State Farm’s reckless actions are a man-made catastrophe, sending shock waves through the families and businesses along the coast, who will likely see their insurance costs rise as a result of State Farm’s actions. This disruption to the market will place unexpected pressure on other carriers and will ultimately relegate many coastal policyholders to the Texas FAIR Plan, a state-run provider of last resort that offers bare bones coverage at high prices.

To take their disloyalty to an even greater degree, the company is selling out many of its own insurance agents, who will see their customer bases scattered to the wind due to State Farm’s arbitrary and capricious corporate edicts. These small businessmen and businesswomen have spent years prospecting for clients and building relationships with policyholders; however, more than 11,000 of these policyholders are being forced to take their business elsewhere. Because policyholders receive discounts for having multiple lines of insurance with one carrier – for example, coupling a homeowners and an auto policy together – these customers will be walking out the door.

Because our laws and lending practices require us to buy insurance, it is important that regulators protect the public by ensuring policies are adequate, affordable, and available. Sound public policy demands that the insurance industry not be able to redline or cherry-pick parts of our state.  Unfortunately, the Insurance Commissioner – who has shown little willingness to stand up to insurance giants like State Farm in the past – has been unable or unwilling to intervene on behalf of State Farm’s customers in this case.

The Attorney General, however, recently announced that he is launching an investigation into State Farm’s withdrawal. Instead of complying with the AG’s Civil Investigative Demands, State Farm filed a lawsuit against the state.  It is unclear what this investigation will reveal, but it is important that the AG see this investigation through to the end. State Farm shouldn’t be allowed to tuck tail and run without any explanation. The public deserves to know just what State Farm is up to and how the company’s decisions will impact the cost and availability of insurance.

State Farm’s actions in this case highlight the fact that insurance companies don’t reciprocate the loyalty they expect from their customers. Right now, 11,000 State Farm customers in five Texas counties are learning that firsthand. Could your community be on the insurance industry’s chopping block next?

All of this leads Texas families and businesses to ask: With “neighbors” like these, who needs enemies?

Missed an installment of our Insurance Myths series? Catch up here.

TAKE ACTION – Tell Your Legislators Not to Fall for Insurance Myths.

State Farm should not be allowed to just tuck tail and run without any explanation. So, a full investigation is warranted. The public deserves to know just what State Farm is up to and what the company’s decisions mean for families and small businesses, including the company’s network of insurance agents. State Farm’s careless decision threatens to undermine coastal economic development. In addition to the 11,000 policyholders who are losing their insurance coverage, State Farm agents up and down the coast are struggling to keep their small businesses open. These families and business owners deserve a full investigation to determine the level and scope of any potential wrongdoing.”

This sounds good, but there is one key detail the lobbyists leave out – all of the major insurance companies that are large enough to impact the market were doing business in Texas before lawmakers deregulated it in 2003, and they remain here today. Despite their occasional scare tactics about leaving, they aren’t going anywhere. Texas is a big state with a lot of drivers and homeowners who need coverage. There is a lot of business to be done here – a lot of premium dollars for them to collect and invest in the stock market.

As you can see in the chart below, the Texas insurance market remains incredibly concentrated with just a few companies cornering the market. It was the case in 2003, and it remains so today.

The insurance market is different than other types of businesses because our laws and lending practices require you to buy these complex legal contracts. Carriers don’t have to fight for business in the same way as most other industries. So, the only way to make this market competitive is to have strong oversight to prevent gaming by powerful insurers and to empower consumers to make informed decisions about the best company for them. Instead, Texans are left with “deregulation” which means less protection for policyholders without meaningful competition.

The industry keeps banging the drum that more companies are better; but ultimately, the number of companies isn’t the most relevant information. It’s simply the wrong measure. Focusing your attention there would make as much sense as scoring a football game based on which team racks up the most yards. All that matters in the end is the scoreboard, and when we look there, it is clear that Texans continue to pay more and get less coverage.

Missed an installment of our Insurance Myths series? Catch up here.

TAKE ACTION – Tell Your Legislators Not to Fall for Insurance Myths.

Demand that your insurer hold up its end of the deal.

You have paid your hard-earned premiums for years, hoping you’ll never have to use the insurance policy you purchased. But now that day has unfortunately come. Make sure that your for-profit insurance carrier honors all of its obligations and strictly follows the law during your time of need. There are laws on the books requiring carriers to treat policyholders fairly and pay promptly. If you have any question as to whether a carrier is dragging its heels, strong-arming, or low-balling you, seek legal advice.

Understand what you’re signing. Ask questions until you understand.

Never sign any documents that release your legal claims unless it is truly your intent to do so. Do not deposit any checks from insurers that have “settlement” written anywhere on them unless you have all of the facts about the value of your loss and are completely satisfied with the amount. Otherwise, you may inadvertently sell yourself short.

