SB 14 Would Create An Unpredictable Insurance Market

As proposed, SB 14 allows the Commissioner to disapprove any rate that he thinks is “excessive, inadequate, unreasonable, or unfairly discriminatory.” These terms are not defined anywhere in the legislation, leaving the Texas Department of
Insurance (TDI) to arbitrarily determine standards.

SB 14 also calls for each company selling homeowners insurance to make an initial rate filing. While it is important that the TDI have the ability to review the rates companies are charging, this bill would give the Commissioner “exclusive jurisdiction” to determine whether the current rates are appropriate or “excessive, inadequate, unreasonable, or unfairly discriminatory.” Again, these terms are not defined anywhere in the legislation, leaving insurers to rely on the interpretation of the Commissioner.

Solution:

Provide clear definitions for rating standards so that both the Commissioner and insurers have some predictability in the ratemaking process. The established rating standards need to be applied consistently and equally across the industry. Providing for exemptions would perpetuate the perception that “loopholes” remain in the system. In addition, include language in the bill that would require the Commissioner to follow certain solvency and constitutional principles to ensure that a rate is not set below the level that would allow a company to operate and make a reasonable rate of return.