As the result of a Texas court order, State Farm Insurance will have to pay nearly $350 million to customers it overcharged dating back to 2003. State District Judge Tim Sulak found that Texas Insurance Commissioner Mike Geeslin acted properly when he ordered State Farm Lloyds, the company’s homeowners subsidiary, to reimburse an estimated 1.2 million customers for overcharges as well as penalty interest.
According to the Insurance Department, as well as the state public insurance counsel, who represents consumers’ interests, State Farm continued to overcharge customers for several years despite warnings from regulators that its rates were too high. State Farm claimed it owed nothing and said it has charged premiums for the past several years that were competitive with other companies. The dispute is over premiums charged for homeowners coverage between 2003 and 2008.
A new report from the Insurance Department indicated that State Farm had a very profitable year in 2010, after paying out just 52 percent of its premiums to cover property losses. The 52 percent “loss ratio” was close to the state average of 48.4 percent for the 20 largest companies and significantly better than the 60 percent loss ratio that is considered a benchmark for profitability in Texas. Last year, State Farm Lloyds collected nearly $1.7 billion in homeowners premiums in the Lone Star State.
The commissioner’s order for refunds was handed down in November 2009. Commissioner Geeslin called on State Farm in the order to either issue refund checks or provide a credit on policy renewals. Refunds for longtime customers were expected to range between $200 and $300.