Homeowners throughout South Texas could soon be significantly impacted by the outcome of an insurance company proposal that preys on Texans being under-informed who need the extra money and targets our South Texas and border communities.

Texas Farm Bureau Insurance company has filed a proposal with the Texas Department of Insurance that would allow them to offer a 25 percent reduction on a homeowner’s annual insurance premium in exchange for mandatory binding arbitration to resolve any future disputes.

The proposal affects only South Texas counties, most of them along the border region — 14 counties will be offered up to a 25 percent discount in exchange for arbitration instead of suing the insurance company. This includes my entire Senate district, consisting of Brooks, Hidalgo, Jim Wells and Nueces Counties.

Safeguarding my constituents is a top priority and I fear that many homeowners will readily sign up for a large discount on their homeowner’s premium without understanding the serious consequences. Consequences such as (1) the arbitrator’s decision is final and not appealable; (2) giving up your right to sue your insurance company forever; and (3) giving up your right to a trial by jury. In fact, many states nationwide have banned insurance arbitration clauses because of these concerns.

While the arbitration clause is optional, the reality is that many Texas homeowners are struggling to pay monthly bills, feed their children, and can barely afford insurance premiums. So when balanced against a large discount incentive, agreeing to arbitration will often be the easy choice. Unfortunately, the general public often doesn’t understand what “arbitration” means, but they do understand what “discount” means.

The proposed policy was prompted by catastrophic weather-related events occurring over the last few years that have resulted in tens of thousands of claims filed against insurance companies statewide, resulting in mass litigation. Unfortunately, it is all too common that following a natural disaster such as a hail storm or hurricane, public adjusters come knocking on doors to sign up homeowners with promises of free estimates and monetary gain. These adjusters then have property owners sign contracts that they in turn sell to attorneys for a fee to file lawsuits. This solicitation of contracts causes insurance costs to significantly soar for all Texas taxpayers.

However, an arbitration proposal is not the solution to this concern. Last legislative session in 2015, I authored and passed SB 1060 that targets these solicitation practices by public insurance adjusters taking advantage of insurance claims for significant personal financial gain. State law now regulates public insurance adjusters and prohibits them from soliciting contracts and selling to attorneys. There was strong support for this legislation among lawmakers as they recognized that industry practices needed reform to protect homeowners.

While more industry reforms may be needed, Texas homeowners have never had a policy with pre-dispute mandatory binding arbitration. Allowing insurance arbitration is a significant policy change to current insurance practices. Approval of such a policy will set a dangerous precedent that will allow other insurance companies to offer the same type of policies.

Should the state wish to enact such arbitration clauses, it should be a policy decision made by the Texas Legislature not a regulatory agency. Otherwise, homeowners may get stuck with a low insurance estimate that does not cover actual damages to the home, go to a mandatory arbitrator whose working for the insurance company, and then have no right to appeal. This is not a level playing field.