Retreating Insurers Create Turmoil in the Texas HO Market

Despite efforts by the Texas Department of Insurance to stabilize the homeowners insurance market in the state, property/casualty insurers are bailing out of the Texas market or scaling back coverage, at least temporarily, in droves.

Allstate Texas Lloyds, the Texas property insurance affiliate of Allstate Insurance Company, is the latest insurer to implement a moratorium on new coverage, announcing that it will stop offering new homeowners insurance policies in Texas that include water coverage effective Oct. 8. Allstate homeowners or auto insurance customers in Texas or Allstate policyholders in other states will be unaffected by the moratorium, but the company plans to raise rates for existing homeowners insurance customers by an average of 20 percent statewide. The rate hike will be effective Oct. 29. Allstate is the third-largest property insurer in Texas

Allstate’s announcement closely followed SAFECO’s decision to stop selling new residential insurance coverage in Texas on Sept. 26. SAFECO, the seventh largest homeowners writer in Texas, said renewals and existing policies will be unaffected by its moratorium. The company also plans to introduce a 17.5 percent statewide average increase in homeowners rates beginning November 1. SAFECO wrote $61 million in premium in Texas in 2000.

State Farm Lloyds, the property insurance affiliate of State Farm Insurance, announced in late September that it will no longer accept new property insurance business in Texas, including new homeowners policies. Like Allstate and SAFECO, State Farm also plans a rate increase for Texas customers—about 14.5 percent on average statewide. With about 1.7 million residential policies representing nearly 31 percent of the homeowners market, State Farm is Texas’ largest residential insurer. Together with Farmers Insurance, which placed a moratorium on new HO policies earlier this year, the two companies handle over half of the homeowners market in Texas.

The companies cite increasing mold losses and water damage claims, and chronic loss problems with wind and hail as reasons for the pull out. State Farm reported that total underwriting losses have reached $504 million in Texas this year. The company added that it has been losing $1.77 for every dollar of collected premium in the state.

SAFECO stated that it hopes to work with TDI to find solutions to the mold issues so that the company can continue to offer homeowners coverage in the state. TDI, under the direction of Commissioner José Montemayor, has been working hard to find a solution to the mold damage problems that are plaguing the residential market and threatening the ability of consumers to obtain insurance for their homes.

In mid-September, Montemayor urged his staff to issue their recommendations on residential property insurance coverage of mold before the Oct. 1 deadline. The following week, staff presented the proposal to insurance company representatives and the Office of Public Insurance Counsel. The proposal recommended, among other things, a $5,000 cap on mold coverage in homeowners insurance policies and a requirement that homeowners be allowed to purchase extra mold coverage from insurers at an additional cost. The price for the additional coverage would be based on the percentage purchased.

Industry representatives were unconvinced by the recommendations, asserting that even with the cap on coverage, insurers could still be hit with significant losses as mold claims continue to rise. Jerry Johns, a spokesman from Southwestern Insurance Information Service, said rates would likely increase, perhaps as much as 50 percent, due to uncertainty over the number of mold claims that could be filed under the proposed $5,000 cap. TDI staff indicated, however, that a 5 to 10 percent increase in homeowners rates would be more likely.

TDI will hold a public hearing on the mold coverage recommendations on Oct. 16 at the LBJ Library Auditorium in Austin. The agency’s findings from its investigation into mold issues, including data from the state’s five largest insurers showing the rise in the number and dollar amount of mold claims, can be found on TDI’s website at www.tdi.state.tx.us.

Topics Carriers Texas Property Homeowners