Texas Senate Passes Insurance Department ‘Sunset’ Bill

After a temporary block by Democrats in the Texas Senate, a bill allowing continuation of the Texas Department of Insurance passed the Senate and headed to the House of Representatives for deliberation.

Sen. Glenn Hegar of Katy, the author of SB 1007, said the legislation “better defines” the file-and-use system of setting insurance rates “with stronger prior approval protections as a back drop, to bring greater stability and consistent regulation in Texas.”

Currently, insurance companies file rate changes with TDI and implement the changes while the agency reviews them. Hegar said the current system is confusing, causing nearly all insurers to operate under a quasi-prior approval system, where insurers negotiate with TDI to determine whether or not a rate would be approved.

SB 1007 clarifies under what circumstances the commissioner could place an insurer under a prior approval system and would require him or her to approve or disapprove rate changes within 30 days, according to information released by the Senate. The bill also was amended to shorten the agency’s sunset period, from the usual 12 years to six. Another amendment creates penalties for insurers who drag out the approval process with lengthy appeals.

If an insurer’s rate change is rejected for being excessive or discriminatory, the company has 60 to 90 days to refile a new rate. During that time, interest penalties equal to 6 percent plus the prime rate are levied on the disapproved rate. If the insurer still refuses to roll back its rates, the interest on the rates increases to 18 percent, payable to consumers if the hearing and appeals process confirms the state’s decision.

Some Democrats in the Senate had sought more extensive modifications to the insurance regulatory system, including rolling back some of the changes advocated by the insurance industry in 2003 when the legislature passed SB 14, significantly revamping the way Texas regulates insurance.

The Texas Coalition for Affordable Insurance Solutions (TCAIS), an insurer-backed organization, expressed concerns about portions of the bill. TCAIS Executive Director Beaman Floyd asserted that “some amendments to SB 1007 signal a giant step backward toward prior approval, a regulatory system that will hurt — not help — both consumers and the insurance marketplace.”