State Farm, Farmers to raise California homeowner insurance rates

Insurance Commissioner Steve Poizner's decision is denounced by some, but others say recent wildfires make increases reasonable.

Reporting from Sacramento -- As if plummeting real estate values weren't enough, insurance rates are heading up for many California homeowners.

State Insurance Commissioner Steve Poizner late last month quietly approved rate-increase requests from two of the state's three largest homeowner insurance companies. No. 1 State Farm Mutual got the go-ahead for a 6.9% increase, its first in five years, while rates at third-place Farmers Group Inc. will rise 4.1%.

A similar request for a 6.9% increase from No. 2 Allstate Corp. is pending at the state Department of Insurance. The three insurers cover about 2.5 million policyholders, more than half of the insured homes in California.

Some consumer advocates denounced the rate increases.

"In an economy like this, Californians are relying on the insurance commissioner to keep premiums as low as possible," said Douglas Heller, executive director of Santa Monica-based Consumer Watchdog.

Others said they could understand why the commissioner granted the requests, given the hundreds of wildfires that have swept the state this year. "I think there is going to be a general perception out in the world that insurance companies are going to have to raise their rates," said Amy Bach, executive director of United Policyholders in San Francisco.

Insurance claims from Southern California's three most recent major wildfires, which damaged or destroyed more than 1,000 homes, could reach $800 million, according to AIR Worldwide, a Boston firm that estimates catastrophe damage.

Sometimes rate increases are appropriate, said Poizner spokesman Darrel Ng. "Unfortunately, insurance rates can't keep decreasing forever," he said. "Homeowners' rates have gone down nearly $800 million since Poizner took office" in January 2007.

State Farm spokesman Bill Sirola said the rate hike was justified and was based largely on documented increases in the costs of repairing damaged structures as well as a rise in other types of claims covered by homeowner policies. Those other claims could arise from such disparate causes as a dog biting a mail carrier or a tree falling on a roof.

State Farm cut rates 6.2% in 2003 and 20% in 2007, Sirola said.

"They go up and they go down because our primary obligation is to make sure we're generating enough revenues to pay our claims and put some money aside for future catastrophes," he said.

Farmers, which cut its homeowner premiums 18% in 2006, said it asked for the higher rates partially to compensate for millions of dollars in claims paid to victims of Southern California wildfires over the last five years. Inflation in building material costs and labor are responsible for the bulk of the rate increase, said Steve Feely, Farmers' senior vice president for California operations.

Most of the company's 360,000 policyholders will see rate increases of zero to 3%, Feely said. About 1% living in fire-prone zones will see rates jump 20% or more, while about 27% will see their rates decline.

Consumer Watchdog, which unsuccessfully petitioned Poizner to hold a public hearing on the State Farm and Farmers requests, may ask the commissioner to reconsider his decisions.

State regulations require the commissioner to hold a public hearing when a request for a rate increase exceeds 7%. He has the discretion to waive a hearing when a proposed rate hike is less than 7%.

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