Industry News

Farmers Insurance to pay $3.4 million in fines, refunds

Missing fire-hydrant data allegedly led to overcharges

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Farmers Insurance Group has agreed to refund $1.4 million in homeowners insurance premiums and pay $2 million in fines to settle allegations by California regulators that the company overcharged more than 5,000 customers and arbitrarily refused to renew others' policies. In complaints dating back to 2003, the California Department of Insurance claimed Farmers overcharged 5,237 policyholders by automatically classifying their homes as being at a higher risk for fire when it lacked data on the nearest fire-hydrant location. Farmers used a geographic underwriting system that assigned "public protection class" risk codes to properties based primarily on their proximity to fire hydrants, investigators said. Whenever the system failed to assign public protection codes to properties, the complaints alleged, Farmers simply assigned them the highest risk code, resulting in higher premium charges. When Farmers attempted to correct the coding errors by implementing a new system, ac...