State, Farmers at impasse in talks

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http://www.chron.com/cs/CDA/story.hts/business/1639229

Oct. 29, 2002, 10:09PM

State, Farmers at impasse in talks

Each side says other to blame

By BILL HENSEL JR.

Copyright 2002 Houston Chronicle

Negotiations between Farmers Insurance Group and the state aimed at allowing

the company to continue offering homeowners insurance in Texas are stalled.

And political observers say not to expect any movement until after Election

Day -- if at all.

No meetings have been held since earlier this month, and none are set. Both

sides claim the other is unwilling to negotiate.

Plus, if Farmers truly believes it is losing $2.50 for every $1 in premiums,

as the company contends, there is not much incentive to negotiate, said

Harvey Kronberg, editor of the online political publication the Quorum

Report.

" I would be truly surprised if anything happened beforehand, " Kronberg said,

referring to Election Day.

" Once the governor characterized Farmers as performing illegally and

unethically, he drew a line in the sand and made future negotiations with

them pretty impossible. "

Farmers' promised pullout of the homeowners market in Texas has become

fodder in the race between Gov. Rick , a Republican, and Democrat Tony

.

" The broader issue has to be dealt with legislatively, " Kronberg said.

That's where state Sen. Troy Fraser, R-Horseshoe Bay, could help. Fraser,

who is chairman of the Senate Business and Commerce Committee, said the

problem is complex because two different legal issues are involved.

First, the Texas attorney general's office filed a lawsuit accusing Farmers

of overcharging customers and using deceptive trade practices, which the

company denies.

Then, the Texas Department of Insurance issued a cease-and-desist order

against Farmers, accusing the company of illegal practices in pricing its

homeowners policies.

It gave Farmers until Nov. 13 to change its practices.

Farmers has denied wrongdoing and maintains it is losing too much money from

mold and water damage claims to stay in the Texas market.

Farmers executives have said the company will stop renewing homeowners

policies Nov. 11 because of financial losses and demands made by the state.

" The problem we've got is, Farmers could meet the terms of the `cease and

desist' and be writing policies tomorrow if it was willing, " Fraser said.

" They refuse and say they won't do that unless they dismiss the lawsuit,

too. "

Solving the cease-and-desist order was characterized as " pretty simple " by

Fraser, saying it could be done by Farmers lowering its rates by about 20

percent and making credit scoring fair to all Texans.

However, the lawsuit filed by the attorney general's office is more

problematic. The state contends Farmers has not offered adequate restitution

and therefore is not willing to budge from its position.

An offer is on the table to have a third-party actuarial firm involved in

negotiations, but Farmers insists that any findings made by the actuary be

binding, Fraser said.

" The actuarial could help us decide rates but couldn't help us with the

legal issues, " the senator said.

Levy, a Farmers spokeswoman, said the company is open to

negotiations, but no more talks had been scheduled as of Tuesday.

She also said the state's current position in the negotiations is a problem.

" They have not given us a reasonable settlement offer, " Levy said.

Politics is partly to blame, according to some Farmers insurance agents.

Houston Farmers agent Pippa Wiley said a large group of agents wearing

clothes identifying them as Farmers agents tried to attend a function

Sunday and were turned away.

Wiley said the agents wanted to tell the governor he is working with

incorrect facts from the state's insurance department. She said Farmers

premium figures that are being cited on the campaign trail are not accurate.

Insurance Department spokesman Black called the company's offer in

negotiations to use the actuarial firm to both review and set rates

completely unreasonable.

" We have been charged by the constitution with enforcing state law, and we

can't abdicate that responsibility, " Black said. " There are very serious

underlying matters, violations of TDI regulations and state law. "

Republican Sen. Duncan of Lubbock, who has been involved in talks,

said he is not on either side but instead is trying to keep some distance as

a mediator. He said it would be wrong to characterize the negotiations as

stalled because the flow of ideas being put forth has not stopped.

" The folks involved are negotiating in good faith and trying to come up with

solutions, " Duncan said. " These are complex issues, and the solutions are

equally complex. "