Texas Commission Mulls Insurance Reforms

Published June 21, 2010

Market analysts and insurance industry leaders are encouraging the Texas Sunset Commission to continue on a path of less regulation in its review of the Texas Department of Insurance (TDI) and Office of Public Insurance Council. Meanwhile, coastal property owners told the commission it should tighten oversight.

The comments came during Sunset Commission hearings in late May. The TDI initially faced “sunset” review last year. Lawmakers and the TDI addressed many recommendations at that time.

This year’s discussions have centered on the agency’s rate approval process. Current Texas law combines a file-and-use statute and a prior-approval law. Under this system, rates are either filed and then negotiated (as in a file-and-use system), or the rates are negotiated before they are filed (as in a prior approval system).

Multiyear Disputes
Under current law insurance companies can’t file their rates with the agency and put them straight to use. Because there is no time limit on these negotiations, the state may sue a company for rates it charged many years ago. Such disputes can drag on for years and cost taxpayers millions of dollars.
Among those puzzled by this state of affairs is Sen. Troy Fraser (R-Horseshoe Bay), chairman of the Texas Senate’s Business and Commerce Committee. He expressed concern over the state Insurance Department’s inability to move insurers consistently from file-and-use to prior-approval status.

“What exactly do you need from us [the legislature]?” he asked Insurance Commissioner Mike Geeslin.

The Commission also heard testimony from individuals who had experienced increases in their insurance premiums.

Rising Premiums
“[The] insurance reform of 2003 has been a colossal failure for consumers in this state,” said Texas homeowner John Colbarruvias. “We were promised lower rates by increasing market availability, increased competition, and low regulation. And what did we get? Higher rates and less coverage.” Before 2003, the Texas Department of Insurance set insurance rates and companies had to ask for approval to increase premiums. The 2003 reform resulted in the combined file-and-use and prior-approval system.

Remarking on the increasing number of claims to the state’s insurer of last resort — the Texas Windstorm Insurance Association — several Sunset Commission members expressed concern about the availability of resources to aid homeowners if they must file an appeal to a TDI decision. According to TDI, a large percentage of homeowners currently represent themselves in these legal hearings and do not come adequately prepared to present their case.

Deeia Beck, public counsel and executive director for the state’s Office of Public Insurance Counsel, said the office assembles information for consumers to speed the process.

The legislature’s Business and Commerce Committee is expected to make its decisions regarding the Sunset Commission’s recommendations in a ruling on July 6.

Julie Drenner ([email protected]) is director of the Austin, Texas office of The Heartland Institute’s Center on Finance, Insurance, and Real Estate.