Insurance public policy in Texas directly affects millions of citizens in our state:
FACT: According to the Texas Department of Insurance, “homeowners insurance premiums in Texas have held relatively steady over the last few years despite fluctuating loss ratios of insurers. At the same time that average premiums in Texas held steady, the average size of a Texas homeowners policy increased significantly.”
The Texas homeowners insurance marketplace is largely competitive on rates, though unfair, unreasonable, or excessive rates are forbidden. As a result, Texas consumers are increasingly shopping for the best value in the market, rather than having to settle for a government mandated price. The governor or state does not set the rate. Rather, the market supplies a variety of rates and values under the protective umbrella of rate regulation.
FACT: When the necessary expenses of doing business and serving customers are taken into account, over the past several years insurance companies in Texas have operated at a substantial loss. In fact, over the last decade, insurance companies have an average combined loss ratio of 111.7% according to data released by the Texas Department of Insurance. In other words, insurance companies paid out $1.11 for every dollar they collected in premiums.
The Texas insurance market historically operates on a very tight margin, due largely to the frequency and severity of catastrophic weather. Over the past two years, for example, the state experienced more claims losses than any other state – including 5 times more losses in 2008. Because Texas weather is so severe and unpredictable – as Texans were recently reminded by the sudden onset of Tropical Storm Hermine – it is all the more important for insurance regulation to be both predictable and rational.
FACT: The Texas Insurance Commissioner has strong authority over rates, and companies must be able to justify them. Appropriate regulation is focused on requiring companies to meet their obligations of financial responsibility, claims paying and fair business practices, leading to superior consumer protection. Texas insurance reforms passed in 2003 empower the state insurance commission with the full authority to object to and force examination of a rate the commissioner deems excessive, unreasonable or unfairly discriminatory. The commissioner has exercised this authority.
The real intent of the file and use system is to encourage competitive rating among insurers, which results in greater consumer choice, less regulatory uncertainty, and better rate stability over the long term. The commissioner’s role in such a system is to monitor the overall health of the market without micromanaging individual company rate filings. Consumer choice, and the resulting competition among companies, provides the most robust market, as with most other goods and services in our economy.
FACT: Comparing insurance rates between states is misleading. Even the National Association of Insurance Commissioners (NAIC), which puts out an annual report of data collected from across the country (the report cited by Back to Basics PAC), warns against using its much-cited report for direct comparisons of average premium data between states. In fact, the December 2009 NAIC report specifically states, “Because of the differences in the promulgated policy forms, Texas data should not be directly compared with any other state.” The report also acknowledges that its data is underreported for California and Florida as the report’s data does not include premiums for earthquake coverage or policies written by Florida’s insurer of last resort (the second largest writer of homeowners insurance in the state) in large segments of that state.
It is true that Texas rates are higher than the national average, as a direct result of the risk posed to Texas homes by weather. However, our infant competitive marketplace, though fairly new and still not fully implemented, has helped stabilize price and availability for consumers. (According to the Texas Department of Insurance)
Homeowners insurance is more directly tied to weather risks than any other type of insurance, and Texas is uniquely positioned to be exposed to more severe weather – including hurricanes, tornados, hailstorms, and wildfires – than any other single state. It is important to note that the size and geographic diversity of Texas result in wide variations in homeowners premiums. In fact, the cost of homeowners insurance in some parts of the state is among the lowest in the country.”