Texas Carriers Ordered to Lower Homeowners Rates

On Aug. 8, the Texas Department of Insurance (TDI) ordered most of the top 32 insurance company groups writing homeowners insurance in Texas to lower their rates by up to 31 percent, a move the department expects will save Texas consumers over $510 million.

Insurers and their trade associations were quick to respond, most predicting the mandate will lead to an availability crisis.

Farmers Insurance announc-ed plans to appeal the decision, saying it “seriously disagrees with the actuarial conclusion of the Texas Department of Insurance” In Farmers’ opinion, the mandated cutbacks would “result in significantly inadequate rates, would jeopardize the financial stability of our companies and the interests of our customers, and would cause disruption to the Texas insurance market.”

In a statement released by the Insurance Council of Texas, Mark Hanna, the ICT’s Public Relations manager said, “The rate reductions announced by the Commissioner may sound like good news to some policyholders, but if insurance companies don’t take in enough premiums to pay claims, then everyone loses.”

The Alliance of American Insurers also expressed the opinion that the rate rollbacks would exacerbate the current insurance availability problems the state is facing.

“The Alliance believes that the problems occurring in the Texas homeowners’ market are the result of escalating claims costs,” explained Rita Nowak, Alliance assistant vice president of property/casualty. “Regulatory actions that prevent insurers from charging the appropriate price necessary for their products and services will only cause insurers to limit their policy writings or to leave the market.”

“Affordable insurance is a moot point if companies restrict writing business or withdraw from accepting new customers entirely,” stated Jerry Johns, president of Southwestern Insurance Informa-tion Service. “If insurance is not available, no one wins.”

TDI said the 32 insurance company groups represent nearly 95 percent of the Texas homeowners market. The regulatory agency’s actions were not totally unexpected. It made the decision after reviewing rating methodologies filed with the department under insurance reforms contained Senate Bill 14, passed by the legislature waning hours of the regular session. The legislature instructed TDI to complete reviews of the top 32 company groups by Aug. 10 and the remainder of the market by Sept. 9. TDI said the remaining rate reviews will be completed before that date.

The department said each affected company has been notified of the rate reductions and has 10 days to decide if it will appeal. A company can appeal by requesting a public hearing before the Commissioner of Insurance to be held within 30 days of the request.

If a company accepts the rate reductions ordered by TDI, the new rates will take effect in 30 days and will appear on the policyholder’s next scheduled renewal.

Farmers was particularly incensed that TDI ordered it to lower rates by 17.5 percent in addition to the 6.8 percent rate reduction it agreed to as part of a settlement agreement with the state of Texas last fall. The company noted that it “lost $792 million in homeowners insurance in Texas in 2002, and we continue to lose money in that line of business.”

“Each individual company will take a close look at these rate reductions and make their own decision about the future,” Hanna said. “However, given the lack of profitability in the Texas homeowners market over the last ten years, I would expect that in a number of cases [the] rate reductions will be appealed.”