This is the eighth in a series of insurance myths, published by the consumer group Texas Watch.
Texas families deserve a good value for their insurance dollars, but they’re getting high cost, low coverage junk homeowners and auto policies instead. A decade ago, lawmakers deregulated the marketplace, embracing the insurance industry’s theory that less oversight would bring about competition amongst carriers and lower prices for consumers. That industry-centered theory has been tested, and the data show it has failed. Now, our insurance commissioner is throwing up her hands and saying she has no options to bring about immediate relief. Instead, she parrots industry-approved “reforms” that put the burden on consumers. She freely admits that these reforms will not provide immediate relief, but might offer a modicum of help years – or decades – from now. Our hard-working families are hurting and have waited long enough. They need real solutions that ensure they finally receive a square deal from the insurance industry.
The economic crisis that has taken the world to the brink is proof that it is dangerous and disastrous policy to deregulate complicated financial instruments, but that is the course Texas has followed with respect to insurance. Carriers exploited a loophole in our Insurance Code to shift their business out from under a regulatory system that already provided them with flexibility. The result was sky-high prices and coverage that was slashed by nearly 45%. Lawmakers then codified an industry-preferred “file and use” system with the passage of SB 14 in 2003 that allows carriers to raise rates however they like and leaves regulators to ask questions later. Carriers aren’t even filing enough information to give regulators a clear picture of what the industry is doing. Meanwhile, homeowners premiums have risen 61%, according to the Texas Department of Insurance (TDI). Texans pay some of the highest prices in the entire country, shelling out $1511 for their homeowners insurance, nearly twice the national average.
We need to get back to fundamentals and create a simplified, balanced marketplace that works for both consumers and industry. There are a number of basic, common sense solutions that would quickly return sanity to the insurance market:
- In order to generate true price competition, we need to empower consumers to shop the market. The best way to do this is to have homeowners and auto carriers provide a standard policy form that provides coverage for all of the things you would expect. This policy would be in addition to any others that a company offers, and having this option would allow consumers to make apples-to-apples comparisons when choosing one carrier over another, enabling them to see which company operates most efficiently to provide the best service at the best price. It would also serve as a benchmark when comparing policies from a single carrier. A number of carriers already provide multiple policies, showing the feasibility of this small reform, which would have a huge impact on transforming our market.
- Carriers have increasingly been shifting more and more of the burden onto policyholders by changing and raising deductibles. Instead of offering set, flat-dollar deductibles, companies are now requiring homeowners to pay a percentage deductible. For example, on a $200,000 home, a policyholder with a 5% deductible would now have to pay $10,000 out-of-pocket before the insurance company was obligated to pay a dime on a basic home insurance claim. This raises the question: At what point does insurance become an illusion? At a minimum, carriers should have to disclose the true dollar amount of these deductibles so consumers know where they stand.
- To provide further clarity and cut through the dense legalese in insurance policies, carriers should provide a checklist written in plain language so consumers know what their policies do – and don’t – cover. Consumers should also have easy access to view their policy and all endorsements (i.e., coverage modifications) that are in effect.
- TDI should audit the market to ensure policyholders, who are forced to buy these products by lending practices and laws, are paying fair prices.
Lawmakers can’t keep doing the same thing and expecting a different result. We need to heat up this market and provide meaningful oversight so that hardworking Texas families can be assured they are paying a fair price for decent coverage.