Saying his decision is necessary to "stop unfair and illegal activity by Farmers Insurance," Texas Insurance Commissioner Jose Montemayor has issued an emergency cease and desist order to freeze the insurer's Texas home insurance rates.

The order prevents Farmers Insurance Group from initiating any additional home insurance rate increases based on current "unfair practices" and gives the company 90 days to develop a corrective action plan. According to the Texas Department of Insurance (TDI), those practices include:

• Using an excessive target profit. Counting a "management fee" paid to their management company, two Farmers Insurance subsidiaries (Farmers Insurance Exchange and Fire Insurance Exchange) are charging rates with a target after-tax return on net worth of more than 25 percent. By comparison, home insurance benchmark rates approved by Montemayor for use by rate-regulated Texas insurers envision a return of 11.5 percent to 12.5 percent.
  
• Incorporating an "unfunded catastrophe load" into its rates. The TDI says Texans are subsidizing Farmers' rate shortfalls in other states where natural disasters caused unexpected claims.
  
• Inconsistently giving discounts based on the age of a policyholder's home, resulting in overcharges for customers who got less than the discount indicated by Farmers' own data.
  
• Failing to consistently provide credit-based discounts indicated by Farmers' own data for policyholders in 16 of the company's 26 credit-scoring categories. Those who got less than the indicated discounts were overcharged for their insurance based on Farmers own data relative to those with the best credit.

Farmers Insurance says the TDI's actions are "without merit" and reflect a "purely political agenda."

"We have become [a] personal political punching bag for the fall campaign and it is a terrible disservice to our policyholders, our employees, and, frankly, everyone in Texas."

More trouble ahead?

Montemayor's action comes on the heels of the filing of Texas Attorney General John Cornyn's lawsuit against Farmers Insurance for violating the state's Deceptive Trade Practices Act and discriminating against some policyholders through the company's current rate-setting policies. The Texas Department of Insurance (TDI) is also investigating the rating practices of Allstate Insurance Co. and State Farm.

"Consumers should rest assured that we will allow Farmers adequate opportunity to rework their procedures so that none of their current customers are adversely affected," says Montemayor. "TDI will continue to investigate the rating practices of Texas insurance companies and if additional illegality or improper behavior is uncovered, additional appropriate and decisive action will be undertaken on behalf of Texas consumers."

Complaints of exorbitant home insurance rate hikes — some as high as 300 percent in areas with rising mold claims — and the inability of some consumers to obtain or renew their home insurance spurred Texas Gov. Rick Perry to demand that the TDI and Cornyn investigate all three insurers' marketing and pricing practices. That investigation is ongoing.

Consumers across the country are angry because they have been battered by recent home insurance rate increases ranging anywhere from 7 to 63 percent. Americans for Insurance Reform, a newly formed coalition of more than 60 consumer and public interest groups, has called for a nationwide home insurance rate freeze while lambasting the insurance industry for jacking up rates to compensate for what thr group says are "poor business practices, shady accounting, money lost in the stock market, [and] not enough profits."