When criticizing the insurance industry, let’s not allow facts to stand in the way

In his commentary “Stand Up For The Consumer; Show State Farm The Door,” John Cobarruvias is so quick to criticize the insurance industry that he apparently did not have time to check any facts.

He states Texas has the highest insurance rates in the nation. He is wrong. That distinction belongs to Florida. Property owners in Florida now pay twice as much or more on average for homeowners insurance than do Texas homeowners.

Poisoning the minds of consumers in Texas with misleading and inappropriate statements about the state of the insurance industry is not in the best interest of anyone.

Regulatory pressure has resulted in many insurers reducing homeowners’ insurance rates despite the potential for major weather-related catastrophic events which plague the state.

The warning signs in Texas clearly point out that a crisis is looming. The Texas Windstorm Insurance Association, the market of last resort for wind coverage along the Gulf coast, currently has $1.3 billion to pay claims in the event a hurricane strikes. Now, had Hurricane Rita made landfall in Galveston, TWIA projects they would pay $4-6 billion in claims.

It is important to mention that TWIA is propped up by the insurance industry which would be assessed for hundreds of millions of dollars in the event of a financial shortfall by TWIA.

The cost for catastrophe reinsurance in Texas along the Gulf coast has increased anywhere from 100-300 percent and about 30 percent of a person’s insurance premium goes to pay for reinsurance. Reinsurance is not new, but the increased demand for this product, precipitated by forecasts of an active hurricane cycle has caused prices to increase significantly.

It is all too easy to suggest regulators “show an insurer the door.” But, Florida homeowners can attest to what happens to prices when there are not enough companies to sustain the number of people who need insurance. Homeowners in Florida are facing triple digit rate increases.

Twenty-seven insurers have fled the Florida market. Four companies are insolvent, while others are in financial difficulty and 175,000 policies are being non-renewed.

Citizens Property Insurance Association, the market of last resort in Florida and now the largest property insurer in the state, faces a $3.7 billion deficit. That is a deficit for which taxpayers and ratepayers in Florida are responsible.

It is a matter of simple economics that insurers must have the money to pay claims and that is impossible if rates are falsely controlled by regulatory intervention. This is true of any business, including insurance.

If insurance companies were indeed making “windfall profits” as critics claim, then companies would be flocking to Texas by the hundreds to get their share of the pie. In fact, the opposite is true. Not only are companies not rushing across state lines to sell homeowners insurance in Texas, many companies already here are looking not to grow.

Suggesting that the state “show a company the door” is reckless and irresponsible and shows an incredible lack of understanding about what is happening in the Texas coastal homeowners market. In an environment where there are too few companies, removing another would leave coastal homeowners with no option except to turn to an under-funded TWIA.

In a normal business setting, companies want more customers, not fewer. That is not the case with much of the insurance industry in Texas.

Any business venture has risks. A significant investment of capital is required to start, run and grow a business and there is no guarantee of success. No one would be willing to take the risk without a reasonable expectation of modest return on investment.

When irresponsible critics advocate public policy which would force companies to ignore economic reality, the investment does not become more attractive, it becomes less.

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Jerry Johns
Austin
President, Southwestern Insurance Information Service

Opinion/Analysis

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