Insurance Commissioner John Garamendi accused insurers of reaping "excessive profits"



"The insurance companies are literally giving less and less money to the policyholders and more and more money to Wall Street, to fat executive salaries and overhead expenses," Garamendi said during a Capitol news conference Thursday. "It's time for the rates to be brought in." John Garamendi is the State Insurance Commissioner for California. He served as a Peace Corps Volunteer in Ethiopia in the 1960's.

Insurance Commissioner John Garamendi accused insurers of reaping "excessive profits"

Garamendi blasts insurers, alleges 'excessive profits'

By Gilbert Chan -- Bee Staff Writer

Published 12:01 am PDT Friday, May 26, 2006

Insurance Commissioner John Garamendi accused insurers Thursday of reaping "excessive profits" and vowed to force carriers to cut homeowners and auto rates by next year.

Garamendi said a financial analysis of the state's 20 largest auto, property and casualty insurers found that companies have paid less than normal for claims in the past two years.

"The insurance companies are literally giving less and less money to the policyholders and more and more money to Wall Street, to fat executive salaries and overhead expenses," Garamendi said during a Capitol news conference Thursday. "It's time for the rates to be brought in."

Insurance company and industry officials called Garamendi's analysis flawed, saying not all expenses were included in the state review. They also said the commissioner shouldn't be surprised by the results because his department must approve rates proposed by carriers.

"We really are confused what this is all about. We are using the rates he approved," said Bill Sirola, a spokesman for State Farm Insurance Cos. in California.

Sirola pointed out that Garamendi last year approved an average 4.1 percent rate cut for State Farm auto policyholders in California.

"When we can lower the rate for our policyholders, we do so," Sirola said.

But consumer activist Harvey Rosenfeld said his group -- the Foundation for Taxpayer and Consumers Rights -- estimates insurers could afford to levy cuts of 15 percent to 25 percent across the board. Garamendi would not predict potential reductions.

The commissioner has scheduled a July 20 hearing for insurers to justify their expenses and profit on homeowner policies.

Already, Garamendi has proposed new auto policy rules aimed at reducing rates for consumers by requiring insurers to give more weight to a driver's safety record than place of residence. Insurers would have to submit new rate proposals to Garamendi this summer.

"There is plenty of evidence to indicate auto insurance rates for everybody across the state … are too high," Garamendi said.

The Insurance Department studied the amount of claim payouts compared with premiums received by insurers, known as loss ratios. The lower the ratio is, the greater the profitability will be.

Starting in 2004, most insurers paid out less than 50 cents for every $1 in premiums, Garamendi said. Last year, only five home insurance companies paid out more than 50 cents on every $1. Historically, claim payments have been in the 60- to 80-cent range.

"The top 20 auto insurance and homeowner insurance companies in the state … are engaged in very serious price gouging," Garamendi said.

But insurers said focusing on two profitable years is too narrow and doesn't account for the heavy claims paid from the massive wildfires in Southern California in 2003.

"It would be irresponsible to make rate adjustments based on a short period of time," said Sam Sorich, president of the Association of California Insurance Companies. "Over the last 10 years, the operating profit for California auto (insurance) has been 4.8 percent and for homeowners, 5.9 percent."

When this story was posted in July 2006, this was on the front page of PCOL:




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