Legislatures Enact Significant Regulatory Improvements in La., Texas; Other States Take Action

Louisiana and Texas legislators opted to overhaul their insurance regulatory systems this year with competition-based solutions that
should reportedly help to address the insurance availability and affordability crises that have gripped consumers in both states.

Louisiana recently adopted a flex-rating law and Texas is scrapping its benchmark rating system in favor of a prior approval system that ultimately will be replaced with file and use in 2004.

During the past decade, the number of insurers offering property coverage in Louisiana reportedly dwindled from approximately 120 to less than 20. “The homeowners crisis in Louisiana had resulted in less than a handful of companies writing homeowners insurance in the southern most part of the state which includes New Orleans. The flex-rating law is the first step in creating an environment that will encourage insurers to come back and compete for business in the state, ” said Greg LaCost, counsel for the National Association of Independent Insurers (NAII).

“Insurance reform was long overdue in both states, said Donald Hanson, southwestern regional manager for NAII. “Increasing loss costs, overly bureaucratic regulatory systems and a shrinking number of insurers doing business in these states combined to make a very unfavorable environment for consumers and the industry. Although each state took a different approach to resolving the problem, they shared the same goal of increasing competition, offering a greater variety of products and giving consumers more choices.”

In both states, the approach to insurance regulation was reportedly an important contributor to the woes in marketplace.

“Texas and Louisiana have the first and second highest homeowners insurance rates in the country in large part due to regulatory systems that stifled competition. During the legislative sessions, insurers were successful in advocating reforms that would serve as an incentive to attract more business. Micro-management of the insurance marketplace leads to higher prices and fewer choices for consumers. By moving toward regulatory systems that promote competition, consumers will be the ultimate winners,” said Hanson.

In a review of other significant legislative action in Louisiana, New Mexico, Oklahoma, and Texas, the NAII noted that the debate over credit-based insurance scoring took center stage in each state.

Legislation based on the National Council of Insurance Legislators (NCOIL) model insurance scoring act was adopted in Oklahoma and Texas.

In New Mexico two bills that would have banned insurance scoring were defeated, however the issue is under review by the state insurance superintendent.

Meanwhile in the Louisiana, HB 1448, which originally placed moderate restrictions on insurers’ use of credit information, was amended on the Senate floor on June 12 to prohibit using credit in underwriting and rating for both auto and homeowners insurance. The bill now travels back to the full House, where representatives will either accept or reject the amendments.

In other legislative action, Oklahoma and Texas adopted significant tort reform legislation to address the medical liability crisis in both states. These laws are reportedly designed to bring more balance to the civil justice system and reduce litigation costs.

In Oklahoma, lawmakers established a $300,000 cap on non-economic damages. Texas capped non-economic damage awards at $250,000 for physicians, $250,000 for hospitals, and $250,000 for nursing homes and other institutions for a maximum of $ 750,000 per claimant.

The Texas law contains elements addressing: class action lawsuits, offers of settlement, venue and forum shopping, proportionate responsibility, products liability, prejudgment and post judgment interest, appeal bonds, seat belts and child safety seats,
medical malpractice, and liability, admissibility of evidence regarding nursing homes, and liability relating to asbestos claims.

Texas also enacted legislation to address water damage claims.

SB 127 is designed to prevent an individual or their property from being unfairly stigmatized in obtaining residential property insurance as the result of filing a water damage claim. The bill prohibits insurers from imposing a premium surcharge if an appliance caused the water damage claim.

In addition to addressing homeowners insurance issues in Texas, the industry successfully highlighted the negative impact of an auto liability database bill that required mandatory reporting and a bill that would have instituted random sampling of registered automobile owners for proof of financial responsibility. Both bills died in the legislature.

Although the New Mexico session did not see major insurance reform
enacted, lawmakers rejected several bills that would have hurt the
marketplace. Legislation that would have mandated insurers establish mile-based rating plans for auto insurance was defeated along with two bills that would have prohibited insurers from increasing rates on residential property insurance as a result of claim activity.