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Issues Vary For Regs In Four Large States

By Caroline McDonald

While Florida, Georgia, New Jersey and Texas share many of the same insurance concerns, their top issues, identified by the state commissioners, sometimes differ.

Medical malpractice is on every state's list, while New Jersey's top issue is automobile reform, and Georgia lists mold as a top concern. Florida is working to remedy its workers' compensation market, and in Texas it's homeowners coverage.

Legislators, meanwhile, have been racing the clock to cover as much ground as possible before their summer recess.

In New Jersey, Republican Gov. Jim McGreevey on June 9 signed legislation into law that will be “the first fundamental change to the state's auto system in 30 years,” said Insurance Commissioner Holly C. Bakke.

“For 30 years, we have had a very difficult marketplace,” she told National Underwriter. “The message that is so important is that for 30 years people have been running away from New Jersey. We want to get the message out that we're different and we're open for business.”

The measure, titled the Automobile Insurance Competition and Choice Act, Ms. Bakke said, will create a marketplace “which will protect consumers by having companies want to come to New Jersey to do business, as opposed to, quite frankly, leaving New Jersey. We've had a lot of companies leave over the years and we now have a situation where people can't find a policy at any price.”

The bill phases out the state's requirement that insurers must “take on all comers” (See NU, June 16, page 6) and includes provisions to fight fraud, including offering rewards.

The department also has been working to “keep the state's medical malpractice marketplace alive,” she said. “Up until this point the legislature has not acted, but we have been working very hard to stabilize the marketplace and make sure that coverage is available,” she explained.

Insurers have been encouraged to offer claims-made policies, which give doctors an alternative.

“We also have been providing on a one-to-one basisfor doctors who have been having trouble obtaining coveragea service matching them up with companies,” she said. “While I understand the issue is still affordability, and that is a significant issue, unlike some other states, we have actually had new carriers enter our medical malpractice marketplace.”

John Oxendine, insurance commissioner for the Georgia Department of Insurance in Atlanta, said the state's major concern is medical malpractice, “and we are working to try to address that.” He said the Senate passed some civil litigation reform this year that is still pending in the House and will carry over into next year's session.

The legislation would limit non-compensatory damages and also would make “forum-shopping a little more difficultwhere you pick your judge and your county to find a favorable climate,” he said.

He added that the legislation would also allow disclosure. Other related financial issues could be disclosed, and contributory negligence by other individuals could be disclosed, which traditionally is not the case, he said.

Another big issue in Georgia is mold, he noted, with both commercial and personal lines.

The state has done something “rather unique,” Mr. Oxendine said. “We've rejected ISO filing that most other states have adopted and have gone with a different approach that we think is much more fair and more consumer friendly.”

The state's filing allows for sublimits, but it has protections “against the abuses in the standard ISO filing used throughout the country,” he said.

Insurance Services Office's filing has a $10,000 limit, “and you can very easily have situations where someone has a legitimate covered event and they do have mold because the [remediation] company doesn't come in and do things properly, but still the [insurer] just throws out $5,000 and in some states $10,000.”

Mr. Oxendine said another law that passed will define standards on how credit scoring will be used and will spell out rights for Georgia consumers.

Based on the National Council of Insurance Legislators model, he said the law “goes beyond that” and has “a lot of consumer protections that are not there. The law also provides for regulatory oversight of credit scoring companies, “something that I don't think has been done anywhere,” he said.

The issue of credit scoring can't be addressed “unless the insurance commissioner is actually exercising regulatory control over these guys,” he said.

Workers' comp, he added, is in better shape “than in most states.” Though there has been some tightening of the market, he said, “it's not like what you're seeing in other states. People are paying a little bit more than they used to in a couple of industries, like construction, but it's a fraction of what they were paying years ago.”

Most carriers in the state are solvent, he said, with the only big insolvencies being CalComp and Legion. “Legion had such a huge market share in Georgia, it was the largest carrier in the state. So it will take a little time for the market to correct itself.”

Asked whether Georgia intends to revamp or amend its captive laws, Mr. Oxendine said, “I think we've got a good captive law and I'm very supportive of captives.” But he added: “I do think it's important that captives remain solvent and I'm not prepared to leave the door open and sacrifice solvency just to get a bunch of captives, which some people would argue some states might have done. We're not likely to do that.”

Kevin McCarty, director of the Office of Insurance Regulation in Tallahassee, Fla., said the state has a few “front-and-center” issues, beginning with medical malpractice. “Florida, along with a host of other states, is experiencing something akin to a meltdown in [its] med mal market, and really jeopardizing availability of health care,” he said.

He added that the state legislature will be looking at a number of things, but the “hottest button is the limitation on non-economic damages to $250,000,” he said. “That was a provision in the House bill, but the Senate balked at it.”

He said the cap was part of a recommendation made by the Governor's commission. Republican Gov. Jeb Bush organized a special commission on medical malpractice that met last summer to come up with recommendations, he said.

