Top Three Texas Residential Insurers Under Investigation

Responding to moves by Farmers Insurance Company to further restrict coverages in homeowners policies it will write in the state, Insurance Commissioner Jose Montemayor expanded the state insurance department’s investigation of underwriting guidelines to include each of the three largest homeowners insurers in Texas: State Farm Insurance Co., Farmers Insurance Co. and Allstate.

The Austin American Statesman reported that Montemayor initially subpoenaed Farmers’ and Allstate’s underwriting guidelines to determine whether their policies of not insuring homes that have had water damage claims in the past three years violate free trade agreements. He added State Farm because of its considerable market share. Together the three insurers write about two-thirds of the homeowners policies in Texas. Reportedly, Farmers did not notify the Texas Department of Insurance (TDI) of the new restrictions.

Farmers announced in early July it would stop writing new homeowners policies for homes that have had water damage claims within the last three years, as well as for homes more than 30 years old that haven’t had their plumbing systems renovated within the past 10 years. The new policy took effect July 15, and bears similarities to one initiated by Allstate, which also does not issue new coverage for homes or individuals with water claims in the past three years.

Farmers contends that according to statistics, homes and individuals with prior water damage claims are likely to make more claims in the future.

Homes with certain types of roofing and plumbing material are also affected by Farmers’ new policy. The company’s original statement indicated it will no longer cover a home more than 30 years old that doesn’t have copper plumbing, that includes some 20 percent of Austin houses alone, especially in the city’s central areas. However, the Statesman reported that Farmers later modified its position, stating that only water coverage would be dropped for those types of properties.

Public outcry over the coverage restrictions has caught the attention of state politicians already aware that the unstable Texas homeowners market will likely prove a key issue in elections this fall. Democratic gubernatorial candidate Tony Sanchez renewed his demand that his opponent, Gov. Rick Perry, call a special session of the state legislature to address the issue. Sanchez blasted Rick Perry for ignoring calls from legislators who, according to Sanchez, want an immediate special legislative session to deal with the homeowner’s insurance crisis.

“I know we need a special session, legislators know we need a special session, homeowners know we need a special session,” Sanchez said in a statement. “The only person who does not get it is Perry and the insurance companies that are financing his campaign.”

The Sanchez campaign stated that in early July, members of the House Insurance Committee crossed party lines and joined in a request for a special session. A total of six Democrats on the House Insurance Committee including State Representatives Lon Burnam, Craig Eiland, Glenn Lewis, Joe E. Moreno, Dora Olivo and Senfronia Thompson, joined Republican Representative John Smithee, chair of the House Insurance Committee, in calling Perry to action.

According to the Associated Press reports and the Dallas Morning News, Perry spokesman Ray Sullivan countered that Texas lawmakers are in the middle of hearings, and will address the issue in January. Although the governor has called for more regulation of the industry, he has announced no plans so far for a special session. The governor has indicated that once these and other issues have been fully studied, he will respond by reducing homeowners’ ability to file lawsuits against insurers—he largely blames trial lawyers’ suits against carriers for driving up rates. However, Perry has also said he intends to implement new regulations on the industry.

Sanchez decried waiting until the Legislature’s next regular session to address the issue as too long, especially given that more than 1 million homeowners’ policies will expire between now and then. He reiterated his plan to require insurers to offer full coverage, including mold and water damage, as an option for homeowners. Sanchez also called for re-regulation of Lloyd’s companies, which are currently not regulated by the state.

Meanwhile, Sen. Troy Fraser, chairman of the Senate Business and Commerce Committee, is warning that carriers’ unwillingness to provide coverage is affecting consumers’ ability to buy and sell their homes. Fraser claims that several insurance companies have told him they will not write policies for homes with pre-existing mold or water damage claims. If coverage is unavailable for a house on the market, that house won’t sell.

According to Southwest Insurance Information Service spokeswoman Sandra Ray, however, consumers can still find coverage if they look for it. She noted that the Texas Insurance Department has begun allowing carriers to sell policies with more limited mold and water damage coverage.

But Fraser’s argument has gained support from Bill Stinson, vice president of governmental affairs at the Texas Association of Realtors. He claims that real estate agents have informed him of houses being taken off the market whose owners had made mold or water damage claims. According to Stinson, almost 100 prospective buyers in the Houston and Corpus Christi areas have not been able to close on homes.

For their part some insurers have banded together to lobby lawmakers on behalf of their underwriting policies. According to the Statesman, five of the largest insurance companies in the state have created a new lobbying group, the Texas Coalition for Affordable Insurance Solutions. The members of the coalition include State Farm, Allstate, USAA, Nationwide and the American Insurance Association. Their mission is to thwart legislation that would increase state control over insurance rates or place limits on the use of credit histories in setting premium rates. The group also wants to stem any move to re-regulate the Lloyd’s companies and county mutuals.

Farmers spokesman Mark Toohey, whose company did not join the coalition, asserted that Farmers should be lauded for initiating the restrictions being investigated. He contended that such actions are necessary for Farmers to keep writing any business in Texas, and noted that current policyholders would not be affected by the changes.

Farmers covers 750,000 homeowners in Texas. The company claims the state represents a fifth of its nationwide business, and 40 percent of its losses.

Topics Carriers Texas Legislation Claims Homeowners