Alex Winslow of Texas Watch passed along to me that the Office of Public Insurance Counsel (OPIC) has weighed in against the mandatory arbitration endorsement proposed by Texas Farm Bureau and now (semi-secretly) before the Texas Department of Insurance (TDI) for approval. OPIC is the state office tasked with representing policyholders in rate and form filing decisions. I have linked a copy of their very strong letter addressed to David Maddox, the Commissioner of Insurance for the State of Texas. OPIC agreed with the letter sent to Maddox last week by Texas Watch, which I linked to an earlier blog, but OPIC made some other very good points, which I highlight here.
The insurance industry might argue that arbitration is a fair, alternative way for the carrier and the policyholder to settle their dispute. However, OPIC points out that arbitration is only fair when both parties are on equal footing—like if JP Morgan Chase is going to arbitrate with Wells Fargo. However, OPIC did a masterful job of arguing that, in the insurance claim setting, the policyholder does not enjoy the same footing as the carrier:
Arbitration can be appropriate and beneficial in resolving disputes between parties who are on an equal footing with respect to power, money and sophistication. When parties are not equals in these respects, arbitration proceedings place the less powerful at an extreme disadvantage. While I am tempted to use the ‘David versus Goliath’ analogy to illustrate my point, sadly it isn’t really appropriate when describing this inequality. David at least had a sling and five smooth stones. Texas insurance consumers would not have the benefit of any analogous tools in an arbitration proceeding against an insurance company.
The reasons for this disadvantage are obvious. The insurance company has set the terms of the arbitration proceeding, selected the entity that will select the arbitrator, and pays the arbitrator. Thus, the insurance company controls all facets of the arbitration and engages the loyalty of the arbitrator by being a repeat, well paying customer. As if these advantages are not enough, the subject endorsement does not allow for an appeal, review, or even disclosure of the final arbitration decision. This will severely reduce the transparency of Texas insurance law decisions and negatively affect the ability of the law to evolve to meet future needs.
Another insurance industry argument may be that the arbitration provision is an optional endorsement that the policyholder may choose in order to get a yet unspecified lower premium. Once again, OPIC does a wonderful job of arguing that the policyholder will not know what she is giving up for the so-called lower premium and OPIC questions to what extent the endorsement will truly be optional:
We understand that Farm Bureau is planning to offer the binding arbitration endorsement as an optional endorsement in selected counties in exchange for a yet unspecified premium discount. This does not alleviate our concerns or objections. First, we are concerned that consumers may opt for a discount while not being fully aware of the arbitration process nor the constitutional rights they would be forfeiting. Second, the optional endorsement may become in effect mandatory if the insurance company refuses to sell or offer policies without the "optional" endorsement. It would be difficult for the regulator or others to easily determine if this was occurring. Third, there is no way to determine at present if the premium discount offered would be sufficient to compensate for the rights lost by the consumer. Instead, the insurance company asks that the form be approved without making any firm guarantees as to the magnitude of any discount.
My hat is off to OPIC. This is a very well-reasoned letter that truly exposes how unfair a mandatory arbitration endorsement is to the policyholder.
On another note, Alex Winslow says Texas Watch “is staying on this like flies on…well, you know.” Go to www.texaswatch.org to find out how you can help.