1. The Perfect Texas Homeowners Storm
(But Not Covered By The Policy)

2. Texas Department of Insurance
Presented By
Philip Presley
Texas Department of Insurance
Casualty Actuarial Society
November 11, 2003

3. 1. The Weather Fronts The Policy The Rates The Experience
The Regulatory System
Credit Scoring and Other Discounts
Mold

4. The Policy Historically Promulgated by the Department Broad Coverage:
Slow and Continuous Seepage of Water
Backup of Water
Water-Caused Damage to Slabs

5. The Rates Historically the Highest in the Nation
Comparison of Texas Average Homeowners Rates to Countrywide
(HO-3 Rates*)
Year
Texas
Average Rate
Countrywide Average Rate
Texas as Percent of Countrywide
1995
$785
$418
188%
1996
$827
$440
1997
$855
$455
1998
$879
$481
183%
1999
$861
$487
177%
* HO B Form in Texas
Source: Various NAIC Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owner’s Insurance Reports

6. The Experience Experience Heavily Affected by Weather Related Events:
Hail and Tornados in the North and West
Hurricanes Along the Gulf Coast
Increasing Losses Due to Slab Damages
Historically Unprofitable

7. Homeowners Paid Losses – Excluding Water Damage
From 1994 to 2002

9. The Regulatory System Much of the Market Not Rate Regulated:
Lloyds Plan Insurers
Reciprocal Exchanges
No Requirements to File Rates by Not Rate Regulated Companies
Unregulated Market Growing Rapidly

10. TEXAS HOMEOWNERS MULTIPLE PERIL
Source: TDI, Property and Casualty Insurance Experience By Coverage and Carrier Statutory Page 14

11. Credit Scoring and Other Discounts
Insurers Began to Make Ever Increasing Use of Competitively-Driven Programs in Late 1990’s
Ultimately Exacerbated Rate Increases for Some When the Storm Hit

13. Texas Reported Mold-Related Claims by Quarter Based on Claims Reported to Five Largest Writers
Report Quarter
Est. Total # of Claims
Est. Incurred Loss & ALAE
# of Claims Per 1,000 Policyholders
Avg. Loss & ALAE Per Claim
[(3)/(2)]
Avg. Cost Per Policyholder Per Year
(1)
(2)
(3)
(4)
(5)
(6)
2000:1
1,050
14,405,484
1.7001
13,719
23.32
2000:2
1,933
29,778,910
3.1539
15,402
48.57
2000:3
1,627
39,098,068
2.6660
24,024
64.05
2000:4
2,472
69,378,367
4.0763
28,061
114.39
2001:1
4,033
146,047,711
6.6911
36,213
242.31
2001:2
7,145
246,771,128
34,538
404.36
2001:3
11,318
274,044,194
24,213
444.35
2001:4
14,706
187,514,976
12,751
300.50
Total
44,285
1,007,038,839
9.0352
22,740
205.46

14. Homeowners Paid Losses From 1994 to 2002

15. 2. The Storm The Mold Hearings Sharp Increases in Rates
Changes in Coverage
Availability Problems
Moratoriums on Business
Threatened Withdrawals
Public Outcry

16. Policies currently vary by company
* Policies currently vary by company. They include enhanced versions of the HO-A, the state's minimum peril policy; various national forms that have been approved for use in Texas; as well as the traditional HO-B, the states most comprehensive form. Shading represents reduced coverage. Reduction in coverage will vary depending on policy. Various estimates of the reduction in coverage range from 15% to nearly 45%.

17. 3. The Aftermath
Creation of the FAIR Plan
Legislation:
SB 310
SB 14

18. The FAIR Plan Formed in Late 2002
Offers Basic Coverage Similar to ISO HO-1
86,000 Homeowners Policies Written in First 10 Months of 2003
About 13,000 Other Policies (Tenants, etc.) Written in First 10 Months of 2003
Premiums of About $70,000,000

19. SB 310 TDI to Prepare a Report to Inform the Texas Legislature:
Whether Homeowners Rates are Just, Adequate, and Reasonable and Not Excessive or Unfairly Discriminatory
To Assist in the Determination of the Most Effective and Efficient Regulatory System

20. SB 14 (145 Pages Long)
Makes Virtually All Lines and Companies Subject to File and Use Immediately (6/11/03), Except:
Personal Auto Effective 12/1/04; and
Residential Property Prior Approval Until 12/1/04, Then File and Use
Requires Immediate Residential Property Filings From All Insurers, and Gives TDI the Authority to Approve or Modify the Filed Rates
Places Certain Restrictions on the Use of Credit Scoring

21. SB 14 (continued)
Places Certain Restrictions on Territorial Rate Differentials
Allows Companies to File Their Own Forms for All Lines
Requires That All Rates Be Just, Fair, Reasonable, Adequate, Not Confiscatory and Not Excessive for the Risks to Which They Apply, and Not Unfairly Discriminatory
And Much, Much More

22. Texas Department of Insurance
Philip Presley
Chief Actuary, Property & Casualty Program
Texas Department of Insurance
333 Guadalupe
Austin, Texas 78701
(512)
(800)