Where Do All of Our Premiums Go?
Posted by: John Francis
December 03, 2009
Topic: Insurance
Were you aware that Texas home insurance rates are the highest in the nation?
In fact, recent financial reports (2008) released by the Texas Department of Insurance show that, in spite of a slowing economy, most of the insurance companies in Texas had one of the most profitable years of the decade. This is the fifth straight year that Texas insurance companies have met or beat a standard benchmark for reasonable profits. Remember, this is in spite of the weather losses from Hurricanes Katrina and Rita in 2005.
How can this be? Easy--the majority of your premiums aren't going to pay claims.
The percentage of premiums paid out to consumers in claims is known as the loss ratio. After overhead expenses such as salaries, office overhead, sales commissions, advertising, lobbying, defense costs, etc. (usually about 30% of its premium dollars), an insurance company that pays out less than 58% of its premium dollars for losses is considered a profitable company. In 2007 Texas insurance companies only paid out 36.5% of your premium dollars in losses. This means after overhead expenses and loss payments, more than 30% of your insurance premiums went directly to insurance company profits.
The Texas Insurance Board (appointed by Governor Perry) chooses the Commissioner of the Texas Department of Insurance. This agency is supposed to control the amounts Texas citizens are charged by insurance companies selling insurance in Texas, but it refuses to do so. It's also no coincidence that the insurance industry and its political action committees are some of Governor Perry's staunchest supporters.
The Texas Department of Insurance reviews all rate filings by insurance companies and has the legal tools to bring them back into line when they charge excessive rates. Mr. Ben Gonzales, a spokesman for the insurance department, epublicly admits that even after the very low loss ratios and very high profits reported by insurers last year, no companies were ordered to lower their rates as a result of the agency's the reviews. In spite of the record low losses and high profits reported this year, no similar reviews have been announced by the agency this year.
The Texas Legislature has passed serious tort reform every session since 1995, but our insurance premiums have not come down. The insurance companies have kept the savings from tort reform as increased profits. The only real solution to high insurance premiums in Texas is major insurance reform. However, this is not likely under the current political climate.
Have your home insurance rates gone up over the years? What are your ideas for reforming this mammoth industry? Please let us know in the comments.
