Senator Eliot Shapleigh - El Paso, Texas

 AUSTIN – Big Texas insurers chalked up a victory Wednesday, when a legislative committee narrowly rejected a proposal to require that they get prior approval from the state before increasing homeowner rates for their customers.

The Texas Sunset Advisory Commission turned down a proposal by Sen. Juan Hinojosa, D-McAllen, that would have compelled the state's five largest insurers to wait at least 30 days after filing for a rate increase before putting the higher premiums into effect.

Mr. Hinojosa said the change is needed because Texans continue to pay the highest rates in the nation for home insurance coverage.

Under the plan, which was endorsed by Insurance Commissioner Mike Geeslin, the Texas Department of Insurance would have had 30 days to decide whether the new rates should be allowed.

The proposal would have mandated prior approval for companies with at least 5 percent of the homeowners insurance market. Those companies currently are State Farm, Allstate, Farmers, Travelers and USAA, which together have nearly 70 percent of the market.

Commission members – including 10 lawmakers and two citizen appointees – deadlocked on the issue, 6-6, killing the proposal. The no votes were cast by four legislators and the two citizen members.

Before the vote, Mr. Geeslin urged approval of the waiting period, telling the panel that the requirement would end the "herd mentality" in the industry where a decision by one company to raise rates is often quickly matched by other companies.

In addition, he said, it would eliminate "drive-by" rate hikes where a company files for an increase late Friday and starts charging policyholders on Monday.

"A 30-day review period gives the market time to react and allows people to start preparing for it," Mr. Geeslin said.

He also said it would curtail long court battles with insurers that impose excessive rates and then resist efforts by state regulators to roll them back.

Consumer groups supported the prior approval requirement, while the insurance industry opposed it.

The four lawmakers who voted with the industry were Sen. Glenn Hegar, R-Katy, and Republican Reps. Linda Harper-Brown of Irving, Dan Flynn of Van and Carl Isett of Lubbock.

Two Dallas-area senators – Republicans Bob Deuell of Greenville and Kim Brimer of Fort Worth – supported the proposed requirement.

"While the insurance industry won today in a split decision, this idea will live to fight another day," said Alex Winslow of Texas Watch, a consumer group active in insurance issues.

"This proposal will have a full and open hearing when the Legislature meets next year," he said, adding that his organization favors prior approval not just for big insurers but for all insurers.

Beaman Floyd of Texas Coalition for Affordable Insurance Solutions, an industry group, said the current file-and-use system – allowing companies to raise rates immediately once they have notified the state – is starting to work and should be left intact.

"Following Hurricane Ike, it's never been more important to allow Texas to continue to move toward a modern market-based insurance system," he said. "Such stability is especially important when the market is under the kind of stress that it is now."