On Nov. 19, the Texas Department of Insurance announced that it will once again go after Farmers Insurance and State Farm Lloyds in its effort to get them to lower homeowners insurance rates. According to TDI, since June 2003, Farmers and State Farm Lloyds have overcharged Texas policyholders to the tune of more than $243 million. “TDI is preparing to initiate administrative actions to demonstrate that the rates charged by insurers are excessive and that refunds of the excess premium should be issued directly to policyholders,” plus 10% interest, according to a TDI press release.
In reviewing the companies’ rates, TDI considered the “substantial losses” the companies sustained in 2000 and 2001, due to the large number of claims connected to “non-catastrophic” events and the increase in mold and other water-damage related claims, according to two separate reports filed with TDI Commissioner Jose Montemayor last week by Catherine Reyer, chief of TDI’s enforcement section. Nonetheless, State Farm and Farmers substantially increased their rates in the last four years – as of June 2003 State Farm’s rates were 22.6% higher than their January 2000 rates; Farmers rates increased between 55.9% and 74.3%, Reyer wrote, even though claims have decreased. According to Reyer, both companies used “loss ratio trend” data that inflated the rates without providing any “credible” evidence to justify the higher premiums.
Farmers’ spokeswoman Michelle Levy said the company disagrees with the TDI’s latest report. “We believe we’ve done everything possible to provide information on our loss experience and rates in Texas to the TDI,” she said. “As we have said before, we remain committed to continuing discussion of this issue with TDI [in order] to address this in the best interest of our customers.” The new allegations are separate from the rate reduction orders TDI handed to 30 insurance companies last fall.
State Farm and Farmers (which together handle about 40% of the Texas market) each appealed that reduction order, and on Nov. 8 the two insurers won their bid for summary judgment in Travis Co. District Court. In her ruling, District Judge Suzanne Covington concluded that the portion of 2003’s Senate Bill 14 that allowed TDI to call for immediate rate reductions was unconstitutional. Not surprisingly, TDI wasn’t happy with that ruling and is currently “exploring all legal options.”
This article appears in November 26 • 2004.