Fire Insurance Exchange Update
Los Angeles, April 1, 2014
Dear Fellow Fire Insurance Exchange Member,
Fire Insurance Exchange is one of the insurers comprising Farmers Insurance Group®. Fire Insurance Exchange along with Farmers Insurance Exchange and Truck Insurance Exchange, and their subsidiaries and affiliates, provide automobile, homeowners, personal umbrella and business owners insurance.
- Farmers’ nationally acclaimed University of Farmers® once again received high recognition placing in Training Magazine's Training Top 10 Hall of Fame as a result of four consecutive years in the Training 125's Top 10. Farmers joins in this honor with other prominent United States organizations. The award continues to reflect our goal of providing the best value and experience for Farmers customers.
- The e-policy or electronic availability of policy documents have improved customer experience and continued to expand in popularity with our customers in 2013.
- Farmers All Lines Billing continues to make it easier and more convenient for customers to pay their insurance premiums. Enhancements to farmers.com allow customers to pay multiple policies in a single transaction. Additionally, expanded credit card brand acceptance gives customers more options and freedom of choice.
- Farmers Insurance Group continues taking steps to expand into the Eastern United States. Eastern expansion will help increase our market presence from coast to coast and spread risks geographically so that a single disaster would have less impact on the Exchange.
Farmers invests in three core philanthropic pillars: education, safety and civic programs, which serve to benefit a diverse cross-section of Americans. Through its various corporate sponsorships, such as the PGA TOUR's Farmers Insurance Open , Farmers supports a variety of programs that benefit the San Diego community. One beneficiary is "Blessings in a Backpack," a program which distributes backpacks filled with food to low-income school children as they head home for the weekend. Farmers is a key contributor to the Monarch School, a school designed to help homeless children succeed in life through education and other life needs. Farmers is a national sponsor of the American Red Cross Disaster Preparedness Program, where our partnership will educate citizens to be better prepared for future disasters. Within the Safety pillar, Farmers invests in driver safety and fire prevention programs. Examples of civic support include food drives, clothing drives and various Habitat for Humanity programs throughout the country. In 2013, Farmers made a community investment in Joplin, Missouri, helping the city recover from a devastating F5 tornado. Farmers recognized that many families were still without permanent homes two years after the storm. Farmers invested financial and people resources and will continue to do so in 2014. In addition, Farmers helped to author a Disaster Recovery Playbook which will help other communities recover more quickly from future disasters.
Privileged to Serve
For more than eight decades, Farmers Insurance Group has provided its customers with coverage options to help them manage risk and meet their insurance needs. We strive to deliver the best value and experience to every customer we're privileged to serve. Farmers appreciates your business and looks forward to continuing to earn your confidence for many years to come.
Dale A. Marlin
Chair of the Board of Governors of Fire Insurance Exchange
Information About the Exchange
As a member of Fire Insurance Exchange, we want you to understand the basics of the operation of an Exchange because, as you will see below, you are an owner of the Exchange.
What is an Exchange?
An Exchange is an insurance organization which operates in most ways like any other insurance company. But there are a few differences. Fire Insurance Exchange was organized under a provision in the California Insurance Code which allows insureds to “exchange” policies with other insureds. Because the insureds cannot practically be involved in actually issuing policies, collecting premium, paying commissions to agents, etc., they appoint a third party – called an “attorney-in-fact” (AIF) – to perform those duties on their behalf for a fee. That appointment is made through a document called a “Subscription Agreement.” You were asked to sign a Subscription Agreement at the time you applied for insurance with Fire Insurance Exchange and that is how you became a member (aka subscriber).
Who owns the Exchange?
You do. Subscribers of the Exchange are owners until such time as they no longer have insurance from the Exchange. Subscribers elect a Board of Governors which supervises the financial affairs of the Exchange and the performance of the AIF in conformity with the Subscription Agreement terms.
Why is an AIF fee paid to Fire Underwriters Association (FUA)?
Under the Subscription Agreement mentioned above, members appoint FUA to perform certain of the tasks, such as policy issuance and collection of premium, which are involved in running an insurance operation. The Subscription Agreement specifies an AIF fee of 25 percent of premium although FUA has taken less than that amount.
What is FUA?
FUA is a wholly owned subsidiary of Farmers Group, Inc. (FGI), which is part of the Zurich Insurance Group, Ltd (ZIG), a Swiss company. Neither FUA, FGI nor ZIG has any ownership interest in Fire Insurance Exchange, which is owned by its subscribers (insureds).
How was your premium dollar spent by Fire Insurance Exchange in 2013?
Your premium dollar covers Exchange costs including losses incurred, acquisition costs, taxes, license fees, the AIF fee, and any
contributions to surplus. For 2013, the AIF fee was 13.5 percent of the premium dollar, which included the AIF profit of 7.18 percent of the premium dollar for that year. The results of the Exchange were impacted by the large number of catastrophe losses but it still maintained a strong capital base with surplus of $721 million.
Can the Exchange lose money?
If premiums collected exceed claims payments and other expenses (including the fee for the AIF), then the Exchange retains those net premium earnings (as contributions to surplus). If premiums are not sufficient to cover claims and expenses, the Exchange will lose money. That’s one reason it is important to build a cushion against possible future losses. The AIF does not participate in claims losses and does not enjoy any net premium earnings. Importantly, subscribers are not responsible for any losses the Exchange might suffer.
Where can I get more information about the Exchange?
For more information, visit About Us.
If you have additional questions, please contact:
Subscriber Relations Office
Fire Insurance Exchange
Attn: Corporate Secretary
P.O. Box 51161
Los Angeles, CA 90051-5461