The Rate Regulation Process
Regulating Homeowners Insurance Rates
Insurance companies adjust their rates and plans to respond to changing market conditions, and state law requires that they be filed with the Texas Department of Insurance (TDI) for review. TDI actuaries review the rate filings to make sure that the statutory requirements are met: rates cannot be excessive, inadequate, or unfairly discriminatory.
In any given year, TDI actuaries review several hundred rate filings for homeowners insurance alone. These rate filings may only pertain to certain policy types, to endorsements or discounts within those policies, or to certain parts of the state. By and large the majority of rate filings represent minor adjustments that are either revenue neutral (no overall change to the rate) or are within a +/-5% rate change.
Along with the majority of other states, Texas is a file-and-use state. This means that once a rate has been filed, it can begin to be used upon its effective date. Often, the effective date is far enough out which gives TDI time to review the rate before it goes into effect. If the rate meets the statutory requirements listed above, it will stand. If the rate does not meet all the statutory requirements, the company is notified and if it is not better supported, amended, or withdrawn, action may be taken to disapprove it.
How It Works
Many rate disagreements are resolved through ongoing dialogue between companies and TDI. In the event that a rate is formally disapproved after its effective date, then the company must not only stop using the rate but must also issue refunds, plus interest, for the time period since the company was notified that the rates were excessive or unfair discriminatory. See Regulatory actions resulting in policyholder savings
This is the process that has been working in Texas since 2003 and companies know what's expected of them. Of the many hundreds of rate filings during this time, there have been three cases of companies challenging TDI's regulatory authority in court. One of these cases is still outstanding at the time of this writing.
For the vast majority of rate filings, the system works as legislators intended. Companies adjust their rates incrementally to respond to changing market conditions, enabling them to stay competitive and continue writing business in Texas. (This is in stark contrast to what we're seeing in some other Gulf Coast states where some companies are choosing to leave the state). The process of formal review and ongoing dialogue between regulator and companies means that drastic rate changes are minimized for consumers. Again, there are exceptions, and these are the ones that make the headlines.
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