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Story last updated at 7:25 a.m.
Thursday, December 16, 2004
State Farm
trimming home insurance rates
Current
policyholders will have to wait until Feb. 1 to get the rate reduction, which
will average 5.1 percent
BY
MATTHEW MOGUL
Of The
Post and Courier Staff
State Farm,
South Carolina's biggest insurer of homes and cars, has rolled out its first
rate cut in close to 15 years for homeowners.
The company
cut its rate by an average of 5.1 percent Wednesday for all new business it
writes in South Carolina.
Those renewing their policies need to wait until Feb. 1 to take advantage of the
reduced rates.
The rate
reduction was spurred by a range of factors from more competition and better
business conditions to a pickup in the stock market, where insurance companies
rely on making solid returns. The same factors were behind the company's
decision to lower its auto rates earlier this year by an average of 2.6 percent.
"The frequency
of claims and the amount we were paying out went down, so that, in a nutshell,
is the reason" for this cut, said Ron Payne, who oversees the company's personal
lines -- home and auto -- in South Carolina. "Last year we thought future
payouts would be higher. They dropped, so we adjusted to meet that."
Payne said a
deregulation law enacted during this year's legislative session also factored
into State Farm's decision. The law, which gives insurers more leeway to raise
or lower rates without getting state approval, is meant to bring more insurers
to the state and increase competition.
"We need to
make sure our rates are competitive," Payne said. "If you can decrease a rate,
then you do it."
Hana
Williamson, an attorney with the South Carolina Department of Consumer Affairs,
said the reduction was "great news" and she hoped other companies would follow.
Still, she said, it's too early to tell if the new law is behind this or any
other cuts to come.
"The data is
not there to prove this," Williamson said. "And the law is still being
implemented. Some of the provisions don't start until next year."
Williamson
said the reduction is because of a stock market turnaround more than anything
else. For years, insurers have turned to the markets to make up through
investment gains what they pay out in loss claims. With the stock market
depressed since 2000, insurance companies haven't had that option.
"These things
are cyclical," Williamson said. "We have been saying all along that companies
were forced to raise rates because of the big market losses. Now things are a
little better and they can cut rates."
A year ago,
State Farm imposed an average 18.7 percent rate increase on its homeowners'
policies, the biggest one-time rise in more than a decade. That increase was a
compromise, negotiated down from 27 percent by the state's consumer affairs
office, and followed a long series of rate hikes by State Farm and most other
carriers going back to the early 1990s.
Dean Kruger,
chief actuary at the South Carolina Department of Insurance, said a bad string
of hail incidents in the late 1990s and early 2000s were likely the main
culprits behind the recent rate rises. "Companies like State Farm were incurring
big losses because of this," he said.
As someone who
had a hand in fashioning the deregulation law, Kruger said Wednesday's
announcement is only the beginning. "It will make things more competitive for
sure, and I think we're seeing that with State Farm's move today," he said.
Matthew Mogul
covers insurance and banking. Contact him at (843) 937-5594 or at mmogul@postandcourier.com.
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