Private Passenger Automobile "Tort Reform" Rate Reductions: Fact versus Fiction
Executive Summary
August 1999

In 1995, the Texas Legislature changed several laws affecting lawsuits in Texas – so-called "tort reform." In an effort to ensure that any reductions in insurance claim costs resulting from "tort reform" would flow to consumers as lower insurance rates instead of to insurance companies as windfall profits, the Legislature directed the Texas Department of Insurance (TDI) to specify annual "mandatory tort reform rate reductions" for various lines and sublines of liability insurance coverage.

Despite claims by TDI of huge savings to consumers, "tort reform" has resulted in huge, windfall profits to Texas automobile insurers of $3 billion for the years 1996 through 1998. Detailed data provided by TDI shows that bodily injury liability premiums for rate-regulated companies were excessive by over 48% in both 1996 and 1997.

The most shameful part of the "tort reform" insurance rate debacle is the failure of the Department to protect even the most vulnerable consumers – those consumers denied coverage by rate-regulated consumers and forced to go to the Texas Automobile Insurance Plan Association (TAIPA) – from excessive rates. Bodily injury liability rates in TAIPA – the market of last resort for Texas auto insurance consumers – were 22.7% and 26.5% excessive in 1996 and 1997, respectively.

The Center for Economic Justice calls on Commissioner Montemayor to take the following actions:

1. Tell Texas automobile insurance consumers the truth – "tort reform" has not lowered insurance rates but has given Texas automobile insurers windfall profits. Texas consumers have not received x millions in benefits as claimed by TDI and it is simply not honest for TDI to keep putting out these phony numbers.
2. Enforce Texas law and require Texas automobile insurers to dramatically reduce insurance rates. Whether accomplished through "mandatory tort reform rate reductions" or challenging insurers’ flex band filings, the Commissioner has the authority and responsibility to ensure that auto insurance rates are reasonable, adequate and not excessive. To date, Texas auto insurers have taken only token rate decreases. CEJ calls upon the Commissioner to challenge insurers’ rate filings and make sure that auto insurance rates come down to fair levels.
3. Stop the outrage of excessive rates in TAIPA. Consumers denied coverage in the voluntary market are entitled to a fair rate in the market of last resort. Insurers should not be reward with excess profits for denying consumers voluntary market coverage.