September 5, 2007 5:24pm
• Total of $1.4 Million goes to 6,000 policyholders
• Farmers ‘strongly denies’ doing anything wrong but pays up
The settlement is part of the state’s efforts to make sure that homeowners are not penalized for what is commonly known as "use it and lose it" practices in the industry where policyholders who make claims lose their insurance or end up paying more for it.
Farmers blames it on the darn computer.
“This dispute arose after the Department of Insurance raised issues concerning computer system errors at Fire Insurance Exchange” (a Farmers Insurance unit), the company says.
It says it has fixed “those inadvertent computer system errors” and has made refunds to about 6,000 policyholders.
California Insurance Commissioner Steve Poizner says Farmers:
• Lacked sufficiently detailed underwriting guidelines to determine whether or not to renew a policyholder based on the number of claims filed by that policyholder;
• Often violated its own Property Experience Rating Plan rules by incorrectly surcharging a policyholder for claims that either were not claims or 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.
“Although we have already made the $1.4 million in refunds to our customers after the computer system errors were discovered and corrected, we agreed to pay the penalty in the spirit of cooperation with the Department of Insurance,” says Jerry Davies, Farmers’ director of media relations.
The company has also:
• Agreed to stop the Property Experience Rating Plan practice of charging policyholders for losses without first confirming that the losses in question were ultimately paid for by the company;
• Agreed to exclude from chargeability under the ERP all claims which are subject to 100 percent payment through the coverage provided by another insurer;
• 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.