Insurers say no to rate cuts

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Wednesday, July 02, 2003

Insurers say no to rate cuts

07/01/2003

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – Nine of the 10 largest homeowners insurance companies are standing pat on their current rates even though state leaders and Texas' insurance chief say that premiums of most companies are excessive and should come down.

New rate filings released Tuesday by the Texas Department of Insurance indicated that the largest insurers have rejected criticism that their premiums are too high. All of the companies except one – Allstate – asked to retain their current rates.

Allstate proposed that its premiums be reduced an average 1.5 percent.

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The filings, required by a new state law, put the insurance industry on a collision course with Insurance Commissioner Montemayor and top state leaders, including Gov. Rick , who predicted the new law would bring rate relief for homeowners.

Texans now pay the highest homeowners insurance rates in the nation.

Mr. Montemayor has said that premiums should be reduced an average of 12 percent to 18 percent – a figure cited frequently by backers of the insurance bill that the Legislature passed a month ago.

When he signed the measure, Mr. said he and other leaders expected "to see a substantial number of Texans get some rate relief because of this legislation."

But with most of the largest companies unwilling to change their current rates, it appears that it will be up to Mr. Montemayor to impose reductions under authority that the Legislature granted him.

Further complicating his task, seven of the 10 companies said they will need to increase premiums in the future to cover claims and expenses. Those projected increases ranged from 7 percent to 18.1 percent.

Reactions to premiums

Insurance industry representatives defended the current premiums, insisting that many companies are still losing money in Texas. Consumer groups said the insurance company filings show that the new law should have been tougher and included a mandatory rollback of all rates.

"This does not bode well for consumers who are looking for some real relief in the rates they pay for homeowners insurance," said Rob Schneider of Consumers Union. "That was why we wanted a rate rollback. We knew the companies would play games to keep from lowering their rates."

Jerry s, president of Southwestern Insurance Information Service, said it is only reasonable for insurers to stay with their current premiums, considering the turmoil in the market over the last two years. Companies are still recovering from massive losses from water and mold claims, he said.

"They are going to remain at their current rate levels until they determine how the new law is implemented by the insurance department," he said. "Nothing would create more chaos in the market than if a large company did not have the ability to pay its claims and became insolvent," he said.

Mr. Montemayor will review rates of the 40 largest companies within 40 days to determine whether they are justified. Smaller companies will come under review in the next 70 days.

"Our preliminary information indicates that a majority of Texans could see reductions ranging between 0 and 25 percent," said Black, an Insurance Department spokesman.

Regarding the filings submitted by the largest insurers, he said, "It's a safe bet that our conclusions may differ greatly from those of the companies."

The nine large companies that asked to retain their current rates were State Farm Lloyds, Fire Insurance Exchange, Farmers Insurance Exchange, Travelers Lloyds of Texas, Texas Select Lloyds, USAA, Nationwide Lloyds, Chubb Lloyds and USAA Texas Lloyds. The Lloyds and Exchange companies are subsidiaries of large insurance groups that handle their homeowners policies.

State Farm and Farmers, the two largest insurers in Texas, were among the seven companies that projected higher rates in the future. State Farm estimated it will need a 7.3 percent increase, while Farmers estimated a 10.1 percent increase.

Most insurers are now selling basic policies that are less comprehensive than what they sold two years ago. Gone from most policies are protection against mold, slow water leaks and foundation damage – though customers can pay extra for coverage against those perils.

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