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Texas Department of Insurance History

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The recorded history of insurance law in Texas and the predecessors of the Texas Department of Insurance date back to 1876 – the year Mark Twain published "The Adventures of Tom Sawyer" and Colorado became the 38th state.

The constitution of Texas adopted that year authorized the Legislature to create the office of Insurance Commissioner when it deemed it necessary.

Two years earlier, the state had made its first effort to regulate the insurance business in Texas. The state's economy and population were growing, and wildcat insurance schemes were common. The 14th Legislature in 1874 passed a law regulating the life and health insurance business in the areas of company formation, activities and coverage.

The Legislature also gave the State Comptroller of Public Accounts supervisory authority over insurance – one of many duties imposed on him by statute. There was, however, no insurance department in existence at that time.

In the early days of statehood, practically all insurance business in Texas was written by companies organized in other states and foreign countries. According to State Comptroller's records, out of 61 companies doing business in Texas in 1874, only four were domestic.

Until the 1876 State Constitution was adopted, Texas insurance corporations were created by special act in the various state legislative sessions. These domestic companies ventured into the business – mostly fire and marine insurance – in competition with financially stronger and more experienced out-of-state companies. As a result, most of them either went bankrupt or had to be reinsured and taken over by their out-of-state counterparts.

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Commissioner as Statistician and Historian

When the 15th Legislature met in 1876, it took advantage of the authorization given to it by the 1876 constitution and created the Department of Insurance, Statistics and History. In addition to his insurance-related duties, the commissioner was charged with keeping information and statistics on the state's population, wealth and general resources. He also was the state historian. And to make sure that he would not waste his spare time, he was made state librarian and superintendent of public grounds and buildings, as well.

About 10 years later, the office of the commissioner was expanded. In 1887, the 20th Legislature added agriculture to the commissioner's authority and renamed the agency the Department of Agriculture, Insurance, Statistics and History. The commissioner also was made an ex-officio member of the Texas A&M College Board of Directors.

The business of insurance continued to grow at the turn of the century. By the end of 1900, 138 licensed and admitted insurance companies of all types operated in Texas and premium income on Texas companies reached almost $10 million.

In subsequent years, the commissioner's authority continued to be revised by the Legislature. In 1905, the first state banking act was passed, adding the regulation and supervision of state banks to the office of the Commissioner of Agriculture, Insurance, Statistics and History.

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Insurance and Banking Merged

In 1907, the 30th Legislature created the office of Commissioner of Agriculture. All duties relating to agriculture were taken out of the old department, which was now renamed Department of Insurance and Banking. Interestingly, the law did not dispose of the functions dealing with statistics and history. Instead, they quietly faded out of the picture and were absorbed by the office of the State Librarian.

Just two years later, in 1909, the Commissioner of Insurance and Banking was made chair of the newly created Fire Insurance Rating Board. The Board's primary responsibility was to prevent discrimination in rates. The commissioner also became supervisor of all "building and loan associations" in Texas.

The first two commissioners of insurance and banking were attorneys with experience in both fields. Thomas B. Love would later serve in the State Senate and William E. Hawkins would later serve on the Supreme Court of Texas. According to historians, every Commissioner of Insurance and Banking after Hawkins was selected for his banking and not his insurance qualifications.

The fire rating board was replaced by the State Insurance Board in 1910 and given authority to promulgate fire rates. The Board was composed of the Commissioner of Insurance and Banking – serving as chair of the Board – and two appointed members. One of these was designated State Fire Marshal. Just three years later, in 1913, the State Insurance Board's name was changed to the State Fire Insurance Commission and its authority broadened.

All the while, insurance and banking functions were kept together under one agency, despite repeated urging by the commissioner dating back to 1914 to separate them into two new agencies. In 1923, the 38th Legislature finally made the change, creating the Department of Insurance and the Banking Department, each headed by a separate commissioner.

Also in 1923, the Legislature transferred rate-making authority in the area of workers' compensation from the Texas Employer's Insurance Association (TEIA) – which was created as a result of the workers' compensation law passed in 1913 – to the State Fire Insurance Commission.

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Board of Insurance Commissioners Created

The 40th Legislature in 1927 passed an act creating the Board of Insurance Commissioners. The Board was composed of the Life Insurance Commissioner (also chairman of the Board), Fire Insurance Commissioner and Casualty Insurance Commissioner. The Legislature that year also gave the insurance commissioner the power to approve and disapprove auto insurance rates and to promulgate uniform policy forms.

The Board's first chair, R. B. Cousins Jr., reflected on the previous separation of the Department of Insurance and the State Fire Insurance Commission: "The performance of the several duties of the two departments were so interdependent and inter-related that the effort to operate them as a unit resulted in considerable duplication of effort, working of cross-purposes, and lost motion."

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First Insurance Code Published

The next major landmark in the history of insurance regulation in Texas came in 1951, when insurance laws were codified into the Texas Insurance Code. The code retained a format consistent with early law, devoting separate chapters to specific kinds of companies.

The insurance industry in Texas also was rocked by insolvency scandals in the 1950's. Twenty-three domestic companies were placed in receivership between 1954 and 1958. As a result, the Legislature passed at least 16 insurance-related bills, among them measures strengthening examination laws, increasing minimum capital and surplus requirements, and giving more control to the Board for the issuing of certificates of authority.

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The State Board of Insurance Created

In 1957, the State Board of Insurance was created by the 55th Legislature. The law stated that "the Board will operate as a unit with its members prohibited from dividing or confining their activities or functions into special fields of insurance regulation."

It also set out minimum experience for Board members, minimum attendance at meetings, and prohibition of insurance interests while on the Board. The law stated the chair of the three-member Board would be designated by the Governor in January of odd-numbered years.

The State Board of Insurance had the responsibility of hiring a Commissioner of Insurance, to serve at its pleasure as chief administrative officer. The Commissioner also served as State Fire Marshal until 1975, when the 64th Legislature created a separate State Fire Marshal's Office.

Both the State Fire Marshal's Office and the Office of Consumer Protection (OCP) – created in 1987 by the 70th Legislature to represent consumer interests – became independent of the Board on September 1, 1991, as a result of legislation passed by the 72nd Legislature. OCP is now known as the Office of Public Insurance Counsel. The State Fire Marshal's Office was moved to the the Texas Commission on Fire Protection in 1991, but moved back to the Texas Department of Insurance in 1997.

Under terms of sunset legislation passed by the 73rd Legislature in the spring of 1993, most of the Board's authority transferred on September 1, 1993, to a Commissioner appointed by the Governor for a two-year term in each odd-numbered year and confirmed by the Texas Senate. The new law permitted the Board to continue its authority over the areas of rates, policy forms and related matters until August 31, 1994. On November 18, 1993, however, the Board voted unanimously to turn over full authority to the Commissioner as of December 16, 1993.

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Last updated: 1/17/2018