A Choice Tale:
Unleash the Power of Consumer Choice to Address Problems
in the Texas Insurance Market

According to Webster’s Dictionary, choice is defined as "a sufficient number and variety to choose among and suggests the opportunity or privilege of choosing freely."

When it comes to the Texas insurance market, the Texas regulatory structure actually gives the state government more choices than it allows Texas homeowners. Under the current structure:

• The State has had many choices;
• Insurers have had few choices; and
• Texas homeowners have had no choices.

State government has had many choices

• The State could have approved national forms years ago allowing insurance companies to sell a variety of policies.
• The State could have set the home and auto benchmark rates at a reasonable level in line with expected claim expenses and related costs of doing business.
• The State could have let insurers write policies - like those sold in most states - that only covered "sudden and accidental" water damage rather than continuous drips and leaks. (Texas is one of the only states in the country that required insurers to write such broad coverage.)
• Most importantly, the State could have modernized its regulatory structure to be more responsive to a changing market and the needs of consumers and insurers.

Insurers have had few choices

• Because a rigid regulatory system prevented insurers from adjusting their rates and policies to respond to changes in claim cost trends, insurers were forced to either leave the market or move business to Lloyds companies that offer more rating flexibility. The current benchmark rate is set based on claims data from the 1990s. (How many other businesses are forced to sell their products at the same prices used years ago?) The sharp increases in claim costs incurred by the industry over the past three years are currently not factored into the benchmark rating system. The result: companies are forced to sell their products under a flawed and dated pricing structure that is out of synch with the actual cost of doing business.

• When the mold crisis caused claims to skyrocket, Lloyds companies also provided insurers a safety net. When the State failed to move quickly enough to approve new policy forms and adequate rates, insurers were able to move policyholders into Lloyd’s companies in order to continue to serve them and stay in business in Texas. Yet, it only created an illusion of a competitive market--no new capital has been coming in to the Texas homeowners market in decades?something critical to the stability of the market.

However, even within Lloyds companies, state government still mandates that the policy forms that are offered must include expensive coverages that many homeowners neither want nor need.

Texas consumers have had no choices

• Because the State regulates the policy forms, until recently, consumers were not able to choose the types of coverage that fit their needs and budgets. (Customers in West Texas, for instance, were forced to buy mold coverage and subsidize the mold epidemic.) The TDI recently approved a number of new policy forms and these new products are already helping to stabilize rates.

With the approval of true national forms and the arrival of a more competitive market, consumers in Texas, like those in other states, would have a choice in the type of coverages they want and need.

Insurance reform:
Don’t just get mad, get it right.
Texas Coalition for Affordable Insurance Solutions

TCAIS has solutions - 7 guidelines to build a better
insurance system in Texas. To learn more visit:
www.TCAIS.org/solutions/guidelines_regulation.php