HOUSTON -- In four years, the co-chairman of oversight of a state insurance agency made more than $300,000 off the company he is supposed to oversee on behalf of consumers in Texas.
State Rep. Larry Taylor (R-Friendswood), a veteran member of the House Insurance Committee and the co-chair of a subcommittee that oversees Texas Windstorm, is also an insurance salesman who receives commissions for selling insurance policies from the company. Windstorm is the state’s insurer of last resort.
“It raises the specter of a conflict of interest,” said Dave Levinthal, of the non-partisan Center For Responsive Politics in Washington D.C. “It strikes to the question as to whether he's putting on his insurance agent hat or his public official hat.”
Political critics of Taylor, Democrats, have asked the same question.
For example, they point out that Taylor and other insurance agents in Texas receive a 16 percent commission for selling Texas Windstorm policies, the highest sales commission paid by any wind pool in the nation. Other states, such as South Carolina and Louisiana, that have wind pool insurance pay agents 10 percent for selling similar policies.
Consumers along the coast who purchase Texas Windstorm policies from an agent typically have no other options to choose from, as all other private insurance companies have pulled out of insuring homeowners in the state’s hurricane-prone areas.
Four years ago, Taylor and other House members supported a bill in 2007 that contained an amendment from another lawmaker which would have lowered agent commissions from 16 percent to 10 percent. While it passed in the House, the bill died in the Senate and never became law.
However, today Taylor defends the higher 16 percent commission percentages that Texas agents continue to receive. He says longstanding inefficiencies at Texas Windstorm are to blame.
“I would venture a guess that Texas is the most inefficient company to deal with,” Taylor said, in comparing Texas Windstorm to other private insurance companies he deals with as an agent- or in comparison to other wind pools which pay lower sales commissions. Taylor says that he and other insurance agents have to spend more time processing Texas Windstorm applications, because of the inefficiencies, and deserve to be compensated for their time.
“We can't e-mail an application,” Taylor said. “We literally have to snail mail: Type it up, put it an envelope, certify mail it, take it to the post office, stand in line, go through and have them handle it, so we can save the date on a binder.”
KHOU: Right now today, the year 2011, you cannot e-mail in an application for Texas Windstorm insurance?
TAYLOR: I'm afraid we can't. I'd love to be able to. It would be a great efficiency to help move that process along.
KHOU: Can you fax them an application?
TAYLOR: No, no, that's a technological innovation we totally skipped. We're just trying to get to the next one, which would be e-mailing.
Taylor told KHOU that, as an insurance agent himself, he has been aware of the inefficiencies at Texas Windstorm for years. He suggested KHOU contact the trade association, the Independent Insurance Agents of Texas (IIAT) , for an independent report on the matter.
David VanDelinder is the executive director of the IIAT. In December of 2010, Taylor co-chaired an oversight hearing in which he invited VanDelinder to testify before the legislature about all of Texas Windstorm’s inefficiencies.
(In KHOU’s interview with VanDelinder, he disclosed that Taylor’s insurance company is a paid member of the IIAT. VanDelinder also confirmed that the IIAT’s political action committee has donated money to Taylor’s political campaigns.)
Yet when Texas Windstorm’s general manager Jim Oliver followed that testimony, in appearing before the same oversight committee, and under oath in the same hearing, he was not asked about what he would do to solve the inefficiencies so that agent commissions could be lowered.
In addition, a statement released by TWIA said Taylor had not initiated any behind-the-scenes attempts to follow up on the same issue.
“Jim Oliver does not recall any communications from Rep. Taylor expressing concerns about possible inefficiencies at TWIA, as they might relate to commission rates,” said TWIA spokesperson Meg Meo.
In a separate statement, Oliver told KHOU that he and Taylor “both share the same goals of making TWIA operations and procedures as streamlined and efficient as possible and we both certainly want to do whatever possible to lessen the likelihood of future lawsuits. I also do not have any reason to believe that Rep. Taylor has in the past, or is currently attempting to keep TWIA commissions at the current level.”
