Rising premiums shock homeowners, become fodder for politicians

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Getting irate over insurance rates

Rising premiums shock homeowners, become fodder for politicians

By Shonda Novak

American-Statesman Staff

Thursday, February 14, 2002

When Christy Woodward Kaupert opened her homeowners insurance bill recently,

she thought there must have been a mistake.

The annual premium on her year-old house in San had jumped to $1,138

from $489, although she and her husband never had filed a claim.

" I threw it aside and thought, 'I'll take care of this later,' " Kaupert

said. " That's more than my car payment, and my house doesn't move anywhere.

It's not out there in traffic every day. "

Kaupert is among a growing number of Texas homeowners irate about steep,

unexpected increases in their homeowners' insurance premiums. The Texas

Department of Insurance has seen a tenfold increase in formal complaints in

the past 2 1/2 months compared with the same time last year, most of them

involving rate increases.

The rising cost of home insurance already was on the agenda for the next

legislative session. Now it also has become an issue in the Texas governor's

race. And at least one lawmaker is proposing a radical move: switching from

a private-sector to a state-run homeowner's insurance program.

On Tuesday, Gov. Rick asked Attorney General Cornyn to

investigate the pricing practices of the biggest home insurance companies.

, a Republican, has asked Insurance Commissioner José Montemayor to

work with legislators to examine other remedies " to put the brakes on

runaway homeowner's insurance costs. "

Democratic gubernatorial candidate Tony said he wants more

regulation of rates.

Insurance companies say they're being used as scapegoats.

" It's so easy to portray the industry as some kind of villain and lash it to

the political whipping post, " said Rick Gentry, executive director of the

Insurance Council of Texas, an industry trade group. " We're an easy target. "

Insurance companies say Kaupert can blame her 133 ercent rate increase on

the steep statewide rise in costly claims for mold damage and the state's

broad requirements on the types of water damage policies must cover.

Additionally, industry experts said the companies do worse financially in

Texas than in other states on homeowner policies.

" When the 2001 numbers come out, Texas will be the worst in profitability by

far " compared with other states, said Hartwig, senior vice president

of the Insurance Information Institute, a trade association. He said the

reasons include mold claims, Tropical Storm and a series of smaller

events, such as hailstorms, that together caused big losses.

" Insurance companies paid more in catastrophic losses in Texas in 2000 and

2001 than in any other state, " he said.

For example, the state's largest insurer, State Farm, says its underwriting

loss for January through August 2001 was $504 million. That meant for every

$1 of premium the company collected, it had $1.77 in losses and expenses.

But consumer groups and some lawmakers say the problem is the state's lack

of control over the rates on most policies sold in Texas. Ninety-five

percent of policies are sold through unregulated companies, up from about 80

percent in 1985. The law authorizing insurers to have unregulated affiliates

originally aimed to provide coverage for high-risk or hard-to-insure

properties.

" We've got a fiasco in the making and it is because, as a practical matter,

this state does not regulate homeowners insurance, " said Rep. Lon Burnam,

D-Fort Worth, a member of the House Insurance Committee. The committee is

studying how mold claims have affected rates and plans to make

recommendations to the 2003 Legislature.

Burnam said he is tired of insurance companies " blackmailing " the state by

threatening to pull out if regulation is imposed.

Two of the state's biggest companies recently stopped writing comprehensive

homeowner's policies for new customers and a third stopped writing those

types of policies altogether. Together those companies -- Allstate Corp.,

State Farm Insurance Co. and Farmers Insurance Exchange -- control about

two-thirds of the Texas homeowner's market. At the same time, premiums are

increasing from 14 percent to 200 percent for some homeowners, said.

Burnam said he is " seriously considering " proposing a state-run homeowner's

insurance program, an idea he admits is untested.

" If the private sector refuses to provide this fundamental and basic service

that is needed, why doesn't the state just set up its own system? " Burnam

said.

Although home insurance rates are rising nationwide, Hartwig, of the

Insurance Information Institute, said that Texans would be paying less if

not for the state's broad requirements for water-damage coverage.

" Were it not for that, you'd probably be $100 to $150 lower than you are

right now, " he said.

When final figures are in for 2001, insurance companies expect to pay claims

of at least $780 million, largely because of rising mold claims. That's more

than double the $330 million paid out in 1999. " We never collected premiums

for those kind of claims, " Gentry said. " That's the one thing people are

having trouble understanding. "

Critics say premium increases cannot be blamed solely on rising mold claims.

They say the companies are trying to compensate for other problems, such as

investment losses, and that they have been using low-rate home policies as a

way to get customers for more lucrative auto insurance.

Montemayor has been trying to avoid a full-blown insurance crisis. In

November, he modified the state's coverage requirements for water damage,

and he is now allowing companies to offer several policy variations with

restricted coverage.

Montemayor favors a system in which he would have broader authority to

approve or reject rates.

" He's all for competition, " said Mark Hanna, an Insurance Department

spokesman. " But if the rates just become exorbitant, like he has seen, then

he has said, 'Yes, there needs to be some type of regulation to keep the

rates within a reasonable realm.' "

In the meantime, homeowners are facing sticker shock on the premiums.

When Kaupert got her renewal notice, she said she immediately complained to

her agent and to the state Insurance Department.

Then she decided to shop around. After getting quotes from companies listed

on the department's Web site, she got lucky and found a less expensive

policy with another insurer. Her new annual premium is $778.

" It's just criminal what they can get away with in this state, " Kaupert

said.

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