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The House Committee on Insurance met on April 12 to hear several interim charges related to the insurance market in Texas and the impact of Hurricane Harvey:

“Examine the effect of Hurricane Harvey on the insurance market in Texas.

Study the coverage provided by the most common homeowners’ insurance policy forms in Texas, and methods to provide more clarity to Texas consumers about this coverage and the possible need for endorsements or other types of insurance.

Study the use of appraisal processes under property insurance policies in Texas, including the effects of court decisions on the use of these processes and the impact of their use on insurers and policy holders.

Review Texas’ financial responsibility laws for automobile insurance, including the minimum liability limits required by state law.”

The report below details discussions on these charges.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. This report is not a verbatim transcript of the hearing; it is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Examine the effect of Hurricane Harvey on the insurance market in Texas

David Muckerheide, Texas Department of Insurance

  • TDI stationed consumer liaisons, attended town halls, extended call hours, sent fraud units to communities, etc. in an effort
  • TDI notified industry on August 31 that a data call would be issued to collect data on financial impact, claims handling, and provide aggregate data to state officials
  • Data call went to TWIA, industry stakeholders, etc., asked for info on claims reported, claims closed, lost payments, claims reopened, etc.; Information was reported by zip code

 

Brian Ryder, Texas Department of Insurance

  • Link to TDI presentation on insurance data call
  • Notes that data does not include all of the damage, only that covered by private insurance; also only includes claims sold by private insurance companies, not provided by self-insured pools
  • TDI is continuing to collect data and data will change as more claims are reported and paid, expecting data to largely stop changing by late Summer or early Fall; Ike data changed drastically
  • Rep. Dennis Paul – It has no information on flood insurance claims?
    • Correct
  • Paul – So the flood data present is FEMA?
    • Can purchase private flood insurance through FEMA Write Your Own program, cedes premium to the federal government who then reimburses insurance agency; Does not include data from NFIP
  • Most claims reflected in the data are for residential property (54%), second is for vehicle claims
  • Type of insurance with greatest amount of losses paid was flood insurance, roughly $3.1 billion or 40% of all losses paid, automobile was second at $2.2 billion
  • $19.4 billion growth loss estimate due to Harvey, has grown from $15.7 billion in first data presentation
  • Chair Larry Phillips – And this is just related to the private insurance universe?
    • Yes, this is what they estimate will need to be paid out when everything is closed and settled
    • Largest portion is flood damage @$8.4 billion
  • Phillips – Can you explain the difference on what flood insurance covers compared to residential property or automobile? Wouldn’t this be some of the same?
    • Residential property generally covers the wind damage, not flood
  • Phillips – So if there is a claim represented by flood insurance data, there wouldn’t be a similar claim in other data points?
    • There could be, property could suffer wind and flood damage and have two operable claims
  • Pg. 4 compares Harvey losses to Ike, Harvey has a greater amount of automobile claims, Ike has more residential property claims
  • Ike data call did not include federal flood policies, so data is not entirely comparable
  • Most claims during both hurricanes were paid out in the Houston Area
  • As of October 31, 2017, 40% of claims are paid and closed currently, 25% were closed without payment, 25% were still open
  • A large number of homeowner claims were closed without payment (~60%), reasons could include damage being below the deductible, damage from uncovered sources, lapsed policies, duplicate claims, etc.
  • Phillips – There were certainly some outside sources compelling people to file claims very quickly, shameful
  • While Ike had most damage from wind, Harvey has a large number amount of flood damage
  • Pg. 7 details average paid loss and average incurred loss, though data can be skewed with large number of open claims
  • Notes presentation contains charts detailing regional breakdowns, heatmaps of claims/losses, etc.
