While the worst case impact of Covid-19 on the insurance industry seems to have been averted, pandemic year 2020 affected the insurance market with decreases in written premium in some lines due to decreased economic activity. Fortunately, the 87th legislature passed no major negative legislation affecting insurance agents or the industry.

This news was delivered by Regan Ellmer, IIAT’s director of government affairs, and Lee Loftis, IIAT’s chief legislative officer, in their industry trends report to lead off the IIAT RISE Virtual Summit, the annual conference for small to medium sized agencies that, this year, was conducted virtually on Oct. 5 and Oct. 7.

Ellmer, who has previously worked for state legislators and the Texas Department of Insurance, reviewed the market trends in the first segment of the two part presentation; Loftis, who has been IIAT’s government affairs lead since 2006, reviewed the regular legislative session’s impact on insurance agents.

Market report

Relying on the TDI Annual Legislative Report on Market Conditions released in March, Ellmer said that private passenger auto coverage led the pack with $22.0 billion in written premium; second was homeowners with roughly $11.0 billion, commercial auto, with $4.3 billion; commercial multi-peril, $2.7 billion, and workers’ comp, $2.2 billion. Ellmer said the number of companies offering these coverages was stable, except that homeowners has seen a 28 percent increase since 2016 in the number of companies writing this line.

Loss ratios across these six lines remained flat, said Ellmer, hovering between 40 percent and 57 percent. Private passenger auto and workers’ comp both experienced decreases in written premium in 2020, compared with the prior year. Ellmer attributed both decreases to the Covid-19 pandemic, as 2020 saw substantial reductions in driving and employment. Workers’ comp premium was down 12.47 percent and private passenger auto was down 3.32 percent.

TDI’s 2020 market report identified the top 15 companies by line; Ellmer supplemented the information by noting which of the companies worked with independent agents.

-Of the top 15 companies writing commercial multi-peril, 10 work with independent agents. Together these companies make up about 54 percent of the market in this line. Some of these companies saw significant gains in written premium in 2020, compared with 2019, said Ellmer. Amtrust and Chubb had 15 percent gains; CNA, Hanover and Church Mutual all had roughly 10 percent gains.

-Eight of the top 15 companies writing homeowners, use independent agents, with the top four homeowners carriers in Texas using captive agents. Companies that use independent agents comprise almost 25 percent of the homeowners market. Some of the companies had impressive year-over-year gains in written premium, but one “jumps off the page,” said Ellmer. State Auto Group saw a 50 percent increase in written premium, which moved the insurer to a 1.95 percent market share. Other noteworthy increases and decreases, said Ellmer, are Travelers, with a 16 percent increase and Nationwide and Homeowners of America with an eight percent increase, while Amica Mutual Group suffered a 10 percent decrease.

-Six of the top 15 private passenger auto companies work with independent agents, including three of the top four companies. Together the companies working with independent agents represent almost 40 percent of the private passenger market. Four of these carriers had significant year-over-year gains in written premium, said Ellmer. Kemper and Nationwide led the way with gains of eight percent; Progressive, six percent and Berkshire Hathaway, five percent.

All but four of the top 15 commercial auto carriers work with independent agents, representing what Ellmer termed an “impressive 54 percent of the market.” Old Republic Group, said Ellmer, led the way in year-over-year growth in this segment, with a 17 percent growth. Progressive, Nationwide and Liberty Mutual had about a 12 percent growth. Chubb’s written premium increased 10 percent and Zurich, eight percent. Berkshire Hathaway’s written premium in commercial auto dropped by 16 percent.

-All but three of the top 15 workers’ comp carriers work with independent agents, representing a “whopping 78 percent of the market,” said Ellmer. All but one of the workers’ comp carriers reported a decrease in premium in 2020 compared with 2019. Ellmer attributed the decrease to the Covid-19 pandemic.

Overall according to AM Best’s Risk and Uncertainty Management Center, personal lines combined ratio for 2020 is projected to be 98.1 percent, which is forecasted to rise to 98.6 percent in 2021. Ellmer said that these loss ratios are “pretty close to what the market experienced in 2018 and 2019.” Ellmer said improvements in personal auto are offsetting high combined ratios in homeowners. The combined ratio for private passenger auto was 94.4 percent in 2020. In Texas, the combined loss ratio for personal auto liability and physical damage was 67.5 percent, a sharp decline from 2019’s 77.1 percent, which Ellmer attributed to the pandemic.

