The most critical action the Texas Legislature can take to fix the Texas homeowners’ insurance market is to complete the transition to a file-and-use regulatory system, according to a report released today by the Texas Public Policy Foundation.

“The Texas Legislature started down the right path five years ago by putting file-and-use into Texas law,” said Bill Peacock, the report’s co-author and Director of the Foundation’s Center for Economic Freedom. “But because the Legislature still allowed a form of prior-approval, the regulatory atmosphere in Texas still keeps new entrants down and rates up.”

Peacock highlighted the report’s finding that TDI’s overregulation of policy forms magnified the “mold crisis” at the turn of the century and cost Texas homeowners almost $900 million in higher premiums between 2001 and 2005.

“Even if consumers had suffered such harm in the absence of regulations, they could have sought redress for the damages through TDI and the courts,” he said. “But when the damages are caused by regulation, the money is gone forever.”

TDI is currently under review by the Sunset Advisory Commission, which will vote next month on its reform recommendations for the department. The Foundation’s report, “Consumers, Competition, and Homeowners’ Insurance,” follows the format of the Sunset Advisory Commission’s staff report, juxtaposing the Foundation’s recommendations and findings against those of the sunset staff.

Among the Foundation’s key recommendations:

– Shift the focus of homeowners’ insurance rate regulation to guarding against rates that are inadequate or discriminatory; – Make the homeowners’ insurance system a true file-and-use system for both rates and policy forms; – Eliminate the Office of Public Insurance Counsel and its functions, along with several TDI functions that feature pre-market regulatory activities, so that consumer-protection efforts are dealt with through complaints and enforcement functions; – Allow Texans to purchase insurance policies offered by insurance companies licensed by insurance regulators in other states; – Focus policy-form regulation on the wording and clarity of an insurance form as opposed to the risks covered and insured under a form; and – Make the Texas Windstorm Insurance Association a true provider of last resort by specifying that TWIA coverage is available only if an applicant cannot obtain coverage in the private marketplace.

“The proper role for TDI is making sure that policies are enforced fairly, that consumers know what coverage they’re paying for, and that insurers have enough reserves to pay for the claims they’re covering,” said Drew Thornley, co-author of the report and economic freedom policy analyst with the Foundation. “Letting consumers decide what a fair rate is will promote competition and increase the range of choices available to them.”

The full report can be downloaded from the Foundation’s website,

About the Texas Public Policy Foundation: TPPF is a non-profit, free-market research institute based in Austin, Texas.

About Bill Peacock: Mr. Peacock is Director of the Center for Economic Freedom at the Texas Public Policy Foundation.

About Drew Thornley: Mr. Thornley is an economic freedom policy analyst at the Texas Public Policy Foundation.

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