Office of the Governor Rick Perry

Text of Gov. Rick Perry’s Remarks at Homeowner’s Insurance News Conference Austin

*Note - Gov. Perry frequently departs from prepared remarks.
Tuesday, February 12, 2002  •  Speech

(Note: Governor Perry frequently deviates from prepared text.)

In recent months, there have been troubling trends in the homeowner's insurance market in Texas.  The competitive marketplace seems to be failing too many Texas families.  In too many cases, homeowner's insurance is getting more expensive, coverage is becoming harder to get, and instead of more companies stepping up to meet the demand, some companies have stopped writing comprehensive policies altogether.

The laws of supply and demand and competition - which normally yield lower prices and greater consumer choice - do not seem to be working in the Texas homeowners insurance market.

Let's look at the facts:

Three big companies control 66% of the Texas homeowner's market.  Late last year, within weeks of one another, two of the state’s biggest companies stopped writing comprehensive homeowner's policies for new customers.  The third company stopped writing HO-B policies even for existing customers.  Those same companies also began charging their existing customers more - in some cases 14% to 200% more. 

And despite claims to the contrary, these rates cannot be blamed solely on the recent increases in mold claims. 
In November, Commissioner Montemayor restructured homeowner’s insurance policies retaining coverage for mold caused by certain water damage, but making coverage for high-priced mold testing and remediation optional. 

This move should have lowered insurance premiums while increasing consumer choice.  Unfortunately, it has not yet had a significant impact on premiums.

In a normal marketplace, when price pressures rise, consumers would shop around for lower cost policies.  But in the current environment, the three largest home insurers are not writing comprehensive policies for new customers. 

There are a number of good companies still writing comprehensive policies, but unlike the big three, they do not have the marketing budgets, agility or financial capacity to quickly absorb large segments of the market.  The fact is that a few companies have a captive market, and Texas homeowner's have little choice but to pay higher premiums or go without comprehensive homeowner's insurance coverage.

This makes things tough on homeowners and leaves many of our state’s 230,000 independent insurance agents – through no fault of their own - with fewer products and even fewer answers for angry customers.

The marketplace for homeowners insurance in Texas has suffered a breakdown.   And the State has few tools in our toolbox to fix it.

Only about 5 percent of the homeowner's market is rate-regulated today, down from about 80 percent in 1985.
During that time period, most insurance companies have restructured to get around state regulation.  That means that our Insurance Commissioner lacks the authority to put the brakes on runaway homeowner's insurance premiums. 

It's time for the homeowner's insurance market to get a correction.  And if the insurance companies do not correct themselves soon, the state will do it for them.

Commissioner Jose Montemayor is now conducting special market conduct examinations of two of the big three homeowner's companies.  Those exams - carried out by specially trained personnel - review how insurance companies treat their customers.  They are looking at the premium rates policyholders are charged and whether increases are being unfairly shouldered by some policyholders.  TDI is also investigating whether credit scoring - the practice of basing rate hikes on credit history - may account for some of the large increases consumers have reported to the state.

Today I'm taking the next step by asking the Attorney General to investigate the market conduct and marketing practices of the biggest homeowner's insurance companies.  I’m concerned that the big insurance companies may be misleading Texas families about the changes they’ve made in homeowner’s coverage and costs in Texas.  I’m concerned that they are not detailing the differences between the comprehensive HO-B policies – which they no longer offer to new customers – and the new watered down HO-A policies they are now aggressively marketing. 

Homeowners must have full and verifiable information to make informed decisions as they shop for insurance.   I’m concerned that in this changing environment, insurance companies are not providing consumers with the honest facts they need and deserve.

I have asked Commissioner Montemayor and the TDI staff to work with the Attorney General as they continue their market conduct and credit scoring reviews and share any relevant information with the Attorney General’s office.  If the Insurance Department finds evidence of discriminatory pricing or other questionable activities, I want the Attorney General’s office to know about it. 

Texas families should know that we are doing everything possible to stabilize the homeowner’s insurance market and protect Texas homeowners from unfair or unjustified insurance premiums or practices.

I’ve also asked Commissioner Montemayor to work closely with members of the Texas legislature - like John Smithee, Mike Jackson and others - to examine additional state regulations, legislative remedies and tort reforms to put the brakes on runaway homeowner's insurance costs.

Among the options is going to a file and use rating system – giving the Texas Department of Insurance the ability to challenge insurance rates charged to auto and homeowners customers.  Commercial lines are already subject to file and use in Texas, and at least 20 other states use this system for at least one line of personal insurance.
A tougher option – especially when a few companies command a large share of the market - is a prior approval rating system.  Prior approval would require the Insurance Commissioner to approve or disapprove certain rate increases before customers are asked to pay – increasing the Commissioner’s ability to get control of an unstable market and prevent rate shock for Texas consumers.

While examining these options, Commissioner Montemayor will continue to find ways to make the homeowner's market more competitive, giving consumers more choices and better prices.

The Insurance Department is also considering the adoption of national forms – forms used by companies in other states but specifically tailored for Texas consumers – which could provide more consumer choice and allow smaller companies to compete head-to-head with the big companies now controlling the market. 

I believe that if we adopt national forms in Texas, they should be contingent upon premium discounts to lower consumer costs and stabilize the market.

Commissioner Montemayor will also take steps to allow HO-A policyholders to purchase additional coverage for water damage and other risks.

I'm disappointed that we have to consider these strong actions, and I hope that we can find ways to stabilize the market without legislation.  But the status quo is unacceptable.

Home-ownership is an integral part of the American dream.   Access to affordable homeowner’s insurance is vital to making that dream a reality for Texas families, especially for families looking to buy their first home.

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