Texas Governor Wants More Oversight of Homeowners Insurance

Texas Governor Rick Perry announced recently that he favors placing the Texas homeowners insurance industry under total rate oversight by the state. His remarks were partly in response to a report by Texas attorney general John Cornyn, which showed some insurers could be involved in unfair or fraudulent pricing practices. Information from the Texas Department of Insurance (TDI) also indicates that some companies are using inconsistent credit scoring, discriminating against certain groups of consumers.

Perry’s plan would empower TDI to review all insurers’ rates—95 percent of all homeowners policies in Texas are written by unregulated entities—as well as to impose either company-specific or across-the-board rate freezes during the rate review process. The department would have 45 days to complete reviews.

Perry also believes a ban on the use of credit scoring is in order, except in cases in which correlations between a consumer’s credit history and insurance risk are clearly evident.

The governor’s proposals require approval by the Texas Legislature; he has stated he will prioritize the issue when the legislature reconvenes next year. He also warned carriers against raising rates now before a crackdown next year, saying he would authorize TDI to expand its investigation if such an attempt were to be made. Perry also said he would direct TDI to order refunds, with interest, to Texas consumers found to have been overcharged, and to impose maximum fines of $25,000 per policyholder for unethical or illegal practices.

Specific features of the governor’s proposal include the use of more national policy forms, which allow consumers to customize their coverage; better claims response, which would include the licensing and regulation of mold remediators and state oversight of public adjusters; and tort reforms to prevent collusion between lawyers, remediators, and public adjusters to inflate claims.

According to the Austin American Statesman, however, the governor won’t call a special legislative session to push through his proposal. Perry indicated that a special session would be premature; he favors putting insurance legislation on a fast track during the next session, and making reforms effective immediately once they become law.

Perry’s Democratic rival Tony Sanchez, who strongly supports a special legislative session to deal with insurance issues, claimed that Perry has refused to call for one because he is “bought and paid for” by the insurance industry, according to an Associated Press report.

Responding to Perry’s plan, Don Hanson, southwestern regional manager of the National Association of Independent Insurers (NAII), agreed with Perry’s assertion that making a wider variety of policy forms available would increase competition in the homeowners market, and went further by identifying availability of these forms as vital to resolving current problems in Texas.

However, Hanson also noted that the NAII preferred market-based rate regulations rather than more restrictive state-based regulatory systems. He contended that rate regulations similar to those being proposed by the governor have not worked in New Jersey and Massachusetts.