Reform Advances to House Floor in Texas

May 8, 2003

Insurance reform in Texas is a step closer as the House Insurance Committee approved legislation that will address some of the root
causes of the homeowners insurance crisis, however it is reportedly not likely to lead to an environment that will encourage increased competition in the insurance marketplace.

“The House version of insurance reform is an improvement over the
legislation that passed the Senate,” Donald Hanson, southwest regional manager for the National Association of Independent Insurers (NAII), commented. “On the positive side, the insurance reform effort tackles two of the major reasons why Texans found themselves embroiled in an insurance availability and affordability crisis. The flawed benchmark rating system and the state’s strict control of policy forms will be ended. While these are very positive developments that will certainly improve the state’s regulatory environment, we would like to see lawmakers embrace an approach that will attract more insurers to the Texas marketplace and provide more choice for consumers.”

The House version of Senate Bill 14 is expected to undergo extensive debate on the House floor next week. The plan before the House would require insurers to obtain prior approval of homeowners’ rates by the insurance commissioner. The bill also permits the use of insurance scoring with certain restrictions.

In addition to SB 14, the Texas House of Representatives is considering several other important measures that have passed the Senate. These include:

*SB 127 which is intended to prevent an individual or their property from being unfairly stigmatized in obtaining residential property insurance as the result of filing a water damage claim. The bill prohibits insurers from imposing a premium surcharge if an appliance caused the water damage claim.

*SB 422 establishes a process for the state to conduct random samples of registered automobile owners for proof of financial responsibility. The random sample approach would be less intrusive on insurer operations than the mandatory reporting that would be required under the database bill (HB 814).

The bill also contains a provision that would require insurers to offer
consumers reduced Uninsured Motorist/Underinsured Motorist (UM/UIM) coverage. However, the requirement to obtain a written rejection of the UM/UIM coverage and a consumer’s signature on a form explaining the amount of coverage available and the amount of premium saved due to the rejection of coverage poses concerns for the industry.

*SB 473 is intended to provide consumers with the ability to “freeze” their consumer credit reports as a mechanism to prevent identity theft. The Texas legislation is based on a recent enactment in California. The unintended consequence of the freeze hampers the use of consumer credit information across a wide spectrum of the economy including insurance. The bill has been amended in the House to restrict the applicability of the “freeze” to entities that use the consumer credit information to extend credit.

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