Strong Action Needed to Stabilize Homeowners Market

The Texas homeowners insurance market—like many around the nation—is experiencing rising premiums, controversy over mold claims and debate over the use of credit scoring.

Texans purchase 3.9 million homeowners insurance policies each year that generate almost $3 billion in premiums. Three companies—Allstate, State Farm and Farmers—control 66 percent of the market in Texas. Although these three companies are regulated, they have used a loophole in state law to move a substantial number of their policyholders into unregulated subsidiary companies. In 1985, 80 percent of Texas homeowner policies were written by rate-regulated companies. Today, that figure has fallen to about 5 percent.

In this unregulated environment Texas homeowners, who have paid the highest premiums in the nation for decades, have seen insurance rates increase from 15 percent to 200 percent over the past year.

Compounding the difficulty for Texas consumers has been the lack of coverage options when it comes to homeowner insurance. The Texas Department of Insurance (TDI) determines what will be covered under homeowners’ policies. For most Texas homeowners, there have been only two options: the HO-A, which is a basic policy, and the HO-B, which is a comprehensive policy. Until recently, there was nothing in between.

As Governor, I have taken strong and swift action to crack down on unfair increasing in homeowners insurance premiums. With my support, TDI approved “national form” policies for State Farm, USAA and Nationwide Insurance, enabling increased consumer choice and lower homeowners insurance rates. For example, State Farm already has made this option available to Texas consumers, providing rate discounts ranging from 5 to 40 percent.

TDI also has approved a generic policy not written to conform to a single company’s practices that will allow small companies to offer more affordable coverage options and to compete more aggressively. This will help expand the market’s capacity and give Texans greater choice among companies.

Soon after homeowners rates began their dramatic rise, I asked TDI and the Office of the Attorney General to open investigations into the practices of our biggest homeowners insurance companies. As a result of these ongoing investigations, the state has filed a lawsuit against Farmers for deceptive trade and discriminatory practices in Texas.

In September, Farmers said it would abandon the Texas homeowner market by issuing non-renewal notices to customers. I am disappointed, but not surprised, at this news. I want Farmers and others companies to do business in Texas, but I will not tolerate any company that wants to profit off of illegal, unfair and unethical practices.

Even without Farmers, the insurance companies operating in Texas still have billions of dollars in capacity, and Texas consumers will be able to find other insurance. Farmers agents are now free to serve their existing clients by selling policies from other companies.

To help match homeowners with available homeowners insurance, the Texas Department of Insurance launched, www.helpinsure.com. Other efforts are in the works to ensure that homeowners have choices and options for available and affordable insurance coverage.

During the 2003 Texas Legislative session, we will take additional strong action to stabilize and improve homeowners insurance. Under my reform plan, TDI would be given the power to review all insurance companies’ rates and to impose either a company-specific or across-the-board rate freeze while the agency completes rate reviews. TDI would have 45 days to complete the reviews in most cases.

I want a ban on the use of credit histories in setting premium rates, except in instances where there is a direct correlation between consumers’ credit history and their insurance risk. Insurance companies currently review consumers’ histories on credit card balances, loan payments and other debt to establish a homeowner’s rates. Credit scoring can be particularly discriminatory against divorced women, the elderly and young consumers who may not yet have established an extensive credit history.

My plan also includes additional regulations and anti-lawsuit abuse measures aimed at collusion between so-called mold remediators, public adjusters and trial lawyers. Preliminary findings from the state investigations suggest this may be occurring in some instances, driving insurance costs higher.

My plan also rewards those companies trying to act responsibly with additional tort reforms. Insurance companies should not be forced to give in to the demands of unscrupulous public adjusters and trial lawyers who abuse the system. We need reasonable limits and sensible legal fees for civil damage awards.

By improving state oversight of insurance rates, regulating mold remediators and public adjusters, and enacting meaningful protections against lawsuit abuse, we can bring stability to the Texas homeowners insurance market. These changes will put the needs of Texas consumers first, stabilize the homeowners’ insurance market and encourage fair and ethical companies to do business in Texas.

Rick Perry, Governor of the State of Texas, is running for re-election to that post.

Editor’s note: Democratic gubernatorial candidate Tony Sanchez expressed his views on the Texas insurance market in the September 30, 2002 issue of Insurance Journal-Texas/South Central (Vol. 8, No. 19).