|Home Insurers Seek
6.9% Hike in Calif. Premiums
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
"It's not that we've been having more claims, but
they're much more expensive," said Jerry Carnahan, Farmers' top executive in
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
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.