Outgoing Texas Insurance Commissioner, Eleanor Kitzman, vacated her office on Monday, May 27th when Texas State Senators blocked her from another two year term. Governor Rick Perry quickly appointed Kitzman’s replacement, Julia Rathgeber who until May 27th had been Lt. Governor David Dewhurst deputy chief of staff. Prior to serving as Dewhurst’s deputy chief of staff, Rathgeber served as a Director of Research for the Texas General Land Office and also as former division head for the Texas Natural Resource Conservation Commission.
Governor Perry, Lt. Governor Dewhurst, most state Senators and the Dallas Morning News are thrilled with Rathgeber’s appointment. I know nothing of Ms. Rathgeber abilities nor am I personally acquainted with her. I would, however, like to offer her four suggestions to consider as she becomes Insurance Commissioner for the State of Texas.
Restore Balance: You have the unenviable task of balancing the demands of insurance companies request for higher rates and the needs of consumers. More often than not, you’re going to make someone unhappy because you’ll have to say no to one group or the other. While none of us like to be told no, it’s much easier to accept if the Texas Department of Insurance is being balanced in who they say no to.
Under your predecessor’s leadership, the insurance companies had a banner year of profits due to rate increases of 15% to 30% by carriers on Texas home insurance policies. These profits were enhanced by auto rates that also increased during Kitzman’s tenure. Over the last few years, Texas auto rates went from 14th highest in the country to 11th. According to news reports, Kitzman never said no to any rate increase request and this during a weak recovery following the second worst economic period our country has ever seen.
Such actions are not balanced between consumers and the insurance companies. Recent history shows that Texas consumers have operated for too long at the short end of the stick. Restoring balance would demonstrate credibility by the Texas Department of Insurance.
Create Transparency: Insurance loss ratios for Texas insurance companies were not released until it was clear Texas Senators were not going to renew former Insurance Commissioner Kitzman’s appointment. These are usually released in early April but were not released until the last week of May. This kind of behavior is unacceptable and only fosters public distrust.
Such figures must be open for public review and published on schedule. Doing so engenders public trust and helps foster accountability. If rates need to be adjusted up or down, decisions can be made on the basis of real data. No one likes to pay more for something unless there’s a sound reason to do so and that at least makes it palatable.
Roll Back Rates: Based on last week’s published loss ratios, Texas insurer’s had a banner year in 2012. Rates continue to increase unabated this year which could make 2013 even better. My recommendation is to roll back rates on home, auto and health policies to levels where they were in early 2012. Rolling back rates will bring profits back in line with a loss ratio nearer to 60% which means the insurance companies are still making a profit and able to maintain or increase reserves in the event Texas has a major weather event such as a hurricane.
As a business owner and independent insurance agent, I believe profit is a good word. No one wants to operate a business that is unprofitable as no business can operate that way for long and still be in business. There are limits, however, to what a fair profit is and what it is not. If record profits are the result of excessive rates, then they are being derived at the expense of consumers. Texas consumers already pay a higher wind / hail deductible than most other consumers in other states. Realistic insurance rates at least enable Texans to save enough money to cover such a deductible.
Remove Credit From the Equation: As Mark Twain noted, “There are three kinds of lies: lies, damned lies, and statistics.” Texas insurers have used statistical evidence to demonstrate credit is a predictor of future claims activity. The original study results show:
- People with poor credit file claims more frequently than people with good credit.
- What most people forget is that this study was done on car insurance claim data, not home.
- How then is credit a predictor of claim frequency on home insurance?
A similar study could be created to demonstrate statistical support for people with brown eyes file claims more frequently than people with blue or green eyes. In other words, the same set of statistics could be used to argue both sides of the same argument. That is unfortunate and not the basis of good policy.
I believe credit has been misused to determine insurance rates on all insurance policy rates; home, auto, life, commercial, etc. Prior claim history should carry much more weight than a person’s credit rating. Most people’s credit rating takes a beating after a divorce, an illness or a prolonged economic downturn. Let’s remove credit from the equation.
What suggestions do you have for Texas Insurance Commissioner Julia Rathgeber? Share your suggestions, comments and questions with me on our Google + and Facebook pages, or in the comments section of our blog. I’d love to hear from you!