State Farm, California's biggest homeowners' insurer, is dropping rates an average of 12.6% for more than 1 million policyholders in the state beginning April 15. Customers are expected to see average annual premiums cut by $100 this year.
Rates are expected to fall 12.3% in Los Angeles County, 14.1% in Orange County and 12.4% in San Diego County.
The statewide markdown by State Farm General Insurance Co. will be seen by 85% of State Farm's 1.6 million homeowner customers in California, the company said. About 250,000 renters should also receive smaller insurance bills when their policies renew this year, officials said.
Total annual savings statewide are estimated at $160 million.
The lower prices were announced at a Thursday news conference in Los Angeles held by state Insurance Commissioner Dave Jones and State Farm Chief Executive Tom Conley.
"State Farm is demonstrating that insurers can serve customers well and operate profitably at the same time," Jones said. "As the economy continues to recover, this rate reduction will no doubt alleviate some of the financial burden many homeowners are experiencing."
Rates are pegged to go down 21% in Sacramento County and 8.5% in San Francisco, the Department of Insurance and State Farm said.
State Farm's new rate reduction follows a 6.9% increase in January 2009 and a 6.9% hike in February 2010, the company said.
Jones approved the rate reduction using the regulatory powers given the commissioner by Proposition 103, an initiative approved by California voters in 1988.
Use of those powers, Jones said, led to his ordering more than $1 billion worth of rate cuts for a variety of companies and coverages, including homeowners and automobile insurance, since taking office in January 2011. He declined to say whether rate decreases are in the works for homeowner policyholders from other insurers.
Jones now is pushing for a change in California law that would give him similar authority to approve or reject proposed changes in health insurance rates. An initiative to do that will go before voters on the November 2014 ballot.
In giving State Farm the go-ahead for a large rate reduction, Jones also approved a new rate-setting system developed by the company.
The program, which had its debut with the latest rate filing, takes a more detailed look at the micro-zones where homes are located. Instead of basing risk on a home's ZIP Code, the system breaks down risk factors, such as geology and fire danger, based on a home's latitude and longitude.
"The new technique is able to drill down on property location and is able to fine-tune pricing," State Farm spokesman Sevag A. Sarkissian said.
By better measuring risk, State Farm can provide its customers with more competitive insurance quotes, said Conley, the CEO.
The development of the new rating system and the latest rate reductions are proof that California's mechanism for regulating property and casualty insurance rates works the way it's supposed to by keeping prices low and the market competitive, said Douglas Heller, a senior advocate with Consumer Watchdog. The Santa Monica advocacy group participated in the State Farm rate-setting process, and its founder, lawyer Harvey Rosenfeld, wrote Proposition 103.
State Farm's ability to better base premiums on specific risks should cause other insurers to take another look at their pricing to determine "are we overcharging or not," Heller said. And if they don't do that, the insurance commissioner has the legal right to open a proceeding to study the same question.
The upshot is that "insurance rate regulation works," he said, "and we have $160 million more to prove it."