The right way to limit Insurance Premiums
By David Sampson
AUSTIN, Texas (Texas Insider Report) — Many Texans are understandably concerned about the cost of home insurance and are asking state legislators for some measure of relief. Fortunately, our elected leaders can take actions that will reduce some of the pressure on premiums – and those actions align with the state’s market-driven approach to growing the economy.
Legislators have an opportunity to keep insurance widely available by curtailing what are known as “nuclear verdicts,” or verdicts of $10 million or more against insurance companies after severe weather events. The threat of these massive payouts discourages insurers from entering the Texas market, which creates less competition for consumers’ business. The verdicts are also factored into the premiums that all policyholders pay.
A recent study also found that Texas families are paying $4,594 every year in higher costs for goods and services, due to tort lawsuits.Texas had 130 nuclear verdicts from 2013 to 2022, trailing only California, Florida and New York. In fact, since 2009, Texas leads all states for nuclear verdicts against companies, with 207 awards totaling $45 billion.
At times, these lawsuits are funded by large investment firms that place a bet on a huge payoff at the end.
As Bloomberg Law wrote last year, “Backing lawsuits to get a piece of the outcome has become a multi-billion-dollar, lightly regulated industry.”
Russian and Chinese investors with ties to the governments in Moscow and Beijing have also put money behind lawsuits, raising national security concerns.
Legislators should increase transparency into who is funding lawsuits and protect consumers from misleading ads by trial lawyers.
As Bloomberg Law wrote last year, “Backing lawsuits to get a piece of the outcome has become a multi-billion-dollar, lightly regulated industry.”
Russian and Chinese investors with ties to the governments in Moscow and Beijing have also put money behind lawsuits, raising national security concerns.
Legislators should increase transparency into who is funding lawsuits and protect consumers from misleading ads by trial lawyers.
Texas also needs a cap on non-economic damages and measures to ensure that damages are accurately calculated. Exaggerated “phantom” damages affect risk and, therefore, insurance rates.
Other conservative states have acted to prevent such exploitation of the legal system.
- Florida has passed meaningful reforms that reduce insurers’ exposure to excessive litigation verdicts.
- In Georgia, Republican Gov. Brian Kemp is taking on the powerful trial lawyer lobby, which makes huge profits from expanding the business sector’s liability as wide as it can, with little regard for how that drives up prices on basic goods and services.
Fortunately, heavy-handed price controls are not the Texas way. Texans and their leaders know that market forces should determine prices, and that repeated lawsuit abuse can distort those forces.
This year, Texas should combat frivolous lawsuits so that more insurers can operate in the state, creating competition that will make insurance more available – and more affordable – for Texas Consumers.
David Sampson is the President & CEO of the American Property Casualty Insurance Association.
