Farmers Insurance Asks Commissioner Poizner for Homeowners Rate Hike Based on
Great Customer Service, Despite Lower Than Average Customer Service Ranking
California Consumer Group Challenges Farmers' Attempt to Overcharge California
Homeowners One-Quarter $Billion a Year
SANTA MONICA, Calif., Dec. 6 /PRNewswire-USNewswire/ -- Farmers Insurance
Company is seeking exemptions to state rules that could allow it to charge one
million Californians almost $250 million extra per year for their Farmers
homeowners insurance. Information provided by Farmers to the Department of
Insurance indicates that its customers should receive an approximately 19.6%
rate decrease, said the Foundation for Taxpayer and Consumer Rights (FTCR). In
a petition filed Monday, FTCR challenged Farmers' requested 6.9% rate
increase. The rate increase request comes less than a year after then
Insurance Commissioner Garamendi ordered Farmers to decrease prices by about
18%.
In its public filing the company seeks a rate hike of 6.9%, even though
Farmers indicates that state regulations would require the company to decrease
its rates by 19.6%, or about $180 million statewide. The company wants
Insurance Commissioner Steve Poizner to grant three variances to the rules
limiting excessive insurance premiums that would allow Farmers a 6.9% rate
increase instead. All told, Farmers is requesting a rate that would overcharge
its homeowners customers approximately $230 each, per year.
Among the exceptions the company seeks, Farmers wants $120 million in excess
premiums for its alleged "superior customer service." The company cites two
different JD Power and Associates surveys that show the company's customer
satisfaction ranking went from below average to slightly above average between
2003 and 2006*. Company executives claim the nation's third largest insurer
should be compensated for the work it did to improve service. But the 2007 JD
Power rankings (apparently released just after the company filed its request)
finds Farmers with a score 20 points below the industry average and the third
worst among 20 major insurers.
"It's ridiculous for Farmers to argue that customers should pay extra just to
get good customer service. The request is even more outrageous because Farmers
doesn't even pass its own test for excellence," said Carmen Balber, consumer
advocate with FTCR. "Any company that really deserves consideration for
quality customer service isn't likely to ask for a rate hike, because they
wouldn't charge policyholders more for treating them right in the first
place."
FTCR's petition was filed under the rules of voter-approved Proposition 103,
which requires insurance companies to justify rate changes prior to imposing
increases, and allows consumer groups like FTCR to challenge excessive rates
and request public hearings.
Farmers is one of a handful of homeowners insurers, including Allstate and
Fireman's Fund, that are seeking exceptions to the regulatory formula that
prevent excessive rates under Proposition 103. The vast majority of filings,
however, seek no exceptions - strong evidence that the rules approved last
year are working. In a recent letter to the Department of Insurance, FTCR
suggested that the state should establish objective criteria to evaluate such
variance requests, including an independent mechanism for judging quality of
customer service to determine if any company's is so exceptional as to warrant
a higher rate.
Attempting to bolster its claim for a customer service exception, the insurer
also argues that policyholders should pay more because it pays its agents
higher commissions than their peers, but does not illustrate how that
compensation is connected to improved customer satisfaction.
Farmers also points to its employee training program, dubbed "University of
Farmers," as a customer service enhancement, but backs it up with no evidence
or even a curriculum.
"This company even wants customers to pay more for their staff training
meetings. For all we know, Farmers U could be teaching employees to deny every
claim immediately and wait to see who complains," said Balber. "Farmers drew
up a laundry list of regular business expenses - costs that consumers are
already paying for - and is trying to pass them off for a second time as
customer service triumphs."
Farmers seeks two additional variances worth approximately $125 million to the
company. One would reward the company for its investment in underserved
communities, although the insurer has not even verified its investments are in
communities that the Commissioner deems underserved. The other is an attempt
by Farmers to increase premiums in response to a law passed in the wake of the
2003 wildfires clarifying that the cost of labor does not depreciate for
purposes of determining the payment to a policyholder rebuilding a home.
FTCR request for hearing on Farmers' proposed rate increase:
http://www.consumerwatchdog.org/resources/FTCR_Petition_Farmers.pdf
Farmers' rate increase request:
http://www.consumerwatchdog.org/resources/Farmers_HO.pdf
* In 2003, Farmers scored 751 out of 1000, well below the industry average of
777. In 2006, Farmers scored 765, four points above the industry average of
761.
SOURCE Foundation for Taxpayer and Consumer Rights
Carmen Balber of FTCR, +1-310-392-0522, ext. 324
