Policy Choices Have Consequences
A low rate does not help a consumer who cannot find coverage. When rates are held below actuarially sound levels, the market responds — and the response is rarely what policymakers intended.
How rate suppression travels through the market
Artificially suppress rates or impose arbitrary pricing mandates
When rates are held below the cost of risk, insurers cannot collect enough premium to match expected losses, cover expenses, and maintain the capital required to keep writing business in Texas.
The market reprices what it cannot reprice in dollars
- Companies reduce new business
- Companies limit exposure in high-risk areas
- Underwriting tightens
- Coverage options shrink
- Residual markets grow
- Consumers face fewer choices
- Rate increases become delayed and larger
- Market confidence weakens
The cost lands where it was meant to be avoided
- Less availability
- Fewer coverage options
- Less competition
- Harder-to-place risks
- More pressure on state-backed mechanisms
Short-term appearance vs. long-term risk
Lower rates on paper.
In the immediate filing window, the headline number can look better than the underlying cost of risk supports.
Fewer companies willing to write coverage.
Carriers pull back, new entrants hesitate, residual mechanisms grow, and Texans feel the cost as availability — not as price.
When Availability Becomes the Affordability Problem: A California Caution
California offers a cautionary lesson for Texas policymakers: when rate regulation becomes too slow, too political, or disconnected from actuarial risk, consumers can face fewer choices, reduced availability, and greater reliance on last-resort coverage.
- File-and-use rate system
- Rates filed with TDI
- TDI can review and disapprove rates that are excessive, inadequate, unreasonable, or unfairly discriminatory
- Policy forms require prior approval
- Competition helps discipline price and service
- Companies can make incremental adjustments as risk changes
- Consumers benefit from a broader set of market choices
California's own insurance department describes its current strategy as an effort to stabilize the market, increase availability, and reduce reliance on the FAIR Plan. The department reports hundreds of distressed ZIP codes, significant FAIR Plan policy counts, and rate filing approval timelines measured in hundreds of days.
- Slower approval process
- Greater risk that rates become outdated before approval
- Higher political pressure on rate decisions
- Companies may reduce exposure if rates cannot keep pace with risk
- Consumers may face fewer options
- Last-resort markets may grow
A low rate does not help a consumer who cannot find coverage.
Texas should avoid policies that create outdated rates, discourage insurer participation, or increase reliance on state-backed mechanisms. Affordability and availability cannot be separated.
Other large states facing insurance stress have also had to pursue major reforms to restore private market participation and reduce pressure on state-backed coverage mechanisms.
Sources: California Department of Insurance Sustainable Insurance Strategy materials; California Assembly Insurance Committee background materials; TCAIS File-and-Use analysis.
Texas can learn from other states without copying their problems. A strong insurance market requires both affordability and availability. Sound policy should reduce real cost drivers while preserving competition, solvency, and consumer choice.
Do not confuse short-term rate suppression with long-term affordability. True affordability requires a stable market where coverage remains available.
Ask whether a proposal reduces real cost drivers, preserves competition, protects solvency, and keeps companies willing to write in Texas.
- Does it reduce real cost drivers?
- Does it preserve competition?
- Does it protect solvency?
- Does it keep companies writing in Texas?
Affordability and availability are the same conversation. Rates suppressed below actuarially sound levels can shrink consumer choice, push risk into residual markets, and weaken the competition that disciplines price over time.