That said, Oliver did take issue with the accuracy of some of Taylor’s claims about TWIA’s alleged inefficiencies. Oliver told KHOU that since 2009 Texas Windstorm does indeed accept new insurance applications online and does not force agents to go to the post office to mail them out. They do not, according to Texas Windstorm, accept renewal applications online yet because they say they need lawmakers to change the law, and allow them to do so.
A spokesperson for Taylor, Matt Welch of Horizon Public Affairs, questioned Texas Windstorm’s claim recently.
“If TWIA needs legislation in order to accept online applications, then why wasn't that improvement requested in their recently released 2011 recommendations to the Legislature?” Welch wrote KHOU.
But Oliver responded in writing to Welch’s comment:
“TWIA currently accepts on-line payments (EFT) and applications for new policies and has done so since 2009. As we have told (KHOU) several times, the issue is renewal direct bill by TWIA so agents would not have to bill the policyholders, which is time consuming and expensive for them. In order to direct bill renewal policies, the requirement for renewal applications needs to be removed from our legislation. This issue is mentioned in our requests to the legislature ... Mr. Welch will find it under the caption remove renewal application requirement. If he wants to comment about TWIA, he should give us the courtesy of asking us about issues and not comment from rumor or hearsay. He is welcome to call or visit if he is interested in the truth.”
How Texas consumers could be affected
In 2009, Texas Windstorm collected $382 million in premiums from consumers. Of that money, TWIA paid insurance agents $61 million in sales commissions.
Using 2009 as an example, if commissions had been reduced from 16 percent to 10 percent, $23 million would have been retained by TWIA and not paid out in sales commissions. The money could have either been returned directly to consumers in the form of lower insurance premiums or retained by TWIA to bolster its fund to pay claims for future hurricanes.
Over five years, using 2009 as a base, paying the lower sales commission could save consumers $115 million.
How the insurance commissioner got stripped of power
In 2009, following Hurricane Ike, Taylor sponsored House Bill 4409, meant to strengthen disaster readiness in Texas. Eventually the bill would contain several changes to laws that affect Texas Windstorm.
One provision that was added allows Texas Windstorm to raise rates on consumers every year, up to five percent. Taylor says it was the result of long negotiations with other lawmakers who were demanding much steeper rate increases.
However, the bill also gave Texas Windstorm a unique power that no private insurance company that operates in Texas has.
“Now, every year TWIA can raise rates 5 percent on their customers and nobody can do anything about it,” said Alex Winslow, of the not-for-profit advocacy group Texas Watch.
Texas Watch, a group that is known for its close monitoring of the insurance industry, discovered that a complicated set of provisions in HB 4409 actually stripped the Texas Insurance Commissioner of his ability to step in and stop the rate increases in the event the Department of Insurance found something unfair to consumers.
“No one can say no. The legislature gave them that authority, took power out of the hands of the insurance commissioner, and put it in the hands of the bureaucrats at TWIA,” Winslow said.
But Taylor criticizes Texas Watch as being politically-biased in favor of the Democrats, and said it receives a good deal of funding by Attorney Steve Mostyn of Houston. Mostyn is one of the top contributors to the Democratic Party in Texas, and he made his name and fortune suing Texas Windstorm.
Winslow points out that as a sponsor of HB 4409, Taylor helped lead the negotiations on the bill’s language and that increased premium costs can lead to increased profits for Taylor when he sells a Windstorm policy.
Texas rules on conflicts of interest
Dave Levinthal, of the Center for Responsive Politics, says part of the problem may be that the Texas legislature may have relatively weak conflict-of-interest rules in place compared to other states.
However, he did point out Article 3, Section 22 of the Texas Constitution, which seems to address related matters. It reads:
Sec. 22. DISCLOSURE OF PRIVATE INTEREST IN MEASURE OR BILL; NOT TO VOTE. A member who has a personal or private interest in any measure or bill, proposed, or pending before the Legislature, shall disclose the fact to the House, of which he is a member, and shall not vote thereon.
The Texas House, however, adopted House Rule 5, which seems to adopt the Constitutional requirement noted above, but then includes an additional section it calls “Explanatory Notes” in part E, Section 42 of House Rule 5 which states that in the House, “each member is left to comply (with the Constitutional requirement) according to his or her own judgment as to what constitutes a personal or private interest.”
