Probe of home insurers ordered

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http://www.chron.com/cs/CDA/story.hts/metropolitan/1252598

Feb. 13, 2002, 3:50PM

Probe of home insurers ordered

threatens state crackdown

By POLLY ROSS HUGHES

Copyright 2002 Houston Chronicle Austin Bureau

AUSTIN -- Gov. Rick , saying consumers are not being treated fairly,

called Tuesday for the attorney general to investigate business practices of

Texas' three largest home insurers.

He also warned that if huge price hikes, policy cancellations and reduced

coverage continue, the industry could face a major regulatory crackdown next

year.

" The marketplace for homeowners insurance in Texas has suffered a breakdown,

and the state of Texas has too few tools in our toolbox to fix it, "

said.

Democratic gubernatorial hopeful Tony seized the same pocketbook

issue. issued his own detailed plan of attack just minutes before

spoke from the front porch of a new home in a low-income east Austin

neighborhood.

Consumer advocates praised both the Republican and the Democrat hoping to be

elected governor next November, saying they were focusing on a critical

issue too long ignored.

" It is heartening to see the candidates address some of the real problems

Texans have been seeing in the homeowners insurance marketplace, " said Rob

Schneider, an attorney for the southwest regional office of Consumers Union.

" Texas homeowners insurance rates are already the highest in the nation, and

these considerable rate increases will push Texas rates even higher, "

Schneider said.

estimates the average Texas homeowner pays $827 per year -- nearly

twice the national average of $440.

pointed out that only three large companies -- State Farm, Allstate

and Farmers Insurance -- control 66 percent of the homeowners market in

Texas.

Only 5 percent of the Texas homeowners insurance market -- versus 80 percent

in 1985 -- is regulated because of restructurings within the industry over

the past decade.

The Texas Legislature would have to adopt new laws next year to bring the

companies back under regulations for rates and coverage.

Meanwhile, consumers renewing their homeowners insurance are getting hit by

price increases ranging from 14 to 200 percent, the governor said.

" We are effectively being asked to have less coverage, have lower limits,

have higher deductibles and pay more money, " said state Sen. Mike ,

R-La Porte, adding that Farmers Insurance recently canceled his homeowner's

policy.

said two of the big three companies dominating Texas' homeowners

insurance market have stopped offering comprehensive coverage for new

customers. The other has stopped offering it for any of its customers.

heads a subcommittee looking into rate regulation of homeowners and

auto insurance. It is also studying ways to rein in the companies that are

outside the realm of Texas regulation but handle the lion's share of

homeowners' policies.

said Texas Insurance Commissioner Montemayor is conducting a

study into marketplace practices of two of the three -- Farmers and

Allstate. The commissioner in turn will share what he learns with Attorney

General Cornyn.

" Our office has received the governor's letter requesting an investigation,

and we will begin this immediately, " said Cornyn's spokesman, Tom Kelley.

Ray, public affairs director of the industry group Southwestern

Insurance Information Service, said insurers welcome the investigation.

" Actually, they're all for an investigation because what that will bring out

is the true numbers and how much these insurance companies have lost over

the past three to five years, " she said.

She argued that if there was even less regulation of insurers, companies

would better compete and offer better products and prices to customers.

said he would prefer that insurers make adjustments for the better on

their own but warned if they don't, the state will do it for them.

He denied that recent mold claims -- which Ray said average $38,000 each --

are the cause of the industry's problems.

" The laws of supply and demand, competition, which normally yield lower

prices and greater consumer choice, do not seem to be working in the Texas

homeowners insurance market, " he said.

listed a number of options state government can take to force more

accountability on the insurance industry.

The state could require a " file and use " system, which would give the

insurance department the power to challenge rates charged for homeowners and

auto policies.

Or the law could be changed to require prior regulatory approval of certain

rate increases.

" Without question, Texas leaders such as the governor and the attorney

general should be investigating and holding insurance companies accountable

if they are breaking the law, " said Dan Lambe, executive director of the

consumers group Texas Watch. " Texas consumers have been calling for an

investigation for several months. "