2008 TCAIS Sunset Policy Summary

The Texas Department of Insurance in currently undergoing Sunset review. This review is timely, in that the development of the Texas personal lines insurance marketplace is in a critical phase. Legislative policy direction is crucial to ensure continued market development for the benefit of insurance consumers, insurance companies, and the broader Texas economy.

• The legislature should continue its longstanding movement toward a competitive market. For the last 16 years, Texas policymakers have taken steps to create a competitive market structure, moving from a rigid state-controlled system, to a more flexible benchmark rating system followed by the current market oriented file and use system. The move has been deliberate and based on a combination of observing successful models in other states and responding to regulatory crises in Texas.

• Where the regulatory focus of TDI has been consistent with the legislative intent for a file and use competitive system, consumer choice, better availability, and better affordability have resulted. Texas has enjoyed long term success with file and use in commercial lines insurance, as well as recent success in auto insurance. In both of these systems, regulation has been properly focused on solvency, consumer education, and specific consumer protection from fraud and unfair practices.

• In contrast to other lines of insurance, the legislative reforms have been inconsistently and incompletely applied to personal homeowners’ insurance, resulting in increased costs, lost opportunities, and instability for both companies and consumers in the marketplace. TDI rate actions, including disapprovals and demands for changes to company rating plans, have directly affected a significant portion of the homeowners’ market and have put enormous informal regulatory pressure on the remainder of the marketplace. This regulatory uncertainty coupled with the longtime failure to address structural issues with windstorm coastal exposure has seriously inhibited the growth and strengthening of the homeowners’ market resulting in a confusing mixed message to consumers and companies concerning the competitive nature of our system.

• The legislature needs to safeguard its intent for a competitive market with statutory language and oversight that ensures proper regulatory process. The legislature should consider placing statutory thresholds on discretionary authority of regulators to intercede in on rates in the competitive market. The legislature should consider a streamlined approach to dispute resolutions that leads to fast, fair, and final decisions without limiting the right to appeal of either the state or companies. The legislature, in its oversight capacity, should insist on regulations that protect the marketplace from bad actors while allowing consumer choice and competition to regulate normal market activities.

Thanks to the legislature’s past efforts to establish insurance competition in Texas, our state is on the threshold of a truly healthy market for the first time in decades. Such a market will serve the interests of insurance consumers, companies, and the broader Texas economy that relies on available, affordable insurance. However, the health of our market is by no means assured. Sound policy decisions in the Sunset process will advance the transition to competition, end the old regulatory culture of non-market, paternalistic control, and enhance competition in the Texas insurance market to the benefit of Texas consumers and insurers.