Texas Carriers Ordered to Lower Homeowners Rates
August 11, 2003

On Aug. 8, the Texas Department of Insurance (TDI) ordered most of the top 32 insurance company groups writing homeowners insurance in Texas to lower their rates by up to 31 percent, a move the department expects will save Texas consumers over $510 million.

Insurers and their trade associations were quick to respond to TDI's actions, most predicting the mandate will lead to an availability crisis.

Farmers Insurance announced plans to appeal the decision, saying it "seriously disagrees with the actuarial conclusion of the Texas Department of Insurance" In Farmers' opinion, the mandated cutbacks would "result in significantly inadequate rates, would jeopardize the financial stability of our companies and the interests of our customers, and would cause disruption to the Texas insurance market."

In a statement released by the Insurance Council of Texas, Mark Hanna, the ICT's Public Relations manager said, "The rate reductions announced by the Commissioner may sound like good news to some policyholders, but if insurance companies don't take in enough premiums to pay claims, then everyone loses." He added that the "last three years have been tough times for both insurers and policyholders. Rates have gone up in response to unprecedented losses. Unfortunately, while mold claims have declined, the state's traditional weather-related losses continue to escalate. Right now in 2003, Texas leads the country in catastrophic losses."

TDI said the 32 insurance company groups represent nearly 95 percent of the Texas homeowners market. The regulatory agency's actions were not totally unexpected. It made the decision after reviewing rating methodologies filed with the department under insurance reforms contained Senate Bill 14, passed by the legislature waning hours of the regular session. The legislature instructed TDI to complete reviews of the top 32 company groups by Aug. 10 and the remainder of the market by Sept. 9. TDI said the remaining rate reviews will be completed before that date.

The department said each affected company has been notified of the rate reductions and has 10 days to decide if it will appeal. A company can appeal the TDI ruling by requesting a public hearing before the Commissioner of Insurance to be held within 30 days of the request.

If a company accepts the rate reductions ordered by TDI, the new rates will take effect in 30 days and will appear on the policyholder's next scheduled renewal.

URL: www.insurancejournal.com/news/newswire/southcentral/2003/08/11/31375.htm
 

July 29, 2003

According to Texas Attorney General Greg Abbott, the state has reached a settlement with Farmers Insurance Group that requires the company to refund an estimated $2.4 million to about 13,000 Texas motorists who may have paid more for vehicle repairs than was required under their policies. In announcing the settlement, the attorney general noted that the agreement is not related to a proposed $117.5-million settlement with the state involving allegations the company deceived homeowners and misused credit scoring data.

The settlement marks the ninth such settlement obtained since 2000 with major auto insurers, emphasizing again that companies such as Farmers may not deceive motorists who pay deductibles and make proper claims for vehicle repair work.

This unlawful practice known as "betterment," an insurance industry term, involves supposedly increasing the value of a policyholder's vehicle by paying for repairs with better or newer parts. Companies such as Farmers have routinely reduced the amount to be paid to the motorist for repairs by an amount believed to equal the improved value of the vehicle because upgraded parts were installed, such as new rather than rebuilt transmissions.

"Companies have used this perceived loophole in the standard Texas auto policy to rationalize their way into consumers' pocketbooks," Abbott said. "They reasoned that if they increase the value of their policyholders' vehicles, then they should be able to deduct an amount for improving the value of the vehicle. Auto policies in Texas just do not allow for this kind of deception and we're fortunately seeing a turnaround in the industry."

Under the settlement, Farmers will continue to refrain from deducting for betterment on its policyholders' claims. The company agrees to refund the amount charged for betterment, plus interest, to policyholders who had an auto repair claim paid from Feb. 14, 1996, to the present.

Farmers will mail checks directly to policyholders who had electronic estimates that indicated the company made these deductions for betterment. For those policyholders whose deductions cannot be identified though electronic estimates, Farmers will mail notices requesting that eligible persons make a written claim.

If a policyholder makes a written claim, Farmers will review the claim file and send a refund check if the file indicates the company deducted for betterment. Farmers agrees that this settlement will not affect its insurance rates. Farmers will also pay $175,000 in attorneys' fees and other expenses to the Attorney General's office.

