Details of Farmers Insurance deal emerge

Revised: 09/22/2006

Details of Farmers Insurance deal emerge
By R.A. Dyer

Star-Telegram Austin Bureau

AUSTIN - A deal that allows Farmers Insurance to keep $88 million that regulators said it overcharged customers drew more fire Tuesday, as new behind-the-scenes details of the deal emerged.

State officials confirmed Tuesday that Insurance Commissioner Jose Montemayor negotiated it via cellphone and a fax machine while he was in Mexico City.

Consumer advocates blasted Montemayor for not negotiating a better deal for ratepayers and called for his resignation.

"Montemayor's record as insurance commissioner is abysmal," said Birny Birnbaum, executive director of the Austin-based Center for Economic Justice, which called for the commissioner's resignation. "We are shocked that Mr. Montemayor let Farmers completely off the hook for homeowner premium overcharges over the last 15 months."

Texas Insurance Department officials dismissed the call for Montemayor's resignation. The department and Farmers said customers will save $100 million beginning next year, when the company lowers its rates.

"We're pleased with the settlement, and we think it's a fair and good deal for our customers," said Michelle Levy, Farmers spokeswoman.

Under the deal, Farmers will reduce homeowner rates for current and new customers by 5 percent for 18 months. Existing customers will get an additional rate cut of 15 percent for 12 months.

In exchange, Farmers gets to keep nearly $88 million that the state said it overcharged customers through rates 17.5 percent too high. The Insurance Department had tried to force a rate rollback last year but was thwarted in court.

A spokesman for the Insurance Department said the deal will deliver $225 to $250 in annual savings to the average Farmers customer. The company is the state's third largest, with about 340,000 policyholders eligible for the benefit.

Department spokesman Jim Hurley rejected the consumer group's call for Montemayor's resignation, which was included in a two-page news release. "It's ridiculous," he said.

Also Tuesday, Hurley released further behind-the-scenes details of the department's deal with Farmers, which was reached Thursday but not announced until Monday afternoon.

According to Hurley, Montemayor received a call on his cellphone from Farmers Chief Executive Marty Feinstein while Montemayor was in Mexico City for an insurance regulator conference. Hurley said Montemayor and Farmers officials negotiated through cellphone and fax machines -- and then Montemayor signed off on the deal.

Even though Montemayor was in Mexico at the time, Hurley said, the commissioner consulted with staff before agreeing to a "memorandum of understanding" with Jason Katz, Farmers' general counsel.

The memorandum of understanding also sets forth an agreement on how to present the deal to the media. "You and I will agree to prior notice of any press releases announcing the rate reductions," states Thursday's document, signed by Katz and Montemayor. "We both agree to take a positive forward looking view in press releases."

Consumer advocate Dan Lambe found that provision particularly troubling. "The fact that Farmers had some say in the media message from the Department of Insurance is alarming," he said.

Also Tuesday, the Insurance Department took further regulatory action against State Farm Insurance, the state's largest home insurer. A State Farm spokeswoman said the department filed paperwork calling for
the company to refile its rates and supporting documentation.

But unlike other companies operating under the state's new "file and use" system, the regulatory action requires State Farm to get approval before implementing new rates.

"We're confident that our rates are fair, competitive and justified," spokeswoman Sophie Harbert said.

An online information service of the United Farmers Agents Association, Inc.