State Sen. Glenn Hegar is mad as hell at the insurance industry. He’s outraged by how much Texans are paying for their homeowners insurance. And that’s all well and good.
Except for one tiny problem: He’s partly responsible for it.
Texas homeowners pay on average the highest premiums in the country. Hegar, a Republican from The Woodlands, wrote an op-ed recently published by Quorum Report in which the good senator writes:
Appalling and unethical are the words that best describe recent actions taken by several large insurance companies in Texas. At a time when millions of Texans are struggling to make ends meet, some insurance companies have chosen to saddle hardworking Texas homeowners with double-digit rate increases. This is simply unacceptable.
It’s amazing how quickly a politician who largely supported the insurance industry during the legislative session can turn into a raging populist after lawmakers adjourn and it’s too late to change anything. I’d say he’s being afterthoughtful.
Some background: In 2003, the Lege reformed the home insurance market and created a system in which insurance companies endure little regulation. They are free to institute rate hikes whenever they wish. They simply have to notify state regulators. This lax system is called “file and use.”
Consumer advocates have been pushing more stringent regulation — a so-called prior-approval system — in which, as the name implies, regulators would have to approve rate increases in advance.
Democrats and some Republicans hoped to create a prior-approval system this past legislative session. The insurance industry fought hard to maintain the status quo. And one of their most prominent allies was — you guessed it — Glenn Hegar. During a Senate debate on insurance reform in April, Hegar lead the Republican effort in rejecting a prior-approval amendment. He said at the time that the current file-and-use system just needed more time to work.
Hegar seems to have anticipated this criticism. In his recent op-ed, he writes:
Some argue that instituting a prior approval system will solve all of our problems. The facts show that this simply isn’t true. In fact, many of the states with the highest homeowners’ insurance rates in the country have systems where the insurance regulator approves rates before they are instituted. And, most states are moving away from these prior approval systems because they lead to sudden rate spikes, which make the recent increases in Texas seem mild in comparison. In sum, prior approval may sound good, but it simply doesn’t work.
Hegar provides scant evidence to back up his claim that prior approval “doesn’t work,” save for a vague reference to sudden price spikes in other states.
Do states with prior approval systems and stricter regulation have higher insurance rates?
To find out, I did a little research, with the help of Alex Winslow at the consumer-advocacy group Texas Watch, which supports prior approval.
Hegar’s assertion doesn’t hold up.
The three most expensive states in the country to insure a home in — Texas, Florida and Louisiana — all have some form of “file and use.” (Here’s a pdf with state premium data — for all the policy geeks out there.) And out of the five most expensive areas to insure a home, only the District of Columbia uses prior approval.
California and Mississippi have high home-insurance rates (both rate in the top 10) — and they both have prior approval. But it’s simplistic, Winslow argues, to link rates solely to the regulatory system of certain state. Weather and natural disasters also are factors in California (earthquakes, fires, mudslides) and in Mississippi (hurricanes). Likewise in Texas, where severe weather means the state will always have higher than average homeowners insurance rates. But Winslow argues that consumers would get a much fairer shake if the state actually regulated the industry. Prior approval isn’t a cure-all, he says, but it would provide more protection for consumers.
If Hegar wants to blame someone for high insurance rates, he need look no further than the Texas Legislature.