The House Financial Services Committee met Thursday, June 15, 2017, to mark-up bills that could reauthorize and reform the National Flood Insurance Program (NFIP). The program, which provides almost 5 million flood insurance policies, is set to expire on September 30, 2017, unless it is reauthorized by Congress.
Seven (7) bills have been introduced to address the NFIP, and two (2) of the bills, H.R. 2868 (the National Flood Insurance Program Policyholder Protection Act of 2017) and H.R. 2874 (the 21st Century Flood Reform Act of 2017), were passed by the committee during the markup. An additional meeting will be held Wednesday, June 21, 2017, to mark-up the remaining five (5) bills.
The passage of these reforms could create new opportunities for private sector insurers. This may positively impact the excess and surplus lines industry by allowing surplus lines insurers to open and expand their business in the flood market.
House Bill 2492, which authorizes domestic surplus lines insurers (DSLI) in Texas, was signed into law by Texas Governor Greg Abbott on Thursday, June 15, 2017.
The bill, effective January 1, 2018, will allow surplus lines insurers domiciled in other states to apply for a DSLI certificate from the Texas Department of Insurance (TDI). If approved, the insurer will be designated as a DSLI, which means that it may be domiciled in Texas and write surplus lines policies in Texas. Before the law was introduced, eligible surplus lines insurers were required to be domiciled outside of Texas to write business in the state.
The passage of the law may increase jobs and revenue in Texas, as well as improve regulatory oversight by TDI. New procedures and policies for DSLIs may also be introduced as the law takes effect.
A group of United States Senators proposed the Sustainable, Affordable, Fair, and Efficient National Flood Insurance Program Reauthorization Act (SAFE NFIP) on Tuesday, June 13, 2017. The Act will extend the National Flood Insurance Program (NFIP) for six (6) years and prevent flood premium rates from increasing more than 10 percent per year during that time. The bill is co-sponsored by Sens. Bob Menendez (D-NJ), John Kennedy (R-LA), Chris Van Hollen (D-MD), Marco Rubio (R-FL), Elizabeth Warren (D-MA), Thad Cochran (R-MS), Cory Booker (D-NJ), and Bill Nelson (D-FL).
The NFIP provides flood insurance to more than 20,000 communities, but the program will expire on September 30, 2017, without congressional reauthorization. The SAFE NFIP Act will lengthen the program, while addressing affordability among policyholders.
In addition, the Act will freeze interest payments on the NFIP’s debt to the US Department of the Treasury for six (6) years in an effort to fund mitigation projects to reduce risk in areas that are susceptible to flood.
“This bill helps ensure long-term stability, while providing much needed reforms to protect the program’s policyholders,” Sen. Rubio said in a statement. “It is past time for the federal government to take a more proactive approach in addressing the underlying risk affecting flood prone communities.”
The SAFE NFIP Act is one among many proposed bills that could reform and reauthorize the NFIP this legislative session. If the reforms are passed by Congress, it may open the flood insurance market to the private sector, including the excess and surplus lines market.
The federal House of Representatives voted Thursday, June 8, 2017, to pass the Financial CHOICE (“Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs”) Act, a bill that will repeal a number of financial regulations that were created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The bill passed the House 233-186.
One of the core principles of the CHOICE Act, proposed by Texas Congressman Jeb Hensarling, is eliminating bailouts for large financial firms. Small community banks and credit unions are also set to receive regulatory relief under the Act as long as they meet certain financial requirements. In addition, the Financial CHOICE Act reforms the existing Consumer Financial Protection Bureau to weaken its power and replaces the Federal Insurance Office with the Office of the Independent Insurance Advocate.
The Dodd-Frank Act includes the Non-Admitted and Reinsurance Reform Act (NRRA), which established a single-state compliance requirement in insurance transactions, but this provision will remain unchanged. The defined “home state of the insured” and other measures that impact the surplus lines industry will not be affected by the proposed legislation.
The federal Financial Services Committee met Wednesday, June 7, 2017, to discuss the National Flood Insurance Program (NFIP) in a hearing titled, “Flood Insurance Reform: A Taxpayer’s Perspective.”
The program is set to expire on September 30, 2017, and the legislature currently has six house resolutions on the table to reform the NFIP. If passed, these measures would improve flood premium affordability, open the market to private insurers, address insurance fraud, and allow local mapping of flood-prone areas as an alternative to NFIP maps.
Congressman Jeb Hensarling, Committee Chairman, stated that the NFIP runs an annual actuarial deficit of $1.4 billion, and faces a total debt of $24.6 billion. In addition, 2 percent of all policies account for 25 percent of all claims under the program.
Ranking Member Maxine Waters noted that Congress cannot allow the program to lapse, but that it should take measures, such as addressing cost, allowing a long-term reauthorization, and putting policyholders first, to ensure the NFIP’s success.
Five individuals participated in a panel to address concerns and questions posed by the committee. Those testifying had differing opinions on how best to improve the NFIP, but most agreed that providing more affordable flood premium rates and expanding to the private insurance sector would benefit policyholders.
