AUSTIN – Today, the Sunset Advisory Commission approved reforms that will make the Texas homeowners’ insurance market more competitive and reduce costs for both consumers and taxpayers.
“The Texas Department of Insurance (TDI) has been in regulatory limbo for the last five years,” said Foundation policy analyst Drew Thornley. “With these reforms, its marching orders are now clear: step back and let open competition bring down rates.”
The Sunset Advisory Commission adopted its staff’s recommendation to strengthen the transition to file-and-use insurance regulation. Prior to 2003, TDI regulated insurers under a “prior approval” model, where companies had to file their proposed rates and be approved by TDI before they could be used. Under “file-and-use,” an insurer is supposed to be allowed to use a rate as soon as it is filed with TDI, with the department allowed to reject a rate after the fact if it is determined to be “excessive.”
“The 2003 law added file-and-use without fully repealing prior approval,” Thornley said. “Having both systems on the books has created an erratic regulatory climate where insurers are hesitant to sell policies. Consumers pay a high price when government regulators limit the choices that the free market can provide. Though the commission report keeps prior approval under certain circumstances, it requires the department to limit its use and provide clear definitions.”
Thornley cited his recent research, which showed that competitive insurance reforms adopted by Washington, D.C., Illinois, and South Carolina attracted insurers, lowered or stabilized premiums, and decreased the size of residual markets, which are markets for insurance applicants that primary markets deem too risky.
The Foundation also applauded the commission’s support for reforms to TWIA so that it functions as a true “provider of last resort” rather than a first option for windstorm insurance coverage.
“Texas has been warned for at least a decade that TWIA’s rates did not accurately reflect the risks to coastal communities and that TWIA’s funding mechanism would not survive a major hurricane strike to the Texas Gulf Coast,” Thornley said. “Sadly, Hurricane Ike broke our windstorm insurance system, putting Texas taxpayers on the hook for a costly bailout. We must fix TWIA to prevent additional damage to Texas homeowners and taxpayers.”
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.
Drew Thornley is a policy analyst at the Texas Public Policy Foundation and the co-author of the recent report “Consumers, Competition, and Homeowners’ Insurance: A Sunset Report on the Texas Department of Insurance and the Office of Public Insurance Counsel.”
The Sunset Advisory Commission is a legislative advisory committee that reviews the policies and programs of more than 150 government agencies once every 12 years.
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