Texas Groups Accuse Insurers of Huge Overcharge

Texas Groups Accuse Insurers of Huge Overcharge

By Daniel Hays

NU Online News Service, March 31,10:37 p.m. EST?Two Texas consumer groups said today that their study showed Texas insurers had overcharged homeowners and auto policyholders by nearly $4 billion in 2004.

In reaction, a spokesman for the Texas Department of Insurance said a rollback is already under study, while a carriers' trade group said the high profits were the result of an unusually low incidence of claims driven by bad weather.

The Center for Economic Justice and Texas Watch, both based in Austin, said that claim costs have dropped because of more restrictive coverage and Texas insurers' "aggressive claim settlement practices," adding that "none of those savings have been passed on to consumers"

Claim costs have dropped for homeowners and remained stable for auto insurance, the groups found.

Joe Woods, assistant vice president for state legislative affairs for the Property Casualty Insurers Association of America, said the results of 2004--when Texas had no major hailstorm or hurricane--were not a trend.

"Throw in one major storm and the loss ratios jump," he said. "We had a great year on weather that made a huge difference."

Insurers, he added, might be reluctant to make any immediate rate reductions because the Texas insurance department has already issued a data call for insurers to justify their rates by May 1.

If they cut rates now, he suggested that would only serve as a starting point for regulatory demands for rollbacks.

A department representative, Jerry Higgins, said no action could be expected from the agency until all the data arrives on May 1.

According to the report compiled by the consumer groups, the insurance industry overcharged homeowners by 90 percent and drivers by 19 percent in 2004, equating to a $2.1 billion overcharge in the homeowners market and a $1.8 billion overcharge in the auto market.

They estimated the overcharges were about $600 per home insured and about $200 per vehicle insured.
Birny Birnbaum, executive director at the Center for Economic Justice, said the study shows "insurers continue to charge Texas homeowners and drivers excessive premiums."

He added that "the legislature passed major insurance legislation in 2003. The $4 billion in overcharges in just one year is graphic evidence that the legislature must take additional action to reform Texas insurance markets."
Alex Winslow, executive director of Texas Watch, said the findings show Texans "are still being unfairly price-gouged by their insurance companies."
The report was compiled using the most currently available data from the Texas Department of Insurance for policies, premium and claims. The data analysis was performed by CEJ's Mr. Birnbaum, formerly chief economist and associate commissioner for policy and research at the Texas Department of Insurance.
Since Texas passed insurance reform legislation in 2003,
the industry has refused to significantly reduce rates, and Insurance Commissioner Jose Montemayor has failed to ensure a fair market for consumers and "let insurers off the hook with sweetheart deals," Mr. Birnbaum charged.
The groups called on lawmakers to to hold insurers accountable for their market practices and to protect insurance consumers from excessive premiums, inadequate coverage and unfair claims settlement practices.