  • Phillips – What other types of insurance aside from residential, automobile, flood, etc. does this data cover?
    • Mostly marine, aircraft, etc.
  • Phillips – And it’s related to the insurance companies who responded, do you have an opinion on how well they cooperated?
    • There were issues getting data in proper format, but was a complex data call and they made a good effort
  • Phillips – So there will be another data call?
    • Call was due monthly, receiving new submission on a quarterly basis now and next set is due Monday
  • Phillips – Will this be the last?
    • No, it is ongoing quarterly, companies are required to keep collecting until we say “stop”
  • Phillips – So you think we will have a good final picture later this Fall?
    • It will be pretty stable, numbers will largely stop changing when we get June data
  • Phillips – What do you think of the anticipated $19.4 billion growth loss estimate, Ike’s number doubled
    • Possible to double, could end up at $15.5 billion paid
  • Presentation also has data on losses, claims payment timelines, etc.
  • 15% of residential property claims and 12% of the losses are on policies that provide actual cash value coverage, 85% of claims and 88% of losses are replacement coverage
  • Phillips – Does this look close to what you would expect the policy spread is across the state?
    • Would think the actual cash value numbers are lower than expected
  • Phillips – Who all fits into this? Would be wind, not flood?
    • Wind damage to homes, under homeowner’s and renter’s insurance largely
  • Phillips – Expected actual cash value to be much higher
  • Presentation contains other comparison data between replacement and actual cost policies
  • Next steps include completing data compilation, will also be looking into companies who are outliers in key statistics (claims paid, timelines, etc.)
  • Rep. Tom Oliverson – In Houston, 40% of residential policies were closed and paid, 60% not; DO you have data on how many houses needed flood insurance, but didn’t have it?
    • Don’t have this data, but we do have data on number of homes with residential property insurance on Pg. 53; ~1 million residential policies and 250k flood policies
  • Oliverson – Would be interested to find out how many of these policies are held by those outside the major flood areas
  • Phillips – So if he provided zip codes, could you figure this out?
    • Could provide zip code data, but wouldn’t know specific reason each claim was closed without payment
  • Oliverson – Have you seen any changes in the market? Seems like we need more options in the marketplace, NFIP has some pretty strict limits
  • Phillips – What are you hearing in your community leaders on this issue?
  • Paul – Hearing that 15% of people had flood insurance
  • Members discuss flood insurance need & damage to homes outside of flood plain, many homeowners outside of the designated flood areas are not required to keep flood insurance, Oliverson notes
  • Rep. Chris Turner – We don’t have data on why claims were closed without payment?
    • We didn’t ask companies to provide reasons, could be difficult to provide in this type of data call
  • Phillips – Is there a way to go back and follow-up or audit some of this data for it? We want to make sure we don’t have insurance companies denying payments due to minor technicalities
    • TDI definitely has the ability, inte3nding to follow-up with outliers
    • We are not seeing a lot of complaints though
  • Phillips – SO this helps you know that this isn’t an issue
    • Complaints are far lower than during Ike
  • Turner – Data could be helpful for us as policy makers
  • Turner – Just focusing on residential property, amount of loss is ~$11,000
    • If the wind damage is primarily roof damage, this is not a surprising number, can be $8,000-$10,000
  • Turner – And residential property section, does this include TWIA?
    • Yes
  • Oliverson – How long does it take to close a typical claim, many flood claims seem to still be open?
    • Typically around 60 days, FEMA says 95% are closed as of end of January
  • Phillips – Do we have flood insurance experts at TDI?
    • TDI has a limited hand as most of the market is written through NFIP
  • Paul – Federal government passed Biggert-Waters Flood Insurance Reform Act that would increase flood insurance costs drastically, was put on hold and my understanding is that it will come into effect soon
    • Muckerheide, TDI – Only a little info, my understanding is that it is tied to the federal budget, wouldn’t expect it to just disappear
  • Paul – Have you heard anything about them trying to implement the massive increases?
    • Wouldn’t know about this

 

