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House committee studies how to control insurance costs

DALLAS (AP) – The House Insurance Committee is working on legislation to deal with runaway homeowners’ insurance premiums.

State Rep. John Smithee, R-Amarillo, chairman of the panel, said Thursday he hopes to have a proposal ready within a month.

The Texas Legislature won’t be back in session until January, but Smithee said it could guide state regulators and insurance companies until then.

“These rate increases are going to hit a lot of people hard over the next several months,” said Smithee, referring to premiums that have gone up by at least a third, and in some cases more than doubled, since the beginning of the year.

Industry officials said there is no relief in sight. Homeowners are learning about the state’s insurance crisis as annual premium renewals occur.
Insurers have blamed the increases on rising losses in Texas, including a surge in claims for mold damage over the past year.

Smithee said the House committee’s recommendations will likely propose a “file-and-use” system for homeowners and auto insurance rates in which all companies would have to notify the Texas Department of Insurance of any premium increases. The department could raise objections if it found a rate increase excessive or unjustified

That proposal is aimed at the large number of homeowners’ insurance companies whose rates are unregulated. Most insurers have shifted their homeowners’ policies into Lloyds subsidiaries, which under an old state law are exempt from rate regulation.

“There is a lot of support for a file-and-use system,” Smithee said in a story in Friday’s editions of The Dallas Morning News. He said several other states use that approach to track insurance premiums.

Smithee said that although lawmakers cannot adopt a new system of rate regulation until next year, he hopes state Insurance Commissioner Jose Montemayor can persuade companies to voluntarily file their rate changes with the state in exchange for getting more freedom in designing their policies.

The House committee also is interested in setting shorter time limits for insurers to respond to property damage claims and in offering premium discounts for homes that use mold-resistant materials.

An industry spokesman said companies are receptive to any changes that would foster competition in the marketplace and make insurance more accessible for consumers.

“We need to redirect the public debate away from insurance to the real cause of the problem – mold,” said Jerry Johns of Southwestern Insurance Information Service, an industry group. “What is driving the cost of insurance up is mold, and we hope they address that in their recommendations.”
Consumer groups said a file-and-use system would be a “step up” from what Texas has now.

Rob Schneider of Consumers Union said lawmakers should seriously consider a “prior approval” system for regulating rates in which companies would have to receive state authorization before increasing premiums.

“That is what we really need to give consumers protection against the wild rate increase that we have seen this year,” he said. “The state needs to be more aggressive in regulating rates.

“All you have to do is look at the large number of Texas homeowners who are getting rate shock when they open their insurance bills this year. Every month, another one-twelfth of the population is getting hammered.”