Farmers Leaving Texas HO Market

By Mark E. Ruquet

NU Online News Service, Sept. 26, 4:13 p.m. EST? A dispute between Farmers Insurance and the Texas Department ofInsurance over the insurer's charges to homeowners has resulted inthe carrier announcing it is leaving the state's homeownersmarket.

The Los Angeles-based insurer announced this week that beginningin November, it would not renew homeowner's policies in the state.The company previously announced it would stop accepting newhomeowners business as of Oct. 31.

No other lines of insurance sold by Farmers is beingaffected.

"It's really, really regrettable," said Mary Flynn, spokeswomanfor Farmers. "However, the [Texas Department of Insurance] left usno choice."

Mark Hanna, a spokesman for the department, said Farmersobtained a temporary restraining order against the departmentbarring it from discussing its findings.

In a news release dated Sept. 23, prior to Farmers announcement,TDI said it had made a settlement offer to the carrier to resolvecompliance issues.

According to the release, in August the department found severalinstances where the company did not properly disclose ratinginformation to consumers. TDI also claimed that the company made anexcessive profit and did not provide proper discounts toconsumers.

Farmers said its rate increases reflect dramatic losses in thehomeowners market of $1.3 billion over the last two years,including $435 million in the first two quarters of this year. Thecompany said it pays out approximately $2.50 in claims for each $1of homeowners premium it collects.

Ms. Flynn said the department, under its cease and desist order,wanted Farmers to refund $150 million to consumers and roll backits increases to last year's levels, which she said are the averagerates of the market. She said the company had to take the action itdid at this time or face a fine of $25,000 per customer.

Farmers, the second largest provider of homeowners insurance inthe state, has 700,000 customer households, or about 20 percent ofthe market.

Ms. Flynn said the company would be dropping approximately50,000 to 60,000 policyholders a month over the next year as thepolicy renewals come up.

Mr. Hanna said there is enough capacity in the state to absorbthe non-renewals, but other insurers will have to "step up to theplate" to absorb the numbers.

Bill Roof, director of communications for the Austin,Texas-based Independent Insurance Agents of Texas, said theassociation has not taken a position on the issue. Their onlyconcern is that the 700,000 customers not get stuck withoutinsurance.

The National Association of Independent Insurers, based in DesPlaines, Ill., said it did not think Farmers' decision would resultin "an immediate shortage of homeowners insurance in thestate."

However, Don Hanson, southwestern regional manager for theassociation, went on to say that action needs to be taken by stategovernment officials to avoid a crisis next year.

Farmers' distaste for insuring homes in the state was triggeredafter a jury in Travis County Texas awarded $32 million to a Texashomeowner who sued Farmers for mishandling a claim for water damagethat lead to mold contamination. The verdict is on appeal.