seeks inquiry on insurance rates

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Wednesday, February 13, 2002

seeks inquiry on insurance rates

had criticized homeowners' increases on campaign trail

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN - Responding to runaway homeowners insurance rates and a potentially

volatile campaign issue, Gov. Rick asked the attorney general Tuesday

to investigate the marketing practices of the state's three largest

insurers.

Gov. Rick

Mr. , citing premium increases that range from 14 percent to 200

percent across Texas, said the " troubling trends " in the insurance market

should be scrutinized to determine whether there have been any violations of

the law by Allstate, Farmers or State Farm insurance companies.

" It's time for the homeowners insurance market to get a correction, " the

Republican governor said. " And if the insurance companies do not do it, the

state will do it for them. "

An industry spokesman said the companies welcomed the investigation and

predicted it would show no wrongdoing.

The tough talk from Mr. came one day after Democratic challenger Tony

complained about " massive " insurance rate increases in TV ads and in

a speech to supporters in Austin.

In his TV spot, Mr. , a Laredo businessman, pledged to " stop

insurance companies from sticking homeowners with massive premium hikes. "

He has proposed several changes, including closing a loophole in the law

that has allowed most homeowners insurance companies to avoid state

regulation.

Mr. said the governor should have acted sooner, particularly when

Texas has had the highest homeowners insurance rates in the country for

several years.

Mr. said the Democrat is " very long on criticism and rather short on

solutions. "

The exchanges were the first of what is expected to be a long political

debate on insurance, a staple in past gubernatorial races in Texas. To that

end, and aides inundated reporters Tuesday with news releases

and phone calls about their candidate's views.

Mr. , who went to a home construction site to make his announcement,

said state law may have to be changed in the legislative session in 2003 to

increase state oversight of insurance rates.

He said two types of rate regulation should be considered: one that would

require state approval of any premium increases and another that would allow

the state insurance commissioner to challenge any insurance rates deemed

excessive. He said any new laws should cover both auto and homeowners

insurance.

" Texas cannot tolerate a situation in which insurance consumers have lost

control, state regulators have too little authority and a few big companies

are dictating costs and coverage for most of the market, " he said.

Market leaders

State Farm, Farmers and Allstate together control about the two-thirds of

the homeowners insurance market in Texas.

All three companies have raised rates and restricted their sales of new

policies over the last few months in response to huge losses in Texas,

mostly from mold damage claims.

Androff, a State Farm spokesman, said his company had no problems with

an investigation of its business practices.

" We are confident that we are doing everything in the best interests of our

customers, " he said.

Industry's response

Jerry s of Southwestern Insurance Information Service, an industry trade

group, said the inquiry would benefit insurers.

" An inquiry into insurance rates will demonstrate that the insurance

industry has been fighting for their very survival in Texas, and we would

embrace any effort to heighten public awareness of that dismal fact, " he

said.

The most recent figures from the National Association of Insurance

Commissioners show that Texas homeowners paid an average $879 a year for

insurance, compared with a national average of $481.

Much of the homeowners insurance market is unregulated when it comes to

rates.

That's because insurers took advantage of a loophole in the law and shifted

most of their homeowners policies into " Lloyds " companies over the last

several years. Lloyds companies, whose rates are not regulated, originally

were intended to serve high-risk properties.

Before the shift, most policies sold in Texas were subject to rate

regulation.

Two consumer groups - Consumers Union and Texas Watch - applauded the

candidates for focusing on soaring insurance rates.

" This is an issue that has been simmering for years, " said Dan Lambe of

Texas Watch. " It is finally boiling over, and it is about time that state

leaders pay attention to the problems Texas families are facing. "

Rob Schneider of Consumers Union said dramatic rate increases have become a

" budget buster " for many families.

He warned that some companies are trying to shift their auto policies into

unregulated " county mutual " subsidiaries, which are supposed to serve

high-risk drivers.