Our Take on the Latest TWIA Bill
June 9th, 2011
Texas Watch Director of Legislative Affairs Ware Wendell recently testified against House Bill 3, the latest version of legislation to restructure the Texas Windstorm Insurance Association. He cautioned committee members against stripping coastal homeowners of vital protections that penalize insurance providers when they fail to pay claims promptly and fairly.
Here is the full text of our letter to the committee:
June 7, 2011
Chairman John Smithee
House Committee on Insurance
Texas State Capitol – E2.150
1100 Congress Avenue
Austin, TX 78701Re: Written testimony in opposition to HB 3 (82nd Legislature, First Called Session)
Dear Chairman Smithee and Members of the Committee:
On behalf of Texas Watch, a citizen advocacy organization with 15,000 members across the state, please allow the following to serve as our written testimony in opposition to HB 3.
As written, this legislation would strip coastal policyholders of vital consumer protections, namely, the safeguards of Chapters 541 and 542 of the Insurance Code, which deter abusive conduct on the part of powerful insurers, compel them to honor their obligations in a prompt and timely manner, and make it more likely that an aggrieved policyholder will be made whole. These are the same protections that all other policyholders are afforded.
All other insurance providers must adhere to prompt and fair claims requirements outlined in Chapters 541 and 542. And, rightly so. So should TWIA.
The legislation sets forth a number of systemic reforms to the association, making it more transparent. However, if these reforms are not coupled with the consumer protections of Chapters 541 and 542, this legislation would be leaving the back door open to the further abuse of policyholders. Without meaningful accountability that includes penalties for failing to promptly and fairly process claims, policyholders are left to trust that TWIA will operate in a fair manner despite the association’s recent history.
The only reason why those victimized by Hurricane Ike and the man-made catastrophe that followed had any recourse or hope is because of these strong consumer protections. Insurance adjusters, TWIA, the Legislative Oversight Board, the State Office of Administrative Hearings, and the Texas Department of Insurance all failed to protect these policyholders. It was only through their last line of defense – our judicial process – that TWIA’s wrongdoing came to light and policyholders began to be made whole.
TWIA needlessly punished and endangered its policyholders. The lesson from TWIA’s claims handling abuses in the wake of Hurricane Ike is not to punish policyholders again by taking away their consumer protections and constitutional rights. However, that is what HB 3 effectively does to coastal policyholders.
The legislation would establish a sprawling administrative process that would effectively arbitrate claims, whether through the appraisal or so-called independent review panel process. Instead of trusting our judicial system, which is already established and directly accountable to the public, to adjudicate claims, the insurance commissioner, who is yet to be determined, would be given the sole power to appoint these panels.[1] Policyholders will be sucked into a black hole if an independent review panel requests guidance from yet another panel comprised of technical “experts,” with their claims delayed indefinitely during this time.[2] This technical panel would have an inordinate amount of power over the process, both advising the commissioner on global settlement guidelines on the front end and advising independent review panels on individual claims on the back end.[3] An incredible amount of power would be concentrated in a few unaccountable hands.[4]
Questions of qualifications, independence, and bias arise: Who will pay the members of the technical panel? Who will pay the independent review panelists? How will these members be selected? Will they be retained if they often rule, according to the merits, in favor of policyholders, leading to higher costs for the association?
It will be impossible for a couple of administrative panelists to logistically handle the crush of thousands, or tens of thousands of claims, in a thorough, just, and efficient manner. Bottlenecks and run-arounds are likely to result, especially if the commissioner disbands an independent review panel in the middle of a policyholder’s claim and allows another panel to start the process all over again.[5] Unlike the long-standing prompt payment protections of Chapter 542, there are no mechanisms in place in this legislation to hold the windstorm association to account if it fails to meet the deadlines set forth in handling claims.
If a policyholder navigates the administrative gauntlet without the advice and counsel of an attorney, they will find themselves hamstrung should they try to pursue their claim in court, where they will face a high hurdle for judicial review in the form of the substantial evidence rule or the evaluation of limited questions and evidence.[6]
In short, the administrative process set forth in this legislation repeats the worst mistakes of other administrative adjudicatory processes, such as the Texas Residential Construction Commission, which have proven to be catastrophic failures.
To protect the residents and businesses of the coast, which are essential to the economic development of our entire state, we must refashion the windstorm association in a way that makes it more transparent and accountable. While HB 3 advances the goal of transparency, it fails on the second count, endangering coastal policyholders. As such, we must respectfully oppose HB 3. We urge you to restore vital consumer protections in subsequent versions of this legislation.
Sincerely,
Ware Wendell
Director of Legislative Affairs
[1] Tex. Ins. Code § 2210.576 (d).[2] Tex. Ins. Code §2210.576 (g).
[3] Tex. Ins. Code § 2210.577 (d)-(f).
[4] Tex. Ins. Code § 2210.577 (g).
[5] Tex. Ins. Code §2210.576 (e).
[6] Tex. Ins. Code § 2210.578.