The NFIP must be reauthorized by Congress this session to remain operational, but no legislation has yet made it to the floor of the House of Representatives.
Texas Governor Greg Abbott announced Tuesday, June 6, 2017, that he is calling state legislators back to the capitol in July for a special session.
Gov. Abbott noted that priorities he named at the beginning of the regular session, such as reforming the foster care system and banning sanctuary cities, have been passed into law, but the legislature’s inability to pass a bill that would keep the Texas Medical Board operational has led to a special session. Without the passage of the bill, the Texas Medical Board will not be able to license new doctors in the state.
The bill, which must be passed by the Senate, will be the first item on the agenda for the special session. After its passage, 19 additional items will be added, including property tax reform, a bill to pre-empt cities and counties when it comes to regulating mobile devices in vehicles, and several pieces of legislation to improve school finances and attract teachers to Texas classrooms.
“If I’m going to ask taxpayers to foot the bill for a special session, I intend to make it count,” Gov. Abbott said during a press conference Tuesday.
The special session is scheduled to begin July 18, 2017. Only the governor can call a special session, and he has the sole authority to decide what will be discussed by the legislature. Each session can last no longer than 30 days, but the governor is not limited in the amount of special sessions that may be called.
The 85th Texas Legislature has adjourned sine die, which is a Latin term meaning that there is no scheduled day to continue meetings or hearings. The Memorial Day holiday was the 140th and final day of the regular session. No additional bills may be heard in the House or Senate, and no votes will be taken on bills that have not yet reached the floor.
Texas Governor Greg Abbott has the authority to call the legislature back to the floor for a special session, which can last a maximum of 30 days. The governor may call as many special sessions as he desires. However, regardless of whether a special session is called, Gov. Abbott will have until Sunday, June 18, 2017, to sign or veto the bills passed by the legislature during the regular session. These include bills that affect the excess and surplus lines industry.
Throughout this year’s session, the Surplus Lines Stamping Office of Texas (SLTX) has followed the progress of these bills. Fortunately, the legislature has voted in their favor, which means the surplus lines industry will soon have a few new laws to administer for Texas buyers and consumers.
Senate Bill 1070 – Credit for reinsurance
The legislature has sent a bill to Gov. Abbott that relates to financial statement credit and accounting for reinsurance.
Currently, when a Texas insurer chooses to purchase reinsurance from an insurer located outside of the United States, Texas law dictates that the international insurer must post 100 percent collateral before a Texas insurer can receive credit for the purchase of that reinsurance. Under Senate Bill 1070, Texas insurers will be able to require less than 100 percent collateral from insurers located outside of the country.
In addition, the National Association of Insurance Commissioners (NAIC) has required passage of this bill by January 2019 to retain NAIC accreditation, which shows that a state has met and continues to meet certain legal, financial, and organizational standards set forth by the NAIC. The bill has not yet been signed by Gov. Abbott.
House Bill 1559 – Industrial insureds
A bill creating a diligent effort exemption for a new class of insureds was signed into law by the governor on Tuesday, May 23, 2017. The bill defines “industrial insured” as a person who purchases commercial insurance, employs a qualified risk manager, and meets either of the following requirements:
- Has paid more than $25,000 in property and casualty insurance premiums over the preceding 12 months, or
- Employs at least 25 full-time employees
Those who qualify as an industrial insured are no longer required to expend a diligent effort searching for insurance coverage in the admitted market before seeking the same coverage in the surplus lines market. This means that surplus lines insurance, which may meet an insured’s needs at a better value than coverage in the admitted market, may be procured more easily. The law goes into effect on September 1, 2017.
House Bill 1774 – Hail storm litigation reform
Signed by the governor on Friday, May 26, 2017, House Bill 1774 discourages policyholders from suing their insurers, including eligible surplus lines insurers, after their property is damaged by weather-related events.
The bill was introduced after the number of lawsuits against insurers in areas that had been affected by harsh weather increased dramatically. According to Sen. Kelly Hancock, sponsor of the bill in the Senate, this can be attributed to “bad actors” in the market who encouraged home and business owners to file lawsuits against their insurers after convincing the policyholder that they should have collected more from their original claim.
With the passage of the bill, property owners will still be able to sue their insurers, but there are now restrictions in place. For example, when filing suit, the policyholder must provide the specific amount that is alleged to be owed by the insurer and must provide more than 60 days’ notice before the suit is filed. Now that the bill has been signed by Gov. Abbott, it will take effect September 1, 2017.
House Bill 2492 – Domestic surplus lines insurers
House Bill 2492, which will allow surplus lines insurers to be domiciled in the state of Texas and simultaneously write coverage in Texas, known as domestic surplus lines insurers (DSLI), was passed 30-1 by the Texas Senate on Wednesday, May 24, 2017.
Prior to the introduction of the bill, surplus lines insurers were only able to provide surplus lines insurance in the state of Texas if they were domiciled elsewhere. If the bill is signed by the governor, insurers already domiciled or desiring to be domiciled in Texas will be able to conduct surplus lines business in the state.
Passage of the bill may increase revenue and jobs in the state of Texas, as well as regulatory oversight of surplus lines insurers by the Texas Department of Insurance (TDI). It has not yet been sent to the governor for a signature.
