Lindeen seeks to protect customers of cash-strapped insurer
HELENA, Mont. – Commissioner of Securities and Insurance Monica J. Lindeen has issued an order placing Great Falls-based Westland Farm Mutual Insurance Company under her office’s administrative supervision, citing the company’s falling cash reserves as a risk to consumers.
Lindeen’s May 25 order marks the first time a farm mutual insurance company has been placed under supervision in Montana.
Westland, a small farm mutual insurer serving rural communities across Montana, will cancel all of its homeowners insurance policies by June 30, 2012. All of Westland’s crop-hail insurance policies will remain in effect.
Westland customers should contact their agents to move their non-crop-hail insurance to another company before June 30. Customers who do not switch to another insurer by June 30 will have a lapse in coverage, which could violate the terms of their mortgage or result in higher premiums on future policies.
Lindeen’s order bars Westland from taking on any more liabilities or selling any new non-crop-hail insurance policies. Westland agreed to the terms of the order, waiving its right to a hearing.
Montana farm mutual insurers have been providing limited insurance policies to farms, ranches and rural homeowners in Montana for more than 100 years. Historically, farm mutual insurers were limited to fire and lightning policies. Over the years, Montana’s legislature allowed farm mutual insurers like Westland to expand into limited farm owner and homeowners insurance.
To protect their customers, farm mutual insurers sell insurance policies that are backed by other national and international insurance companies. That backing, known as reinsurance, allows the farm mutual to offer competitive policies to their members while maintaining relatively small surpluses.
In Westland’s case, the company sold crop insurance policies that were fully reinsured by a larger, national company. As claims are filed on Westland’s crop insurance, the national company reimburses Westland for the full cost of the claims. In return, Westland pays most of its customers’ premiums to the national company.
Westland’s farm and homeowners policies were only partially reinsured, however, meaning Westland had to pay a portion of every claim out of its own surplus. In January, the national company reinsuring Westland’s farm and homeowners policies revised its contract, increasing Westland’s risk on some policies 28 times higher than the previous year.
With Westland’s increased exposure and dwindling reserves, experts at Lindeen’s office estimate the company would run out of money to pay claims on its farm and homeowners policies by August. A bad storm that causes a series of expensive claims could exhaust Westland’s reserves even sooner.
Last week, Westland notified its agents and customers across Montana of the supervision order and told agents to move customers’ policies to other companies. Westland customers should contact their agents immediately to begin moving their insurance to another company.