BILL ANALYSIS
Insurance Committee
By: Dutton
04-12-95
Committee Report (Substituted)
BACKGROUND
Currently, many Texans are denied insurance or charged
excessive rates for insurance as a condition for either denial or
excessive rates. Insurance companies use subjective criteria such
as race or geographical location rather than actual risk of loss in
their decision.
House Bill 1367 requires insurance companies to base their
pricing of policies, underwriting decisions, and cancellation and
renewal of policies strictly on the basis of a person's risk of
loss or the expense of issuing and servicing a policy.
PURPOSE
As substituted, House Bill 1367 prohibits an insurer, agent,
or anyone in the business of insurance from discriminating in the
availability of, setting of rates, or renewal of insurance on the
basis of non actuarial principles.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does grant
additional rulemaking authority to Insurance Commissioner under the
following sections of this bill. SECTION 3 amends Subchapter C,
Chapter 5, Insurance Code by adding Article 5.35-3, Sec. 1,
allowing the Commissioner by rule to determine and designate areas
as underserved areas for residential property insurance. SECTION
4 amends Subchapter E, Chapter 21, Insurance Code by adding Article
21.79, Sec. 1, allowing the Commissioner by rule to determine and
designate areas as underserved areas for private passenger auto or
residential property insurance; and Sec. 6, permits the
Commissioner to adopt any other rules that are appropriate and
necessary to implement this article.
SECTION 5 amends Article 21.49-12, Sec. 1, Insurance Code,
permitting the Commissioner to establish a market assistance
program, in underserved areas designated by rules adopted by the
Commissioner, using standards specified in Section 1, Article 5.35-3 of this Code; and Sec. 2 requires the executive committee to
submit a plan of operation to the Commissioner for adoption by
rule. If the executive committee fails to submit a plan the
Commissioner shall by rule adopt a plan of operation developed by
the Texas Department of Insurance or any amendment to the plan.
Sec. 8 authorizes the Commissioner to adopt rules in addition to
the plan of operation that are appropriate to accomplish the
purposes of this Act. SECTION 6 amends Subchapter E, Chapter,
Insurance Code, by adding Article 21.49A, Sec. 2 (6) by defining
"underserved areas (s)" as designated by rule of the Commissioner.
SECTION BY SECTION ANALYSIS
SECTION 1.
Amends Subchapter B, Chapter 21, Insurance Code, by adding Article
21.21-6, Insurance Code, titled: Unfair Discrimination.
Sec. 1:
Prohibits any unfair discrimination practice by anyone engaged in
the business of insurance pursuant to this article.
Sec. 2: Application and Scope
This article applies to any legal entity engaged in the business of
insurance in the state.
Sec. 3: Unfair Discrimination Defined
(a) Refusing to insure; Refusing to continue to insure; and
limiting the amount, extent, or charging a different rate for
the same coverage solely based on race, color, religion, or national origin.
(b) Prohibits discrimination because of age, gender, or marital
status.
(c) Prohibits discrimination because of a handicap or partial
handicap.
Sec. 4: Exceptions
(a) Refusing to insure or charge different rates based on sound
underwriting or actuarial principles reasonably related to
actual or anticipated loss experience.
(b) Membership in a club, group or organization is a condition for
providing insurance.
(c) When refusal, limiting kind of coverage, different rates is
required by law or regulatory mandate.
Sec. 5: Sanctions
Failure to comply with Article 21.21-6 can result in the insurer's
license being suspended, an order to cease and desist from
specified violation activity can result in a $10,000 monetary
forfeiture.
SECTION 2. Amends Section 1, Article 17.25, Insurance Code as
follows:
Sec. 1: Regulation
Allows County Mutual Insurance companies to write personal
liability insurance, residential fire insurance, residential allied
lines insurance, homeowners insurance, and farm and ranch owners
insurance.
SECTION 3.
Amends Subchapter C, Chapter 5, Insurance Code by adding Article
5.35-3 titled, Property Protection Program for Underserved Areas.
Sec. 1:
By rule the Commissioner may determine and designate areas as
underserved for residential property insurance.
Sec. 2:
All insurers authorized to write property or casualty insurance,
and writing property insurance, including those licensed under
Chapter 17, 18, and 19 of the Insurance Code are authorized to
write insurance under this article.
