Texas Review Board Says Insurance Department Works Well but Offers Changes

Texas Sunset Advisory Commission staff in a report released in May 2008 said the Texas Department of Insurance functions well but that the state’s “overall approach to insurance regulation” may need tweaking.

State agencies in Texas are subject to review by the Sunset board every 12 years and TDI is up for assessment next year. The Sunset staff said that given the size of the insurance industry in Texas — companies collect about $90 billion in premiums in the state each year — regulation of the industry is “especially critical.”

“The Sunset reviews of the Texas Department of Insurance (TDI) and the Office of Public Insurance Counsel (OPIC) began among growing concerns about the availability and affordability of insurance of all types in Texas,” according to the report. “Questions relating to what the State’s role should be in ensuring both that consumers have access to affordable insurance and that insurance markets are competitive in Texas arose during the review.”

The Sunset staff concluded that “the extent to which the State, and TDI, as the agency that regulates insurance, should be involved in ensuring that companies offer fair, competitive, and affordable insurance products to all Texans remains unclear.” But the review board “determined that many of the long-standing questions regarding the State’s role were outside the scope of a review aimed at evaluating the continuing need for TDI.” Instead it focused the review “on evaluating the agency’s programs and recommending changes to improve the transparency and accountability of these programs.”

The report said TDI’s “financial regulation of insurance companies is effective, proactively identifying solvency concerns and working with companies to address financial problems before consumers are adversely impacted.”

In addition, TDI does a good job helping resolve consumers’ complaints with insurance companies. In 2007, it helped policyholders recover an additional $34 million in claims payments.

Staff said TDI could do a better job of regulating of property and casualty insurance rates. The report says “the agency’s implementation of statutory changes to the rate regulatory system lacks transparency and can cause unpredictability in regulation.” But it confined its evaluation to the current system and declined to make judgments as to whether the state should increase or decrease rate regulation, leaving that role to the Legislature or the full Sunset Commission.

Staff recommended folding the duties of the OPIC into TDI. It concluded that while continued consumer representation is still essential, because of recent changes to the state’s insurance regulatory system a separate agency to advocate for consumers in insurance matters is unnecessary.

Staff also suggested “that the current separation of duties between TDI and the Texas Windstorm Insurance Association (TWIA) limits the State’s ability to oversee the Association’s role as a market of last resort for windstorm insurance in Texas.” It did not address TWIA’s funding structure, but confined its recommendations to “more clearly delineating the roles of, and relationship between, TDI and TWIA.”

Staff recommended updating “TDI’s statutory duties to better reflect the agency’s role in protecting consumers and encouraging a competitive insurance market in Texas.”

Key recommendations:

• Homeowners
Set limits for the amount of time the department has to review and administratively disapprove filings under the file-and-use system.
Require TDI to better define the process for requesting supplemental information from insurers, and to track all information requests and administrative rate disapprovals.
Require TDI to generally define, in rule, factors that could result in a company being placed under prior approval.
Require TDI to routinely evaluate the need for insurers to remain under prior approval, and require that insurers be notified in writing of the actions that need to be taken in order to return to file-and-use rate regulation.

• Texas Windstorm Insurance Association
Increase the number of public members on the TWIA Board; require commissioner to appoint all board members and designate the presiding officer.
Replace the commissioner’s authority to modify TWIA rates, forms and operations through hearings with a more traditional administrative approval process.
Transfer the responsibility for windstorm inspections and the oversight of engineers from TDI to TWIA.
Remove unnecessary rate restrictions in law, permitting the association to consider additional factors in developing rates.
Authorize TWIA to require applicants to provide proof of two declinations from insurers writing windstorm insurance in the state.

The report may be found online at www.sunset.state.tx.us.