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California and the West

State Farm to Cut Rates for Homeowners

California's largest dwelling insurer will be the third to request reductions. In contrast, Allstate is seeking to raise premiums.

September 06, 2006|Marc Lifsher | Times Staff Writer

SACRAMENTO — California's largest homeowner's insurer, State Farm General Insurance Co., plans today to announce premium cuts of about 11% for 1.2 million of its policyholders.

Annual premiums are expected to drop an average of $103 beginning at year end, the company said.

State Farm, a part of Bloomington, Ill.-based State Farm Group, is the third and by far the largest California homeowner's insurer to ask for rate cuts in the last two months. In late June, Hartford Insurance lowered premiums by 18%, followed by a 22% drop at USAA in early August.

More cuts are expected. "We anticipate that other companies will also be filing" reductions in the next two or three months, state Insurance Commissioner John Garamendi said in an interview Tuesday.

The decreases are in sharp contrast to Friday's filing from the third-largest insurer, Allstate Corp., which seeks a 12.2% increase in premiums.

State Farm's request for a decrease comes after Garamendi ordered it and three other large companies -- Allstate, Farmers Insurance Group and Safeco Insurance -- to prove they did not overcharge customers.

The commissioner contends that claims have been lower while insurance profits have been overly robust during the last two years. Department of Insurance records show that in 2005, major companies spent only 41 cents of each premium dollar on claims and related expenses.

Losses in 2005 and 2004 were more than a third lower than the average for the last decade, records indicate.

State Farm spokesman Bill Sirola said his company's proposed premium reductions, along with a 6.2% cut in October of last year, reflect an unexpected reduction in all types of claims.

"It's a trend that's been developing," he said, noting that State Farm "suffered real reversals" paying losses on homeowner claims for water damage in 2001 and 2002 and wildfires in 2003.

Sirola predicted that State Farm, which recently announced an 8% cut in car insurance rates, would use the reduction in homeowner premiums to strengthen its leadership of the California market. "We think we're going to be a lot more competitive," he said.

Northbrook, Ill.-based Allstate, in seeking an increase, said it needed to raise rates to build reserves to pay claims in the event of a natural disaster.

Even with the proposed hike, spokesman Rich Halberg said Tuesday, Allstate's rates should remain competitive.

But Garamendi said Allstate would "have a very high hurdle to jump over before it is going to get any rate increase.... My initial view is that a rate decrease is appropriate."

The two other companies the commissioner asked to justify homeowner premiums -- Farmers and Safeco -- said they were talking to the Department of Insurance.

Consumer advocates were heartened by the expected drop in costs. "The insurance commissioner is looking out for consumers," said Norma Garcia, a senior attorney with Consumers Union. "He's making sure that the companies have a reasonable profit, but not to the detriment of consumers."

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