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|Farmers Insurance overcharging for some auto policies, state says
AUSTIN - Farmers Insurance is overcharging at least 4,000 auto policyholders hundreds of dollars each because they didn't have coverage before getting policies from the company, according to the Texas Department of Insurance.
Insurance officials said Friday that they will send the allegations to state administrative judges later this year to determine whether refunds are in order.
Starting July 24, 1996, Farmers began requiring three consecutive years of prior insurance to qualify for coverage at its lowest rates and two consecutive years to receive its next-best rates, the department said.
It also said that Farmers violated department rules that prohibit insurers from considering an applicant's lack of prior insurance unless the applicant has driven without insurance in Texas for more than 30 days out of the preceding 12 months.
Mark Toohey, a spokesman for Farmers, said the company has not cheated customers and is complying with the rules.
"Our statistics show very strongly that folks that have had insurance - folks that abide by the law - are better drivers and are a better risk," he said, adding that they - not those who haven't had insurance - deserve the best rates.
Under state law, all drivers must carry at least liability insurance to cover damage they may cause to other people's property.
Jerry Johns, an insurance industry spokesman, said people who disobey the law generally aren't the best drivers.
But Mr. Johns, president of Southwestern Insurance Information Service, acknowledged that for some illegal drivers, not carrying insurance is a matter of cost and accessibility, not poor driving records. He said charging those drivers more than others could compound the problem.
"I think to some extent it does," he said. "What we feel like, the solution to the problem is a strong no-fault law that addresses this issue."
In no-fault insurance policies, drivers don't carry liability insurance. Instead, every drivers' insurance covers damages to their own property, regardless of who caused it.
Texas lawmakers have not been receptive to the idea. Many drivers have said they should not be responsible for damage caused by someone else.
"The ultimate solution is a no-fault law," Mr. Johns said. "There are Band-Aid solutions, and we've tried those."
D.J. Powers, a consumer advocate, blamed Farmers and the Insurance Department for the overcharges. He said Farmers has been ripping off some customers for more than a year, and the department has dragged its feet in stopping it.
"This is a key issue for availability," said Mr. Powers, executive director of the Center for Economic Justice. "We're talking hundreds of dollars every policy period. These are people who bought insurance for a complete year. This is not the people who flagrantly disobey the law."
Lee Jones, a department spokesman, said the Nov. 12 hearing date was the soonest the department could get the issue before state administrative law judges.
They will recommend a resolution to Insurance Commissioner Elton Bomer, who will hold a separate hearing before deciding what action to take.
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