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State Farm Car Insurance Rate Hikes Draw Fire in Maryland

Nov. 5, 2015
Auto Insurance, Insurance
State Farm Car Insurance Rate Hikes Under Fire in Maryland
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Maryland drivers have filed an unprecedented number of complaints against State Farm over the past year, after the insurer boosted car insurance rates for accidents that weren’t their fault or for a single emergency road service claim.

Maryland regulators found fault with some of the increases, which at times resulted from just one incident within the previous three years. State Farm has reversed some of the increases, showing the potential power of consumer complaints to the state insurance departments that regulate insurance companies.

The Maryland Insurance Administration is still investigating many of the complaints. State Farm is the No. 2 private passenger auto insurer in Maryland, with about 20% of market share in the state, according to A.M. Best. (Geico is No. 1 with about 23%.)

[Compare car insurance quotes through NerdWallet’s Car Insurance Comparison Tool.]

What’s at issue

Last year, State Farm raised rates by an average of 0.8% in Maryland, starting with policies that renewed in November 2014, according to company spokesman Dave Phillips.

Like many states, Maryland mandates that insurance companies explain the basis for rate increases and inform consumers about their right to dispute increases. Maryland’s requirements include sending a form that customers can use to complain to the state insurance administration, and even a mailing envelope for complaints.

A NerdWallet Freedom of Information Act request sent to the Maryland Insurance Administration revealed that in the 12 months ending Sept. 30, State Farm policyholders filed 17,908 complaints about rate increases. For comparison, 16,127 complaints about personal auto coverage were filed against all insurers in Maryland in the 2011, 2012 and 2013 fiscal years (July through June) combined.

Between December 2014 and February 2015, Maryland ordered State Farm to refund money, with interest, to 782 customers who had received rate increases.

One big reason for the complaints: Thousands of State Farm policyholders said their premiums were raised because of a single claim for emergency road service or for an incident that wasn’t their fault, according to Maryland Insurance Administration spokesman Joseph Sviatko.

State Farm’s Phillips defends this, saying studies have shown that use of emergency road service and not-at-fault accidents correlate to an increased likelihood of future claims. He argues that not imposing rate increases for these incidents would shift costs onto policyholders who are less likely to have claims.

Maryland does, in fact, allow insurance companies to raise rates after not-at-fault accidents and emergency road service claims. Some other insurers also raise rates for not-at-fault accidents, but most don’t, and State Farm is the only company to charge higher rates based on road service claims, according to the Maryland Insurance Administration.

Additionally, Maryland law allows insurers to base increases on incidents within the past three years. This means some customers got notices saying their rates were going up for something that happened more than two years ago.

The problem with State Farm’s letters

Maryland insurance regulators found that the rate increase letters State Farm sent to customers didn’t give enough detail about the basis for the increases. In a letter responding to one complaint, for example, insurance investigator Cheryl Kouns noted that emergency road service could be for a dead battery, mechanical failure, locking the keys in the car or running out of fuel.

“The use of the phrase ‘Emergency Road Service’ as the sole description of the claim is not clear and specific and does not satisfy the requirements of Maryland insurance law,” she wrote.

Between December 2014 and February 2015, the Maryland Insurance Administration ordered State Farm to refund money, with interest, to 782 customers who had received increases. The company voluntarily refunded another 3,046 increases and withdrew increases for 1,126 customers. Maryland rejected 1,616 complaints from consumers that were filed too late.

State Farm’s next step was to impose increases on other drivers whose policies were renewing, sending revised rate-increase letters with the proper amount of detail. But consumer complaints continued to flood in.

State regulators continued to investigate, based on state law provisions that prohibit insurance rate from being excessive, inadequate or discriminatory; and that bar insurance companies from treating people who pose similar risks differently. Phillips insists State Farm has applied the rate increases fairly.

A consumer-friendly resolution

Nonetheless, State Farm recently agreed to rescind increases stemming from not-at-fault claims on uninsured motorist coverage in Maryland. In a letter responding to one of the complaints,  insurance investigator Monique Ramsey said the action came after “extensive interaction between the Insurance Administration and State Farm.”

State Farm also has agreed to stop raising rates based on not-at-fault incidents, including emergency road service claims.

State regulators are still investigating protests related to other State Farm increases, including those the company has left in place for emergency road service and some not-at-fault accidents, and expect to finish their review by the end of the year, Sviatko said.

Aubrey Cohen is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @aubreycohen.

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