A state judge in Austin ruled on Monday that State Farm Insurance owes nearly $350 million to customers overcharged on premiums from 2003 to 2008. 1.2 million customers are expected to be paid on average $200 to $300 each. State Farm has indicated it will appeal the decision.
The court order stems from an investigation by the Texas Department of Insurance, which found that State Farm overcharged customers on homeowners’ coverage. State Farm’s counsel argued that the $350 million refund would wipe out a third of their capital and threaten its ability to continue to insure. But contrary to this claim, the Insurance Department showed that State Farm collected more than $1.7 billion in homeowners’ premiums from Texans in 2010, and only paid out 52% of the premiums. This leaves a profit, excluding overhead, of $816 million for 2010 alone.
While Monday’s order may help those taken advantage of by State Farm, it does little to curb the fundamental problem faced by Texas consumers. Tort reform has been trumpeted by its supporters as a way to lower the cost of insurance rates, medical care and create jobs. However, insurance rates have not gone down in Texas. In 2005, Forbes Magazine reported that Texas was the most expensive State in the nation to insure a home. This report closely followed the first significant round of tort reform laws passed in 2003. Texas surpassed Florida and Louisiana, home of tropical storms and hurricanes, as well as California, where earthquakes and mudslides threaten homes. Clearly, tort reform has not saved Texas consumers any money, but it has allowed insurance companies to avoid lawsuits. But now we find out that in addition to the benefits of tort reform, State Farm is charging the highest rates in the nation, as well as overcharging customers for even more profit. A contemplative Texan should recognize the charade of tort reform for what it is – a power grab by the state’s biggest businesses to increase profits.