Transition to Competition:
Better State Policy Will Make Better Insurance Policies

The Texas home and auto insurance market is finally on the mend. Rates have begun to stabilize, and thanks to landmark reforms passed in 2003, companies are even eyeing our state as a place to do business. Competition and its benefits are just around the corner.

Part of this progress is due to the promise of a new regulatory system that, if implemented properly, will introduce vigorous competition and modernize our insurance marketplace. To date, Texans have suffered under antiquated laws that strictly constrained almost every aspect of insurance. The rules were based on a 70-year-old system that was originally developed to hinder competition and protect the few companies that were here in the 1930 ’s.

Under the old rules, Texas insurers couldn’t really compete against each other. Government mandates forced them to essentially look and act the same, offering one-size-fits-all policies for similar prices. It was as though all auto companies could only build station wagons that had to cost $35,000. Or if all homes had to have 2-bedrooms or restaurants could only serve fried food.

Soon, under the modernized system called “file and use,” insurance companies will be able to provide a variety of products and prices so customers can choose policies that best fit their needs and budgets. The new market-based structure, that the Texas Department of Insurance (TDI) implemented in December 2004, allows insurers to develop innovative products and set competitive rates, which will likely lead to lower prices as companies compete to attract new customers. New companies will come to Texas to offer unique insurance products, further increasing competition and driving down prices.

South Carolina, which has had a market-based system for years, has a good example of thriving insurance competition. After shifting from heavy-handed regulation to a competitive marketplace, the number of insurers doing business doubled in one year. Rates dropped and consumers have real choices in a healthier, more stable insurance market. Consumer complaints also decreased thanks to competition.

Once that kind of competition takes hold here, Texans will have even more ability to “shop around” for the company that best meets their needs for price, coverage, and service. Customers should not have to settle for state-mandated, one-size-fits-all insurance products.

TDI and Commissioner Jose Montemayor will continue to play a vital role by reviewing rates, protecting consumers from fraud and abuse, and ensuring that companies are financially sound enough to meet their obligations to their customers. Regulation that protects consumers from “bad actor” insurance companies or individuals who would commit insurance fraud must continue to be a priority in Texas.

Pro-competitive policies will do more for Texans than just lower prices and expand the kinds of policies they can buy. The modernized system will also make Texas an attractive place to do business. Governor Perry cited insurance reforms with helping to make Texas a “place where companies can grow and prosper.” That means more jobs for Texans.

While change is sometimes unsettling for consumers, especially for a product as important as insurance, misinformation and scare tactics intended to demonize insurance companies will only stymie progress. Commissioner Montemayor recently noted that some groups “favor splashy headlines over truth, and their assertions are intellectually dishonest.” These so-called “consumer groups” are working hard to make sure the new system takes the same anti-competitive, one-size-fits-all approach to insurance that led to our recent market problems.

The news media, lawmakers and insurers have a responsibility to educate consumers about insurance with valid and reliable information. In these times of change, mischaracterizations about the health of the insurance marketplace are a disservice to Texans and only push positive progress further away.

Texas needs an insurance marketplace where politics are replaced by competition. Texas leaders have mapped out an effective plan to encourage competition, promote innovation, and deliver affordability in home and auto insurance. If Commissioner Montemayor correctly implements “file and use” in December 2004, it may be the best Christmas present of all for Texas – a healthy, competitive consumer insurance market.