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News: 2013 Press Release
For Release: November 15, 2013
Media Calls Only: 916-492-3566
Safeco Insurance Company pays $900,000 fine for market conduct violations; refunds more than $3 million to policyholders
Insurer agrees to end unapproved use of credit score analysis in underwriting and implement other business practice reforms
SACRAMENTO, Calif. - Insurance Commissioner Dave Jones today announced that Safeco Insurance Company has agreed to pay a $900,000 fine and reform its approval process for homeowners and auto insurance coverage. The company was fined for the unapproved use of credit scores to deny homeowners coverage, failure to follow its own approved rating guidelines and other auto rating violations.
"This case is a prime example of why market conduct exams are an important tool in insurance regulation," Commissioner Jones said. "When we find that insurers are not complying with the law, we are able to take appropriate action and protect consumers."
Market conduct exams are audits of insurers' rating and underwriting or claim handling activities. Based on a routine exam covering periods of 2006 and 2007, the California Department of Insurance found that Safeco, now a subsidiary of Liberty Mutual, was using credit scores and credit components in underwriting homeowner insurance. The exam revealed that in 26 instances homeowners were declined due to their credit rating.
The exam also revealed that in more than 64,700 instances Safeco failed to follow its own approved rating guidelines, including inconsistently applying good driver discounts and discounts for operating a four-door vehicle. As a result of the findings, Safeco issued refunds for a three-year period, resulting in approximately $3.1 million being refunded to California policyholders.
Other non-compliance violations revealed during the exam included more than 38,000 instances where homeowners were not provided with the California Residential Property Bill of Rights and general rating violations where Safeco was using an unapproved rating model.
- For commercial lines, the exam period was 12/1/06 through 2/28/07. For personal lines, the time period was 4/1/07 through 6/30/07. The examination work began on 4/2/07. The exam report was adopted on 12/18/09.
- The California Department of Insurance conducts market conduct examinations of insurance companies to ensure the companies are complying with the California Insurance Code and the California Code of Regulations with respect to rating, underwriting and claim practices. Exams can be scheduled based on consumer complaint activity, special requests, or at regular intervals.
- Notice of Noncompliance: http://www20.insurance.ca.gov/pdf/PLD/202791.pdf.
- Stipulation: Order on Stipulation: http://www20.insurance.ca.gov/pdf/STIP/202793.pdf.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California, regulating the $123 billion insurance marketplace. In 2013 the California Department of Insurance received more than 170,000 calls from consumers and helped recover over $63 million in claims and premiums. Please visit the Department of Insurance web site at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.HELP or 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.