"Free Market-Based Insurance Reform
Will Benefit Consumers"

Opinion-Editorial
Lubbock Avalanche Journal
By Jeff Clark
May 18, 2003

With strong voices, we Texans have been calling for help in reducing our rapidly rising homeowner-insurance prices. Our Legislature is working to respond’ and many state legislators are working hard to solve this problem and reform our insurance system to provide us with more affordable insurance rates.

Unfortunately, some voices have been incorrectly suggesting that if insurance reform also benefits insurance companies then it has to be bad for consumers. Belief in this myth has led some legislators to propose over-regulating insurance companies in ways that will actually make things worse for Texas homeowners and small businesses.

Between now and the end of the legislative session, we’re going to hear a lot more rhetoric about how we must bring the heavy hammer of government regulation down on the backs of the insurance industry. These arguments can’t be based on promoting competition or reducing prices, because we’ve already seen that government mandates frequently wind up stifling competition, limiting choices and driving up the cost of a product. When has government over-regulation ever lowered prices?

While it might look good on paper, insurance reform legislation passed by the Texas state Senate, and a modified version House members will be voting on, actually hurt both consumers and the insurance marketplace because neither version addresses the underlying problems creating our current instability. If it becomes law, Senate Bill 14 will limit choices for Texans and make affordable insurance coverage even harder to find, because it fails to address the lack of competition in the insurance market.

This pending legislation ignores what legislators in Louisiana, New Jersey, South Carolina and other states have learned the hard way–that over-regulation like rate rollbacks, prior approval systems and arbitrary price controls do not lower rates. It’s a fact that over-regulation will not encourage existing insurance companies to stay in Texas and sell policies at competitive prices. It weakens competition and does nothing to attract new providers to the state.

While some Texas lawmakers are leading us toward the New Jersey model, legislators in these states are taking steps to make it easier for insurance companies to compete with one another by loosening the regulatory noose, which has strangled competition and made it harder for consumers to find affordable insurance. Three years ago, South Carolina, decided to let the open market–not a state bureaucrat–regulate auto-insurance rates. In that state, consumers have seen a dramatic increase in new companies entering the market and the citizens of that state have benefited from insurance rates that reflect the benefits of that competition.

Lawmakers in these states understand that when insurance companies have the flexibility to compete, more providers will want to enter the market, and we all benefit from greater competition. We as consumers will benefit from more affordable rates, additional policy options and improved service by insurance companies vying for customers. Unfortunately, back home our Texas legislators appear to believe the same myth New Jersey lawmakers took as fact more than a decade ago when they reformed their state’s auto-insurance market. They believed they could lower prices by relying on state government rather than the free-market to regulate rates.

With days to go before the end of the legislative session, Texas lawmakers need to act quickly to get Texas’ insurance market moving in the right direction. Elected officials still have time to get it right by giving Texans an insurance system focused on competition and consumer-protection. We should protect consumers by regulating the behavior of companies when servicing claims and should use the power of state regulation to ensure that carriers’ financial resources pay claims.

These important consumer protections, combined with the power of free market competition, will provide us the protections we need at a price we can afford. This kind of regulation can attract new insurance companies to Texas and provide consumers, as well as insurers, with the full benefits of a competitive market. We need lower insurance rates, and we hope our state’s lawmakers will be wise enough to craft legislation to create a competitive marketplace in which consumers can benefit.

Jeff Clark is the state executive director of NFIB/Texas. The National Federation of Independent Business (NFIB) is the nation’s largest small-business advocacy group. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its 35,000 members in Texas and 600,000 members in Washington and all 50 state capitals. More information is available on-line at www.nfib.com/TX