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State Farm to Issue Refunds

Apr 16, 2007


About 18,000 of State Farm's auto insurance customers in Louisiana will be getting checks of more than $1,000 in June as the result of accidental overcharges between 2003 and 2006, a company spokesman said Monday.

In 2003, State Farm adjusted rates nationwide for auto insurance and adapted its plan to each state, spokesman Morris Anderson said. State Farm inadvertently included a rating factor - accidents where the customer was not at fault - that is not allowed under Louisiana law and in two or three other states.

The mistake applied only to new policies, and neither State Farm nor the Insurance Department caught the error in the 2003 filing, Anderson said.

The result was that during the three-year period about 18,000 customers paid an extra $260 in premiums on average, or a total of about $4.7 million. In early 2006, State Farm filed for new rates in Louisiana, and the Insurance Department spotted the problem, Anderson said.

"When they caught it, they brought it to our attention, and we have been working to make it right," Anderson said. "They didn't ask us to do this, to make the refund, we did it upon our own."

Judy Wright, an Insurance Department spokeswoman, confirmed that the department did notify State Farm of the problem.

Insurance Commissioner Jim Donelon said State Farm proposed paying the penalty, interest and refunding the premiums. Donelon said he did not plan to further penalize the insurer because there was nothing intentional or fraudulent about the company's actions.

The State Farm customers affected will receive the overcharged premiums, interest and a penalty of triple the premium refund or $1,000, whichever is greater, Anderson said. The penalty is required under Louisiana law.

"So anyone that's impacted will be receiving at least $1,000," Anderson said.

Anderson said he did not have the exact numbers. However, at a minimum, State Farm will be issuing $22.7 million in checks to the customers who were overcharged (based on $260 plus $1,000 times 18,000).

The overcharges affected about 2 percent of State Farm's customers - the company is the state's largest auto insurer with close to 1 million policyholders - and took place between April 2003 and March 2006, Anderson said.

The Insurance Department notified State Farm of the problem in early 2006. The company then had to go through a significant amount of data, examining each agent's book of business and verifying which customers were overcharged, Anderson said.

"It took about a year to nail it all down," Anderson said.

State Farm is sending letters to those customers notifying them of the problem, Anderson said. The company expects to begin processing the checks in June.

(c) 2007 Advocate; Baton Rouge, La.. Provided by ProQuest Information and Learning. All rights Reserved.

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