State Farm decides to “mess with Texas” – sues insurance department!

My computer “ate my homework”! Actually, it garbled the post I had for this morning; but, here’s a news flash to give you something to think about while I finish rewriting:

State Farm Insurance has filed a lawsuit against the Texas Department of Insurance after the state agency took the unprecedented move of publicizing on its Web site recent rate hikes by the company.

Texas’ largest insurer filed suit Tuesday, seeking to protect from disclosure certain information that State Farm said could benefit its rivals in the insurance industry.

Department spokesman Jerry Hagins says the agency’s position is that all documents associated with a rate filing are public information. Posted were two State Farm rate proposals filed over the last eight months that increase homeowner premiums an average of 13 percent.

Hagins tells The Dallas Morning News that the decision to post was partly the result of increases filed so close together.

Another news brief on the suit reported, “State Farm spokesman Kevin Davis said information posted online by the Texas State Department of Insurance ‘contains information about reinsurance’ that would benefit rival companies…”

SLABBED readers will recall that State Farm is self-reinsured and Texas is not the first State to question those costs.  In fact, the Company’s assessment of reinsurance was the chief cause of the controversial rate increase in Florida and a concern expressed when State Farm more recently filed for rate increases in Mississippi and Louisiana. However the Company is no stranger in Texas courts.  Here’s a bit of  background on the story behind the story published after the first of the two rate increases at issue:

State Farm has been embroiled in legal action with Texas regulators since 2003, when legislative changes allowed companies to begin using a file and use system for rate filings, rather than the previous prior approval system.

That year, the Texas Department of Insurance determined the company was overcharging its homeowners customers and ordered State Farm to reduce its rates by 12 percent, but State Farm appealed and the issue has been the subject of legal wrangling since then.

The Office of Public Insurance Counsel has asserted in documents filed with the court that State Farm owes policyholders $785 million plus interest, or nearly $1 billion for the alleged overcharges. The Texas Department of Insurance calculates the overcharges at about $250 million, plus nearly $100 million more in interest, according to Associated Press reports.

State Farm Lloyds is not a publicly traded company. Its revenues are used for paying claims in Texas, the company said, adding that the rate filing has been submitted to avoid a decline in its financial position to the extent that it would be unable to uphold its claims-paying responsibilities to its policyholders.

“From an insurance industry perspective, solvency and the financial capacity to pay the claims of their customers are the principles that have guided insurers for decades,” said Jerry Johns, president of Southwestern Insurance Information Service. “It is perfectly acceptable for regulators to review the rates companies charge and the products they offer but that must be tempered with sound business judgment and an eye on guaranteeing that insurers are financially prepared to pay losses their customers expect and are entitled to receive.”

The consumer advocacy group Texas Watch, however, sees State Farm’s rate filing as further proof that state lawmakers failed to protect consumers against unjustified rate hikes in the recent Texas legislative session. Legislators declined to approve proposed measures that would have required prior approval by TDI of homeowners rate increases.

“Yesterday’s rate increase by State Farm comes on the heels of similar increases by Allstate and Farmers, completing the rate hike trifecta,” said N. Alex Winslow, executive director of Texas Watch.

“There is nothing to stop these rate increases because lawmakers failed to enact common sense insurance reforms that would require insurance companies to justify their rates before – not after – they are imposed on policyholders,” Winslow added. “Texas homeowners can look forward to another two years of rate hikes and coverage reductions because our state’s leadership failed to stand up to the big insurance lobbyists.”

SLABBED maintains a link to the Texas Department of Insurance and curious readers may want to go there.  I did but didn’t have time to look around.  However, I did find more about the refund ordered for overcharging Texas policyholders on the website’s home page – this copy of the Commissioner’s related Order dated November 16, 2009.