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Homeowners insurance rates fall in California

It’s always good to be able to bring good news when the recession has been so slow to release its hold on the economy. Indeed, the resale value of homes seems not yet to have bottomed out and the official unemployment rate remains above 9% - we should always remember the official rate only records those claiming benefit and not those who have no jobs. The general economic conditions are bleak and so a number of Insurance Commissioners have been putting pressure on their states’ insurance companies to hold rates steady if not actually reduce them. In all states where the Commissioners have the power to control rate movements, approvals for increases have either been refused or delayed. In other states where there’s no actual power to regulate rates, the Commissioners have been naming and shaming companies that propose increases. This adverse publicity has led some companies to delay increases.

One of the most proactive of the Commissioners is Dave Jones in California. He has been leading a campaign to encourage all insurers to reduce their rates and, recently, was pleased to confirm the decision by USAA to reduce their rates for insuring homes by 14.9%. In a way, this makes the case for sustained pressure over time because their last approved variation was a rate reduction of 22.1% in 2006. It all goes to show that if Commissioners do keep pushing, even the most hardened of commercial corporations will respond favorably. Explaining his policy, Dave Jones referred to continuing hard times in the state and committed himself to ensuring citizens could keep more of their hard-earned dollars.

In the last few months, five Californian insurers have announced rate reductions for both home and auto insurance although USAA’s gesture is by far the most impressive. It benefits some 200,000 policy holders and will result in a reduction of about $185 per year. The credit rating companies specializing in the insurance industry keep the financial status of all companies under review. Despite this announced reduction, the USAA Group retains one of the highest possible ratings. This is significant. Both the Commissioner and the rating agencies like A M Best understand that this reduction comes from a measured improvement in the efficiency of the group. It has cut operating costs without sacrificing the quality of service it delivers to the public. Although USAA is not one of the top five insurers in California, its performance is a warning to the others, particularly State Farm which has a market share of 22%. This is real competition in the premium rates and with Dave Jones so publicly endorsing USAA’s reduction, there’s bound to be a movement of business to take advantage of these low rates.

It’s going to be interesting to watch what happens to market share. The industry’s statistics show there’s a real reluctance to change insurers. This is not restricted to homeowners insurance but applies to all types of insurance. Perhaps with the gap widening so obviously, more people will now be persuaded to change. If so, this will be one of the first times a really free market has emerged in the home insurance market. There have been altogether too many examples of companies agreeing on local rates. Commissioners like Dave Jones should be pushing for real competition to benefit us all.

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