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home / insurance / in the media

BestWire
Jan 23, 2002

by Meg Green

WATER DAMAGE DRIVES TWO MORE CALIF. COMPANIES TO SEEK HIGHER HOMEOWNERS RATES

SACRAMENTO, Calif. (BestWire) - Citing a growing number of water-damage claims, two more insurers in California are seeking homeowners rate increases.

State Farm Group, the largest writer of homeowners insurance in California, is seeking another 6.9% increase in homeowners rates. It received a 6.9% increase last year.

Interinsurance Exchange of Auto Club, the insurance arm of the Automobile Club of Southern California, has also filed a request to raise rates.

Interinsurance Exchange is seeking a 6.6% rate hike, according to the California Department of Insurance.

The two companies are the latest to ask for permission to raise rates, and both say increasing claims for water damage are driving costs higher.

State Farm is seeking another increase because it's seen a greater severity in claims, and an increase in water claims specifically, said company spokesman Bill Sirola. "The fact is we are struggling at this point to maintain our level of financial strength. We're at the point where all we can do is ask for rate increases," Sirola said.

State Farm General Insurance Co., State Farm Group's California-only homeowners writer, is rated A- (Excellent) by A.M. Best Co., while most other State Farm companies are rated A++ (Superior).

Sirola said the company suspects some of the increased claims costs might stem from homeowners' concern about mold, "but it's so new to us, we're still reviewing it."

Carol Thorp, a spokeswoman for Interinsurance Exchange, said the company has seen "a lot more water damage claims. I don't think we are to the point where Texas is yet, but they are increasing."

It's the first rate increase that the company has asked for since 1985.

Interinsurance Exchange made a rate adjustment in 1999 but sought no average increase then, she said.

Zurich/Farmers Group, the second-largest writer of homeowners insurance in the state, has been able to raise its rates by 25.7% since January 2000 by requesting several increments of 6.9% or 5%.

Zurich/Farmers currently has another 6.9% increase pending, which would mean its policyholders could pay 32.6% more for homeowners insurance this year compared with two years ago.

Allstate (NYSE:ALL), the third-largest homeowners insurer in the state, is seeking a 22.3% increase, according to a request filed with the insurance department (BestWire, Jan. 2, 2002).

When companies are allowed to raise their rates in small steps, the public isn't allowed to fully participate in the process, said Pam Pressley, staff attorney for the Foundation for Taxpayer & Consumer Rights.

If the requested increase is less than 7%, the public can ask for a hearing, but the insurance commissioner can deny the public's request for a hearing.

If the increase is 7% or greater, the commissioner must hold a hearing if requested to do so.

The foundation has asked Insurance Commissioner Harry Low to put a moratorium on proposed rate increases (BestWire, Jan. 10, 2002).

Scott Edelen, deputy commissioner of the insurance department, has said all rate increases are scrutinized, no matter what their size.

The state laws don't restrict how many times in any given period a company is allowed to request a rate change.

Earlier this month, 21st Century Insurance Group (NYSE:TW) said it would stop writing homeowners insurance in California altogether (BestWire, Jan. 7, 2001).

It had a 6.9% increase approved in 2001, and it had applied for a second increase of 28% later in the year, according to the Foundation for Taxpayers & Consumer Rights.

State Farm has a 22.1% share of homeowners multiperil coverage in California, according to A.M. Best Co. State/Line product information for 2000.

Zurich/Farmers holds a 19.6% market share, while Allstate has a 15.4% market share.

State Farm Group is rated A++ (Superior) by A.M. Best Co. Interinsurance Exchange of Auto Club, Allstate Insurance Co. and 21st Century Insurance Co. all are rated A+ (Superior). Farmers' A+ rating is currently under review.

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