State Farm Insurance to Raise Insurance Rates on Homeowners, Insurance Commission Unable to Stop

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The state's largest provider of homeowner's insurance has announced another rate hike. Because of legislation passed in 2003, the state is powerless to act on behalf of homeowners. Lawmakers should pass “prior approval” legislation to regulate insurance companies and provide relief to Texas homeowners, who pay some of the highest premiums in the country.

The Legislative Study Group (LSG) has released a study showing how a 2003 law has  created a system that directly harms Texas homeowners.

State Farm has announced that they will raise homeowner insurance rates by 4.5 percent in May. This comes on the heels of an 8.8 percent increase in October. Texas homeowners already pay the second highest insurance premiums in the country; such a steep rate increase hurts Texas homeowners financially as they navigate through the worst recession in a generation.

These rate hikes require no prior approval of any kind. It might be important to mention, the Texas Insurance Commissioner is also appointed, not elected. This means the only person who can reprimand the Texas Department of Insurance (TDI) Commissioner, Mike Geeslin, is Rick Perry. Geeslin, has served as the Commissioner since 2005.

Before Geeslin took the job, insurance companies had to petition for rate increases.

As a result of a dramatic increase in mold claims prior to 2003, homeowner insurance rates were pushed to record heights. In response, legislators in the 78th Legislature passed SB 14, which, among other things, moved Texas to a “file and use” system.

Previously, rates were established by the Commissioner of the Texas Department of Insurance, and companies had to petition the department for approval to raise their rates above the established level. However, a loophole allowed most companies to shift their policies outside of the regulations, meaning consumers still saw high premiums.

The “file and use” system passed in 2003 did little to alleviate the problem. Under the new system, insurance companies were simply required to inform the department of a rate change before they implemented it. The department had no mechanism to regulate insurance companies as they implemented premium rates.

Currently, TDI has no real authority to stop rate hikes because of the 2003 law. It has not gone through the process of review, commonly referred to as sunset review, since 1993. According to the LSG report, this means all TDI can do is write a strongly worded, disapproving letter. The only solutions are to put TDI under sunset review, make the Texas Department of Insurance Commissioner an elected position or force the Governor to intervene and protect homeowners. None are likely or possible until 2011.

To read the full report, read it online at TexasLSG.org. LSG is chaired by Rep. Garnet Coleman and it's Vice Chairs are Rep. Lon Burnam and Rep. Valinda Bolton.  

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