David Durden, Texas Windstorm Insurance Association

  • 79,349 claims from Harvey, closed 95% of these and paid out ~$1 billion as of April 5
  • Aransas and Rockport saw greater than 90% of policy holders filing claims, was most of the damage and represented about 60% of total payout
  • $694 million was paid out in the first 60 days of the storm
  • Received 154 complaints forwarded from TDI, very low percentage of total claims
  • 1,539 disputed claims, 1,453 appraisal requests
  • Phillips – So the 1,453 appraisal requests are included in the disputed claims, what is the remainder?
    • Person can submit an appraisal and notice of intent to sue, so there could be some overlap
  • Received 50 lawsuits so far
  • Phillips – How many of these are residential versus commercial?
    • Assumed majority are residential, but can follow-up with specifics
  • Arranged for $4.9 billion in total funding, estimate is $1.446 billion in losses, $743 million in Catastrophe Reserve Trust Fund was used to pay claims as well, drawn down >$300 million of securities proceeds; if loss estimate pans out, we would be into the insurance company assessment layer to pay claims
  • Phillips – Is the funding structure based on the legislation from the 84th?
    • Yes
  • Phillips – First time this structure is being used, correct? How do assessment work on insurance companies?
    • TWIA does this, files assessment with supporting information
  • Phillips – What insurance companies are subject to assessment?
    • All insurers who are licensed to write property and are members of the association, can reduce percentage by amount written voluntarily in the coastal area
  • Phillips – So this could mean rates will increase in North Texas, etc.?
    • They are not allowed to recoup assessments directly, no margin tax
  • Paul – Since you are going to have to go into assessments, where would you be if the area gets hit by another hurricane this year?
    • Funding structure resets for 2018, in the market now for reinsurance; Currently at $2 billion & intending to buy to cover up to $4.6 billion
  • Paul – Reserve Trust Fund is gone
    • Yes, so securities would be the first layer
  • Paul – Of the lawsuits, do you have any idea how many were filed before law changed on Sept. 1?
    • We received one suit before the date change
  • Phillips – Not sure this entirely applies to TWIA
  • Paul – Can you comment on the inspections program you are overseeing now?
    • This is the WPI-8C process, through 2017 TWIA issued ~4,000 certificates of compliance, >4,000 through March of this year; Working as it was intended to work
  • Phillips – Is this third party?
    • These are engineers that must provide information to us, TWIA issues certificate if the requirements are met
  • Phillips – Did we exempt things last session? Background check?
    • Paul – No, still need to do this; Law was changed to allow TWIA to issue these certificates to solve issues, but program is very new
  • Phillips – Did you get any new money to oversee this program?
    • Durden, TWIA – No, but we don’t really oversee that much, TDI still provides the oversight and we just issue the certificate
  • Paul – If you want to be underwritten by TWIA, you need this WPI-8
  • Phillips – Question remains on how many didn’t take advantage of TWIA and how many didn’t have insurance in these areas, I know you probably don’t have this data
  • Paul – If you’re not in a flood plain, your mortgage company doesn’t require it

 

Steven Badger, Zelle Law Firm

  • Consumers in the insurance market are being defrauded by bad actors after Harvey
  • Clients have sent complaints regarding contractor fraud in North Texas
  • In class action suit representing over 100 companies regarding storm damage and roof contractors
  • Have no roof contractor regulation in Texas
  • Texas consumers are without any remedy to address this problem
  • Phillips – last session the sentiment was any regulation is bad regulation, but this is a serious issue, and something needs to happen
  • Oliverson – are there any criminal penalties or aspects to these types of issues
    • Turn in contractors all the time, but does not typically lead to any action
  • Turner – this is an issue that has been around for a while and has gotten worse, I would hope that the banking and lending industries get involved in this as well

 

Study the coverage provided by the most common homeowners’ insurance policy forms in Texas, and methods to provide more clarity to Texas consumers about this coverage and the possible need for endorsements or other types of insurance.

