Separate Worlds: Texas Does Not Need Two Insurance Tracks

Anyone who has received a renewal notice knows that Texans pay among the nation’s highest homeowner insurance rates.

Insurers blame mold and water claims for soaring premiums, but the problem is far more complicated than costly claims. The state’s two-tiered regulatory system badly serves insurers and homeowners. It must be changed.

As a result of a legislative compromise a decade ago, insurance companies in Texas operate within two universes. The regulated universe allows companies to set rates within 30 percent of a level, or benchmark, that regulators set. Regulators retain authority to challenge the rates and practices of companies that operate within this system.

But most insurers sell insurance in Texas through units that operate in the unregulated universe. Therein lies part of the problem. Regulators must be brought back into the loop.

We aren’t advocating a return to a cumbersome system that requires insurance regulators to set rates. That would be a death blow to any hope of establishing fair, free-market insurance competition in Texas.

But it is important to note that the benchmark system was designed to allow companies to compete within a reasonable range and for regulators to retain the authority to step in when necessary. Moreover, the unregulated universe was intended for high-risk customers, not the majority of homeowners. Insurers have turned the system on its ear

Insurance Commissioner Jose Montemayor is easing some coverage pressure on insurers by allowing companies to write more types of homeowner policies. He hopes that a buffet of policies that range from modest water and mold coverage to no water damage or mold coverage would help stabilize the market. While this is clearly part of a long-term solution, consumers still face high rates and reduced coverage.

A buffet of policies alone will not be the remedy. The commissioner also must have expanded authority to make sure that rates are justifiable. And that can happen only if the Legislature permits it.

Both Gov. Rick Perry and Democratic gubernatorial challenger Tony Sanchez have called for increased regulatory supervision. They recognize that the system is failing.

Several legislative committees are studying this issue, too. When it reconvenes next year, the Legislature and the next governor must possess the will to restore order to a system that has cracked under the weight of its imperfections.

Author: Contributor