From the Institute for Policy Innovation (IPI)
Published: 02-24-09
Its been six years since the Legislature reformed the homeowners (part of the property and casualty or P&C) insurance market.
As a result of those reforms rates decreased by 13.5 percent between 2003 and 2006 excluding State Farm the states largest P&C insurer; and they decreased by 2.7 percent including State Farm according to the Texas Department of Insurance and cited in the Dallas Morning News.
More companies and policies to choose from and lower prices! Thats a success story.
And yet theres growling from the watchdogs" (the media euphemism for organizations that never seem to actually produce anything people want to buy). They want to force insurers to get approval for rate hikes before they take place.
When it comes to insurance premiums Texas has a price controls-lite system. Generally if insurance companies need to raise premiums they can do so immediately under the file-and-use system" once they have notified the state. While the state regulator may disapprove the rate increase and force the company to roll it back the burden is upon the insurance department to justify its price fixing.
And even though the Texas Sunset Commission voted last year to maintain the current hybrid file-and-use system some politicians arent happy. They want to force insurance companies in Texas to get prior approval" before increasing homeowner ratesin other words price controls-heavy.
The Sunset Commission would have done better by Texas consumers had it voted to abolish price fixing altogether but at least it didnt take a step backward.
Imposing an onerous price-fixing scheme will reduce consumers access to insurance coverage as insurers react in Texas the same way they did in Florida when that state tried to suppress actuarially sound insurance premiums. Thousands of Florida homeowners had their policies cancelled and some insurance companies stopped offering homeowners coverage in the state.
To be clear we arent here to defend the premiums being charged. What we know is that if there is widespread competition premiums will be appropriate for the risk presented by Texas often-violent weather. If some companies are making excessive profits other companies will step in with good coverage for a lower price.
And if the rate scolds are so sure that insurance can be sold for so much less let them set up their own insurance company and do just that.
http://www.ipi.org/
