Alleging Overcharges, TDI Takes Action Against State Farm, Farmers

In the aftermath of a Texas state district judge’s ruling that tossed out mandated homeowners rate rollbacks for State Farm Lloyds and Farmers Insurance Group, the Texas Department of Insurance (TDI) reported it is initiating new actions against the two carriers in an effort to bring the insurers’ homeowners insurance rates into compliance with state law.

In an announcement, TDI contended that State Farm Lloyds, Farmers Insurance Exchange and Fire Insurance Exchange (both Farmers Insurance companies) have been charging their policyholders excessive rates totaling more than $243 million since June 11, 2003, the effective date of Senate Bill 14. TDI said it is initiating administrative actions to demonstrate that the rates charged by the insurers are excessive and that refunds of the excessive premium should be issued directly to policyholders. The department is seeking a refund of the excessive premium plus 10 percent interest. The total amount will be calculated from June 11, 2003 to present.

TDI’s current steps represent new rate actions, separate from the September 2003 reduction orders in which 30 insurers were instructed to reduce rates. State Farm and Farmers are the only companies that appealed the commissioner’s orders. At that time, State Farm was ordered to reduce rates by 12 percent, which equaled $155 million. The Farmers companies were ordered to reduce rates by 17.5 percent, or $88 million.

“This action is about ensuring consumers are paying fair rates at justifiable levels, as the Legislature intended under Senate Bill 14,” stated Mike Geeslin, Deputy Commissioner for Policy. “The data collected by TDI over the past year has proven that TDI’s evaluation of rates was on target. We believe that rest of the industry has reduced their rates to a fair level and have taken positive steps toward a more stable market. It’s time for State Farm and Farmers to do the same.”

Lawmakers and consumer groups who backed insurance reform have expressed their disappointment in the judge’s ruling. Two Texas consumer organizations, AARP Texas and Texas Watch, have called upon Governor Rick Perry to declare insurance reform an emergency issue for the 2005 legislative session. Lt. Governor David Dewhurst has proposed stronger penalties on insurance companies that refuse to lower their rates, and Gov. Perry has warned the two companies that the Texas Legislature will “see [them] in January.”

Spokespersons for both Farmers and State Farm have asserted that the companies have tried to cooperate with the state and both believe their rates to be reasonable and fair.