Over the course of 2021, the Texas Department of Insurance levied $8.82 million in administrative penalties or fines through enforcement orders against insurers, brokers and agents. This amount does not include administrative penalties that were invoiced and paid timely by licensees during the year and, therefore, did not reach the level for a published disciplinary action.
The amount levied in 2021 represents a 33.0 percent increase in the dollar amount of penalties associated with enforcement orders over 2020. There were 171 enforcement actions published on the TDI website, including 46 enforcement orders levying administrative penalties or fines in 2021. In the year prior, there were 97 actions that levied monetary penalties; in 2019, there were 74.
Penalties in 2021 ranged from a high of $2.6 million against UnitedHealthcare Insurance companies to a low of $500 against a Houston agent. Both orders were agreed to by consent of the licensees, with UnitedHealthcare companies’ express reservation that they do not admit to a violation of the Texas Insurance Code or of a rule and that the existence of a violation remained in dispute.
The enforcement order in November against UnitedHealthcare companies resulted from violations found during a triennial company examination which found the companies issuing policies that were not filed with TDI, untimely actions following adverse determinations, untimely claims handling and inaccurate provider directories. The group fined included UnitedHealthcare Insurance Company of Hartford, Connecticut; UnitedHealthcare of Texas Inc. of Minnetonka, Minnesota; Golden Rule Insurance Company of Indianapolis, Indiana; National Pacific Dental Inc. of Minnetonka. The companies were cast jointly and severally with responsibility for the administrative penalty.
The Houston agent’s violation was attributed to improper actions of two of the agent’s unlicensed employees who misappropriated nearly $7,000 in premium in 2018. Full restitution was made to the broker, Southern General Agency, who initiated the investigation with a complaint to the department. SGA had paid the insurer, Redpoint County Mutual, so none of the agent’s clients had their policies canceled. Prior to the June 2021 disciplinary order, the agent repaid SGA. Besides the $500 administrative penalty, the agent was subject to a two-year probated license suspension, owing status reports to TDI each quarter. Further, the agent was required by the order to provide copies of the order to any existing or new employer, appointing company or agency throughout the probation period.
Included in the penalties for 2021 was $185,950 levied against seven surplus lines agencies for failing to timely file new or renewal surplus lines policies and related documents and one for failing to timely pay the administrative penalty for a late filing. The range of fines was a high of $65,000 against Texcaz Transborder Insurance Intermediaries, Oleander, to a low of $1,000 against Cyberdot Inc., of Johns Creek, Georgia. Penalties of this nature vary depending on the number of late filings and the number of days the filings were late, as well as the agent’s prior late filing behavior. The order against Texcaz, which covered late filings for 2019 and 2020, cited a prior delinquency in 2018.
In all, TDI denied 29 license applications, mostly due to prior criminal history, and revoked licenses for 81 agents or agencies, 23 of which were for nonresidents who lost their license in their home state. TDI offers all parties to license denial and revocation actions hearings before the State Office of Administrative Hearings.
Market conduct violations
Administrative penalties for three firms in 2021 resulted from market conduct examinations conducted by TDI covering the companies’ sales, advertising and marketing, underwriting and rating, claims practices and consumer complaints against the insurers. National Specialty Insurance Company, Bedford, was fined $80,000; American Bankers Insurance Company of Florida, $45,000, and State National Insurance Company, Bedford, $15,000.
National Specialty is a domestic fire and casualty insurance company, part of the State National Group. TDI conducted a targeted market conduct examination of the company, limited to its homeowners line of business in 2017.
The company was cited for using an unlicensed managing general agent in the acquisition of homeowners business. The situation came about through a 2015 assignment of its previous general agency agreement with QBE First Insurance Agency to Westwood Insurance Agency in California. Westwood is not licensed in Texas to perform the acts of an MGA. According to the order, National Security defended this arrangement by informing TDI that Westwood processed only renewal business and did not administer or adjudicate claims on behalf of the insurer.
TDI also found through a sampling of 100 policies, that there were nine instances of National Specialty receiving an application and/or premium or binding coverage from agents not appointed by the company.
Consumer notices required by state law failed to include TDI’s current mailing address, website and email address or correct fax number.
A sampling of National Specialty’s claims found one instance that the insurer did not timely pay the claim within five days of acceptance, nor did it pay the statutory interest of 18 percent on the amount of the claim. TDI also reported in the order that it found one instance of the company’s failure to “adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer’s policies.”
Along with the single instance of a failure to pay a claim timely, TDI ordered the company to review all claims that met the same criteria and pay restitution accordingly to the claimant and provide a report of such payments made for any outstanding unpaid amounts plus statutory interest. This part of the order does not appear to be limited to the claims occurring in 2017. Restitution reports made to TDI are protected as confidential and not subject to public disclosure.
State National Insurance Company, also part of the State National Group, was part of the targeted market conduct examination on the homeowners line, also covering 2017 transactions, and was assessed a separate administrative penalty for violations found.
