Farmers to Stay in Texas; TDI Resumes Scrutiny of Allstate, State Farm

A $100 million settlement was reached between the Texas Department of Insurance (TDI) and the Office of Attorney General (OAG) and Farmers Insurance Group on Nov. 30, under which Farmers will continue to offer homeowners insurance in Texas. TDI said the settlement between the State of Texas and Farmers Insurance Group is the largest P/C settlement in Texas history.

The settlement effectively ends the lawsuit and administrative enforcement actions initiated against the company by the state. The Dallas Morning News reported that with the Farmers investigation being brought to a conclusion, state investigators are turning their attention to Allstate and State Farm. Governor Rick Perry in Feb. 2002 asked TDI and the OAG to investigate pricing and business practices at the state’s three largest insurers.

Deputy insurance commissioner Karen Casari told the Morning News that the Farmers case had been “resource-intensive.” Now the agency is shifting personnel to Allstate and State Farm so that those investigations can be wrapped up quickly.

Under the terms of the settlement, Farmers’ customers will receive the $100 million through a combination of rate decreases, refunds and restitution. Most of the refunds will be in the form of credits when customers renew their policies, or cash if they choose not to stay with the company. Going forward, Farmers will offer renewals only and will not currently seek new homeowners customers.

The state originally sought $150 million in restitution and $25,000 for each person harmed by Farmers alleged actions. In August, Texas Attorney General John Cornyn filed a lawsuit against Farmers for violations of the Deceptive Trade Practices Act and discrimination against some groups of homeowners. TDI also issued two enforcement actions against the company, including a cease and desist order, forcing Farmers to halt certain pricing practices deemed to be unfair to consumers.

Farmers announced in September that it would stop renewing homeowner policies for its 700,000 Texas customers, but reached a temporary agreement in November to extend its renewals to Dec. 10. The company asserted that the final settlement does not mean it admits to wrongdoing. According to a statement released by the company, Farmers “is paying no fines or penalties. Any characterization to the contrary would be wrong.”

The settlement has drawn fire from some consumer groups, due to the reduction in the amount that was originally sought by the state and because of the fact that Farmers pays no fines and is not required to admit to having done anything wrong. Others have complained that the high-profile investigation was simply political fodder for a election year.

Insurance Commissioner Jose Montemayor, however, defended the settlement as being good for the state and for consumers. “This agreement is good news for consumers and will have a positive impact on the Texas homeowners market,” he said. “Farmers Insurance has a long standing relationship with Texas and I am happy that they will continue to play a vital role in the Texas insurance market.”

John Hageman, Farmers’ vice president and Texas executive director commented, “Going forward, we are committed to working together with Governor Perry, the TDI and the Attorney General to ensure that the homeowners market continues to improve, and that proposals soon to be considered by the legislature will be solutions that are in the best interests of an open and competitive market. We know that all parties have this same goal.”

According to TDI, terms of the settlement include:

• Rate reduction of 6.8 percent effective until Sept. 1, 2003. Adjusted discounts for Credit Scoring/Age of Home. Value: $35,000,000.

• Refund or premium credit for overcharges due to unfunded CAT load and management fee for policies written Dec. 28, 2001 through Nov. 10, 2002. Value: $35,000,000.

• Refund or premium credit for overcharges due to improper Credit Scoring/Age of Home discounts and territory relativities for policies written beginning Dec. 28, 2001. Value: $25,000,000.

• Refunds for incorrect credit scores and payment of credit reports, for homeowner and auto customers whose credit scores were incorrect due to errors on credit reports, which they were unable to correct due to inadequate notice by Farmers. Value: $5,000,000+.

Topics Texas Homeowners