Insurance reform flunks Senate test (April 2003).

SB 14 offers little rate relief, no ban on credit scoring, exacerbates auto market problems

AUSTIN, TX -- The Senate missed an opportunity to bring real insurance reform for Texas policyholders by passing watered down legislation April 2nd that fails to roll back rates, ban credit scoring, or put the burden on insurance companies to justify future rate increases before approval. Also, the bill further deregulates the auto insurance market and paves the way homeowners insurance type problems in the future.

"If this is insurance reform, Texans have a right to feel betrayed," said Dan Lambe, executive director of Texas Watch. "This is a far cry from what polls show Texans demand from their elected officials. It is a far cry from what Governor Dewhurst and other top officials promised during their campaigns last year. Plain and simple, it will not solve the insurance crisis in Texas and may actually exacerbate it."

While homeowners rates have risen by 45 to 70 percent in Texas since the year 2000 -- and have doubled or tripled for many homeowners -- SB 14 has no rate rollback provision. An amendment by Sen. Elliot Shapleigh, D-El Paso, to roll back homeowners insurance rates -- already the highest in the nation -- failed by a 20 to 11 vote.

Rather than implementing a "prior approval" system that allows rate increases only after a review by the Texas Insurance Department, the bill pulls in the opposite direction. It incorporates a "file-and-use" system that deems rates filed by insurers as approved unless disapproved by an undermanned insurance department.

"Nothing in this bill bodes well for rate relief, either now or in the future," said Gus Cárdenas, director of AARP-Texas. "In the short term, rate shock will continue and Texans will continue to have the highest homeowners rates in the nation. In the future, the file-and-use mechanism will result in business-as-usual rate increases."

According to polls, two-thirds of Texans believe insurers should ban credit scoring. Although states like Hawaii, New York and Maryland have either implemented an outright ban on credit scoring or appear headed in that direction, an amendment submitted by Sen. Mario Gallegos to end the practice in Texas was defeated by a vote of 20-11.

"Credit scores have no redeeming value when it comes to insurance," said Rob Schneider, senior staff attorney for Consumers Union. "The Senate missed a golden opportunity to send an unequivocal message that the practice should not be tolerated in Texas. This issue will continue to haunt us down the road."