Last month, Texas Insurance Commissioner Mike Geeslin approved legislation that may boost business for agents. Discretionary clauses, which have historically allowed insurers to determine which benefits must be paid, will be outlawed throughout the state as of February 2011 (for disability insurance) and June 2011 (for health and life insurance).
Many believe that this provides consumer protection that is long overdue. Current discretionary clauses are generally found at the end of a policy, written in language that is difficult for consumers to understand. Thus, the consumer is often unaware of the clause until a claim is filed, at which point the ball is almost entirely in the insurer's court. If coverage is denied, an unhappy consumer can take the insurer to court, but must prove that the insurer acted unreasonably in order to win. This can be difficult to do, and in practice, it means that the question of coverage is essentially unenforceable in court.
An appropriate ruling
The new legislation minimizes the chance for ambiguous policy writing, and also allows consumers to contest insurer decisions that they feel are unfair.
"This was a very appropriate ruling … essentially it allows [consumers] to have a more fair determination of their claim, so if they're unhappy with a claim decision they have the opportunity to go to court and not face a burden that is ridiculously high," said Texas Public Insurance Counsel Deeia Beck, who proposed the new rules. "It allows for a more level playing field."
This is good news for consumers, and thus good news for agents. Eliminating the discretionary clause means eliminating some of the negativity that has shadowed insurance providers – and by extension, the agents who represent them. It allows clients to have more knowledge of and security in the products they purchase, and makes the agent's job more straightforward. Instead of risking representing a company that may one day arbitrarily deny coverage, agents can now safely sell policies that do what they say they'll do.
Beck has seen the discretionary clause hurt agents firsthand. One of the most interesting things to come out of this ruling, she said, was a heartfelt letter her office received from a local agent, who had reached the point where he refused to sell a policy that contained a discretionary clause. His decision illustrates the internal conflict faced by many of his peers, as well.
"I have a lot of empathy for agents," Beck said. "They have a really hard job. They're the face of the company, and they don't always have control, sometimes very little control, but they get to answer for it all. I believe the agent's life is going to be better … because they can say [to a client], 'Look, these are policies that won't [bring you] into a situation where there is unreasonable burden to prove.' "
The opposition
Of course, no ruling comes without resistance. Those who fought to keep discretionary clauses intact argue that the increased threat of litigation for insurers will cause premiums to rise, hurting consumers more than helping them. Predictably, insurers themselves took this tack, but it was also a concern of local small businesses, many of which feared increased coverage costs under the new rules.
But support for this argument is slim – for the moment at least. Twenty-two other states have banned discretionary clauses, with little visible effect on premiums. And even if rate increases do come to pass, it may be that the higher premium is worth the payoff of greater peace of mind.
