State Farm homeowners insurance not required to cut rates, says judge

The California Department of Insurance has been fighting a legal battle with the insurer over premiums.

The California insurance commissioner was wrong in saying that State farm homeowners insurance rates had to lower. A judge ruled that the insurer was not required to charge its home and renter policyholders less.

The decision stepped around a current unresolved question regarding Proposition 103 and its reach.

Proposition 103’s author was among those who criticized the decision regarding State Farm homeowners insurance rates. California Insurance Commissioner Dave Jones accused State Farm of profiting excessively from its policies. This accusation was issued in 2016.

At that time, State Farm was required to reduce its average homeowners insurance rate by 7 percent. That said, it was also required to make the changes retroactive to mid 2015. The company was ordered to refund its customers until the retroactive changes were paid off.

The insurer sued arguing Prop. 103 justified the State Farm homeowners insurance rates.

California approved Prop.103 back in 1988. It became an insurance regulation law. That said, it does not give the state insurance commissioner the right to order rate cuts retroactively. State Farm refused to pay the refunds Jones ordered. It waited for the lawsuit’s ruling.

San Diego Superior Court Judge Katherine Bacal ruled on the case. Judge Bacal did not address the retroactive cuts in her ruling. Instead, she stated that Insurance Commissioner Jones was in error when he required the cuts in the first place. Jones used an incorrect calculation of the company’s profits, she said.

Therefore, the judge ruled on the side of the homeowners insurance company. The ruling decided on whether the insurance company’s rates were reasonable when taking its costs, claim payouts and investment returns into consideration.

Proposition 103 states that California’s Department of Insurance is required to approve insurance rate changes. This gives the department the opportunity to make certain the company will have enough revenue to cover claims. Equally, it is meant to help stop insurers from overcharging customers in order to generate excessive amounts of profit.

State Farm homeowners insurance argued that the department improperly calculated its profits. It stated that the department was in error by including higher-yielding investment returns of subsidiaries in its calculations. Those subsidiaries are not included in the State Farm unit actually writing Californian home and rental policies. According to State Farm, this was what led the department to deem its rates to be too high. The judge ruled in favor of the insurer.

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