Under Cover of Darkness, Lawmakers Side with Insurance Companies – Again

Insurance Dept. reform bill includes few consumer protections.


Dave Mann

Late on Friday night—with few people watching—the Texas Senate handed the insurance industry another major victory. 

Insurance companies have had their way in Texas for at least a decade now. The result is that Texas homeowners pay the highest insurance rates in the country. And the industry has repeatedly blocked attempts to save consumers money. 

But Friday’s victory—in which insurers got nearly everything they wanted from a major insurance reform bill—may have been the fastest and least-heralded of the industry’s many recent triumphs. 

Perhaps you didn’t know that insurance reform was even an issue this legislative session. The Texas Department of Insurance is undergoing sunset review—a once-every-12-year process in which agencies are examined for flaws and potential reforms. Yet the Insurance Department sunset bill—House Bill 1951—has received almost no media coverage. 

The House passed the legislation on May 11 with no fanfare. House members rejected nearly every proposal that would impose more regulation on the industry to reduce rates. 

And on Friday night—in less than 30 minutes of debate—the Senate passed an even more industry-friendly version. When the bill came to the Senate floor past 9 p.m., the gallery was empty and only three reporters (myself included) remained at the press table. Most people’s attention was focused on the major spending debate across the Capitol in the House chamber. And on a day when legislative leaders had struck a budget deal, insurance reform simply didn’t rate. 

But once upon a time—back in 2003—those highest-in-the-nation insurance rates were considered scandalous. It’s easy to forget that insurance reform was the major issue of the 2002 governor’s race. 

Then as now, Texans paid on average the highest homeowners insurance premiums in the country, despite home values far below states like California and Florida. Insurers have long argued that rates in Texas are high because the state experiences such extreme weather—from hurricanes on the coast to tornadoes in the Panhandle to floods in Central Texas. 

Consumer advocates have noted that states like Florida and California also experience calamitous weather yet have lower average premiums. 

Whatever the cause, eight years ago, consumers were demanding more regulation of industry. In the 2003 session, lawmakers chose the lightest regulation possible. They decided not to give the insurance commissioner the power to approve rates before they go into effect—a system known as prior approval. Industry understandably hated the idea. 

Instead, lawmakers instituted a system known as “file and use” in which insurance companies can raise rates whenever they want. The Insurance Department can review the rates after they’ve gone into effect. If the rates are too high, regulators can try to convince the company to lower the prices, including taking companies to court. But that’s proved difficult. Insurance companies, it turns out, have many talented lawyers, and regulators have rarely successfully forced companies to reduce rates. 

The weak regulatory structure is one reason why—eight years later—Texas still has the highest insurance premiums in the country. And though rates haven’t fallen, consumer outrage seems distinctly muted. 

Democrats have tried and failed repeatedly to institute a prior-approval system and other pro-consumer reforms in previous sessions. That includes 2009, when the Insurance Department originally went through sunset review. (The bill died on the last weekend of the session, so lawmakers were forced to re-do it this year.) Republicans once again shot down prior approval this session in both the House and the Senate. 

But during the House floor debate on May 11, Democrats attached one significant pro-consumer amendment. Rep. Craig Eiland, a Galveston Democrat, proposed a requirement that insurance companies offer consumers a single simplified form that explains their different plans. 

Alex Winslow, executive director of the nonprofit group Texas Watch, said a standard form would allow consumers to compare products and prices from different companies in the deregulated market. Purchasing insurance isn’t quite like buying cereal or even comparing cell phone plans. The details of insurance are much too complex for many consumers. A standard, simplified form put out by every company would allow consumers to comparison shop. “We believe [standard forms] will lead to real price competition,” Winslow said.

Consumer advocates pitched the Eiland amendment to House GOP members as a pro-market proposal. It would spur more competition and perhaps help lower prices. House members mostly agreed and voted the Eiland amendment into the bill. 

But when the bill reached the Senate, Sen. Glenn Hegar stripped out all the House amendments, including Eiland’s. 

When the bill came to the Senate floor on Friday, Hegar defeated three Democratic amendments that would have imposed more regulation on industry. No one even offered a version of the Eiland amendment. So the Senate version lacks even that consumer protection. 

The bill will likely now go to a conference committee, which will meld the House and Senate versions. There’s still a chance the Eiland amendment on standard forms will make into the final bill. 

But whatever the outcome of a conference committee, lawmakers have already made sure this session’s major insurance reform will once again heavily favor industry. 

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