less than 50 cents for every $1 in premium collected in the past two years. Historically, claims payments average 60 to 65 cents.

Typically, homeowners’ policies provide liability coverage in case someone is injured on the property and reimburse for property and structural losses in the event of fire, wind and water damage, except floods.

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