In the latest action to defend homeowners against excessive insurance rates, California Insurance Commissioner John Garamendi on Thursday announced he will approve an 18 percent decrease in homeowner and renter premium rates by The Hartford Insurance Co.

The Hartford, which filed for rate review earlier this year, has worked with the department over the last several months to achieve a rate reduction that reflects its current claims payment experience, Garamendi’s office said.

Meanwhile, the insurance commissioner on Wednesday ordered four other major insurers to justify their rates.

Garamendi ordered State Farm, Allstate, Farmers, and Safeco to prove that their current rates were not excessive. If they fail to provide the necessary proof, rate reductions will be ordered, benefiting more than 4.1 million policyholders served by these companies.

“I will determine why up to 70 percent of the hard-earned dollars that consumers pay end up in corporate bank accounts, instead of being used for policyholder claims,” said Commissioner Garamendi. “If the rates are determined to be excessive, immediate reductions will be ordered.”

The Department of Insurance recently conducted a study of the loss ratios of the top 20 insurers in California. A loss ratio is a measure of the relationship between the dollars paid out in claims and other expenses, compared to premium dollars collected from policyholders. The study found that the four companies, representing 51 percent of the California homeowners insurance market, pay far less than 50 cents of each premium dollar to settle policyholder claims.

In 2005, State Farm paid 37.6 percent of each premium dollar for claims; Allstate paid 41 percent; Farmers paid 37.7 percent; and Safeco paid 26.31 percent, according to the commission’s study. Garamendi says that some insurers have claimed that such a large percentage of premium remaining with the company is needed to build financial reserves and surplus. But, he says, the companies have strong financial reserves.

Under the California Insurance Code the commissioner has the power to lower premium rates if they are “excessive.”

The study of homeowners and auto insurance rates released in May was undertaken in response to an emerging trend in which insurance carriers experienced dramatic reductions in the percentage of premium dollars used to pay claims, according to the commissioner’s office.

“We all know where the rest of those premium dollars go,” Garamendi said. “It is clear that these numbers are a compelling reason for this department to conduct a thorough investigation and to determine whether these rates need to be reduced.”

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