Take notes and document everything you can.

Try, at once, to make a list of your possessions. If at all possible and as soon as you can, obtain a repair estimate from a trusted local contractor to use as a guide in talking with the insurance company’s adjuster. Keep receipts from emergency repairs and any costs you incur in temporary housing. This may be reimbursable under the “loss of use” portion of your homeowners’ policy.

Keep a journal of all of your contact with or attempts to contact your insurance company. If they will not return your phone calls, fail to show at a scheduled appointment, or even if they are rude to you, write this down in a notebook. Log every conversation that you have with them. This could come in handy if you need to file a complaint or later need to talk to an attorney.

Ask for proof.

If your insurance company tells you that your policy does not cover the damage that occurred or you feel that the offer is too low, ask for proof. The burden is on them to point out the part of your policy that states what they are saying is correct.

Beware of fly-by-night contractors.

When you are looking to rebuild, only use a contractor with good references and an established presence in the area. Make sure to call those references and don’t be afraid to ask tough questions when checking the contractor out. Also, be sure to look into online consumer recommendation services to get reviews of contractors and other professionals. Ask the contractor in writing if he’s ever been sued for shoddy construction or payment disputes. Price several contractors, aggressively negotiate terms and deadlines, and do not sign any contracts that are front-loaded or force you into arbitration, which strips you of your constitutional right to trial.

Additional Resources:
Texas Office of Public Insurance Counsel
Consumer Bill of Rights (Texas Department of Insurance)
State Bar’s Lawyer Referral Information Service

These tips are for general informational purposes only and are not a substitute for the advice of an attorney.

The global corporate consulting giant McKinsey & Company showed the way. McKinsey advised insurance giant Allstate, which markets itself as the “good hands” company, to give policyholders who sought to receive full value for their claim the “boxing gloves” treatment. McKinsey devised a scheme to intentionally and needlessly delay the claims process, deny that the policy covered the claim, and frivolously defend even minor claims in court. By dragging out the claims process and engaging in scorched-earth litigation tactics, insurers would be able to personally benefit by holding on to premium dollars for longer, giving them more time to profit off of investment gains in the stock market, which is commonly known as “the float” in insurance circles.

And by pummeling their policyholders, insurers would also exploit their customers’ financial vulnerability after a loss, ultimately resigning them to take pennies on the dollar as a settlement. Delay increases the pressure for the policyholder to settle for little, and less money paid out for claims equals more dollars in the insurance companies’ pockets. This is the same mindset that led the big insurer Unum to recognize their employees who were most aggressive in denying claims with their “Hungry Vulture Award.”

The only thing that stands between policyholders being victimized twice – once by the loss and again by their greedy insurer – are strong bad faith insurance laws that punish and deter these despicable practices. The vulture culture displayed by insurers threatens the financial security of middle and working class Texas families, and it has to stop. Here’s what you can do:

• Know your rights: Read the Consumer Bill of Rights for Texas homeowners and auto policyholders at http://www.tdi.texas.gov/commish/rights.html.
• Make a complaint: The Texas Department of Insurance probably won’t help to resolve your complaint with an abusive insurance company, but at least the company’s bad behavior will be recorded. Call 1-800-252-3439 or see http://www.tdi.texas.gov/consumer/complfrm.html.
• Seek counsel: If you suspect an insurance company is low-balling or stonewalling you, get the advice of an attorney who is experienced in insurance bad faith law. The insurance company has its own army of lawyers, and it isn’t a good idea to walk into a gunfight unarmed.

Missed an installment of our Insurance Myths series? Catch up here.

TAKE ACTION – Tell Your Legislators Not to Fall for Insurance Myths.

The Texas Department of Insurance (TDI) has found that the overwhelming number of homeowners policies provide less coverage for continuous or repeated leakage from plumbing, heating, or air conditioning; backup of sewers and drains; and damage to foundations and slabs. Other coverage that has been slashed includes damage caused by theft, freezing pipes, falling trees, sudden discharge from heating or air conditioning systems, mold, and vehicles. Overall, reductions in coverage range up to 45%.

To make matters worse, insurance companies are forcing policyholders to shoulder more and more of the burden by switching from set dollar-based deductibles to percentage-based deductibles, with some going as high as 5%. Unlike health insurance deductibles, which are based on a percentage of the claim, these deductibles are based on the value of the insured property. So, on a $200,000 home, a homeowner would have to pay $10,000 before their insurer, who has already pocketed and invested his premium, would have to pay a dime.

The Texas insurance market has become overwhelmingly complex, leaving many policyholders frustrated and feeling as though it’s better to stick with the devil you know. Texas consumers need to have a standard policy option so that they can easily shop multiple carriers and make comparisons on the basis of price, service, and claims handling history. We have advocated for this important reform in previous legislative sessions, and we will continue to do so.

