Who Regulates Insurance and Provides Protection to Insurance Consumers in Texas?
Overview
The Texas Department of Insurance (TDI) is the primary organization responsible for regulating all insurance operations in the state.
Per the Texas Insurance code, regulation of the state's insurance practices is a subset of consumer protection. While the TDI has the primary responsibility of regulating the insurance industry, the Texas Attorney General's Office plays a vital role in insurance consumer protection, especially as it relates to scams and unfair trade practices. The AG’s office receives and files complaints from both insureds and insurers and educates the public on the tell-tale signs of insurance fraud. Of note, the Attorney General’s Office has five regional offices in Dallas, El Paso, Houston, Pharr, and San Antonio, as well as in some counties.
In addition to the state agencies, there are two Texas non-profit organizations that protect insurance policyholders:
- Texas Life and Health Insurance Guaranty Association
- Texas Property and Casualty Guaranty Association
Both of these organizations, in essence, guarantee that the insurance companies will be able to pay their claims, no matter how badly it financially hits them in return. The difference is that one covers life, health, and annuity policies, while property insurance and casualty policies are covered by the Texas P&C Guaranty Association.
Understanding how the Texas Insurance marketplace is regulated, as well as the degree of protection you (the consumer) will get if your insurance company becomes insolvent, is very important. Here is what to expect.
Insurance, in its basic form, is a transfer of risk in liability form from an insured individual or entity to an insurance company that agrees to pay the damages if the said liability occurs.
Insurance companies commit to liability coverage of their clients with an obligation from the policyholder to pay certain premium rates for a set period of time. The peculiarities of the Texas Insurance industry make it necessary for the consumer to have legal protection from potential scams and unfavorable policy changes.
What Is The Texas Department of Insurance?
The Texas Department of Insurance (TDI) is a state-level department responsible for regulating the entire affairs of the state’s insurance industry. The department also controls the Workers' Compensation System, serves as the office of the State Fire Marshal, and provides administrative support for the Office of Injured Employee Counsel.
Pursuant to the Texas Insurance Code, the TDI has the following duties.
- To regulate the business practice of insurance in the state of Texas. The department certifies insurers and agents, conducts insurance examinations, and imposes penalties for illegal insurance trade practices.
- To ensure that consumers are treated fairly by insurers.
- To secure a fair playground for all insurers in the very competitive insurance marketplace. The department achieves this by controlling and monitoring the price spectrum as well as changes in pricing.
- To operate the Texas Workers' Compensation System under the Texas Labor Code.
- To ensure that all insurers in the industry abide by the existing regulations and laws.
In addition to the above, the Texas Department of Insurance and the Consumer Protection Unit of the Attorney General’s Office work hand-in-hand to resolve consumer complaints and also protect them from fraudulent agents and insurers.
Who Regulates The Texas Department of Insurance?
The Texas Insurance Commissioner is responsible for regulating the state’s Department of Insurance. The Commissioner also enforces the Texas Insurance Code as well as other laws relevant for insurance administration.
The Texas Department of Insurance has two main arms — the insurance arm and the worker's compensation arm. Both are governed by separate commissioners.
The Insurance Commissioner serves as the executive and administrative officer of the Texas insurance marketplace.
The Texas Workers’ Compensation Division Commissioner oversees the Texas Workers' Compensation System, which enforces Texas Workers' Compensation Act, Texas Labor Code, and other related regulations.
Commissioners are recommended by the Texas Senate, appointed by the Texas State Governor, and serve 2-year terms.
What Are The Unfair Trade Practices in Texas?
In Texas, unfair trade practices are illegal, deceptive, false, or misleading actions committed by a product or service provider to influence the customers’ choice. The Texas Deceptive Trade Practices Act (DTPA) provides an extensive list of trade practices that are deemed unfair and deceptive from an insurance standpoint. An insurance agent or company is guilty of unfair trade practices if they falsely advertise or misrepresent an insurance policy.
In Texas, common deceptive trade practices relating to insurance include:
Sliding: This occurs when an insurance agent hastily closes an insurance transaction without disclosing the full details of the policy and obtaining informed consent from the customer. Some examples in Texas include overcharging the cost of coverage and misrepresenting the actual scope of a policy.
Misrepresentation: This occurs when you or the insurance agent provide false and misleading material during the underwriting process. It is usually a “lie of omission or commission”. On the part of the insurer, it is misrepresentation to provide deceptive or misleading information to an applicant.
Defamation: Defamation in insurance refers to untrue and/or unfavorable statements made in oral or written forms by an agent or firm against another or with the intention of putting down a competitor insurance company.
False Advertising: In insurance, false advertising occurs when an agent or company provides misleading and untrue advertisements to promote sales. A good example is illegal promotion of an annuity contract with the intent of making it the subject of a salary reduction agreement.