Sec. 3:
Provides that the Commissioner shall adopt policy forms for use in
the designated underserved areas to be used by all insurers writing
insurance in the underserved areas.
Sec. 4:
Rates for residential property insurance subject to this article
will be determined in accordance with the provisions of this code
applicable to each insurer.
Sec. 5:
All insurers will make available the full range of coverages.
Sec. 6:
There will be no premium tax on all policies written pursuant to
Article 4.10, Insurance Code.
Sec. 7:
The premium on all policies written pursuant to this article will
be considered to be net direct premium under section 3(g) of
Article 21.49, Insurance code.
SECTION 4.
Amends Subchapter E, Chapter 21, Insurance Code by adding Article
21.79 titled, Group Insurance of Private Passenger Auto and
Residential Property Insurance in Underserved Areas.
Sec. 1:
By rule the Commissioner may determine and designate areas as
underserved for private passenger auto insurance or residential
property insurance.
Sec. 2:
All insurers authorized to write property or casualty insurance and
writing private passenger auto insurance or residential property
insurance, including insurers licensed under Chapter 17, 18, and 19
of the Insurance Code in this state, are authorized to write
insurance on a group basis in underserved areas designated by the
Commissioner.
Sec. 3: A group may be formed for the purpose of purchasing
insurance.
Sec. 4: The Commissioner shall adopt policy forms and
certificates for use in the underserved areas.
Sec. 5: Rate coverages shall be subjected to the applicable
statutory provisions relating to the respective insurers.
Sec. 6: The Commissioner may adopt any other rules that are
appropriate and necessary to implement this Article.
SECTION 5.
Amends Article 21.49-12, Insurance Code, titled Market Assistance
Program.
Sec. 1: Creation of Programs
The Commissioner may establish a voluntary market assistance
program to assist insureds in underserved areas in obtaining
residential property insurance. A market assistance division shall
be established in and operated by the Texas Department of
Insurance. Delegates rulemaking authority.
Sec. 2: Plan of Operation
(a) The Executive Committee shall develop and submit a plan of
operation to the Commissioner for adoption by rule and shall
advise and consult with the Commissioner with regards to the
administration of the program The Texas Department of Insurance will submit a plan if the Executive Committee has not done so
in 180 days.
(b) The plan of operation shall include:
1. Application provisions.
2. Application for Assistance provisions.
3. The right to individually evaluate risks and apply rates.
4. Insurer has the option of providing a premium quote that it
normally provides for insurance in the state.
5. Insurer shall make a premium quote, indicate refusal to quote,
or request an extension.
6. If the applicant accepts the premium quoted, the agent is
notified by the program to complete the placement of insurance.
7. Applicant is not eligible to apply for the same coverage for
the same risk if the applicant cancels or nonrenews for
nonpayment of premium or due to a fraudulent claim.
8. Shall include criteria by which the Commissioner may make
insurer's participation mandatory.
(c) Provide for Subcommittees to implement the program.
Sec. 3: Executive Committee
(a) Composed of nine members appointed by the Commissioner to
administer the program. 5 members represent insurers, 2
public members, and 2 licensed local recording agents.
(b) Must be a full-time employer of an authorized insurer to
represent the insurers on the committee.
(c) The Commissioner or the Commissioner's designated
representative is an ex-officio of the Committee.
Sec. 4: Agents
(a) Market Assistance Program has two categories of Agents: an
originating agent and an issuing agent.
(b) Originating agents complete an application for insurance to be
submitted to the program for the insured.
(c) Issuing agent must be appointed to represent the ultimate
insurer and perform the following duties:
1. signing, executing, and delivering policies of insurance;
2. maintaining a record of business;
3. examining and inspecting the risk; and
4. receiving and collecting premiums.
(d) An originating and issuing agent may split the commission.
(e) The originating and the issuing agent may be the same person.
(f) The program may not share in commissions.
Sec. 5: Confidentiality
(a) The Department of Insurance shall maintain as confidential all
application files and related documents.
(b) The Department of Insurance shall make these files available
to originating or issuing agents or to an applicant for his own
file or to an insurer who agrees to insure the applicant.
Sec. 6: Periodic Review.
(a) Information concerning type of applications received and
placed, and other information deemed necessary by the
Executive Committee or Commissioner will be collected.
