The Texas Department of Insurance unveiled its top recommendations for changes to state law in a report required by law in late December. The 14-page 2020 Biennial Report to the legislature includes seven recommendations for the 87th Texas Legislature to consider, along with a discussion of a potential issue concerning state-mandated health benefits and a link to a previously issued survey of windstorm market incentives produced by Texas A&M University at Galveston.
Topping the TDI wish list is eliminating collateral requirements for alien reinsurers. In its overview, TDI tells lawmakers that the proposal must be adopted by the legislature this year to avoid possible federal action to preempt state law.
TDI reviewed the background of the issue for the lawmakers by reminding them that the Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the executive branch of the federal government to negotiate “covered agreements” with foreign governments to assure them that foreign insurers would be treated no differently than U.S. insurers. Subsequent to Dodd-Frank, the U.S. Treasury Department signed agreements with the European Union and the United Kingdom.
These agreements, signed in 2017 and 2018, assured the EU and U.K. that states would eliminate collateral requirements for EU and U.K. insurers within five years or be subject to federal preemption. The Treasury’s Federal Insurance Office will soon begin evaluating state laws for potential preemption; they will be looking for full compliance with the model produced by the National Association of Insurance Commissioners.
While the 2017 Texas legislature adopted most of the changes required by the treasury’s agreements and the NAIC model, some 2019 revisions to the NAIC model remain to bring Texas law in full harmony with Treasury’s requirements. The NAIC makes compliance with its model an accreditation requirement, as of Sept. 1, 2022.
According to TDI, 17 states have eliminated the collateral requirements as required by the covered agreements. The NAIC website, however, shows that 14 jurisdictions have adopted the first of NAIC’s credit for reinsurance model, but only two have adopted the 2019 revisions, as of Sept. 15, 2020. TDI cites support for this change from U.S. insurers, the National Council of Insurance Legislators, and the NAIC.
The legislative bill to accomplish this, House Bill 1689, was filed by Insurance Committee Chairman Rep. Tom Oliverson, M.D., R-Houston, on Feb. 8.
According to TDI, the department’s remaining recommendations would expand consumer protections, eliminate an out-of-date regulation and improve agency efficiency.
In order to improve TDI’s protection of consumers, the regulatory agency wants additional authority to prevent unauthorized insurance business in Texas. Among the new authorities TDI wants are:
-Allowing the commissioner to issue an emergency cease and desist order if an entity does not hold a TDI authorization or meet a valid exemption and is engaging in the business of insurance.
-Allowing the commissioner to impose sanctions and enter immediate cease and desist orders if an unauthorized entity refuses to respond to a TDI request for information.
– Expressly allowing the commissioner to assess administrative penalties for unauthorized insurance activity.
-Expressly allowing the commissioner to order restitution in an administrative action for any unauthorized insurance activity. This would apply to anyone who engaged in an act of unauthorized insurance, including agents, agencies, managing general agents, and third-party administrators.
-Provide a longer hearing period for discovery or remove time limits for holding a hearing.
Small personal lines insurers have also drawn TDI’s interest in its effort to foster consumer protections in underserved areas. TDI would like the legislature to remove the exemption that these small insurers have from providing actuarial support for their rates in auto and homeowner filings.
Under existing law, personal lines auto insurers who write minimum liability policies and have less than a 3.5 percent market share and homeowners insurers with half of their policies covering property valued at less than $100,000 and have less than a 2.0 percent market share are exempt from providing actuarial support with their rate filings.
TDI’s justification for removing this exemption is that these policies are sold in underserved areas where competition may be limited. TDI states in its report, “The limitations on filing requirements make it easier for these insurers to increase rates or charge unfair rates to consumers in underserved markets.”
Next on TDI’s consumer protection agenda is to expand the state’s medical balance bill protections to include ambulance services. While the balance bill protections contained in SB 1264 last session did not cover ambulance services, TDI sought to include ambulance services in a regulation. A lawsuit against the rules was decided in the ambulance services’ favor this past October. In a recent report to the legislature on SB 1264, TDI laid the groundwork for this proposal by noting that 85 percent of ground ambulance services and more than 60 percent of air ambulance services are billed as out-of network.
TDI found an antiquated requirement for the sale of paper booklets to fireworks retailers. TDI proposes changing this inefficient paper process to a less manual process that will be lower in cost, result in fewer delays and reduce the risk of errors. The process would continue to be performed by the State Fire Marshal’s Office.
TDI lists several changes it would make to agent and adjuster licensing laws in its legislative recommendations, noting that the updates “help TDI improve efficiency and customer service.” These include:
-Allowing TDI discretion in issuing temporary licenses. When exam sites and fingerprint locations closed due to COVID-19 restrictions, the “shall issue” part of existing law resulted in TDI issuing licenses that it later had to revoke due to applicants’ prior criminal history. TDI also requests that temporary licenses be extended from 90 days to 180 days.
-Eliminating the administrative hearing requirement prior to revoking a nonresident license when the basis is that the nonresident’s license has been revoked in his or her home state. In 2020, TDI revoked the licenses of 11 nonresident licensees for this reason; all 11 revocations were by default as none attended or provided notice they would attend a docketed administrative hearing in Texas.
-Increasing the requirement of ethics training to three hours every two years from the current two-hour ethics C.E. requirement. TDI said this is consistent with NAIC recommendations and most other states’ requirements for ethics training. This change, said TDI, will help licensed Texas agents and adjusters to get licenses in other states on a reciprocal basis.
Other streamlining regarding agent and adjuster licensing would eliminate obsolete licenses, clarify the basis of calculating a public adjuster’s compensation, remove an annual affidavit requirement from nonresident adjusters; eliminate the subagent designation, eliminate the requirement for letters of clearance or certification for nonresident applicants, and remove the catastrophe exemption for nonresident adjusters.
TDI also recommends allowing title agents to submit annual reports electronically, rather than by certified mail; eliminating the HMO fidelity bonds and statutory deposits; relaxing capital stock requirements for Texas domiciled insurers who seek to expand to other states, and exempting from rate filing the companies that write property, business or event risks that are already exempt from form filing.
As of Feb. 20, no other bills have been filed for parts of the TDI legislative package, even though some may have willing authors and may be in drafting by legislative staff and filed by the March 12 deadline.
TDI gives the legislature a heads up on what may surface as a problem concerning state compliance with the mandated benefits provisions of the federal Affordable Care Act. According to TDI, the ACA requires states to pay the premium costs to qualified health plans for benefits enacted after 2011 which exceed ACA’s essential health benefits.
TDI takes the position that existing state-mandated benefits do not exceed ACA essential benefits. However, to mitigate the risk of a cost to the state, the Texas legislature began excepting qualified health plans from including the benefit in the event there is a determination that the state must pay the cost. The Centers for Medicare and Medicaid Services (CMS) has indicated that it may be a violation of federal law to exempt qualified health plans from the mandate, but not non-qualified health plans sold in the same market. Annual reports on the state’s mandated benefits are due to CMS, beginning July 1 this year.
Hoping to give lawmakers a better understanding of the how to attract private insurers to write wind and hail coverage in coastal areas, TDI provides them a link to a 2020 Texas A&M study focused on catastrophe insurance market features. Prior to the next TDI biennial report to the legislators, TDI plans to have a second study performed by Texas A&M researchers on practices in other states, including a survey of insurers and deeper analysis of market incentives.