House Insurance – February 12, 2019

The House Committee on Insurance met on February 12 to hear invited testimony from the Texas Department of Insurance, the Office of Public Insurance Counsel, and the Texas Windstorm Insurance Association regarding agency operations, mediation issues currently at TDI, and reinsurance, among other issues.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing, but 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.

 

Texas Department of Insurance

Kent Sullivan, TDI

• Provides overview of TDI operations
• TX is the second largest insurance market in the US and 8th largest in the US, in 2017 TX insurers wrote $160b in premiums, 25% increase over past 5 years; also paid out $134b in claims, 47% increase over past 5 years; License number are also increasing
• Responsibility of TDI is becoming increasingly complicated due to increase in volume
• TDI changed leadership structure after Harvey & long-term reforms, have been trying to have flexible services in key areas to respond to spikes in demand for TDI services, much like in hurricanes
• TDI has conducted reviews of operations with a focus on best practices and modernization, incl. better use of technology for document management, etc.; Harvey work was done with antiquated systems & new systems should help
• Have begun a pilot program to use AI to help sort through policies and claims
• Also working on regulatory consistency, Sullivan notes this is an important focus for the agency
• In consumer issues, consumer call center was redesigned, flexible capacity was added, website has been redesigned, trying to incorporate plain language in all materials, etc.
• Reorganized consumer complaints unit, redeployed staff, etc. to help take care of complaints section, especially health care mediation requests
• Licensing process has also been redesigned, average time for licensure is <6 days
• Authority of TDI can cause significant confusion for consumers, TDI has seen a large increase in complaints and mediation requests despite having authority only over 16% of industry
• TDI works to get complaints to the correct place, but screening of health care complaints for items under TDI’s jurisdiction takes time

 