(b) The Executive Committee shall review the demand for and
performance of the program after 6 months following the plan of
operation and annually thereafter. After each review the
executive committee will report to the Commissioner of Insurance as
to the necessity of continuing operation of the voluntary
program, the need to establish a mandatory program or the need to
establish a Fair Plan or other recommendations deemed necessary. Program shall be terminated only upon the approval of the
Commissioner.
Sec. 7: Immunity from Liability
The program, executive committee members, and participating
insurers and agents are not personally liable for acts performed in
good faith in performance of their duties, except those that are
corrupt or malicious.
Sec. 8: Rulemaking Authority
The Commissioner may adopt rules necessary to accomplish the
purpose of this Act.
SECTION 6.
Amends Subchapter E, Chapter 21, Insurance Code by adding Article
21.49A titled, Fair Plan (Fair Access to Insurance Requirements)
Act.
Sec. 1: Authority; Purpose
If the Commissioner determines residential property insurance is
not reasonably available in the voluntary market to at least 50 %
of the applicants, the Commissioner may establish the Fair Plan to
deliver residential property insurance to citizens of the state in
underserved areas.
Sec. 2: Definitions.
(1) "Fair Plan Association" or association means a non-profit
association established to provide residential property
insurance in designated underserved areas.
(2) "Insurer" means any licensed insurer writing property and
casualty insurance, including:
(A) County Mutual Insurance;
(B) Lloyd's plan company; and
(C) Reciprocal or interinsurance exchange.
(3) "Residential Property Insurance" means coverage against direct
loss to real or tangible personal property in a homeowners
policy, residential fire and allied lines policy, or farm and
ranch owners policy.
(4) "Inspection Bureau" means the Organization or Organizations
designated by the Fair Plan Association to make inspections to
determine the condition of the properties for which residential
property insurance is sought.
(5) "Net Direct Premiums" means gross direct written premiums less
return premiums upon cancelled contracts written on residential
property pursuant to this Act.
(6) "Underserved Areas(s)" means areas designated as underserved
by the Commissioner by rule.
Sec. 3: Governing Committee; Plan of Operation
(a) The Fair Plan shall be administered by the Governing Committee
of the Association.
(b) The Governing Committee shall be composed of 5 members
representing insurers, 2 public members, 2 licensed local
recording agents, and the Commissioner or the Commissioner's
designated representative.
(c) A representative of the insurer must be a full-time employee
of an authorized insurer to represent the insurers on the
committee.
(d) The Plan of Operation shall provide:
(1) Establishment of a Fair Plan Association for the issuing of
residential property insurance pursuant to this Act.
(2) All insurers licensed to write property insurance and writing
residential property insurance shall participate in the
writings, expenses, profits and losses of the Association.
(3) A participating insurer is entitled to receive credit for
similar insurance voluntarily written in a designated underserved
area.
(4) For immediate binding of eligible risks; for the use of
premium installment payment plans, adequate marketing and
service facilities and for the establishment of reasonable service standards.
(5) Procedures for a nondiscriminatory administration of the Fair
Plan Associations.
(6) Procedures for determining level of participation required for
each insurer.
(7) For the use of deductibles and other underwriting devices and
for assessment to operate the Association; and establish
maximum limits of liability to be placed through the program and
commissions to be paid.
(8) That the Association issue policies in its own name.
(9) Reasonable underwriting standards for determining insurability
of the risk.
(10) Procedures for the assumption and ceding of reinsurance by the
Association.
(11) Any other procedures deemed necessary for operational matters.
Sec. 4: Fair Plan Association
Pursuant to procedures and requirements in the plan of operation,
the Association will develop and administer a program for
participation by all insurers licensed to write property insurance
and writing residential property insurance in the state.
Sec. 5: Powers of the Association.
(a) Authorized to issue policies of insurance for Fair Plan
purposes only.
(b) Authorized to make assessments against participating insurers
for expenses and liabilities in connection with any policies
issued by the Association.
(1) service of any notice, proof of loss, legal process or other
communication with respect to the policy shall be made to the
Association.
(2) a claim under the policy will be brought against the
Association.
(c) The Association is authorized to assume and cede reinsurance
in conformity with the plan of operation.