Since 2000, the Texas Attorney General's office has also obtained betterment settlements with State Farm, Nationwide, USAA, Geico, Travelers, Safeco, Sentry and Liberty Mutual insurance companies for an estimated $7.9 million in total refunds. Several betterment lawsuits against other insurers are still pending.

URL: www.insurancejournal.com/news/newswire/southcentral/2003/07/29/31039.htm

Perry signs insurance rate relief bill
Firms have 20 days to file new homeowners premiums with state

06/11/2003    By TERRENCE STUTZ / The Dallas Morning News

TEMPLE, Texas – Predicting rate relief for a "substantial" number of homeowners, Gov. Rick Perry on Tuesday signed legislation aimed at ending the Texas insurance crisis by boosting regulation of insurers and bringing down their premiums.

The governor's signature starts the clock for about 100 homeowners insurance companies that will have 20 days to file new rates with the Texas Department of Insurance. Those premiums will then be reviewed by state Insurance Commissioner José Montemayor, who can approve or reject them.

Mr. Montemayor has said the rates of most companies are too high and need to fall an average 12 to 18 percent this summer.

"This gives very clear direction to the commissioner," Mr. Perry said of the insurance measure. "We expect to see a substantial number of Texans get some rate relief because of this legislation."

Rates of the 40 largest companies – those with more than $10 million a year in premium volume – will be reviewed within 60 days. The commissioner will examine another 60 to 70 smaller companies within 90 days.

Homeowners whose premiums are trimmed will see those reductions as their insurance policies are renewed over the next year.

Mr. Perry signed the bill inside a newly constructed home in a Temple subdivision. The owners, who were scheduled to close Tuesday afternoon, said they had no trouble obtaining an insurance policy.

Standing beside the governor were two of the bill's principal sponsors, Sen. Troy Fraser, R-Horseshoe Bay, and Rep. John Smithee, R-Amarillo.

"This will give Texans confidence that when they receive a bill for homeowners or auto insurance, it is a fair and justifiable rate," Mr. Smithee said. "The much deserved and expected help and relief [on insurance rates] is on the way for homeowners."

Highest in nation

Texas homeowners, who pay the highest insurance rates in the nation, have seen their bills rise an average of 45 percent in the last two years.
The legislation also restricts insurers' use of credit histories in selling and pricing policies. Companies will have to publicly disclose their "credit scoring" models and also prove there is a link between credit history and insurance risk.

Consumer groups were highly critical of the measure, saying it should have included an immediate rate rollback as well as a ban on credit scoring.

"If elected officials would have listened to Texas homeowners more than they listened to the insurance lobby, we would have had a much better product, and Texas families could be expecting real relief," said Dan Lambe of Texas Watch. "The Legislature and governor have failed to live up to their promises and voters' expectations."

An insurance industry spokesman said it is hard to predict whether the new regulations will ease the insurance crisis, marked by record rate increases, massive mold and water losses and a severe shortage of available policies.

"The regulations are rigorous, yet we are hopeful that in the long run they will further stabilize rates and encourage companies already doing business in Texas to begin writing new policies again," said Beaman Floyd of the Texas Coalition for Affordable Insurance Solutions. Two of the biggest companies, State Farm and Farmers, have not accepted new customers for several months.

"It remains to be seen whether the reforms will actually revitalize the market by encouraging new insurance companies to come to Texas," Mr. Floyd said.

Homeowners insurance companies that want to raise rates after the initial rate-setting process would file their new premiums with the commissioner, who would have 60 days to approve or reject them.

New system

On Dec. 1, 2004, the state will switch to a "file-and-use" system for both auto and homeowners insurance. Companies would notify the Texas Department of Insurance whenever they increase premiums, and the commissioner would have authority to review those rates at any time to ensure they are justified.
If the commissioner finds the new rates excessive, he could order a reduction and refunds for those customers who paid the higher premiums. Smaller companies would have less stringent regulation of their rates.

Most auto insurers will see no change in the way their rates are regulated until Dec. 1, 2004. The exception is county mutual insurance companies, which serve higher-risk drivers and are now exempt from rate regulation. Premiums charged by those companies will be subject to review by the insurance commissioner.

Closing a loophole

Homeowners insurers have been free to increase rates whenever they want because of a loophole in state law. That loophole allowed companies to shift their policies into so-called Lloyds subsidiaries, which were exempt from rate regulation and originally intended for people who couldn't find insurance elsewhere.
The new law closes that loophole.

