Farmers leaves Texas homeowners in dust

September 27, 2002

Insurer won't renew 700,000 policies; state calls decision 'tremendous disservice'

Inman News Features

Farmers Insurance Group announced it will not renew 700,000 current homeowner's insurance policies beginning in November and will no longer sell any homeowner's insurance policies in Texas. The company previously announced it would halt the sale of new homeowner's insurance policies in the state at the end of October.

The company said its decision was the result of terms and conditions ordered by the Texas Department of Insurance. The department's "unwillingness to conduct reasonable and realistic negotiations has left Farmers with no other choice than to halt its Texas homeowners business as a means of survival," Farmers said in a statement.

The decision will not affect Farmers' sales of other insurance policies lines in Texas.

The company claimed it sustained $1.3 billion in losses in Texas homeowner coverage in the last two years. Texas represented 15 percent of Farmer's total property and casualty premiums nationwide in the first six months of this year, yet the state accounted for 43 percent of the total underwriting losses, which amounted to $435 million. Mold-related losses accounted for $300 million of that amount, according to the insurer.

John Hageman, Texas state executive director for Farmers, said the terms and conditions ordered by the department would result in continued financial losses.

"The real issue is the allegation of unfair pricing practices, which is completely false. We continue to find wide disagreement over the numbers characterizing our homeowner's experience, despite the fact that we have repeatedly presented all our data to the Texas Department of Insurance and offered to have independent third-party actuarial review, which they will not accept.

"The Texas Department of Insurance's unrealistic demands leave Farmers unable to generate the revenue needed to survive. For every $1.00 in homeowner premiums Farmers has received this year, it has paid out approximately $2.50 in claims. No company can stay in business under those circumstances," Hageman said.

The state insurance department issued an open letter to Farmers' homeowner's policyholders. The department called Farmers' decision to pull out of the state's homeowner's insurance market "a tremendous disservice to its 700,000 policyholders and to hundreds of Farmers' loyal agents who will suffer economically from this unjustifiable action."

The department informed Texas homeowners that the insurer cannot cancel a policy mid-term and must provide 30 days' notice before declining to renew a policy.

"Companies still in the homeowner's market have more than ample financial capacity to absorb the policyholders that Farmers says it plans to drop. The Texas Department of Insurance has been talking to a number of companies about writing more homeowner's insurance, and these conversations have been encouraging," wrote Texas Commissioner of Insurance Jose Montemayor in the letter.

Farmers' Hageman said the insurance department's proposed settlement with the company was "without substance as it offered no real remedies to the issues the two organizations have been seeking to resolve."

Farmers Insurance Group is headquartered in Los Angeles. The insurer conducts business in 41 states.

Copyright: Inman News Service

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