Senator Eliot Shapleigh - El Paso, Texas

After challenging unjustified rate increases by Allstate over the past four years, Texas Department of Insurance officials agreed to a settlement that lets the company off the hook while it keeps nearly $20 million in overcharges to customers.

Wrapped in a spin package that touts refunds and credits of more than $50 million to 700,000 Texas policy holders, the deal will only encourage Texas insurers to gouge as much as they can and then fight prolonged legal actions until the state makes a deal.

The same thing happened in 2004, when TDI claimed that Farmers and State Farm insurance companies owed policyholders a quarter-billion dollars in overcharges but later meekly agreed to a settlement with Farmers that simply lowered rates. The case against State Farm remains mired in a state appeals court, with the amount owed to consumers for overcharges and interest approaching a half-billion dollars.

House Insurance Committee Chairman John Smithee, R-Amarillo, has called on Insurance Commissioner Mike Geeslin to avoid an agreement that fails to get customers the refunds they are owed. "The commissioner has just got to stay tough with these companies, even if it takes time," Smithee advised. Unfortunately, the settlement with Allstate sends the opposite message to the industry: Fight long enough in court, and the state will tire and settle for far less.

Alex Winslow, director of the consumer advocacy group Texas Watch, says he hopes Commissioner Geeslin stands his ground and forces State Farm to reduce its rates to a fair level and refund with interest every penny that State Farm owes its policy holders. "If the Allstate settlement is any guide," Winslow said, "then State Farm can hope to walk away with a big chunk of change, and their policyholders will be left holding the bag."

The root of the problem is a 2003 reform bill passed by the Legislature that was supposed to lower insurance rates and limit windfall profits for the insurance companies. It allowed insurers to raise rates before they got formal approval from the state. When the TDI challenged the validity of those increases, the case wound up in court, while the companies continued to charge high rates that couldn't be justified.

State legislators can fix that in the next session by giving the insurance commissioner the clear authority to approve rates before insurance companies can put them into effect. That way, Texas customers wouldn't have to wait years to get a fraction of their overpayments returned via inadequate settlements that shortchange the public.