Like a Good Neighbor, State Farm is There With a Helping Hand and a Hatchet

Harry writes in a tale of what he describes as extortion by State Farm Insurance.

State Farm was going to raise his housing deductible by 150% as he only had a single line of insurance with them. Thinking quick, Harry figured out how to side-step the rate hike without switching over his Progressive car insurance as well, though not without paying a price…

Full story after the jump…

I got a post card from my State Farm agent the other day. It said, “Please call us about a matter concerning your homeowner’s insurance.” I spoke to a very nice lady at the agent’s office who told me that State Farm was going to be instituting a change in my policy when it came up for renewal next June. This change only affected “single line” insureds, in other words, people who only used one of State Farm’s insurance lines. Personally, I use Progressive to insure my car, and State Farm on my house, because, well, I did the math and it was cheaper than having State Farm insure my cars.

The change which is going to affect single line insureds (at least those of us in Missouri) is that, instead of our current deductible (mine is $1000), SF would increase our deductible to one percent of the value of the property. Thus, my deductible would be increased to, approximately $2600. I would get the “benefit” of an approximately $100 decrease in my yearly premium.

“Wow,” I said to the agent. “That’s a big increase in potential out-of-pocket. If I had two unrelated losses in one year, we’re up over $5,000.”

“Yes,” she said. “But you could keep the $1000 deductible if you weren’t a single line insured.”
“I’m pretty happy with my auto insurer. What other lines does SF have?”
“We have life insurance, health insurance and we have several investment vehicles that would count as another line.”
“Investment vehicles?
“Yes. We have money market funds, mutual funds, even a savings account.”
“Okay,” I said, (and here’s where the Consumerist Cynic in me began to blossom), “if I’m the cheapest S.O.B on the planet, and I didn’t want to bother switching insurance companies, what would you suggest I do?”
“Our savings account has a minimum balance of $100. If you opened one of those, it would be sufficient for you to be considered as a multiple-line insured.”

“I see. So basically, I pay State Farm $100, and they don’t unilaterally increase my deductible by over 150 percent. Fine. Please go ahead and set me up for a savings account, mail me the application, and just let me know where I need to send the extortion money.”

I want to clarify that I actually appreciate that my agent gave me the heads up on this. It’s State Farm corporate which came up with this great money-saving / money-making idea.

But me, calling it extortion, that’s the Consumerist in me talking.


Good job, Harry!


Edit Your Comment

  1. OkiMike says:

    Bravo! Now that’s customer service!

  2. djwoodyphl says:

    I think I’d have to remove my State Farm agent from the annual Christmas card list after that one. And better yet, probably find another insurance company altogether — possibly even one where customer service and extortion are two different things.

  3. L_Emmerdeur says:

    Interesting, because banks are expressly forbidden by federal law from using such tactics. I wonder if similar laws exist for these guys.

    They are called “Anti-Tying Restrictions”:

    “The purpose of the anti-tying restrictions of section 106(b) of the Bank Holding Company Act Amendments of 1970 (12 USC 1972(b)) (“Section 106(b)”) is to support the principles of fair competition by eliminating tie-in arrangements that suppress competition.”

    Note that these restrictions apply to “extension of credit or other product or service”.

    Also, the anti-tying restrictions “prohibit Company X from conditioning the availability of, or varying the consideration for, a product or service on the agreement that the customer refrain from dealing with a competitor of X Company or any of its affiliates.”

    There are exceptions to these anti-tying restrictions (like, a bank may require a customer to hold a minimum balance in a deposit account to obtain a loan), but tying the terms of one insurance contract to purchases of other unrelated insurance business may not fall under these exceptions.

  4. employeewhocares says:

    Regarding the anti-tying – have you not heard about the Gramm/Leach/Bilaly (SP) Act where Gramm (husband of the woman who was on both the boards of State Farm and Enron at the same time and was cooking the books of both companies at the same time) pushed that banks can sell insurance and insurance companies can sell banking products? Well, I’m a SF employee and I can personally say that this is the worst insurance company on the planet. At least I don’t have a job where I have to lie to the customers and claimants. I just sit and do my job even though it irks me every day because the bottom line of State Farm is “we ain’t gonna pay.” I’ve heard it said many many times by others within the company too. I personally wouldn’t suggest for anyone to purchase anything of State Farm’s offerings (banking or insurance products) and I most definitely tell everyone what a crappy company they are to work for too.