Doug Slape, TDI

• Gives overview of TDI operations, incl. consumer protection, financial regulation, fire loss, worker’s comp, etc.
• TDI only regulates 16% of the health insurance market, also oversee other areas like TWIA, life insurance, auto insurance, etc.
• Presents TDI’s biennial report, highlights 2 recs: property insurance policies should include disclosure if policy comes with flood insurance, should allow further extension flexibility for TWIA deadlines after disasters
• Federal gov. has acted against state insurance, has treaties with the EU & the UK to implement statutory changes & federal government is pressuring states as early as 2022; TDI is working to determine what changes may be needed
• S Davis – Asks after report on backlog of mediation requests at TDI, is this true?
  • Sullivan, TDI – We moved on this last Fall, mediation threshold has lowered at several points recently & TDI received a spike of requests
  • More resources are devoted to it, working through it, and consumers will see changes
• S Davis – But what happens to the companies in the meantime, from what I understand they could suffer negative credit impacts
  • I don’t know the details about what has happened, but as a practical matter we have added 8 people to the backlog & everything should be caught up shortly
• S Davis – The requests for mediation have been entered?
  • Staff is incrementally addressing the problem
• S Davis – And this won’t be completed for a few months?
  • I don’t think they’ll be caught up with everything, but it is being fixed
  • Slape, TDI – Backlog is measured in days
• S Davis – This was not the case previously
  • There was an issue, but more resources have been brought in & addressing it
  • TDI calls a resource witness to answer more details from the Customer Operations Center of TDI
• S Davis – Was disturbing to me that there was an almost 4k case backlog
  • TDI Staff – Majority of the 4k had been entered, first step is entering, second is to get the letter to the providers
• S Davis – And thus not have the info sent to the collection agency; what was taking place then? Heard that there were claims being sent to collections?
  • What we ask consumers to do is to give us a call so we can reach out to both parties and get it resolved
  • I don’t know that this has happened often, but we are caught up on mediations; sitting today at about 2.9k
• Lucio – So this is mediation in what context?
  • This is mediation for surprise or balance medical bills, recent law has made allowances for consumers to request mediation between provider and insurance
• Lucio – We have had multiple cuts to agency budgets since I arrived, have those cuts resulted in fewer FTEs in this particular department?
  • Not to my knowledge
• S Davis – TDI is self-funding
• Lucio – So you are completely self-funded?
  • We do receive appropriated dollars, but we reimburse GR through the maintenance tax process
  • We are impacted by some cuts, but mostly in administrative processes
• Lucio – Highlights how this issue is widespread across agencies, cuts have caused delays in other agencies
• Oliverson – I understand TDI is self-leveling, self-funded, but considering that requests for mediation have gone up over time, are we doing what we need to ensure you have the resources to regulate the second largest insurance market? Have seen multiple departments where the backlog is due to not having enough people
  • Sullivan, TDI – What we are trying to do is modernize by redeploying resources, add tech, etc., so as many FTEs are not needed
  • Previously, operations were disproportionately manual and disproportionately paper & many of the companies we regulate use state-of-the-art tech
  • Unable to change everything all at once, but started in agent & adjuster licensing
  • Won’t ask for an add of FTEs, I don’t believe this is the answer; need to leverage resources better
• Oliverson – Want to ensure you have the resources that you need
• Paul – On the mediation, is the majority surprise billing & what part of the health care agency is causing this?
  • Yes, this is the balance bill problem, as we’ve increased scope of those that can access mediation, we’ve seen more requests & also has been more attention given to this issue
  • One of the issues is the triage problem, vast majority of people are in plans we don’t have jurisdiction over, e.g. ERISA plans are under U.S. Department of Labor
• Paul – You mentioned a 25% increase in policies in force in the last 10 years, what is this due to? Possibly flood insurance?
  • Flood insurance is still dominated by federal government and NFIP, would like to explore more options for private flood insurance
  • One of the main issues with Harvey was that many did not have flood insurance, this is one of the reasons TDI recommends trying to take the lack of flood insurance out of play
  • This is also one of the areas people can be misled by the math; consumers are required to buy flood insurance if you have a federal mortgage, but there is little policing of this
  • Also see issues with floodplains & out of date flood maps
• Paul – Can you give me a brief on what is going on with the windstorm inspection program?
  • Slape, TDI – I think after a big storm like Harvey you will experience some spikes, but generally have been able to keep up
  • Consumers can also go out to the private market and get an inspection, capacity exists to satisfy the demand
• C Turner – Following up on the balance billing issue, in Nov. you had 4k requests, and that is down to 2.9k, what is the plan for the expected increased demand again?
  • We currently have a posting for 2 positions to help with mediations
• C Turner – If you anticipate 8k requests this year, what do you anticipate the backlog will be at the end of this year?
  • I think we’re in a good place to resolve these quickly
• C Turner – Members of the legislature are thinking through additional reforms on this issue, so would appreciate continued info
• C Turner – TDI’s biennial report addresses 1332 waivers through the ACA, in the last session we passed SB 2087 to provide TX the authority to pursue a waiver & this expires in August of 2019; Have we pursued a waiver under SB 2087, Sec. 1332?
  • Sullivan, TDI – The state has not
• C Turner – Do you know why not?
  • To my knowledge this was contingent on federal funds, to my knowledge this process is trying to be expedited
  • From a practical matter, there is the question of what money to put into whatever the waiver ultimately facilitates
• C Turner – So bottom line, federal government has not put funding into facilitating waiver requests?
  • From my understanding, SB 2087 had a contingency & that contingency had not been met
• C Turner – Is there any reason to expect the contingency will be met by the federal government?
• G Bonnen – Do you have the authority to hire more FTEs to address the mediation issue?
  • I think at this point we are looking at shifting processes and redeploying resources rather than hiring FTEs
• G Bonnen – In the aftermath of Harvey, what would your assessment be of the property and casualty insurance market based on complaint or observations
  • From past experience, we got to roughly 25% of complaints from Ike, would hope that our response is better this time
  • We also have more technological capability, would hope that this helped the response; i.e. cellphones are more capable and more widespread
• G Bonnen – How many complaints are still lingering?
  • Don’t have an exact, but I don’t believe it is a material number
• Lucio – In the mediation process, in order to be able to go to SOAH the mediation process is required; how many cases are resolved at the mediation level?
  • Virtually all of them, I don’t know of any that have gotten to the point of appointing a special judge
  • Economics are such that the parties get together and resolve this, often before the mediation
• Lucio – When can we make a determination that the changes we’ve made in software and tech have made changes in caseload?
  • There is a lag period involved in all of this, need at least 12 mos. or so to fully implement
• Lucio – I’m concerned that much like the policies themselves, policy disclosure will become convoluted & will not be as progressive as we hoped; why don’t we have more standard policies that TDI more closely structures?
  • In 2003, Legislature made a decision to avoid promulgating forms; there are legal limits to policies, but there is form freedom within those limits
  • A major insurer is coming out with a commercial casualty policy that is 3 pages long with flood insurance; not endorsing this, but it is conceptually a good thing
• Paul – If someone has a surprise bill and goes to mediation, could the provider still charge them further or issue another surprise bill?
  • The statute provides that once notice is given, everything is stopped
• Lucio – I think this should be called “surprise billings” because it’s usually more than one
• Oliverson – Asks after the federal agreements mentioned earlier
  • Yes, there is more to be done, don’t know exactly what will meet the mark
  • Was everyone’s hope that the legislation last session would disincentivize the federal gov. from entering into covered agreements, but they entered into 2 with the EU and the UK
• Oliverson – Can you explain this issue?
  • The Dodd Frank Act passed after the financial crisis gave additional powers to the federal government to oversee insurance
  • Act created the Federal Insurance Office which has power to negotiate internationally & gave power to negotiate covered agreements, which are agreements that can be entered into with foreign jurisdictions that can preempt state law
• Lucio – Tell us how its relevant, who does this apply to?
  • This agreement covers reinsurance reforms, will need to go back and reform further, i.e. alteration of collateral provisions that would bar states from requiring collateral for foreign companies
  • Another change is a requirement for states to come up with group provisions and group capitol
• S Davis – When you submit a mediation request under the statute, you are in theory protected from nonpayment requests, etc.; but the point is that TDI is so backlogged that they are unable notify that the claim is being protested and consumer may find themselves subject to collections
• Lucio – Do you have any data on the number of outstanding provider bills sent to collections?
  • Do not have this

