Texas Administrative Judges Reject State Farm’s Proposed Hike

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Two administrative law judges in Texas rejected State Farm’s plan to increase homeowner insurance rates, calling the hike too excessive in a proposed decision issued Oct. 5.

State Farm Lloyds Inc. had appealed to the State Office of Administrative Hearings after the commissioner of insurance turned down the proposed rate increases last year.

But Administrative Law Judges James W. Norman and William G. Newchurch concluded a 9.1 percent rate hike State Farm requested was too much. They concluded only a 3.6 percent increase by State Farm, Texas’ largest home insurer, would be reasonable.

“This is an important step as State Farm Lloyds seeks to charge a rate that reflects its increased costs,” said State Farm spokesman Kevin Davis.

The administrative law judges didn’t find the rate hikes to be unfairly discriminatory as the insurance commissioner previously did.

Their recommendations will go to Insurance Commissioner Mike Geeslin, who will issue another decision.

State Farm initially requested a combined 20.8 percent rate increase for homeowners insurance coverage, but Texas insurance officials disapproved. After appealing to the administrative law judges, State Farm withdrew one of the proposed increases and asked only for the 9.1 hike.

The company said an increase is necessary because Texas faces a larger variety of natural disasters than other states.

“This creates enormous potential swings, from year to year, in costs. It underscores the need for long term financial strength to pay losses in the bad years while rebuilding strength in the good ones,” State Farm said in a statement.

Additionally, the Texas Windstorm Insurance Association, the insurer of last resort for policyholders in Texas coastal counties, is underfunded and couldn’t meet its obligations if a catastrophic storm hit. That leaves private insurers to make up the shortfall, State Farm said.

State Farm is the number one writer of homeowners insurance in Texas, with 29 percent of the market, said Jerry Hagins, a spokesman for the Texas Department of Insurance.

Policyholders were never charged the proposed increases, Hagins said.