Officials weigh regulations aimed at easing home insurance rate hikes

In response to the state's growing home insurance crisis, Texas lawmakers are considering proposals that would require insurers to get approval for rate hikes over a certain threshold.

"Texans spoke very clearly of their concerns about rising property and casualty rates," said state Sen. Charles Schwertner, a Georgetown Republican who authored a Senate bill that would require the state to approve rate hikes that exceed 10%. He said the threshold offered some leniency for insurers, which don't currently need preapproval for any increases, without providing them "complete carte blanche."

Consumer advocates have warned that insurers could game the system Schwertner is envisioning. Many providers already file multiple rate changes per year, which they could continue to do under the proposed legislation -- even if cumulatively those rates exceed 10%.

And prior to 2023 -- when rates spiked by 21% statewide, as insurers responded to skyrocketing losses driven by extreme weather -- few rate increases exceeded 10%, according to a Hearst analysis of major insurer's rate filings.

Douglas Heller, the director of insurance at the Consumer Federation of America, a national nonprofit, called Schwertner's proposal a "Pyrrhic victory," saying 10% was too high.

"It's a fix that doesn't fix," he said.

Schwertner's proposal is one of several to have gained traction this session after lawmakers vowed to respond to rising premiums and worsening storms. Communities along the Gulf Coast have been especially hard hit, but the costs are being borne far inland, too.

Last week, the full House supported a proposal by state Rep. Tom Oliverson, a Longview Republican, to create a statewide grant program to help homeowners fortify their homes against natural disasters.

And a House committee considered a bill by state Rep. Trey Martinez Fischer, a San Antonio Democrat, that would require insurers to get approval for rate increases over 5%.

"I'm not willing to accept that the only thing we can do here is rebuild a house to protect it against windstorms so that they can get a drop in their insurance rates," Martinez Fischer said.

Heller and other consumer advocates want lawmakers to back prior approvals on all rate hikes, arguing that other states that have taken that approach have been more successful at keeping premium increases in check. "Companies have to do more justification in prior approval so they can't get away with as much," Heller said.

In a March hearing on Schwertner's bill, Cassie Brown, the commissioner of the Texas Department of Insurance, seemed to agree. Regulators can still deny rate hikes under the current system but only after they've taken effect, meaning the burden falls to the state "to prove that the company is not complying with state law." In a prior approval system, Brown said, "the burden shifts to the company."

Legal threats

When lawmakers created the current regulatory system, in 2003, they were confronting a similar home insurance market in crisis. Insurers were dropping homeowners across the state after a lawsuit opened them up to liability for airborne mold. Those lucky enough to remain covered were paying the highest premiums in the country. All but a sliver of the market was unregulated, with no rate reviews.

After the state enacted what is known as file-and-use, insurers were required to file initial rates and wait for state approval.

"What they found was that many insurance companies were overcharging," said Ware Wendall, the executive director of the nonprofit Texas Watch who was at the time working for a state representative from Dallas.

The Texas Department of Insurance ordered most companies to reduce their rates. All but State Farm and Farmers eventually complied. Rather than lower their rates, the companies -- which represented 40% of the market -- sued.

Their lawsuits dragged on for years, until they agreed in 2015 to refund customers a small percentage of what the state said they actually owed. State Farm said it would refund $352.5 million in overcharges on homeowner's premiums collected between 2003 and 2008, a fraction of the $1 billion the Office of Public Insurance Council alleged it owed policyholders. Farmers agreed to pay $84.4 million back to policyholders who had been overcharged -- without interest.

"The lesson for the insurance companies is, hire really good lawyers, even if they're expensive," Wendall said. "The lesson for TDI was we can't afford to litigate these cases for a decade at a time."

Deeia Beck was public counsel at the Texas Office of Public Insurance Counsel, a state agency that represents consumers in insurance, from 2008 to 2017. She said that the two lawsuits had a "chilling effect on the regulatory body."

Since the State Farm and Farmers lawsuits settled, TDI hasn't taken another company to court over a rate filing.

"Listen, there has to be somebody" who has filed an excessive rate, Beck said. "We had filings that would come in, and we would look at it and think, are you kidding? We used the phrase 'grabbing with both hands.'"

Since 2017, the Texas Department of Insurance hasn't denied a single rate filing out of 23,500 submitted, according to a Hearst Newspapers analysis.

The department says it objects to or requests more information for 77% of rate filings, preventing the need to deny them outright. Those negotiations saved consumers $7 million last year, or 0.04% of the roughly $19 billion in premiums written in the state. Insurance rates have meanwhile spiked 43.7% statewide since 2023, according to TDI.

Mistie Hinote, a spokesperson for the department, said in a statement that "the previous lawsuits don't affect how TDI conducts rate reviews. TDI reviews rate filings to make sure they comply with state law, which includes that rates be adequate to pay claims and be based on sound actuarial principles." She added that insurers have become familiar with how to comply with TDI's "thorough reviews."

Beck said insurance companies "don't have any motivation to do a whole lot of anything, unless they believe that you'll follow through," she said. "It's like if mom says, I'm gonna count to three, and if you don't do X. Well, if mom counts to three and nothing ever happens, a toddler figures that out."

Insurers have defended TDI's oversight capacity and opposed any changes to the file-and-use system, which they say has led to a more competitive market.

"The rate-making process in Texas is both transparent and highly regulated," said Richard Johnson, the director of communications and public affairs at the Insurance Council of Texas, a nonprofit trade organization for insurers. He said that all rate filings go through extensive reviews. "The idea that insurers can simply raise rates without scrutiny is misleading and most filings are questioned, adjusted, or even withdrawn before final implementation."

Insurers have also pointed to their skyrocketing costs from increasingly severe and frequent weather disasters. Last year, the state saw 20 billion-dollar weather events, according to the National Oceanic and Atmospheric Administration -- the most on record in 40 years.

David Bolduc, who now directs the Texas Office of Public Insurance Counsel, said that there are so few rejections because "the companies come around."

In 2024, Bolduc's office reviewed 962 homeowners rate filings and requested changes on 96 of them. Most of those changes -- 94% -- were ultimately made, Bolduc said, resulting in $2.5 million in savings for homeowners.

"In the end, the companies don't want to be rejected," he said. "They don't want to be told no. I don't know of a case where TDI, or we for that matter, have really been hard stuck on something that didn't get fixed."

Addressing problems

But as premiums skyrocket, lawmakers from both parties appear increasingly willing to stand up to the insurance industry. "When we start munching around the edges of some of these things ... industry goes crazy," said state Rep. Jay Dean, a Longview Republican who chairs the House insurance committee. "Misinformation starts flowing."

State Rep. John Smithee, a Lubbock Republican who created the file-and-use system in 2003 and chaired the House Insurance Committee through 2015, said in an interview that he didn't think the current system was working.

"It's kind of the Wild West right now," Smithee said. "I think they're just coming in, charging a rate, and that's it."

During a House committee hearing last week, Martinez Fischer reminded his colleagues that the Legislature was on track to spend $51 billion on property tax relief this session. "And we all go home, no one ever feels it, because if you're in an escrow, you're gonna find out that that insurance premium probably ate your savings," he said.