TCAIS Proposed Guidelines
for Insurance Regulation

For Texans to have better choices in homeowners insurance, the state must change and modernize the way it regulates the industry. Proper reforms of the regulatory system would allow consumers to benefit from a healthy, competitive market at the same time they are protected from potential abuses through strong market conduct and financial standards.

The State’s central role in overseeing the insurance industry should encompass the core principles outlined below. Together, these principles present a regulatory structure for the Texas insurance market that combines the best parts of existing Texas regulation with the best parts of Illinois regulation. The Illinois structure has produced one of the best, most competitive insurance markets in the country, with rates below the national average.

If adopted, these principles would lead to increased coverage choices for consumers and a more competitive market in Texas. The result would be more meaningful choices of different products and prices, and more ability for insurance companies to respond to market conditions. New discounts could be readily developed and offered, and consumer demand could dictate innovation. Solid regulatory and legislative oversight of the market would ensure that consumers benefit from these proposed changes.

1. STATE AUTHORITY OVER RATES AND RULE MANUALS

• All insurance companies, including Lloyds and reciprocals, must file rates or rate changes with TDI.
• TDI would have the authority to review rates and rule manuals for solvency, adequacy of rates and unfair discrimination practices.
• TDI would publish a rate guide that consumers could use to compare insurance prices.
• TDI would provide sufficient information to consumers to enable them to make a meaningful choice of insurance coverage based on price, product, solvency and market conduct.

2. STATE AUTHORITY OVER POLICY FORMS

• All insurance companies, including Lloyds and reciprocals, must file policy forms with TDI.
• TDI would have the authority to disapprove a company’s policy form on a prospective basis. If TDI finds that the policy form or any provision of the policy form violates a provision of the insurance code or contains inconsistent, ambiguous, or misleading clauses, or exceptions and conditions that will unreasonably or deceptively affect the risks that are purported to be assumed by the policy, TDI shall order the company or companies issuing these forms to discontinue their use.

3. STATE AUTHORITY OVER SOLVENCY

• TDI would protect Texas consumers by ensuring the solvency of Texas insurance companies so that sufficient funds are available to pay claims.
• TDI would enforce statutory investment requirements to ensure that investments made by Texas insurance companies do not jeopardize their solvency.
• TDI would enforce statutory risk-based capital requirements to ensure maintenance of appropriate surplus and reserves to pay claims.
• Every three years, or more often if TDI deems necessary, TDI would conduct financial examinations of each Texas insurance company’s financial condition and its ability to meet liabilities. If TDI determines that financial strength justifies a deferment, the exam can be extended to every five years.
• TDI would conduct supervision and receivership activities for insurance companies in hazardous financial condition. Unfunded covered claims liability would be paid by Texas insurance companies through guaranty fund assessments.

4. STATE AUTHORITY OVER MARKET CONDUCT

• TDI would participate in the NAIC “annual statement data call” pilot program.
• In conjunction with the triennial financial examinations, TDI would examine an insurance company for compliance with the laws of Texas affecting the conduct of its business.
• TDI would continue to have power to examine and investigate the affairs of every person engaged in the business of insurance in Texas in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or prohibited practice.
• TDI would have the authority to conduct a targeted market conduct examination if TDI determines that a volume or type of complaint warrants one.

5. STATE AUTHORITY OVER ACCESSIBILITY

• Texas would continue to support the following programs to ensure that Texans have access to homeowners insurance:

  MAP: TDI would continue the statewide Market Assistance Program (MAP) that matches homeowners who have been rejected by two or more insurance companies with insurance companies participating in the MAP program.

  TWIA: For Texas’ 14 coastal counties and a part of Harris county, the Texas Windstorm Insurance Association (TWIA) would continue to act as the provider of last resort by providing citizens in those areas with adequate wind and hail coverage when it is not available in the insurance marketplace.

  FAIR: TDI would implement the Texas FAIR Plan, which is a risk pool similar to TWIA for people who can't get coverage in the voluntary market across the state. The FAIR plan coverage would be broader in territory and coverage than TWIA and would be required to charge adequate rates. Rates would not be competitive with the voluntary market to avoid a build-up of a state pool. Until it could operate sufficiently on its own, TDI would have the authority to allow TWIA to act as the third-party administrator, since it has an existing structure, but the insuring risk would be borne by the FAIR Plan and claims would be paid out of FAIR Plan funds. Applicants would have to show evidence of two rejections by licensed insurance companies writing business in Texas. In the event of a deficit in funds, member insurance companies would be assessed and may charge a premium surcharge on every property policy they issue. The surcharge would be spread over a three-year period.

6. STATE AUTHORITY OVER CONSUMER PROTECTIONS

• The Office of Public Insurance Counsel would continue to be funded by annual assessments of insurance companies.
• TDI would continue to require that insurance companies provide the Consumer Bill of Rights to every policyholder.
• TDI would continue to enforce prohibitions on the unlawful discrimination against any person or group of persons.
• TDI would make sure that consumers have access to information that would allow them to select from different insurance companies, such as posting a rate guide and continuing programs such as www.helpinsure.com.
• TDI would review company claims handling practices and enforce laws against any unfair claims handling practices.
• TDI would continue to require that all insurance companies disclose any policy changes to policyholders.

7. STATE LEGISLATIVE OVERSIGHT

• The Texas Legislature would create a Joint Legislative Oversight Committee to monitor Texas’ evolving insurance market.
• TDI would provide the Texas Legislature with a Scope of Competition Report by January 15th on the years the legislature meets. This report would be similar to the Telecommunications and Electric Scope of Competition reports which focus on progress made in managing the transition to a competitive market, evaluation of market entry and exit data, economic impact of the competitive environment, etc.
• TDI would undergo the Sunset review process in 2004-2005.