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.
Governor Rick Perry sent the following tweet message about ten mintues ago:
GovernorPerry#tcot #statebooks Texas cities among healthiest housing markets for 2009.
He provided a link to his website (which I'm not going to do), that then took you to this site. The criterion for selectiong what the best "housing markets" has nothing to do with homeowners, and everything to do with home builders. One of their central criterion has to do with how easily one can get a permit to build a home.
Which is why I replied to Governor Perry's tweet with this:
PhillipMartin@GovernorPerry When you create a whole state agency for Bob Perry, then you're gonna be attractive for builders
Governor Perry likes to look at economic indicators that are beneficial to his and his business friends. He's not interested in any indicators that have anything to do with actual people.
See, Builder (the site that did the ratings, along with Hanley Wood Market Intelligence) is using a new metric for determining what the best housing markets are. They include job creation (a dubious metric for TX, since we lost over 200,000 jobs in the last four months) and how well a builder can get a permit for a home.
Of all 50 states, Texas is the most expensive place to insure a home -- with Texans paying an average premium of $1,372 annually. (Source)
Of all 50 states, Texas is ranked 8th in terms of the percent of mortgage loans that are subprime. (Source)
Of all 50 states, Texas is ranked 45th in terms of the net worth of households. (Source)
Of all 50 states, Texas ranks 44th in home ownership rates. (Source)
Why does Governor Rick Perry ignore the true state of the Texas housing market for hard-working Texans? Because he's cozy with Bob Perry and the homebuilder lobby. Of course they think it's a great place to build homes -- Governor Rick Perry gives them all the tax breaks and makes it incredibly easy to build a home while allowing the state to be devastated by the worst homeowners' climate in the country.
What kind of economy are they trying to protect? Let's talk about that -- and how Texas is on the brink.
Of all 50 states, Texas is ranked 8th in terms of the percent of mortgage loans that are subprime. (Source)
Without getting into too big of a discussion of what cause our current economic catastrophe, it is safe to say that subprime mortgage loans are among the biggest reasons we are where we are today. Governor Perry may want to pretend that all is well, but the fact is, it's not:
One in five subprime loans end up in foreclosure, according to new research by the Center for Responsible Lending -- more than eight times the rate for mortgages in the prime market...Rigorous research shows subprime loans are costly, applied unfairly, and -- given the risk of foreclosure -- dangerous.
Of all 50 states, Texas is ranked 45th in terms of the net worth of households. (Source)
The net worth of the mean household is $35,942. The statistic measures all:
"Interest-earning assets, stocks and mutual fund shares, real estate (own home, rental property, vacation homes, and land holdings), own business or profession, mortgages held by sellers, and motor vehicles. Liabilities covered include debts secured by any asset, credit card or store bills, banks loans, and other unsecured debts."
Governor Perry and Texas Republicans would be quick to point out, I'm sure, that the same study shows that Texas ranks 4th in the affordability of homes. (Source) Cheaper homes allow for those with less net worth to be able to fulfill the dream of home ownership. That being said, if there is a high number of subprime mortgage loans being taken out to pay for those cheap homes, then we're really just sweeping the problem under the rug and hiding from the real work.
You also have to ask yourself if having a cheap home means anything if:
Of all 50 states, Texas ranks 44th in home ownership rates. (Source)
65.9 percent of Texans own a home. That means that one in three Texans -- despite the affordability of the Texas housing market and the proliferation of subprime mortgage loans -- still cannot afford to own a home. Of course, considering that 21.5 percent of the people in Texas live in poverty (Source), perhaps this shouldn't come as too large of a surprise.
Of all 50 states, Texas is the most expensive place to insure a home -- with Texans paying an average premium of $1,372 annually. (Source)
Above all else, this issue will be the test of the Republicans in control of Texas. What will Perry, Dewhurst, and Straus do to address homeowner insurance rates during this time of a crippling economy? Stories of Galveston homeowners who always paid their bills and yet are not being fully insured after the damages of Hurricane Ike are a dime a dozen.
Click2Houston -- Watch a video about Texas families struggling to receive their insurance payments.
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Texas Homeowners are living in a struggling economy. They were struggling long before Hurricane Ike. But like so much work that needs to be done in Texas, the Republican-led Legislature ignored the problem until it became a catastrophe.
And the way that Governor Rick Perry, Senators Kay Bailey Hutchison and John Cornyn, and Texas Republicans in Congress are approaching the national discussion of the economy -- with pure political obstruction -- no one in Texas should expect much change any time soon.
