State Farm adjusts rates in Texas

State Farm Insurance recently submitted several filings to the Texas Department of Insurance, aiming for a balance with rate adjustments that include a reduction auto rates but an increase in homeowners premiums.

The company also is offering a bigger discount for homeowners customers who insure both their home and auto with State Farm.

It is reducing auto insurance rates in Texas by an average of 2.6 percent, beginning July 17. State Farm said this represents an annual savings of $68 million for its Texas auto insurance customers.

“Our auto claims costs have gone down,” said Mike Wey, senior vice president of State Farm’s Texas zone, in the company’s announcement. “We expect this trend to continue and are pleased to be able to reduce rates for the drivers of the three million cars we insure in Texas.”

This filing will be the fourth auto rate reduction in two years for State Farm’s Texas auto policyholders.

According to Jerry Johns, president of the Southwestern Insurance Information Service, Texas in 2005 “was among the top ten states with the largest auto insurance decrease at 5.8 percent.”

In addition to the auto rate filing, State Farm submitted two filings for homeowners rates.

The company attriubted one homeowners filing, for a statewide average increase of 9.1 percent, to rising reinsurance costs. It includes the multi-line discount increase. State Farm currently offers a 5 percent discount on homeowners insurance to multi-line customers. The new filing increases the amount of that discount by an additional 7 percent for a multiple-line discount amount of 12 percent. This represents an annual savings of $75 million dollars for the 81 percent of State Farm’s Texas residential customers who also have their autos insured with the company.

State Farm said the reinsurance filing mostly will impact the coastal counties.

“Insurance companies pay premiums on reinsurance, just as individuals pay premiums for the insurance policies they buy,” said Wey. “The cost of catastrophe reinsurance has gone up worldwide in anticipation of another active hurricane season.”

“Reinsurance for insurers writing homeowners has increased 100-300 percent, largely because of the vast numbers of people migrating to coastal areas and the expected severe weather throughout Texas. Reinsurance costs for insurers can account for a minimum of 30 percent of a person’s premium dollar,” SIIS’ Johns said.

The second homeowners filing is for a statewide average increase of 10.7 percent and is based on the projected costs of future anticipated claims and expenses. Rate changes for individual customers will vary, depending on a variety of factors. The changes will take effect on Aug. 1 for new policies. For renewals, the change will begin Oct. 1.

State Farm said it decreased rates by a net 10.2 percent when it implemented its own HO-W policy form in Texas, and has not changed its base homeowners rates since January 2003.

TDI plans to review State Farm’s filings, according to the Associated Press. The department ordered the company to reduce residential rates in 2003, along with many other homeowners insurers, but State Farm has fought the order in court since then and refused to lower its rates while contesting the order.

“They are still fighting us in court. Their policyholders have not seen any relief and then they come in and file a rate increase on top of that,” TDI spokesman Jim Hurley told the AP. “We are going to examine this filing very closely.”