AUSTIN - State Representative Dwayne Bohac (R-Houston) is pleased to announce that the Texas Legislature passed much needed homeowner and automobile insurance reform. Senate Bill 14, crafted to address the insurance crisis in Texas, passed on the closing day of the 78th Legislative Session and now heads to Governor Rick Perry for approval.
“The Governor made this one of his top priorities for the session and so did I,” commented Rep. Bohac, who voted for the final version hammered out by the House-Senate Conference Committee. “It was a time-consuming and complex issue to get your arms around, but what we produced will drive down homeowner insurance rates, encourage new companies to come to Texas, increase competition in the market, and restore much needed fairness to the market. Homeowner insurance rates will be scrutinized and adjusted to assure that they are reasonable, and that’s the right thing to do.”
The new law will mark the beginning of the end of insurance abuse in Texas. The most important concept is that “rate standards” will now apply to all insurance rates in Texas. All rates must be just, fair, reasonable, adequate, not confiscatory, not excessive, and not unfairly discriminatory. Because of a loophole in existing law, almost half of all automobile policies, and 95% of all homeowners policies were not subject to rate standards. This loophole was closed in SB 14, and the abuse will now come to an end.
Currently, many Texas insurers are charging homeowner rates that are excessive according to rate standards by anywhere from 1-25%. SB 14 requires all insurers to file new rates that comply with rate standards within 20 days after the Governor signs the bill into law. The Commissioner of Insurance will then approve, reject, or modify the new rates within 60 days, or 90 days for small insurers.
“This is a critical tool that empowers the Commissioner to protect Texans from excessive, or unfairly discriminatory rates,” continued Bohac. “If rate standards had been in place during the recent homeowners crisis, most excessive rates could have been reduced.”
“When fully implemented, every Texan will be assured that he or she is paying a fair, just, and reasonable rate for homeowners insurance,” said Bohac. “If any insurer does not use appropriate rates, they will be ordered to rollback their rates and refund the overcharge. This will allow the Commissioner to take a hammer to unfair insurance practices and stop the abuse that has plagued the state of Texas.”
The unfair use of credit scoring has also been eliminated. Earlier amendments to SB 14 had called for a complete ban on credit information, but these provisions would have likely resulted in rate increases for 60-70% of all Texans. The final version of the bill establishes meaningful consumer protections to prevent the unfair use of credit scoring. Texas has adopted the National Conference of Insurance Legislators' model, but added significant consumer protections, making Texas one of the toughest states on the misuse of credit scoring. These protections include a ban on using scores in an unfairly discriminatory manner, prohibition of denying or canceling insurance solely on the basis of a credit score, and severe restrictions against discrimination based on medical debts, catastrophic events, illness and divorce. Most importantly, insurers must file credit scoring models with the Texas Department of Insurance, and they will open for public scrutiny.
“As a small businessman, I understand the concept of treating your customers right,” continued Bohac. “Big insurance has no business punishing its customers based on factors out of their control that have absolutely nothing to do with whether or not they will file a claim.”
Bohac believes that this bill will make a real difference for homeowners across the state. “A competitive market will provide Texans the best price, product and service,” continued Bohac. “This bill will allow Texas to transition into a competitive insurance market. The Commissioner of Insurance will review the entire market to make sure that it remains competitive, while at the same time, allowing companies greater latitude to compete using their forms, price and service.”
“The Texas Legislature has come together to help cure the ills of the insurance market,” concluded Bohac. “The Commissioner's review and approval of rates will bring lower rates and relief to Texas families. While more reform may be needed down the road, moving to a competitive market will ensure affordability and availability for Texans insurance needs in the future.”