Over the course of 2020, the Texas Department of Insurance levied $7.1 million in administrative penalties or fines through enforcement orders against insurers, brokers and agents. This amount does not include administrative penalties that were invoiced and paid timely by licensees during the year and, therefore, did not reach the level for a disciplinary action.

This represents a 169 percent increase in the dollar amount of penalties associated with enforcement orders over 2019. There were 97 enforcement orders levying fines in 2020, and 74 in 2019.

Penalties in 2020 ranged from a high of $3.0 million against GEICO to a low of $500 against a Corpus Christi agent. GEICO agreed to the penalty by consent order, but without admitting a violation of the Texas Insurance Code or rule and specifying that the existence of a violation is in dispute. The enforcement order against GEICO cited the GEICO companies for failing to timely pay certain personal automobile claims and failing to pay statutory interest on late paid claims.

The Corpus Christi agent’s violation was failing to place a commercial policy after collecting premium and charging an agency fee without the policyholder’s consent.

Included in the penalties for 2020 was $382,950 levied against 46 surplus lines agencies for failing to timely file new or renewal surplus lines policies and related documents. The range of fines was a high of $66,675 against Southwest Risk LP, Dallas, to a low of $2,150 against Avant Underwriters, Brentwood, Tennessee. Fines of this nature vary depending on the number of late filings and the number of days the filings were late, as well as the agent’s prior late filing behavior.

Market conduct violations

Administrative penalties for two firms in 2020 resulted from market conduct examinations conducted by TDI covering the companies’ sales, advertising and marketing, underwriting and rating, claims practices and consumer complaints against the insurers’ private passenger automobile business for the calendar year 2016. Each of the companies was fined $80,000. Together, these two companies wrote less than one percent of the Texas private passenger auto market in 2016.

While both companies signed their enforcement order, neither company admitted to any violation of the insurance code or other governing rules or regulations. Both held that the existence of any such violation was in dispute.

Elephant Insurance Company, Henrico, Virginia, operates on an admitted basis in Texas. The company’s fine was levied in April. Unitrin County Mutual, Dallas, a subsidiary of the Kemper Group headquartered in Delaware, was included in December’s orders. Both were issued by Chief Deputy Commissioner Doug Slape, as recommended by Leah Gillum, deputy commissioner for TDI’s Enforcement Division.

The order against Elephant cites more than 100 instances of violations found through a sample review. The order does not state how large the sample was, but it details the violations against seven Texas statutes. The April 2020 order states that similar violations were noted in a previous examination of Elephant’s private passenger auto business in 2014. It is unclear from the order if the examination was conducted in 2014 or if the examination covered business written in that year.

Initially, TDI released metadata associated with documents created on June 3 and June 4; however, following instruction from the attorney general’s office, TDI released a document created on April 30, which was identified as the document the department shared with the executive director and a board member of the stamping office. All three documents released were limited to the properties of PDF files created from underlying word processing files; hence, they bore only the date and size of the completed draft, not when the word processing file was created.

The public information request was made by the Reporter to determine if the prescribed process for amending the Plan of Operation, which was in effect at the time, was followed. The amendment process, which remains essentially the same under the July 3 ordered Plan of Operation, requires a two-thirds affirmative vote of the SLTX board, then written approval of the commissioner of insurance.

The amendment brought by the SLTX board of directors took the form of a redraft of the Plan of Operation, as the existing Plan of Operation was severed from the Texas Administrative Code in December 2018. The surplus lines regulation (TAC Title 28, Chapter 15) adopted at that time included some elements that were removed from the prior regulation’s section that contained the stamping office’s Plan of Operation. Until a rewrite of the plan could occur, the new Chapter 15 regulation recognized the existing Plan of Operation, except for parts it superseded.

It took about 10 months for the SLTX board to tackle the task of updating the Plan of Operation. With more urgent business of the board settled by October 2019, then-Board Chairman Lorrie Cheshier, Worldwide Facilities, MHI-MGA Division, formed a Plan of Operations Working Group, naming nine members to the group, including three industry board members; two other surplus lines industry representatives; two representatives of surplus lines insureds, one of whom was a board member, and a representative each from TDI and the Texas Comptroller of Public Accounts. 

