A Texas-based insurer says a recent decision by a state regulator to refund home insurance policyholders $310 million is akin to the financial damage from a major storm.

Mike Geeslin

Claiming its rates were “excessive,” Texas Insurance Commissioner Mike Geeslin ordered State Farm to refund a total of $310 million to customers in the state he feels were overcharged, dating back to 2003.

The order comes after a hearing earlier this spring that featured thousands of pages of evidence, requiring months of review, according to his office.

The final verdict by Geeslin was that State Farm should make refunds amounting to 6.2% of premium for policyholders insured with State Farm from September 2003 through August 2004 and refund 3.4% of premium for those covered from September 2004 to July 2008, amounting to a total of $257 million in restitution.

Geeslin also required an additional $53 million in interest, at a rate of 5.25% for policyholders insured with State Farm from Sept. 7, 2003, to Aug. 1, 2008. In addition, Geeslin said, interest accrues from the date of the order until final payment at a rate of 9.25%.

State Farm has the right to appeal Geeslin’s order.

In a statement to IFAwebnews.com, Kevin Davis, a spokesman for State Farm in Texas, said the insurer was “deeply disappointed” with Geeslin’s ruling, believing its rates “are, and always have been, both fair and justified.

“With this decision, the commissioner effectively created another Hurricane Ike for State Farm,” Davis said via e-mail. “The financial impact of this order is comparable to the financial strain caused by the third most destructive hurricane to ever make landfall in the U.S.”

In addition to the financial strain, Davis said the ruling “creates an unstable environment for consumers and the insurance industry” for State Farm, which is examining the potential financial and business consequences of the regulator’s actions.

An original rate reduction order was first issued in 2003, when the Texas Department of Insurance ordered the company’s insurance subsidiary, State Farm Lloyds, and other insurers to drop their premiums following a move by state legislators to put homeowner rates under state control.

In 2003, State Farm was ordered to drop its rates by 12%, but sued the state, according to press reports. In 2008, a state appeals court ordered the insurance department to hold further hearings on the matter after finding a portion of the rate legislation unconstitutional.

In a statement to IFAwebnews.com, Geeslin said the order “completes what the legislature started in 2003.

“There is evidence, there is law, and between the two you come up with $310 million,” Geeslin said.

The commissioner’s order also allows State Farm to make refunds to existing policyholders through credits upon renewal. State Farm must begin applying renewal credits and pay refunds with interest within 60 days, according to the order.

Ironically, another state agency may appeal the decision, according to the Dallas Morning News.

Deeia Beck, who serves as the head of the state’s office of public insurance counsel, which represents consumers, told the newspaper that the decision is inadequate, as “state Farm policyholders were entitled to more than” the $310 million.

Beck said that her office will “take a close look” at the order to see if it is in consumers’ best interests.