Reforms to the Texas insurance regulatory system put in place by Senate Bill 14 in 2003 are under attack by a coalition of state lawmakers who have filed bills to, among other things, return the rate setting process for personal lines insurance to one of prior approval as opposed to the current file and use process. Other bills aim to standardize homeowners forms, ban the use of credit scoring and direct the Texas Department of Insurance to study the use of data mining by insurance companies.
Senate Bill 91, filed by Sen. Leticia Van de Putte of San Antonio would return the state to a prior approval system, albeit one that is “streamlined,” according to Van de Putte. “The insurance commissioner would have a maximum of 60 days to either approve it or deny it. If the commissioner doesn’t disapprove a rate before the deadline then the insurance company can use it. We’ve added that short window for the companies, giving the commissioner 60 days. I think it’s about time homeowners are put first and the only way we can do this is to go back to a prior approval system,” Van de Putte said at a press conference at the state capitol last week.
“A couple of sessions back the legislature was talked into a different insurance regulatory system,” Van de Putte said. “We were told if we had a file and use system it would make easy for competitors in the market, that there would be more products and more insurers coming to our state. …
“We made an awful mistake. We thought if we let these companies do what they said they would do that rates would go down. After all they promised. But it didn’t happen. After every time the insurance commissioner asked one of our major carriers to lower their rates, because they file them first and then use them. After the commissioner had the opportunity to look at them and ask the companies to lower the rates, the major companies fought and ran to the court house,” Van de Putte added.
“The real effect of a file and use system is that the consumers have been forced to bear increased costs and excessive costs while the department of insurance and the big insurance companies duke it out in court,” Van de Putte said. “Under the prior approval system the consumer would not have to pay inflated rates unless and until the rate is approved by TDI. Under prior approval system the rate increases would not be permitted without the commissioner’s approval. It would not allow the steep hikes we have seen and price gouging that we have seen by companies” trying to recoup losses.
House Bill 1594, authored by Rep. Rafael Anchia of Dallas, is a companion bill to SB 91. It would give the commissioner 120 days to approve or deny rate filings. “There’s a 120 deemer period where if the insurance commissioner fails to act within that 120-day period then the rate is deemed to be approved,” Anchia said. “We think that’s fair to the consumer and the commissioner to give the commissioner enough time to review rates, and also to the insurance company because they’re not going to be required to just sit out there waiting for approval.”
Anchia stressed that the bill is not “anti-insurance company. But there is a structural problem with the way we approve insurance rates in the state of Texas.” He noted that under the file and use system companies can file rates and immediately begin to use them. “You don’t find this anywhere else in the regulatory fabric in the state of texas. If I want to raise your utility rates, I need to go before the PUC [Public Utility Commission] and make the case and get approval for that. If I want to raise your landline phone rates I need to go before the appropriate regulatory body and get approval for that. It is insurance where we have this structural problem,” Anchia said.
As might be expected, insurer trade groups took issue with Van de Putte’s and Anchia’s assessments.
“Under the current file-and-use system Texas consumers have more choices when it comes to the cost of insurance and the various products that are available,” said Jerry Johns, president of the Southwestern Insurance Information Service. “Returning to government control of rates, discounts and products give insurers no incentive to compete in the marketplace because insurance becomes one size fits all and that is simply not a consumer-friendly environment.”
Johns warned that “artificial price controls do not work in the long run. When this economic reality is ignored, new companies have no incentive to enter the market and some companies could place restrictions on new business or leave the state.”
Texas traditionally has had some of the highest homeowners insurance rates in the nation. Insurers say that is because the state is vulnerable to just about every kind of natural catastrophe there is and that in any given year losses from hail and windstorms are very high. Data from the National Association of Insurance Commissioners’ recently released study on homeowners insurance, using figures from 2006, show that Texas had the highest rates for homeowners insurance of all states.
That data has been disputed by groups such as the Insurance Council of Texas as being outdated. The ICT says the NAIC report is “misleading” and that Texas Department of Insurance 2007 reports shows Texas homeowner rates dropped .7 percent from 2005 to 2006, while the NAIC shows a gain of 2.7 percent.