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Texas offers to settle its lawsuit against Farmers Insurance

Turning down the volume on its recent tough talk, the Texas Department of Insurance (TDI) has offered to settle its dispute with Farmers Insurance over the company's home insurance pricing practices.

Texas expands consumers' home insurance options

In an effort to increase Texans' narrowing home insurance options, the TDI has authorized Nationwide Insurance to use in Texas the same home insurance policy that it uses in other states.

According to the TDI, preliminary numbers from Nationwide indicate that the company's average rate for a brick veneer house insured for $80,000 will drop from $1,549 for a Texas comprehensive home insurance policy with full mold remediation coverage to $1,025 for the new basic Nationwide policy without mold coverage.

Policyholders will be able to buy optional mold and water-damage coverage similar to that provided by the Texas comprehensive policy with full mold remediation.

The action comes amidst rumors that the state's second-largest home insurer will begin refusing to renew existing customers' home insurance policies.

The battle had 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.

"Our proposal to Farmers represents a good faith effort to find a resolution and bring Farmers into compliance with Texas law," says Karina Casari, TDI executive deputy commissioner. "Our goal is to have Farmers stay in the market and be in compliance with the law."

According to Farmers Insurance spokesperson Mark Toohey, both the insurer and the TDI are trying to resolve the dispute. "We're still talking," says Toohey. "We want to accomplish the same thing — to keep Farmers in the Texas market."

Settlement proposal

The TDI proposal to Farmers says insurance regulators are willing to:

  • Consider a combined settlement that includes restitution for policyholders and a "substantive" change to Farmers rate-making assumptions based on "sound" actuarial principles.
  • Waive the penalties it has proposed in the enforcement action if Farmers accepts the TDI's proposal by Oct. 1, 2002, and if Farmers agrees not to seek back commissions from the agents on the overcharges.
  • Resolve the cease and desist order, separately if necessary, through prospective rate-making changes.
  • Expedite form approvals for enhanced coverage similar to other approved national policy forms in combination with a rate reduction for policyholders with Farmers Fire Insurance Exchange.

Farmers' lawsuit and the TDI's settlement offer are the latest turn of events in the ongoing animosities between the insurer and Texas officials. On Aug. 5, 2002, Texas Attorney General John Cornyn filed a lawsuit against Farmers, alleging price gouging. Farmers' response to that lawsuit was to announce it will halt the sale of new home insurance policies in Texas after Oct. 31, 2002.

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