MEDIA RESOURCES

DALLAS, Texas (SMU) - A study of homeowners insurance premiums and losses in Texas substantiates a deterioration in insurer performance over recent years and a correlation between actual water and wind claims with homeowners premiums.

Using data from the Texas Department of Insurance, the study, released today by Dr. Robert Puelz, Dexter professor of risk management and insurance at SMU's Cox School of Business, examined insurer performance and homeowners losses considering each of the 256 counties in Texas and contrasted Texas statewide homeowners insurance performance to Illinois and California.

"A county-by-county examination of four major insurance perils, which contrasts their losses against Texas statewide losses, offers an insightful look at costs affecting homeowners rates," Puelz said. "On a per policy basis, about two-thirds of Texas counties experienced at least a 100 percent increase in the cost of a water loss from 1996 to 2001. The study examines fire, theft, water, and wind losses by county in Texas from 1996 through 2001 and the evidence supports the proposition that variations in homeowners premiums are predominantly explained by variations in water losses with wind losses also playing a significant role," Dr. Puelz said in announcing his study. "Further, it is clear that Texas insurers have struggled financially with the homeowners market segment."

The research also reviewed insurance markets in other states and noted that changes in regulation need to be broad-based. "While long-term thinking about insurance issues in Texas is important, there is a need for a short-term prescription that can be issued only when the underlying cause of the problem is correctly identified," Puelz said. "Policymakers must consider how changes in insurance law can best assist all insurance market participants so changes in prices are less volatile, household economic shocks are minimized, and insurance remains a feasible business proposition for Texas insurers."

"The study suggests that while legislative and regulatory intent should be to protect the interests of consumers, if legislators elect only a one dimensional short-run strategy and advocate price regulation, then there is a chance that large companies will pull out of the market. Thus, legislative solutions will have to consider the interests of all contracting parties otherwise risk market disruptions," Puelz said.

The study compared homeowners market underwriting results from both regulated and non-regulated Texas insurers with overall results from Illinois and California from 1996 through 2001. Puelz said the study draws distinctions between the Texas homeowners insurance market and those in Illinois and California.

"The study addressed the assertion that insurers are more profitable in areas where rates are unregulated. Contrary to general belief, the research found that insurance companies actually were less profitable in the deregulated Illinois market than they were in the regulated Texas and California markets over the same time period," Puelz said.

Puelz said his study did not include public policy solutions, which fall within the cooperative domain of consumers, insurers, and state officials. The manuscript and appendix are available on the SMU Cox website at http://news.cox.smu.edu/pressroom/research/index.html.

SMU's Cox School of Business offers a full range of business education programs, from BBA and full-time MBA to Professional MBA (PMBA), Executive MBA (EMBA), and Executive Education. Cox is ranked among the top business schools nationally and internationally by major publications including BusinessWeek, The Economist, Financial Times, Forbes, The Wall Street Journal, and U.S. News & World Report. In addition, the school's Business Leadership Center (BLC), Caruth Institute of Owner-Managed Business, American Airlines Global Leadership Program (GLP), and Associate Board executive mentoring program are recognized nationally and internationally.