Farmers to Raise Car Insurance Rates 5.9%; Assigned Risk Cited

Blaming heavy losses in servicing assigned-risk customers, the Farmers group of insurance companies announced Monday that, effective Nov. 1, it will implement an average 5.9% rate increase, totaling about $85 million, for all the rest of its California private passenger auto customers.

Had the company waited just one more week in making the rate hike effective, it would have required the prior approval of the state insurance commissioner under the terms of Proposition 103.

By making the increase effective Nov. 1, the company avoids the need to get approval from the state, although it is subject to a review and possible refund orders by the commissioner. The prior approval system becomes effective Nov. 8.

A Farmers spokesman, Jeff Beyer, said the increase was made necessary by losses of more than $100 million the group of companies has taken on its share of assigned-risk drivers. (These drivers, who either cannot get insurance or choose not to buy regular policies, are assigned to insurance companies under a quota system based on how much business a firm does in California.)

“We would not be taking a rate increase in California this year, were it not for these losses,” Beyer said. He noted that the assigned-risk board of governors has had a 112.3% rate increase request pending with Insurance Commissioner Roxani Gillespie since last February without taking any action.

A spokeswoman for Gillespie said Monday she did not know when action would be taken on the proposed Nov. 1 increase. Public hearings on the matter were recessed last month until Oct. 6 after representatives of a coalition of 15 minority groups protested that implementing such a large increase would make auto insurance more costly than food for many urban dwellers and force them to go uninsured in violation of state law.

The spokeswoman, Carey Fletcher, said it is doubtful Gillespie will act on an increase until there is an agreement on restructuring assigned-risk operations and more effectively barring good drivers from enrolling in the system, which was originally designed as an insurer of last resort.

In another insurance development Monday, a spokesman for Gov. George Deukmejian said that the governor had met for 20 minutes in Sacramento with Assembly Speaker Willie Brown (D-San Francisco) to allow Brown to make a pitch for Deukmejian to sign his bill providing low-income drivers with auto liability insurance for a flat statewide rate of only $25 a month.

Deukmejian has expressed fears that such a low rate would have to be heavily subsidized by other customers, leading to predictions, even by Brown, that he will probably veto the bill. The governor has until Monday to decide.