(d) Each insurer must participate in the writings, expenses,
profits, and losses of the Association.
Sec. 6: Property Inspection; Fair Plan Procedure.
(a) Any person having an insurable interest in real or tangible
personal property, having been declined by two insurers
recently, is entitled upon application to the Association to an inspection and evaluation of the property by representatives
of the Inspection Bureau.
(b) Application must be submitted by a licensed local recording
agent on forms prescribed by the Association.
(c) After the inspection, a report will be filed with the
Association and made available to the applicant upon request.
(d) If the Inspection Bureau finds the property meets underwriting
standards, the applicant will be issued a policy by the
Association. If the property fails to meet the criteria, the applicant will be notified in writing regarding the reasons
for the failure of the property to meet the criteria.
(e) If the applicant makes improvements to the property sufficient
to meet the criteria, and passes a reinspection by the
Inspection Bureau, a policy will be issued by the Association.
Sec. 7: Approval of Rates
The Association shall file with the Commissioner for approval the
proposed rates to be used in connection with the issuance of
policies or endorsements. Within 60 days of the filing, the
Commission will either approve or disapprove in whole, or in part,
the proposed rates. An order disapproving rates will state the
grounds for disapproval and the finding supporting the disapproval.
Sec. 8: Appeals; Judicial Review.
(a) A decision by the Association may be appealed to the
Commissioner within 30 days after the decision.
(b) Orders or decisions of the Commissioner pursuant to this Act
are subject to judicial review.
Sec. 9: Immunity from Liability
There is no liability on the part of the Insurers; the Inspection
Bureau; the Association; the Governing Committee, their agents or
employees; or the Commissioner, or the Commissioner's authorized
representative, with respect to any inspections, acts, or
omissions, statements, communications in connection with the
insurability of the property.
Sec. 10: Insolvency
In the event of any participating insurer fails by reason of
insolvency, to pay any assessment, the Commissioner may determine
the assessment to be uncollectible and redistributed among the
remaining participating insurers.
Sec. 11: Assessments and Premium Surcharges
Each insurer may charge a premium surcharge on every property
insurance policy issued insuring property in this state to cover
each insurer assessment amount.
Sec. 12: Sanctions
Failure to comply with this Act on the part of the Association ,
Inspection Bureau, or participating insurers, can result in each
having their licenses suspended, each receiving an order to cease
and desist from specified violation activities or result in a
$10,000 monetary forfeiture.
Sec. 13: Annual Report
The Association will make an annual report to the Commissioner
prior to March 31 of the following year.
Sec. 14: Powers of the Commissioner
The Commissioner has the authority to supervise the association and
the Inspection Bureau, along with the power to:
1. examine the operation of the association and the Inspection
Bureau.
2. enable the state to participate fully with any Federal program
of reinsurance which may be enacted for similar purposes as
the Act.
3. require reports from the Association concerning risks insured
by the Association.
4. adopt policy forms, endorsements, rules, and rating and rule
manuals for use by the Association.
SECTION 7.
Amends Subchapter E, Chapter 21, Insurance Code, by adding Article
21.49B titled, Property and Casualty Insurance Initiative Task
Force. The Commissioner may establish a task force to study
various property and casualty insurance initiatives in this state
and may also include:
1. Coordination with the Department of Commerce to make certain
property and casualty insurance an enterprise zone program
2. Possible coordination with Neighborhood Housing Service (NHS)
Programs to establish NHS-Insurance Industry Partnership.
3. Possible Insurance Agent programs to increase minority agency
access to standard insurance companies.
4. Possible tax incentives for insurance written in underserved
areas.
SECTION 8. Articles 21.21-5 and 21.21-3, Insurance Code are
repealed.
SECTION 9. Emergency Clause; Effective upon passage.
COMPARISON OF ORIGINAL TO SUBSTITUTE
As substituted, H.B. 1367 adds Article 21.21-6 to Subchapter
B, Chapter 21, Insurance Code, titled, Unfair Discrimination.
Amends Section 1, Article 17.25, Insurance Code to allow County
Mutual Insurance companies to write personal liability insurance,
residential fire insurance, residential allied homeowners
insurance, farm, and farm and ranch owner's insurance.