The Texas Senate passed a bill Wednesday, May 17, 2017, that would reform litigation practices when a policyholder sues their insurer after weather-related damages to property.
HB 1774 (Hail Litigation Reform) passed the Senate with 21 yeas, 7 nays, and 1 present, not voting. The bill will now be sent to the Governor, who may sign it, veto it, or allow it to pass into law without a signature.
SB 1070 (Credit for Reinsurance) was passed by both the Senate and the House. However, an amendment was introduced in the House after leaving the Senate, which led the Senate to request a conference committee.
The conference committee will include members from both houses of the legislature who will attempt to resolve the discrepancies in the bill and come to a compromise.
The House has appointed the following representatives to the committee:
- John Frullo, Chair
- Sergio Munoz, Jr.
- Larry Phillips
- John T. Smithee
- Chris Turner
The Senate has appointed the following members:
- Kelly Hancock, Chair
- Larry Taylor
- Brandon Creighton
- John Whitmire
- Robert Nichols
HB 1559 (Industrial Insureds), which would create a category of consumers known as “industrial insureds” has now been signed into law by the governor. The bill was passed by both the House of Representatives and the Senate earlier this session, and was signed by the governor on Tuesday, May 23, 2017.
The new classification will make it simpler for entities with qualified risk managers to purchase surplus lines insurance without first exerting a diligent effort to find coverage in the admitted market. The law is effective on September 1, 2017.
A bill allowing domestic surplus lines insurers (DSLI), HB 2492 (DSLI), was passed by the Senate on Wednesday, May 24, 2017.
Wednesday was the 135th day of session, which was the last day in which the Senate could hear bills on the floor. The bill will now be sent to the governor.
Monday, May 29, 2017, is the final day of session. At that time, the House and Senate will no longer hear bills, and all active bills will either fall away or be made into law.
The legislature will not meet again for legislative session until January 8, 2019.
A bill that could reform litigation practices between policyholders and insurers was debated on the floor of the Texas House of Representatives over two days last week before it was addressed in a Senate committee hearing.
House Bill 1774 was voted on by the House on Friday, May 5, 2017, and passed with 92 yeas, 55 nays, and 2 members present, not voting. One member was absent.
Representatives offered more than 20 different amendments to the bill, but many were struck down. Only 4 amendments, which provided for minor clean-up of the language and specific time limits for litigative actions, were adopted before the bill was passed.
On Thursday, May 11, 2017, the Senate Business and Commerce Committee debated the bill in a public hearing.
Attorney and former Rep. Craig Eiland testified on behalf of himself and the Texas Trial Lawyers Association. Eiland stated that a clause requiring attorneys to submit a demand letter prior to litigation that is within 80 percent of the final value of the claim is not cohesive with the goal of settling a claim. The attorney would not have access to the claim file before the demand, which cannot be amended, is made. Rep. Eiland said that if the fact finder in a case determines that the claim amount is not within this 80 percent window, the policyholder may not be made whole, as the attorney’s fees will not be completely covered.
In response, Sen. Kelly Hancock, sponsor of the bill in the Senate, stated that the bill was designed so that the property owner will always be protected, even if the attorney is not. Sen. Hancock said that the goal of this legislation is to filter out “bad actors” in the system by encouraging claimants to hire competent attorneys who can meet the requirements in the bill.
After hearing testimony, the committee voted 6-0 to pass the bill, which will now be sent to the Senate floor. Sens. Schwertner, Whitmire, and Zaffirini were absent during the vote.
House Bill 1559, a bill that would create a class of consumers referred to as “industrial insureds” that are exempt from diligent effort requirements, was unanimously passed by the Texas Senate on Thursday, May 11, 2017.
The bill will now be sent to the governor’s office, who can sign the bill, veto it, or allow it to become law without a signature.
Those who fall into the category of “industrial insureds” will have increased accessibility to surplus lines insurance without first being required to expend a diligent effort searching for coverage in the admitted market. This will give risk managers more options when searching for insurance, as surplus lines policies may provide better coverage at a better value.
House Bill 2492, which could authorize domestic surplus lines insurers (DSLI) in Texas, was voted on by the state House of Representatives on Saturday, May 6, 2017. The bill has now been received by the Senate, where it may be referred to a committee and scheduled for public hearing.
Senate Bill 1070, relating to credit for reinsurance, has now been passed by both the Senate and the House.
Instead of debating the bill in a public hearing, which the committee has already discussed in the form of an identical companion bill in the House, the committee held a formal meeting, which was not open to public testimony. After the formal meeting, the bill was reported favorably by the committee and it was sent to the House calendar.
On the House floor, Rep. John Frullo, who sponsored the House version of the bill, recommended that Senate Bill 1070 be considered in lieu of the house bill. Both bills were identical in text.
On Monday, May 8, 2017, the House passed Senate Bill 1070, but on Thursday, May 11, 2017, the Senate refused to concur in the amendments that the House had passed. The Senate has requested a conference committee, which is composed of members of both houses who will resolve the differences between the Senate and the House.