Farmers Insurance Agreed to Pay $750,000 to the State... [Derived Headline]

By JONATHAN RIVOLI

Farmers Insurance agreed to pay $750,000 to the state of North Dakota to settle claims of unfair auto insurance settlement practices, the state insurance department reported Thursday.

Insurance Commissioner Jim Poolman said the fine is a result of unfair and arbitrary benchmarks that rewarded Farmers employees for limiting the amount paid in claims. The incentives created a bias against policyholders when settling claims because Farmers employees got rewards for paying less to their claimants, he said.

"It was very well spelled out that policyholders could be taken advantage of," Poolman said.

Farmers Insurance denies wrongdoing.

Under North Dakota law, the insurance regulator has the right to examine a company's claim payment practices. Poolman's investigation of Farmers began in 2004 and included the review of personnel files from Farmers Bismarck office and legal documents from a civil suit in South Dakota.

It keyed on two company initiatives - a 1994 effort dubbed "Bring Back a Billion" and a 1998 effort dubbed "Quest for Gold." Both programs, which since have been canceled, aimed to cut costs and reduce the amount paid out on claims, according to the settlement documents.

Mark Toohey, a spokesman for Farmers, said the programs were in compliance with state law and didn't result in any improper claim payments. He said Farmers settled after three years because it wanted to concentrate its efforts on growing its business in North Dakota and not on fighting allegations about its practices in the 1990s.

"You don't make any progress if you're dealing in the past," Toohey said. "The reasons we settled were to put this behind us and act in the spirit of cooperation with the insurance department."

The $750,000 fine already has been received by the state and will go into the general fund. Its use will be decided by the state Legislature, which next meets in 2009.

Poolman said the department did not have the resources to go back and look into specific instances where these practices may have hurt North Dakota policyholders, but instead sought a general settlement.

"Basically it was to take a piece of their hide for treating policyholders unfairly," he said.

The settlement represents the largest ever paid to North Dakota by an insurer. Poolman called it a "shot across the bow" to any other insurance companies engaging in similar practices.

Bob Hunter, director of insurance for the Consumer Federation of America, said such practices are common in the insurance industry. He called them "bad faith practices" that hurt consumers but are rarely tackled by state insurance regulators.

"It's a common practice, but it's uncommon to see anything done about it," Hunter said.

Along with its North Dakota settlement, Farmers also reached a $1 million settlement with regulators in California.

Based in Los Angeles, the company writes auto, home and life policies for customers in 41 states. Its business includes about $11 million worth of auto insurance premiums per year in North Dakota.

Toohey, the company spokesman, said the settlement will not affect Farmers' business in North Dakota.

(Reach reporter Jonathan Rivoli at 223-8482 or [email protected].)The following fields overflowed:BYLINE = JONATHAN RIVOLI Bismarck Tribune Insurance firm settles with state

(c) 2007 Bismarck Tribune. Provided by ProQuest Information and Learning. All rights Reserved.