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1701A S. 2nd Street
Austin TX 78704
(512) 912 1327
(Fax) 912 1375

Good driver programs, cap on TAIPA rates recommended

(Press Release, April 4, 1997)

AUSTIN, TX -- Texas auto insurers continue to force Texans in low income and minority communities to buy higher-priced policies to comply with mandatory insurance laws, according to a new study of urban drivers released today. Large rate increases have eliminated the safety net for these consumers.

The study by the nonprofit group Center for Economic Justice (CEJ) said Texans in poor and minority communities are being disproportionately rejected by standard insurers. Instead, the companies sell these customers coverage through a much higher priced substandard company (usually a county mutual company) or refer them to the Texas Auto Insurance Plan Association (TAIPA), the state's residual auto insurance market.

Even when income was held constant in the CEJ study, consumers in Zip Codes with high minority populations (at least 80%) are two or three times more likely to be insured with non-standard insurers or TAIPA than consumers in low (no more than 10%) minority communities. "Despite several studies, acknowledgment of the problem and 'commitments' by insurers to make affordable insurance more available in low-income and minority communities, the overall rejection rate increased and insurance availability worsened over the past five years," the report says.

Victims of redlining are in worse shape now because TAIPA is no longer a reasonably priced alternative. Thus, the number of consumers insured through TAIPA has decreased dramatically over the last two years. Many of these consumers could no longer afford auto insurance and are now uninsured.

Although 75 percent of TAIPA drivers have no at-fault accidents or violations, TAIPA rates have risen to unaffordable levels--almost twice as much as the state benchmark rate. "As a result, the poorest consumers, who pay a greater share of their income to comply with financial responsibility laws, pay far more for insurance than consumers in more affluent communities," the report said.

The current situation prompted CEJ to call for capping TAIPA policies at 145 percent of the standard benchmark rate. The proposal will be considered at the Department of Insurance on April 8 at 9:00 a.m.

The CEJ report features individual summaries of availability problems in five counties: Bexar, Dallas, Harris, Tarrant, and Travis. The information was gathered using a zip code analysis of urban drivers from data provided by the Texas Department of Insurance.

The CEJ report issues the following recommendations:

  • Implement regulations to ensure that insurers offer drivers with no moving violations or at-fault accidents a policy in their standard or preferred company and give all consumers equal opportunities to purchase affordable insurance. "Good drivers should pay the lowest rates for liability insurance, regardless of their occupation, credit history or other factors not related to their likelihood of causing an accident."
  • Cap the cost of a policy offered through the TAIPA at 145 percent of the standard market benchmark rate. "Setting TAIPA rates below county mutual rates will allow more drivers to be able to afford insurance."
  • Enforce existing anti-redlining statutes and regulations by taking action against insurers who violate them. "TDI should investigate unequal insurance availability and enforce (the law) that prohibits discrimination on the basis of geographic location."
  • Prohibit the use of unfair underwriting and rating factors, including credit history and prior insurance carriers. "Insurers that use credit history to reject consumers for coverage at standard rates unfairly penalize lower income individuals who may be unable to pay a bill from time to time but are not more likely to get into an auto accident than any other consumer."

"Redlining, combined with high rates for minimum liability coverage, creates an environment where illegal activities, such as counterfeit proof of insurance cards, can flourish because the cost of illegal activity -- including the potential for fines and other punishment -- is less than the cost of purchasing insurance," the report says.

The report's findings confirm several earlier studies of insurance availability in Texas, including studies by the Texas Department of Insurance, the Office of Public Insurance Counsel, the Austin American-Statesman, and most recently, the Fort Worth Star-Telegram.

The Center for Economic Justice is a Texas nonprofit corporation dedicated to protecting the interests of low-income consumers