Should insurers be required to give you a heads-up before raising your rates?

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Justin Stoltzfus

Sudden insurance premium increases can come without warning. And from the consumer's perspective, they often seem to come without justification as well. Two bills introduced in the Texas legislature during the 2011 session would have required insurance companies to provide customers with warnings -- and answers -- when they plan to increase rates.

Texas Rep. Armando Walle introduced House Bill 2723 and House Bill 2724 in March 2011. HB 2723, which was passed by the House in May but failed to clear the Senate, relates primarily to health and catastrophic insurance. HB 2724, which was left pending in a House committee, would have affected property and auto insurance policies. In an announcement on the Texas House website, Walle contended that the changes would have given consumers "the tools they need to be well-informed about their policies."

If these bills had become law, insurance companies would have needed to give policyholders 60 days' notice before any premium increases, according to Walle. The notice also would have been required to include:

  • Links to information that justifies the rate increase.
  • Links to information about alternative coverage options.
  • Instructions about how to file a complaint.

In addition to the provisions set up by HB 2723, HB 2724 would have required home and auto insurance companies to provide a side-by-side comparison of the new and old rates, describe any changes in coverage and provide information about how the customer can shop around for different insurance coverage. HB 2724 also would have helped with another problem: nailing down the hard numbers. According to Walle, the bill required that deductibles be listed as dollar amounts, not as policy percentages or any other vague form of valuation.

This consumer-centered move from Texas came as federal officials are poised to improve transparency on a national level for health insurance. Provisions of the health care reform law will require health insurance companies across the country to provide detailed disclosures for rate increases greater than 10 percent, according to the U.S. Department of Health and Human Services (HHS).

The rules that HHS has proposed would make insurance companies publicly announce their intentions to raise rates. Then, either HHS (or the state if it has the framework to do so) will review the proposed rate increase to determine if it is reasonable. Meanwhile, the insurance company's reasons for the rate increase would be accessible to consumers via the HHS website.

Insurance companies are concerned about decreased flexibility and increased paperwork -- moreover, they worry, disclosures could be confusing for customers. But, for those who are focused on getting their money's worth when it comes to health, auto and home insurance, greater transparency at the national and local level could provide an opportunity to shop around for affordable coverage.

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