Flood Coverage, TWIA, Workers’ Comp Relativities Among TDI Concerns in Legislative Report

In its 2018 Biennial Report to the Legislature dated Dec. 14, 2018, the Texas Department of Insurance made several recommendations to state lawmakers regarding issues the agency believes are worth looking at in the legislative session that convened Jan. 8, 2019.

One, at least partly in response to the massive flooding that occurred during Hurricane Harvey in 2017, concerns flood coverage disclosures on property insurance policies. TDI suggested adding a requirement that if a property insurance policy does not include flood coverage the policy must include a prominently placed disclosure informing the consumer that coverage for flood damage is not included.

TDI stated that this could be facilitated by either requiring the agency “to adopt rules for such a disclosure or by providing specific language in statute for the disclosure.”

The department explained that while properties situated within Federal Emergency Management Agency (FEMA)-designated 100-year flood plains are required to have flood insurance in order to secure federally-backed mortgages, there is otherwise no requirement to secure coverage for flood damage to a property. However, more than half of the homes flooded by Harvey in Texas were located outside of federally designated flood zones and most of those properties didn’t have flood insurance, the department noted. Additionally, even some owners and renters of properties within flood zones were unaware that they might need flood insurance, TDI said.

“At least six states (Florida, Louisiana, Minnesota, New Hampshire, New York, and Washington) have adopted laws requiring that property insurance policies include a disclosure that the policy does not cover flood damage,” TDI reported.

Texas, with its propensity for flooding even in areas not officially deemed to be at high risk for flooding, “could benefit from a similar requirement,” the department said.

TDI said if legislation were passed to require a flood disclosure notice, the agency “would work with the industry and consumer groups to develop and test a notice written in plain language.”

At least one piece of legislation has been filed to require flood insurance disclosures in property policies.

In December 2018, Rep. Mary Ann Perez of District 144 in Pasadena filed House Bill 283, which “would require all insurers that issue commercial or residential policies that don’t provide coverage for flood losses to include the following statement on top of the policy’s declaration page: ‘WARNING: THIS POLICY DOES NOT PROVIDE COVERAGE AGAINST LOSS CAUSED BY FLOODING.'”

The flooding in Texas during Hurricane Harvey was unprecedented and monumental. In “Eye of the Storm,” Report of the Governor’s Commission to Rebuild Texas, released in November 2018, the commission states: “Flooding covered an area of southeast Texas the size of the entire state of New Jersey. Cedar Bayou on the outskirts of Houston saw nearly 52 inches of rain; about 11,000 square miles of the region received at least 30 inches. Entire cities were cut off by flooded rivers and bayous.”

Harvey caused nearly 780,000 Texans to evacuate their homes, according to FEMA estimates. Deemed a 1,000-year event for Houston, the storm ultimately caused around $125 billion in damage throughout the state.

TWIA Claim/Dispute Deadlines

TDI also recommended that legislators amend state law to permit more flexibility in time limits for handling and resolving claims and disputes brought to the Texas Windstorm Insurance Association (TWIA).

Flexible deadline extensions would increase consumer protections and help ensure that consumers, as well as the association, have enough time to resolve claims and disputes, the department said.

TWIA is the insurer of last resort for wind and hail for counties along the state’s Gulf Coast. While it was created by the Legislature in 1971, the association is not a state agency, per se. However, it is subject to legislative adjustments and TDI oversight.

Currently, under state law, the insurance commissioner can “extend certain deadlines for TWIA and TWIA consumers for good cause,” TDI stated in its Biennial Report. However, there is a per calendar-year, 120-day maximum limit for an extension on a claim or dispute.

For instance, according to TDI, if TWIA is allowed 30 additional days to accept or deny claims after a catastrophe, the consumer deadline to demand appraisal can only be extended by 90 days. Both extensions must occur during the same calendar year.

The insurance department pointed out that when the state experiences more than one catastrophic coastal event in one calendar year, such as Hurricanes Dolly and Ike in 2008, under current state law, it is possible that deadlines could only be extended after the first storm but not the second.

Therefore, TDI is recommending that lawmakers amend the statute to allow for applying claim and dispute deadlines to each event rather than limiting them to a calendar year.

Workers’ Comp Relativities

TDI also recommended that lawmakers delete from state statute references to classification relativities as an alternative basis for workers’ compensation rates.

According to the department, “‘Classification relativities’ are designed to establish the relative risk of job classifications in terms of workers’ compensation costs. This information can then be used by workers’ compensation insurers to help set rates for an insured business.”

However, TDI said, only about 3 percent of workers’ comp carriers use them for establishing rates.

Currently, in addition to classification relativities, an insurer can choose from two other bases for setting rate: its own independent company-specific relativities, which no companies have filed with TDI; and loss costs determined by the National Council on Compensation Insurance (NCCI).

NCCI loss costs are filed annually with TDI, are subject to review, and are used by around 97 percent of the workers’ comp market, TDI said.

Texas is the only state that allows classification relativities as a basis in workers’ comp rate setting, TDI noted. And because classification relativities are obsolete and little used they should be eliminated, the agency said.

Eliminating classification relativities as a basis for establishing rate “will make more efficient use of state resources with minimal impact on the market,” the department said.

Contractors and Roofers

While not making any recommendations to lawmakers regarding the licensing of building and roofing contractors, TDI noted in its Biennial Report that the department has “heard concerns about roofing and contractor scams from consumers, agents, the media, and other stakeholders.”

The department acknowledged that the state does not currently license roofers and contractors, but recognized that the legislature has in the past considered various registration and/or licensing proposals.

The agency said most of the complaints it has received about contractors and roofers, especially those who arrive from out-of-state following violent weather, concern:

• Offers to waive deductibles, which TDI said “could cause the policyholder to commit insurance fraud;”
• Contractors/roofers that require payments up front, after which the contractor/roofer disappears;
• Contractors/roofers that take on an overload of work, causing lengthy delays in work completion; and
• Contractors/roofers that don’t honor warranties or refuse to “correct shoddy repairs.”