BILL ANALYSIS
H.B. 1367
By: Dutton (Ellis)
State Affairs
05-25-95
Senate Committee Report (Unamended)
BACKGROUND
Currently, some Texans are denied insurance or charged excessive
rates for insurance. Insurance companies are not prohibited from
using subjective criteria in their assessment of rates or
underwriting decisions.
PURPOSE
As proposed, H.B. 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
nonactuarial principles.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the Insurance Commissioner in SECTIONS 3, 4, 5, and 6 (Article
5.35-3, Section 1, Article 21.79, Sections 1 and 6, Article 5.35-3,
Section 1, Article 21.49-12, Section 1, and Article 21.49A, Section
2, Insurance Code) and the Texas Department of Insurance in SECTION
5 (Article 5.35-3, Section 8, Insurance Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 21B, Insurance Code, by adding Article
21.21-6, as follows:
Art. 21.21-6. UNFAIR DISCRIMINATION
Sec. 1. PROHIBITIONS. Prohibits a person from engaging in any
practice of unfair discrimination which is defined in this
article or is determined pursuant to this article to be a
practice of unfair discrimination in the business of
insurance.
Sec. 2. APPLICATION AND SCOPE. Requires this article to
apply to any legal entity engaged in the business of insurance
in this state.
Sec. 3. UNFAIR DISCRIMINATION DEFINED. Defines "unfair
discrimination."
Sec. 4. EXCEPTIONS. Sets forth the conditions under which a
legal entity engaged in the business of insurance is not in
violation of the prohibited acts Specified in Sections 2 and
3.
Sec. 5. SANCTIONS. Provides any legal entity engaged in the
business of insurance in this state found to be in violation
of or failing to comply with this article is subject to the
sanctions authorized in Article 1.10 of this code, including
administrative penalties authorized under Article 1.10E of
this code. Authorizes the commissioner to also utilize the
cease and desist procedures authorized by Article 1.1A of this
code.
SECTION 2. Amends Chapter 21B, Insurance Code, by adding Article
21.21-7, as follows:
Art. 21.21-7. PROHIBITION ON USE BY HEALTH INSURERS OF
UNDERWRITING GUIDELINES BASED ON FLUENCY IN ENGLISH
Sec. 1. DEFINITIONS. Defines "health insurer" and
"underwriting guideline."
Sec. 2. APPLICATION. Provides that this section applies to
any health insurance policy, agreement, contract, or evidence
of coverage delivered or issued for delivery by a health
insurer.
Sec. 3. PROHIBITION. Prohibits a health insurer from using
an underwriting guideline that is based on the ability of an
insured or an applicant for insurance coverage or health care
benefits to speak English fluently or to be literate in the
English language. Provides that the applicant has the burden
of proof to establish a violation of this article.
SECTION 3. Amends Section 1, Article 17.25, Insurance Code, to
authorize county mutual insurance companies qualifying to write
casualty lines for state wide operation to write all lines of
automobile insurance, personal liability insurance, residential
fire insurance, residential allied lines insurance, homeowners
insurance, and farm and ranch owners insurance, provided that no
such company shall assume a risk on any one hazard greater than
five percent of its assets, unless such excess shall be promptly
reinsured.
SECTION 4. Amends Chapter 5C, Insurance Code, by adding Article
5.35-3, as follows:
Art. 5.35-3. PROPERTY PROTECTION PROGRAM FOR UNDERSERVED AREAS
Sec. 1. (a) Authorizes the Commissioner of Insurance
(commissioner), by rule, to determine and designate areas as
underserved areas for residential property insurance.
Requires the commissioner to consider whether residential
property insurance is not reasonably available to a
substantial number of owners of insurable property in the
underserved area and any other relevant factors as determined
by the commissioner. Describes residential property insurance
for the purposes of this article.
(b) Prohibits the property protection program for
underserved areas operated under this article from including
windstorm and hail insurance coverage for a risk eligible
for that coverage under Article 21.49 of this code.
Sec. 2. Authorizes all insurers authorized to write property
or casualty insurance in this state and writing residential
property insurance in this state, to write insurance on the
forms adopted under this article.