 

Office of Public Insurance Counsel

Melissa Hamilton, OPIC

• Provides overview of OPIC, statutory basis, and funding model
• OPIC attempts to resolve issues informally, but can also file formal objection letters with TDI
• Describes OPIC’s consumer outreach operations, educates on coverage and possible assistance for consumers
• OPIC also produces Consumer Bills of Rights, HMO report cards, shopping guides for consumers
• Suggests putting flood insurance disclosure on the application so it is disclosed at point of sale
• Presents packets of OPIC’s report & info cards
• Oliverson – On coverage for rental cars, some divested with my office last week that automobile policies no longer cover collision on free loaner cars, have you heard complaints like this?
  • Not on this specific issue, have heard of this on rentals only so far
• Oliverson – Seeing a rise across the US of “Insurtech” where consumers can access policies estimate, etc. through their phones; have you seen any issues specific to this new online marketplace where the consumer encounters pitfalls different from the traditional market?
  • Have not received complaints about this yet, but it is a challenge overall for consumer trying to navigate the market when buying a policy
  • One of the challenges we will have is how OPIC can play a roll in education when consumers are interreacting with an application rather than an agent
• Oliverson – Asks for OPIC to keep legislature aware of anything heard, this market is completely different than typical with highly specific policies available
• G Bonnen – Can you repeat your recommendation with regard to flood insurance?
  • Recommendation is to put disclosure regarding flood insurance on the application, leaving exact wording up to stakeholders/market, but should be in plain language
• G Bonnen – And you think the application as opposed to a waiver or separate form would be best?
  • Can work in conjunction with each other, but insurance is frustrating to buy so the idea is to provide notice at the point of sale
• G Bonnen – My concern is that many people didn’t have flood insurance by choice rather than lack of awareness of homeowner’s policy
• J Johnson – When they are applying for homeowner’s insurance, are consumers given an option to add flood coverage; is the option mandatory?
  • Currently no requirements aside from those on federally insured mortgages
• J Johnson – So it will say it won’t cover consumers for floods, but there would be no options provided
  • It would not provide coverage, but the hope is it would start the conversation
• Lucio – Do you review the application language to determine if it is written in a consumer-friendly way?
  • No, only reviewing the policies filed with the department
• Lucio – Do you not review this because you do not have statutory jurisdiction?
  • Correct, only through market conduct would the department be able to see application forms

 

