Sunday, June 2, 1996

Study: Texas auto insurance rates often exceed standard

By Associated Press

DALLAS (AP) - Texas auto insurance premiums have increased to beyond the level state officials say are adequate to earn a reasonable profit, according to an analysis by the Texas Department of Insurance.

Only 13.5 percent of auto insurance policies are near the benchmark rates this year, according to the state study.

One year ago, nearly half of the insurance policies written in Texas were within five percentage points of the standard rates set by Insurance Commissioner Elton Bomer.

Industry representatives said the growing gap between the state-approved benchmark rates and premiums charged by auto insurers shows that the current rate-setting system is outmoded and needs to be changed or scrapped.

Some insurance officials they will seek to end state regulation of rates when the Legislature convenes in January. However, consumer advocates argue that the general increase in property insurance rates under regulation show that premiums would soar if rates were deregulated.

More than 89 percent of all auto policies in Texas carry premiums higher than the standard set by the commissioner. The biggest block of policies - 42 percent - are written at premiums five to 10 percent higher than the standard.

"The rates just keep inching up and up," said Rob Schneider of Consumers Union. "It is a disturbing trend because consumers were told that premiums would come down when we went to a system that gave insurance companies more flexibility in setting rates."

Under the current flexible rate system, approved by the Legislature in 1991, companies can set their auto and homeowners' premiums as much as 30 percent below and 30 percent above the benchmark rates set by the commissioner.

Proponents of the system said it would give insurance companies some freedom in pricing their policies, helping to promote competition and giving consumers a better deal on insurance.

But industry spokesman Jerry Johns said the system has not worked because the rate-setting process is too lengthy and relies on loss data that is out of date by the time it is considered.

"The reason that insurance rates are drifting above the benchmarks is that the benchmarks reflect (loss) data that is not relevant," Johns told The Dallas Morning News for its Saturday editions. "Insurance companies must adjust their rates to keep pace with the current costs of goods and services."

Johns, who represents the state's largest insurance companies as president of Southwestern Insurance Information Service, said there is growing sentiment in the industry that the benchmark rate system is "antiquated" and needs revamping.

He said the best solution would be a "file and use" system where companies set their rates without restriction and file them with the state. The rates take effect automatically, although state regulators could object if they found the charges excessive.

House Insurance Committee Chairman John Smithee, R-Amarillo, said he would have an "open mind" on rate deregulation, but only if there were a guarantee that Texas consumers would not experience rate shock.

"I know that the big companies that write most of the business would like to have a deregulated rate system," said Smithee. "But I am concerned about the possibility of rate shock. The industry would have to provide assurances that consumers won't see their rates go up sharply."

Smithee also said he has reservations about deregulation because of market concentration among a few insurance companies. For example, the three largest companies - State Farm, Farmers and Allstate - control more than 60 percent of the auto and homeowners insurance market in Texas.

"I would feel more comfortable if we had another half dozen companies that held a large share of the market," he said. "We don't have the true competition we would like to see right now."

Public Insurance Counsel Rod Bordelon, who represents consumers in insurance matters, said he believes the current rate-setting system is working despite the complaints from the industry.

"The fact that so many of them have been able to move their rates up without being stopped by state regulators is evidence that they have enough flexibility under the current system," he said.