Insurance Companies Turn the Screws

by Molly Ivins

So here's 700,000 of us scrambling to find new insurance and fainting when we hear the rates quoted. If we don't carry insurance, under law, the mortgage companies can seize our homes. Great, a whole new class -- the affluent homeless.

How, you may ask, did we get into this mess? If you listen to the insurance companies, they'll tell you it's all because of those terrible trial lawyers bringing those ridiculous lawsuits, and the stupid juries that award millions and then the appeals courts never, ever throw those verdicts out.

Actually, that's not the problem. It is however, part of the problem. It is a small part of the problem.

You never find a mess this big attributable to just one factor. As they say in the sociology departments, the situation is multi-causational. Start with the fact that the insurance industry, like everyone else in the country, is suffering from investment losses, which means its profits are down from obscene to excessive.

We could accuse the companies of making bad investments, but given the state of the economy, it seems unfair to blame them for stupidity. But they did make some massively stupid pricing decisions, particularly in the area of medical malpractice insurance (known to the cognoscenti as "med-mal"), which they are also blaming on trial lawyers.

There's been a lot of screaming about how the cost of med-mal is driving doctors into retirement, but Public Citizen did a 21-state study that shows insurance premiums are rising at the same rate across the board -- homeowners, car and health.

OK, add to this the notorious reluctance of the state of Texas to regulate bidness of any kind. We have a Texas Department of Insurance, it just doesn't do much. Add to that the peculiar genius of our state legislature for fubars (fouled up beyond all recognition).

In 1991, the Lege left a loophole in the insurance law for so-called Lloyd's firms, originally small specialty insurers that took high-risk cases or charged very low premiums for low-risk cases. In 1983, the Lloyds firms had 16 percent of the Texas homeowners market. One year after the Lege left the Lloyds firms out of state regulation, they had 57.8 percent of the market, as the insurance companies shifted to the higher-priced Lloyds. By 2001, it was 95 percent.

Now add a natural disaster or two, flooding in Houston, hurricanes, the usual -- and then add the unnatural disaster of election-year politics. State Attorney General John Cornyn is running for the U.S. Senate seat being vacated by Phil Gramm and faces a strong Democratic opponent. Ergo, he announces in mid-campaign that the state is suing Farmers Insurance for alleged deceptive trade practices and discrimination, and asking for $14 million in refunds and penalties. The Department of Insurance followed suit with a cease and desist order against Farmers accusing the company of "unfair and illegal" practices and seeking $150 million in refunds.

Farmers took a pet and pulled out -- but not, mind you, completely out -- of Texas. The company wants to keep its highly profitable market in other lines of insurance. All the remaining populists in the state think this is a bluff and the governor should call a special session (which he should have done months ago) and tell Farmers it's all or nothing -- if it wants to get out the homeowners market, it can get out of the state, period.

Alas, our governor, Rick (Goodhair) Perry, who has collected $1 million in insurance-company campaign contributions, is notoriously kind to the industry. Many of the 87 vetoes Perry unleashed in the "veto blizzard" of aught-one were, to put it mildly, at the behest of the insurance industry. But now insurance companies are as popular as the clap in this state, and everybody and his hamster is scrambling to get as far away as they can, while simultaneously accusing their political opponents of being in bed with the monsters. All in all, it's quite festive down here.

A subplot involves the controversy over credit-scoring, the insurance company practice of charging those with weak credit ratings higher premiums. Studies show that those with weak credit ratings are no more likely to put in claims than anyone else, so it's a shuck-deal. The Democratic nominee for governor, Tony Sanchez, says he'll stop the credit-scoring practice, and Perry has fired back that Sanchez owns a bank that sells unregulated insurance.

Now here's one of my favorite factoids: If you have put in a claim in the past three years, it is highly unlikely another insurer will be willing to take your business. Farmers says 28.5 percent of customers have filed in the past three years. Is that great? If you want to keep your insurance, never file a claim.