Farmers Insurance Group, the second-largest home insurer in Texas, will exit the Texas home insurance market on Nov. 1, 2002. The insurer's decision to drop all of its existing Texas home insurance customers will affect approximately 700,000 policyholders.

Farmers' action comes just a few days after the Texas Department of Insurance (TDI) offered to settle its dispute with Farmers over the company's home insurance pricing practices.

The battle between Farmers and TDI has been building in intensity since Aug. 13, 2002, when TDI ordered Farmers to cease and desist from using "unfair and illegal pricing practices," claiming the insurer has raised home insurance premiums due to record mold losses "when, in fact, those losses occurred last year under a different policy that has not even been offered to consumers in 2002."

In response, Farmers filed a lawsuit against Texas Insurance Commissioner Jose Montemayor, saying he has exceeded the authority vested in him by the Texas insurance code.

Officials with Farmers say it is with "deep regret" that they have no alternative but to withdraw from the Texas home insurance market. "The real issue here is the allegation of unfair pricing practices, which is completely false," says John Hageman, an executive director with Farmers.

"We are taking this step because of the terms and conditions currently ordered by the TDI would result in our continued financial losses, which puts all our customers at risk and is unacceptable from a business standpoint."

According to Farmers, for every $1 it currently collects in home insurance premiums, it is paying out approximately $2.50 in claims. "No company can stay in business under those circumstances," Hageman says.

Farmers has also expressed concern that its policyholders may have trouble finding home insurance in an extremely tight market.

"I don't care what Farmers thinks of the market," says Rod Bordelon, the state's Public Insurance Counsel, who represents consumers in insurance matters. "Obviously they don't think much of it since they're leaving. Consumers shouldn't worry about finding a new policy as long as they start shopping before their renewal date."

The TDI says it stands ready to help Farmers customers find replacement coverage through its new Helpinsure.com Web site. "Farmers' decision to leave the home insurance market in Texas is a tremendous disservice to its 700,000 policyholders and to hundreds of Farmers' loyal agents who will suffer economically from the unjustifiable action."