Sec. 3. Requires the commissioner to adopt policy forms for
residential property insurance specifically for use in the
designated underserved areas. Requires the policy forms
adopted pursuant to this article to include a basic policy
covering fire and allied lines perils with endorsements
providing additional coverages at the option of the insured.
Authorizes the adopted policy forms to be used by all insurers
writing insurance in underserved areas.
Sec. 4. Requires the rates for residential property insurance
subject to this article to be determined in accordance with
the provisions of this code applicable to each insurer.
Sec 5. Requires all insurer, in underserved areas, to make
available to their agents and all agents to offer all insureds
the full range of coverages promulgated under this article
subject to the applicable rates and underwriting guidelines of
each such insurer.
Sec. 6. Provides that the premium on all policies written
pursuant to this article will not be subject to tax under
Article 4.10 of this code.
Sec. 7. Provides that the premium on all policies written
pursuant to this article will not be considered net direct
premiums under the provisions of Section 3(g), Article 21.49,
of this code.
SECTION 5. Chapter 21E, Insurance Code, by adding Article 21.79,
as follows:
Art. 21.79. GROUP INSURANCE OF PRIVATE PASSENGER AUTO AND
RESIDENTIAL PROPERTY INSURANCE IN UNDERSERVED AREAS
Sec. 1. (a) Authorizes the commissioner, by rule, to
determine and designate areas as underserved areas for private
passenger auto insurance or residential property insurance.
Requires the commissioner, in determining which areas are
underserved, to consider whether such insurance is not
reasonably available to a substantial number of insurable
risks and the availability of insurance and any other relevant
factors as determined by the commissioner. Describes
residential property for the purposes of this article.
(b) Prohibits group insurance provided under this article
from including windstorm and hail insurance coverage for a
risk eligible for that coverage under Article 21.49 of this
code.
Sec. 2. Provides that all insurers authorized to write
property or casualty insurance in this state and writing
private passenger auto insurance or residential property
insurance in this state are authorized to write such insurance
on a group basis in underserved areas as designated by the
commissioner.
Sec. 3. Authorizes a group to be formed solely for the
purpose of purchasing insurance subject to this article.
Sec. 4. Requires all policy forms and certificates for use in
underserved areas as designated by the commissioner to be
adopted by the commissioner.
Sec. 5. Requires the rates for coverage to be subject to the
applicable statutory provisions relating to the respective
insurers.
Sec. 6. Authorizes the commissioner to adopt any other rules
that are appropriate and necessary to implement this article.
SECTION 6. Amends Article 21.49-12, Insurance Code, as follows:
Art. 21.49-12. MARKET ASSISTANCE PROGRAMS
Sec. 1. CREATION OF PROGRAMS. (a) Authorizes the
commissioner, rather than the State Board of Insurance, to
establish a voluntary mechanism to be called a market
assistance program to assist insureds in Texas in obtaining
residential property insurance coverage in underserved areas,
which shall be determined and designated by the commissioner
by rule using the standard specified in Section 2, Article
5.35-3, of this code. Describes residential property
insurance for the purposes of this article. Requires a market
assistance program division to be established in and operated
by the Texas Department of Insurance (department).
(b) Prohibits the market assistance program established
under this article from providing assistance with respect to
windstorm and hail insurance coverage for a risk eligible
for that coverage under Article 21.49 of this code.
Sec. 2. PLAN OF OPERATION. (a) Requires the executive
committee of a market assistance program (executive committee)
to develop and submit the plan of operation to the
commissioner for adoption by rule and to be available to
advise and consult with the commissioner with regard to the
administration of the program. Requires the department to
develop and submit to the commissioner a plan of operation and
thereafter any amendments thereto, and requires the
commissioner to adopt, by rule, the plan of operation
developed by the department or any amendments to the plan of
operation. Authorizes all insurers licensed to write property
or casualty insurance and actually writing residential
property insurance in this state to participate in the program
unless insurer participation is made mandatory by the
commissioner based on criteria provided in the plan of
operation, but prohibits the commissioner from permitting an
insurer to condition its participation in a manner that is
inequitable to the participants.
(b) Sets forth provisions of the plan of operation is
required to include.
(c) Authorizes the plan of operation to provide for
subcommittees that are necessary to carry out the functions
of a program.
