Reinsurance Expenses Trigger Homeowners Rate Hike

State Insurance Counsel calls the practice "unreasonable"

At least one state insurance official has attacked State
Farm's second demand for higher rates in a period of 8
months as "excessive and unreasonable."

Where State Farm has termed its need for higher rates as
compelled by a climb in costs in materials and labor, Public
Insurance Counsel Deeia Beck, a state attorney who
represents insurance consumers, says their true cost
increase is due to "reinsurance."

It's an insurance industry practice Ms. Beck has declared
"unreasonable expense." She called on the Texas Insurance
Commission to disallow the rate increase.

Reinsurance is the practice of insurers buying coverage for
catastrophic events to mitigate their losses - usually from
their own holding company.

An industry watchdog group, Texas Watch, said through its
spokesman that State Farm is merely taking advantage of the
weaknesses in the Texas insurance system as enacted in 2003
by the legislature.

Insurance companies file notice of their rate increases and
the justification behind the rates.

"All the insurance commissioner can do is ask State Farm to
please not gouge Texas homeowners," Alex Winslow of Texas
Watch said.

The current rate increase under review is a hike of 4.5
percent for homeowners insurance consumers, up from the most
recent increase of 8 percent just eight months ago.

According to Insurance Commissioner Mike Geeslin, such a
move could very well propel the other carriers in the Texas
market to do the same. State Farm leads the state with a
market share of roughly 30 percent.

Company spokesman Ken Davis said State Farm intends to go
ahead with the increase to an estimated 1.2 million
consumers in any case.

"Our goal is to ensure that State Farm can always keep its
promise to its customers and that we're financially able to
do so," Mr. Davis said.

"Our rate needs today are not necessarily the same as they
were eight months ago. This is the result of us constantly
reviewing our rates and rate needs."

The insurer and the State of Texas have been fighting in
court over a refund ordered 7 years ago after the state's
public insurance counsel presented evidence that customers
deserved $1 billion in refunds. This figure was eventually
adjusted to $310 million.

The current rate hike would represent an increased expense
to an owner of a $150,000 brick veneer home in Dallas County
of about $52, bringing the total for insurance on a 10-year-
old home to $1,196, according to figures furnished by State
Farm.

Consumer groups expressed anger over the jump, calling it
price gouging and blaming Texas' weak insurance regulations
for the increase.

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