A Case for Insurance Reform
By Senator Craig Estes
I believe private enterprise, when left unfettered by the entanglements of government bureaucracy, will perform to the benefit of society. Adam Smith, the 18th Century economist, referred to this as the invisible hand of the marketplace. However, Adam Smith recognized that all who seek to improve their own positions in life do not always do so with benign actions. While laying down the foundation of conservative economic thought, Adam Smith also professed the need for morality to keep our self-interests in line with the common good. It is the pursuit of self-interests or, as Thomas Jefferson wrote, the pursuit of happiness that motivates the farmer to grow food, not his concern for the health and welfare of those who hunger. However, the farmer is expected by society to receive a fair and honest price for his produce.
That is why I have co-authored Senate Bill 310, which was passed unanimously out of the Texas Senate. Senate Bill 310 requires residential property insurers to immediately file rates and supporting data with the Texas Department of Insurance. TDI will compile and analyze the data and present a report within 30 days to the Legislature so that we can determine whether the rates are just and reasonable and to assist in determining the most effective and efficient regulatory system for homeowners insurance.
Insurance reform does not need to stop here. Many insurance companies are using credit reports to determine rates. Their theory is that people who have poor credit scores are more of an insurance risk. However, I have yet to see data to support this argument. I believe the insurance companies should present the facts of their studies for independent review. If there is a correlation between risk and credit standing, then perhaps that practice should be allowed, but with full disclosure requirements. After all, determining risk is a fundamental premise behind actuarial tables. However, if the studies and the evidence behind credit scoring do not support the practice, then that practice should be halted immediately.
Another factor that has contributed to increased rates is the explosion in mold claims and lawsuits. The insurance industry has sustained significant losses as a result of zealous trial lawyers seeking a judicial jackpot and mold "remediators" trying to defraud insurers. Currently public adjustors and remediators are not licensed by the State of Texas. They should be and I will support legislation to that effect. I will also support sensible lawsuit reform that will reign in lawsuit abuse.
The insurance companies are easy targets for politicians and bureaucrats. However, in our effort to reform the system we should not make matters worse. Government, at times, can provide solutions when its efforts are deliberate, thoughtful and restrained. At other times, government reaches too far in an effort to please too many with solutions that are too shortsighted.
There are those who believe we should impose draconian regulations on the industry including strict price controls and prohibiting industry standard practices. These steps, while perhaps politically popular, are not examples of good public policy. Like it or not, insurance companies are in the business selling products and making a profit. They have a right to charge a fair and honest price for their product or service.
Before we veer too far in regulating the industry we should first answer the essential question: "Are Texans being charged a fair and honest rate on their homeowners insurance?" If the answer is no, then we should take steps to compel the insurance companies to follow fair business practices. If the answer is yes, then we should examine what issues are causing rates to increase so rapidly. The idea that insurance rates are too high because insurance companies are too greedy should not be the default position of the Legislature. Only after examining the evidence can we employ sensible solutions to the problem.
For generations, Texans have worked hard to purchase a small piece of land to call their own or to build a home in which to raise a family. The American Dream is a Texas tradition. However, the increasing cost of homeowners insurance is threatening that dream for hardworking Texas families. Only commonsense reform will preserve our dreams and our heritage.
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