Here too, TDI sampled 100 policies for compliance with producing agency requirements. The TDI examiners found one instance of State National having a non-appointed agent on the declaration page of a policy and 16 instances of receiving an application and/or premium or binding coverage from agents not appointed by the company. In another instance, TDI found where the agent of record did not hold the requisite general property and casualty license but instead held only a limited property and casualty license.
These offenses carried a $15,000 penalty. Actions against National Specialty and State National were accepted by Kelly Brown, vice president of compliance for the State National Companies.
Neither National Specialty nor State National ranked among the top 40 writers of homeowners insurance in Texas in 2020, indicating that neither had a market share greater than 0.54 percent.
Homeowners’ business was also center stage for the market conduct examination of American Bankers Insurance Company of Florida, a fire and casualty company holding a certificate of authority in Texas.
TDI examiners found six percent of the policies reviewed to have been issued through a non-appointed agent or agency. The sample size was not disclosed in the order.
Examiners also found two instances of policies canceled without a valid reason given, and found 12 cancellations that did not meet the minimum timely notice requirements. The order noted eight other instances of failure to meet timely requirements of the claims process.
The order noted that of the 30 complaints against American Bankers made to TDI, the regulator considered seven confirmed.
In 2020, American Bankers Insurance Company of Florida ranked 29th among homeowners insurers in Texas with a 0.76 percent market share.
All three companies consented to the enforcement order. Each violation of insurance code could have resulted in a $25,000 fine. The general statute for such penalties, however, requires that the amount of the fine be based on the seriousness of the violation, including the action’s nature, circumstances, gravity and potential hazard to the public; the economic harm to public interest or public confidence; history of prior violations; an amount necessary to deter future violations; efforts to correct the violation, whether the violation was intentional and any other matter that justice may require (Texas Insurance Code Sec. 84.022).
Additional details on how the fines against these companies were determined are unavailable to the public, as market conduct examination reports and work papers are confidential by law.
Compared to other states
According to the NAIC’s State Resources Report 2020 Vol. 2, issued September 2021, Texas ranked highest among states issuing fines and penalties. NAIC’s data is from 2020, as self-reported by NAIC-member insurance departments. Data for Texas in the NAIC report includes all administrative fines paid timely for offenses that did not rise to the disciplinary or enforcement level to become included in the enforcement actions published on the TDI website.
Texas achieved the first place ranking in total fines and penalties meted out in 2020, by assessing $67.6 million in penalties, surpassing all other states. California ranked second with $47.9 million in fines and penalties. New York dropped from first place in the 2019 Resources Report, with $75.2 million in fines, to third place, with $21.0 million in fines and penalties.
In its notes to the table on state insurance department revenues, the NAIC said of Texas: “Fines and penalties increased due to $19.2 million of penalties for one entity. Excluding that exceptional item, overall fines and penalties increased 10.2 percent in 2020.” Last year’s NAIC Resources Report pegged Texas fines and penalties at $43.9 million. According to a spokesperson for TDI, Health Care Service Corp., the entity paying more than $19 million in penalties, paid prompt payment penalties on a routine basis, as they were incurred, and therefore were not associated with enforcement or disciplinary orders. TDI’s spokesperson added, “Prompt pay penalties are paid to medical providers by the carriers when a claim is paid late. Penalties paid to TDI are 50 percent of the penalty for facility claims paid late.”
On a percentage basis, Texas outpaced California and New York in the ratio of fines or penalties to premium volume. Texas fines or penalties as a percentage of premium topped 0.034 percent; whereas, California’s penalty to premium ratio was 0.013 percent, and New York’s was 0.008 percent. Total fines across 52 U.S. jurisdictions, including the 50 states, Washington D.C. and Puerto Rico, were $190.6 million or 0.007 percent of total premium.
Other than the jurisdictions that reported no fines or penalties, including American Samoa, Guam, N. Mariana Islands, Puerto Rico, and the U.S. Virgin Islands, at the bottom of the fines and penalties ranking were Washington D.C., which assessed $12,688 in penalties, and Mississippi, with $22,934 in assessed penalties, placing both jurisdictions’ fines or penalties at slightly above 0.0001 percent of premium.
In a separate applied analysis by population based on 2020 census estimates, as of July 1, 2021, from the U.S. Census Bureau, the Reporter found the cost of these fines per person puts Texas in second place. The cost per capita in Texas was $2.29; only Vermont was higher, with a per capita cost of fines of $3.47. California’s cost of insurance fines and penalties per capita was $1.22, and in New York, $1.06. Delaware, the only other state with fines and penalties topping a dollar per person, fined insurance businesses $1.48 per capita. The U.S. average cost of such regulatory penalties per capita is $0.57. At the bottom of the cost per person are Mississippi and Ohio, where fines against regulated entities were less than a penny per person.