David Muckerheide, Texas Department of Insurance

  • Link to TDI presentation on homeowner’s policies
  • Briefly described homeowner’s insurance
  • Policies typically do not cover items like flooding, mold, earthquakes, etc.
  • Substantial variation between policies
    • All risk policies contain many exclusions but cover more than named policies
    • Exclusions may provide coverage on structures that might not otherwise be covered
  • Briefly described policy limits
    • Most insurance companies require 80% coverage for the replacement of the house
    • Many policies have sub limits for specific items
    • Different deductible amount for different incidents
  • Some companies have begun showing roof depreciation schedules
  • Phillips – were you surprised by the data of how many people had actual cash value versus cost or replacement?
    • Unsure of the numbers, and do not have context to know if that is more or less than should be expected
  • Limited coverage can be added or purchased separately for items which may not be covered
  • Described examples of incidents and associated deductibles and costs to owners
  • Commissioner Sullivan has stated it is a priority to make insure more understandable by homeowners
  • TDI website has been updated to include more information for homeowners and consumers
  • Phillips – in looking at the Texas policy form, do you have a breakdown of what’s out there? What % hash HOA +, etc.?
    • Do not have specific data, there is a wide spread with many companies having their own version of the forms
  • Phillips – do you have to approve all of those forms?
    • Yes
  • Discussed ISO Forms
  • Phillips – one issue is that if there is an approval for a form of homeowner’s policies with mandatory arbitration.
    • That filing was not approved, the company pulled that filing
  • Phillips – those type of actions are very anti-consumer, hopefully we can avoid those
  • Phillips – discussed an example of ISO Policies that are very ambiguous regarding coverage and timeline of reporting
  • Phillips – discussed communicating to Texans regarding all of the information that TDI has for consumers

 

Melissa Hamilton and Joe Matetich, Office of Public Insurance Council

  • Briefly described OPIC
  • Insurers can customize policy forms with approval by the TDI Commissioner (SB 14)
  • OPIC monitors those forms and provides opinions on those forms to TDI
  • Market has been moving to more detailed forms
  • Policies vary from insurer to insurer as well as between policies within an insurer
  • Can be very confusing to consumers
  • Has initiatives aimed at consumer information and transparency
  • Monitoring compliance along with TDI with SB 417 85th
  • Phillips – did OPIC do that regarding arbitration forms?
    • Yes, believes that OPIC did submit an opinion to TDI
  • Has recommendation to TDI consumer bill of rights for insurance policies that a table of contents be added for clarity; would require a rule change to add that
  • Phillips – how many pages is that?
    • 20 pages
  • Phillips – when is it proposed to go through the rule process?
    • Goal is at the end of the month if not next month
  • Policy comparison tool online has been created to help consumers; working on adding more policies
  • Phillips – does that have the names of the companies or just examples?
    • It has company names
  • Working with TDI to continually make improvements to that tool
  • Considering a series of questions to ask an agent to help consumers make better decisions
  • Phillips – discussed education courses regarding insurance for home owner preparation
  • Working on using more plain language on website
  • Paul – what do you think regarding flood insurance after the issues with Harvey?
    • Will provide more information, but many things were learned after Harvey. OPIC wants to make sure that consumers have as much information to be able to determine if they need that additional coverage
  • Oliverson – would like to work on plain language disclosure policy like “truth in lending” and would like to work on that with OPIC

 

Beaman Floyd, Texas Coalition for Affordable Insurance Solutions

  • The financial literacy TEKS includes insurance but could be expanded on
  • There is a lot of good information, but it is difficult to find and more difficult to understand; need more simple and clear information that can be easily found
  • There are many moving parts regarding consumer interests
  • Agree with and support the efforts of TDI and OPIC
  • Phillips – are you seeing many changes to policy forms?
    • Yes, driven many times by affordability
  • Phillips – SB 14 was passed to help stem insurance costs
    • SB 14 allowed for much more healthy diversity in the marketplace but it also created a diversity in forms that requires more attention by consumers

 

Study the use of appraisal processes under property insurance policies in Texas, including the effects of court decisions on the use of these processes and the impact of their use on insurers and policy holders.