Twisting: An insurance company is liable for Twisting if they induce or attempt to induce a Policyholder to replace an existing coverage with another similar coverage by misrepresenting the coverage or failing to compare the pros and cons of the two policies.
A closely related practice is churning, which is the outright replacement of an existing policy with another based on misrepresentations. Misrepresentations may be in the form of insufficient information or inducing the policyholder to pay more for an already existing coverage.
Unfair Discrimination: In Texas insurance, unfair discrimination is the act of determining premium rates based on criteria that do not provide a fair assessment of the actual risk entailed. Discrimination here may be an attempt to remove certain groups of people out of the plan. A subset of unfair discrimination is "redlining", which is an underwriting practice that disqualifies certain categories of persons from purchasing an insurance contract because of their geographical location. Minority groups are usually seen as a target of this practice.
Concealment: In insurance, concealment occurs when an agent or applicant intentionally omits information that would otherwise influence the premium rates or policy amount. Most times, concealment is a deceptive practice on the part of the policyholder. For example, failure to inform the insurer of an existing health condition during the underwriting process.
Rebating: In Texas, rebating is a strategy of refunding the agent's commission, or a part of it, to the insured to persuade an insurance deal. Rebating is also known as inducement or incentive to buy an insurance product. It also includes other indirect forms of compensation or services offered by the insurer.
While it may sound beneficial to the consumer, rebating is illegal because it contradicts the key spirit of the insurance market - the “level playing field”, where all agents and insurers must follow the same rules and the same incentive policies.
In Texas insurance, the above list of unfair trade practices is by no means exhaustive. As such, it is recommended to speak with an insurance attorney licensed to practice law in Texas, to discuss and interpret suspicious activities.
How to Report Suspected Unfair Trade Practices in Texas?
Before reporting suspected trade practices to the Texas Department of Insurance (TDI) or other authorities, you should first try to sort it out directly with your insurer by speaking with the company's customer service representative. If the act was unintentional, it should be resolved at this point. Otherwise, you can request to speak with the manager or an executive with the authority to handle the matter. Sometimes, there may be a need to contact the insurer’s main office, if the issue was at a branch office. Contact the Secretary of State to get the address and contact details of any registered insurance business in Texas.
If mutual resolution fails, or if the observed pattern of behavior crosses the legal boundaries, file a complaint with the TDI online or by calling (800) 252-3439.
Note that most health plans in Texas are self-funded. This means that the cost of Healthcare is funded by employees of the company and not by insurance companies. The TDI does not exercise authority over these plans. Applicable complaints should go to the U.S Department of Labor (for private sector workers) or to the plan directly (for local government, school, union, and church workers).
You can also file a complaint with these two agencies:
Consumer Rights Division of the Attorney General’s Office: filing parties can do this by mail or online. To file by mail, print and complete the complaint form (also available in Spanish) and send it to the address below.
Office of the Attorney General
Consumer Protection Division
P.O. Box 12548
Austin, TX 78711
Federal Trade Commission - file online
The forms are different, but the basic procedure is the same. You have to provide the following information:
- The name of the business or agent against whom you are filing a complaint.
- The business or agent's full address (include the zip code).
- A comprehensive statement of the complaint.
- A clear explanation of how you connected with the agent.
- Dates and monetary value of transactions.
- Policy information with payment facts.
- A statement describing efforts to resolve the dispute, including the names of persons you discussed it with.
- Supporting documents to the complaint are welcome as attachments to the paperwork or uploaded if you are completing the form online.
The Consumer Protection Division of the Texas Attorney General's Office receives fraud complaints involving Medicare, Medicaid, or drug/healthcare discount programs. Sometimes, the division will file civil lawsuits against the offending party as a matter of public interest. The unit uses the findings from these complaints to educate residents on the current scam methods and how to avoid them. On the other hand, the following are not within the scope of responsibility of the Division:
- Attorney representation or legal counsel
- Interpretation of the law to parties
- File suits on behalf of individual consumers
- Bring criminal charges against deceptive practices
- Routine resolution of isolated or individual complaints
If you seek action in any of these areas, consult a Texas-licensed attorney for further assistance.
What Is The Texas Life and Health Insurance Guaranty Association?
The Texas Life and Health Insurance Guaranty Association (TLHIGA) is a not-for-profit establishment that administers limited protection to the policyholders of insolvent (bankrupt) insurance companies. The Texas Legislative Body took the initiative in 1973 to set up a policy that pays claims to payees of member-insurers of the association going through insolvency. Membership in TLHIGA extends to insurers with a Texas license to sell life insurance, health insurance, and annuity insurance. The Guaranty association may indirectly pay a claim by transferring the liability to an insurer with a stable financial base.
