Staff of the Texas Sunset Advisory Commission says the Texas Department of Insurance functions well but that the state’s “overall approach to insurance regulation,” may need tweaking.
State agencies in Texas are subject to review by the Sunset board every 12 years. TDI is up for a legislative assessment next year. Legislators typically use the Sunset staff report as a guideline when reviewing the functionality of an agency.
The Sunset staff said that given the size of the insurance industry in Texas – companies collect about $90 billion in premiums in the state each year – regulation of the industry is “especially critical.”
“The Sunset reviews of the Texas Department of Insurance (TDI) and the Office of Public Insurance Counsel (OPIC) began among growing concerns about the availability and affordability of insurance of all types in Texas,” according to the report. “Questions relating to what the State’s role should be in ensuring both that consumers have access to affordable insurance and that insurance markets are competitive in Texas arose during the review.”
The Sunset staff concluded that “the extent to which the State, and TDI, as the agency that regulates insurance, should be involved in ensuring that companies offer fair, competitive, and affordable insurance products to all Texans remains unclear.” But the review board “determined that many of the long-standing questions regarding the State’s role were outside the scope of a review aimed at evaluating the continuing need for TDI.”
Instead it focused the review “on evaluating the agency’s programs and recommending changes to improve the transparency and accountability of these programs.”
TDI functions well and “its financial regulation of insurance companies is effective, proactively identifying solvency concerns and working with companies to address financial problems before consumers are adversely impacted,” the report says.
In addition TDI does a good job helping consumers resolve complaints with insurance companies. In 2007, the department helped policyholders recover an additional $34 million in claims payments.
Staff found however, in the regulation of property and casualty insurance rates, TDI could do a better job. The report says “the agency’s implementation of statutory changes to the rate regulatory system lacks transparency and can cause unpredictability in regulation.”; But it confined its evaluation to they statutorily established system and declined to make judgments as to whether the state should increase or decrease rate regulation, leaving that role to the Legislature or the full Sunset Commission.
Staff recommended folding the duties of the OPIC into TDI. It concluded that while continued consumer representation is essential, because of recent changes to the state’s insurance regulatory system a separate agency to advocate for consumers in insurance matters is unnecessary.
Staff also suggested “that the current separation of duties between TDI and the Texas Windstorm Insurance Association (TWIA) limits the State’s ability to oversee the Association’s role as a market of last resort for windstorm insurance in Texas.” It did not address TWIA’s funding structure, but confined its recommendations to “more clearly delineating the roles of, and relationship between, TDI and TWIA.”
Staff recommended that the Texas Department of Insurance be continued for the next 12 years. It also suggested updating “TDI’s statutory duties to better reflect the agency’s role in protecting consumers and encouraging a competitive insurance market in Texas.”
Some of the reports key recommendations are as follows:
Homeowners insurance rate regulation
–Set limits for the amount of time the department has to review and administratively disapprove filings under the file-and-use system.
–Require the department to better define the process for requesting supplemental information from insurers, and to track all information requests and administrative rate disapprovals.
–Require the department to generally define, in rule, factors that could result in a company being placed under prior approval.
–Require TDI to routinely evaluate the need for insurers to remain under prior approval, and require that insurers be notified in writing of the actions that need to be taken in order to return to file-and-use rate regulation.
Texas Windstorm Insurance Association
–Increase the number of public members on the TWIA Board, and require the Commissioner to appoint all board members and designate the presiding officer.
–Replace the commissioner’s authority to modify TWIA rates, forms, and operations through hearings with a more traditional administrative approval process.
–Transfer the responsibility for windstorm inspections and the oversight of engineers from TDI to TWIA.
–Remove unnecessary rate restrictions in law, permitting the association to consider additional factors in developing rates.
–Authorize TWIA to require applicants to provide proof of two declinations from insurers writing windstorm insurance in the state.
Office of Public Insurance Counsel
–Abolish the Office of Public Insurance Counsel and create a consumer representative within the Department of Insurance.
–Transfer the Public Counsel’s statutory board positions and nomination duties to the consumer representative at TDI.
–Transfer the responsibility for OPIC’s consumer publications to TDI.
–Transfer the authority to assess insurers to pay for consumer representation from OPIC to TDI.