ustxtxb_obs_2008_12_12_50_00017-00000_000.pdf

doubt that this is a real opportunity to make a difference in the political climate in Austin:’ The industry responded. Insurance interests accounted for $237,000 of the $1.7 million worth of mailers attacking Democrats that TAB sent out in the months before the election, as reported by the Austin American -Statesman. \(Spending corporate money on campaigns is illegal in Texas, and TAB and some of its fenders would later be indicted for their actions uted money to DeLay’s Texans for a Republican Majority. On Election Day, nearly all the candidates backed by the DeLay operation won, boosting Craddick into power at the head of a 26-seat Republican majority. In all, big insurers in Texas spent at least $1.1 million in the 2002 election to support Republican legislators, Perry and Lt. Gov. David Dewhurst. This was highly out of character. Insurance interests have rarely played such a large role in Texas campaigns. But in 2002, the industry badly needed friendly politicians in power. Home insurance rates in Texas had begun to rise sharply in 1999. The excuse was partly a rash of mold claims filed across the state. But the industry had also lost a bundle in the stock market when the tech bubble collapsed. Consumer advocates had seen this before: when insurance companies lose big in the stock market, they invariably try to cover the investment losses by raising rates on consumers. And in Texas at the time, the industry could gorge itself on rate hikes because of a quirk in state law known as the Lloyd’s loophole. This gets complicatedas is often the case with insurance policybut essentially state law at the time left a certain type of insurance policy, known as Lloyd’s policies, unregulated. These were policies originally meant for homes that had unpredictable risk, perhaps because of their high value or because of where they were located. Once the secret got out, though, nearly every insurer in Texas began shifting as many homes as possible into Lloyd’s policies to escape the reach of state regulators. By 2002, about 95 percent of home insurance policies in the state were unregulated. And like teenagers who had suddenly escaped their parent’s supervision, insurers hiked ratesin some cases doubling premiums. With the insurance market in crisis, some level of reform was inevitable. The market would have to be re-regulated and the Lloyd’s loophole closed. The political environment demanded it. The open question was just how stringent the new regulatory structure would be. Many Democrats were touting forced rate rollbacks. They also wanted a reform package that would empower the Texas Department of Insurance to approve rates before companies could put them into effect. This approach is known as “prior approval.” For the industry, it sounded as pleasant as dental surgery. Big insurers much preferred the plan that Perry put forth: “File-and-use” Under this system, insurers can raise rates without approval and simply have to notify regulators of their premium increases. Proponents say file-and-use allows the market to set the rates and improves competition, which, they say, leads to lower premiums. Not long after Election Day, it became clear that insurers would have big sway during the upcoming legislative session. In November, after Craddick claimed the speakership, he appointed a transition team, three men who would serve as gatekeepers to the speaker’s office throughout 2003. Two of those men were political consultant Bill Miller, a Craddick confidant who was a spokesman for Farmers at the time, and Bill Messer, a lobbyist for State Farm. DECEMBER 12, 2008 THE TEXAS OBSERVER 17