The Texas Department of Insurance (TDI) and the Office of Attorney General (OAG) announced that a settlement was reached with Farmers Insurance Group on November 30, under which Farmers will continue to offer homeowners insurance in Texas. The agreement effectively ends the lawsuit and administrative enforcement actions initiated against the company by the state.
Under the terms of the settlement, Texas consumers will receive $100 million in through a combination of rate decreases, refunds and restitution. Farmers will offer renewals only and will not currently seek new homeowners customers. TDI said the settlement between the State of Texas and Farmers Insurance Group is the largest Property & Casualty Insurance settlement in the history of Texas.
The state had 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. The Texas Department of Insurance also issued two enforcement actions against the company, including a cease and desist order, forcing Farmers Insurance to halt certain pricing practices deemed to be unfair to consumers.
Farmers asserted that the settlement does not mean the company admits to wrongdoing. According to a statement released by Farmers, it “is paying no fines or penalties. Any characterization to the contrary would be wrong. Initially, Farmers will be offering coverage to its existing homeowners customers only.”
The company 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 December 10.
“This agreement is good news for consumers and will have a positive impact on the Texas homeowners market,” said Insurance Commissioner Jose Montemayor. “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.
“TDI, the Attorney Generals Office, and representatives from Farmers Insurance have been working diligently over the past few weeks to find a solution to allow Farmers to continue selling homeowners policies and for Texas law to be satisfied. Today’s agreement accomplishes both goals to the benefit of Farmers policyholders, Farmers agents and all Texas consumers,” added Montemayor. “I believe that this agreement will begin a new, positive relationship between TDI and Farmers Insurance.”
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:
Prospective consumer relief—effective 01/01/03:
• Rate reduction of 6.8 percent effective until 09/01/03. Adjusted discounts for Credit Scoring/Age of Home; move to indicated discounts and freeze upper discount range at 47 percent for credit score and 40 percent for age of home. Territory relativities adjusted with TDI approval. Credit Scoring disclosures acceptable to AG (homeowner and auto). Value: $35,000,000.
Consumer restitution:
• Refund or premium credit for overcharges due to unfunded CAT load and management fee for policies written 12/28/01 through 11/10/02—payable at end of policy period by premium credit on renewal statement, premium refund due within 45 days if policyholder does not renew with Farmers. 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 12/28/01; payable at end of policy period by premium credit on renewal statement, premium refund due within 45 days if policyholder does not renew with Farmers. 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; funds to be transferred to an escrow account for stated purpose, to be supplemented by Farmers if necessary. Also includes reimbursement for state’s investigative and attorneys’ fees. Value: $5,000,000+.
Topics Texas Agribusiness Homeowners
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