AUSTIN – The focus of the Texas Department of Insurance (TDI) and other Texas policymakers on rate regulation has been misguided and damaging to Texas consumers, according to a new paper released today by the Texas Public Policy Foundation.

“The marketplace for both homeowners’ and windstorm insurance is not being allowed to meet the needs of Texas homeowners or investors,” said Bill Peacock, Director of the Foundation’s Center for Economic Freedom. “Without meaningful reforms and a new focus at TDI, it will be Texas taxpayers and consumers who will foot the bill for these harmful policies.”

The paper, “Modernizing the Texas Insurance Marketplace,” recommends four actions that would improve the competitiveness of Texas’ insurance market:

* Implement a regulatory emphasis on fairness and solvency at TDI: Because TDI’s regulatory focus has remained on subjective notions of “affordability,” the market-oriented “file-and-use” system has turned into a de facto prior approval system that will cause long-term harm to the homeowners’ market. TDI should allow rates to be observed in the marketplace in order to more accurately assess fairness, and redirect its regulatory resources to ensure that insurers have enough reserves to cover potential claims.

* Completely deregulate homeowners’ insurance rates in Texas: Illinois has completely deregulated insurance rates and focused its insurance department on insurance solvency and market conduct. As a result, Illinois has a “healthy, stable, and thriving marketplace that benefits consumers.”

* Allow Texans to purchase insurance from companies licensed in other states: Legislation to allow interstate commerce in health insurance was filed last year in the U.S. Congress. Adopting a similar principle here in Texas would present some logistical challenges, but ultimately would increase competition and shift regulatory costs away from Texas taxpayers.

* Adopt the concept of an optional federal charter: This proposal would allow insurers to opt for either federal or state regulation, as is currently done in the banking industry. Federally licensed insurance carriers could sell a product in any state, while a state licensed carrier could sell in those states in which it is licensed. A recent study on the optional federal charter conservatively estimated that it would reduce costs for life insurers by more than $5.7 billion per year.

“Insurance regulations are wasteful, produce higher industry costs, delay innovation, reduce competition, slow the introduction of new products to the market, and build operational inefficiencies into the insurance carriers,” Peacock said. “Texans will be better off without the regulations and those side effects.”

The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin. The paper can be downloaded through this link or via the Foundation’s website,

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