Adds Article 5.35-3 to provide a property protection program for
underserved areas. Adds Article 21.79, Group Insurance of Private
Passenger Auto and Residential Property Insurance In Underserved
Areas. Amends Article 21.49-12, to create a Marketing Assistance
Program. Adds Article 21.49A, to create the Fair Plan (Fair Access
to Insurance Requirement) Act. Adds Article 21.49B, Property and
Casualty Insurance Initiatives Task Force. And repeals Articles
21.21-5 and 21.21-3, Insurance Code.
SUMMARY OF COMMITTEE ACTION
In accordance with House rules, H.B. 1367 was heard in a
public hearing on March 8, 1995. The Chair laid out H.B. 1367 and
recognized the following persons to testify in support of H.B.
1367: Rob Schneider, Consumers Union; Maxine Aaronson, Texas
Neighborhoods Together; Bob Tapia, Disability Policy Consortium;
Kat Allison, ACORN; Lawrence DeMartino, San Antonio Coalition of
Neighborhood Association of Texas; Don Wilmard, Dallas Homeowners
League; Craig McDaniel, Dallas City Councilman; Ephesian Harden,
Friendship Homeowner Association; Victoria Frayser, Houston
Homeowners Association; Mary Wallace, San Antonio Coalition of
Neighborhood Association.
The Chair recognized the following persons to testify in
opposition to H.B. 1367:
Robert D. Simpson, State Farm Insurance Company; Will Davis, USAA;
James L. Young, Statesman National Life Insurance Company. The
Chair referred H.B. 1367 to a subcommittee of: De La Garza, Duncan,
and Dutton as Chair.
Pursuant to a public notice posted on March 9, 1995, the House
Committee on Insurance's Subcommittee on Insurance Availability met
in a public hearing on Tuesday, March 14, 1995, chaired by
Representative Harold Dutton. The Chair laid out H.B. 1367 and
recognized the following persons to testify in support of H.B.
1367: Nancy Epstein, Disability Policy Consortium; Toye Jackson,
ACORN; Jesse Romero, MALDEF; Rosa Rosales, LULAC.
The Chair recognized the following persons to testify in
opposition to H.B. 1367:
Robert D. Simpson, State Farm Insurance Company; Robert W. Blevins,
Texas Life Insurance Association; Jay Thompson, AFACT; Fred
Werkenthin, Farmers Insurance Group; Robert Sneed, Texas Land Title
Association. The Chair left H.B. 1367 pending before the
Subcommittee.
Pursuant to an announcement filed with the Journal Clerk and
read by the Reading Clerk, the Subcommittee on Insurance
Availability met in a formal meeting on April 6, 1995 on the House
floor and was called to order by the Chair, Representative Harold
Dutton.
The Chair laid out H.B. 1367 and recognized Representative De
La Garza who offered a substitute to H.B. 1367 and moved the
Subcommittee adopt the substitute to H.B. 1367. The Chair heard no
objections and the substitute to H.B. 1367 was adopted. The Chair
recognized Representative De La Garza who moved the Subcommittee
report H.B. 1367 as substitute to the full Insurance Committee with
the recommendation that it do pass and be printed. The Chair heard
no objections and the motion prevailed by the following vote: AYES
(2); NAYES (0);
ABSENT (1); PNV: (0).
Pursuant to a public notice posted on April 7, 1995, the House
Committee on Insurance met in a public hearing on Wednesday, April
12, 1995 was called to order by the Chair, Representative John
Smithee. The Chair laid out the Subcommittee report on H.B. 1367,
which in accordance with House rules had laid out for 48 hours, and
recognized Representative Dutton to explain the Subcommittee
report. Representative Dutton offered a complete substitute to
H.B. 1367 in lieu of the Subcommittee report on H.B. 1367 and
moved the full Committee adopt the substitute to H.B. 1367 in lieu
of the Subcommittee report on H.B. 1367.
The Chair heard no objections and the Committee adopted the
substitute to H.B. 1367 in lieu of the Subcommittee report on H.B.
1367. The Chair recognized Representative G. Lewis who moved the
Committee report H.B. 1367 as substituted to the full House with
the recommendation that it do pass and be printed. Representative
De La Garza seconded the motion and the motion prevailed by the
following vote: AYES (7); NAYS (1); ABSENT (0); PNV (1).