Texas State Farm Customers Hit with Second Rate Hike in Eight Months

Published: Tue 08 Jun 2010

Larry Roth

Homeowners insurance premiums will rise again this month for Texas State Farm policyholders, the second hike in fewer than eight months from the state's biggest insurer.

The 4.5 percent rate increase in Texas property insurance rates that takes goes into effect this month comes on the heels of an 8.5-percent rise in October. State Farm cites the exploding cost of doing business as the reason for the rate hikes.

The back-to-back rate hikes have concerned Texas' insurance commissioner, who is worried that other home insurance companies may follow State Farm's lead and raise their premiums as well.

The effect of State Farm's homeowners' insurance rate increases varies in different areas of Texas. Residents of San Antonio may see their home insurance premiums rise by over 11 percent, according to data from the Texas Department of Insurance.

Calculating the Impact

The Texas Department of Insurance calculated how the rate increases will affect State Farm policyholders across the state. This is the first time the insurance department has published such an analysis online.

"Focusing on percentages is misleading," argued Patti Kelly, a spokeswoman for State Farm. "The price customers pay for homeowners insurance is very much influenced by a variety of factors." These factors include the location of the home, the level of coverage, the type of construction, and the size of the deductibles and discounts applied to the policy.

Texas' insurance department discovered that on a 10-year-old, $150,000 frame home in the 78233 ZIP code area of San Antonio, State Farm's two rate hikes would elevate premiums by $151 to $1,426, or 11.8 percent. The calculation assumes replacement-cost coverage on the contents of the home and a deductible of $1,500.

A homeowner with both a homeowner's and auto insurance policy with State Farm would see their rates jump $57 to $1,141, or 5.3 percent, after the two rate hikes.

The insurance department examined comparably valued houses in 65 separate locations around Texas. The analysis revealed that the two premium increases vary tremendously in size based on location.

Justifying the Increase

According to State Farm, it has lost over $1.3 billion in the Texas homeowners insurance market from 2000-2009. The insurer said severe weather was the primary culprit behind the losses.

However, the executive director of the consumer group Texas Watch, referred to State Farm's calculations as "laughable."

"If they actually lost a billion dollars in Texas, I guarantee you that they would not be writing homeowners insurance in Texas," he noted.

The rate hike has not gone unnoticed by the Texas Department of Insurance. Mike Geeslin, the state's insurance commissioner, wrote a letter to the home insurer in March questioning the second rate hike in eight months.

"Multiple rate increases within such a short period of time may indicate a lack of rate-making discipline and lead to market instability," his letter read.

The two State Farm homeowners insurance rate hikes are currently under review by the Texas Department of Insurance. If the agency finds the rate hikes unwarranted or unfair, they can force State Farm to reduce its rates.