Marianne Baker, Texas Department of Insurance

  • Link to TDI presentation on appraisal
  • Regarding flood insurance, TDI met with NFIP to begin outreach programs to help educate and advise homeowners on flood insurance
  • Regarding contractor fraud – TDI has a few methods of getting information to consumers regarding fraud but will provide specifics of the fraud group at TDI
  • Appraisals happen when there is a dispute about the value of the loss
  • There are many elevating steps that can be taken if there continues to be a dispute
  • Appraisals are binding and only cover the value of the loss
  • Policy forms speak at varying levels regarding appraisals
  • Turner – the appraisal will only determine the amount of loss?
    • That is what is standard
  • Turner – any other facts that may be under dispute are not affected by the appraisals?
    • That is correct
  • Turner – if a lawsuit is filed with an appraisal done as a part of that with other claims, the appraisal does not prohibit those other claims from continuing with the case?
    • That gets into the legal aspect which cannot speak to at this point
  • Phillips – how many appraisals happen that go through the entire process?
    • Have heard that it is more frequent that in the past but do not have data on that

 

Melissa Hamilton and Joe Matetich, Office of Public Insurance Council (OPIC)

  • The consumer does have to pay for half of the appraisal process
  • Phillips – what is the cost of the appraisal process?
    • Heard between $1,000 – $3,000
  • The issue with appraisals began with form freedom and clauses getting tweaked including appraisal clauses
  • Changes in the appraisal clauses usually make it more difficult to waive the appraisal process
  • Some ambiguity in the scope of Appraisals as well as other ambiguities
  • More consumers are required to use an appraisal with the consumer bearing the cost
  • Paul – does this get into issues with adjusters related to the storm?
    • Some independent adjusters can claim that they can represent consumers in the appraisal process
  • Paul – so this will kick in when there is a dispute over the specific cost of a claim
    • Anytime after the claim is made one party could invoke this clause
  • Phillips – why are we seeing more of theses cases ion the last 15 years?
    • The opinion is that the courts are making opinions on that that allow for more opportunity for appraisals as well as the ability to change the form
  • Oliverson – who typically initiates this process?
    • Do not have specific data on that
  • The agency is reviewing the interim charge in depth and attempting to get firm numbers regarding this to gain some clarity on the issue
  • Oliverson – would also like more specific information regarding the actual costs incurred by the appraisal process
  • Phillips – you have a concern regarding freestanding ERs and what insurance they take, is that something that OPIC is working on?
    • Do have some information regarding that on the website but need to improve information and availability on that

 

Loy Vickers, Texas Association of Public Insurance Adjusters

  • Public adjusters help settle an insurance claim
  • Appraisal are typically a last resort for both parties to come to an agreement
  • More often when we go to appraisal and opposed to if
  • Recommendations:
    • Make the appraisal process more efficient and less time consuming
    • Create a more transparent selection process for umpire fees, umpire fees are getting very expensive
    • Reduce the policy holder’s financial burden in the appraisal process
    • Make the appraisal clause fair for the consumer
    • Require uniform appraisal clause/process in all policies
    • Restrict who can invoke an appraisal
    • Recognize that there are many types of appraisals needed (smaller claims v larger claims)
    • Create a task force of stakeholders to issue recommendations to this committee
  • Phillips – how often is it that the homeowner cannot make repairs until after the appraisal process is complete?
    • It would depend on what phase they are in and the sophistication of the policy

 