"This legislation provides that rate standards will apply to all homeowner and auto insurance companies with no exceptions – and no loopholes," Mr. Perry said. "If future rates are unfair, the Texas Department of Insurance now has the authority to reject excessive rates out of hand and force companies to offer lower rates."

In his election campaign last year, Mr. Perry promised insurance reform as rates spiraled upward and Democratic opponent Tony Sanchez repeatedly attacked him for not doing enough to protect consumers.

E-mail tstutz@dallasnews.com

Three insurance bills signed into law Tuesday:

Insurance regulation: Senate Bill 14 puts all insurance companies operating in Texas under state regulation, giving the insurance commissioner the power to review and reject homeowners rates. All auto policies are now under state regulation. The law takes effect immediately.

Mold remediation: House Bill 329 requires mold assessors and remediators to be licensed by the state, imposing minimum standards on a previously unregulated industry. It takes effect Sept. 1.

Water damage claims: Senate Bill 127 requires insurance companies to respond more quickly to certain water damage claims — an effort to get water damage cleaned up before mold can form

Reform Legislation Approved by Texas Legislature
June 3, 2003
 
On the last day of the regular session, Texas lawmakers passed
insurance reform legislation, but according to the National Association of
Independent Insurers consumers and insurers alike will have to wait to see if the
new law will be beneficial in restoring a healthy competitive homeowners insurance
marketplace.
 
With minutes remaining in the 2003 legislative session lawmakers were
finally able to approve Senate Bill 14, which puts in place a prior approval
system for rates that will sunset in 2004. After that date the regulatory
system moves to file and use. The conference committee that rectified differences between the House and Senate versions of reform voted down a ban on the use of credit-based insurance scores and instead adopted language similar to the National Conference of Insurance Legislators (NCOIL) insurance scoring model act.
 
"Texas has taken the next step in addressing the state's insurance
crisis," said Donald Hanson, NAII southwest regional manager for the National Association of Independent Insurers (NAII). "The reform effort addressed the most >important factors that lead up to the current crisis. Legislation canstifle or stimulate more competition in a marketplace. It all depends on how the law is implemented. However, it remains to be seen if the reforms will serve as catalyst for increased competition and greater stability in the marketplace.

"SB 14 places a great deal of authority in the hands of the insurance commissioner through the prior approval system. This approach gives the regulator >more power to exercise control over the marketplace. Depending on how this power >is exercised, we could have the problems that plagued New Jersey. We will be working with the commissioner, legislators and the governor to ensure that does not occur."
 
The bill will provide rate reductions for consumer following the commissioner's review of rates. The commissioner has estimated that rates may be reduced an average of 12 - 18 percent. Based on a study done earlier this session, the commissioner has indicated that some insurers rates may be judged to be justified, while others will be reduced.
 
"Consumers will begin to see rate reductions when they renew their insurance policies. Regulatory changes implemented by the commissioner last year, along with the new law will help to bring some relief to consumers. The major question that remains to be answered is will this legislation be enough to encourage insurers to enter and in some cases re-enter the Texas marketplace. Policies that promote competition are the stimulant that is needed to avert a
>continuation of the insurance available crisis in the state," Hanson said.

Insurance Journal

Texas House Bans Credit Scoring in Regulation Bill
May 28, 2003


The Texas House of Representatives passed its version of Senate Bill 14, legislation that addresses regulation of residential property and commercial and personal automobile insurance. According to the Alliance of American Insurers, the House version contains significant differences from the Senate version, including a total ban on credit scoring inserted into a House floor amendment.

A conference committee consisting of members from each legislative body is expected to meet later this week to work out the details.

The Alliance expects the credit scoring provisions to generate significant debate. The Senate version of the bill allowed the use of credit history, with some restrictions.

The Alliance said it was successful in defeating several actions it considered to be "onerous," including amendments pertaining to prior approval of all rate increases for auto and homeowners insurance and a mandated rate-rollback to push back homeowners insurance rates to their January 2001 levels.

In addition to the amendment to ban credit scoring in the underwriting or rating of personal automobile and residential property insurance, the House passed an amendment prohibiting an insurer from splitting a county into more than three rating territories with a 15 percent rate differential among those territories.

