Industry denies groups' claim, citing recent rate cuts for many

11:30 PM CST on Thursday, March 31, 2005

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – Leading consumer groups, citing record profits by Texas insurers, accused the companies Thursday of overcharging customers by nearly $4 billion last year for coverage of cars and homes.

Texas Watch and the Center for Economic Justice released a report indicating that the average homeowner paid about $600 in excessive premiums last year, while the average driver paid about $200 more than was justified by insurance company losses and expenses.

Industry spokesmen rejected the overcharge claims, insisting that many policyholders have seen their rates drop in recent months. They also pointed out that a new system for regulating rates didn't take effect until December.

Alex Winslow, executive director of Texas Watch, noted that two years ago Texans were clamoring for relief from skyrocketing home insurance premiums – prompting the Legislature to pass major insurance reform.

"But these findings show that Texans still are being unfairly price-gouged by their insurance companies," he said.

Birny Birnbaum of the Center for Economic Justice said the $4 billion in overcharges in auto and homeowners insurance in just one year is "graphic evidence that the Legislature must take additional action to reform Texas' insurance market."

The groups called on lawmakers to authorize stiffer penalties for companies that overcharge and to ban use of consumer credit histories in selling and pricing policies. Lawmakers also should close regulatory loopholes and restrict the use of databases that track customers' claims and losses, the groups said.

Mr. Birnbaum also criticized state Insurance Commissioner Jose Montemayor for letting insurers "off the hook" and not forcing them to lower rates.

Two weeks ago, Mr. Montemayor ordered most of the state's largest companies to justify their rates in writing by May 1. His action came on the heels of a Texas Department of Insurance report indicating that home insurers earned record profits in 2004.

The commissioner could order rate cuts if he finds evidence of gouging, using new regulatory authority provided by the 2003 law.

Jerry Johns, president of the Southwestern Insurance Information Service, an industry-sponsored group, said consumer groups "failed to mention" that many insurers have reduced rates.

"Tens of thousands of homeowners in Texas have seen their rates decline," he said.

Mark Hanna of the Insurance Council of Texas, which compiles data for the industry, said all premiums were analyzed by the insurance department last year and "were deemed to be appropriate."

Mr. Hanna also pointed to the recent "aggressive action" by the commissioner ordering another review of homeowner rates.

"To openly criticize the insurance department and Commissioner Montemayor for a lack of oversight of the insurance industry is at best a disregard of the truth," he said.

The report from the two consumer groups was compiled using data from the Texas Department of Insurance related to policies, premiums and claims.

State regulators recently reported that home insurers had an overall loss ratio of 27.6 percent in 2004, which was described as a record figure. In other words, insurers paid out 27.6 percent of premiums to cover their property losses last year.

That figure was less than half the 58.5 percent loss ratio in 2003, considered a profitable year by the industry. By contrast, most companies operated in the red in 2001 and 2002 because of massive mold and water damage claims. The industry loss ratio for auto insurance last year was 56.4 percent.

"While insurance companies should be able to make a reasonable profit ... they should not be allowed to unduly exploit the captive market created by our laws and lending practices for their policies," the consumer groups' report said.

They noted that the insurance commissioner has cited a 60 percent loss ratio as a figure low enough to allow for reasonable profits.

E-mail tstutz@dallasnews.com