Arthur Blake Insurance Blog

Insurance Commissioner Mike Geeslin, who is powerless to stop the rate hike, asked State Farm in a letter to reconsider, saying such back-to-back increases could influence other insurers and rock consumers.

"Given that State Farm Lloyds is the market leader, writing nearly 30 percent of the homeowners market, other companies may follow suit, which would lead to further market instability," Geeslin wrote in a letter dated March 5.

"The timing of this filing causes me concern," he said, because the last increase has been in effect for such a short time. "Multiple rate increases within such a short period of time may indicate a lack of rate-making discipline and lead to market instability."

State Farm is having discussions with the Texas Department of Insurance, but intends to continue with the increase to its 1.2 million customers, said spokesman Kevin Davis.

For a typical 10-year-old brick veneer home in Dallas County with $150,000 coverage, the increase would be about $52 and raise the annual insurance bill to $1,196, based on a comparative pricing list furnished by the state Insurance Department.

"Our goal is to ensure that State Farm can always keep its promise to its customers and that we're financially able to do so," Davis said.

He said costs to the company, including materials and labor, have continued to climb.

"Our rate needs today are not necessarily the same as they were eight months ago. This is the result of us constantly reviewing our rates and rate needs," Davis said.

Consumer groups expressed anger over the jump, calling it price gouging and blaming Texas' weak regulations for allowing State Farm and other insurers to raise their rates unabated.

Public Insurance Counsel Deeia Beck, a state attorney who represents insurance consumers, served notice that her office objects to the State Farm increase as excessive and unjustified, especially because it will be the insurer's third spike in rates in the last two years.

She asked Geeslin in a letter Thursday to disapprove of the adjustment, saying State Farm is seeking "unreasonably excessive" profits and that its costs are largely because of reinsurance, which it usually buys through its own holding company.

Reinsurance is the practice of insurers buying coverage for catastrophic events to mitigate their losses. Those expenses should be disallowed as an unreasonable expense, Beck said.

Alex Winslow of the consumer advocate group Texas Watch said State Farm is taking full advantage of the weaknesses in the Texas insurance system.

"All the insurance commissioner can do is ask State Farm to please not gouge Texas homeowners," Winslow said.

Under the Texas system enacted in 2003, insurance companies file notice of their rate increases and the justification behind the rates.

The state cannot block the new rates but can seek customer refunds if it subsequently finds that the rates are excessive and unreasonable.

Last November, State Farm was hit with a state order to refund its homeowner customers $310 million for overcharges dating back to 2003.

The insurer and the state have been fighting in court over the refund for seven years. The state's public insurance counsel had presented evidence showing that customers deserved $1 billion in refunds. State Farm has argued there was no overcharge at all.

Texas Watch has been advocating a change in state law that would require prior approval from the state before insurers could raise their rates.

The State Farm rate increase will go into effect May 1 for new customers and June 1 for renewals. Homeowners who have other policies with State Farm will be entitled to a discount of 20 percent, up from the current 15 percent, Davis said.