State Farm to increase auto insurance rates

State Farm Mutual customers will see auto insurance rates climb an average 3 percent statewide later this summer.

The new rates will be implemented Aug. 3 for new and existing policies.

In Harris County, the average increase ranges from 1.9 percent to 5.5 percent, with those in central Harris County seeing the higher end of the hike.

The state’s largest home and auto insurer needs the higher rates because of the rising costs of repairs, materials and other items claims cover, Kevin Davis, a State Farm spokesman said in an e-mail.

“This rate adjustment is necessary for State Farm to remain competitive while absorbing rising costs and maintaining its level of risk,” he wrote.

He noted that the company cut Texas auto rates by nearly $350 million annually from 2004 to 2007 and returned a $91 million dividend to auto policyholders in March 2007.

State Farm, with more than 3 million policyholders in Texas, last increased rates in October, when customers saw a statewide average rise of 2.8 percent.

The increase comes as the insurer awaits a ruling on a home insurance rate case that dates back about six years.

In 2003, the insurance department ordered State Farm and other home insurers to reduce premiums regulators considered excessive.

State Farm refused to cut its rate the 12 percent ordered and appealed in district court, which ruled in favor of the insurer.

The Insurance Department appealed, and the appeals court sent the case back for a hearing before the insurance commissioner. It’s unclear when the commissioner will make a ruling.

The ongoing case has allowed the company to avoid cutting what regulators consider excessive rates and refund an estimated $250 million plus interest.

The Office of Public Insurance Counsel, which represents consumers before the insurance commissioner, estimates the refunds owed are closer to $785 million plus interest. State Farm maintains its rates have always been fair, reasonable and competitive. The company has essentially operated at a rate deficit in recent years, Davis said.

Also, another hurricane season has begun, which underscores the seriousness of this rate decision, he added.