If you find yourself in a situation where your insurer becomes insolvent, you must keep making your scheduled premium payments to the insurer, otherwise you will lose coverage. With a few exceptions, all insurance companies in Texas licensed to produce annuity, health, and life policies are duty-bound to be members of the state Guaranty Association as a condition for running a business in the state. TLHIGA and the remaining 49 states all belong to the National Organization of Life and Health Insurance Guaranty Associations (NOLHIGA).
How Does the Texas Life and Health Insurance Guaranty Association Work?
The Texas Life and Health Insurance Guaranty Association (TLHIGA), also known as the Texas Guaranty Fund functions similar to the Federal Deposit Insurance Corporation (FDIC), which insures minimum bank deposits from member companies, thus providing a backup of financial security for the consumers keeping their savings in the bank. In a similar way, the Texas Life and Health Insurance Guarantee Association is operated at the state level by collecting money (in the form of assessments) from other member insurance firms, to cover customer losses of a failed insurance company. The funds are combined with the insolvent companies' assets to offset claims up to the legal limits.
Insurance firms are different from other companies because they are not protected under the Federal Bankruptcy Laws. As such, non-profit organizations like the Texas Life and Health Insurance Guaranty Association were formed under the state laws to protect policyholders and resolve insolvent claims. However, the Association coverage may not be necessary because, in practice, when an insurance company fails, the company’s active contracts are purchased by financially healthy companies. Thus, consumers still have the same life, health, and annuity coverages worth the same amount, only from different firms.
The association is made up of insurance companies operating in Texas. The Texas Commissioner of Insurance, who is appointed by the Texas Governor, leads the Texas Department of Insurance in regulating the Insurance Marketplace and the Guaranty Association.
The Texas Life and Health Insurance Guaranty Association protects individual and group insurance in:
- Life insurance
- Health insurance
- Disability insurance
- Long Term Care (LTC) insurance
- Annuities
The terms, conditions, and limits of coverage are defined by Chapter 463 of the Texas Insurance Code. Policies that are not covered by the Insurance Guaranty Fund include:
- Policies with insurers that do not have a license to practice in Texas
- Parts of the policy that do not have a guaranty with the company, or where the policyholder bears the risk
- Interest rates that exceed the stipulated average by the law of the association
- Self-insured employer policy
- Coverages that bear a mandatory state pooling scheme
- Coverage accompanied by an insurance exchange
- Insurance certificates of societies with fraternal benefits
- Specified charitable donation annuities
- Insurance policies not under the category of life, health, and annuity
- Policies and arrangements as stated in the Texas Insurance Code, Chapters 463.052 and 463.203.
Below are short answers to some Frequently Asked Questions about the Texas Life and Health Insurance Guaranty Association.
Are all Policies Covered in Full?
No, see the limitations above.
How Much Coverage Does the Texas Life and Health Insurance Guaranty Association Provide?
The amount of coverage the Guaranty Association will provide depends on the time of insolvency, the current provisions of the Texas state law, and the specific language used in your insurance policy.
How Fast Does the Texas Guaranty Association Pay?
Texas Guaranty Association operates a prompt service delivery and feedback for all claims. However, there may be delays in paying benefits due to the time it takes to assume policy management. Usually, it takes about 30 to 45 days. During this period, all benefits and payments get suspended as the court determines the status of the company.
Do I Need to Continue Paying Premiums?
Yes, customers who are paying premiums on an active policy must continue to do so. These premiums go to the Texas Life and Health Guaranty Association to pay for continued coverage. In fact, you may lose your coverage if you stop paying your premiums.
What If My Claim Exceeds the Amount the Association Can Pay?
If due benefits of a policyholder exceed the limit of the coverage the association can pay, the policyholder may submit a claim for the excess to the court-appointed liquidator (also called guarantor) of the insolvent insurer. The guarantor provides guidelines for submitting such claims. The financial situation of the insolvent company will influence the mode of payment, if approved. Just like with any bankruptcy filing, the creditor (in this case - you), may receive the payment in full, as a partial payment, or you might get nothing at all.
What If I No Longer Live in Texas?
The Texas Guaranty Association limits coverage to only Texas residents at the time the member insurance company becomes bankrupt. Non-Texas residents may still access protection in the following conditions:
- The insolvent company is in Texas
- Policyholders reside in a state with a Guaranty Association at the time of company failure
- The policyholder is ineligible for coverage by their state guaranty association because of the non-licensure of the member company
Is My Insurance Company Covered by the Texas Life and Health Insurance Guaranty Association?
The Texas Life and Health Insurance Guaranty Association provides coverage only to life, health, and annuity insurers licensed to write business in Texas. You can determine the license status of an insurance company in the state via the License Lookup Portal featured by the Texas Department of Insurance.
