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The Orange County Register (California)
Sep 01, 2004

by NANCY LUNA, The Orange County Register

State Farm slashing car-insurance rates;

The 7.6 percent cut will save customers $215 million a year and pressure other companies to follow suit.
State Farm, California's largest insurer of auto policies, said Tuesday that it plans to slash auto insurance rates by 7.6 percent, a move that could trigger more carriers to follow suit.

"When a firm the magnitude of State Farm cuts rates, it puts pressure on other companies to lower prices too,'' said Bob Hunter, insurance director for the Consumer Federation of America, a Washington, D.C., watchdog group.

State Farm credited the rate cuts to lower claim costs and internal cutbacks -- including reducing its field offices to 20 from 60 in California.

The agency said 2.7 million auto-policy holders would save $215 million a year when the Oct. 1 price cut becomes effective.

"That's a pretty big number for us," said Steve Smith, a spokesman in State Farm's Irvine office.

The last time the insurer reduced its auto-policy rate was in 1999. Smith couldn't say how much someone would save under the average 7.6 percent rate decrease because policies vary.

However, a man living in Irvine, with 9 to 15 years of driving experience, seeking a basic liability policy, could shave off roughly $51 from his annual $677 premium, according to a 2003 study by the California Department of Insurance.

That beats competitors such as GEICO and Farmers Insurance, whose rates run about $727 and $653, respectively, according to the same state data.

But all are higher than Mercury Insurance and Safeco, which offer annual premiums that are as much as $190 lower.

Advocacy groups applauded the reduction, saying it is in line with auto-reform regulation and follows a national trend in which insurers are vying to offer more competitive rates.

"If the company had not reduced its rates... it could have been challenged for charging customers too much," said Douglas Heller, executive director of Foundation for Taxpayer and Consumer Rights in Santa Monica.

The rate reduction comes less than a month after the Auto Club of Southern California cut its rates by an average of 5 percent for its customers, or by $45 per insured car.

When Auto Club officials announced the rate decrease in early June, insurance Commissioner John Garamendi said it was the first rate decrease proposed by a major insurer in four years. He also predicted more insurers will slash rates, which are stabilizing.

Last year, the average cost for auto insurance rose $29 a year to $871 nationally, according to the Insurance Information Institute.

This year, premiums rose roughly 3.5 percent, the smallest increase in four years -- and at a time when insurer profits are soaring. Data released Tuesday by Weiss Ratings in Florida show that underwriting profits were at a seven-year high this year. State Farm is among the companies studied.

The agency's auto division reported net income for the first quarter of $876.7 million, compared with $85.4 million for the same quarter a year ago, according to Weiss, which follows trends in financial services industries.

Officials at State Farm, the Auto Club and the institute said premium hikes are slowing because drivers are filing fewer, and less-costly claims.

"A reduction in auto accidents, combined with improved insurer financial performance, are contributing to a significant moderation in the cost of auto insurance,'' said Robert Hartwig, chief economist at the New York institute.

Still, not every carrier is cutting premium costs, according to the Foundation for Taxpayer and Consumer Rights.

The watchdog group filed a complaint against Farmers Insurance this month, challenging the agency's proposal to increase auto rates by 5.8 percent.

The group told Garamendi's office that the rate increase proposed by Farmers, which is California's second-largest auto insurer, was excessive and could cost consumers more than $100 million.

Lawrence Markey Jr., a staff attorney with FTCR, said Tuesday that his group's complaint is being reviewed. Auto-insurance reform regulation established under the 1988 voter-approved Proposition 103 requires Garamendi's office to approve any insurance rate change.
Register staff writer Diana McCabe contributed to this report. (714) 796-6756 or

To shop for auto insurance rates, go to auto/apsw_coverage$.startup

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