On the last day of the regular session, Texas lawmakers passed insurance reform legislation, but according to the National Association of Independent Insurers consumers and insurers alike will have to wait to see if the new law will be beneficial in restoring a healthy competitive homeowners insurance marketplace.
With minutes remaining in the 2003 legislative session lawmakers were finally able to approve Senate Bill 14, which puts in place a prior approval system for rates that will sunset in 2004. After that date the regulatory system moves to file and use. The conference committee that rectified differences between the House and Senate versions of reform voted down a ban on the use of credit-based insurance scores and instead adopted language similar to the National Conference of Insurance Legislators (NCOIL) insurance scoring model act.
“Texas has taken the next step in addressing the state’s insurance crisis,” said Donald Hanson, NAII southwest regional manager. “The reform effort addressed the most important factors that lead up to the current crisis. Legislation can stifle or stimulate more competition in a marketplace. It all depends on how the law is implemented. However, it remains to be seen if the reforms will serve as catalyst for increased competition and greater stability in the marketplace.
“SB 14 places a great deal of authority in the hands of the insurance commissioner through the prior approval system. This approach gives the regulator more power to exercise control over the marketplace. Depending on how this power is exercised, we could have the problems that plagued New Jersey. We will be working with the commissioner, legislators and the governor to ensure that does not occur.”
The bill will provide rate reductions for consumer following the commissioner’s review of rates. The commissioner has estimated that rates may be reduced an average of 12 – 18 percent. Based on a study done earlier this session, the commissioner has indicated that some insurers rates may be judged to be justified, while others will be reduced.
“Consumers will begin to see rate reductions when they renew their insurance policies. Regulatory changes implemented by the commissioner last year, along with the new law will help to bring some relief to consumers. The major question that remains to be answered is will this legislation be enough to encourage insurers to enter and in some cases re-enter the Texas marketplace. Policies that promote competition are the stimulant that is needed to avert a continuation of the insurance available crisis in the state,” Hanson said.