State Farm, the state’s largest seller of auto insurance, yielded to pressure from Insurance Commissioner Roxani Gillespie on Wednesday and agreed to make “swift and full restitution” to new customers who have been charged higher rates than older customers.
The settlement announced by Gillespie brings to a successful conclusion her three-month effort to get the huge insurer not only to abandon what Gillespie branded as discriminatory rating practices but to make full refunds to about 8,000 customers who had paid the higher rates.
May Signal a Trend
Because State Farm is a trend-setter that many other insurance companies tend to follow, the rate discrimination case may have influence far beyond protecting the interests of the 8,000 customers.
State Farm, which started selling 20% higher-priced policies to new customers on Nov. 15, shortly after Proposition 103 was passed by California voters, announced Jan. 29 that it would no longer do so.
But the firm continued to resist making refunds to those who had been assessed the higher rates. An Insurance Department public hearing had been scheduled on the matter in San Francisco today, but has been canceled.
“State Farm is required to file its proposed schedule for action (on refunds) with us in 15 days,” Gillespie declared. “We’re pleased with the results of our negotiations. Now, the policyholders will get immediate action instead of seeing the issue drag through courts for years.”
State Farm issued a statement that emphasized that the company had admitted no wrongdoing and had agreed to the refunds only to avoid a long and costly legal fight.
“We voluntarily agreed to (make the refunds),” said company spokeswoman Judy Mintel. “There’s no order from the Insurance Department. We felt that rather than fight with the department and go to a hearing about it, it was best just to get this behind us and go on.”
The rate discrimination case has nothing to do with State Farm’s recently announced 9.6% average statewide auto insurance rate increase. That also has been challenged by Gillespie, who has called a San Francisco hearing for March 20, at which the company will be required to provide cost figures justifying it.
State Farm officials have asserted that even with the $149-million increase, the company will lose $124 million this year selling auto insurance in the state.
Wednesday afternoon, the Consumers Union filed suit in Sacramento Superior Court to force Gillespie to open up the March 20 hearing to consumer groups, allowing their representatives to call witnesses and directly challenge State Farm to justify its general rate increase.
On the new-customer rate matter, Gillespie had declared in November: “The law says--same risks, same rates. Unlawful or unethical business practices will simply not be tolerated.” On Dec. 23, she issued a formal “notice of non-compliance” to the company. But some consumer representatives accused her of undue delay when weeks passed before she called a public hearing that was required before action could be taken against State Farm.
Wednesday’s settlement document stated that the Insurance Department recognized that State Farm was relying on a rating bulletin issued by Gillespie’s predecessor, Insurance Commissioner Bruce Bunner, when it started charging new customers more than old ones.
But, the settlement went on to say, the Insurance Department had challenged the practice as an “unusual situation that may not be equitable to the people of the State of California” and had determined that the company had not “complied with the requirements and standards of the McBride-Grunsky Insurance Regulatory Act of 1947 as amended by Proposition 103.”
State Farm spokeswoman Mintel noted that the refunds called for under the settlement will go only to new State Farm customers who would have qualified to come in at the lower rates in the first place--customers with no accidents and no traffic violations on their record for the previous three years.
In another development Wednesday, consumer advocate Ralph Nader, a sponsor of Proposition 103, began a four-day trip in California during which he will testify to a legislative committee in Sacramento and address law school classes at UC Berkeley and the University of Santa Clara.
Nader appeared before a cheering crowd of 300 senior citizens in Van Nuys to boost efforts some of them are making to buy a group auto insurance policy as permitted for the first time in California under Proposition 103. They hope this will save them money over individual rates.
Organizers of the effort have yet to find an insurance agent or company that will sell them such a policy, and Nader and Proposition 103 chairman Harvey Rosenfield suggested that if none comes forward, they may seek aid from the state attorney general to force such policies to be sold.