Residual Markets Limit Competition
Growing problems with the Texas Windstorm Insurance Association (TWIA) could lead to a call for reform or even expansion of the program. That would be a mistake ... and a giant step backwards from recent reform.
Texas began moving in the right direction in 2003, when insurance regulators switched from a prior-approval system for approving rates to a free-market-oriented file-and-use system. The correct path to sustained growth in the insurance market is deregulation and the opening of Texas’s market to competition.
Residual markets like TWIA erode the private market and have generally pushed consumers towards the state-run companies, which were created to be insurers of last resort. In order for an insurance industry to grow and thrive, it needs to be able to adapt to new challenges and form under the fires of competition. Under a highly regulated scheme, this is difficult. The right solution for Texas is increased competition through less regulation, not additional regulation built on the backs of taxpayers. The TWIA should be phased out.
TWIA was never meant to be the chief provider of windstorm insurance for Texans. Scaling back the residual market would allow free-market forces to take hold, encouraging competition.
Matthew Glans (firstname.lastname@example.org) is a legislative specialist for The Heartland Institute.