If there was one message speakers at the 2002 Annual Meeting of the Texas Surplus Lines Association (TSLA) wanted their audience to go away with, it was: Get to know your state legislators. That was the mantra chanted by speaker after speaker, whose numbers included State Representative Craig Eiland (District 24-Galveston), Bo Gilbert, Governmental Affairs Director for the Independent Insurance Agents of Texas (IIAT), and Jim Shawn of Sneed, Vine & Perry, a legal representative for the TSLA. All warned that the surplus lines industry was destined to get lost in the crowd, in terms of insurance legislation, unless surplus lines players clearly differentiated their industry from the rest of the pack.
Shawn explained the problem this way: “If you ask all 181 Senators and Representatives to say what the term E&S insurance stands for, and if it were a pass-fail test, you’d probably have about five or six people that would pass that test. … That’s because you’ve been sort of invisible in this process.”
Eiland agreed. “It’s going to be important for ya’ll to differentiate between commercial lines and personal lines,” Eiland said. “Surplus lines from Lloyd’s, surplus lines from county mutuals. The reason that’s important is because there’s only probably 12 or 13 legislators out of 150 House members and 31 Senators … that know that there is something called surplus lines and, second, knows the difference between that and a Lloyd’s or county mutual. … You should distinguish yourself … so that when these people start talking about premium taxes or agency issues that can affect your taxes … or dragging surplus lines into the overall reform and regulation, you can make sure” that legislators know that surplus lines issues are not necessarily the same as those of admitted markets.
Eiland, Gilbert, Shawn and other speakers assured attendees at the meeting, which was held recently in Austin, that after an election in which candidates and incumbents used the word “insurance” 40 to 50 times a day, insurance would definitely be a huge issue during the legislative session that commences Jan. 14, 2003. And the speakers concurred that the issues most likely to be at the center of legislators’ radar screens are: the homeowners insurance crisis, credit scoring and medical malpractice.
Because of the Farmers Insurance situation, “there’s a big move to do some type of regulation,” Eiland said. “Either re-regulation, file and use, prior approval, something like that, or to bring everybody in under the flex-band system. One of those is going to happen, I don’t know which one, but I would say that (I’m) 80 percent sure that one of those things will happen. How it will happen—will it only be personal lines, will there be people excluded? I think there’s a chance that will happen as well. If we go, for example to a file and use system, we may exempt a lot of the small companies that have a very small market share, because … we are trying to increase their participation and their capacity. So they may still be completely free.”
IIAT’s Gilbert agreed the reality is that consumers and lawmakers are clamoring for some type of legislative fix. “What we want to do though is craft that reality in such a way that it still provides flexibility for smaller companies while encouraging the larger companies to stay in business,” Gilbert said. “We are going to support a file and use system. A file and use system that … (would ) require responsive and timely actions by the regulatory agencies. … That requires no more than informational filings for companies that do not control the market share.” He added that the IIAT believes companies with a 10 percent market share or less should be exempt.
“We think this type of file and use system would give TDI the information they need on rates while still providing flexibility to both large and small companies,” Gilbert continued. “We see an added benefit to this program as well. If TDI does not have to approve every rate, if they don’t have to have rate hearings the way they currently do, they’d be able to utilize their resources to do adequate solvency reviews, as well as market conduct exams.
“Along with the program for rates, we’re looking at forms as well. Currently in Texas if you write $750 million in premium and write in 26 states, you can file your own homeowners form to be approved in Texas. While we think that’s a very good start, we don’t think it goes far enough. We think all companies writing homeowners business in Texas should have the ability to file their own form for approval with the Department of Insurance.”
Shawn said that in terms of homeowners insurance, some type of legislative initiative would likely concern the development of an insurer-of-last-resort, probably through the Fair Access to Insurance Requirements or FAIR plan, which is a statute created by the last legislature and recently promoted by Texas Insurance Commissioner Jose Montemayor. This “is one area that is a hot potato and I think the hottest one for the next legislative session,” Shawn said.
He explained that there are a lot of legislators participating in the FAIR plan process, and that insurance companies are actively participating as well. “And I think that what’s going to happen in the coming session is that there will be some modification of the FAIR plan statute in order to accommodate the activity that’s currently underway. There will be some sort of a statewide quasi-governmental entity with the financial backing of all the other insurance companies writing homeowners insurance in Texas. The rubber will meet the road in terms of what the coverage is going to provide and what the rates are going to be. I think in this political climate it’s likely the coverage will be something that you or I might buy although it might not be a Cadillac-type of coverage. And I think the rate is destined to be a very competitive rate.”
No matter which issues were discussed, however, the speakers returned again and again to their mantra. “Everybody that comes to Austin … just wants a fair advantage in the legislature,” Eiland said. “So you need to get to know your state representative so you can try to maintain a fair advantage.” He noted that the IIAT is “very good at is making sure that their agents know their local members. So when it comes to an Allstate, State Farm or Farmers versus the agents, the agents usually win. Because they’re who the state reps or the state senators know on a personal basis.”
“Everybody on both sides of the aisle have made commitments to pass insurance legislation,” Shawn said. “… You’re going to have a lot of bills that begin with the sentence that says—’All insurance policies issued in the state of Texas will have their forms regulated and their rates regulated in the following manner.’ And so the burden we’re going to have is to find out which bills are coming out, how they affect us and then try to get in there and differentiate ourselves and explain why it is that the surplus lines market needs to be a very free and competitive market.”
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