Farmers, Allstate Car Insurance Rates Rise

Allstate and Farmers insurance companies said Monday they are raising their private passenger auto insurance rates in California by an average of 6.5% and 5.4%, respectively, in premium notices now going out to policyholders.

Spokesmen for both companies blamed rising claims costs for the increases.

The statements by Allstate and Farmers mean that each of the state’s six biggest auto insurance sellers, doing a combined 55% to 60% of the total business, have announced rate increases in the last nine months.

Last December, the biggest auto insurance seller, State Farm, announced an average rate increase of 7.9% for its 3 million auto policyholders. In January, the Automobile Club of Southern California said it was raising its rates by 12%. In March, the California State Auto Assn., which sells only in the northern part of the state, announced an average increase of 15.6%. And in May, the 20th Century company began implementing an average increase of 14.5%.

Billing Process

Policyholders receive notices of the increases as they get their bills, a process which can take as long as six months depending on their billing cycle. For instance, the Farmers increases began to take effect on bills due Aug. 1 and the Allstate increases Aug. 8.

The increases would either partially or fully offset individual rate decreases promised by the industry to policyholders if the industry’s no-fault auto insurance initiative, Proposition 104, is approved by the electorate on Nov. 8.

According to the no-fault initiative, there will be an average 7% to 17% rate decrease if no-fault is passed by the voters. But this is based on the price structure in effect on Election Day. So the rate increases announced up until then would be balanced against individual rate decreases, such as they may be, when bills are sent out.

By contrast, two other initiatives that provide for rate decreases--Proposition 100, backed by the California Trial Lawyers Assn. and Atty. Gen. John K. Van de Kamp, and Proposition 103, backed by consumer advocate Ralph Nader--would roll back prices from the levels prevailing on Jan. 1, 1988, and Nov. 8, 1987, respectively. These dates are before either most or all of the six companies announced their most recent rate increases.

Existing Rates

A fourth initiative, Proposition 101, supported by the dissident Coastal Insurance Co., would peg its promised rate decreases to prices existing on Election Day.

A spokesman for the industry’s campaign said Monday that the increases announced by the six big sellers “reflect present economic trends” in the auto insurance business, their loss experiences, and are not directed at negating any decreases promised by the no-fault initiative in the future.

But critics of no-fault have been suggesting for months that the way the no-fault initiative is written, companies can freely raise their rates up until election day and recover in advance any losses they might sustain under no-fault.

A spokesman for Proposition 101, Harvey Englander, said Monday that he thought the rate increases would lead many voters to realize that no-fault would mean no savings, and the chairman of Proposition 100, Steven Miller, asserted that the rate increases announced Monday are not justified by the companies’ losses.

Attorney William Shernoff, who recently sued unsuccessfully to stop State Farm from contributing a projected $4 million to the insurers’ no-fault campaign, called upon State Insurance Commissioner Roxani Gillespie to call hearings to determine whether the increases that have been announced in recent months have been excessive and thus a violation of state law.

Gillespie responded a short time later: “We are processing the figures and we will be issuing a report in early October. We may or may not hold hearings, I cannot tell you at this point.”

Advice for Customers

It was apparent that, at Allstate, at least some attention had been given to the effect on the bitter insurance initiative fight of announcing a rate increase at this time. A July 20 letter from the Allstate regional vice president in Sacramento, M.L. Haskell, to the company’s Sacramento-area employees contained this paragraph:

“Some of you may question the logic of taking an increase so close to the important initiative vote in November. That certainly was a consideration. However, our corporate political advisers have given the OK based on the urgent statistical need. If you are questioned by our customers, I urge you to separate our need for a rate increase from the benefits no-fault will afford the voters in this state.”

A spokesman at Allstate’s headquarters in Northbrook, Ill., meanwhile, said the company adjusted its rates due to “significant increases in both the number and dollar amount of claims submitted.”

Farmers spokesman Jerry Clemans said the Farmers increases were necessitated by rises in claims under personal injury liability and uninsured motorist clauses in the policies.

Miller, speaking for the Proposition 100 campaign, however, said figures submitted by the two companies to the state Department of Insurance do not indicate their losses have actually been growing.

An Allstate spokesman responded that that company had a $60-million loss on California auto insurance underwriting in 1986 and $48 million in 1987.