Texas took a step in the right direction in 2003 when insurance regulators switched from a prior-approval system for approving rates to a free-market-oriented file-and-use system. Certain consumer groups, along with a growing number of state legislators and candidate for governor Bill White, are pushing for a reversion back to stringent regulation, including the re-establishment of a prior-approval system. That would be a mistake.
The correct path to sustained growth in the insurance market is continued deregulation and the opening of Texas’s market to competition. In order for an insurance industry to grow and thrive, it needs to be able to adapt to new challenges and form under the fires of competition. That’s difficult in a highly regulated environment.
The right solution for Texas is increased competition through less regulation, not additional regulation built on the backs of taxpayers. Blaming insurers for high rates is a political maneuver that ignores the realities of the insurance industry. Insurers need to be able to react to risk and charge premiums that allow them to remain solvent. Government manipulation of premium rates places insurers at a greater risk of failure.
Julie Drenner, the Texas Director of The Heartland Institute’s Center on Finance, Insurance and Real Estate has written extensively on this issue and continues to warn Texas legislators against reinstating prior approval.
