AUSTIN — Texas' insurance commissioner has allowed the three biggest home insurers to impose hefty rate hikes on two-thirds of their policyholders, despite strong objections from the state consumer advocate for insurance that have been all but ignored.
State Insurance Commissioner Julia Rathgeber's office said Friday that premium increases for Allstate, Farmers and State Farm are still under review, more than eight months after the state learned of them. The higher rates have been appearing on renewal notices since the start of the year.
It appears unlikely that Rathgeber will take any action. She first learned of the increases in late 2013.
The commissioner can reject any new rates that are deemed excessive and order refunds. But she has shown no signs of considering such action so far. Her predecessor questioned no premium hikes in her two years in office.
State Farm policyholders have seen a 9.8 percent increase this year, on top of a 20 percent hike last year. Farmers raised rates an average 14.9 percent at the beginning of the year, and Allstate boosted its rates 6.5 percent.
The three companies, which dominate the homeowners insurance market in Texas with more than 2 million customers combined, said the higher rates are justified because of destructive weather patterns in the state, including frequent hailstorms in North Texas.
Public Insurance Counsel Deeia Beck objected to all three. She said State Farm's new rates were excessive and based on projections that "exaggerate future expected losses." Further, she added, the company is citing unreasonably high expenses to justify its new rates.
Regarding the Farmers rate plan, Beck said the company is trying to reap a "greatly excessive" profit in Texas. That includes substantial profit that will be generated under management contracts between Farmers' holding company and its subsidiaries.
The Farmers filing also includes unsupported premium and property loss trends that significantly inflate the need for higher rates, said Beck, whose agency represents consumers on insurance issues.
Beck filed documents protesting the increases in January. She said Friday that she's received no reaction from the Department of Insurance.
"The rate increases do not meet legal guidelines under the Texas Insurance Code," she said. "I had thought that we would hear something [from the commissioner] by now."
Patti Kelly, a State Farm spokeswoman, said that when the new rates were filed, Texas' largest insurer had little choice but to seek an increase. She said the company is spending $1.11 for every dollar collected in premiums to take care of claims and business expenses.
"The costs of repairs we pay to help customers recover from unexpected [weather events] continue to rise, and have for some time. Additionally, the volume of claims and cost per claim are increasing," she said.
Luis Sahagun, a spokesman for Farmers, said this year that the insurer needed to adjust its rates to account for the "increasing costs associated with covering the risks faced by customers" in Texas. That includes tornadoes and hailstorms.
"The costs associated with paying for losses resulting from fires and water damage have also kept growing," he added.
A leading consumer group said the commissioner has given the companies de facto approval after several months of review.
"It is action by inaction," said Alex Winslow of Texas Watch. "She is allowing insurers to get what they want by sitting on her hands and not taking any action. Policyholders deserve some certainty in the rate review process, and they haven't gotten it."
Winslow said the most customers of the three insurers are already paying higher rates and are probably facing additional increases next year, given recent trends in Texas.
"I expect to see more rate increases coming down the pike later this year or early next year. It's become an annual event where the companies file for higher rates and then implement them without objection," he said.
A document in a recent State Farm lawsuit indicated that the company's 1.2 million policyholders in Texas paid an average annual premium of $1,579 in 2013. That translated into an average increase this year of about $150.
The average increase for Farmers customers was an estimated $184, while Allstate customers paid $85 more per year.
The most recent survey by the National Association of Insurance Commissioners showed that Texas has the third-highest homeowners rates in the nation.
Premium and loss numbers for 2013 showed that Allstate, Farmers and State Farm significantly improved their bottom lines over 2012, also considered a profitable year.
Overall, Texas insurers paid out an average 44.8 percent of their premiums to cover property losses. That was a sizable improvement from the previous year, when companies had to use 54.5 percent of premiums to pay for losses. A "loss ratio" of 60 percent or lower is considered a good target for profitability, and almost all large companies operating in Texas hit that benchmark in 2013.
State Farm, the largest property insurer in Texas, showed a loss ratio last year of 40.2 percent. It was one of the company's more profitable years recently. Allstate recorded a 39.3 percent loss ratio, and Farmers was at 49.7 percent
The Farmers rate hike affects 570,000 homeowners in North Texas and across the state, while the Allstate increase affects 470,000 homeowners. An additional 85,000 Allstate customers saw a smaller increase.
Follow Terrence Stutz on Twitter at @t_stutz.
AT A GLANCE
Here are some of the Office of Public Insurance Counsel's key objections to rate increases imposed by State Farm, Farmers and Allstate:
STATE FARM
Property loss predictions used to justify higher rates are significantly inflated and completely unreasonable.
Fixed expenses cited by the company are exaggerated and larger than similar expenses in prior years.
Underwriting profits and contingency provisions used to support higher rates are nearly double what state regulators said was reasonable in previous filings.
FARMERS
Property loss projections are largely arbitrary and unsupported.
The company's overall profit margin is greatly excessive and based on incomplete information. It includes substantial "upstream" profits that are fees to Farmers' parent company.
Marketing decisions such as the abandonment of high-risk coastal areas undermine Farmers' justification for a 15 percent rate of return.
ALLSTATE
Hurricane loss projections are inflated because the company is using a model that has been scientifically discredited and exaggerates the frequency of hurricanes.
Calculation of weather losses and other expenses overstates what the company needs to earn a reasonable rate of return.
SOURCE: Office of Public Insurance Counsel
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