Life and Health Insurance · Texas statutes and rules common to life and health insurance · 10 min read
The Texas Department of Insurance: commissioner powers, investigations and penalties
- Identify the administrative structure of the Texas Department of Insurance, the appointment and role of the commissioner of insurance, and the duties established by Texas law.
- Explain the regulatory process for insurer examinations, department inquiries, complaint management, and market conduct oversight under the Texas Insurance Code.
- Describe the enforcement powers of the commissioner, including emergency cease and desist orders, administrative hearings, license sanctions, and civil or administrative penalties.
Structure and Duties of the Texas Department of Insurance
In your study of Texas insurance law, specific statutory definitions establish administrative authority. Under Texas law, 'Commissioner' means the commissioner of insurance (Tex. Ins. Code §31.001(1)). Furthermore, 'Department' means the Texas Department of Insurance (Tex. Ins. Code §31.001(2)). The commissioner of insurance serves as the chief executive and administrative officer of the Texas Department of Insurance (Tex. Ins. Code §31.021(a)).
The Texas Department of Insurance operates under clear statutory responsibilities. The department must regulate the business of insurance in Texas (Tex. Ins. Code §31.002(1)). It must administer the Texas workers' compensation system as provided by Title 5, Labor Code (Tex. Ins. Code §31.002(2)). The department must also ensure that the Texas Insurance Code and other laws regarding insurance and insurance companies are executed (Tex. Ins. Code §31.002(3)). Additionally, the department must protect and ensure the fair treatment of consumers (Tex. Ins. Code §31.002(4)), and it must ensure fair competition in the insurance industry to foster a competitive market (Tex. Ins. Code §31.002(5)).
The commissioner has the powers and duties vested in the department by Texas insurance laws and Texas workers' compensation insurance laws (Tex. Ins. Code §31.021(b)). The commissioner must administer and enforce the Texas Insurance Code, other Texas insurance laws, and other laws granting jurisdiction or applicable to the department or the commissioner (Tex. Ins. Code §31.021(a)). To accomplish this, the commissioner may adopt rules necessary to implement this title of the Texas Insurance Code and to meet the minimum requirements of federal law, including regulations (Tex. Ins. Code §4001.005).
The appointment of the commissioner is governed directly by state statute. The governor appoints the commissioner of insurance with the advice and consent of the Texas Senate (Tex. Ins. Code §31.022(a)). The commissioner serves a two-year term that expires on February 1 of each odd-numbered year (Tex. Ins. Code §31.022(a)). State law mandates that the governor must appoint the commissioner without regard to the appointee's race, color, disability, sex, religion, age, or national origin (Tex. Ins. Code §31.022(b)). When the commissioner establishes advisory committees, the commissioner must adopt rules regarding their purpose, structure, and use (Tex. Ins. Code §32.151(a)). An advisory committee must be structured and used solely to advise the commissioner, the state fire marshal, or department staff, and may not be responsible for rulemaking or policymaking (Tex. Ins. Code §32.151(b)).
Common mistakes
- Believing that an agent has 30 days to answer a written inquiry from the Texas Department of Insurance, when Texas law requires a written response no later than the 15th day after receipt, with an optional 10-day extension granted upon written notice.
- Confusing the timeline for an emergency cease and desist order by thinking it becomes final immediately, when in fact an affected party has up to 60 days to request a hearing and the order becomes final on the 61st day if no hearing is requested.
- Assuming advisory committees have the authority to create insurance rules, whereas under Texas statute advisory committees must be used solely to advise and may never engage in rulemaking or policymaking.
- Mixing up the surplus impairment triggers between stock insurers (more than 50 percent impairment) and mutual companies other than life, Lloyd's plans, or reciprocals (more than 25 percent impairment).
Key points
- The commissioner of insurance is appointed by the governor for a two-year term expiring on February 1 of odd-numbered years and serves as chief executive and administrative officer of the Texas Department of Insurance.
- Except as provided by rules governing carriers organized or incorporated for less than five years, the department must examine carriers at least once every five years; examiners have unrestricted access to books and papers relating to a carrier's business and affairs and may examine specified persons under oath if necessary.
- Authorization holders must respond in writing to department inquiries within 15 days, with a mandatory 10-day extension upon written request.
- The commissioner must order an insurer to remedy an impairment or cease business in Texas when the applicable required surplus is impaired by more than 50 percent for a stock insurer, or the applicable required aggregate is impaired by more than 25 percent for a Lloyd's plan, reciprocal or interinsurance exchange, or mutual company other than a life insurance company; an order is also required when the applicable surplus falls below the minimum set by risk-based capital and surplus rules.
- An emergency cease and desist order issued ex parte becomes final on the 61st day after service unless the affected person requests a hearing within 60 days.
- Violations of cease and desist orders issued under Section 541.108 are subject to administrative penalties of up to $1,000 per violation (maximum $5,000 total) and, if found by a court, civil penalties of up to $50, or up to $500 for wilful violations.
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