USAA Insurance Seeks Approval for 22 Percent Rate Decrease

California Insurance Commissioner John Garamendi has issued a statement announcing his intention to review and consider approval of an average 22 percent decrease in homeowners insurance rates for policyholders of United Services Automobile Association (USAA). The $55 million in proposed rate decreases by the State’s fifth largest homeowners insurer would impact 182,000 households according to CDI.

The Commissioner applauded the rate filing and proposed cut in premiums by USAA and urged other insurers to follow suit, noting that a recent study by the California Department of Insurance found that four of the largest homeowners insurers, representing 51 percent of the California homeowners insurance market, pay far less than 50 cents of each premium dollar to settle policyholder claims.

“This is good news for USAA, its policyholders and customers of other insurers,” said Commissioner Garamendi. “All companies should follow this example and determine whether their policyholders are currently paying too much for coverage. If so, I urge them to file a rate decrease request with this Department immediately. USAA is to be commended for its attempt to provide their policyholders with much-needed financial relief.”

The USAA rate cuts would mean customers would see average savings of around $244 to $381 annually, with the decreases likely taking effect on October 1. The action comes several months after the Commissioner unveiled a comprehensive Department study of Homeowners and Auto insurance rates, called “Lower Claims, Higher Profits: Where Do Your Premium Dollars Go?” It disclosed the historically low loss ratios that insurers have experienced over the past two years.

For instance, in 2005 State Farm kept 62.4 percent of each premium dollar after making payments for claims; Allstate kept 59 percent; Farmers kept 62.3 percent; and Safeco kept 73.7 percent, he said. Some insurers have claimed that companies need to keep such a large percentage of the premium to build financial reserves and surplus. However, the companies’ own filings with the Department disprove this contention.

The Department study was launched in response to an emerging trend in which insurance carriers have experienced dramatic reductions in the percentage of premium dollars used to pay claims. In 2003, for example, State Farm paid out 104.9 percent of its collected premiums to settle claims, yet still managed to make a profit due to investment and other income. The following year it kept 68 percent of collected premiums after making payments to settle claims. In 2005 it kept 62.4 percent. Other companies mirrored this trend.

In light of that extraordinarily low percentage of premium dollars used to settle policyholder claims, Commissioner Garamendi earlier ordered the four major insurers – State Farm, Allstate, Farmers, and Safeco – to prove that their current rates are not excessive. If they fail to provide the necessary proof, rate reductions will be ordered.

“As Commissioner I want this industry to remain healthy and competitive in California,” said Commissioner Garamendi. “However, as its regulator, I must uphold the law that requires that insurance company profits not be excessive. I am determined to fulfill my responsibility, ensuring that premiums paid by California homeowners do not exceed what is necessary for insurers to pay claims and earn a reasonable profit.”

Source: CDI