No Insurance For You! Next! SB 1006 Is Critical For Texas Homeowners

In the famous Seinfeld episode, Jerry’s friend Elaine is ordering from the Soup Nazi when he suddenly yells, “No soup for you! Come back in one year! Next!” He never explains why, and there was no way for Elaine to appeal.

That’s not altogether different from how some insurance companies treat people seeking to buy home and auto insurance. A simple notification from the company just says no. Texans wonder: Was it because of a credit score? Too many claims? Or, as Sen. Charles Schwertner repeatedly asked during a March 4 Senate Business & Commerce hearing, is it due to a random AI algorithm? Nobody, including the Texas Department of Insurance, could answer that question.

“No insurance for you. Next!” Or at least that’s how many Texans feel.

SB 1006, introduced by Sen. Mayes Middleton (R-Galveston), aims to address this issue by requiring all insurance companies to provide a statement to applicants explaining the reason for a declination, cancellation, or nonrenewal of an insurance policy. The coalitions representing the insurance industry did not object to such notifications for existing customers but drew the line at any customer who is shopping for a new policy.

One insurance representative claimed insurance companies would have to invest in changing their systems to give the information to applicants in a useful way. Sen. Schwertner noted that insurance companies are already obligated to provide a reason if a customer requests it.

“The difference is when you make it an automatic process, it has to happen every time. Then a company is going to have to build the infrastructure to extract that information, communicate it accurately and clearly to the person. And that is a much bigger endeavor than being able to do it if someone requests it,” the representative said. 

So, they have the information and can detail it, but somehow, it costs more to communicate automatically rather than just taking incoming requests to provide the specific reasons for declining coverage? 

Comments from another industry rep might have revealed the real reason. “Sometimes it will trickle down to the customer. Sometimes it doesn't need to,” he stated. What? Why wouldn’t a Texas homeowner want to know why they are being declined? 

Schwertner believes that the primary reason is that the “black box” used by insurance companies includes algorithms that could be arbitrary or worse. The Texas Consumer Association believes that this black box is a formula for high-tech redlining, which has been illegal for years. 

Fortunately, SB 1006 covers that, too. For the first time, insurance companies would be required to compile all policy denials, cancellations, and non-renewals by ZIP code and provide that information to the Texas Department of Insurance. Texas is the only state that doesn’t require insurance companies to provide this information. There’s no way for officials like TDI, policymakers like Senators, or advocacy groups like TCA to look at this data and see if there’s a problem.

The bill’s author, Sen. Middleton, said identifying problems is like a haphazard Easter Egg hunt. 

“Last session, we passed a bill related to this of declinations that were occurring in basically a no man's land just outside the TWIA (Texas Windstorm Insurance Zone) zone and we heard from a lot of constituents,” Middleton said. “They were not able to get storm insurance coverage nor were they in the TWIA zone …  it was a lot of not knowing, and this [bill] is going to help with that.”

Lawmakers managed to provide relief to that narrow band of Texans by extending the TWIA zone by 10 miles, allowing Texans to secure insurance. However, lawmakers shouldn’t have to rely on luck to identify problems.

As for Elaine’s fight with the Soup Nazi, she was able to get served after she got copies of all his soup recipes. Interesting, transparency and clarity leads to fair treatment.

TCA strongly supports SB 1006 because it brings transparency and clarity to the difficult, confusing, and expensive world of home and auto insurance.