FARMERS INSURANCE FACES CHARGES IN PLOY TO CHARGE HIGHER RATES

October 11, 1989
By ED POPE, Mercury News Consumer Writer

The state Department of Insurance said Monday that Farmers Insurance Co. is violating state law by referring new customers with good driving records to a subsidiary company that charges higher rates.

''We have told them that we consider what they are doing discrimination," said Ray Bacon, chief deputy insurance commissioner. "Assuming our legal departments can't reach agreement, we will issue a notice of non-compliance."

State law says companies must charge similar rates for customers with similar risks.

Bacon said that if the department's position is upheld, Farmers, the state's second-largest insurance company, would be ordered to make refunds to affected policyholders.

The action is similar to one the department took earlier this year against State Farm Insurance Co., California's largest insurer. In that case, State Farm agreed to cease the practice and refund $1 million.

According to Frank Thomas, a Farmers agent in Hayward who brought the situation to the attention of the state, the current case could be 10 times as large. Based on his own agency, he estimated as many as 50,000 policyholders could be affected, with overcharges of up to $200 each. Thomas said he plans to run for insurance commissioner when the position becomes an elected one in 1990.

''We're looking at $10 million in refunds," said Thomas, who claimed that Farmers' policy imposed rates up to 50 percent too high on customers, many of them low-income and members of minority groups.

No one at Farmers was available for comment, but Bacon said the firm has taken the position that this is just a change in its underwriting program and is not discrimination.

Thomas charged that, for months, Farmers has shunted people with good driving records to its subsidiary, Mid-Century Insurance Co., where they have paid rates higher than they would have with Farmers.

He said a number of groups are affected, but the policy has particularly punished people who have not previously had insurance.

Other groups now excluded by Farmers, Thomas said, include all drivers age 21-25; drivers 25 to 50 years old with older cars who buy only liability insurance; 25- to 50-year-olds who smoke; and young sons and daughters of Farmers policyholders who normally would have been insured by the parent company until they showed they didn't deserve the preferred rates.