Insurance company representatives are at it again – asking the Texas Legislature to change policyholder protections because of an alleged “crisis.”  The insurance representatives, and their lobbying groups, have the Legislature chasing shadows again.  In an interim hearing before the Texas Senate Business and Commerce Committee, representatives for the insurance industry, including Texans for Lawsuit Reform, State Farm, and officials from the Texas Department of Insurance, among others testified.  Calling for reform to insulate them from damages because of their bad faith and late payments, representatives the insurance industry painted a dire picture of the state of the “crisis” that just is not supported by the facts.  The TDI testified and reported on the study they did to measure the data related to the alleged “crisis.”  In the next series of blog posts, BLF will summarize the hearings.

2012 – The Beginning of the “Crisis”???  Or was is there a crisis?  

Starting in 2012, the state of Texas saw an uptick in the number of lawsuits related to property insurance claims. The reaction of the insurance companies related to the increased litigation they were facing was to claim such lawsuits constituted a crisis – stating that there are public adjusters going door to door signing people up for lawsuits as though they were selling Girl Scout cookies. While they have faced more litigation in recent years – and some minor amount may be caused by door-to-door recruiting – it’s primarily caused by their own actions and inactions with the handling of the clientele they should be working for. And while they are taking actions to the detriment of policyholders in the name of the “litigation crisis,” they are also making much more in profits.  And, the reason for the uptick in lawsuits in 2012 – some record storms.

Twin hailstorms in the Hidalgo County vicinity took place in March and April 2012. The April storm produced softball-sized hail and caused half a billion dollars in damage in the McAllen area. Insurance companies and their proponents credit these storms as the start of the “litigation crisis.” The following year, the Amarillo area was affected by a single hailstorm that caused more $500 million in damage – enough to put the catastrophe on par with the loss experienced in Hurricane Dolly, according to the Insurance Council of Texas.

2009 Was Worse for Hail in Texas – but not a “Crisis” according to Insurance Companies 

For comparison purposes, according to the Texas Almanac, on Sept. 16, 2009 in West Texas, “a series of supercell storms produced golf-ball-size and possibly tennis-ball-size hail that caused extensive damage. The most costly hailstorm in recorded history for the El Paso area, the estimated damage was $150 million.” Twenty-five percent of policyholders received paid claims for the damage that storm caused. Only 17 percent  of policyholders received payment for the 2012 South Texas storms that caused more than three times the damage.

Texans Pay Some of the Highest Premiums

According to a report released by the Office of Public Insurance Counsel (OPIC), Texans have some of the highest premiums in the U.S. – on average, 65 percent higher. There are multiple factors that play into the premiums: commissions, advertising, overhead costs, anticipated losses, and target profit margin. OPIC contends that the target profit margin for insurance companies has increased from 5 percent in the early 2000s up to 11 percent in 2012, and in some cases, has increased up to 20 percent.