By J. Lyn Carl, GalleryWatch.com
Austin, TX – Described by their authors as two "component" insurance bills - SB 127 by Sen. Troy Fraser (R-Horseshoe Bay) that addresses water damage insurance claims, and SB 14 by Sen. Mike Jackson (R-LaPorte) that addresses insurance rate regulation - finally made their way to the Senate floor today.
SB 127 breezed through with only two amendments offered. On the other hand, 19 amendments were offered to SB 14, with spirited debate relative to rate rollbacks, credit scoring and discrimination.
Fraser laid out SB 127 and noted that in the decade of the 90s there were only 12 mold-related insurance claims in the state. That all changed with a recent mold claim on a home valued at more than $1 million in Dripping Springs. The initial $32 million award set the mold crisis "off and running," said Fraser.
He noted some lawyers began "Mold is Gold" seminars across the state and that anybody with a pickup truck became a "mold remediator."
More than a year ago, then-Lt. Gov. Bill Ratliff asked for an interim study on insurance rates. Fraser said he broadened that scope to lead to literally thousands of man hours of discussion on the issue - including meetings with realtors, bankers, homeowners, insurance agents, consumer groups, state agencies and others stakeholders - to discuss the issue.
Fraser said that currently 96 percent of homeowner's insurance is written by unregulated Lloyd's companies.
What created the mold crisis, said Fraser, was not just the Dripping Springs suit, but what he called "the perfect storm." In the wake of the terrorist attacks of 9/1/2001, losses began to increase and insurance companies began to raise rates.
Fraser said there are two components - the re-regulation of the industry (addressed in SB 14), which he said would do no good if something is not done to make those losses come down, which is addressed in SB 127. Fraser said the bill relates to the handling of water claims ? by putting a sense of immediacy in addressing the claims and setting a timeframe for insurance companies to process those claims; by addressing the claims of public adjusters and capping the amount a public adjuster can charge; and by giving the Texas Department of Insurance (TDI) authority to ensure companies do not raise rates for no reason when a water claim has been remediated.
"This bill is not a favorite of the insurance industry," said Fraser, who called the bill pro-consumer.
SB 127 was passed with two amendments.
Jackson offered his SB 14, noting he served as a subcommittee chair during the interim that looked at auto and homeowner insurance rates and how insurance companies were using county mutuals and Lloyd's to escape rate regulation in Texas. Jackson said because of the loophole in current law, the commissioner of insurance does not have the authority to regulate most such insurance companies.
He said a "similar phenomenon" is occurring in auto rates, with more clients put in county mutuals. "If we don't do something to stop this now, in two years we'll be right where we are now, with all auto policies being written in an unregulated market," said Jackson.
"We have a community bill here," said the LaPorte Republican, because of its scope.
Jackson outlined the articles of the bill. Article One deals with rates, he said, while Article Two deals with forms, Article Three addresses credit scoring, Article Four addresses initial filing rates, Article Five includes underwriting guidelines, Article Six addresses withdrawal from the market, Article Seven includes conforming amendments, and Article Eight provides for a legislative oversight mechanism for the legislature to be involved in working with TDI.
Although the bill does not include a rate rollback, said Jackson, it does address reductions in rates. It also does not allow companies to include investment losses when they adjust their rates. Credit scoring is addressed to ensure consumer protection, he said.
A rollback could in some instances punish companies that have been fair in setting their rates, said Jackson.
"Does this bill bring relief?" asked Sen. Eliot Shapleigh (D-El Paso). Jackson said the answer is "Yes."
Jackson said there is no ban on credit scoring. "We found we would be better off in dealing with the unfair practices being used now than banning it," replied Jackson.
Various members of the Senate outlined provisions of each of the articles.
Sen. Leticia Van de Putte (D-San Antonio) said that when the process began, she felt, "No way, no how, nada, zilch, nothing - total ban on credit scoring." However, she now believes a ban is not necessary but rather supports the notion that it is important to restrict the use of credit scoring for unfair purposes. She said the bill will restrict credit scoring in Texas more than in most other states.
"We'd rather know the devil in the box than not know the devil in the box," she said, and noted the restrictions are strong enough to prohibit discrimination through the use of credit scoring.
Sen. Rodney Ellis' amendment to have all underwriting guidelines made public was opposed by Fraser. Fraser said it boils down to does a business in Texas have a right to have trade secrets, do they have information that should be held as proprietary. He said while the bill requires that all underwriting guidelines must be filed with TDI, they are still allowed trade secrets. If they are questioned, the attorney general will decide if that information is indeed a trade secret. "I believe a company has a right to proprietary information," said Fraser, pointing out that the attorney general can overrule and make it public. The Ellis amendment was defeated.
Another Ellis amendment addressed discrimination in policy writing - making it a criminal rather than a civil penalty. Ellis offered an impassioned plea to his fellow members to pass the amendment. He said some companies charged higher rates based on discriminatory factors such as race, creed, religion, or national origin. He said some still are collecting on those rates even though the practice is now outlawed and he wants to ensure it no longer happens.
"I don't know how you could vote against this amendment," said Sen. Bill Ratliff, "and I would urge you to adopt it."
The amendment was adopted.
Sen. Mario Gallegos (D-Houston) offered an amendment that would ban credit scoring completely. He was joined in his plea by Sen. Gonzalo Barrientos (D-Austin), who pointed out that one paying a credit card payment a month late should not have anything to do with whether or not a person's house is flooded or hit by lightning. Barrientos pointed out that credit scoring is a major issue for most Texans. The amendment failed.
Sen. Eliot Shapleigh (D-El Paso) offered an amendment relative to rate rollbacks. He said his amendment will make sure that a rollback reflects rates prior to the inception of the recent mold claims. His amendment would set up a due process mechanism for any company that thinks a rollback is excessive and allow the insurance commissioner to consider adjusting rates if warranted. Shapleigh said his amendment addresses "whether the people of Texas will get relief."
The El Paso Democrat said there is not a single provision in the existing bill that guarantees the rollback Texans were promised. With the highest insurance rates in the nation, Shapleigh said, "Texans want relief and if we want to guarantee relief, the way to do it is the adoption of this amendment."
Shapleigh said 57 percent of Texans do not think the Legislature will provide any relief, and thus he urged members to vote for the rollback. The amendment was defeated.
The bill was passed from the Senate and will now go to the House.