California homeowners may be hit with higher insurance rates after two companies--including one of the state's largest insurers--requested premium hikes averaging 6.9% for their property policies.
Farmers Insurance and 21st Century Insurance each asked for the increases in their homeowners rates, according to state Department of Insurance filings made public Monday. Individual rates could rise as much as 15% in some areas, including Orange County, while some areas could see rate cuts.
"That's a big rate hike for homeowners," said Brian Sullivan, an independent insurance analyst and editor of a Laguna Niguel-based property insurance newsletter. The Farmers rate hike "provides something of an umbrella . . . for other insurers to say, 'OK, now it's my turn to raise rates.' "
The rate requests, which must be approved by state regulators before taking effect, are somewhat unusual for California because the state has suffered no major catastrophes recently, and catastrophes are typically what drive premium increases here, Sullivan said.
Instead, both companies cited higher repair costs for much of the hike. The state's economic boom has driven up the cost of building and fixing homes, and the increased expense is showing up in the companies' claims costs, insurance executives said.
"It's not that we've been having more claims, but they're much more expensive," said Jerry Carnahan, Farmers' top executive in California.
Repair costs are particularly high in Orange and San Diego counties, which are expected to bear the brunt of the increase, with individuals' rates rising as much as 15%, Carnahan said. Elsewhere policyholders would see smaller increases, and some may even experience premium reductions of up to 5%, he said.
Los Angeles-based Farmers insures the most homes in California, with 1.6 million dwellings covered. Woodland Hills-based 21st Century insures 50,000.
Farmers' increase comes on top of a 6.5% rate hike it received last year. 21st Century's last rate request was a 7.5% decrease it received in 1999, the year it began writing homeowners policies again after being nearly bankrupted by the 1994 Northridge earthquake.
In addition to higher costs, insurers are suffering from decreased returns on their investments as the stock market has slumped, analysts said.
A consumer activist said decreased investment earnings and a recent pro-insurer ruling by the state Supreme Court have emboldened insurers to ask for more rate hikes. The court recently let stand auto insurance regulations that allow insurers to use ZIP Codes to determine rates.
"I think [insurers] perceive weakness on the part of the Insurance Department," said Harvey Rosenfield, head of the Santa Monica-based watchdog group Foundation for Taxpayer and Consumer Rights. Insurers "are going to sneak in repeated 6.9% increases and hope nobody's noticing."
Rate hike requests of more than 7% typically trigger public hearings. Requests of less than 7% are scrutinized by the Insurance Department and are usually, although not always, approved, said Deputy Insurance Commissioner Scott Edelen.
Last year was the first time in several years that the department approved more homeowners insurance rate increases than decreases. In 1999, decreases outnumbered increases by $1 million, Edelen said. In 2000, increases outnumbered decreases by $32.9 million.
Insurers wanted increases totaling $13.9 million more than the $45.8 million they were granted in 2000, Edelen said.
Though Farmers insures the most homes in California, State Farm writes a greater dollar volume of coverage, with $831.8 million in premiums compared with Farmers' $676 million in 1999, the latest year for which state Insurance Department statistics are available. A State Farm spokesman said the company had no plans to request a homeowners rate increase.