“The two areas we looked at, where I considered modifications to the litigation process, are provisions dealing with bad faith and the $250,000 cap,” he said. “This is going to be an interesting session to watch, hopefully we'll get a meaningful piece of legislation that will drive down the costs of med mal insurance.”

Mr. McCarty said workers' comp rates went up about 15.3 percent this year and that Florida has the second highest rates in the country, with among the lowest statutory benefits. “We know that a lot of the cost drivers in our system have to do with the high number of cases that result in litigation,” he acknowledged.

He said the legislature enacted some significant reforms this year and that he is “cautiously optimistic that this will result in some downward pressure on rates. Hopefully, we'll be in better shape next year with regard to, particularly, small employers,” he said.

The governor's task force also studied med mal and made some recommendations focusing on frictional costs in the systemattorney involvement early in the claims process. “We pay more to attorneys in our system than we pay to medical providers,” he said.

He said a personal injury protection bill also passed this session.

“We went through the mid-1990s with a very robust, competitive market,” he said, but that trend turned around in the late 1990s to 2000, “where we have seen some fairly stiff price increases in the PIP.”

Most of that, he said, can be attributed to an increase in the amount of fraud. He said the state did a PIP reform two years ago and another reform this year. “Hopefully, they are putting some more teeth in the language dealing with PIP clinics and medical provider groups that have been participating in it,” he said. What is needed are enhanced penalties making fraud a second-degree felony, “which will hopefully increase prosecutions,” he explained.

Also passed this year was legislation “that we sponsored on credit reporting and the use of credit scores,” he said. The legislation recognizes the importance of credit as an underwriting tool, but provides protections for consumers from incorrect information, he said.

The legislation protects those who don't have credit and challenges assumptions that go into the models to insure that consumers are appropriately placed in the right tier, he said.

The state is struggling with the mold issue and has recently been in a court challenge “with our largest homeowners writer, and we're still in the process of litigation with regard to that issue,” he said.

“We had come to an accord with a number of insurance companies, as well as with ISO, on limited coverage for mold that was a result of a covered peril, and we have reached a good resolution with regard to a balance of consumer protection and availability of coverage,” he said.

He added that Florida tried to prevent the “runaway mold problem in California and Texas that destabilized the homeowners market there.” However, he said, “Unfortunately we didn't. We're in litigation on mold.”

Last year, Mr. McCarty said, Florida enacted a building standard provision for wind damage that calls for wind mitigation devices and structural enhancements which would make housing more resistant to hurricane and windstorm damage.

The provision requires insurers to give credits for new structures or structural enhancements. “Most of the carriers have filed,” he said. “We are now in the process of notifying those that are not in compliance and guiding them on how to get into compliance. That has been pretty successful.”

The new law goes beyond shutter provisions by requiring that new construction meet certain building codes. For example, new garage doors would need to resist 100-150 mile an hour winds, he said.

“It would be having more to do with the structural integrity of the building as opposed to simply the shuttering devices,” he said. “The goal is to provide incentives for consumers to build homes in the future that are wind-resistant. But also to provide incentives for people to replace, say, a roof so that it meets these criteria. So in addition to having a sense of greater safety for their family, they'll get reductions on their premiums.”

In Texas, a major homeowners reform bill was passed by the legislature and signed on June 10 by the Texas Governor, Republican Rick Perry.

Texas Commissioner Jos? Montemayor said in a statement that S.B. 14, passed this session, is “landmark legislation. For the first time in our history, every property and casualty insurer is subject to rate standards,” he said.

He continued: “Lawmakers chose the least bureaucratic and most efficient option for rate regulation. The Texas Department of Insurance gained the ability to assure that insurers underwriting guidelines, including those that utilize credit scoring, are fair and equitable. Lawmakers also brought mold remediators and public adjusters under state licensing requirements and prohibited unfair and irrational discrimination by insurance companies against homes with remediated mold claims. In short, for insurance consumers, it was a hugely successful session.”

S.B. 14 did not outlaw credit scoring, but “it did build some good fences around it in terms of consumer protections,” said Texas Department of Insurance spokesman Lee Jones. “It starts with the basic, that it can't be the sole reason for denying somebody coverage,” and it also cannot penalize somebody “just because they don't borrow money,” he said.

He said a provision gives some protection to those who have developed a bad credit score because of large medical bills and to consumers with adverse circumstances such as unemployment, a death in the family or identity theft.

“They can contact the insurance company and explain why their credit score is in bad shape,” he said. “The company has to respond by taking out those elements for that person.”

The legislature also passed a bill that requires mold remediators to be licensed by the Texas Dept. of Health, he said, which will issue rules and develop a system for examining and licensing remediators.

He added that “public adjusters have been a problem. We passed a bill that requires our department to examine and license and require continuing education for public adjusters.”

Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.