KHOU asked Taylor about his role in sponsoring a bill that removed powers from the commissioner to stop rate hikes he may personally benefit from as an insurance agent.
KHOU: Do you think you should have recused yourself from voting on this bill?
TAYLOR: No, I don't think I needed to recuse myself on that.
Taylor says one reason he did not need to inform members of the House about his conflict when he introduced the bill was because he says they all know what his other profession is.
“There's no question my fellow members in the legislature know what I do for a living,” he said. “Absolutely every one of them.”
In fact, Taylor says that his experience as an insurance agent makes him a better lawmaker who can represent his constituents.
“I'm considered one of the leaders on insurance issues because of my background and knowledge about how insurance works,” he said.
KHOU: Do you think it was a conflict of interest?
TAYLOR: I don't. No. If anything I was doing what was best for the folks back home.
KHOU: How in the world does it benefit the consumer to remove the insurance commisser’s ability to step in if he thinks something’s unfair?
Taylor: It benefits consumers by, if we hadn't passed that bill, and we had other bills that did pass, they'd increase the rates 80 percent and people couldn't afford their insurance.
KHOU: So do you think your bill would not have passed if you would not have stripped the Insurance Commissioner of his authority?
TAYLOR: I have no idea.
A series of defenses
Immediately following the conclusion of KHOU’s interview with Taylor, Taylor’s chief of staff attempted to convince KHOU that HB 4409 didn’t really remove any power from the insurance commissioner, saying the commissioner could still step in in the event TWIA wanted to use its new authority to raise rates up to five percent annually, as described by HB 4409.
Taylor and his spokesperson Matt Welch, who runs the public relations firm Horizon Public Affairs, proceeded to allege that Texas Watch was incorrect in their assertions about the removal of the commissioner’s power. They also alleged the organization was controlled by trial lawyers and was simply attempting to give KHOU misinformation about what Taylor’s bill did, in order to cast Taylor in a negative light.
But the Texas Department of Insurance later issued the following statement, confirming what Texas Watch had initially told KHOU. (Note: The bold type below was formatted by the state Department of Insurance, not KHOU.)
“As a result of HB 4409, TWIA has the option now to make file and use rate filings without Commissioner approval under 2210.351(d) or 2210.352(a-1), if the filings meets all the requirements of the respective section. One of those requirements is that the rate increase isn't beyond 5%. If it is greater than 5%, then the filing is subject to the commissioner's approval or disapproval. The relevant parts of HB 4409 are 2210.351(d) and 2210.352(a-1). These provisions only apply to TWIA, not private insurers.”
In addition, Texas Windstorm confirmed it is in agreement with the Department of Insurance’s interpretation of HB 4409. It says that it could raise rates without commissioner approval with certain limitations, and says that it, in fact, used its new authority for the first time soon after passage of the bill in 2009.
Mostyn vs. Taylor
Attorney Steve Mostyn, who is the incoming President of the Texas Trial Lawyers Association, has openly criticized Taylor for many of the issues raised in this report.
Mostyn, who has become the largest financial supporter of Democrats in Texas, has also donated several million dollars to political action committees such as Back To Basics, a strong supporter of Democratic candidates. Taylor is the chair of the Republican Caucus in the Texas House and believes he has been targeted politically by Mostyn.
For example, last year ‘The Back To Basics’ political action committee paid for a newspaper ad in Galveston criticizing Taylor for many of the issues raised in this report.
But Mostyn says his or other criticisms are rooted in truth.
KHOU: It has been said that Steve Mostyn has it out for Larry Taylor.
KHOU: What would you say to that?
Mostyn: It's probably true. I don't have it out as I'm out to get him on a personal level, there are some particular issues that I have some problems with Mr. Taylor.
Taylor suggested that any monies made by insurance agents pales in comparison to money that attorneys made after settling lawsuits for slow or lack of payment to homeowners that had been filed against Texas Windstorm. Taylor sued for the release of those attorney payments, which Texas Windstorm agreed to during a mediated settlement.
Dave Levinthal, of the Center For Responsive Politics, said Taylor should not attempt to link the two issues.
