"Let real competition regulate insurance"

Editorial
Austin American-Statesman
By Hardy England, Chairman, Texas Association of Business
February 6, 2003

We’re all tempted to take short cuts, especially when it comes to repairing nagging maintenance problems and challenges. So when lawmakers want to make quick fixes to the state’s insurance system, who can blame them?

If Texas legislators think tighter rate regulation will repair Texas’ troubled homeowners insurance market, even their most well intentioned efforts could place Texans in a far worse situation than we’re in now.

I’m astounded by some of the ideas mentioned to fix the problem. Rate freezes? Rollbacks? As the owner of a small business, I can’t imagine any company surviving when forced to sell a product below cost. Yet, that’s what some are suggesting to stabilize the Texas insurance market.

Rate rollbacks and other price controls have never worked in a free-market economy and insurance companies will leave Texas if such tactics become the legislative patch for this
serious problem. For decades, lawmakers in New Jersey have been trying to manipulate that State’s automobile insurance market through rate regulation. As the result its rates are among the highest in the country.

The way to make the insurance market better for everyone in Texas is to give competition an honest chance to work. In almost every business, competition benefits consumers more than strict government controls. Texas homeowners, unfortunately, have never benefited from competition. Until recently, for example, most Texans had just two state-mandated homeowners insurance policies to choose from regardless of the company they selected. Unfortunately, the policy most Texans purchased has become very expensive because of the extensive coverage required by the state.

In 2002, the Texas Department of Insurance began allowing some insurance companies to offer other policy forms, ones that are similar to what these companies use in other states. Some Texas customers can now choose a policy that offers the kind of coverage they want and one that fits their budget. This freedom to choose is yielding rate relief, but that is only a start.

The Texas Association of Business encourages legislators to hold true to free-market principles based on competition and consumer choice. Regulate insurance companies for solvency, market conduct and other consumer protections and give Texans lasting reforms that will stabilize rates and encourage more companies to enter and stay in the market.

Don’t take a shortcut. Give us a long-term solution.