California homeowners overcharged for wildfire insurance to be refunded

Wildfire insurance - person holding money that's on fire

State Commissioner Ricardo Lara has announced that there will be about $1.5 million in refunds.

California Commissioner Ricardo Lara has announced that Kemper Independent Insurance Company overcharged its policyholders for their wildfire insurance coverage. As a result, that insurer has issued $1.5 million in refunds to thousands of homeowners.

The Department of Insurance determined that the insurer had been overcharging for that risk.

Both Kemper and Unitrin Auto and Home Insurance Company, its affiliate insurer, have also agreed to pay $617,200 to the General Fund as a combined penalty and a further component of the settlement it reached for overcharging for wildfire insurance.

Wildfire Insurance - homes with fire in distance

The issue was that the companies had been using wildfire risk scores to calculate a policyholder’s premiums. In 2015, those insurers introduced new surcharges for that peril, based on a policyholder’s property’s Fireline risk score. Properties that scored higher on Fireline were charged a higher price for their coverage.

In 2018, the insurers altered the way they calculated their prices without the Department’s knowledge and without receiving its approval. It is required by law that changing price calculations receive approval from the department.

The result was that thousands of the insurers’ policyholders were overcharged for their wildfire insurance.

Commissioner Lara has since enforced a number of new safety regulations which require insurers to provide policyholders with the risk score of the property they intend to insure and the factors behind that score. This should include a customer’s right to appeal the score if they have hardened their homes against the risk.

The new regulation the Commissioner has implemented also requires insurers to offer discounts for wildfire safety based on the new Safer from Wildfires framework that other state emergency preparedness agencies have developed. Lara created that regulation after having met with thousands of state residents when he took office in 2019.

“Fair pricing of insurance is a fundamental part of California’s consumer protection laws,” said Commissioner Lara. “My actions are aimed at making Californians safer from wildfires while protecting them from excessive costs.”

There were 2,402 Kemper customers affected by the wildfire insurance overcharges and some of them were overcharged across successive terms for their policies. The insurer has now refunded them all with 10 percent interest compounded annually.

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