Report Suggests Texans Overpaying for Insurance

Insurance companies in Texas overcharged homeowners and drivers by $4 billion last year despite recent legislation designed to limit rising rates, according to a report released recently by two state consumer groups.

The report by the Center for Economic Justice and Texas Watch said that the insurance industry overcharged homeowners by $2.1 billion, or 90 percent, and drivers by $1.8 billion, or 19 percent in 2004, according to the Associated Press.

An insurance industry spokesman said he does not know where the groups came up with the $4 billion figure and said that many insurers have voluntarily reduced their rates.

The consumer groups urged legislators to do more to curb skyrocketing insurance costs.

“Two years ago, Texans were clamoring for relief from their skyrocketing insurance premiums,” Alex Winslow, executive director of Texas Watch, said in a statement. “These findings show that Texans are still being unfairly price gouged by their insurance companies.”

The report comes a few weeks after the Texas Department of Insurance requested several insurance companies justify their homeowners insurance rates. The request was prompted by new data that showed record profits for insurance companies in 2004.

If the department determines the rates are excessive, it can order the companies to lower their rates. The insurance company filings are due May 1.

Jerry Johns, president of industry group Southwestern Insurance Information Service, said tens of thousands of homeowners in Texas have seen their rates decline.

“For the past decade the insurance industry has consistently lost money in this state, yet remained here in the hope that things will get better,” Johns said.

According to the report, the overcharges amount to an average of $600 per insured home and an average of $200 per insured vehicle.

The report was based on data from the Texas Department of Insurance and was analyzed by Birny Birnbaum, the executive director of the Center for Economic Justice and former chief economist at the insurance department.

The data released by TDI a few weeks ago showed that in 2004 the average loss ratio, which is the percentage of premiums paid for claims, was 27.6 percent for the homeowners insurance industry. In 2003, the loss ratio was 58.5 percent and in 2002, it was 108.2 percent.

The loss ratio in the auto industry was 56.4 percent, the report said.

The 2004 loss ratios are far less than the payout level that allows insurers to earn a reasonable profit, the report said.

Sen. Troy Fraser, R-Horseshoe Bay, hadn’t read the report but said legislation he sponsored two years ago gave the insurance commissioner the authority to order lower rates if he finds they are excessive.

Birnbaum, however, said Insurance Commissioner Jose Montemayor has failed to ensure a fair market for consumers. The groups called on lawmakers to take several steps, such as banning credit scoring and mandating stiffer penalties for companies that overcharge consumers.

Mark Hanna, with the industry group Insurance Council of Texas, said more regulations will hurt competition. He also noted TDI’s “aggressive” action of ordering another review of homeowner rates.

“To openly criticize TDI and Commissioner Jose Montemayor for a lack of oversight of the insurance industry in Texas is at best, a disregard of the truth,” Hanna said.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Topics Carriers Texas Legislation Homeowners Market