Texas House Passes Cost-of-Insurance Disclosure Bill
Market members support the legislation, although they don't believe it will deter rate hikes.
Donna Horowitz
May 13, 2019

A Texas bill that passed the House of Representatives last week would require policy owners to be given at least 90 days' notice about any intended cost-of-insurance rate increases.
HB 207, which was approved by the House Thursday, April 18, now is in the Senate, where it was read for the first time Wednesday, April 24, in the Business & Commerce Committee.

But time is short because the Texas Legislature only meets for another month. In addition, the Legislature only meets every other year, so the bill couldn't come up again until two years from now if it doesn't pass. In fact, Rep. Tom Craddick, R-Midland, who is sponsoring the bill, proposed similar legislation, HB 3370, two years ago. However, Prudential and the Texas Association of Life and Health Insurers opposed it, according to Texas Public Policy Action. The new bill is drawing favorable reviews from market members, although some don't believe it will deter insurers from raising COI rates, or the mortality charge. But they still see disclosure as a good move.

In another positive development, the American Council of Life Insurers, which represents major carriers, is not opposing the bill at this time, according to Whit Corman, a spokesman for the life insurance trade group. He also said in an email that the Texas insurance trade group and ACLI's positions usually align.
A number of insurers have raised COI rates during the last four years, prompting numerous lawsuits and several class-action settlements as policies and portfolios holding policies subject to the increases fell in value.

The bill applies to universal life insurance policies - the most popular type of policy in the life settlement market.
The legislation requires insurers who plan to raise COI rates to provide written notice to policy owners, disclose the percentage increase of the new charge, the maximum COI charge stated in the policy, the effective date of the change, a comparison of the change to the current and maximum COI charges and options available to the policy owner under the policy.
In addition, the notice must include the insurer's telephone number and the following statement placed prominently on the front of the notice:
"YOU SHOULD KNOW: This increase will change the value of your policy and change how long your policy will last. Ask your agent for an illustration that shows the effect of this change on your policy."
The bill also would require insurers to provide policy owners annual illustrations whether any non-guaranteed charges are changed.
If passed by the Legislature, the bill would take effect Sept. 1.

Michael Freedman, CEO of LightHouse Life Solutions LLC, a Conshohoken, Pa.-based provider, said that although the legislation is not as broad and comprehensive as the COI regulation implemented by the New York Department of Financial Services, he still believes it's a positive development.
New York's rule covers all life insurance and annuities with limited exceptions while the Texas bill only would cover universal policies, he pointed out.
New York's regulation, which took effect March 2018, requires insurers to give the department 120 days' notice and consumers 60 days' notice before they raise COI rates.
"This is a good public policy because it addresses the actions of the life insurance companies to raise premiums and effectively force people out of their policies," Freedman said.
Besides requiring insurers to tell insureds about the rate increases ahead of time, he noted it also would require them to tell them of their options. One would be a life settlement.

"Texas passed the first Medicaid life settlement legislation. Texas is again on the forefront of protecting Texas life insurance policy owners from the self-interested and greedy actions of life insurance companies," Freedman further said.
In response to a question about how marketable a policy would be if it faced a COI increase, he conceded that it could result in fewer or lower offers, but he believes it still would be better than surrendering the policy.
Jule Rousseau, an attorney with the Arent Fox LLP law firm in New York who represents investors in litigation opposing COI increases, said he believes more information would be useful to insureds.

"You can know if it's no big deal or 'Oh my God, it makes my insurance unaffordable,'" he said.
Rousseau said the information also will help attorneys like himself who fight the rate increases through litigation.
"It will be useful to us that sue them for improper increases. We'll now have something in writing saying what it is. It will help measure the effect," he added.
He found another part of the bill helpful as well.

He was referring to the section requiring disclosure of credited interest rate decreases.
The provision requires insurers to notify policyholders if it plans to decrease the credited interest rate paid on a policy's accumulation value.
Insurers would be required to disclose the percentage decrease in the credited interest rate, the minimum credited interest rate stated in the policy, the date when the change is to take effect, a comparison of the change to the current and minimum credited interest rates and the options open to the policy owner under the policy.
Rousseau said attorneys fighting COI rate increases typically raise crediting rate issues in the litigation as well.
"If it's an unfair increase in COI, it's an unfair decrease in crediting," he said, saying the money necessary to pay higher premiums often comes from the cash accumulated in the policy.

Rousseau said he doesn't believe that if the bill becomes law it will deter insurers from raising COI rates because it's just giving notice of the increases.
"Not so sure, if they really want to slam the market, they will give notice and move ahead, but the risk will be greater since they will have made statements to the customers, particularly about crediting rates, which could be used in the COI lawsuits that will follow," he said in an email.

Two other attorneys who wage legal battles against insurers who raise COI rates also said they didn't believe the legislation would act as a deterrence to increases.
"While I think it's a step in the right direction, I don't see this bill as one that would deter insurance companies from raising rates, as it merely imposes certain disclosure requirements," Khai LeQuang, an attorney with the Orrick, Herrington & Sutcliffe LLP law firm in Irvine, Calif., said in an email.
Steven Sklaver, an attorney with the Susman Godfrey LLP law firm in Los Angeles who files class-action suits against carriers who raise COI rates, only said "no" in an email response to a question about whether it would deter carriers from raising rates. He didn't elaborate further.
Neither Craddick nor an aide was available for comment.

Orignally posted on TheDeal.com April 25, 2019