Why Hasn't My Insurance Agent or Company Told Me More About the Texas Life and Health Insurance Guaranty Association?
Selling, soliciting, or inducing the purchase of a policy using the existence of the Association falls under Texas unfair trade practices and consumer protection. This is because the association is not a substitute insurance provider, but a backup plan to soften the impact of the insurance company's failure on policyholders.
What Is the Texas Property and Casualty Insurance Guaranty Association?
The Texas Property and Casualty Insurance Guaranty Association (TPCIGA) is a not-for-profit, incorporated alliance of all property and casualty insurers that bear a Texas license. It is an initiative of the Texas legislature to protect Texas insurance policyholders and claimants if a member insurance company fails or becomes insolvent (bankrupt). The association functions more like a safety net for policyholders affected by the liquidation of their insurance company.
TPCIGA provides information about the status of claims and policies. The association also pays "covered claims" under the definitions of Chapter 462 of the Texas Insurance Code.
How Does the Texas Property and Casualty Insurance Guaranty Association Work?
The Texas Property and Casualty Insurance Guaranty Association (TPCIGA) is an initiative of the 62nd Texas Legislature in 1971. According to the Texas State Auditor’s Office, the sole goal of the association is to pay approved insurance claims involving insolvent member insurers fairly, promptly, and according to Texas laws. TPCIGA’s coverage extends to the commercial property, home, liability, renters’ insurances, and workers’ compensation.
Below are quick answers to some commonly asked questions about TPCIGA:
What TPCIGA is not?
Texas Property and Casualty Insurance Guaranty Association is not an insurance company.
What does TPCIGA cover?
TPCIGA covers lines of insurance under property and casualty, such as Auto, General Liability, Homeowners Policy, Workers Compensation, and Professional or Business Liability. The association opts to cover policyholders to the extent covered by the insurer at the time of insolvency.
At what point does TPCIGA become responsible for taking on the claims of an insolvent member insurer?
From the time the Texas Commissioner of Insurance issues an order stating the insurer as “impaired”, the association takes on the responsibility of paying out existing claims. When the court declares a company insolvent, the Texas Department of Insurance assumes the role of the liquidator. At this point, the insurer stops paying out any claims, and all existing policies get canceled. However, claimants with open claims are referred to the TPCIGA for processing.
Am I eligible for coverage by TPCIGA?
Yes, only if you meet these criteria:
You must be a resident of Texas
Your claim must be on property located perpetually in Texas
Your insurer must be licensed in Texas and being a member of the association
Will I get coverage in Texas for my insurer that is gone into insolvency in another state?
Yes, if your insurer had a license to practice in Texas, and belonged to the association.
Will I still get all my benefits under the current policy?
It depends. The Association is not a replacement company, but a safety net for claimants and policyholders. Unless there is good cause for exemption, the maximum benefits payable to a claimant is whichever is less: the policy limit or $300,000. There is no limit, however, for workers' compensation benefits. Workers get paid in full.
What if I have coverage with another Insurer?
You must exhaust all your rights under all active policies before turning to the TPCIGA for support.
Does TPCIGA protect business owners?
Yes, it does. Business owners get workers' compensation coverage from TPCIGA. However, non-workers' compensation benefits are not available for large companies. To be considered a large company in Texas, the company’s net worth must be over $50 million.
Will TPCIGA notify me of my claim?
Yes, it should. There is some administrative lag time between the time of insolvency and the payout of claims. During this window period, the association gets to review files and make decisions on claimants or insured benefits. This could take several weeks or months, after which the association sends notifications to concerned persons. If you do not get a notification, you can visit TPCIGA at the address below during business hours:
TPCIGA
9120 Burnet Rd
Austin TX 78758
Otherwise, you can reach TPCIGA by calling (512) 345-9335; (800) 856-0298 (toll-free), or by sending a fax to (512) 345-9341. Alternatively, send an email.
Are there deadlines for filing TPCIGA claims?
Yes, there are. Generally, all filings must come in within 18 months of the court’s entry of an order of liquidation. If you have already filed a claim with the insurer before insolvency, the TPCIGA considers it still active.
What does a TPCIGA proof of claim mean?
A proof of claim is a notification you receive from the liquidator of the insolvent insurer. A liquidator in this situation is similar to what a guarantor is in a bankruptcy case. The TPCIGA does not send proof of claims.
Someone filed a claim/ lawsuit against me. What should I do?
Contact TPCIGA immediately with a copy of the claim or complaint to the office by certified mail or fax. If the lawsuit is within the policy coverage, the association will defend the claimant to the extent of the coverage of Texas Guaranty Act. TPCIGA may choose to retain an existing attorney or use a new one.
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