U.S. commercial lines’ combined ratio is projected to be 101.2 percent for 2020 and forecasted at 101.8 percent for 2021. The deterioration from 2019, said Ellmer, is mostly because of the record number of catastrophes.

Last year, the U.S. made the record books in nearly every category of catastrophes when it comes to insured losses, said Ellmer. There were 18 catastrophes with insured losses “north of $1 billion,” said Ellmer, a new record. The $67 billion in insured natural catastrophe losses pushed 2020 into the third costliest catastrophe year, behind only 2017 when Hurricane Harvey hit and 2005 when Hurricane Katrina hit.

There were 71 designated catastrophes, the most in a recorded 72-year history, just under five million filed catastrophe claims, and 17 declared wildfire events, with $11 billion in insured losses in the U.S. The previous record was six wildfire events in 2017.

The February 2021 winter storm and extreme weather in the south caused an estimated $10 billion to $20 billion in insured losses, said Ellmer.

Hurricane Katrina still ranks as the most costly disaster in U.S. history. Ellmer said that 17 of the 20 most expensive insurance events in the U.S. have occurred since 2004. All but four of the 17 were hurricanes: two wildfires, the 9/11 attack, and the 2021 winter storm.

New vehicle sales for autos and light trucks dipped to 14.5 million units in 2020, bucking the increasing trend in new vehicle sales since 2011. Projections for 2021 and 2022 new vehicle sales are optimistically set to top 16.3 million units. The rebound depends on the impact of the Covid-19 Delta variant and the chip shortage, said Ellmer.

Legislative update

With the legislature convening for the fourth time this year in its third special session, Loftis brought agents up to date on the changes in law affecting them and the industry, and gave them some insight into the unique character of the 87th Regular Legislative Session.

The session began with reduced attendance by the public due to protocols developed for pandemic safety, then became consumed with public policy issues surrounding the near collapse of the electric grid during the winter storm, then ended with reduced attendance by House members as many Democrats skipped town to avoid passing the Republican-backed voter integrity legislation. The inability to make a quorum kept the normal mad rush of legislation at the end of session at bay. Lawmaker absence continued, affecting the first special session and the start of the second special session, said Loftis.

Still, the legislature passed more than 1,000 of the 7,148 bills filed. Of the 701 insurance-related bills filed and monitored by IIAT, 109 passed into law. Loftis said this was a normal workload, on par with other regular sessions. Loftis commented on 10 of the insurance related bills that passed, including two directly affecting the Texas Windstorm Insurance Association.

IIAT’s RISE Summit reviews market trends, new laws

HB 19 –Trucking litigation reform

Loftis said the civil justice reform for the commercial trucking industry was modeled after the bifurcated trial system for capital crimes. Just as a murder trial is separated into a first part to determine guilt or innocence, and a second to determine the punishment, civil lawsuits against trucking firms will be tried first to determine liability, with a second phase to determine the award.

IIAT supported the efforts of the Texas Civil Justice League and the Texans for Lawsuit Reform in passing the bill that was promoted as a way to stop “runaway nuclear verdicts.” According to Loftis, plaintiff attorneys would look at the egregious acts that the trucking company had done in the past, such as sloppy service records, and distract the jury from the actual facts of the case. “Only time will tell,” said Loftis, if this achieves its goal of making tort awards more reasonable. He said a recent article in the Austin news included comments from trial lawyers complaining about how HB 19 was affecting their ability to recover adequately for their clients. “Hopefully, we are on the right track,” said Loftis.

Included in the legislation is a requirement for the Texas Department of Insurance to study commercial auto premium, deductibles, coverage, and availability for coverage and issue reports every two years to the legislature through 2026. The first report is due Dec. 1, 2022. The new law became effective Sept. 1.

SB 6 – Pandemic liability protection

The pandemic, said Loftis, opened the potential for a flood of frivolous lawsuits. This legislation provides a defense for doctors, medical workers, personal protection equipment manufacturers and businesses accused of damages related to the virus. Loftis said that if there is a good faith effort to protect the public, such as signs posted for social distancing, encouraging mask wearing and providing hand sanitizing opportunities, that will be sufficient to keep a lawsuit from advancing. Following CDC, state, county or city guidelines will be an adequate defense. Loftis said without this new law the potential defense costs would have been staggering. “I’m happy to say the pandemic liability crisis is averted,” said Loftis.

