News: 2007 Press Release

SACRAMENTO - California Insurance Commissioner Steve Poizner announced today that the Department of Insurance has reached a settlement with Farmers Insurance Group on a noncompliance action. The settlement has resulted in $1.4 million in refunds to Farmers Homeowners Policyholders, and Farmers has agreed to pay an additional $2 million in fines.

The settlement is part of Commissioner Poizner's efforts to ensure that homeowners are not penalized for what is commonly known as "use it and lose it" practices in the industry.

The Foundation for Taxpayer and Consumer Rights, which served as the Intervener in the matter, supports the terms of the settlement and stands by the Department of Insurance's position in the case.   

In 2003, after receiving dozens of consumer complaints concerning the Farmers Insurance Group, the Department of Insurance initiated a noncompliance action against Farmers, which stated that Farmers:

• Lacked sufficiently detailed underwriting guidelines to determine whether to renew or non-renew a policyholder based on the number of claims filed by that policyholder;
• Often violated its own Property Experience Rating Plan (ERP) rules by incorrectly surcharging a policyholder for claims that either a) were not claims or b) were otherwise not eligible for surcharge under the Property Experience Rating Plan;
• Unfairly charged some policyholders higher rates by applying the Property Experience Rating Plan in ways which were often inconsistent from one policyholder to another;
• Assigned a default "public protection class code" to some homeowners policies, thereby classifying some homes as a very high fire risk, despite the fact that Farmers knew, or should have known, that the home's fire risk was lower than that assigned under the default procedure. This practice resulted in some homeowners paying much higher premium rates than they should have qualified for.  

Farmers customers have received their refunds. Farmers denies that its actions were in violation of law; however, Farmers has agreed to implement the following corrective measures as part of the settlement:

• Farmers has agreed to stop the Property Experience Rating Plan (ERP) practice of charging policyholders for losses without first confirming that the losses in question were ultimately paid for by the company;
• Farmers has agreed to exclude from chargeability under the ERP all claims which are subject to 100% payment through the coverage provided by another insurer
• They will no longer charge policyholders under the ERP for claims, when such claims are potentially subject to payment through coverage by another insurer, except under circumstances related to the policyholder's fault for the claim or unwillingness to cooperate in the investigation of the claim;
• Farmers is implementing additional changes to ERP, such as eliminating charges for policyholders on claims under $500, upgrading their system to prevent claims processing errors, and ensuring proper employee familiarization with the Property Experience Rating Plan; 
• They will no longer use default public protection class codes for insured properties because Farmers no longer insures any properties that lack hydrant information;
• Farmers will work with the Department's Field Rating and Underwriting Bureau to develop clear renewal risk eligibility guidelines to consistently determine whether risks will be subjected to non-renewal, due to the number or type of claims a consumer has filed; and
• Farmers will conduct an analysis of their data and develop a policy-level report to ascertain whether any claims without payment have resulted or continue to result in the loss of a claims-free discount under the ERP. This analysis and report will also ascertain whether any policyholder was or continues to be subject to an improper surcharge by treating a single event as two or more events.