State needs to address rising home insurance costs

GUEST COMMENTARY

Texans are increasingly frustrated with rising home insurance premiums. Why wouldn’t they be?

Inflation, lawsuit abuse, reckless decisions about where to build houses, and increasingly catastrophic weather events have helped increase premiums across the country.

Texas is no exception and Texans are asking their elected leaders to take action.

Fortunately, legislators can take certain steps — and avoid others — to reduce the upward pressure on home insurance premiums.

Texas has built the strongest economy in the country by allowing free markets to operate, as opposed to heavy interference in our economy from our state government. This market- driven approach works in insurance as well.

For years, California has used regulations to artificially constrain insurers, making it difficult for them to operate in a state that needs them. The tragic wildfires in California earlier this year put a harsh spotlight on these heavyhanded regulations.

The entirely predictable result — more and more private insurers are pulling out of the state and the taxpayer- backed insurer of last resort is under increasing financial pressure.

California provides a stark reminder that when regulators artificially control pricing, they trigger a cascade of unintended consequences that often limit consumer choice.

Texas needs lawsuit reforms that will put an end to abusive practices while allowing for continued consumer protections. For example, there were 130 “nuclear verdicts,” or verdicts of $10 million or more, against insurance companies in Texas between 2013 and 2022.

At times, these lawsuits are funded by large investment firms that place a bet on a huge payoff at the end. As Bloomberg Law wrote last year, “Backing lawsuits to get a piece of the outcome has become a multi-billion-dollar, lightly regulated industry.”

However, the firms or individuals funding the lawsuits are often not disclosed.

By capping non-economic damages in insurance lawsuits, requiring disclosure of foreign funding sources for lawsuits, getting rid of phantom damages and cutting down on nuclear verdicts, or increasing penalties for false insurance claims — Texas can create a more competitive insurance marketplace with more options for consumers.

Texas must also face the reality of extreme weather.

Between 2019 and 2023, 63,000 new houses were built in high-risk flood areas in Texas. New construction has also boomed in areas at high risk for wildfires.

Yes, these weather threats are helping drive up insurance costs — but such costs are the effect, not the cause. When California attacks the effect, people pay the cost. But by focusing on the root of the problem, Texas can protect homeowners, businesses and the economy.

That begins with stronger mitigation measures against wildfires and incentives for storm-resistant communities. Both preventative steps are affordable, especially compared to costly rebuilding efforts.

We live in a time when repairs are growing more expensive, disasters are growing more destructive and more homes are being built in increasingly vulnerable areas. Each of these factors has contributed to higher insurance rates.

Consumers need legislators to take on these root challenges in ways that recognize our state’s history, build on its successes, and do not make matters worse.

David Sampson is the President and CEO of the American Property Casualty Insurance Association.