In an announcement on the House Web site, Rep. Ryan Guillen noted that constituents' complaints about "sky-high insurance costs" were a big factor in the House's push to deny the use of credit scoring in establishing rates.

Calling the ban a victory, Gullen added, "I can tell you that there was a lot of pressure from the insurance lobby after we voted to delete credit scoring, but most of the members agree that we just have not seen any good arguments that rates for home insurance or auto insurance should be based on a credit report."

Miami Herald

May 23, 2003 

House votes to ban insurers from using credit scoring

NATALIE GOTT
Associated Press

AUSTIN - The Texas House, debating a bill that would overhaul how the state regulates homeowners and auto insurance rates, approved an amendment that would ban insurers from using credit history as a factor in setting insurance rates.

The House also on Thursday rejected an amendment that would have returned rates to their 2001 levels, before a rush of mold claims hit the state. Now, mold is no longer covered under most policies, said amendment sponsor Rep. Steve Wolens, D-Dallas.

Wolens said homeowners insurance rates in Texas have increased on average from $793 in 2001 to $1,135 in the third quarter of 2002.

"The premiums in Texas are the highest in the United States. They are the highest in this hemisphere. They are the highest in the world and in the galaxy," Wolens said.

The rollback amendment failed on a 73-64 vote after bill sponsor John Smithee argued that the rollback would hurt the market because new companies would not want to come to Texas.

Smithee has said that homeowners insurance rates would drop under the bill because it requires homeowners insurance companies to file and begin using new rates soon after the bill is signed into law.

Under the bill, Insurance Commissioner Jose Montemayor could then order rates to be reduced further if he did not feel the rates are justified. Except in extreme situations, the rates could not increase for one year, although they could be lowered.

Debate on the bill stretched on for most of the day Thursday and it resumed again Friday.

Wolens and other Democrats scored a victory later in the debate Thursday when the Senate approved an amendment that would ban insurance companies from using credit scoring in setting insurance premiums.

"Credit has nothing to do with whether your house is going to get hit by a hailstorm or whether you are a good driver," said Rep. Scott Hochberg, D-Houston.

Proponents of the bill said the legislation provided protections against the abuse of credit scoring but opponents of the practice disagreed.

"I promised my constituents I would come down here and get rid of credit scoring," said Rep. Jim Dunnam, D-Waco. "This (bill) doesn't do that."

Before the amendment was tacked onto the bill, Rep. Craig Eiland, D-Galveston, said that that under the legislation, several factors would not have been able to be used negatively against a consumer's credit score, such as a credit inquiry not initiated by the consumer or extraordinary events, such as a job loss.

Eiland also said 70 percent of Texans benefit from the use of credit scoring. Rep. Larry Taylor, R-Friendswood, said more than 45 states allow the use of credit scoring.

Eiland and Taylor at first argued against the credit scoring ban but when they failed to round up enough votes to initially block it, the amendment was approved 138-0.

Cheers erupted from the House floor.

In a report this year, Montemayor said homeowners insurance rates have increased on average 45 percent since 2000, while customers are getting between 22 percent and 24 percent less coverage. The report also said that individuals may have seen their rates change either significantly more or less than the average rate change because of credit scoring or other discounts policyholders get.

The report also said that rates for the state's 12 largest homeowners insurance companies could be up to 25 percent too high, depending on the individual company.

Insurance companies have blamed the increased costs on water and mold claims and other factors.

The state now can do little to control the rates because about 95 percent of homeowners insurance premiums are written by insurers who are not rate-regulated. About two-thirds of auto insurance companies are regulated.

---

The homeowners and auto insurance bill is SB 14.

May 12, 2003 12:52 PM

STATEMENT BY HOUSE SPEAKER TOM CRADDICK

Today I have issued a call on the House so that a quorum may be established to finish the legislative business of this session. If members do not return, and we miss key deadlines, it is probable that a special session will be required to certify a budget for the state of  Texas.

(House Democratic Caucus Chairman) Jim Dunnam's chief of staff said this morning that the Democrats bolted because they ‘believe in a principle and a process' and they are ‘standing up for their beliefs.'

The truth is these members are abdicating their constitutional responsibility to be here. It is their constitutional duty to shape legislation, to vote on issues, to fulfill their duties as the loyal minority.

Our citizen Legislature meets only once every two years and then for only 140 days. The members who left are wasting the people's time and money by letting key bills fall by the wayside --- all in the name of partisanship.

