Whether or not the TWIA board acted in accordance with legislative intent in proposing a five percent rate increase, the board did act within its mandate and followed explicitly the law in force at the time the board requested the rate increase.
The House Insurance Committee met on Aug. 30 at the behest of Rep. Todd Hunter, R-Corpus Christi, so he could share his heartburn about the TWIA board’s Aug. 3 decision to increase residential and commercial rates by five percent, effective Jan. 1.
Following an hour-long public comment period during its Aug. 3 meeting, the TWIA board approved by a 5-3 vote its annual rate filing, required by law to be submitted to the Texas Department of Insurance prior to Aug. 15. The rate filing was to increase rates by five percent, an amount that then-current law permitted under a file and use provision of the Insurance Code.
New laws affecting TWIA passed during the recent legislative session became effective on Sept. 1, two days after the rancorous Insurance Committee meeting.
Despite that these facts remained undisputed during the four-hour Aug. 30 House Insurance Committee meeting, the lawmakers on the panel preached a breach by the TWIA board for disregarding the most recent legislative intent. Several House members, with Hunter leading the charge, hammered insurance industry members of TWIA board for their unwillingness to follow laws that were not yet in effect, as though not following laws not yet in effect was disrespectful of legislative intent. At issue for Hunter was the new law that would require a two-thirds vote of the TWIA board to file for any increase in rates; the 5-3 vote taken earlier in August did not meet this threshold that was not yet the law.
Truth is, the two-thirds vote requirement could have been in effect. It does not take lawmakers long to learn that new laws can become effective immediately on the governor’s signature. Laws take effect immediately if the enrolled bill contains an immediate enactment clause and the bill passes both the House and Senate by a two-thirds majority vote.
Hunter, the lawmaker leading the charge against TWIA’s rate filing, is an attorney who has served in the legislature on and off since 1989. He is the very lawmaker who twice authored the wording that delayed the effective date of the two-thirds vote provision until Sept. 1. Hunter authored it first in his HB 3810, the original legislative instrument containing the two-thirds vote requirement for TWIA rate increases. Then he authored a House floor amendment to Sen. Larry Taylor’s otherwise noncontroversial bill, SB 1448, that extended the life of a joint legislative task force to study TWIA’s funding.
Hunter’s amendment to SB 1448 stated with explicit clarity that TWIA’s rate filings made prior to the Sept. 1 effective date of the act were to be governed by the law as it existed immediately before that date. Both the substance of the amendment and the enactment clause duplicated language from Hunter’s HB 3810, which was not advancing in the Senate.
It’s generally perceived that not all legislators thoroughly read all legislation, but most read their own proposals, whether bills or amendments, as their colleagues rely on them to propose what they are for, not what they are against. Hunter, a nine-term lawmaker, had two chances to read his text, first in his bill and second in his amendment.
Yet, Hunter, said he was ignored and insulted that the board acted. Hunter railed against the board’s vote to increase rates by a simple majority vote, calling it an act disrespectful to legislators.
“I’m very disturbed about it,” Hunter told the committee members.
The board’s action, said Hunter, ignored the wishes of the legislature since the vote did not meet the two-thirds threshold. Hunter recalled testimony to the board on Aug. 3 from policyholders, local elected officials and legislators in opposition to a rate increase and cited a joint letter he spearheaded bearing the signatures of 22 coastal lawmakers requesting no action until after Sept. 1, when new laws affecting TWIA’s ratemaking would become effective.
“There’s no respect for the legislature,” said Hunter of the TWIA board. “They just vote the rate hike in against our wishes. … (The TWIA board) absolutely ignored 22 legislators, absolutely rushed this thing in and blew us off.”
TWIA and its board are expected to comply with laws as written and approved by both legislative chambers and the governor. Existing law, which lawmakers are expected to be aware of, makes it clear that the board was required to act on TWIA’s annual rate filing prior to Aug. 15. Existing law makes clear that the board is obligated to adopt rates that are “reasonable, adequate, not unfairly discriminatory and nonconfiscatory to any class of insurer.” These existing laws remained unchanged during the 2021 Regular Legislative Session, noted TWIA’s chief actuary Jim Murphy in testimony on Aug. 30.
Texas law that has been passed by a prior legislature sets the rational basis for rates, essentially declaring prior lawmakers’ intent. No single lawmaker or 22, for that matter, determine legislative intent. The public and TWIA must rely on the plain language of the laws as written, no matter how many vocal, yet minority, lawmakers have a conflicting opinion.
The Aug. 15 rate filing could have fulfilled the statutory filing requirement by filing for no change in the rate, offered several of the lawmakers on the Aug. 30 panel. Murphy responded by saying the board considered a motion for no change; however, that was voted down with a 3 to 5 vote. Instead, according to Murphy, the board’s vote was an acknowledgment that TWIA’s “rates are woefully inadequate by any measure.” The five percent increase was an incremental step to manage what staff identified as rate deficiencies of 46.0 percent in commercial policies and 39.0 percent in residential.
Beaman Floyd, representing the Texas Coalition for Affordable Insurance Solutions, supported the board’s Aug. 3 rate hike at the Aug. 30 meeting. He pointed out that, under the current statutory funding mechanism, when TWIA has insufficient funds to pay losses from premium, the next $500 million in claims payments are funded by borrowing in the form of bonds. These debt instruments are paid with interest by future premiums from policyholders, a practice Chairman Tom Oliverson, R-Houston, said is “abhorrent.” Private insurers doing business in Texas step in with the next billion dollars to cover losses, said Floyd, so property insurers, indeed, are stakeholders, even though private market insurers are authorized to pass their TWIA assessment on to their policyholders across the state.
Hunter ended the meeting calmer than when the meeting started. His accusations of the TWIA insurance industry board members ignoring lawmakers, his complaint that the public did not have access to written public comments until after the meeting, his likening of actuarial opinions to competing expert witnesses at typical civil trials, his allegations of insurance companies having a conflict of interest by even being TWIA board members were quieted.
TWIA-policy-holding board members acknowledge a conflict of interest at the beginning of every board meeting. Perhaps it is their conflict of interest (Who votes for their insurer to charge them more?) that stands in the way of their fiduciary duty of adopting reasonable and adequate rates.
Still, Hunter reiterated his frequently mentioned demand going forward: face-to-face meetings between legislators and insurance company executives/decision makers, not industry lobbyists, who can offer solutions other than raising TWIA rates.
What Hunter may not have realized is the new two-thirds vote requirement, effective Sept. 1, creates conflicting laws for TWIA. A fairly evenly divided board, with five members favoring a rate increase and four opposing, can result in the failure of all motions related to a rate filing. If a vote for no increase fails by a 4-5 margin and a vote for an increase fails by a 5-4 margin, nothing passes to authorize the annual filing. At that point, TWIA cannot follow the law requiring the annual rate filing. Nor can TWIA’s board adhere to its obligation to adopt rates that are “reasonable, adequate, not unfairly discriminatory and nonconfiscatory to any class of insurer.”
While the rate increase is expected to be implemented on Jan. 1, according to a TWIA spokesperson, there is no deadline set by law for TDI to find a procedural defect in the filing that might prevent its implementation.