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INSURANCE MATTERS

By Russell C. Janecka

 

 

Texans are Playing the Blame Game With Insurance Companies - Feb 2002

Methods you can use to manage your risk. 

"My insurance premiums are going up. What is that stupid company doing with my hard earned money? Why are they raising my rates when I haven't had a claim?"  Does that sound familiar? It is difficult to write about the status of the insurance industry because these are such difficult times and because things are changing so rapidly. The industry is operating under crises management in reaction to recent sky rocketing claims and the frequently changing rules being issued forth by the Texas Department of Insurance. Instead of just looking at the companies, maybe we should turn our attention to the TDI as well. Over the years, the position of the Department has changed from one of enforcer to that of mandate creator. The TDI was originally tasked with assuring the adequacy and soundness of insurance companies for the protection of consumers. Over time this agency has expanded its purpose to include controlling policy forms, claims practices, rate setting and now even the underwriting operations of companies. Something which should be reviewed under the Texas Sunset rules. This expansion of authority could have benefited the insurance buying public by being reasonable in its approach to this enlarging role, the agency has instead sided too heavily and too often on the side of consumers and the lobbying pressure of the Office of Public Insurance Council, and sided against the free enterprise system and restrict or prohibit companies from making a necessary profit. The situation of the insurance industry gets overly simplified or slanted against insurance companies as the press reports it. Add to this environment, more claimants who are demanding more dollars than ever before by exploiting ambiguous language in the policy, and you have a recipe for disaster. The TDI opposes a company's non-renewal or declining to insure risks that have had water claims or other past problems. If companies are not able to underwrite selectively to improve their book of business, they will have to charge everyone more to afford the claims cost of insureds who historically abuse insurance. The TDI also refused to approve any policy changes, which limit coverage; even though they acknowledge the claims abuse exists. They will only allow companies to transfer customers to lesser policies, but with coverages enhanced by endorsement and they must offer a buy-back of mold coverage. Companies are forced to settle unfounded claims under the threat of expensive lawsuits before liberal judges and uninformed juries. Losses can be compounded on the basis of penalties for Unfair Settlement Practices causing claims to be valued for more than the house was even insured. With the advent of mold claims, the unrealistic threat of potential bodily harm has been exploited to ransom companies for even greater claims dollars. The insurance industry in Texas is stuck between a rock and hard place. Consumers are angry at increasing premiums, so they and their representatives rail against insurance companies, telling TDI to lower all insurance premiums. Insureds meanwhile still rush to make ever-larger claims, drawing company reserves desperately downwards. Certainly, an insured is entitled to claim for their water damage but within reasonable limits or else the increasing costs for such liberalized coverage will have to be passed on to others. Texas is this case in point. It is a given fact that the industry average loss ratio is well over 125% at present driven largely by water and mold related claims. Losses have been so great that many companies have had their financial standing lowered by rating organizations such as A.M. Best. Most have stopped offering home insurance because each new policy represents an additional increase to the liability side of their ledger. Just as with health, medical malpractice and auto insurance, it is easy to blame home insurance companies because they are visible and identifiable, and they're the ones asking for more money. Insurance companies strive to price as competitively as possible so as to attract the good risks, because they represent profitable business with low loss expectancy. But the cost associated with that price cannot be known until after a policy's term has passed and the loss experience has been realized. The stock market's recent downturn has proven the fallacy that companies could make up for poor underwriting and inadequate pricing by covering losses with investment income. There is plenty of blame to go around. The TDI could have approved more limited forms of home insurance years ago, offering Texans the same policies available in other states. The worsening weather patterns across north Texas and claimants desire to replace roofs after each hail storm have also driven catastrophe claims much higher than other states. Individual behavior, fraudulent claims, Texas tort law, mold, some unethical attorneys and unethical contractors are all contributing to this mess. The only questions left are how fast can a company expect to be reimbursed for the excess claims it has paid? One year is certainly too soon, but if extended longer, what is around the corner next year that will cost even more? We need to get back to the basic principles of insurance. It is just a pass through mechanism for handling risk. What comes out through claims must be paid back. Blaming the insurance company is like shooting the messenger. Russell Janecka is a Certified Insurance Counselor. He is the owner of Janecka Insurance Agency in Victoria, and serves on the board of directors with Germania Insurance Companies. Call with your questions. (361) 573-4475 e-mail: reply@jiavic.com  © Copyright: Russell Janecka