Reinsurance expert: Biggest challenge in Texas is legal fraud, says HB 1774 a ‘fantastic step in the right direction’

By David Yates | Jul 16, 2018

Everything is bigger in Texas, including the legal fraud that ensues after every hailstorm or hurricane it seems.

AUSTIN - The Insurance Council of Texas recently held its 26th annual symposium, a gathering of professionals and industry experts who explored topics ranging from current issues to future challenges for those in attendance. 

One of the events at the symposium included a roundtable discussion featuring three global reinsurance experts, a prominent panel that included James Mitchell, senior vice president of RenaissanceRe Syndicate 1458 at Lloyds of London.

For the past 25 years, RenaissanceRe, which specializes in risk mitigation, has researched and modeled atmospheric hazards and the economic impact of catastrophic storms.

And when it comes to the Lone Star State, apparently “Texas is one of the most challenging states to quantify,” according to Mitchell.


Mitchell  

“The biggest challenge in Texas is legal fraud,” Mitchell said, pointing to the mass reopening of claims following storm strikes.

The roots of mass storm litigation against Texas insurers can be traced back to 2005 after Hurricane Rita. Following Hurricane Ike in 2008, trial lawyer advertised heavily for potential clients and thousands of lawsuits were filed as a result.

Four years later, two hailstorms pounded the Hidalgo County area, providing a new opportunity to employ the hurricane model. From that time on, reports began surfacing of roofers and adjusters going door-to-door to solicit clients for attorneys after every hailstorm strike within the state.

From 2012 to 2016, the Texas Department of Insurance reported a 1,400 percent increase in weather-related lawsuits. Over the five-year period, storm-chasing lawyers filed nearly 40,000 lawsuits in Texas, according to Texans for Lawsuit Reform

Many of the suits filed were brought two years after the property owner made a claim for hail damage -- sneaking the lawsuit in under the statute of limitations.

Mitchell said it’s important that insureds are compensated accordingly and that the money goes toward repairing damage and not to legal fees.

Trial lawyers work on a contingency fee basis, taking anywhere from 30 to 40 percent of settlement proceeds from a hail lawsuit, plus expenses.  

To stop the abuse, the Texas Legislature passed House Bill 1774 last year, giving insurers a chance to resolve a disputed claim before a lawsuit is filed.

Mitchell called HB 1774 a “fantastic step in right in direction.”

Hartwell Dew, an executive at Guy Carpenter who moderated the discussion, said more time was needed to measure the true impact of the bill but that initial results were encouraging.

“The verdict’s still out,” Dew said. “But so far so good.”

One symposium attendee says HB 1774 has already had a “tremendous impact.”

Abraham Padron, who runs the Safe Guard Insurance Agency in Hidalgo County, told the Record that prior to 2012, a homeowner had a choice between 10 to 15 insurance agencies.  

“Post 2012, that number dropped to one or two … with rates tripling in some cases,” Padron said. “Since the bill, a lot of companies have come back, not all of them, but a lot. More players means more competitive rates.” 

After the 2012 hailstorms, Padron said storm-chasing lawyers swopped in and targeted the less affluent members of the community, setting up shop at flea markets and grocery stores.

Last month, Kent Livesay, a former attorney from the Hidalgo County area, was sentenced to five years in prison for paying roofers and adjusters to sign up hail victims for his firm.

While the impact of HB 1774 still may not be quantifiable yet, there is another possible measure that may help reduce litigation against insurers – the plain language initiative.

To kickoff the symposium, opening remarks were given by Texas Insurance Commissioner Kent Sullivan, who told attendees clear plain language in insurance policies would help insurers defend themselves in court.

Sullivan, who has 35 years of legal experience, said technical language “creates a deep hole in the courtroom,” and that more “user friendly” language could possibly increase consumer awareness and satisfaction. 

“I’m not saying I have all the answers, but this ought to be the start of a new discussion,” Sullivan said, adding that new tools are needed so consumers can better navigate their policies.

ICT’s Property & Casualty Insurance Symposium began July 12 and ended the next day.

Attendees also heard from experts on the Texas market, digital insurance and even a historical look at the Texas Windstorm Insurance Association and the FAIR plan. 

“The symposium serves several purposes,” said Mark Hanna, an ICT spokesperson. “It’s a great networking event because every company doing business in Texas is represented.

“And if you want to know what is going on in the Texas insurance marketplace, the list of speakers at the symposium provides it.”

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