State Farm may be required to pay its Texas policyholders more than $1 billion, depending on the outcome of a hearing on alleged overcharging on homeowners insurance policies.

The insurer maintains it has done nothing wrong and should not have to pay any amount. "We don't feel that we've ever overcharged our consumers," spokesman Kevin Davis said.

In legal filings, Texas' Office of Public Insurance Council estimated that State Farm owes policyholders $785 million -- plus interest that continues to accrue -- for overcharging on homeowners policies from September 2003 through August 2008. The amount is currently approximately $997 million, said Public Counsel Deeia Beck, but will crest the $1 billion level soon.

Texas regulators concur that State Farm owes its customers, but offered a far lower figure: approximately $350 million.

In May 2008, a Texas appeals court ruled State Farm Lloyds was denied due process when the Texas Department of Insurance ordered it to reduce its filed homeowners rates by 12% back in 2003 (BestWire, May 27, 2008). The court sent the matter back to the TDI for review (BestWire, July 31, 2008).

As the hearing officer, Insurance Commissioner Mike Geeslin recently heard testimony in the case but has not said when he will issue a decision.


Potentially complicating matters is that the Texas legislative session adjourned June 1 without voting on a measure to extend the operations of the TDI (BestWire, June 3, 2009). The insurance department, as well as four other state agencies, was not re-authorized before the regular session ended. Each agency was up for a sunset review. Without a legislative go-ahead to continue, the TDI will cease in September 2010. The Property Casualty Insurers Association of America said in a statement that it believed Gov. Rick Perry would "likely" call for a special session to address the department's continued operations. During a press conference held a day after the session ended, Perry indicated he'd give legislators the summer off.

Beck said the prospect of a special session may encourage Geeslin to issue a decision sooner, rather than later.

State Farm Group currently has a Best's Financial Strength Rating of A++ (Superior). State Farm Lloyds currently has a Best's Financial Strength Rating of B++ (Good).

In 2008, the top writers of homeowners multiperil in Texas, according to A.M. Best Co. state/line product information based on direct premiums written, were State Farm Group, with a 29.3% market share; Allstate Insurance Group, with 14.1%; Farmers Insurance Group, with 13.2%; USAA Group, with 7.6%; and Travelers Group, with 5.2%.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)