There were 48 consumer complaints against Elephant in 2016, six of which were considered confirmed by TDI. The enforcement order cites Elephant for failing to respond to TDI’s inquiries within 15 days five times.

Other violations cited include 15 instances of the company’s failure to factor antitheft and e-signature discounts into the insureds’ premium; two instances of failing to timely mail notices of nonrenewal; nine instances of either unsigned UM/UIM forms or forms dated after policy issuance; 33 instances of either unsigned PIP forms or forms dated after the policy was issued, and 47 instances when the person acting as an insurance adjuster was unlicensed. The order did not include restitution to any 2016 policyholders, nor did the order cite the company for failing to pay any claims that might have been due under the irregular UM/UIM or PIP forms.

In December, TDI issued an enforcement order against Unitrin. The order cites 31 instances of violations, also through a sample review of unreported size. Violations include 23 instances of allowing agents or subagents to act as an agent for Unitrin without a company appointment; one instance of an advertising brochure including an A M Best rating, without including the date of the rating; instances where the company failed to provide coverage or obtain written rejections of UM/UIM 10 times and PIP 13 times; two instances of failing to timely return unearned premium after a cancellation or termination; one instance of failing to adopt and implement reasonable standards for prompt investigation of a claim; one instance of failing “to affect (sic) a prompt, fair and equitable settlement of a claim where liability was reasonably clear”; two instances of failing to provide timely written notification of the acceptance or rejection of a claim after securing final proof of loss, and one instance of failing to timely provide written notification of a claim settlement.

The order included a few of Unitrin’s defenses of the allegations. The company contended that the agents listed on the 23 policies were either employees or subagents of the agency appointed by Unitrin. The company also stated that its claims procedures assured that Unitrin would pay any UM or PIP motorist’s claim if the company determined that at the time of the claim, a written rejection was not obtained or in the policy file; Unitrin further contended that there were no claim denials associated with the 23 policies identified in the examination.

As to the TDI examiner’s issue with the company failing to have reasonable standards for investigating a claim, “Unitrin contends it was acting in good faith at all times and that the claim in question was resolved with a verbal settlement and Unitrin timely paid the agreed amount.”

Both companies may have breathed a sigh of relief when the regulator offered the $80,000 settlement, as each violation of the insurance code can be met with a $25,000 fine. The general statute for such penalties, however, requires that the amount of the fine be based on the seriousness of the violation, including the action’s nature, circumstances, gravity and potential hazard to the public; the economic harm to public interest or public confidence; history of prior violations; an amount necessary to deter future violations; efforts to correct the violation, whether the violation was intentional and any other matter that justice may require (Texas Insurance Code Sec. 84.022).

Additional details on how the fines against these two companies were determined are unavailable to the public, as market conduct examination reports and work papers are confidential by law.

Compared to other states

According to the NAIC’s State Resources Report 2020 Vol. 2, Texas ranks high among states issuing fines and penalties. NAIC’s data is from 2019, as self-reported by NAIC-member insurance departments, most by fiscal year ending in 2019, others by calendar year.

Texas ranked second to New York in total fines and penalties meted out in 2019, with Texas assessing $43.9 million in penalties and New York, $75.2 million. These fines as a percentage of premium also rank as the highest two, with Texas at 0.024 percent and New York at 0.036 percent. Total fines across 52 U.S. jurisdictions, including the 50 states, Washington D.C. and Puerto Rico, was $191.5 million or 0.008 percent total premium.

California, a state known for strict insurance regulation, ranked fourth on this scale, with Florida in third place. California assessed $13.26 million in penalties; Florida, $22.00 million. As a percentage of premium, Florida assessed 0.12 percent in penalties; California, 0.04 percent.

At the bottom of the fines and penalties ranking was North Dakota, with $46,877 in assessed penalties, or 0.0007 percent of premium.

In a separate applied analysis by population based on 2019 estimates from the U.S. Census Bureau, the Reporter found the cost of these fines per person, based on population, also puts Texas in second place to New York. The cost per person in Texas was $1.52 and in New York, $3.87. The U.S. average cost of such regulatory penalties per person is $0.58. At the bottom of cost per person is Indiana, where fines against regulated entities were less than $0.02 per person.