Steven Badger, Zelle Law Firm

  • Lawsuits have expanded the scope of appraisals
  • Phillips – do insurance companies have an issue with this like consumers?
    • The appraisal process in place to avoid litigation which benefits companies
  • Personal experience is that it is 50/50 on who invokes the appraisals
  • Need to help consumers get through appraisal process more efficiently
  • Should not legislate the appraisal process
  • Phillips – TDI already has the authority to resolve some of these issues without legislation?
    • The commissioner can issue bulletins to help resolve ambiguity
  • Phillips – what type of person serves as an umpire?
    • Typically, the appraiser for the policy holder will make a recommendation
    • Somebody who has a background and is knowledgeable about these types of issues
    • Sometimes mediators are used, the goal is to find a fair knowledgeable person
  • Who are these appraisers?
    • Anyone who is competent and impartial, that is the wording in the policy
    • There are people who make a living doing appraisals
  • Phillips – How much does it cost?
    • An umpire would normally charge $1-2,000.
  • Oliverson – who is responsible for ensuring that none of the entities are conflicted?
    • There is no formal way to disclose that yet
    • There is a judicial process to object to the appraiser
  • Oliverson – how would the consumer know that?
    • At this point the consumer would have to trust that an impartial appraiser was named
  • Phillips – thinks it would be a good idea to address this without legislation but requests that TDI work with stakeholders on this issue

 

Review Texas’ financial responsibility laws for automobile insurance, including the minimum liability limits required by state law.

Kimberly Donovan, Texas Department of Insurance

  • Link to TDI presentation on automobile financial responsibility laws
  • Drivers and vehicle owners must be able to pay for damages and injuries in the case of an accident
  • Discussed minimum coverage requirements (effective 2011)
  • Only two states that require higher bodily damage insurance than Texas
  • Insurance Institute has additional statistical information
  • Establishing financial responsibility in Texas by obtaining an auto liability insurance policy, Surety bond, Deposit of $55,000 with county judge or comptroller, Self-insured if for more than 25 vehicles
  • Insurers have begun developing their own forms to modify coverage (excluding certain items like texting while driving, driver endorsements, etc.)
  • Named driver policy describes in more detail limitations and exclusions in policies
  • Phillips – how are the limits increased or decreased?
    • By the legislature
  • Phillips – if that amount is increased, people’s premiums will go up correct?
    • If they have the minimum it would but not if they have higher limits that the minimum
  • Phillips – if there were lower limits could more people afford to be insured?
    • That could be a factor but there are many other factors
    • Can provide additional information
  • Phillips – where does Texas fall in terms of number of uninsured?
    • In 2015 national average was 12%, and Texas was 13%
  • Paul – do you know how many people have short term monthly policies?
    • Can provide that information
  • Paul – mentioned Texas third highest in highest minimums, what were the other two?
    • Alaska and Maine
  • Discussion of costs to insured motorists due to accidents with uninsured motorists
  • Paul – do you have information regarding alternative methods of proving financial responsibility?
    • Not at this time

 

The committee will also review cost increases in life insurance policies and consumer protections for life insurance policy holders.

