Texas Insurance Commissioner Jose Montemayor has denied a second request in three months by State Farm Insurance Co., to raise its auto insurance premiums.
According to the Austin American Statesman, State Farm raised auto rates in Texas by nine percent effective March 15. The company then sought to raise rates again, averaging 12.1 percent, effective July 1.
Insurance Commissioner Jose Montemayor, based on recommendations of the TDI actuarial staff, issued the disapproval letter. According to Montemayor, State Farm’s proposed rate increase would have driven the company’s average rates for auto liability insurance to 38.6 percent above benchmark, comprehensive coverage to 61.5 percent above benchmark and collision to 31.6 percent above benchmark; the second increase would have cost policyholders approximately $284 million.
“The proposed rates, as filed, are neither just nor reasonable because individual insureds may be subject to very substantial increases in premium, and the companies insufficiently tempered such increases,” Montemayor said. “The proposed rates do not help to stabilize the rates charged by the companies for automobile insurance.”
Montemayor added that he was able to block the 12.1 percent increase because the affected State Farm policies are in the rate-regulated market. Some auto insurers have recently moved some of their business to county mutuals, which don’t face rate regulation. “This growing market free from rate regulation prevents the state from protecting consumers from excessive rates,” Montemayor said.
State Farm responded to TDI’s action by announcing it would request a hearing to appeal the decision. Ron Dodd, senior vice president of State Farm’s Texas zone operation, lamented, “We are extremely disappointed with this decision, especially since State Farm was never contacted by the TDI with any questions or concerns about our filing.
“I really take issue with the suggestion that State Farm has filed for a rate increase we somehow do not need,” Dodd continued. “In looking at our projected claim costs and expenses, it is clear that our request for higher rates is both necessary and justified.”
The company claims that it had decreased its auto rates in Texas by 10.5 percent between 1998 and 2001. In addition, State Farm has returned over $375 million in dividends to its Texas policyholders since 1997 during years in which its claim costs and expenses were significantly lower than projected.
Dodd cited increasing claims costs in Texas, especially in personal injury protection, medical payment and comprehensive coverage, as reason for the rate increase request. He asserted that the state’s benchmark system is a major problem because it uses outdated claim cost trends. State Farm says its rate increase filing was based on claim data from 2000 and 2001, but the state benchmark rate is based on data only up to 1999.
State Farm needed TDI’s prior approval for its proposed increase because it would have pushed rates outside of Texas’ “flexibility band” of 30 percent above or below benchmark rates.