If a Dec. 1, 2016, hearing is any indication, Texas lawmakers will be encouraged in the coming legislative session to take up what the property/casualty insurance industry says is a problematic trend following severe weather-related events in the state: increased attorney and public adjuster involvement in residential property damage claims.
The insurance committee of the Texas House of Representatives heard testimony from invited speakers about the preliminary results of a Texas Department of Insurance insurer data call aimed at gathering information on residential property claims and any resulting litigation. The legislature had asked TDI to study whether the data revealed a trend or pattern of increased attorney or public adjuster involvement and, if so, to identify what impact such a trend might have on the property insurance market in the state.
Property insurers would like to see laws enacted to discourage public adjuster and attorney involvement in the claims process. They say increased involvement is causing significantly higher claim costs and will lead to higher insurance prices and fewer options statewide. Consumer advocates, however, caution against placing restrictions that would deny policyholders the right to hold insurers accountable for errors or perceived injustices in claims handling.
TDI Senior Actuary Brian Ryder summarized the preliminary findings of the data call, which was divided into three parts: a 5 percent random sampling of wind/hail claims from admitted property insurers (except farm mutuals) from 2010 to 2015; a 100 percent sampling from the top 15 property insurers of all wind/hail claims for nine specific events between 2009 and 2015; and a survey of all admitted property insurers (except farm mutuals) regarding their response to weather-related litigation such as non-renewals, reductions in coverage, restrictive underwriting guidelines and rate changes.
Emphasizing that the results are preliminary, Ryder said the data show that starting in 2012 the percentage of claims involving attorneys or public adjusters has increased in some areas. On average, that involvement has led to higher payments in such cases and longer settlement times.
Ryder said that the collected data show that on average attorneys became involved about eight months after the claim was reported to the insurer. Public adjusters tended to get involved in a claim about four months after it was reported.
Attorney involvement within a few days after the claim was reported to the insurer occurred in 7 percent of the cases. In 23 percent of cases, public adjusters became involved within a few days of the claim being reported.
Ryder said South Texas had the most attorney/public adjuster claim involvement. However, both the Panhandle and Southwest Texas also saw increases in claims involving attorneys and public adjusters.
Of the nine severe weather events between 2009 and 2015 that TDI studied, a late March 2012 hailstorm in Hidalgo County generated the highest percentage of claims with attorney/public adjuster involvement: 26 percent.
Except for the May 2013 hailstorm in Amarillo, in which 5 percent of the claims involved attorneys or PAs, the rest of the nine events examined had public adjuster/attorney involvement in less than 2 percent of claims.
Ryder said there was no indication of a statewide trend in increases in policy deductibles as a reaction to increased involvement. However, deductibles were found to have gone up in coastal areas. Similarly, statewide there has been no decrease in the percentage of policies with the broadest coverage in recent years, and no widespread exit by insurers, although some smaller companies have pulled out of coastal areas.
From 2000 to 2015, property insurers in Texas had an overall underwriting loss of 0.3 percent, but from 2012 to 2015 insurers experienced an underwriting profit of 0.6 percent, Ryder said.
For 2016 the projection is not looking good, however. TDI is estimating, on a very preliminary basis, an underwriting loss in the residential property market of 30 percent.
The numbers indicate “that insurers paid $3.2 billion in hail losses in the first six months of 2016,” Ryder said. By comparison for the full year 2015 insurers paid out $1.9 billion in hail claim losses, which previously was the most paid for hail losses in a full year in Texas.
He said while residential premiums have increased over the past four years, there’s still plenty of competition in the property insurance market in Texas, and that competition has been steadily increasing statewide for the past 16 years.
Among those testifying during the Dec. 1 hearing were advocates on both sides of the issue.
Joe Matetich, with the Office of Public Insurance County (OPIC), told lawmakers that TDI’s preliminary data shows that “statewide hail litigation crisis does not currently exist in Texas,” and that there “does not appear to be an insurance market problem” in the state.
Both Matetich and Bryan Blevins, with the Texas Trial Lawyers Association, asserted that if the experience of Hidalgo County in 2012 was removed from the analysis, the data would show that between 2012 and 2015 claims payouts actually came in below the 15-year average
Matetich and Blevins acknowledged that the data from Hidalgo County needs further study to determine what happened there and why. But, while some companies have pulled out of Hidalgo County, “information we’ve been given is that [county residents] are still able to get insurance from other companies,” Matetich said.
The “TDI data call in no way supports, represents or even hints that there is a lawsuit abuse crisis in this state involving hail claims,” Blevins said. He added that “the reality is that of all the claims … only 1.7 percent end up in a lawsuit. And only 3.4 percent of all the claims made actually engage a lawyer or a public adjuster.”
Ware Wendell, with Texas Watch, pointed out that there already are “laws on the books that protect insurance companies, agencies, adjusters. … Many came from tort reform of 1995.” He said his organization is concerned that if the insurance industry succeeds in limiting access of insurance consumers to the courts when it comes to claims, that the balance will be tipped “further in favor of the insurance companies.”
After all, “we as consumers do not get to write the policy, we do not get to negotiate the policy, and we pay all of our money up front. Then we hope and we pay that they will follow through on their promise to help us in our time of need. All we have are the threat of these laws if they violate them,” Wendell said.
On the other hand, Lee Parsley, with Texans for Lawsuit Reform, said the current “hail litigation environment is largest lawsuit abuse in years” and argued that the problem has not been limited to Hidalgo County. He added that in the long run, “lawyer-driven litigation” ultimately hurts consumer through higher rates that amount to what he called a “tort tax.”
Beaman Floyd with the Coalition for Affordable Insurance Solutions, a lobbying group that includes the top 10 property insurers in the state, said that the number of confirmed complaints against property insurers during the time studied by TDI was actually low compared the number of disputes that were filed.
It’s important to look at the hail litigation that has occurred so far as possibly the beginning of a more widespread trend, he said.
“You can’t let little numbers get out of control,” Floyd said. “While it’s necessary to protect consumers from possible bad actions by insurers, corrections could be made that don’t damage “consumers and their right to go to court.” But, he added, consumers should not be made to pay a higher “rate to protect the few that are abusing the system.”
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