“A conflict of interest is a conflict of interest,” he said. “And if there is a conflict of interest here it needs to be addressed on its own merits. It needs to be addressed for what it is. If there are other issues in play, if there are other concerns, whether it be in this realm, or other areas of Texas politics, then deal with them on their own merits. But to connect them and say, well, look over here, and just don't look over there behind the curtain is more or less a red herring.”
However, politics is definitely an issue in this controversy. For example, as KHOU prepared this report for air, some area viewers reportedly received automated phone calls from an unidentified party promoting the station’s upcoming broadcast. But KHOU-TV had no connection whatsoever to those calls which appeared to come from a Democratic political action committee.
In an e-mail to KHOU, Taylor’s public relations firm said that Taylor was aware of the “robo-calls” and blamed attorney Mostyn and the political action committee known as “Back to Basics.” The e-mail also stated that as a result Taylor will file an ethics complaint. Mostyn has told KHOU that he had no foreknowledge of the calls and wasn’t aware of them until our call for an ‘on-the-record’ comment.
The last word
In response to KHOU’s research, Taylor spokesperson Matt Welch e-mailed a long series of e-mails to KHOU. Below, are some of Welch’s more recent statements which address many of the items in our report:
-“A state by state comparison may lead to an inaccurate portrayal of rates because each state has varying requirements for windstorm policies. Because of the structure of the antiquated Texas Windstorm program, the commission rate is higher. By the way, flood Insurance pays 16-18% depending on the carrier used, and they are completely automated and Direct Bill. Many of the carriers Taylor and other insurance agents use pay similar commissions, with no reduction on renewals.”
-“As we have mentioned before, the premise of your story is significantly undermined if not completely mooted by the actions of Rep. Taylor during last session's battle over TWIA. Had inland legislators succeeded in their efforts to raise TWIA's premiums (and ensuing commissions) by as much as 60%, Rep. Taylor would have benefitted from that development. But, as you well know, Rep. Taylor fought vigorously to stop that rate increase and rescued the bill from almost certain defeat (a special session would have had an even more disastrous effect on TWIA premiums). Did you ask the people who are making their allegations what the impact would have been on TWIA rates if Taylor had not succeeded in his efforts last session?”
-“HB 4409, passed during the 2009 session, is the actual statutory authority that requires the submission and review of legislative recommendations by TWIA. To the best of his knowledge, this recent request by TWIA for legislative assistance for this efficiency measure (doing away with the need for renewal applications) is the first time Rep. Taylor recalls this request being made. It is also important to note, while working on much more serious issues directly with the management of TWIA during the HB 4409 effort, no mention of needing this change was ever made by TWIA. It could've easily been incorporated at that time. Rep. Taylor is supportive of TWIA's increased technology efforts and their successful entrance into the modern age. He will be supportive of necessary legislative changes they are requesting and welcomes them.”
-“Rep. Taylor is drafting comprehensive reform legislation to address many of the problems facing TWIA. He will be requesting action by the Legislative Oversight Board to conduct a comprehensive audit of all of the claims associated
with Hurricane Ike. He will take into account the information he has uncovered in the aftermath of Hurricane Ike and Dolly, the testimony of homeowners and businesses affected by the inefficiencies of TWIA as well as the the reports
of various oversight entities and also TWIA's most recent legislative recommendations. He is supportive of the audits conducted by the Texas Department of Insurance and Deloitte and will be incorporating their findings into his legislation this session. If greater efficiencies at TWIA and increased automation in the process lead to a need to lower the Commission structure, Rep. Taylor will support that effort. TWIA is governed by a Board appointed by the Commissioner of Insurance. The Board sets the TWIA commission rates, the Legislature does not.”
-“You have previously referred to Rep. Taylor's commissions as being "high". As I mentioned earlier, a state by state comparison may lead to an inaccurate portrayal of rates because each state has varying requirements for windstorm policies. Rep. Taylor's commissions are no higher than any other of the 4,000 TWIA agents. For example, flood Insurance pays 16-18% in commission depending on the carrier used, and they are completely automated and Direct Bill. Many of the carriers Taylor and other insurance agents use pay similar commissions, with no reduction on renewals.”