Texas should look to building codes, competition to ease property rates
In his testimony, Lehrer noted that property insurance rates in Texas are primarily driven by the state’s experience with hurricanes, tornadoes, hailstorms, snowstorms, floods, mold and even destructive dust storms. But while those factors are all outside of the Legislature’s control, lawmakers should act to make the state’s regulatory and legal systems more transparent and more attractive to insurance capital.
“A system allowing free markets, rather than government bureaucrats, to set Texas’ insurance rates would likely serve consumers the best and result in the lowest overall insurance rates,” Lehrer said. “Even if Texas is unwilling to do away with rate regulation altogether, however, it should at least aim for certainty in the way it regulates insurance and the legal environment in which insurers operate.”
Drawing from research conducted by the Institute for Building and Home Safety, Lehrer also suggested that Texas could reduce insurance costs by stressing mitigation, as IBHS currently ranks the state’s building code policies third-worst among all hurricane-prone states. In a survey of Texas hail damage claims, IBHS found that homes with impact-resistant roofs were 40 percent less likely to have claims, and 55 percent less likely to have claims resulting in insurance payments, than those without.
Lehrer also proposed that Texas follow the lead of New York, Florida, New Jersey and Indiana in adopting the NAIC’s modernized credit for reinsurance standards, which lower the cost of coverage by reducing costly collateral requirements on foreign-based reinsurers.
“None of these things will ever make insurance cheap. But all of them, together, can make insurance more affordable to the state’s consumers,” Lehrer said.
For the full text of Lehrer’s written testimony, please visit: http://redesign.rstreet.org/wp-content/uploads/2012/07/Testimony-to-Texas-Senate-Committee-on-Business-and-Commerce.pdf
R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. R Street’s co-founders previously were the staff of the Heartland Institute’s Center on Finance, Insurance and Real Estate. Its website is www.redesign.rstreet.org.