SENATE PANEL HEARS INSURANCE DEPARTMENT SUNSET BILL

Senator Glenn Hegar of Katy (left) and Senate Government Organization Committee Chair Rodney Ellis of Houston look over parts of the sunset bill for the Texas Department of Insurance.

(AUSTIN) — The Texas Department of Insurance (TDI) would be continued for a further 12 years, but with new standards for transparency under a bill considered before the Senate Governmental Organization Committee Monday. Every state agency is required to undergo the sunset process, where legislators from both chambers review the effectiveness and scope of the agency and whether it should be continued, expanded or abolished. TDI's sunset bill, considered at Monday's hearing, would require it to clarify the file-and-use system currently used in Texas and would make organizational changes at the agency.

Katy Senator Glenn Hegar testified in laying out the bill, SB 1007, that Texas operates under a quasi-file-and-use system for homeowner's insurance rate changes. The system is in "limbo", he said, because not every insurer is using the system the same way. The top two largest homeowners insurers that insure nearly half of all Texas homes were under a prior approval system until recently. Other insurers would operate under the file-and-use system, but a lack of clarity about what factors would lead to a rate change rejection would lead to long negotiations before the rate changes were implemented. A third group, primarily smaller insurers, were using the system as a true file-and-use, where insurers are allowed to implement rate changes before TDI approval. Though the insurance market has been operating under a largely prior-approval model since 2003, said Hegar, even the limited file-and-use system has increased competition in the Texas insurance market, with 29 new companies now writing policies in the state.

Hegar advocated promoting a true file-and-use system in Texas, because it offers appropriate protection for policy holders. "Regulation may be beneficial to consumers when the correct things are monitored," he said. "Insuring that a company can cover its claims is chief among these. File-and-use provides for this type of oversight and therefore the right kind of regulation."

Home prices in Texas have increased dramatically since 2003, said Hegar, but insurance premiums have remained about the same level. Hegar testified that the file-and-use system has contributed to flexibility and solvency in the insurance market in Texas, pointing to the lack of insolvency in the market in 2008, a year in which Texas has more catastrophic loss claims than the rest of the nation combined.

The bill would require TDI to decide to permit or deny rate changes filed at the agency within 30 days of filing. The agency would have to clarify which factors would result in an insurance company being placed under a prior-approval rate system. It would seek to improve regulation of preferred provider organizations (PPO) for health insurance in Texas, by requiring PPOs to apply for a certificate of authority from TDI to operate in the state. It would rearrange the board at the Texas Windstorm Insurance Association (TWIA) in an effort to get federal tax exempt status for the organization.

Hegar pointed out that there are many things this bill does not include. He said Sunset Commission members tried to keep a narrow scope and let major insurance reform bills, especially those that apply to windstorm insurance and health coverage expansion, work through the Legislative process.

Committee Chairman Rodney Ellis of Houston told committee members that he wants to give members time to submit committee amendments to the bill, but that he plans to have a vote on SB 1007 no later than Wednesday.

The Senate will reconvene Tuesday, March 24 at 11 a.m.

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