Texas Governor's Threat Riles Insurers

"In too many cases, homeowners insurance is getting more expensive, coverage is becoming harder to get, and instead of more companies stepping up to meet the demand, some companies have stopped writing comprehensive policies altogether," the governor stated.

Gov. Perry was referring to the fact that in recent months, two of the state's biggest insurers stopped writing comprehensive homeowners policies for new customers while a third insurer stopped writing those policies for new or existing customers.

"It's time for the homeowners insurance market to get a correction. And if the insurance companies do not do it, the state will do it for them," the governor declared.

According to the governor's office, the three companies –Farmers Insurance Group, State Farm and Allstate –control 66 percent of the Texas homeowners market. At the same time, premiums are increasing 14 percent to 200 percent for some homeowners in Texas, the governor's office indicated.

"I'm concerned that the big insurance companies may be misleading Texas families about the changes in homeowners coverage and costs," said Gov. Perry. He suggested that "insurance companies are not providing consumers with the honest facts they need and deserve."

The governor also directed Insurance Commissioner Jos? Montemayor to work closely with the Texas legislature to examine possible regulatory and legislative remedies that address increasing homeowners insurance costs.

The Texas Department of Insurance is currently considering the adoption of national forms used by companies in other states but which would be tailored for Texas consumers. The governor stated that this could provide more consumer choice and allow smaller homeowners insurers to compete with the big companies that control the market.

Gov. Perry indicated that the adoption of national forms should be contingent upon premium discounts that would lower consumer costs and stabilize the market.

The governor's office said that Texas currently lacks the authority to stop the "runaway homeowner's insurance market."

Since the mid-1980s, most insurance companies restructured to avoid state regulation, according to the governor's office. Now only about 5 percent of the homeowners market is rate-regulated, down from about 80 percent in 1985.

The Alliance of American Insurers, based in Downers Grove, Ill., quickly issued a statement opposing the governor's call for "a more restrictive regulatory climate" for homeowners insurance.

"While I understand Gov. Perry's empathy for his constituents, I would urge him not to jump to conclusions," said Rita Nowak, Alliance assistant vice president of property-casualty.

Ms. Nowak predicted that "tightening the regulatory screws on insurers" would lead to even more insurers exiting the state.

"Although those who make a living off of finger-pointing and assessing blame would like to simplify the problems in the Texas homeowners insurance market by accusing insurers of wrongdoing, the simple fact is that this situation was not of insurers' making," she declared.

"This market problem is directly related to a regulatory system that mandates policy forms that are inherently more inclusive and therefore, more expensive than those in other states.

"Enacting more restrictive rate regulation of the property-casualty insurance market will do more harm to the state's insurance consumers than good," Ms. Nowak continued. She indicated that history has shown that "oppressive regulation creates more availability problems than it solves.

She also noted that despite recent coverage cutbacks stemming from "the uncertainty created by mold-related lawsuits, the property/casualty insurance market in Texas has been reasonably good," with needed coverages still available for purchase "at reasonable prices."

The homeowners insurance market in Texas was thrown into disarray last spring when a Travis County jury returned a $32 million verdict against Fire Insurance Exchange, a Farmers Insurance Group affiliate, after a homeowners suit over health injury related to a toxic mold claim.

After holding hearings on homeowners mold claim issues, Mr. Montemayor promulgated rules on the exclusion of mold coverage from policies. Texas homeowners could keep basic insurance coverage for mold but would have to pay for testing and cleanup, the commissioner ruled in December.

Ms. Nowak observed that the trend among most states is to move away from the increased regulation of insurance.

"Over the past five years or so, insurance regulators and state legislators have seen the benefits of letting the market set price and product.

"Responsive regulations that minimize business costs and encourage innovation have been the key factor in the development of this environment.

"Texas needs to let insurers compete by giving consumers choices in the homeowners products they buy," Ms. Nowak concluded.

Ron Cobb, vice president southwest region of the American Insurance Association, headquartered in Washington, D.C., stated, "While we share the governor's concern that the cost of homeowners coverage is rising, we believe the best – indeed, the only – real solution is to deal directly with the underlying cost drivers which have gotten out of control."

Mr. Cobb identified some of those cost drivers as increased litigation and jury awards relating to residential water damage and mold claims.

He added that "an investigation of the homeowners insurance market would be incomplete without the examination of any unscrupulous or fraudulent conduct by remediation companies, unlicensed public claims adjusters and plaintiff's attorneys."

According to Mr. Cobb, "Insurers have experienced triple-digit increases in the frequency and costs associated with these types of claims."

He said that as a result of "aggressive and exploitative advertising by these unregulated and unlicensed cottage industries, a significant amount of claims dollars are going to quick-buck artists rather than homeowners."