Changes in the Works for the FAIR Plan

Administrators of the Texas FAIR (Fair Access to Insurance Requirements) Plan, the state’s residual market for homeowners insurance, recently made changes to the Plan’s Producer Requirements and Perfor-mance Standard Agreement. Responding to complaints that some agents have been disregarding the eligibility requirements, amendments to the Producer Requirements clarify the rules in order to lessen the probability that an unqualified property will be placed with plan. In addition, the Performance Standard Agreement has been revised to include language that prohibits tie-in sales. The amendments go into effect Sept. 20, 2003.

The Plan’s homeowners policy, the HO-A, is limited and excludes coverage for water damage. Added to the Plan this summer were the Texas dwelling policy (TDP-1), a condominium policy and a residential tenant policy.

The FAIR Plan is “available only to consumers who have been denied coverage by at least two licensed carriers in different insurer groups and have not received a valid offer of comparable insurance from any other licensed insurance company,” according to a Texas Department of Insurance bulletin. A FAIR plan representative stated that while many agents misunderstood the eligibility requirement, “there may have been some disregard for the requirements altogether.

“Was there confusion and were there many questions regarding the eligibility requirements? Yeah, absolutely,” he continued. “The statute itself only requires two declinations. But the plan of operation, in addition to the two declinations, also says ‘and if an applicant does not have a comparable offer of insurance.’ So, there was a loose interpretation of what a comparable offer of insurance was.”

The representative noted, “Until we actually get out to agents’ offices to look at some FAIR plan files, it is hard to estimate how large a percentage of FAIR plan policies were, at the time they were written, not eligible.” He said agents have complained that they have lost business because other agents were inappropriately quoting the FAIR Plan to their customers.

The amendments attempt to better define the FAIR Plan requirements and clarify that its policies can’t be used simply because it offers a lower premium. Each applicant or insured will be required to sign a statement indicating they do not have a policy in place and have not obtained a renewal offer or quote from an authorized company in the voluntary market.

Producers are prohibited from tying the sale or renewal of FAIR Plan policies to the purchase of any other type of insurance, product or service from the producer. The Association will be auditing authorized agencies in the fourth quarter of this year. When audited, if an agency is found to have required a tie-in sale, it will be subject to suspension from the Fair Plan.

As of mid-August 2003 the FAIR Plan—which was initiated in December 2002 and expanded in March 2003—had around 54,800 policies and approximately $51.4 million in premium in force. Around 750 claims have been reported with the Plan, representing about $3.4 million.

Topics Texas Agencies