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HB 2071 would add a new subsection to Chapter 462 (Texas
Property and Casualty Insurance Guaranty Association), Section 202, of the
Insurance Code. Specifically, a person would have a covered claim under Chapter 462 if he or she holds a valid assignment of a
covered claim for unearned premiums.
The Texas Property and Casualty Insurance Guaranty
Association (TPCIGA) is a non-profit, unincorporated association that is
composed of all property and casualty insurers licensed in Texas. The Texas
Legislature created this association to provide protection to insurance
policyholders in case an insurer becomes insolvent.
In other words, if an insurer goes out of business, its
assets are liquidated to the Texas Department of Insurance, which allows TPCIGA
to continue covering claims that were in effect when the insurer went under. This is known as a “covered claim.” If a policyholder has already paid their
premium on a policy for a certain period of time that extends past when the insurer
became insolvent, then TPCIGA treats that policy as a covered claim for an unearned
premium. However, TPCIGA can only provide no more than $25,000 of unearned
An unearned premium is the portion of an insurance premium
that has yet to be paid or earned by the insurer because the policy has not
expired. For example, assume an insurer writes a three-year insurance policy: The annual premium for that policy is $1,000 per year, which would make the whole
three-year policy worth $3,000. If a policyholder pays for one year of this
policy, the insurer would have earned $1,000 but it would have an unearned
premium of $2,000.
The issue this bill aims to fix is based off a prior court
ruling that affected how premium finance companies were paid. Specifically, a
premium finance company that had loaned money to a borrower to prepay an insurance
policy could not collect on the unearned premium that was paid to an insolvent
insurer. The court ruled that a premium finance company could not be paid the
remaining sum of an unearned premium because the premium finance company did
not qualify as a “person” in current language.
HB 2071 would give a premium finance company a right to that
covered claim for unearned premiums on the basis of “a valid assignment” to
that insurance policy.
If TPCIGA was not in place, a premium finance company would not be able to recoup any money. Although this legislation would be correcting a problem that
was caused by regulations, we stand neutral on HB 2071 because ultimately
TPCIGA is a government safety net that is funded by taxpayers, thus it should not restrict an entity from a valid covered claim it may already have through an insolvent insurer.