State Farm Admits Error on Start of Rate Discounts

State Farm, the largest seller of homeowner insurance in California, acknowledged Wednesday that it made a mistake when it announced last month that discounts for about 600,000 policyholders in the state would go into effect Jan. 1.

In fact, it said the discounts, amounting to $23.8 million, will not go into force until March 1.

This has the practical effect of delaying the cuts for about 100,000 policyholders until early 1989. Since the 10% discounts for customers of more than six years standing and 5% for customers of three to six years are pegged to their annual renewal dates, policyholders whose dates fall between Jan. 1 and March 1 will not get lower bills until next year.

The other 500,000 customers whose annual renewal dates fall after March 1 will get the discounts this year. All of the company’s million homeowners’ policyholders will get a small flat rate reduction this year as previously announced, the company said.

Officially acknowledging the error Wednesday, State Farm spokesman Jerry Parsons said, “It was a mistake and an oversight.”

He said the information State Farm’s public relations department was given for the release “was not complete” and that the company regretted that policyholders had been misled.

Roger Tompkins, a regional vice president for State Farm based in Costa Mesa, explained that the error occurred because someone did not realize that the billing process takes about two months. Bills are generally sent out about 30 days before payment is due, he said, and it takes several weeks before that to prepare the bills.

“So we began processing the new rates on Jan. 1,” Tompkins said, “but those bills won’t go out until February for payment in March.”

Agents contacted by The Times, however, said a company directive Nov. 20 said then that the decreases would not go into effect until March 1.

Parsons said State Farm will directly contact the policyholders who missed out on the rate decreases for this year to explain the mistake.

A little more than two weeks before the original announcement, the state Insurance Department published a comparative rate survey that indicated that the No. 2 seller of homeowner insurance in California, Farmers, charges less than State Farm.

In its statement announcing the cuts, State Farm declared that all the cuts would begin Jan. 1. A story to that effect was published in The Times Jan. 1, with State Farm officials quoted as saying there was no link between the survey and the announcement of rate cuts and discounts.

When bills began arriving in January, however, the discounts were not there. When policyholders complained to State Farm agents, they were told the announcement was in error.

A two-month delay in implementing the discounts yields the company about $4 million.