Sec. 3. EXECUTIVE COMMITTEE. Sets forth the composition of
the executive committee. Deletes existing Subsections (d)-(e).
Sec. 4. AGENTS. (a)-(c) Make no change.
(d) Requires, rather than authorizes, an originating agent
to share commissions, as required by the market assistance
program plan of operation with the issuing agent under
certain circumstances.
(e)-(f) Make a conforming change.
Sec. 5. Redesignated from existing Section 6. Replaces the
powers and authority of the State Board of Insurance with the
Department of Insurance for the purposes of this section.
Deletes existing Section 5.
Sec. 6. PERIODIC REVIEW. (a) Requires information deemed
appropriate by the executive committee to be collected.
(b) Requires the executive committee to review the demand
for and performance of the program six months following the
approval of the plan of operation, and at least annually
thereafter, as necessary. Requires the executive committee
to report to the commissioner as to the necessity for
continued operation of the voluntary program, need for
establishment of a mandatory program, need for establishment
of a FAIR Plan pursuant to Article 21.49A of this code, or
other recommendations the executive committee deems
appropriate. Requires the program to be terminated only
upon approval of the commissioner.
Sec. 7. IMMUNITY FROM LIABILITY. Provides that the program,
executive committee members, and participating insurers and
agents are not personally liable for any act performed in good
faith within the scope of the person's authority as determined
under this article or for damages occasioned by the person's
official acts or omissions except for an act or omission that
is corrupt or malicious.
Sec. 8. RULEMAKING AUTHORITY. Authorizes the commissioner to
adopt rules in addition to the plan of operation that are
appropriate to accomplish the purposes of this article.
SECTION 7. Amends Chapter 21E, Insurance Code, by adding Article
21.49A, as follows:
Art. 21.49A. FAIR PLAN (FAIR ACCESS TO
INSURANCE REQUIREMENTS) ACT.
Sec. 1. AUTHORITY; PURPOSE. (a) Authorizes the commissioner
to establish a Fair Access to Insurance Requirements Plan
(FAIR) to deliver residential property insurance to citizens
of this state in underserved areas, which shall be determined
and designated by the commissioner by rule under certain
conditions. Requires each insurer to participate in FAIR in
accordance with this Act.
(b) Prohibits FAIR from providing windstorm and hail
insurance coverage for a risk eligible for that coverage
under Article 21.49 of this code.
Sec. 2. DEFINITIONS. Defines "FAIR Plan Association,"
"insurer," "residential property insurance," "inspection
bureau," "net direct premiums," "underserved area(s)."
Sec. 3. GOVERNING COMMITTEE; PLAN OF OPERATION. (a) Requires
FAIR to be administered by the governing committee of the
association pursuant to a plan of operation. Requires the
governing committee to develop the plan of operation and
propose amendments thereto. Requires the amendments to be
adopted by the commissioner, by rule. Authorizes the
governing committee to amend the plan of operation.
(b)-(d) Sets forth the membership of the committee.
(e) Sets forth the required contents of the plan of
operation.
Sec. 4. FAIR PLAN ASSOCIATION. Requires FAIR to develop and
administer a program for participation by all insurers
licensed to write property insurance in this state and writing
residential property insurance in this state. Requires the
association to make residential property insurance available
to applicants in underserved areas whose property is insurable
in accordance with reasonable underwriting standards but who,
after diligent efforts, are unable to procure such insurance
through the voluntary market, as evidenced by two declinations
from insurers licensed to write and actually writing
residential property insurance in the state.
Sec. 5. POWERS OF THE ASSOCIATION; CENTRALIZED OPERATIONS
AUTHORIZED. (a) Authorizes FAIR to issue policies of
insurance and endorsements thereto in its own or a trade name
duly adopted for that purpose.
(b) Requires the participating insurers to be liable to the
association as provided in this Act and the plan of
operation for the expenses and liabilities so incurred by
the association, and the association to make assessments
against the participating insurers as required to meet such
expenses and liabilities. Requires certain notice
restrictions and actions be insured by the association in
connection with any policy.
(c) Provides that the association is authorized to assume
and cede reinsurance in conformity with the plan of
operation.
