Dear Concerned Texas Insurance Consumers,

Thank you for your email of July 13, 2012.  I, too, am interested in commonsense, market-based solutions that could provide immediate relief for homeowners in the form of lower insurance premiums and TDI continually seeks to identify and/or develop effective approaches to this challenging issue. With respect to your specific proposals:

1.   Empower consumers to generate real price competition by requiring carriers to offer a standard policy, allowing consumers to make meaningful apples-to-apples comparisons.

I wholeheartedly support enabling consumers to better understand what they are purchasing.  When I joined TDI almost a year ago, I noted that while our website contained a lot of information, much of it was hyper-technical, legalistic, jargon-heavy or otherwise difficult to understand. One of my major initiatives has been to provide better, more useful, meaningful and intelligible information to consumers so that they can make informed decisions.  We are currently developing an interactive educational tool to assist consumers in understanding common homeowners policy coverages and features.  Of course, these coverages and features can vary from company to company.  Our tool will include a comparison of the top five homeowners insurers’ policy forms to the “standard” coverages and features.   It is important that consumers obtain company specific information and explanation from the company or the company’s agent prior to completing the purchase. This type of service is one of the primary functions of an insurance agent.

We have conducted a survey of other states and have found no state that requires insurers to offer a standardized policy form, so we are unable to determine whether this practice would lead to lower insurance premiums.  Despite the absence of a standardized policy form, our review of policy form filings indicates that most policy terms, conditions, coverages, and features are substantially similar. As mentioned above, our interactive educational tool will identify the more common variations.

TDI does not have the authority to require insurers to offer a particular policy form without legislative action.

2.   Stop insurance companies from shifting more of the burden onto consumers by continually raising deductibles.

Except for the coastal area, Texas has a very competitive homeowners insurance market in terms of the number of insurers actively writing policies, many of which offer lower deductibles. Some consumers choose higher deductibles in order to receive a lower premium.  Robert Hunter, former Texas Insurance Commissioner and current Director of Insurance for the Consumer Federation of America, has stated that “[consumers] should be happy their deductible is higher as long as the premium goes down” (Washington Post, October 21, 2011).  TDI reviews the effect of deductible changes on premiums to ensure that appropriate offsets are made. TDI believes consumers are best served when they have a variety of insurance products and options from which to select based on their personal circumstances. TDI does not have the authority to prohibit higher deductibles without legislative action.

3.   Make the market more transparent for consumers by requiring insurance companies to clearly state what is and is not covered, disclose the true dollar-amount of deductibles, and provide easy access to review the current policy and endorsements in effect.

Insurance policies are legal documents and the policy language ultimately controls what is covered and what is not covered. An insurance agent can be very helpful in assisting consumers in understanding coverage provisions and determining what is best for their individuals needs. Additionally, the interactive tool referred to above will include illustrations of various coverage scenarios, including common misperceptions.

I agree that a stated dollar amount deductible is more easily understood than a percentage, and we were already planning to initiate rule-making to require that this information be displayed on the policy declarations page.

The Office of Public Insurance Counsel (OPIC) provides information on each insurers’ policy forms and endorsements.
(http://www.opic.state.tx.us/policy-comparisons/homeowners-2?view=opic&insurancetype=2/)   What we do not have at this time, however, is a comprehensive picture of which policy forms are actually being marketed and sold by each insurer. TDI is exploring possible changes to the Texas Statistical Plan for Residential Risks to better reflect the current market.

4.   Standardize insurance rate filings so that carriers are required to give all relevant information and justifications for rate hikes with their initial filing.

Article 2251.101 of the Texas Insurance Code requires insurers to file all rates, applicable rating manuals, supplementary rating information, and additional information as required by the Commissioner. While TDI has not had any problems obtaining all the information necessary to review rate filings to ensure that rates are compliant with the law, we are working on making this process more efficient and consistent. Earlier this year, I instructed TDI actuaries to develop rate filing templates that insurers can use to provide information in a standardized format.  Drafts of these templates were made available online in May of this year. There will be a stakeholder meeting later this month to solicit feedback on these templates. In addition, TDI will be making changes later this year to its administrative rule regarding rate filing requirements that should provide more specificity to the information that insurers need to submit in their rate filings

5.   End exotic off-shore reinsurance arrangements that allow insurance companies to pad their profits.

Off-shore reinsurance is the only catastrophe reinsurance available at this time.  Without reinsurance, insurers would be required to hold more capital for the policies they write, which could lead to higher premiums.  TDI reviews the reinsurance component of all rate filings to ensure that they are justified. When outliers are noted, additional information is requested and reviewed.

6.   Rein in excessive underwriting profits and administrative costs from insurance companies.

Texas’ actual underwriting profit results have varied greatly over time, depending mostly on the existence or absence of catastrophic weather events.  As the chart below illustrates, residential property insurers in Texas have not made underwriting profits, on average, for the last 20 years.  In fact, their average loss has been over 9%. Acquisition costs are the only component of administrative costs that are broken out separately and Texas appears to have higher acquisition costs than most other states. TDI is researching this matter further.

7.   Require insurance carriers to rely on legitimate long-term loss experience when estimating weather-related risks.  One bad storm does not justify a steep rate hike.

Homeowners’ rates should reflect a long-term view of catastrophic events. TDI reviews all rate filings specifically to ensure that insurers are not using loss experience from a single event to justify a rate increase going forward.  Additionally, Section 551.107 of the Texas Insurance Code prohibits insurers from using weather-related claims to surcharge policyholders.

8.   Closely review the entire market to ensure current rates are justified.

TDI reviews all rate filings for compliance with the Texas Insurance Code, which provides that rates may not be excessive, inadequate, unreasonable or unfairly discriminatory for the risks to which the rates apply.  In addition to TDI’s review, OPIC and other interested parties may obtain a copy of a filing, request additional information from the insurer and/or request a hearing.

I hope the information provided above gives you greater insight into the challenges of the Texas homeowners insurance market.  I believe many of your ideas have merit and we will be moving forward as outlined above. I appreciate your interest and thank you for writing me.

Best Wishes,

Eleanor Kitzman

Commissioner of Insurance