The "Farmers Insurance News-Alert" website is dedicated to providing the consumer and general public with detailed information concerning the Farmers Insurance Group. This includes fraud reports, consumer complaints, lawsuit's and other legal actions taken against this company. All information contained herein is for educational purposes only. Original sources, when known are sited.



Friday, August 12, 1994

MARK SCHWANHAUSSER, Mercury News Staff Writer

Accusing Farmers Insurance Group of illegally changing its earthquake insurance rates, California Insurance Commissioner John Garamendi on Thursday ordered a hearing at which he will decide whether to order the company to rescind its plan to raise the deductible it charges on quake policies.

''Clearly, Farmers thinks they don't have to play by the rules," Garamendi said in a news release announcing the administrative hearing, which will be held Sept. 6 in San Francisco. "But as the referee, I'm blowing the whistle on their fouls."

Farmers, the state's third-largest homeowners insurer, showed no signs of backing down from the fight, which it says centers on an insurer's right to reduce its exposure to potential earthquake losses.

''He interprets the law differently than we do. . . . " said Farmers Vice President Jeffrey C. Beyer. "We think when he is presented with the evidence (at the hearing) . . . he'll have no choice but to acknowledge that."

The legal confrontation is the latest twist in what some have described as an insurance "crisis" for California homeowners that has developed since the Northridge quake in January. Insurers don't want to write more earthquake policies, but by state law they cannot sell homeowners coverage unless they also offer quake policies.

As a result, one by one, in recent weeks the state's most powerful insurers have limited their homeowners sales by tightening underwriting standards, selling policies only to renewing customers or accepting new policyholders only on a one-for-one basis when current customers drop coverage.

Farmers stopped writing new homeowners and quake policies in June. Last month, it took the issue one step further, announcing it would raise the deductible on its quake policies to 25 percent -- up from the 10 percent it typically required -- on renewals starting Sept. 1. While raising the deductible -- the amount the homeowner must pay out-of-pocket before the insurance kicks in -- Farmers said it would lower its premiums 25 percent to 40 percent.

Beyer contends it would be "irresponsible" for Farmers not to implement the plan, saying the company must be financially prepared to weather an earthquake that could cause up to $3 billion in damages -- almost three times its cost from the Northridge quake.

But Garamendi says the Los Angeles-based insurer's move is illegal on three counts:

(box) Renewing policyholders wouldn't have their legal option to continue coverage at the same deductible as the prior policy.

(box) The mandatory 25 percent deductible constitutes a rate change, and rate changes require the commissioner's approval.

(box) The 25 percent deductible is so high it effectively prices Farmers out of the market.

Two consumer groups lauded Garamendi's move, saying he had caught Farmers trying to skirt the law by offering quake insurance -- but with a deductible consumers can't afford to bear.

''A 10 percent deductible is enough to discourage many homeowners; 25 percent is just outrageous," said Norma Garcia, an attorney with Consumers Union in San Francisco.

Added Gina Calabrese, staff attorney for the Proposition 103 Enforcement Project: "Selling a policy no one can afford or no one can use is the same as not selling one."


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