Texas just passed a law making it harder to sue insurance companies that 'abuse' policyholders

• An insurance industry veteran says a new law could create a lot of problems for flood victims poorly treated by insurers.
• Bob Hunter says the National Flood Insurance Program was a great idea, but it's poorly run.

Texas just passed a law making it more difficult to sue insurance companies who are mistreating their policyholders, according to a top former insurance official.

Called the "hailstorm bill," the new law that takes effect on Friday will limit penalties for property and casualty insurers who take too long settling lawsuits filed by policyholders.

Supporters of the bill have said it is designed to guard against large numbers of lawsuits.

"The new law will make it harder for people to file lawsuits, and it is less likely that lawyers would want to take even good cases," said Bob Hunter, director of insurance for the Consumer Federation America, on Thursday's "Closing Bell."

Robert Grant and Rocky from the Texas Task Force 2 search and rescue team work through a destroyed apartment complex trying to find anyone that still may be in the apartment complex after Hurricane Harvey passed through on August 27, 2017 in Rockport, Texas.

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Hunter has served as both the Chief Actuary of the National Flood Insurance Program and was at another time the Commissioner of Insurance for the state of Texas.

The bill also requires policyholders to "go through several hoops," he said, including giving companies 61 days notice before filing a lawsuit and filling out a lot of additional paperwork.

The law only affects lawsuits, not claims.

"A lot of insurance companies are good," Hunter said, so the law will only affect people "who are being abused by insurance companies.

Even if they do win, plaintiffs would collect less money under the law.

Texans, some of whom are only now getting pulled out of Harvey's floodwaters, will face the impact of the bill if they find themselves suing their insurers. The process of filing an insurance claim, seeking aid and rebuilding their lives was already a long and arduous process.

But at some point, this will bring about a "second crisis," Hunter said.

"We know for sure there will be a lot of lawsuits filed ultimately, because there is always trouble after these major events," he said, adding that there were lawsuits filed in the wakes of both Superstorm Sandy and Hurricane Katrina.

Hunter also said the National Flood Insurance Program is poorly run and in need of reform. Among other ailments he named, the maps that define the flood zones are out of date, and Congress will not allow the rates to rise to meet the true actuarial rate.

"Right now, you have subsidized flood insurance for bad construction," he said. "So, the program has to be significantly changed, and Congress is going to have to get out of the way and let the rates go where they belong."

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