Insurance reforms enacted by the 78th Texas Legislature dominated many discussions at the 106th Annual Independent Insurance Agents of Texas Convention, held June 19-21 in San Antonio. Not only did Lt. Governor David Dewhurst address insurance measures in his wrap-up of the legislative session as the keynote speaker at the Wade F. Spilman luncheon, a panel of legislators and industry professionals attracted a full house to hear their take on how reforms will affect the Texas marketplace.
Moderated by the IIAT’s Director of Government Affairs Bo Gilbert, who was widely praised for his efforts on behalf of independent agents throughout the legislative session, panel members included Sen. Kim Brimer (R-Fort Worth), Rep. Craig Eiland (D-Galveston), Larry Taylor (R-Friendswood), Bruce Milligan, CEO of Republic Group of Insurance Cos. and Texas Department of Insurance Deputy Commissioner Mike Geeslin.
Gilbert, echoing the sentiments of other IIAT leaders during the conference, including executive director David VanDelinder, said that the insurance reform legislation, Senate Bill 14, was a fair and balanced measure, especially given the anti-insurance sentiment that prevailed during the early stages of the legislative session.
The final measure was crafted through an evolutionary process. The lawmakers on the panel noted that at the beginning of the session, a number of bills were filed that would have been punitive to the insurance industry. The job they had before them was to create legislation that was both fair and protective of consumers but allowed for a competitive insurance marketplace to thrive in the state.
Sen. Brimer explained that it’s usually decided before the session begins which body is going to work on which pieces of major legislation. “We took the insurance issues, Senate Bill 14—that started in the Senate. And then tort reform, House Bill 4 started in the House.”
“There were simplistic ideas that were supported by very strong groups—like to roll back rates to Sept. 1 2001,” said Rep. Eiland. “That’s very simplistic and it sounds very good. But you have to have a very open process, a legislative hearing process, so that you can come in and explain to people why that wouldn’t be good and why that would hurt the companies that did not have abusive prices. That you’d be discriminating against the companies that were the good actors.”
“We did have some very daunting tasks before us,” Rep. Taylor said. “Of course homeowners was on everyone’s mind, it hits people right in the pocketbook, so it makes them quite emotional about it as well. And we started off the session with very much an anti-insurance view of things … we knew we were going to have a hard time. … We were looking at the insurance problems we were having, the mold, the pricing problems, the credit scoring—these were all symptoms of a market that was sick. It was sick because the companies that were here didn’t want to write the business. … Part of this process was to try and create an environment that companies would want to come to.” Taylor noted that people found it easy to say they wanted “to do things to insurance companies, but the fact is, if you actually do those things, there are 49 other states they can go to. … Our whole goal and purpose was to not beat up on insurance companies … but it was to [do the right thing] for consumers, make sure they were being protected from abusive practices, but at the same time, reasoning with our fellow legislators. We had to do what was responsible, not just what was … a good sound bite.”
He admitted that “SB 14 was not my first choice, it probably wasn’t anybody’s first choice. … But we had all kinds of opinions out there and we had to come up with a consensus. … It was almost a miracle that we came up with the bill that we did.”
Eiland, who’s served on the insurance and appropriations committees for eight years, said one of his concerns in working on the bill was the issue of federal vs. state regulation and the need to create an environment in Texas that was healthy for both consumers and business alike.
“Congress, especially Sen. Oxley is very active in looking at the insurance marketplace,” Eiland said. “That’s one of my concerns. So as we looked at the insurance reform bill, one of the things that I wanted to look at and make sure we did was to have a regulatory structure that was familiar to those not in Texas. [So] we could … show the Congress that the market is doing things to adjust. So that’s why I felt that we had to have some kind of file and use system.”
He noted that the Senate originally passed that bill with a prior approval system. “I felt that when the Senate passed it that way, that obviously was going to have to be component of it, but we had to find a way to get eventually to file and use once we had the market under control. That was one of my goals. Even though it didn’t end up like I really wanted, it was close enough so that I think we can get there. I hope that we can convince some companies to come in. And the commissioner has the tools, and it will now be up to the commissioner to make sure that … rates aren’t excessive or inadequate.”
The Republic Group’s Milligan said inadequate pricing was as much a concern to him, as CEO of a small insurance company committed to the Texas marketplace, as was overpricing. “I think we have had a lot of predatory pricing over the years that drove a lot of smaller players out of the marketplace,” Milligan said. “So there is a need for a level of supervision, because we’re selling product that is not tangible and we’re selling it in a state where there can be great variations in loss experience from year to year. … What we hope for is that the department will implement this and not make the process overly bureaucratic. But I’m pretty confident that that will happen.”
TDI’s Geeslin was bullish about the department’s ability to accomplish the reforms the legislature set in motion with the bill. “There’s a 146-page bill … but the underlying message to the department, as I see it is—’today’s a new paradigm,’” Geeslin said. “I think we all … understand that insurance is not just another regulated service or product out there, it’s … the oil to the gears that allow people to invest in small businesses, buy a home, buy a car and gives us a feeling of certainty.
“And so taking a holistic approach about what insurance does, we have to change too. We work with market forces. There are times when insurance markets are more functional and we recognize that and use the natural market forces to help us ensure … fair and reasonable insurance products.
“Speed to market is another critical issue,” he continued, adding that agents “are out there where the rubber meets the road. You all see the problems before any of us do. [You are also impacted] by what happens when you don’t have speed to market.”