The Texas Department of Insurance has launched an investigation to determine if new homeowner policy restrictions by Farmers Insurance Co. violate state law. At issue is the decision by the second-largest company in Texas to stop selling new policies for homes that have had a water damage claim during the past three years, and to not cover homes older than 30 years with plumbing systems not made of copper, unless these systems have been renovated in the past 10 years. “The new underwriting restrictions by Farmers Insurance Co. aggravate an already serious availability and affordability problem with homeowners insurance in Texas,” said Insurance Commissioner Jose Montemayor.”
The changes go beyond the policy limits imposed by other carriers. While Allstate recently limited sales if there’s been water damage within three years, the 30-year rule is unprecedented.
Farmers has been a leader in a campaign by the insurance industry in Texas to change its policies to limit claims for mold and other water damage.
Farmers did not tell the state about the changes it was making and as a result, subpoenas are being issued for their “entire set of underwriting guidelines,” Montemayor said Thursday.
“At first blush, their underwriting changes appear to be unfair trade practices in violation of our laws,” Montemayor said in a statement.
The state will be monitoring other carriers to see if they are imposing similar restrictions.
“We anticipate issuing additional subpoenas to other insurers as necessary,” Montemayor said.
A Farmers spokesman said Thursday that the company disagrees with the commissioner’s decision. The company enacted the restrictions to limit its losses so it can continue to write policies in Texas, company spokesman Mark Toohey told The Associated Press.
“Unlike some of our competitors who just walked away, we’re trying to stay the course,” Toohey said. “We’ve got to do something to stop the bleeding.”
These limits do not affect its current policyholders.
Calls to Farmers for further comment were not returned.
While Texans for years have been able to obtain policies that were among the most comprehensive, and expensive, in the country, an increase last year in the number of household and weather-related claims has sent rates skyrocketing.
Farmers, for example, has more than doubled its rates on some homes between last year and this year.
Because of the huge losses suffered by the insurance industry in Texas in recent years, companies have been searching for new restrictions on claims.
These moves include a ban on new policy sales by State Farm and dollar limits placed on coverage for mold damage claims by other companies.
In Houston and some other parts of the state, the Texas Association of Realtors has heard scores of reports of prospective home buyers not being able to close on their home purchases because of inability to find insurance coverage.
The real estate agent association began studying the issue in January and held hearings to determine the extent of the problem, according to Bill Stinson, the group’s vice president of governmental affairs.
“When we went to Houston, we started hearing more and more cases of insurance companies not renewing insurance,” Stinson said. “That the new buyer couldn’t buy the house because it had some claims against it” in the past.
A central database with claims information is used by most insurance companies to be able to keep tabs on claims and people, he noted. While the database likely has been used to cut down on the amount of insurance fraud that has been occurring in recent years, it shouldn’t be used to harm law-abiding citizens, he said.
In addition to claims histories, the age of homes has become an issue because many homes built more than 30 years ago are made of less reliable materials or they have not been maintained over the years.
State Insurance Department spokesman Jim Davis said that Farmers or other insurance companies are not legally bound to inform the state of all policy changes that are made.
“But most companies will have the courtesy to call us when they are going to do something like this and let us know,” Davis said.
The agency’s subpoena power isn’t used extensively but was deemed appropriate for this particular situation, he said.
Other companies will be asked if they are imposing similar rules.
“Different insurers are using different underwriting guidelines and different restrictions,” Davis said. “We want to know if they are using the same ones as Farmers that we might have the same concerns about.”
Stinson said the real estate agent organization may do a survey statewide to determine how many people have been turned down for insurance based on claims filed on houses.
“Think how many thousands of houses in Houston, Texas, had some type of water claims from the floods that you experienced over the last couple of years,” he added.