Dewhurst, Jackson Lay Out Plan for Insurer Penalties

December 23, 2004

Texas Lt. Gov. David Dewhurst once again called on State Farm to reduce homeowner’s insurance rates recently as he laid out the second part of the Texas Legislature’s insurance reform effort, the Associated Press reported.

Sen. Mike Jackson, R-Pasadena, filed the legislation that aims to discourage companies from taking rate-filing challenges to court. Dewhurst said the bill gives last year’s insurance overhaul “sharper teeth” in the form of stiffer penalties for frivolous challenges.

The bill will be considered during the 140-day legislative session, which begins next month, and must be approved by a majority of the Senate and the House before it can be signed into law by the governor.

State Farm, the largest home insurer in Texas, and Farmers both challenged mandatory rate rollbacks in court. While Farmers settled its case, a judge deemed a mandatory 12 percent premium rollback for State Farm unconstitutional. State Farm claims the procedures used by the state denied the companies due process.

Dewhurst called on State Farm to “comply with the Texas Department of Insurance ordered reductions, and stop playing Scrooge.”

The Texas Department of Insurance ruled earlier this month that State Farm must continue to get prior approval from the state before making rate changes because the company is overcharging customers.

Regulators issued the order to the company this week, making State Farm the only insurance company in Texas that must get prior approval for what it charges on homeowners policies.

A State Farm spokeswoman called their rates “competitive, fair and justified.”

“We are deeply committed to our customers and to Texas and because of our commitment we are continuing efforts to try to find common ground with the state on the rate issue as well as advocate for an insurance market where competition provides all consumers with the best possible choices of prices, products and service,” spokeswoman Sophie Harbert said.

Under the proposed legislation, companies that appeal mandatory rollbacks in the courts and lose would be subject to prior approval by the insurance commissioner on any future rate filings. The commissioner could order refunds, issue a cease and desist order, and assess an administrative penalty against an insurer.

“We don’t want the court system and litigation to be used as a stalling technique that keeps refunds from going back to the pockets of hardworking Texas families,” Dewhurst said.

In addition, the legislation would refund premiums deemed excessive or unfairly discriminatory by the insurance commissioner, with an interest rate of prime plus 6 percent, if an insurance provider appealed and was denied.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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