State Farm had been Jim Higbee’s insurer for years, covering his home, two Ford Explorers and his small business that buys and resells used office cubicles out of small quarters in east Fort Worth’s RiverBend Business Park. He says he has an 800 credit score, and his only claim was a minor roof repair long ago.
Then Higbee learned in May that State Farm was raising his premiums 30 to 35 percent. A week ago, he moved his business coverage to Farmers and last week moved his home and auto policies to Nationwide Insurance.
“I pay the bills on time. I’m not beating anybody out of money. I don’t know what the problem is,” said Higbee, who estimates that he saved $600 a year on his home policy and $135 on auto by switching.
Higbee apparently isn’t alone. After State Farm, the state’s largest homeowner insurer with 29 percent of the market, raised homeowner rates last fall and again in the spring, some policyholders are just now opening their renewal notices to find two increases in one.
State Farm, in its filings with the state, raised rates an average of 8.8 percent in the fall and 4.5 percent in the spring, with the second increase taking effect May 1 for new business and June 1 for renewals. Under state law, insurers are allowed to implement increases while Texas regulators review them; the state has not issued its position on State Farm’s rate filings.
State Farm’s increases in North Texas and Tarrant County, already known for higher storm-related losses, are significantly steeper than its premium increases in some other parts of the state.
In one typical scenario in Fort Worth, the Texas Department of Insurance estimates that State Farm homeowners insurance policyholders who enjoy discounts for having multiple policies with the company could see their annual premium rise 31 percent after the two rate increases.
That assumes a 10-year-old frame home with no claims, $150,000 in building coverage with replacement cost on contents, a $1,500 deductible and an average credit score. The new premium for that property could be $1,610, up from $1,128, the insurance department estimated.
With no multiline discounts, Tarrant County homeowners could see premiums rise 39 percent, the insurance department estimates under various scenarios. Consumers can use the online calculator on the department’s website to enter data on their property, such as ZIP code, coverage value, credit score, claims history, age of home and type of construction, to get their own estimate.
Kevin Davis, a Texas spokesman for State Farm, said 9 in 10 of the insurer’s policyholders qualify for a multipolicy discount of 20 percent, which the company raised from 15 percent as part of its spring rate filing.
“At the end of the day, it is for these reasons that we encourage our policyholders to contact their State Farm agents so they can find out what their rate changes mean for them,” Davis said.
Some policyholders are beginning to shop around.
Stan Jones, the Nationwide agent in southwest Fort Worth who wrote Higbee his new home and auto policies, said his call volume from State Farm policyholders has tripled in the last month.
“People are just getting their renewals,” Jones said. “State Farm customers are traditionally loyal customers. It takes something to get them to switch.”
Dan Strack, owner of Strack Insurance Services, an independent agent in Arlington, says he took in 47 online leads on his website in May, of which six were from State Farm policyholders. In June, he has taken in seven leads, and five from State Farm customers.
Strack said he saw little effect after State Farm’s first increase last fall. But with renewals coming up and the two increases on top of each other, “it’s starting to soak in.”
Yet, Strack, who writes homeowner policies for several insurers, including Universal, Homeowners of America, The Hartford, Travelers, ASI and Safeco, says some State Farm policyholders will likely stick with their policies rather than go with a lesser-known brand, even if it means paying more. State Farm’s ability to write multiple coverages also helps, as some insurers don’t write both home and auto coverage, he said.
“Nine out of 10 times, I can beat the rate they’re getting,” Strack said. But “people are reluctant to change from State Farm and go with a company they don’t know.”
At Allstate, Texas’ No. 2 homeowner insurer with 10.8 percent of the market, spokesman Joe McCormick said, “We have not seen any uptick in State Farm business coming to us. Not in a macro sense. Some of the agencies might have seen some of it.”
No. 1 in losses
Underlying the rate increases are major questions about the desirability of the Texas homeowners market to insurers.
Hurricanes that blow in from the Gulf of Mexico, along with hail and windstorms that sweep across North Texas, contributed to $2.45 billion in catastrophe losses for Texas home insurers in 2009, according to industry estimates. That made Texas the No. 1 state for losses, with more than 20 percent of the nation’s $10.5 billion in total catastrophe losses.
Under Texas’ “file and use” system, insurers can implement rate increases pending regulators’ review. That’s supposed to be more favorable to the industry, but in practice it amounts to “file and haggle” and discourages insurers from doing business in the state, said Jerry Johns, president of the Southwest Insurance Information Service, a trade group.
“Companies have to have insurance rates sufficient to pay claims,” Johns said. “If they don’t have the funds, that is the customer’s worst nightmare.”
Patrick Brockett, the Gus S. Wortham Chair in Risk Management and Insurance at the University of Texas at Austin’s McCombs School of Business, agreed that Texas’ regulatory system has held homeowner rates “artificially low,” given the weather-related risks that insurers bear.
“The cost of catastrophic risk coverage on the coast has just been increasing,” he said. “More people are living there. The value of the structures is higher.”
And in North Texas, he said, “Hailstorm and wind damage is very significant. When the rates have been held artificially low, then increases may look abnormal, but may not be.”
Davis, the State Farm spokesman, said the firm went five years without a rate increase.
“The cost of everything that insurance pays for continued to rise,” he said. “In order to continue to keep our promises, we have to make adjustments.”
Alex Winslow, executive director of the Texas Watch advocacy group, argued that the Legislature should change state law to let the insurance commissioner review rate increases before they go into effect, bar insurers from using factors such as credit scores in assessing risk, and simplify policies.
Credit scores, now widely used by insurers, “do not accurately reflect a person’s risk,” Winslow said.
“And consumers have no way to effectively shop the Texas insurance market because it is too complex and confusing to allow true consumer choice,” said Winslow, who accused State Farm of being a “bully” with the insurance commissioner, Legislature and policyholders.
Brockett said he expects to see more insurers file for rate increases. But he doesn’t expect to see significant shifts in market share among Texas homeowner insurers, unless one of the majors pulls out of the state. It’s also plausible they could decide not to write new policies but continue to renew existing policies, he said.
“These are big companies, and they’re going to have large market share,” he said.
At Allstate, which implemented a 6 percent average homeowner rate increase last year, McCormick pointed out that his own neighborhood in Colleyville saw a substantial number of new roofs after a storm last year. Five years earlier, storms triggered another wave of reroofing, he said.
Does Allstate want more or less market share than it has now?
“That’s a good question,” McCormick said. “Across the state, we certainly want homeowners’ business, but it’s got to be at the right rate. We can’t be consistently losing money on a product.”
Policyholders who see rate increases have options, insurers and experts said.
Besides exploring discounts for owning multiple policies, Davis of State Farm said policyholders should meet with their agents to discuss changes in coverage such as raising deductibles.
The state insurance department has put up tools on its site, www.tdi.state.tx.us. Besides the calculator, consumers can also check for competing policies in their ZIP code at www.helpinsure.com. Other information includes insurers’ credit ratings and complaint data.
“We can’t tell anyone to change companies or stay with them, but we want them to be informed consumers,” said Ben Gonzalez, a spokesman for the insurance department.
For example, State Farm’s 4.5 percent and 8.8 percent spring and fall filings are accurate statewide averages, Gonzalez said.
“But you’re probably not going to see the low end of that in the metro areas or coast,” he said. “You’re going to see that in the less-risky areas.”
Johns likewise recommended shopping around.
“Consumers have choices when it comes to homeowner or auto insurance,” he said. “I think people are going to be shocked at the variety of pricing in the marketplace in Texas.”
