|
Calif. Personal Lines Policyholders Have Seen $1 Billion in Savings From Rate Reductions
(BestWire Services Via Thomson Dialog NewsEdge)
California private-passenger automobile and homeowners insurance policyholders have saved more than $1 billion thanks to premium cuts this year, the California Department of Insurance said. Auto insurers have filed for rate cuts totalling $1.01 billion, while homeowners insurers have filed for rate cuts amounting to $222 million.
Insurance Commissioner John Garamendi linked the reductions to his new regulations reducing the weight of territory as a rating factor for auto insurance and to his order for homeowners insurers to justify "apparent excessive premiums."
"Insurance rates must be based primarily on the actual risk and potential cost of a claim and not simply on a number that satisfies an insurer's bottom line," Garamendi said in a statement, vowing to continue to lower insurance costs for consumers.
However, insurers disagree with Garamendi's assessment of why rates have gone down. "The reductions are really attributable to the reduction in losses," said Sam Sorich, president of the Association of California Insurance Companies. "We're happy that rates have been reduced."
Sorich took exception to Garamendi's "bottom line" statement, noting that the insurance department had approved all rates in use as fair and adequate.
And Sorich said that the new auto regulations on ZIP code use have not caused the reductions. He said the regulations significantly reduce the weight of where a vehicle is garaged in determining rates, but have no impact on losses paid by insurers. "The regulations did not change the amount of premiums collected, they changed who pays them," Sorich said.
Insurers hold that while the regulations may reduce rates for some urban drivers, it will correspondingly cause rates to increase for rural drivers. These rural drivers will be subsidizing the urban drivers' increased risk, the insurers contend, something Sorich said is unfair.
Garamendi said 97% of auto insurers have complied with the new regulations and that 14 of the 15th-largest auto writers are seeking rate cuts or no change in rates. Sorich said once the regulations are fully implemented over the next two years, rates will increase for the majority of Californians. Garamendi and consumer groups contend the regulations fulfill the aims of 1988's Proposition 103 and prevent unfair use of ZIP codes in insurance underwriting.
Earlier this year, three insurance trade organizations, representing more than 90% of the state auto market, filed a lawsuit seeking to stop enforcement of the new regulations (BestWire, July 20, 2006). The suit asked the court to declare the regulations illegal and to grant a preliminary injunction. But a California Superior Court judge denied the request, ruling the insurers failed to show the rules were illegal. The trades appealed, but the 3rd District Court of Appeal rejected the motion.
Meanwhile, in July, Garamendi specifically threatened to order rate reductions for State Farm, Allstate, Farmers and Safeco if the insurers failed to prove their current homeowners and renters rates weren't excessive (BestWire, July 5, 2006). Garamendi said that in 2005, State Farm kept 62.4% of each premium dollar after making claims payments; Allstate kept 59%; Farmers kept 62.3%; and Safeco kept 73.7%. While insurers have said the money is needed to build reserves and surplus in catastrophe-prone California, Garamendi contends the companies' own filings with the department disprove this assertion.
In 2005, the top five writers of homeowners multiperil in California, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm, with a 22.1% market share; Farmers, with 16.3%; Allstate, with 14.1%; California State Auto Group, with 6%; and USAA, with 4.5%.
In 2005, the top five writers of private-passenger auto insurance in California, according to A.M. Best state/line product information based on direct premiums written, were: State Farm Group, with a 12.8% market share; Farmers Insurance Group, with 9.7%; Mercury General Group, with 9.5%; Automobile Club of Southern California Group, with 9.4%; and Allstate Insurance Group, with 9.1%.
(By Rick Cornejo, associate editor, BestWeek: rick.cornejo@ambest.com)
Copyright 2006 A.M. Best Company, Inc.
[ Back To TMCnet.com's Homepage ]
|
TMCnet LOGIN
Webinars
