State Farm Announces Rate Reduction for Its Home Policyholders

State Farm, the largest seller of homeowner insurance in California, Thursday announced a $33.2-million rate reduction for its more than 1 million policyholders in the state, effective today.

The company said that under a new discount program to be unveiled nationally Jan. 4, policyholders who have been with the firm for six years or longer will get a 10% discount, while those who have had policies for three to six years will get a 5% discount.

These discounts will amount to $23.8 million for a total of 686,000 California policyholders. In addition, there will be a general rate reduction amounting to $9.4 million, the company said.

The company said the discounts and reductions combined will amount to an average rate decrease of 7.1%.

Insurance Survey

The reductions were announced just 17 days after the state Insurance Department released a pricing survey that showed State Farm was frequently charging more than the Farmers group of companies, the No. 2 seller of homeowner insurance in the state.

But Roger Tompkins, a regional vice president for State Farm, said Thursday’s announcements had nothing to do with that survey. He said the company had been contemplating the reductions since August.

In releasing its survey Dec. 14, the Insurance Department had noted that three of the 20 companies it surveyed had reduced their rates slightly since July.

One aim of the Insurance Department’s comparative price surveys is to make the public aware that rates vary sharply among companies and that it pays to shop around. And one result of the surveys has been that some companies have advertised that they have demonstrated lower rates than others.

Tompkins said that State Farm has found that its claims, or losses, under homeowner policies to be less than it expected, particularly among its longtime policyholders. He added that State Farm has also become more careful in writing policies to screen out bad risks and that there has been a movement among its clientele toward higher deductibles, thus also reducing claims.

A State Farm spokesman, John Krizek, meanwhile, cautioned that not everyone getting bills from State Farm will see the reductions immediately.

Many policyholders pay on the installment plan and their bills reflect payments on policies that began last summer. These prices will not be changed until the policy comes up for annual renewal, Krizek said.

In another development relating to insurance Thursday, the Insurance Consumer Action Network released the language of its proposed initiative for the 1988 general election. This is the seventh initiative proposed thus far. None of the initiatives have yet obtained the more than 372,000 signatures of registered voters necessary to qualify for the ballot.

Generally, the initiative calls for institution of a “flex-rating” system in California under which the Insurance Department would be required to approve all annual insurance rate changes of more than 7.5% in personal lines and 15% in commercial lines.

Roll Back Auto Rates

Other provisions would roll back auto insurance rates by 20% for “good drivers” without accidents or violations, unless the companies were able to demonstrate this would not be financially feasible for them. The proposed initiative also would institute a consumer’s advocate within the Insurance Department but under the control of the state attorney general.

The flex-rating and consumer’s advocate provisions followed to a large extent proposals made by the Insurance Consumer Action Network that had been rejected in the Legislature in its 1987 sessions.