08.25.07
File And Abuse
Tip to Chisme, for the link to this HChron article. It’s about Allstate going to the courts, and around a Texas Department of Insurance (TDI) ruling earlier in the week, to get a restraining order to stop the TDI from doing it’s job - regulating the insurance industry.
Allstate has persuaded a judge to temporarily block efforts by state regulators to keep the company from immediately increasing homeowners’ insurance rates statewide.
Allstate filed for its rate increase on Monday, making it effective immediately. Texas Insurance Commissioner Mike Geeslin issued an order halting the rate increase.
But Allstate won a temporary restraining order against Geeslin on Thursday from state District Judge John Dietz on the grounds that state law requires the insurance commissioner to give a company 20 days’ notice before blocking or lowering a rate that already is in effect.
This was all made possible by a bill passed during the 78th Legislature in 2003.
Texas in 2003 adopted a “file and use” insurance rate system that allows companies to file a rate and then use it pending review by the state insurance commissioner.
The bill that put in “file and use” in 2003 was SB 14 authored by Sen. Mike Jackson (R - Up For Reelection in 2008) - if you’re in Senate District 11 check out Joe Jaworski. From what I can tell this bill changed to burden of proof for insurance rate changes. Instead of an insurance company having to submit a rate change, and then wait for the TDI to approve or deny it, “file and use” allows them to change the rate and start charging it without approval from the TDI. The TDI can deny that rate, but only after it’s been submitted and already been imposed on customers. If denied, the insurance company has to pay rebates to the customers they overcharged. All the while having that money in the bank, drawing interest.
File and use was a disaster in Florida, so much so that they changed the law. Here are some more commentary on “file and use”.
Bob Detlefsen, vice president for public policy at the National Association of Mutual Insurance Companies, said it is unusual for an insurance company to make a new rate take effect immediately.
He said the system is supposed to create greater flexibility in the market.
“The theory behind file and use was to make it easier for insurers to change their rates faster — both up and down,” Detlefsen said.
Detlefsen said both Texas and Florida are known to be aggressive regulatory states in holding the line on rate increases.
“Maybe Allstate is trying to call the insurance commissioner’s bluff,” Detlefsen said.
State Sen. Troy Fraser, R-Horseshoe Bay, was a major player in creating the current regulatory scheme in Texas. He said the state law should give Geeslin enough power to block unnecessary rate increases.
“Senate Bill 14 very clearly gave the insurance department the ability to reject a rate they think is not warranted,” Fraser said.
First, somebody raise their hand if the “market” has ever lowered your rate. That’s what I thought. Second, the TDI did reject a rate it thought was unwarranted and the court won’t let them. Third, Allstate isn’t calling the commissioner’s bluff, they’re saying we own the politicians that appointed you Mr. Commissioner, so do what we tell you.
I was taught very early on that insurance companies are a necessary evil. My Father taught me that most of our elected officials, one way or another, are tied to the insurance industry, thus a law like this. It’s no surprise that in 2003, once the Republicans finally gained control of all branches of government, they wrote a bill that hands the insurance corporations the ability to regulate their own rate increases - let’s call it file and abuse.