State Farm Lloyds has submitted a rate filing to the Texas Department of Insurance to increase its homeowner’s insurance rates in Texas by a statewide average of 8.5 percent, beginning Oct. 1 for existing customers at renewal and Sept. 1 for new customers.
The insurer said State Farm Lloyds is currently operating at a rate deficit of 13.5 percent. It also said around 350,000 of State Farm’s approximately 1.2 million customers will see no change or a decrease in their rates as a result of the filing. Customers in coastal and hail-prone areas are likely to see the greatest increases.
State Farm Lloyds had claims totaling $1.4 billion for 2008, which it called the worst catastrophic loss year in Texas history with hurricanes Dolly, Ike and numerous spring hail storms across the state. The first half of 2009 is not looking much better. The company has paid $572.8 million in weather related claims as of the end of May 2009.
State Farm has been embroiled in legal action with Texas regulators since 2003, when legislative changes allowed companies to begin using a file and use system for rate filings, rather than the previous prior approval system.
That year, the Texas Department of Insurance determined the company was overcharging its homeowners customers and ordered State Farm to reduce its rates by 12 percent, but State Farm appealed and the issue has been the subject of legal wrangling since then.
The Office of Public Insurance Counsel has asserted in documents filed with the court that State Farm owes policyholders $785 million plus interest, or nearly $1 billion for the alleged overcharges. The Texas Department of Insurance calculates the overcharges at about $250 million, plus nearly $100 million more in interest, according to Associated Press reports.
State Farm Lloyds is not a publicly traded company. Its revenues are used for paying claims in Texas, the company said, adding that the rate filing has been submitted to avoid a decline in its financial position to the extent that it would be unable to uphold its claims-paying responsibilities to its policyholders.
“From an insurance industry perspective, solvency and the financial capacity to pay the claims of their customers are the principles that have guided insurers for decades,” said Jerry Johns, president of Southwestern Insurance Information Service. “It is perfectly acceptable for regulators to review the rates companies charge and the products they offer but that must be tempered with sound business judgment and an eye on guaranteeing that insurers are financially prepared to pay losses their customers expect and are entitled to receive.”
The consumer advocacy group Texas Watch, however, sees State Farm’s rate filing as further proof that state lawmakers failed to protect consumers against unjustified rate hikes in the recent Texas legislative session. Legislators declined to approve proposed measures that would have required prior approval by TDI of homeowners rate increases.
“Yesterday’s rate increase by State Farm comes on the heels of similar increases by Allstate and Farmers, completing the rate hike trifecta,” said N. Alex Winslow, executive director of Texas Watch.
“There is nothing to stop these rate increases because lawmakers failed to enact common sense insurance reforms that would require insurance companies to justify their rates before – not after – they are imposed on policyholders,” Winslow added. “Texas homeowners can look forward to another two years of rate hikes and coverage reductions because our state’s leadership failed to stand up to the big insurance lobbyists.”
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