Safeco Halts New Calif. HO Writings

July 30–Citing rate inadequacy and emergency regulations proposed by the California Insurance Department restricting the use of prior loss history in underwriting and rating, Seattle, Wash.-based Safeco Corporation has decided to temporarily stop writing new homeowners insurance policies in the state.

The moratorium on new California business went into effect July 22. Safeco now writes approximately 240,000 homeowners policies in California, and none of those current policyholders will be affected, according to a statement.

“Safeco wants to be in California,” stressed Mike LaRocco, president and chief operating officer of Safeco Personal Insurance, in an interview. We are the seventh-largest homeowners writer in the state. But we want to offer a product that is adequately priced.”

Safeco has filed for a 19.7 percent rate hike for its California homeowners business, according to Mr. LaRocco. He also said there is a similar moratorium in effect in Florida, New York, Pennsylvania and Texas.

Rapidly rising loss costs fueled by water damage and mold claims are making homeowners coverage unprofitable at current rates, noted Jim Swegle, director of personal lines property at Safeco Personal Insurance. “We cannot sell new business at a loss,” Mr. Swegle said.

Mr. LaRocco said “the emergency regs would limit our ability to use prior losses on a going-forward basis.” He said that the regulations would bar the company from factoring loss history into the underwriting and rating process. He added that such prior losses can potentially be revealed in a C.L.U.E. report, an application or by any other method.

C.L.U.E. (Comprehensive Loss Underwriting Exchange) reports are location-specific homeowners loss reports produced by Alpharetta, Ga.-based ChoicePoint. Several consumer and policyholder groups have charged that the reports unfairly impede homeowners and home buyers from obtaining insurance because information about repaired damage and mere claim inquiries that result in no payment appear in the reports.

According to Mr. LaRocco, the regs have been in litigation in California for about six weeks and are not yet in force.

Eric Trott, a Safeco spokesperson, elaborated on the use of loss history permitted by the regs: “There is a term in the regulationsfully resolvedand it is unclear at this point how it will be interpreted. If a house has multiple pipe bursts, but each of those claims have been fully resolved, under a literal interpretation of the regs, we cant consider them.”

While the three Safeco representatives indicated that the term “fully resolved” might refer to repaired damage and/or closed claims, they stated that the term has yet to be clearly defined by the California Insurance Department or the courts.

“We have to match rate to risk,” Mr. LaRocco stressed. “The proposed regs prevent us from doing that,” he asserted.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 4, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Safeco Halts New Calif. HO Writings

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