Although last session’s sweeping insurance reform package was sold as a means to provide significant rate relief for Texas policyholders, a new report claims that, two years later, policyholders continue to be overcharged for auto and homeowners coverage – to the tune of nearly $4 billion in 2004 alone. The report, from consumer watchdogs Texas Watch and the Center for Economic Justice, concludes that 2004 was a windfall year for the insurance industry because, while losses declined to a 15-year low, premium rates remained the same or increased. Indeed, last month the Texas Department of Insurance announced that the state’s homeowners insurance industry posted a loss rate of just 27.6% – meaning companies paid out just under 28 cents in claims for every premium dollar collected – a rate far below the nearly 60% ratio that TDI says is reasonable for consumers and provides insurance companies with “reasonable” profits. (The auto insurance loss rate was a more normal 56.4%.)
Nonetheless, the authors report, premiums continued to rise in 2004, leading to considerable overcharges to consumers – homeowner policyholders were overcharged by an average of $600 per insured home, while auto policyholders overpaid by nearly $200 per vehicle. “The impact of these overcharges ripples through the entire economy,” reads the report, “as consumers gave insurers $4 billion in profit – most of which left the state – instead of spending that same $4 billion on goods and services in Texas that would dramatically boost the Texas economy.” (To read the entire report, go to www.texaswatch.org.)
The new numbers have prompted at least one lawmaker, Forth Worth Democrat Lon Burnam, to file new legislation aimed at reforming last session’s insurance reform package. HB 3398 would do away with the so-called file-and-use system of rate regulation codified by lawmakers last session, and replace it with a prior approval regulatory scheme. The file-and-use system allows insurers to file proposed rates with TDI and then apply them immediately, offering TDI a limited opportunity to challenge them. Prior approval, instead, requires insurers to file proposed rates and then wait for the thumbs-up from TDI before charging those rates to consumers. In 2003, the insurance lobby scoffed at that idea, claiming it would hobble their ability to stay competitive. Over the vociferous protests of consumer advocates, lawmakers went with the file-and-use. The results – as suggested by the recent Texas Watch report – are “pretty damning,” said Burnam spokesman Colin Leyden. Burnam has asked House Insurance Committee chair, Rep. John Smithee, R-Amarillo, for an immediate hearing on the bill – which is, for all intents and purposes, a repackaging of former Dallas Democratic Rep. Steve Wolens’ 2003 reform proposal – but Leyden says the bill “probably won’t get it.” Nonetheless, Burnam is determined to keep the issue on the front burner. “These are democratic issues, and we’re not going to go through a session without filing it,” Leyden said.
This article appears in April 15 • 2005.