News: 2006 Press Release
For Release: September 14, 2006
Media Calls Only: 916-492-3566
Insurance Commissioner John Garamendi Announces $96 Million in Savings from New Rate Reductions for California Drivers and Homeowners
21st Century files to decrease auto rates by 12% in Los Angeles, saving drivers $219 per year in premiums; Safeco seeks 20% rate cut for homeowners policyholders statewide, saving homeowners an average of $190 per year
LOS ANGELES – Calling it another huge victory for California insurance consumers, Insurance Commissioner John Garamendi on Thursday announced that two major insurers have filed for significant rate decreases that would save motorists and homeowners millions of dollars annually.
21st Century, the state’s fifth largest auto insurer, with more than 740,000 policy holders, is seeking a 12% reduction for drivers in Los Angeles. The overall statewide savings amounts to $60,484,656. Safeco, the eighth largest homeowners insurer in the state, is seeking to reduce rates for its policyholders statewide by 20% on average, a savings of nearly $36 million overall. Garamendi says he plans on approving the requests upon successful review.
“Our work to reduce rates in California is paying off for all insurance consumers,” said Commissioner Garamendi. “Auto insurers continue to file for decreases even as they implement my new regulations that make how safely you drive more important than where you live. And homeowners’ insurers have cut their rates significantly since this Department’s report on possible excessive rates.”
21st Century’s action also brings it into compliance with the Commissioner’s new regulation that reduces the impact of territory on the pricing of auto insurance. The average policyholder in Los Angeles would realize a savings of $218.72 annually. “21st Century Insurance began in Los Angeles nearly 50 years ago, so we’re happy to be able to reward our loyal hometown customers with significant savings,” said Bruce Marlow, President and Chief Executive Officer of 21st Century Insurance.
“21st Century has done the right thing for its policyholders,” said the Commissioner Garamendi. “All insurers should examine their own financial picture and pass on any available savings to its policyholders.”
The filing follows a contentious battle with much of the insurance industry over the implementation of Proposition 103, which was approved by voters in 1988. It requires that auto insurers base rates primarily on driving safety, miles driven, and driving experience. However, insurers have based their rates primarily on ZIP Codes since the proposition was enacted.
Commissioner Garamendi vowed to correct this problem when he took office in 2003. He held more than a dozen statewide hearings to gauge the impact of ZIP Code rating before rewriting the regulations to fulfill the promise of Prop. 103. A court rejected the industry’s challenge to the reforms last month. Since then, numerous insurers have filed rating plans that comply with the regulations, while also seeking significant rate reductions for their policyholders.
Safeco’s reduction would provide its homeowners insurance customers with an average savings of $190 annually. Its filing, which must be reviewed by the Department of Insurance before any approval is given, comes on the heels of the Commissioner’s June order requiring four major insurers to justify their rates. An earlier study by the Department determined that insurers have been paying far less in claims than they collect in premiums.
The study, called “Lower Claims, Higher Profits: Where Do Your Premium Dollars Go?” disclosed the historically low loss ratios that the insurers have experienced over the past two years. For instance, in 2005 State Farm kept 62.4% of each premium dollar after making payments for claims; Allstate kept 59%; Farmers kept 62.3%; and Safeco kept 73.7%. In light of that extraordinarily low percentage of premium dollars used to settle policyholder claims, Commissioner Garamendi ordered the four insurers to provide data showing their current rates are not excessive.
State Farm sought a 10.6% reduction for most of its 1.4 million homeowners policyholders last week, and USAA sought a 22% reduction in early August.
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