The legislation also relieves educational institutions, both public and private, preschool through university, of liability for damages or monetary relief arising from canceling or modifying courses during and caused by the pandemic emergency.

SB 1602- Uncooperative insureds

Loftis said uncooperative insureds have been a problem for years. He said some companies and some insureds refuse to cooperate with another insurer’s investigation and settlement of the claim even when liability was clear. The new law requires nonrenewal if a liability claim is denied due to failure of the named insured to cooperate in the investigation and settlement of a claim. Loftis said this is “a common sense approach.”

SB 1367 – Commercial modernization

The effort behind commercial lines modernization came from the American Property Casualty Insurance Association, said Loftis. The purpose of the new law is to improve access to market for new policy forms by exempting 17 specific commercial lines from form and rate filing.

By not having to wait for TDI approval before issuing commercial policies, companies will be able to use the policies in the marketplace more quickly. Surety, cyber, excess or umbrella liability, D&O, and E&O are among the exempt lines. Medical malpractice is not among the 17 exempt lines, keeping its policy forms among those subject to prior approval.

Loftis called this legislation a great improvement, adding, “We were happy to work with industry partners on getting this passed.”

HB 4030 – TDI licensing

This legislation was TDI’s omnibus licensing bill, tweaking various licensing requirements.

Loftis said the legislation improves the temporary licensing process. The changes to the temporary licensing process include the ability for TDI to deny a temporary license to someone for whom grounds exist under current law for license denial or disciplinary action. It also extends the term of the temporary license from 90 to 180 days.

The new law permits TDI to skip the administrative hearing process and cancel a nonresident license if the home state takes similar action.

Subagent licenses were removed from law. Agencies will now be required to have all licensed agents, not merely the agency, appointed by an insurer. Loftis said this system is on par with 47 other states. Loftis volunteered IIAT to assist with this process if needed.

The number of hours of ethics C.E. was increased from two hours to three hours, also aligning the requirement with the majority of other states.

Under the new law, an agency’s branch locations no longer need to be reported to TDI.

HB 1588 – Texas Association of Realtors

This new law promoted by the Texas Association of Realtors could affect agents whose clients include property owners associations (POAs) whose annual insurance premium exceeds $50,000. These associations are now required to bid for services in excess of this amount. The requirement applies only to single family POAs.

Loftis said this is not necessarily a big impact to agents, adding that some clarification to this law may be needed in future sessions. If there is a property manager in place, this requirement may not actually apply.

HB 113 – Peer-to-peer car sharing

This legislation is a reaction to car sharing becoming more popular, said Loftis. It is modeled after the ride-sharing legislation passed a few sessions ago. The new law makes the peer-to-peer car sharing program responsible for assuring there is insurance in effect through the car owner or driver. The PTP program is ultimately responsible for the insurance. This avoids gaps in coverage, said Loftis.

HB 531 – Flood disclosure for rentals

This new law does not create a new responsibility for insurance agents. It requires landlords to inform tenants if the property is located in a 100-year flood plain and if the property has flooded in the last five years. Loftis said agents may get calls from clients who are owners of rental property who want to know if the property is located in the flood plain or has flooded.

SB 1448 – TWIA funding, oversight and rates study

As usual, said Loftis, there were bills dealing with TWIA, but not a huge number of them. The bills that passed, however, made significant changes. This bill started out by extending the life of a study committee of lawmakers to review TWIA’s rates, funding, oversight and commissions paid. With Covid delaying the committee from meeting, this bill extended the committee’s deadline to 2023. Loftis assured the agents that IIAT will be very involved in this study committee’s work.

In its final form this bill also changed TWIA’s rate filing authority. Previously, the TWIA board could raise rates up to five percent without TDI approval. This new law makes all rate increases subject to commissioner approval. The new law also adds the requirement that the board must vote with a two-thirds majority before TWIA can file for a rate increase.

HB 769 – TWIA rates and board action

This new law prohibits the TWIA board from voting on a rate increase if there is a board vacancy for more than 60 days. It also prohibits TWIA from buying reinsurance from the entity that models the probable maximum loss. “This was a sticking point for a lot of coastal legislators,” said Loftis. “It is now law.”