Texas Windstorm Insurance Association

John Polak, TWIA

• Provides overview & history of TWIA, TWIA was relatively small until just before Hurricane Ike; massive amount of claims from Ike were a large problem for TWIA; TWIA invested in new expertise and automatization and Hurricane Harvey was a very different experience
• 98% of TWIA claims have been closed at this point
• TWIA gets no funds through GR, only funded through premiums and “layercake” of funding mechanisms; reinsurance portions is at the top & it is cheap, but you essentially need to go broke before you can collect it
• Lucio notes he wants to have a conversation about the reinsurance portion specifically
• Polak provides an overview of audits of TWIA, TWIA is a very attractive organization for audits & has implemented all of the recommendations from the numerous audits
• TWIA’s board has 15 recommendations, mostly introduced in the last session & expected them to move forward, but session ended unexpectedly
• Lucio – I was going through the layers of TWIA & realized that we had a reinsurance product where essentially we need to go broke to use this
• Lucio – I think we pay a significant amount for the reinsurance and it leverages an even larger amount in coverage; there was a time when this aligned with CTRF but we moved this to the top, why did we do this?
  • It rose to the top in SB 900, many were concerned over who should pay for it if it was placed in a different area (e.g. industry should pay if it is low, could be prohibitively expensive, etc.)
  • Legislature decided that the current placement was the best compromise as it eliminated the argument that it was to benefit just the carriers
• Lucio – Reinsurance isn’t a concept most consumers appreciate, it seems like an insurance policy we pay for, but are not using
  • True, similar to life insurance in a way
  • It is a way of transferring some of the risk the carrier has to a portfolio of reinsurers; much cheaper than it is to hold onto the risk itself or take the hit
  • Reinsurance structure is really based to protect against the worst case scenario
• Lucio – I believe the last time we filed a claim under the reinsurance layer was 10 years ago?
  • Yes
• Lucio – So we spend approximately $100m/year, so $1b over last 10 years that will only be used in catastrophic events
  • Not exactly true as there were 2 years in this period where we purchased no reinsurance
• Lucio – So $800m; I understand the ramifications of re-layering, but it seems like we are paying a lot
• Lucio – When we use the CRTF, every dollar we put in is only $1; when we purchase reinsurance our $100m/year purchases $2.4b in coverage
  • Correct
• Lucio – I understand that moving that down some layers or alongside CRTF, it seems like TWIA withstood Harvey to some extent, but if something comes this year we won’t be in as good of a place
  • It will be a challenge; many look at CRTF as if it is our only funding, every major storm this will go away & will never reach high levels
  • The question is, what do you want to do to protect policy holders? Unlimited money to pay claims? Protect the CRTF?
  • Board discussed this, determined we have to buy some per statute, it has to be at the top per statute – in this model there are a couple options: 1) purchase only excess of loss reinsurance or 2) quota share which places it alongside CRTF to some extent
• Lucio – Would like to discuss this strategy to get the CRTF to a healthy balance again; what is the watermark for a stable TWIA program and then moving to more affordable premiums by relayering the cake?
  • It all depends on who you want to disadvantage
• Lucio – Right now I think the system is lopsided, wondering if we can reallocate the layer to make it more even
  • Issue is getting all of the stakeholders to agree

• G Bonnen – Probably worth re-evaluating, does come back to who is going to pay for it and how; assessments and public securities are probably a lot closer to the event than they were before
• G Bonnen – We have $500m in pre-event bonds, where do we stand with these
  • We issued pre-event bonds a few years ago, used all of this up aside from $50m which was a required withhold
  • The problem with this is that it still needs to be paid back and this is vulnerability
• G Bonnen – Do we no longer have that layer?
  • We can issue a little bit more, but can’t have more than $500m outstanding; probably can’t do pre-event bonds
  • TDI has asked us to put money we would’ve spent on this into the CRTF
  • There is a penalty if we pay it back before next year
• Lucio – Ask after capacity limit to issue bonds
  • Conversation has been about Class 1 bonds, there are Class 2 and 3 bonds that are independently financed
  • If the determination was made that you couldn’t do Class 1, then you start rolling into Class 2 and 3
• G Bonnen – What percent of Tier 1 wind is TWIA writing now?
  • Marketshare is around 50%
• G Bonnen – Is this an improvement?
  • We used to have $80b of exposure and no it is around $60b, lost some through depopulation program and lost some due to business conditions
• G Bonnen – So goal last session was to bring it down, what is the total exposure now?
  • Total exposure is roughly $58b, but we can’t be on the hook for all of this as it is spread over the entire state and not everything will get leveled at once
• Paul – Going over recommendations from TWIA to the legislature, you want to eliminate the requirement for TWIA to issue certificates of compliance; you want to get out of the inspection side?
  • Issue is we are doing ~20k/year and more than half are not for TWIA policy holders, not saying it shouldn’t be done, saying that it shouldn’t be us
• Paul – But the reason is that otherwise the whole sector wouldn’t be done
  • Not sure that this is true, TDI was doing it previously
• Paul – They were doing it, but not the part you do
  • This is contrary to my understanding, would need to look at this further
• Paul – We can talk about this further offline

 

The Committee adjourned