Texas FAIR Plan Wants Rate Increase

The Texas Fair Access to Insurance Requirements (FAIR) Plan Association requested that the Texas Department of Insurance allow the Plan to increase homeowners insurance rates by an average of 12 percent statewide in order to cover future losses. The association was created last year to provide stripped down homeowners coverage for homes that had been rejected by other insurers.

According to the Property Casualty Insurers Association of America (PCI), the request for the rate increase highlights the severity of losses experienced by home insurers in the state.

“Rates must be adequate to cover losses whether charged by an insurer in the voluntary or residual market. The insurance industry has consistently encouraged policymakers to follow this basic principle. When FAIR plan rates are too low it is unhealthy for the marketplace,” said Donald Hanson, southwestern regional manager for the PCI.

Hanson said the Plan is requesting an increase of 22 percent in some instances.

At the time of the FAIR Plan’s launch in January 2003, some major carriers had stopped writing new policies due to the tremendous losses they were experiencing. The FAIR Plan was designed to temporarily provide additional capacity and improve accessibility during difficult times in the insurance marketplace.

“The FAIR Plan has quickly grown to more than 100,000 policyholders. In addition, the low rates in comparison to the risks being insured are troubling. The insurance market of last resort, with its basic policy, is being used as the market of first choice by some homeowners who are willing to take the gamble,” Hanson said.

Texas is prone to a wide variety of catastrophic events such as hail, hurricanes and windstorms. “These events along with ordinary losses must be factored into the equation for setting rates. Just as insurers in the voluntary market have found it necessary, the FAIR Plan’s request to increase rates is essential to ensure that the claim payments will not exceed the premiums being collected. The FAIR Plan is only intended to serve a small segment of customers who can’t find insurance in the marketplace. Setting appropriate rates will help keep the number of policyholders in the plan to a minimum,” said Hanson.

With 70 member companies domiciled in the state, PCI member companies write 30.5 percent of the homeowners insurance in Texas.