(d) Requires each insurer to participate in writings,
expenses, profits, and losses of the association in the
proportion that its net direct premiums written bear to the
aggregate net direct premiums written by all insurers.
Sec. 6. PROPERTY INSPECTION; FAIR PLAN PROCEDURE. (a)
Provides that a person is entitled to an inspection and
evaluation of the property by representatives of the
inspection bureau under certain conditions.
(b) Authorizes applications to be made on behalf of the
applicant by a licensed local recording agent and requires
them to be submitted on forms prescribed by the association.
(c) Requires an inspection to be made and an inspection
report filed with the association and made available to the
applicant upon request promptly after the request for
inspection is received.
(d) Requires the applicant to be informed in writing if it
is found that the residential property meets or does not
meet the reasonable underwriting standards.
(e) Requires the inspection bureau to reinspect the
property upon request if improvements have been made to the
property that did not previously meet the criteria for
underwriting. Provides that the property is eligible for
reinspection only once 60 days after the FAIR inspection.
Sec. 7. APPROVAL OF RATES. Requires the association to file
with the commissioner for approval the proposed rates and
supplemental rate information to be used in connection with
the issuance of policies or endorsements. Requires rates to
be set in an amount sufficient to carry all claims to maturity
and to meet the expenses incurred in the writing and servicing
of the business. Requires the commissioner to approve or
disapprove the rates in which time no policies or endorsements
shall be issued until a decision is made.
Sec. 8. APPEALS; JUDICIAL REVIEW. (a) Provides that any
applicant or affected insurer has the right of appeal to the
association. Authorizes a decision of the association to be
appealed to the commissioner within 30 days after such
decision.
(b) Provides that all orders or decisions of the
commissioner made pursuant to this Act are subject to
judicial review in accordance with Article 1.04 of this
code.
Sec. 9. IMMUNITY FROM LIABILITY. Provides that insurers, the
inspection bureau, the association, the governing committee,
their agents or employees, or the commissioner or the
commissioner's authorized representatives are immune from
liability in a cause of action.
Sec. 10. INSOLVENCY. Requires the association to cause the
reimbursement ratios to be immediately recalculated, excluding
therefrom the amount of the insolvent insurer's assessment
determined by the commissioner to be uncollectible.
Sec. 11. ASSESSMENTS AND PREMIUM SURCHARGES. Sets forth the
provisions and method of calculation of assessments and
surcharges to be charged by the association.
Sec. 12. SANCTIONS. Requires each entity to be subject to
the sanctions authorized in Article 1.10 of this code if the
association, inspection bureau, or participating insurer is
found to be in violation of or in failure to comply with this
Act. Authorizes the commissioner to also utilize any other
disciplinary procedures authorized by this code.
Sec. 13. ANNUAL REPORT. Requires the association to compile
and submit to the commissioner an operating report annually.
Requires the annual report to be a matter of public record.
Sec. 14. POWERS OF THE COMMISSIONER. Sets forth the powers
conferred upon the commissioner.
SECTION 8. Amends Chapter 21E, Insurance Code, by adding Article
21.49B, as follows:
Article 21.49B. PROPERTY AND CASUALTY INSURANCE INITIATIVES
TASK FORCE. Authorizes the commissioner to establish a task
force to study the utility and feasibility of instituting
various property and casualty insurance initiatives in this
state. Sets forth the initiatives which may be studied.
SECTION 9. Amends Article 21.53B, Insurance Code, by adding
Subsection (c), to require the commissioner to have all necessary
authority to enforce this section. Authorizes an aggrieved party
to ask the commissioner to conduct any investigation, review,
hearing, or other proceeding to determine compliance with this
section. Requires the commission to take all reasonable steps,
including the issuance of orders and the assessment of penalties,
to ensure compliance with this section.
SECTION 10. Repealer: Articles 21.21-3 and 21.21-5, Insurance
Code (Discrimination against Handicapped Prohibited-Discrimination
in Rates or Renewal).
SECTION 11. Makes application of Article 21.21-7, Insurance
Code, as amended by this Act, prospective beginning January 1,
1996.
SECTION 12. Emergency clause.
Effective date: upon passage.