"Our success is built on a foundation of shared values—quality service and relationships, mutual trust, integrity and financial strength," reads a company mission statement on the State Farm website.
These words are reinforced in a lengthy "State Farm Code of Conduct" that kicks off with a quote from company founder George Mecherle. "Honesty isn't the best policy—it's the only policy," Mr. Mecherle is quoted as saying.How ironic then that State Farm's automotive insurance branch has been accused of shady—if not outright illegal—business practises in the state of California.
At stake is something called Proposition 103. Passed by California voters in 1988, Proposition 103 slaps tight regulations on state wide insurance activities. Among other things, the voter-driven piece of legislation makes it illegal for insurance companies in California to charge extra if a driver was not previously insured.
"The absence of prior automobile insurance coverage, in and of itself, shall not be a criterion for determining the eligibility of a Good Driver Discount policy, or generally for automobile rates, premiums or insurability," reads the California Insurance Code.
Sounds pretty straightforward, but the reality is that insurance companies, including State Farm, are being sued for allegedly running rough-shed over Prop 103. State Farm is accused of charging an illegal insurance surcharge to California clients between 1997 - 2002.
It is alleged that if State Farm couldn't confirm that a new customer had previous auto insurance, said customer would be charged extra on their premium. The excuse was State Farm wasn't able to verify the customer's accident record.
Something else: if a new client had a lapse in their insurance history it was also claimed that their coverage was unverifiable. This "lapse" might be the result of going without a car or taking public transit for a spell. Allegedly, even soldiers in the armed forces who resided in California but were shipped out-of-state found that their insurers viewed their tour of duty as a "lapse of coverage". The end-result was that anyone with "lapsed coverage" could find themselves paying much higher premiums.
Of course, the biggest irony of all is that setting steep premiums or making it as difficult as possible to get car insurance has the effect of making the roads less safe. People who can't afford to buy auto insurance—or find the process of getting insurance way too complicated—will sometimes simply go without it, and drive uninsured. And that is no good for anyone, particularly Californians whose right to fair-priced car insurance is supposed to be guaranteed by state law.