April 20, 2004
Beaman Floyd, TCAIS executive director

The members of the Texas Coalition for Affordable Insurance Solutions believe that the media, lawmakers, candidates, and insurers all have a responsibility to educate consumers about insurance with valid and reliable information. With that in mind, TCAIS will distribute information like the following on a regular basis to help as we all contribute to this effort.

Texas needs to support an environment that will attract many insurers, giving Texans the benefits of competition. The reforms enacted by SB 14 have not been fully implemented, and when they have been, more insurers are likely to offer consumers choices among products and prices. When consumers have more choices, they win. As with any issue, Texans deserve the facts about insurance.

The Truth about Cost and Profitability in Texas

Despite critics' rhetoric to the contrary, actual data contradicts the notion that insurers are "making money hand over fist" in Texas.

While the industry, on average, showed smaller losses to modest underwriting profits in 2003, that has not historically been the case in Texas.

• Insurers in Texas have sustained over $3.1 billion in underwriting losses between 1988 and 2000.¹
• Homeowners insurance losses from weather-related claims, water claims, and mold claims increased five-fold since 2000.¹ Texas homeowners insurance is subject to wild swings in experience and profitability because of the variety of weather-related catastrophic risks. When considering an insurer's "financial health" it is important to review three, five, and even 10-year time frames.
• In the 10-year period from 1992 -2002, the rate of return for homeowners insurers in Texas was -5.2 percent. In six out of those 10 years, the industry experienced negative returns. By comparison, the historical average rate of return for Fortune 500 companies is +13 to 14 percent.²

Recent press reports have focused on improved loss ratios in 2003, giving the impression that anything not paid out in claims is pure profit. These figures don't include insurance companies' expenses. Like any business, insurers expenses include the cost of doing business as well as insurance-specific expenses imposed by the state. Some examples include:

• Employee salaries and benefits
• Claims adjustment expenses (investigators, adjustors, engineers, etc.)
• Premium and maintenance taxes paid to the state (contributing hundreds of millions to tax coffers in Texas)
• Property taxes for real estate property, such as office buildings

A business environment that experiences unprofitable results and declares every step in the right direction "profiteering" makes the Texas insurance marketplace unattractive for insurers and investors looking to expand their businesses. Instead, Texans need regulatory and legislative policies that make insuring Texas more attractive to insurers and more affordable for consumers. TCAIS will continue to support those objectives.

¹ Southwestern Insurance Information Service
² National Association of Insurance Commissioners Profitability Report