With the passage of Senate Bill 14 in 2003, auto insurance companies were permitted to file their own auto policy forms, with the Insurance Commissioner's prior approval. This was a new concept for Texas auto agents and I must admit, when I had my agency, I shuddered at the thought of learning different policy forms for each company, let alone, trying to pass that knowledge onto my employees. Having started my insurance career in Florida, a state that allows companies to file their own forms, this wasn't a new concept for me though.
Initially, I shied away from offering the new policy forms. I spent an enormous amount of time and money educating my employees on underwriting and procedural changes with the carriers we wrote, the last thing I wanted to do was to add more to my workload, let alone increase my exposure for errors and omissions claims. Yet, as time went on and I started seeing more and more new forms being approved by TDI, I realized this wasn't just a fad and I needed to take my head out of the sand.
The next thing I could only hope for is that there was consistency in the policy language from company to company. I soon learned, I had no such luck. After reading over several of the new policy forms, I found the coverage from company to company (MGA to MGA) differed significantly. Even coverage from MGAs writing on the same County Mutual paper adopted different endorsements to the policy, therefore, even in that case I couldn't be assured there was a consistency between policies. What I did find though, was two common areas of coverage that insurance companies addressed.
The most common change I saw in several of the new forms was the restriction or exclusion of coverage for non-owned autos (newly aquired / replacement autos and rental cars). On the most part, the carriers I wrote for that filed their on auto policy, they reduced the days of coverage for physical damage from 30 days down to 10 or 14 days. However, I saw just a few of the carriers excluded coverage all together. Unless the vehicle was listed on the declarations page, physical damage coverage did not apply - period. Therefore, that meant if the insured purchased a new car on the weekend - he'd better leave it parked at the dealership until the endorsement can be done.
Permissive Use Drivers
The next major deviation from the Texas Standard Auto Policy was how coverage applied to permissive- use drivers. In my days as a marketing representative, I heard many agents tell me 'limited policies' just meant coverage didn't apply to any driver that was not specifically listed on the policy. Unfortunately, that is simply not the case. How coverage applies to permissive-use drivers differs quite extensively from one company to the next.
The Texas Standard Auto Policy covers all household residents, unless specifically excluded (thus the reason those pesky underwriters always want signed 515As). Coverage also extends to occasional drivers that have been given permission by the insured to drive the vehicle.
Unfortunately, any agent that has sold a few auto insurance policies in their time, quickly learns there are a large number of parents out there that conveniently forget they have driving-age teenagers living at home with keys to the car. There is also the spouse on occasion that has had one too many tickets, accidents, or DUIs that the insured swears will never drive the vehicle. Based on the Texas Standard Auto Policy, when the undisclosed driver takes the car out and wrecks it, the insurance company still has to pay, even though the insurance company was not permitted to collect the adequate premium needed to cover the risk. To address this common occurrence in an attempt to keep premium/loss costs under control, many Texas insurance companies filed language to curb their exposure to undisclosed drivers. However, how the coverage applies (or doesn't apply) to these permissive-use drivers is quite different from company to company.
Companies that took the conservative approach essentially wrote their language to cover:
- Named Insured and drivers listed on the application;
- Occasional Non-Resident drivers; and
- Drivers listed on the application
Other examples of policy language include:
- Named Insured and drivers listed on the application;
- Permissive-use driver for up to 24 hours (consecutive or cumulative) and only minimum liability limits for those that drive the vehicle 24 hours or less
- Named Insured and drivers listed on the application
- Liability coverage extends to the Named Insured, Listed Household residents with no coverage for Unlicensed drivers or Unlisted household residents; and
- Physical Damage - NO coverage for ANY driver that is not listed on policy
On a good note though, I soon realized with the significant differences in policy language, Texas auto insurance agents were now permitted to sell on more than just price. To accomplish this, the communication between the company and the agent - and the agent and the consumer - must be clear and concise.
With that said, do not be afraid to ask your marketing representative for a copy of their auto policy and all applicable endorsements. Read the language yourself, ask questions, and make sure you and your staff are fluent with the policy coverages you sell. If you are currently appointed with Affirmative Insurance, I highly recommend attending Keith Moon's (VP of Business Development for Affirmative) continuing education class 'Auto Policies - What's the Difference?' Keith does a tremendous job outlining the coverage differences from several common carriers in Texas.
Another common misconception among insurance agents only 'non-standard' auto insurance companies customized their auto policy and limited coverage. I assure you, that is not the case. After SB14 was enacted, it didn't seem to take long for most Texas auto insurance companies to adopt new language.
I know I would be naive if I thought every agent in Texas would always sell the best coverage for the best price, not just sell the best price regardless of the coverage. With different policy forms being filed though, customized auto policy forms present a great opportunity for the professionals in the Texas auto insurance industry to set themselves apart from the rest. A professional takes the time to familiarize themselves with the products they sell and educate the consumer on the options available. While these customized forms do take more time to learn, more time to explain, the benefits for the consumer in price savings and the company is reduced loss costs can outweigh the inconveniences.