California; Texas Sues Farmers Group; Insurance: The State Accuses the Firm of Charging Higher Premiums While Reducing Coverage.
Los Angeles Times
August 6, 2002

The state of Texas filed a multimillion-dollar lawsuit Monday against Farmers Group of Insurance Cos., alleging the Los Angeles company charged Texas policyholders higher premiums to pay for disasters in other states, improperly used credit histories to set rates and wrongly limited coverage for water damage.

The lawsuit, filed in state court in Austin, is part of a national backlash against insurance industry efforts to raise premiums, limit coverage and in some cases quit whole lines of business. Insurers say these actions are a response to the double whammy of rising claims and declining profits on investments. But a national coalition of consumer groups recently accused the industry of using these factors as an excuse for price gouging.

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In California, insurers of homes and autos this year have filed 241 requests for rate increases with the Department of Insurance. Similar actions across the nation caused Americans for Insurance Reform, a New York-based coalition of consumer groups, to write July 30 to insurance commissioners in all 50 states calling for tougher regulation of the companies.

The Texas case "is part of the same insurance cycle we are seeing here in California, in which insurance companies try to pass their own investment losses on to consumers--either in higher rates or reduced coverage," said Douglas Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

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