Texas Commissioner Rejects Insurance Rate Hikes

Texas Commissioner Rejects Insurance Rate Hikes
December 15, 2009

Texas Insurance Commissioner Mike Geeslin’s recent rejections of rate filing requests from both of his state’s government-mandated property insurance markets have drawn praise from fellow members of Gov. Rick Perry’s (R) administration and derision from consumer advocates.

In separate orders issued in October and November, Geeslin denied requests for increased rates from the Texas Wind Insurance Association (TWIA) and the Texas Fair Access to Insurance Requirements Plan (FAIR Plan). Both plans are “involuntary markets” that provide coverage for high-risk properties that cannot find coverage in the admitted—rate
regulated—private market.

Geeslin’s decisions pleased government-appointed advocates who said they were not justified.

“This needed to be disapproved,” Deeia Beck, head of Texas’ Office of Public Insurance Council, told the Houston Chronicle, when asked about the FAIR Plan rate request.

Some consumer groups, however, strongly questioned Geeslin’s decision.

‘It Is a Fraud’
“Commissioner Geeslin is selling the public option, effectively forcing private insurers out of the market and raising the average costs for Texas consumers. It is a fraud,” says Steve Pociask, chief economist of the American Consumer Institute. “If any insurance company sold policies knowing they could not cover consumer claims, wouldn't that be called fraud? How are Commissioner Gleesin's actions any different?”

Collectively, the two plans—which share top management, directors, office space, and some staff—give Texas the nation’s third-largest “market of last resort” for people who cannot find property insurance in the rate-regulated market.

TWIA focuses on properties that face particular threats from hurricane winds, and the FAIR Plan covers inland properties that face high risks of significant claims. TWIA provides coverage to almost 140,000 Texans in coastal counties. The FAIR plan, meanwhile, covers about 75,000 Texans mostly in the state’s largest cities and their inner-ring suburbs.

Citing insufficiently detailed rate filings, mathematical errors, prices paid for reinsurance, and the desire to avoid setting what he terms negative precedents, Geeslin—an appointee of Gov. Perry—denied requests for a 20 percent TWIA rate hike and a 19.5 percent FAIR Plan Hike. In both of his disapproval orders, Geeslin conceded the plans needed higher rates and suggested the plans file again.

Risk Transfer an Issue
Geeslin’s disapproval of the FAIR Plan rate request particularly criticized the plan’s purchase of private reinsurance and suggested the FAIR Plan seek out “other means” of risk transfer. While Geeslin’s order did not specify any particular means of risk transfer other than reinsurance—the standard means of risk transfer available to most insurers—the Texas legislature gave its approval to a bond issue to back TWIA debts during a special session in mid-2009.

Although their means of doing so differ, both plans can impose special taxes called “assessments” on consumers and private insurers if they fail to collect enough revenue to cover claims. There is no overall cap on the amount of these taxes.

All insurance companies operating in Texas’ “admitted” homeowners insurance market (where nearly all people who own ordinary homes find their insurance policies) are required to participate in both plans.

Eli Lehrer (elehrer@heartland.org) is director of The Heartland Institute's Center on Risk, Regulation, and Markets.