Today, a half-century removed from these lofty beginnings, the Great Society has transformed America by permanently expanding the size and scope of the government, redefining the relationship between the state and the citizens it was meant to serve.
This commentary originally appeared in the Heartland Institute on October 22, 2014. Reflexively responding to the 2008 financial crisis, many government regulators moved to reduce the burden of toxic assets in the financial market, after widespread speculation instigated a credit crunch and contributed to the economic slowdown. Yet, despite the consensus that it was these firms’ inability to shed these assets which instigated their failure, many state governments continue to use “consumer interests” as a justification to forcing other industries — in this case, home insurance companies — to shoulder more toxic assets. Perhaps surprisingly, Texas is one of those states forcing businesses to make bad investments Under the Texas Insurance Code, home insurance companies are not allowed to decline to renew a homeowner’s insurance contract once it expires, unless the policyholder has submitted three or more claims. The ban excludes any claim resulting from natural causes, and it applies even when the policyholder overused or abused the claims process. A Bane upon Consumers, But Not a Boon Due to these narrow parameters, it has become nearly impossible for insurers to reach the state’s statutory threshold, obliging them to maintain policies that pocket more money than their premiums cover — in other words, a toxic asset. Although this restriction may seem like a boon to homeowners, since it shields them from the loss of their insurance, non-renewal laws inflate insurance premiums for most consumers by forcing insurers, and therefore their customer base, to bear the costs of certain high-risk policies. But, isn’t that how insurance works, smoothing over high risks clients by submerging them within a pool of safer policies? Not precisely. While it’s true that insurers rely on “the law of large numbers” to diffuse their clients’ risk, there is logic behind insurance companies management of that risk, and calculation of customers’ monthly premiums. Theoretically speaking, a home insurer pools together customers with similarly situated risks and properties. This not only allows the company to calculate its population-to-risk ratio more accurately, but also helps ensure that homeowners pay only for the risks that they themselves incur, keeping their premiums low. Market Distortion Field Non-renewal laws disrupt this ideal actuarial practice by preventing the insurers from self-correcting their risk pools, when a policy proves more expensive than originally anticipated. This inability to self-correct puts both insurers and their customers in an awkward position. Insurance companies have a legal obligation to stay solvent. At the same time, non-renewal laws bar them from dropping unsound policies. Since lowering their risk exposure is not an option, the only way left for them to balance their books is to increase their cash flow — in practical terms, across-the-board premium increases — or lowering their business costs by providing fewer services to customers. This is where we see parallels to last decade’s credit crunch. The overabundance of toxic assets in a market crowds out the availability of a product or service. Companies become so overexposed that they do not have the resources to invest in new customers, even when there is little likelihood of losing money. Universal Laws In retrospect, that’s why the collapse of subprime mortgages caused a sudden credit shortage. The mortgages lost so much value that the banks could not afford to broaden their loan exposure, regardless of someone’s good credit. Instead, consumers had to accept higher interest rates and stricter terms in order for the banks to extend credit. Differing in degree but not kind, non-renewal laws mimic the subprime mortgage failure. The toxic policies crowd out the availability of cheap insurance and clog up what otherwise would be a flexible market. Insurance companies are not immune to the laws of economics, as overburdening an industry with toxic assets hurts consumers, who ultimately bear the costs of the added vulnerability. The situation in which Texas insurance companies are placed is no different, as the regulations are directed this time at how consumers protect their homes, and not how they finance it. Kathleen Hunker ([email protected]) is a policy analyst with the Texas Public Policy Foundation’s Center for Economic Freedom. Internet Info: “Non-Renewal of Policies in Texas’ Homeowners Insurance Market,” Kathleen Hunker, Texas Public Policy Foundation, http://www.heartland.org/policy-documents/non-renewal-policies-texas-homeowners-insurance-market
Contributing Factors to the Lone Star Success Do you like to keep more of your hard-earned money? In Texas, you can because there is no personal income tax. Compared with Oregon (9.9 percent), the District of Columbia (8.9 percent), New York (8.8 percent), Minnesota (9.8 percent), and California (13.3 percent), Texans start with more money in their pocket. For those in the Golden State, workers paying the highest personal income tax rate will end up paying 2 ½ months worth of their income towards this tax, which is even longer if you include federal income taxes according to the Tax Foundation’s Tax Freedom Day. Check out the video below for a brief explanation of how the Lone Star State doesn’t break your piggy bank. Any financially independent individual will agree saving money is the key to financial stability and success. No one can predict the future, so it’s important to keep a rainy day fund for when money is most needed. The same idea should translate over to governments; however, most states do a poor job of managing their money. Money set aside for emergencies in Illinois, California, New York, and Texas are $0, $1, $1, and $6 billion, respectively. Watch the video below to learn how only one state is making financially sound decisions—Texas. Would you rather live in a cramped apartment with a view of the building next door or a spacious home with a view of green plains? Since 2006, more people are moving to Texas attracted by a lower tax burden, friendly business atmosphere, and affordable home prices. Check out the video below to see how there is more bang for your buck when it comes to housing in Texas. Since the last recession, Texas has had a robust recovery creating an environment for entrepreneurs to add over one million new private sector jobs in the process. Watch the video below to see how Texas is the leading example of success for other states to follow. With all this success, there is no doubt that Texas is the land of opportunity. Let’s continue to build on this success by implementing sound fiscally conservative policies next session.
By utilizing a combination of new technologies and good old-fashioned common sense, there’s a lot state lawmakers can do next year to improve health care for all Texans — without waiting around for Washington bureaucrats.
Sandy Oaks, just south of San Antonio, is the newest city in Texas. Last month, the town decided it wasn’t going to burden its residents with a property tax, relying instead on the sales tax to fund much of its operations. In doing so, it joined the growing number of Texans incorporating their communities to...
These men and women who labored for long hours with modest pay pushed my young mind in ways and directions that shaped me into the person I am today — and I will always be grateful for their efforts. If our lives are the work of many hands, then mine is very much the work of the extraordinary teachers in Glen Rose public schools.
There is a variety of opinions in the media these days regarding online learning. Depending on what you read, online education can appear to be either a cure-all or cancer. In an effort to cut through the smoke, here are the top eight established facts you need to know. 1) Online learning is here to stay. Since...
Dallas County Schools (DCS), a countywide district providing transportation services to the area’s school districts, is coming under intense scrutiny after a recent NBC 5 investigation into the district’s use and possible abuse of taxpayer dollars. According to NBC 5, DCS officials not long ago launched a side business financed with public monies that aims...
As Texans, we all know that people continue to move here. Just look around when driving to the grocery store or your favorite restaurant. In rural and urban areas, you not only see more people, but license tags from other states. A recent report by the Federal Reserve Bank of Dallas highlights the large sum...
The 84th Texas Legislature will convene at noon on January 13, 2015. Legislators will then have another opportunity to determine the appropriate level of taxation to fund basic public necessities. The two primary types of taxes used to fund the bulk of state budgets nationwide are consumption (i.e. sales tax) and personal income taxes. Compared...
Who owns the water beneath your property? According to state law (as well as the Texas Supreme Court), you do. Yet all too often, local regulatory entities act as if groundwater belongs to them. Consider the Lost Pines Groundwater Conservation District. Unlike most regions of the state, permits to pump water in the Lost Pines...
The higher-education world was rocked three years ago by the publication of the landmark study of collegiate learning, Academically Adrift: Limited Learning on College Campuses by Richard Arum and Josipa Roksa. Between 2005 and 2009, the authors tracked over 2,000 college students from both public and private institutions, measuring their fundamental academic skills in their first and fourth years with the...