Thursday, June 29, 2006

Garamendi probes home insurance

The state commissioner is investigating whether companies are charging their customers too much
By Blanca Torres
SAN FRANCISCO - State Insurance Commissioner John Garamendi has taken the first step to determine whether home insurance companies are overcharging consumers by demanding insurers to explain their rates.
Garamendi said at least four major insurance companies have been racking in high profits thanks to high premiums and low pay-out rates for claims.
Companies such as State Farm, Safeco and Farmers Insurance paid out less than 40 percent of the amount collected from premiums in 2005, Garamendi said at a news conference Wednesday.
"What they're doing is filling their wallets at the expense of Californians," said Garamendi, who is running for lieutenant governor in the November election.
Wednesday's effort launched a hearing process, at the end of which Garamendi could force the insurers to cut rates. Companies would not be required to refund customers, however.
Several insurance companies and industry groups called Garamendi's move "puzzling" because his office approves all changes with insurance rates.
"Every time an insurance company wants to either raise or lower their rates, they have to submit volumes of data to get this approved," said Lonny Haskins, a Rohnert Park-based spokesman for State Farm Insurance, the largest home insurance company in California.
"This is old news and a waste of time. If he wants us to comply with it, we certainly will."
Rates are approved based on what insurance companies think they need to charge in order to cover future costs and it is questionable whether those projections have been fair, said Gary Gartner, a spokesman for Garamendi's office.
Rich Halberg, a Rancho Cordova-based spokesman for Allstate Insurance, said Garamendi's data does not encompass other factors such as the cost of doing business, which has been rising and is also paid for by premiums.
"Despite increasing price pressures, our rates have not increased since 2002," he said.
Insurance companies also have to keep reserve funds they use when a catastrophe such as a hurricane or earthquake hits, said Nicole Mahrt, a Sacramento-based spokeswoman for the American Insurance Association, a national trade group.
"Insurers are in the business for the long term," she said. "Rates should not be based on single years."
The hearing will examine all the details, Gartner said, which means insurance companies will have a chance to explain their rates.
Garamendi cited Proposition 103, a law passed in 1988, that states that insurance companies will not be allowed to charge rates deemed excessive by the State Department of Insurance. The law does not provide any definition of the term "excessive."
If companies are overcharging customers, Garamendi said, "I will not allow that to happen."
Industry advocates argued that insurance companies operate in a competitive market and if they are overcharging, consumers simply would go somewhere else.
Consumer groups lauded Garamendi's move. Insurance companies are businesses, but they need to be regulated, said Norma Garcia, a senior attorney with Consumers Union in San Francisco.
Home insurance is less of a consumer product than a utility, Garcia said. If companies are making record profits while charging high premiums, she said, some people will not be able to afford insurance.
"If you provide a product required by law," she said, "then it should be reasonably priced."


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