Jan Graeber, Texas Department of Insurance

  • Discussed different categories of life insurance: Temporary and permanent
  • Life insurance continually increases in complexity as new products are developed
  • Temporary life insurance covers immediate temporary needs (paying off debt, etc.)
    • Term Life Insurance is in the temporary category
    • Premiums are typically fixed and have no cash accumulation value
    • Typically less expensive
    • Most group life insurance is Term Life
  • Permanent life insurance provides coverage for the entire life of the insured
    • Whole life, universal life and variable universal life fall into this category
    • Each is designed to meet specific needs
    • Includes policies where death benefit and cash value in the premium are based on guaranteed elements and non-guaranteed elements
  • Non-guaranteed elements are components that can change over time and include mortality (or cost of insurance rate), expenses and interest
  • In guaranteed policies the company assumes all the risk including a death benefit for a set premium payment; non-guaranteed policies the insured assumes some of the risk for a higher expected return
  • Traditional whole life will provide a death benefit and premium that is guaranteed
  • Universal life contains some non-guaranteed elements and provides death benefit for premium payments but are not set; amount and timing of premium payments are flexible but has to be sufficient to maintain a positive fund balance in the policy
  • Essential for company and policyholder to monitor life insurance policies with non-guaranteed elements
  • Life insurance illustration provides policy holder with the company’s expectation of the performance of the policy given the current environment as well as a worst-case scenario; also provide annual illustrations
  • Consumer needs this information provided in a very clear way; most complaints regard changes in the non-guaranteed elements
  • Discussed plain language and consumer awareness initiative at TDI
  • HB 3370 (85th) added disclosures and notices to policies with non-guaranteed elements (died in Senate on Intent Calendar)
  • Phillips – understand the issue of health care going up along with policies with premiums that can change, are we seeing an increase in insurance companies doing this?
    • What has happened in the policies and complaints that we have reviewed is that people purchased policies in the 70s and 80s with high-interest rates ~10% and a lower guaranteed interest rate ~4%
    • If insurance companies are not making a profit they either have to raise the cost of insurance rate or decrease the interest rate
  • Phillips – now seeing seniors that cannot afford the policy and have paid more into it than they will get back
    • They key is to monitor the policy; if the interest rate is lowered, the accumulated value is not increasing as illustrated so they must change the contribution, etc. to not reduce the cash value and have the policy lapse
  • Philips – are you aware of discussions of companies maximizing profits by doing this?
    • Have not personally seen any complaint with evidence that the company is making unsupported changes
  • Rep. Rodney Anderson – recalls mass litigation with larger companies around 2005 when interest rates fell, are we looking at something like that coming back?
    • That gets into the difference between different categories of policies
    • Discussed that traditional life would not have this kind of issue as compared to universal life
  • Anderson – if they guaranteed a level premium, how do they come back and say that it changed?
    • With universal life it is not a guaranteed level premium, it is a contribution
  • Anderson – requested illustrations on whole life and universal life policies
  • Phillips – are there any current TDI rules that they have to give a certain number of days’ notice before the company can send the increased premium notification?
    • No, if the company sells a policy with an illustration, they have to provide an annual illustration which serves as the notification
    • Many people do not understand the illustration
  • Paul – described an example of the problem
  • Phillips – there’s nothing we can do about the policies at this point or is there something we can do to help consumers better understand what’s going on?
    • The policies have been written, but changes can be made to policies moving forward
    • Could make changes to the illustration even on the existing policies
  • Phillips – are other states addressing this issue?
    • Not aware of any
    • There is a life illustration subgroup at the NAIC that works on a standard illustration; not aware of how many states have adopted that
    • Texas does not have a standard illustration
  • Phillips – what is happening in the life insurance industry as it relates to the illustrations and has it been corrected?
    • Maybe seeing a lot more issues arising
    • Needs to be disclosure and plain language in illustration
  • Phillips – would the failed legislation have helped with notices and disclosures?
    • That is correct?
  • Discussion of the failed legislation and timeline in the previous session
  • Phillips – does TDI already have the ability to fix this or does there need to be legislation?
    • TDI is developing Life insurance rules

 

Jay Thompson, Texas Association of Life & Health Insurers

  • In past failed legislation there were a few concepts that were missed including group life products
  • Believes TDI has rulemaking authority
  • Believes there are disclosure rules called indeterminate premium policies
  • Life insurance products are developed by national companies and priced at a national level
  • Universal life is more complicated because it allows the holder to assume some of the risk and able to be customized
  • Illustrations do need to do better identifying how the plan will perform over time
  • This is a nationwide problem not just a Texas Problem
  • Best solution is additional disclosure
  • Phillips – So you think this is a bubble because of the interest rate and that this will happen again?
    • There may be more of this that will be happening
    • There will be improvements on the communications regarding policies
  • Phillips – Are we going to have issues with the new forms?
    • I think there will be improvements with the new policy updates, probably time to revisit how to make this more understandable to individuals
  • Phillips – What about accidental death? Are those more of a short term?
    • Those are often sold in group policies, typically shorter term that may provide medical or death benefits
    • Many try to use this as a substitute for Worker’s Compensation, many have policies that exclude accidents on the job

 

Closing Remarks

  • This is the last committee meeting
  • Applauds commissioner’s focus on consumers protections and rights