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Texas Insurers Profiting at Homeowner Expense

Submitted by jrlaw on Mar 9th, 2009

Almost every industry in the United States experienced the effects of economic decline in 2007. The prospects for the 2008 financial front are equally, if not more grim for sectors throughout the country. In these times of belt-tightening and bottom-line watching, it comes as a comfort that everyone is feeling the pinch, and is fighting the same battle. At least, that's what we think. And that's what is fair.

But today we have learned that one Texas industry has found a way to rise above whispered rumors of recession and dire financial forecasts: The Texas Insurance Industry. In fact, Texas insurers went virtually untouched by the slow turn of the economy in 2007, going on to record one of their most profitable years on record - an accomplishment worth praise and notice, surely. Praise, that is, until we realize that this stellar feat was accomplished at the expense and bilking of these companies' own customers.

Financial reports released Wednesday by the Texas Department of Insurance indicate that 2007 marked the 5th straight year that the Texas Insurance Industry beat the standard benchmark for "reasonable profits." That benchmark is a loss-ratio equal to 58 percent (meaning insurers that pay out less than 58% of premiums collected in a year to cover property loss in that same year, are considered "reasonably profitable"). Texas insurers shattered that mark in 2007, with an average loss-ratio of 36.5 percent for the year. This means that, on average, insurers that collected premiums from hardworking Texans last year pocketed 63.5% of those premiums as profit (when state benchmark standards indicate that a retention of 42% is the measure of profitability).

Something doesn't add up. Unfortunately that something is twofold, and both bode poorly for customers: higer rates and poor coverage. By raising rates and cutting the number and amount of paid claims made upon it, the Texas Insurance Industry has carved itself a nice, profitable niche that is uneffected by economic concerns and the financial health of its very customers. No one wants to risk going without insurance, especially in hard times when a loss would be exponentially harder to absorb, absent coverage. Even more, insurance coverage is required by law in some cases and by lenders in almost all others. As such, with a climate that dictates that everyone must pay for it, what incentive does the insurance industry have to treat us fairly and to accept a reasonable profit, when they can get away with charging us what they wish?

Sure, the industry spokesmen point to "overhead costs" and the need for reserves for upcoming and impending disasters as a means to justify the skyrocketing costs and profits. Industry leaders have suggested that the past few years have been relatively quiet in terms of loss for Texas, but that that lull in claims only increases the necessity for hoarding funds to pay for the next big disaster that is surely around the corner. Those excuses don't add up when we see that 2007 marked the fifth straight year that the Texas Insurance Industry has beaten the 58% benchmark. In fact, in 2007 Texas ranked 3rd among states in weather-related losses - at $677 million. Only California and Minnesota had greater total losses in 2007, yet industry leaders still claim that it was a "down year." In reality, the only thing down in 2007 was the collective bank balances of Texas insurance customers after yet again paying unjustifiably high premiums for coverage.

With these record profits, it is time that Texas customers start seeing insurance rate decreases. In fact, the Texas legislature has been entangled in a legal battle with State Farm, the largest insurer in Texas, since 2003 over an order to decrease homeowners rates by an average of 12%. Estimates are as high as $600 million in State Farm overcharges for State Farm customers since that order - but the company still insists that its rates are fair and equitable. In 2007, State Farm's loss ratio was 39.2% (equating to 60.8% of premiums collected going to profit).

The time has come to force insurance providers to be accountable for these practices. We must stop allowing the insurance industry in Texas to dictate its own fate through legislative manipulation. And it is time that we demanded fairness and equity for Texas consumers, and stopped watching the insurance industry beat its own profit records at our expense.