Safeco Corp., 21st Century Co. announce plan to slash premiums; other firms expected to follow

Drivers and homeowners in California are poised to gain rate reductions from two major insurers, Safeco Corp. and 21st Century Insurance Co.

Safeco, the state's eighth-largest homeowners insurance carrier, plans to chop by 20 percent its rates to insure houses, state insurance officials revealed Wednesday. The average yearly reduction for Safeco's 189,000 homeowners insurance customers in California would be $190, according to the Department of Insurance.

21st Century, the fifth-largest auto insurer in California, with 740,000 auto policyholders, plans to reduce auto insurance rates by 5 percent statewide -- and by 12 percent in Los Angeles. A statewide average savings was not immediately available for 21st Century, although Los Angeles drivers would save an average of $219 a year.

What's more, 21st Century also plans to jettison its use of zip codes as a major factor in setting rates for customers. The company will base its decisions primarily on the driving records of motorists, insurance officials said.

These are the latest companies to announce rate reductions. Insurance Commissioner John Garamendi has pressed both automobile and house insurers to cut premiums.

"We started out this year saying that auto insurance rates would go down when we ended zip code redlining," Garamendi said. "We also said the insurance industry was ripping off consumers with the percentage of their premiums going to pay claims dropping to an all-time low."

He noted that for a time, automobile and house insurers had fought against rate cuts. But lately, some insurers have capitulated to demands for lower rates.

"They have thrown in the towel," Garamendi said. "We are seeing rates going down all over California, both for auto and home insurance."

The insurance market in California is competitive, and rates are in line, said Nicole Mahrt of the American Insurance Association.

"Every company needs to manage their book of business and do what is right so they are solvent and are around to pay claims in the future," Mahrt said. "California has a healthy, competitive market that offers a variety of choices."

State Farm, USAA, the Automobile Club of Southern California and Chubb Group are among the companies that have filed for lower auto insurance rates the past several weeks. State Farm and USAA had filed proposals for rate cuts in homeowners' insurance, but Allstate filed for a rate increase. Garamendi said he would closely scrutinize Allstate's request for higher rates.

An official with Foundation for Taxpayer & Consumer Rights believes the insurance industry has not gone far enough to ease the squeeze on policyholders.

"Rates are so excessive that there is a question about whether rates should be lower than what these companies are submitting voluntarily," said Harvey Rosenfield, founder of the taxpayers and consumer group.

Rosenfield believes skyrocketing gasoline prices have prompted motorists to drive less, which should have reduced the number of accidents and claims that auto insurers have had to pay out. Plus, he suggested that homeowners' insurance carriers pay in claims about 30 cents for every $1 in premiums they harvest.

"The same kind of greed that we have seen for auto insurance is behind the increases the last several years in homeowners insurance," Rosenfield said.

Mahrt said insurers set premium levels on a case-by-case basis and have not unfairly siphoned off money from consumers.

"When companies can give their customers a reduction, they go ahead and do that," Mahrt said. "If a company needs to make sure they are charging enough in premiums to cover their losses, they have to take steps to do that."

At a meeting in August with the Times editorial board, Garamendi predicted auto and house insurance companies would be reducing rates. Wednesday's revelations about 21st Century and Safeco prompted Garamendi to declare more are coming.

"These decisions will force other insurers to follow suit," Garamendi said.

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By George Avalos
CONTRA COSTA TIMES

George Avalos covers the economy, financial markets, insurance and banks. You can reach him at 925-977-8477 or gavalos@cctimes.com.

Copyright 2006 Contra Costa Newspapers