TDI’s report on insurance rates: You need to go beyond the statutes
By the standard of things that flow out of insurance departments, the report is good, well-written and honest. The bottom line conclusion—that “the primary driver of high premiums is high losses”—is spot on, and much of the analysis of Texas’ insurance environment is perfectly sensible. (My own testimony makes many of the same points.) On balance, what I’ve heard leads me to think that Kitzman is doing a good job turning around what may well have been the most dysfunctional insurance department in a big state.
That said, the TDI report Kitzman will use as the basis for her testimony makes a mistake that I myself made in the first few years of putting together a multi-state insurance report card. In particular, it takes statutory law at face value when it comes to determining how states regulate insurance. This doesn’t always work.
Because it is a complex administrative process, insurance regulation is often going to depend a lot on the specific ways a state administers its laws, rather than what laws are on the books. TDI’s report says that Texas has a “file and use” statute in place. And it does. But the report doesn’t mention that under a previous commissioner, staff and the higher officials at the department frequently told insurers that rates would be disapproved if they were filed. To me, this sounds a lot like a prior approval system. Most insurers have treated it that way.
Likewise, the report says that Texas is average for the country when it comes to ease of non-renewals when, in fact, making it easier to non-renew policies was a big priority for insurers in the last legislative session. Easy market exit is a big incentive to enter the market in the first place, because it hugely reduces the downside risk. Painful as it is to be non-renewed—I was myself two years ago—easy non-renewal laws are probably pro-consumer on balance.
Finally, the report notes correctly that Texas doesn’t have an elected insurance commissioner, but it fails to note that the state is still a place where there’s a great deal of politics in the insurance environment. I could go on.
I don’t think the TDI report is seriously flawed. In fact, it would have been very hard to write an objective comparative report that compiled data any other way. (Although I, frankly, don’t understand how the report’s authors got their data on ease of non-renewal.) R Street’s partly subjective national insurance report card has taken years of work. But looking at statutes doesn’t tell you everything.