Perry: Reforms Are Paving Way for Modernization

January 12, 2004

To start off the new year, Insurance Journal asked Texas Governor Rick Perry to share his views on insurance reforms initiated by the Texas Legislature in 2003, and to comment on issues he believes need to be addressed in the coming year. Following are excerpts from that e-mail interview.

Insurance Journal: How would you describe the performance of the 78th Texas Legislature in its work on insurance reform? In your opinion what issues still need to be addressed and why?

Governor Rick Perry: When 2003 began, Texas homeowners had been feeling the brunt of an unregulated homeowners insurance that had gone awry. The legislature took action. We made homeowners insurance reform an emergency issue even before tackling the budget with its $10 billion shortfall. By the end of 2003, we have seen the most massive insurance reforms in a generation. Today, for the first time, rate standards now apply to all personal auto and homeowner insurance lines. Further, if you take the totality of what was enacted under SB 14, what you have is a clear path toward a modern regulatory environment that will provide consumer protections, allow the market to grow and ensure long-term stability.

IJ: Some studies suggest that tort reform does little to keep medical malpractice rates down, and recent reports indicate that some Texas medical malpractice insurers plan to ask for rate increases despite the passage of Proposition 12. How do you counter arguments that tort reform is ineffective at lowering med-mal rates? What further can be done to ensure physicians are able to obtain affordable medical liability insurance coverage?

RP: Tort reform is working: The largest insurer of doctors in the state lowered its rates by 12 percent, and the Department is standing by its analysis that there will be savings. In fact, TDI has already disallowed rate increases requested by some insurance companies. Overall, the reforms will prevent rate increases that would have occurred as a result of a runaway lawsuit environment. The key phrase is predictability: The effect of Prop. 12 is that it brings predictability to the market. Absent true and honest competition, the state will take appropriate action on rates and we will continue to utilize the Joint Underwriting Association to fill the void. Once the market is restored, then we expect natural market forces to keep rates in line.

IJ: Texas is the only state that does not require private employers to provide workers’ compensation insurance. Do you see that changing any time soon? Why or why not?

RP: True, Texas is a unique state in this regard. It speaks volumes to the premise that was debated when I was in the legislature that Texas is built of independent employers who can best manage their own affairs. Workers’ comp coverage is a choice employers make on whether to take care of their workers on their own, use the tort system, or use an insurance mechanism. My goal is to have a system that makes people whole and that addresses their needs efficiently. The Legislature has interim committees looking at ways to improve the system. The primary goal should be to develop a market where employers can have access to insurance at fair rates and workers get the care they need.

School finance will likely be addressed in an interim session in 2004. How do you address concerns of carriers and agents that additional tax on premiums and/or tax on agents’ commissions will be part of the equation to help pay for public education?

RP: At this point, everything is on the table, but no decisions have been made. I have four principal goals that I want to see achieved with a school finance plan. A new school finance plan must:
• Provide meaningful and measurable improvements to our schools;
• Cut, cap and control property taxes;
• Eliminate the Robin Hood funding scheme; and
• Ensure every child has access to a quality education.

Editor’s Note: To read the rest of this story, see the Jan. 12 issue of Insurance Journal-Texas/South Central.

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