Fort Worth Star-Telegram, Texas Knight Ridder/Tribune Business News
Sep. 28--A top Farmers Insurance Group official said Friday that the company would resume selling homeowners insurance in Texas if it could negotiate 'some kind of reasonable settlement' of its dispute with state officials.
But after losing $1.3 billion on homeowners insurance in the past 21/2 years, Farmers' definition of reasonable does not include paying refunds or slashing rates, said John Hageman, Texas executive director for Farmers.
Farmers, the state's second-largest home insurer, announced Wednesday that it would stop renewing policies as of Nov. 11. The company said it took the action because of its losses and the Texas Insurance Department's unreasonable regulatory demands.
Meanwhile, the chairman of the House Insurance Committee said that if Farmers cannot be persuaded to remain in the homeowners insurance market, Gov. Rick Perry should summon lawmakers back to Austin for an emergency legislative session after the Nov. 5 election.
'I do not believe that we have the capacity in the market to pick up 700,000 displaced Farmers customers,' said Rep. John Smithee, R-Amarillo. 'I think a special session after the election will let us get a jump on the problem to see what we can do in the short term to help those customers.'
Perry has said that he will not call a special session but that he would designate homeowners insurance an emergency item when the Legislature convenes in January. Emergency action taken by the Legislature goes into effect as soon it is signed by the governor.
But outside observers say Farmers and Texas insurance regulators should negotiate a solution to their dispute before Farmers' decision to discontinue homeowners insurance in Texas leaves tens of thousands of people without insurance or paying much higher rates.
'I'd think the pressure is going to be mounting on both groups to sit down and get something done,' said Joe Woods, regional manager of the Alliance of American Insurers.
'If they want to settle this, they need to sit down and have some private negotiations and stop sending out press releases.'
The question may be whether either side is willing to initiate those talks anytime soon.
Robert Black, a spokesman for the Texas Department of Insurance, said Farmers chose to abandon the homeowners market in Texas and it could choose to return.
'We presented Farmers Insurance with a fair and reasonable proposal for a settlement, and Farmers declined to take us up on it,' Black said. 'Our door is open if they want to return to the negotiating table. Of course, the first step in any negotiations would have to be that Farmers agrees to comply with the state laws for doing business in Texas.'
But Hageman repeated his earlier assertions that a lawsuit brought by Attorney General John Cornyn and the regulatory enforcement action by Insurance Commissioner Jose Montemayor were the products of a 'heated election season' and that the company had not violated state laws.
'Due to the chaos in the homeowners market' and rising rates stemming from huge losses suffered by insurance companies, 'the TDI was a under a lot of pressure to do something,' Hageman said.
Both the lawsuit and the Insurance Department allege that the formula Farmers uses for setting homeowners insurance rates violated state laws.
Farmers is willing to negotiate with state officials, Hageman said, but he added that the state had no basis for the penalties it proposed.
'Our rating system is 100 percent within the law,' Hageman said.
'There is no reason for us to pay refunds, rebates and rollbacks if we're within the law.'
Farmers' decision to stop writing insurance because of a dispute with regulators is hardly unique, said Stefan Holzberger, a senior analyst with the AM Best rating service, which monitors insurance companies' financial health.
State Farm, Holzberger said, is in the process of pulling out of the New Jersey personal auto insurance market because of what company officials say is an unfair regulatory climate.
Holzberger said that Farmers' rate-setting formulas, including the use of credit scoring to grade the loss potential posed by applicants, probably don't differ much from those of other insurers.
'I think that's why they think they're being singled out unfairly,' Holzberger said, 'because they're really not doing anything differently.'
Holzberger said the dispute probably arose because state officials finally became aware of how much insurance rates will have to rise, at least in the short term, to offset the losses insurers have suffered in Texas in recent years.
The state, either through legislation or regulation, will have to come to grips with the 'mold issue,' Holzberger said, which means clearly defining what damages are covered and probably setting a limit on insurance payments.
Gene Acuna, a spokesman for Perry, said the governor still does not see a need for a special legislative session.
Perry's opponent, Democrat Tony Sanchez, said the governor should heed Smithee's advice.
'Rick Perry is closing his eyes to the crisis while lining his pockets with insurance contributions,' Sanchez said. 'The major problems in the insurance industry have been apparent for months, and that's why I first called for a special session 69 days ago.'
Meanwhile, state Sen. Rodney Ellis, D-Houston, the Senate Finance Committee's chairman, asked the attorney general's office to determine whether the state can legally require Farmers to shelve its plans to stop renewing homeowners policies.
'Farmers' action creates a crisis of availability to match the crisis of affordability it has also engineered,' Ellis said in a letter to Cornyn.
By Bob Cox and John Moritz
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(c) 2002, Fort Worth Star-Telegram, Texas. Distributed by Knight Ridder/Tribune Business News.