I’ve written repeatedly about the ridiculous system we have in Texas for homeowners insurance. The insurance companies raise their rates and the Department of Insurance may or may not comment on the raise. If the State objects to the raise, the raise still goes into effect, but the State can argue about it. Usually though the insurance commissioner just shrugs and lets the rate increase go through with no comment.
In the latest instance of a rate increase by State Farm, that’s what the insurance commissioner did, but now a consumer advocate with the State is trying to fight the increase. Here are excerpts from an interesting article in the Dallas Morning News:
The state consumer advocate for insurance urged a two-judge panel to roll back State Farm’s recent 20 percent premium increase, aiming to cut costs for 1.2 million Texas homeowners.
Texas Public Insurance Counsel Deeia Beck said the company imposed a steep rate hike in December despite good profits and a drop in claims during 2012. Beck is handling the matter after the insurance commissioner declined to act against State Farm. She charged that State Farm manipulated the numbers it submitted to the Texas Department of Insurance when it filed for the rate increase, intentionally making the company’s bottom line appear less positive than it was.
“The evidence shows that a 20 percent increase was excessive and unreasonable,” Beck said as she began stating her case against the state’s largest property insurer Wednesday. She noted that the increase came about a year after the company imposed a 9.6 percent rate hike on customers in fall 2011.
State Farm attorneys countered that an even larger rate hike could have been justified, given the company’s weather-related losses in Texas in recent years. Susan Conway, a lawyer for the company, said it did not hear any objections from state Insurance Commissioner Eleanor Kitzman when it sought the increase.
“The Office of Public Insurance Counsel is not the sheriff in town. That is the Texas Department of Insurance, the only agency with authority to reduce rates,” she said.
The commissioner and Insurance Department reviewed the complaint and “decided not to disapprove the rate filing,” Conway said. She also said the company was on firm legal ground when it used loss data only through 2011 to support its rate filing.
Beck and her office’s first expert witness said the use of older data concealed State Farm’s strong profits in 2012 and made it appear the company needed higher rates.
Allan Schwartz, an actuarial consultant and president of AIS Risk Consultants Inc., said State Farm’s losses were “significantly lower” in 2012 than in 2011. They were much lower than State Farm projected in its original rate filing.
Schwartz said that based on the data he examined, State Farm rates should have been decreased just over 1 percent instead of being increased 20 percent. Even with a slight decrease in rates, the company still would be earning solid profits, he said.
Last year, State Farm had actual profits of 14.4 percent, a figure that did not include investment earnings. In addition, State Farm had a loss ratio of 59.7 percent, meaning that 59.7 percent of premiums collected were paid out in claims. That figure is considered very profitable for an insurer.
The average premium for State Farm customers in Texas should be $1,299 a year, Beck’s office said, about $280 less than what the company calculates is the current average of $1,579. The rate increase will bring the company $317 million in additional premiums this year.