From skyrocketing rates to dropping policy holders for making a claim, there is a crisis in the insurance market in Texas. Rates at the three biggest insurers in Texas have risen between 34% - 54% in just one year.

Much has been made of how big jury verdicts are causing the homeowners insurance crisis. Limiting the right to trial by jury and denying access to justice is not the answer because tort suits are not the cause of the "crisis." A closer look at the data reveals that the industry mismangement and abuse of the the insurance laws, not "lawsuit abuse," are the roots of the crisis

In 1999, the Center for Justice & Democracy released Premium Deceit - the Failure of "Tort Reform " to Cut Insurance Prices. This study was the first-ever, and remains the only, comprehensive look at property/casualty insurance price rates in every state in the nation since the mid-1980s. Its actuarial analysis was conducted by J. Robert Hunter, who discovered that "[d]espite years of claims by insurance companies that rates would go down following enactment of tort reform, we found that tort law limits enacted since the mid-1980s have not lowered insurance rates in the ensuing years."

The Real Reason Homeowner's Insurance Prices Are Going Through the Roof:

1) Unfair Pricing - Texas' largest insurance companies have engaged in unfair pricing practices.

As many as 600,000 of Farmers 700,000 customers have policies that were written using illegal practices according TDI spokesman Robert Black. (Austin Statesman 08/14/02)

2) Deregulation - The deregulation of the market allows insurance companies to charge whatever rate they want without any oversight.

• The Texas Department of Insurance has largely become ineffective in controlling rates because the insurance industry operates in deregulated markets. TDI uses data collected by the Insurance Services Office (ISO) to determine a fair benchmark rate that accounts for a reasonable amount of profit for insurance companies. The insurance industry has instead funneled its customers to affiliated Lloyds companies to avoid staying in the regulated market. In essence, the insurance company has determined that it must take in more than a reasonable amount of profit.
  

3) Poor Claims Handling - Insurance companies' poor claims handling has resulted in higher costs passed on to consumers. The longer it takes to resolve claims, the higher the costs to correct the problem, higher the costs to consumers and the higher the costs to insurance companies.

4) Lower Investment Returns - Insurance companies have in years past banked on stock and bond market returns on invested premiums to provide a safety net when insurance claims are the rise, but meager investment returns have resulted in higher rates for consumers. (moneycentral.msn.com 05/23/02)

5) Lack of Competition - Insurance companies undercutting the market in years past to maintain their market share resulted in large losses passed on to consumers.

• State Farm lost $5 Billion last year in part because it had been selling policies below cost to keep its market share according to Robert Hunter of the Consumer Federation of America (USA Today 06/20/02)
  

6) Insurance Greed - Even though insurers continue to remain financially strong, insurance companies are attempting to recover all their losses in one year rather than waiting for the market to return to their favor.

• Allstate Rates increased by an average of 53.5% in 2002 (Dallas Morning News 07/04/02)
  
  

The Republican Plan

At the same time Texas consumers are crying out for relief from skyrocketing insurance rates, wealthy insurance lobbyists are pushing legislators for special protections that decrease, instead of increase, consumer rights and protections. These special interests are promoting legislation that promises niche insurance relief through "tort reform" at the expense of policy holders.

The Republican leadership is listening to these lobbyists and have hired former industry lobbyists for their staff. This could mean fewer rights for YOU!

An Alternative Path

Texas Watch, a bi-partisan consumer rights organization, has a series of reforms addressing these abuses with Texas reasserting authority over insurance companies operating within our borders. The a plan that will protect Texans first and assure that fairly priced insurance is available under reasonable terms to all Texans.

Full Rate Regulation:

* Assure 100% rate regulation.

* Move unregulated affiliates into "benchmark" system or implement prior approval process before rates are increased. Give regulators authority to intervene to review and lower rates.

* Roll back homeowners insurance rates to the benchmark.

* If companies require increases based on legitimate losses, excluding unnecessary expenses, they can file for rate increase within the benchmark system.

* Assure opportunity for public and OPIC participation in rate regulation


Fair Underwriting Practices:

* Require approval of underwriting practices for homeowners insurance.

* Make underwriting guidelines public.

* Implement a system of public oversight of underwriting to assure the guidelines: Promote loss mitigation, do not unfairly impact groups (low-income, minorities), and fairly spread risk based on probable loss costs.

* Ban credit scoring for homeowners insurance .

* Prohibit "blacklisting" of consumers for merely making claims and "blacklisting" of homes for water claims that have been properly repaired.


Ensuring Availability of Coverage:

* Assure standard coverage is available from every insurance carrier - require all companies writing homeowners policies in Texas to offer an HO-B policy.

* Give consumers true choice to customize policies by requiring alternate policies and endorsements that are easy to understand and have reasonable rates.

* Require understandable side-by-side comparisons of coverage

* Implement assigned-risk program to assure basic coverage is always available


Requiring Prompt and Fair Claims Handling Practices:

* Strengthen Texas' existing prompt payment of claims provisions to more quickly get the process underway.

* Enhance penalties against companies for failing to comply with prompt payment of claims laws.

* Establish strict timelines for handling of water claims to prevent mold damage, required responses to homeowners within 48 hours.

* Require specialized training for adjusters handling water claims to prevent mold damage.


Addressing Withdrawal from the Market:

* Prevent market disruptions by companies with substantial market share.

* Require orderly withdrawal plans for major companies that cease writing new business or stop selling a previously available policy form.

* Penalize major companies that stop selling coverage or substantially limit new business for essential coverage.

* Require that insurers return all customers unfairly moved to county mutual affiliates back to standard, rate-regulated companies.

Get Your Voice Heard

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Talking Points for Homeowners Reform

Find out more about Homeowners reform