Insurer Wants to Exit TX Homeowners Market?

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Press Release Source: Policyholders of America

Insurer Wants to Exit TX Homeowners Market?

Proposed Bill Requires Insurers Exiting Market to Take All Marbles and Go

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Tuesday September 24, 2:03 pm ET

AUSTIN, Texas, Sept. 24 /PRNewswire/ -- In anticipation of insurance

companies threatening to abandon the Texas homeowner's insurance market in

its entirety, Policyholders of America ( " POA " ) has secured enough support

from Texas legislators to have nine Bills currently being drafted. One

proposed Bill, an anti-cherry picking measure, would allow an insurance

company to abandon the less profitable homeowner's market if and only if the

insurer withdraws from the State in its entirety, meaning a withdrawal from

more lucrative auto, commercial, life, liability, health and other lines.

POA and many Texas legislators agree that this proposed legislation, if

passed, would put a stop to the ongoing threats of market withdrawal now

being lobbed at regulators by insurance carriers and make homeowner's

insurance more available and affordable in Texas.

According to POA, Farmers Insurance and its wholly-owned companies

( " Farmers " ) threatened more than 650,000 Texas homeowners a few days ago by

claiming it would stop writing homeowner's insurance all together in Texas

unless it could resolve its disputes with regulators over pricing practices

the State calls " illegal " . POA calls this tactic one of a playground bully

and the people of Texas should not have to tolerate it.

On August 5, 2002, the Office of the Attorney General of Texas filed suit

against Farmers for " deceptive, misleading, and discriminatory homeowners-

insurance practices " that violate the Texas Insurance Code and the Deceptive

Trade Practices Act.(1) Basically, the suit accuses Farmers of price

gouging. Farmers had claimed it suffered tremendous losses from water damage

and mold claims. The insurance giant increased premiums upwards of 400% over

premiums charged for the previous year. The State of Texas said that Farmers

had, in fact, made money and the rate hikes were not justifiable.

On August 13, 2002, the Texas Department of Insurance followed the Attorney

General's lead by issuing a Cease and Desist Order to stop Farmers from

further rate hikes.(2) Farmers countered with its own suit against the Texas

Department of Insurance and the Texas Insurance Commissioner,

Montemayor.(3) Among other things, this suit claims that the Insurance

Commissioner overstepped his authority.

Yesterday, the Texas Department of Insurance extended an olive branch to

Farmers in an effort to settle their dispute.(4) There is no word as to

whether or not Farmers will accept the offer which includes restitution for

policyholders and a substantive change to Farmers' rate-making assumptions

based on sound actuarial principles.

According to documents maintained by POA, Farmers was the first to petition

the Texas Department of Insurance to exclude mold and other consequences of

water damage from the standard Texas homeowner's policy. According to POA,

Farmers requested this exclusion in 2000. In late June 2001, the Texas

Department of Insurance began hearing testimony from hundreds of Texas

homeowners who told of wrongful delays, denials, coverage disputes and

unscrupulous practices employed by insurers, turning simple water damage

into expensive to repair mold problems. A number of other insurers followed

Farmers and issued similar petitions for exclusions. According to figures

maintained by POA, homeowners quickly began to realize that water damage

related coverage may be excluded, even though they pay the highest rates in

the country, and anyone that potentially had such a claim filed one.

Basically, the insurance industry caused its own " run on the bank " .

According to POA, the number of mold related claims filed in Texas in 2002

has plummeted to only a fraction of those filed in 2001. And, according to

A.M. Best, insurers are now touting their profitability because of fewer

catastrophic losses and stricter underwriting guidelines.

POA maintains data on insurance claims where the insurance company commits

bad faith and fraud. According to its database of more than 20,000 claims,

Farmers or one if its wholly-owned companies, is represented in 63% of the

cases where the insurance company is accused of committing fraud and/or bad

faith against its customer. Nationally, Farmers has about a 7% market share

so theoretically, it should only be represented in the POA database by 7%.

The fact that the company's representation is nearly 1000% more than their

market share, demonstrates a systemic problem.

" We believe an insurer should have the right to withdraw from a market yet

if they opt to do so, they should be forced to take their more lucrative

lines of business from that market too, " said Gerding, Vice President

of POA.

POA is a nonprofit association whose purpose is to empower the policyholder,

guide the policyholder through the claims process, eradicate bad faith and

fraud regardless of who commits it and funds medical research. POA currently

has nearly 50,000 Texas families in its membership, influencing nearly

200,000 votes.

POA's website is: www.policyholdersofamerica.org

(1) The suit filed by the Texas Attorney General against Farmers and its

companies can be found at:

http://www.oag.state.tx.us/notice/farmers080502.pdf

(2) The Cease and Desist Order and Rate Freeze filed by the TX Dept. of

Insurance against Farmers can be found at:

http://www.tdi.state.tx.us/commish/nr08132b.html

(3) Farmers' suit against the Texas Dept. of Insurance and Commissioner

Montemayor can be found at:

http://www.tdi.state.tx.us/general/pdf/farmerssuit.pdf

(4) The TDI's settlement offer to Farmers can be found at:

http://www.tdi.state.tx.us/commish/nr09232c.html

Source: Policyholders of America