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AUSTIN, TX. Consumer groups announced today the results of a study demonstrating that auto insurance consumers in Texas were overcharged $1.2 billion in 1997. The results of the study released today show a total windfall of more than $2 billion for insurance companies in Texas resulting from drastically reduced payouts beginning in 1996.
"Although the Texas Legislature intended that insurers pass along savings from the so-called tort reform laws of 1995, insurers have kept the money," said D.J. Powers, executive director of the Center for Economic Justice. "Added to the $900 million overcharge in 1996, insurance companies have seen a total windfall of more than $2 billion money saved from drastically lower losses and not returned to consumers."
The report also found that insurance companies are fairing poorly in the area of "loss-ratios." A loss-ratio compares premiums received by insurance companies to the losses they pay out. In his benchmark rate order issued last year, Insurance Commissioner Elton Bomer established a reasonable loss ratio for auto liability insurance at 74 percent for every dollar paid in by consumers, 74 cents should be paid out in claims. According to the report, all of the largest insurance companies in the state had loss-ratios far lower than the amount determined to be reasonable by Commissioner Bomer.
"The report shows that State Farm, Allstate, Farmers, and every other major insurance company operating in Texas have seen a windfall as a result of tort law changes passed in 1995," said Dan Lambe, director of Texas Citizen Action. "However, consumers are not seeing the results of these savings. Companies are sending these windfall profits out of state not passing them on to Texas consumers."
Overall, loss ratios for the 45 largest rate-regulated and non-regulated (county mutual companies) have decreased from more than 90 percent in 1990 to only 51.6 percent in 1997. In 1997, State Farm returned only 48 cents on the dollar, Allstate, 59 cents, and Farmers 61 cents.
"High liability insurance costs make it very expensive for families to comply with the state's requirement to buy insurance," said Rob Schneider, Senior Staff Attorney for Consumers Union's Southwest Regional Office. "Yet, for the second year in a row, insurance companies are keeping windfall profits instead of lowering insurance premiums."
The groups called on insurance companies in the state to immediately lower automobile insurance rates.
"The rates being charged by insurance companies in Texas are excessive, unjustified, and abusive," continued Powers. "Insurers operating in Texas should immediately lower their rates and return two years of excess premiums to Texans."
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
The Center for Economic Justice is a Texas nonprofit corporation dedicated to protecting the interests of low-income consumers as a class.
Texas Citizen Action, the state's largest consumer action group, is a non-profit, non-partisan organization founded in 1989 and supported financially by over 150,000 households. Texas Citizen Action and its members work together to promote the interests of consumers in the legislative and regulatory process.
