Texas: The Clash of the Titans

In September 2003, responding to the Legislature’s passage of the insurance regulatory reform measure, Senate Bill 14, the Texas Department of Insurance mandated rate cuts for 29 of the state’s homeowners insurers. Most complied in a timely fashion but 12 appealed to the commissioner to set aside the ordered rollbacks. Ten companies subsequently settled with TDI, some for lower reductions.

State Farm Lloyds, Farmers Insurance Exchange and Fire Insurance Exchange (both Farmers Insurance companies), titans in the Texas homeowners market–together they control more than 40 percent of the market–were the last holdouts, refusing to capitulate to TDI’s mandate.

After battling the state in the courts throughout 2004 Farmers in early December settled on a rate cut–one that critics say doesn’t go far enough in returning overcharges by Farmers to its customers.

At press time State Farm was still fighting. Contending the company is still overcharging customers, TDI placed further restrictions on State Farm, requiring prior approval of its rates, even though as of Dec. 1 insurers could begin charging new rates while they are under review.

TDI originally ordered State Farm to cut its homeowners rates by 12 percent; Farmers by 17.5 percent. Farmers eventually settled for a 5 percent across the board rate reduction beginning in early 2005, with a promise of another 15 percent cut for customers at renewal.

Both insurance companies have been publicly criticized by consumer groups, politicians and state regulators for using the court system to avoid the rate reductions. State legislators, unhappy that their constituents were not seeing promised rate decreases, grilled Insurance Commissioner José Montemayor at a legislative hearing in October regarding the insurers’ refusal to comply with the rollbacks. At the time Montemayor said he was in negotiations with State Farm and Farmers, and believed that settlements would soon be reached.

Shortly thereafter State Farm and Farmers won a round when State District Judge Suzanne Covington ruled that TDI’s mandate to the companies was unconstitutional on a technicality. Farmers and State Farm applauded the judge’s decision and reiterated their belief that their rates are both reasonable and fair.

TDI, however, insisted that the insurers have been overcharging their policyholders by as much as $243 million since June 11, 2003–the effective date of SB 14–and said it would initiate administrative actions to demonstrate that the rates being charged are excessive and that refunds of the excessive premium should be issued directly to policyholders. TDI said it would seek a refund of the excessive premium plus 10 percent interest.

State Farm again went to the courts, seeking an injunction against TDI. The 345th State District Court rejected that request.

With Farmers agreeing to a settlement, State Farm Lloyd’s remains the only titan left to battle the state, and the company seems to be in no mood to back down. Both Gov. Rick Perry and Lt. Gov. David Dewhurst have taken the stance that if insurers don’t comply with the law they will be dealt with in the 2005 legislative session. If their attitude at the October hearing is any indication, legislators seem ready to take up the fight.

Topics Carriers Texas