They are injecting chaos into what should be an orderly process. They are standing up their own constituents who came here this week to lobby for public school finance reform. They are spoiling the day for school children who are making a once-in-a-lifetime visit to the state Capitol with their class, and would like to be recognized by their hometown lawmaker.

I think it should be noted that Democrats had a majority in the Texas House for 130 years before this year, and Republicans never once  resorted to such an irresponsible stunt.

It's ironic that even as these members have cut and run that Hollywood is filming a movie nearby about that greatest of Texas epics. At the Alamo when Travis drew a line in the dirt, inviting those who wanted to to leave, only one man, Moses Rose, climbed over the wall and fled.

It's not a disgrace to stand and fight, but it is a disgrace to run and hide.

These members were elected to do a job. Hiding out in another state, evading DPS and the Texas Rangers, jeopardizing vital programs and standing up constituents who come to call is inexcusable. These 53 Democrats need to get back to Austin and get to work.

Bipartisan Ins. Legislation Effort Heating Up in TX Senate
March 6, 2003


Texas Lieutenant Governor David Dewhurst, together with seven Republican and Democratic Senators, announced they have reached a consensus on homeowners insurance regulation. At a Capitol press conference, Dewhurst said he is optimistic that they will have a bill ready to recommend to their colleagues in the next several weeks that will drive homeowners insurance rates down, but be fair to the insurance companies.

According to Horseshoe Bay Senator Troy Fraser, chairman of the Business and Commerce Committee, a rate rollback in the twelve to fifteen percent range is appropriate as a starting point. Senator Leticia Van de Putte of San Antonio said that she felt the bill would prohibit the unfair and discriminatory use of credit scoring and require the disclosure of credit scoring models.

Study shows insurance industry right about credit history-claims tie 
  
By Travis E. Poling 
Express-News (San Antonio) Business Writer 
  
Web Posted : 03/07/2003 12:00 AM 
  
The insurance industry's controversial stance that there's a link between a customer's credit history and the likelihood of his filing a claim appears to
have validity, according to an independent study commissioned by the Legislature.
Sen. Bill Ratliff, R-Mount Pleasant, said the University of Texas at Austin's Bureau of Business Research conducted the $60,000 study and the Legislature paid for it. Ratliff requested the study last summer while he was acting lieutenant governor to counter or confirm studies paid for the by the insurance industry.

Researchers gathered data, including credit scores — a measure of credit
worthiness — on 153,326 policies from five participating insurance companies
doing business in Texas.

The credit scores sampled were from the first quarter of 1998. The study then
tracked actual losses from claims associated with the policies.

When the policyholders were divided into 10 groups of equal size, the UT study found that the group with the worst credit scores led to a claims loss about 53 percent higher than expected. And three groups with the worst credit scores all had claim losses above the targeted loss ratio.

The group with the best credit score cost the insurance firms 25 percent less than loss ratio targets.
What's more, the credit score can predict the monetary size of the claims.
The average loss per policy was $695, but the group of policies with the worst credit scores weighed in at $918. The group with the best credit scores averaged $558.

But the study has its limits. The researchers wrote they didn't attempt to explain why credit scoring helps insurers predict insurance losses. And variables such as race, ethnicity and income weren't included.
Sen. Troy Fraser, chairman of the Senate Business and Commerce Committee, said the study would be formally presented to the committee in a hearing  Tuesday.

That hearing also is expected to be a forum for consumers to speak out against the use of credit scoring and insurers to defend the practice.

Testimony will also be heard on Sen. Leticia Van de Putte's SB 400, which prohibits the use of credit scoring by insurance underwriters and orders a rollback on insurance rates to Jan. 1, 2001.

The insurance industry opposes rate rollbacks and has long contended, as their own studies show, that using credit scoring helps predict which applicants for insurance are likely to file home or auto claims.

Other insurance-related bills discussed in committee Thursday are undergoing tweaking to give the Department of Insurance more authority to determine if the criteria insurance companies use to raise rates or drop coverage is fair.

Fraser said his previous homeowner insurer dropped him after he made two claims for water damage, one large and one small, in the same year. He said he also wants to add language to his Senate Bill 127 that would keep the claims history of a house from stigmatizing the owners when they move to a new house.