In the meanwhile, consumers should use the following resources to make the best decisions possible about their coverage:

• TDI’s HelpInsure: Compare rates and policies and learn more about the Texas insurance market at www.HelpInsure.com or 800-252-3439.
• Compare coverage: The Office of Public Insurance Counsel has developed a Comparing Insurance Coverage tool that allows consumers to make side-by-side comparisons of policies.
• Call your agent: Tell you insurance agent that you want a complete copy of your policy and all endorsements, which are modifications of coverage. Be sure to have them explain all exclusions. An independent agent isn’t captive to one company and can advise you on several companies at once.

Missed an installment of our Insurance Myths series? Catch up here.

TAKE ACTION – Tell Your Legislators Not to Fall for Insurance Myths.

“This report confirms what Texas policyholders have known for years: the insurance industry holds too much power and sway in our state,” said Alex Winslow, executive director of Texas Watch, a statewide citizens advocacy organization active on insurance issues. “Conflict of interest rules are weak and ineffective, the public doesn’t have access to crucial information, and TDI is an agency rife with political interference.”

According to the State Integrity Investigation’s findings, TDI received a 58% on its scorecard.

• The agency scored particularly low on the effectiveness of conflicts of interest regulations despite the existence of rules governing conflicts of interest.
• The scorecard found the potential for political interference in agency decisions to be very high.
• The scorecard pointed out that key documents submitted to TDI by insurance companies is not subject to public disclosure. (TDI is currently considering comments for a rule to clarify what documents included in rate filings are open for public disclosure. See Texas Watch’s comments to the agency on this matter here.)

TDI scored highly in terms of having the professional staff and state resources to carry out its mandate.

15 other state insurance commissions received failing grades.

The State Integrity Investigation is a partnership of the Center for Public Integrity, Global Integrity, and Public Radio International.

Please allow the following to serve as Texas Watch’s comments relating to the development of rules to promote transparency and provide clarity with regard to material included in property and casualty rate filings that may be confidential or copyrighted (see http://www.tdi.texas.gov/rules/concep-confiden.html). Texas Watch is a non-profit consumer research and advocacy organization that advocates on behalf of policyholders across our state.

You should be commended for seeking to find ways to enhance the clarity and transparency of property and casualty (P&C) rate filings. P&C policyholders are a captive market due to our laws and lending practices, making them vulnerable to abuses by insurance carriers.

The Texas Public Information Act is integral to our constitutional form of representative government, which is animated by an informed citizenry. As such, this important law is to be construed liberally in favor of open government (see Tex. Gov’t Code § 552.001(b)). Additionally, a functional marketplace requires that consumers have ready access to information they deem necessary to inform their decisions. Finally, public confidence in our market demands that journalists, public advocates, and academics have unfettered access to this data to conduct independent evaluations and analyses.

Given that policyholders have a fundamental interest in ensuring that insurance rates are fairly priced, the onus should be on carriers to justify the rates they are charging their customers, not only to regulators but to their customers as well. When carriers seek to shield that justification from public view, they raise questions about the appropriateness of the rate. Secrecy breeds skepticism.

Therefore, it is our hope that the final rules adopted by the Texas Department of Insurance (TDI) protect consumers by embracing the following:
(1) Burden: The burden for justifying whether a piece of information is excepted from disclosure or copyrighted should be on the carrier claiming such a restriction, not the members of the public who are seeking to better understand the product they are being forced to purchase or the TDI staff who are processing open records requests;
(2)  Specificity: The carrier should plead with specificity exactly which parts of the document it proposes to restrict and the precise bases upon which they allege these claims rest, with a failure to do so constituting waiver. A blanket declaration of secrecy should not be sufficient to delay or deny public disclosure;
(3)  Assertiveness: Given the requirements of the Public Information Act, the department should have a hair trigger when it comes to challenging industry assertions of confidentiality or copyright via rulings by the Office of the Attorney General; and
(4) Completeness: Disclosure should include all addenda and supplementary information requested by TDI, including all information relating to reinsurance.

Thank you for your consideration of these comments.

After lawmakers recently queried the insurance commissioner about this problem and got a blank stare in response, we clarified what a junk policy is and why they are dangerous for consumers.

The open records request we submitted today is seeking:

• Copies of all home and auto insurance policies and policy endorsements that are currently being used in the Texas market;
• Information about any policies that were not approved by TDI and policies for which TDI withdrew approval; and
• Any memoranda prepared by TDI staff related to its deliberations on policy form approval/disapproval.

Given the complexity of a market with so many different policies and so little information about them, it is remarkable that this information does not appear to be readily available to the public already. Texas Watch has long advocated for simplifying the insurance market by standardizing policy forms using forms that provide meaningful coverage. This would empower consumers to effectively generate competition on price, service, and claims processing.

Policy Form Open Records Request