State was set to reject company's 6.6 percent hike for homeowners
By TERRENCE STUTZ - The Dallas Morning News- Tuesday, July 17, 2007
AUSTIN – Farmers Insurance withdrew a proposed 6.6 percent statewide increase in homeowners rates on Monday after the Texas Department of Insurance signaled that it would reject the proposal.
A spokesman for the insurance department said the agency was poised to oppose the rate plan when Farmers decided to pull it back, canceling a premium increase that was supposed to be effective on Monday.
Agency spokesman Ben Gonzales said state actuaries were concerned about the wide variation of rates in the plan – ranging from a 50 percent increase along the Texas coast to a 10 percent decrease for some customers in North Texas – as well as recent trends indicating the company's current rates are adequate.
"It was clear that we would disapprove the filing as it was written," said Mr. Gonzales, noting that it was "a lot simpler for them to withdraw the filing than to move forward" on a plan that was opposed by the state.
Under the current file-and-use law, Farmers is allowed to raise rates once it has notified the insurance department, but the company is subject to a rate rollback – and refunds – if the commissioner of insurance determines the increases are not warranted. An insurer also has to pay interest on any refunds.
Not giving up
Michelle Levy, a spokeswoman for Farmers, said that while the proposal was pulled back, the company still believes it needs to adjust its rates and is working on an alternate plan.
"They had questions about our filing, so we're working with them to answer their questions and we expect to refile a proposal within 30 to 60 days," she said.
Mr. Gonzales said state actuaries had reservations about charging homeowners in certain parts of the state so much more for their policies.
"The increases are heavily weighted toward the coast, which may be appropriate because of the risks. But we need to see more documentation," he said.
He also cited concerns about the company's loss ratios over the past year, which indicated healthy profits. Farmers' primary home insurance subsidiary in Texas had a loss ratio of 35.5 percent in 2006, close to the statewide average of 34 percent for all companies.
In other words, Farmers paid out 35.5 percent of premiums it collected to cover property losses – a relatively low percentage. A loss ratio of 58 percent is often cited by experts as a good benchmark for profitability.
The other two subsidiaries of Farmers – the third largest home insurer in Texas – had similar percentages.
An actuary with the insurance department also said some of the expenses cited by the company in its rate filing appeared excessive.
Allstate's proposal
Allstate Insurance, the second largest home insurer, also has filed a rate increase with the state that would raise the average cost of its policies by 6.9 percent. Unlike the Farmers proposal, Allstate wants to increase rates in all areas of the state.
Mr. Gonzales said the Allstate proposal – which is supposed to go into effect on July 26 – is still being reviewed by the insurance department actuaries.
"There is no indication yet of which way we will go," he said of the Allstate proposal.
Leading consumer groups have sharply criticized the actions of the two companies for raising their rates at a time when industry profits are soaring.
"If this [rate plan withdrawal] results in real reductions for homeowners, it is good news. If this is just more posturing on the part of the company and the insurance department, then it is par for the course," Alex Winslow of Texas Watch, a consumer group active in insurance issues.
"Homeowners are relying on the insurance department to do its job and make sure that premiums come down once and for all," he said.
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