State Farm Files for Rate Reduction

State Farm Insurance, California’s largest auto insurer, has applied for an 8 percent average reduction for its policyholders while simultaneously implementing new auto rate regulations, according to the Department of Insurance.

State Farm’s action means that about 2.8 million policyholders will see an annual reduction in premium rates totaling $204 million. That amount, combined with earlier reductions by the Auto Club of Southern California and USAA Insurance, brings the dollar savings for consumers to nearly $370 million since the reforms were introduced last year, Commissioner John Garamendi said in a statement.

“I am very pleased that the courts have ruled that the Good Driver Reforms can move forward,” said Commissioner Garamendi. “The estimated $370 million in reductions, pending approval of State Farm’s plan, proves that the reforms can be implemented in a manner that benefits all consumers.”

Thursday was the deadline for insurers in the state to file new auto rating plans with the Department that comply with the requirements of the new auto rate regulations. Work on reforming the auto rate regulations began last year, with the Commissioner’s fight to requirie insurers to give more importance to how safely someone drives than where the person lives when pricing auto insurance. Under the regulations issued by the Department and upheld by a Sacramento Superior Court ruling last week, insurers have to comply with at least 15 percent of the plan’s requirements now, with the rest of the adjustments factored in over the next two years.

When combined with the State Farm’s $212 million decrease in 2004 and $110 million in 2005, the $204 million in savings from the current rate reduction will bring the company’s total savings for its more than 3 million California auto insurance policyholders to over one-half billion dollars since October 2004. State Farm credits the series of rate reductions to improved loss trends.

If approved by the Department, policyholders who have maintained their policies with State Farm for an extended period of time and those who also have property insurance with the company — home and condo owners or renters insurance — will all receive enhanced benefits under the new rates. A driver with three years continuous coverage will see his or her loyalty discount increase from eight percent to 10 percent. A policyholder with at least six years of continuous coverage will see his or her discount go from 16 percent today to 20 percent under the revised plan.

The discounts for insuring homes and autos with State Farm will increase from 10 percent to 12 percent for renters; 12 percent to 14 percent for condo owners and 15 percent to 17 percent for home owners. Homeowners who also have a personal liability umbrella policy with State Farm will received a 20 percent discount, up from the current 18 percent.

These savings are in addition to other discounts policyholders may receive, such as the 20 percent California Good Driver Discount, according to the company.

Source: CDI, State Farm