August 14, 2003
More generosity from Farmers Insurance

This was in yesterday's Chron, but I didn't quite get to it at the time. Executive summary: A provision to limit a certain type of fee that insurance companies charge, which is factored into individual premiums, was stripped out of a bill at the last minute, over the objections of the bill's Republican sponsor, in a closed committee meeting. After the regular session ended, several of the committee members, who may or may not have been directly involved in the removal of the provision - there wasn't a majority of the committee present at the time, so the Open Meetings Act did not apply - received donations from Farmers' political action committee.

On May 30, three days before the regular legislative session adjourned, four House conferees signed off on Senate Bill 14, which omitted language sought by their chairman and the bill's House sponsor, Rep. John Smithee, R-Amarillo.

At Smithee's insistence, the version of the bill previously approved by the full House had included a provision that would have given the state insurance commissioner some oversight of profitable management fees charged by insurers, primarily Farmers, operating in Texas.

Although the Senate didn't approve similar language, Smithee said he thought he had an agreement, in negotiations with senators, to keep the language in the final version of the bill. But after he left Austin for several hours to attend his daughter's graduation ceremony in Amarillo, other House conferees succeeded in killing the provision, which Farmers opposed.

Rep. Gene Seaman, R-Corpus Christi, said most of the House conferees wanted to remove the language.

Smithee was so angry that he refused to sign the conference committee report on his own bill and delivered a speech on the House floor, accusing Farmers of treating the Legislature and "everyone else in Texas" with "utter contempt."

One of the House conferees signing the bill was state Rep. Joe Nixon, R-Houston, who is now embroiled in a controversy over more than $300,000 in payments he has received from Farmers for mold-related claims on his west Houston home.

An allegation from a fired Farmers' executive that Nixon received preferential treatment on at least part of his claim because he is a legislator is being investigated by Travis County prosecutors. Nixon denies the complaint.

Nixon said he wasn't involved in final negotiations on the insurance bill because he was tied up for hours that same day on the final drafting of House Bill 4, a bill making major changes in civil justice laws.

"I don't know what a management fee is," Nixon said Tuesday.

Seaman and Rep. Larry Taylor, R-Friendswood, two other House conferees, agreed that Nixon was mostly a nonplayer on insurance regulation. Taylor said the management fees were an "insignificant part" of the bill, which made other major changes in how homeowners and auto insurance are regulated in Texas.

"No one else had heartburn on the management issue, except Smithee," Taylor said.

What's the big deal about management fees?

Management fees are what some insurance companies charge their affiliates for centralized accounting and other administrative functions, and they can affect policyholders' rates. Farmers Insurance Group is the biggest beneficiary of such fees in Texas, Smithee said, and he believes the fees have been "abused."

In a lawsuit filed against Farmers by the state during last year's homeowners' insurance crisis, then-Texas Attorney General John Cornyn said Farmers' parent company, headquartered in Los Angeles, charged its affiliated exchanges in Texas a management fee of between 12 percent and 13 percent of collected premiums.

Cornyn said Farmers, in filings with the Securities and Exchange Commission, also reported an after-tax profit for fiscal 2001 of $438 million nationally from its management services alone. His suit alleged that Farmers, through the management fees, made more money -- to the detriment of policyholders -- as premiums increased.

So Farmers got what it wanted, nobody knows who exactly was responsible for it, and in the end, rewards were doled out:

It was illegal for legislators to accept political donations during the regular session. But soon after the June 2 adjournment, political giving resumed, and the Farmers PAC made contributions to several legislators by June 30.

They included $3,000 to Taylor, $3,000 to Seaman, $2,000 to Nixon, and $2,000 to Sen. Kip Averitt, R-Waco, one of the five Senate conferees.

The recipients insisted the donations had nothing to do with their decisions as insurance conferees.

"I got a contribution from a PAC that has supported me in the past," Nixon said.

"There was no quid pro quo," Taylor added. "There's no question they (Farmers) appreciated my work all session on the insurance bill. (But) you tend to support people who have similar viewpoints as you."

The "no quid pro quo" excuse is barely worth a snort of derision these days. Of course Farmers liked your work, Rep. Taylor. You were doing exactly what they wanted all along. There doesn't have to be a bagman involved for a transaction to stink.

Everyone who pays homeowner's insurance is getting screwed, and our Governor is too busy carrying Tom DeLay's water to do anything about it. Sheesh.

Posted by Charles Kuffner on August 14, 2003 to Scandalized! | TrackBack