Recap of the TX Dept of Insurance hearing on Arbitration

It’s worse than you think.

Yesterday the Texas Dept of Insurance conducted a “discussion” concerning the use of mandatory binding arbitration clauses in home insurance contracts. In my opinion the consumers of Texas won the discussion but the decision will not be made any time soon.

Background
Farm Bureau insurance has asked TDI to allow them to offer a mandatory binding arbitration clause that would require policy holders to take their claims to a private justice system instead of a civil court as guaranteed by the 7th amendment of the Constitution. In exchange the policy holder would receive a discount in their premium.

Key points

There was about 7 hours of discussion in a very crowded room. Here are some key points. 
  • The industry tried to pass legislation last session to allow them to use arbitration but the bills failed. Now they are trying an end around hoping the Commissioner will bite. 
  • The representative from The Center for Economic Justice claimed the arbitration clause to be used by Farm Bureau was discriminatory against Hispanics in the counties of south Texas. He seemed to have data to prove his claims. 
  • The main concern was that most consumers do not understand exactly what they are signing. After listening to the entire day of testimony I am convinced that consumers have absolutely no idea what they are agreeing to. There are enough loopholes in the example language submitted by Farm Bureau to confuse the vast majority of consumers and even some attorneys.
  • The other concerns about arbitration was discussed including the hidden costs, the secrecy of the proceedings, the bias of the arbitrators, and the fact that arbitration has been mired in controversy for decades. (Do a google search!)
  • As with the home builders, the insurance industry claimed arbitration was “overly” fair which drew a chuckle. They claimed it was faster, better, cheaper but gave no supportting evidence. 
  • The president of Conflict Solutions of Texas, the arbitration firm that would benefit from adoption of this clause and selected by Farm Bureau was in favor of the clause. Imagine that. 
  • No consumers voiced their support for the arbitration clause. 
  • Consumers voiced their opinions against arbitration. 
  • Consumers urged TDI to focus their resources on lowering premiums instead of auctioning off our Constitutional rights. 
  • Many attorneys believe TDI does not have the authority to allow one company to offer this change. It would require a rule change which requires a different process. 
For the consumers
Consumers of Texas have a very respectable organization fighting to protect them from consumer scams like Arbitration, that being Texas Watch. Texas Watch is the premier consumer organization in Texas and did a great job in presenting the case against the arbitration clause.

There were only 4 consumers who spoke but were powerful because they paid the bills, would be most affected by the change, and could speak from a consumer perspective. Other consumer organizations included Home Owners for Better Building represented by Janet Ahmad who is well versed in the abuse of arbitration by the home building industry. Texas Trial Lawyers Association, Center for Economic Justice, Texas Association of Public Insurance Adjusters, Policyholders of Texas and a group representing attorney who represents both sides. All were opposed to the arbitration clause for many reasons.

For the insurance industry
Those in favor of the arbitration clause included Farm Bureau, the company who instigated the change, a couple of insurance company attorneys, a front group for the insurance industry the Texas Coalition for Affordable Insuranc Solutions and the President of Conflict Solutions of Texas.  Conflict Solutions is the arbitration firm Farm Bureau would use if allowed.

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