BILL ANALYSIS
C.S.H.B. 1988
By: Duncan (Shapiro)
Economic Development
05-24-95
Senate Committee Report (Substituted)
BACKGROUND
Texas closely regulates the rates, rules, and forms relating to
most types of property and casualty insurance. The regulation has
been described as one rate - one form. This means that every
insurer uses the same rate and form for similar risks. No other
state has such a restrictive type of regulation. In 1991, Texas
adopted a pilot program on flexible rating with Article 5.101,
Insurance Code. If no legislation is enacted before December 31,
1995, the pilot program on flexible rating will expire and the
previous laws will be re-activated.
PURPOSE
As proposed, C.S.H.B. 1988 provides for the continuation of the
flexible rating program and benchmark rating procedure; insurance
rates and policy forms for certain lines of insurance; and certain
administrative hearings conducted regarding insurance rates.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the commissioner of insurance under SECTION 28 (Sec. 3(b),
Insurance Code) and SECTION 29 (Art. 21.69(g), Insurance Code) of
this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Article 5.101, Insurance Code, as follows:
Art. 5.101. FLEXIBLE RATING PROGRAM FOR CERTAIN INSURANCE LINES
Sec. 1. New heading: PURPOSE. Provides that the program,
rather than the pilot program, on flexible rating is designed,
rather than created, to help stabilize the rates charged for
insurance in lines of property and casualty insurance covered
by Subchapters A and C, rather than A through L, of this
chapter. Deletes the provision that this article expires
December 31, 1995. Makes nonsubstantive and conforming
changes.
Sec. 2. DEFINITIONS. (1) Redefines "benchmark rate" to mean
the rate set annually by the commissioner of insurance
(commissioner), rather than the State Board of Insurance
(board), by line, relative to which the flexibility bands and
statutory rate limitations apply.
(2) Makes no change.
(3) Defines "flexibility band" to mean the range of rates
from 30 percent below to 30 percent above, inclusive, rather
than relative to, the benchmark rates set by the
commissioner. Deletes the requirement that the board set the
flexibility band as a percentage above and below the
benchmark rate.
(4)-(5) Make no changes.
(6) Deletes the definition for "statutory rate limitation."
Sec. 3. New heading: OPERATION OF FLEXIBLE RATING PROGRAM. (a)
Provides that under the flexible rating program, rather than
plan, prescribed by this article, rates used by insurers in
writing property or casualty insurance for lines subject to
this article are determined through the application of
flexibility band to a benchmark rate and are implemented on a
file and use basis.
(b) Requires the commissioner to promulgate a benchmark rate
for each line subject to this article after notice and
hearing under Chapter 2001, Government Code (Administrative
Procedure Act). Makes nonsubstantive and conforming changes.
(c) Makes nonsubstantive and conforming changes.
(d) Redesignates existing Subsection (c). Provides that each
flexibility band, rather than initial flexibility band, is
based on a benchmark rate promulgated by the commissioner.
Requires the commissioner to conduct hearings to determine
the benchmark rates by line on or before September 1 of each
year, rather than on or before January 1, 1992. Makes
nonsubstantive and conforming changes.
(e) Redesignates existing Subsection (d). Provides that the
rate takes effect on the date specified by the insurer, but
not later than 60 days after the date of filing of the rate
with the commissioner. Requires an insurer's previously
filed rate to remain in effect, from and after the effective
date of the benchmark rate and prior to the insurer's
specified effective date, rather than filing, of a new rate,
the insurer's previously filed rate to remain in effect.
Makes nonsubstantive and conforming changes.
(f) Provides that filed rates within the flexibility band
are effective as provided in Subsection (e) of this section
and are presumed to be valid and in compliance with the
requirements of that subsection. Requires the commissioner,
if after a hearing, the commissioner finds that the filing
of an insurer under Subsection (e) of this section does not
meet the requirements of this article, to issue an order
that specifies how the filing fails to meet the requirements
of this article and states the date on which, within a
reasonable period after the order date, the insurer's filing
is no longer in effect.
(g) Redesignates existing Subsection (e)(1). Deletes the
provisions that the rate may not include expenses disallowed
under this section and that the rate takes effect on the
expiration of that time period or on the date the board
approves the rate. Makes conforming changes.
(h) Redesignates existing Subdivision (2). Makes
nonsubstantive and conforming changes.
(i) Redesignates existing Subsection (f). Deletes the
provision that the statutory rate limitations are plus or
minus 30 percent of the benchmark rate. Deletes the
provision that rates may not exceed or be lower than the
statutory rate limitations unless approved by the board.
Prohibits the rate filed under Subsection (g) of this
section from including expenses disallowed under Subsection
(o) of this section. Deletes the provision that failure to
approve the filing will cause the marketplace to be
inadequately served; cause a lack of availability in the
line or lines that are the subject of the filing; and be
confiscatory to the insurer making the filing. Provides that
in approving an insurer's filing for a rate outside the
flexibility band, the burden of proof is on the insurer
making the filing to show that, if the rate proposed by the
insurer is:
(1) more than 30 percent above the benchmark rate, the
rates available within the flexibility band to the
relevant market are inadequate for the risks insured and
that failure to approve the filing will cause a lack of
availability in the relevant market; or
(2) more than 30 percent below the benchmark rate,
approval of the filing will not adversely affect the
financial condition of the insurer.
(j) Provides that an approved rate outside the flexibility
band takes effect, after approval, on the date specified by
the insurer, but not later than 60 days after the date of
approval.
(k)-(l) Make nonsubstantive and conforming changes.
(m) Redesignates existing Subdivision (3). Makes
nonsubstantive and conforming changes.
(n) Redesignates existing Subdivision (4). Prohibits the
effect on the rate charged an individual risk through
surcharges and discounts under any such approved rating
manual from being greater than plus or minus 15, rather than
10, percent.
(o) Redesignates existing Subsection (h). Defines
"disallowed expenses" for the purposes of this section,
rather than Subsections (b), (c), (d), (e), (f), and (g) of
this section. Makes conforming changes.
(p) Redesignates existing Subsection (i). Provides that an
insurer who writes insurance in any line subject to this
article is required to make rate filings under Subsection
(e), (g), (h), (i), (k), (l), (m), or (n) of this section.
Makes nonsubstantive and conforming changes.
Sec. 4. EFFECT OF ENDORSEMENTS. Makes no changes.
Sec. 5. New heading: ADMINISTRATIVE PROCEDURE ACT APPLICABLE;
BENCHMARK RATE HEARINGS. Redesignates existing Section 6. (a)
Provides that Chapter 2001, Government Code, applies to all
rate hearings conducted under this article, subject to Article
1.33B of this code and Subsections (b)-(d) of this section.
(b) Provides that in a hearing on benchmark rates conducted
under this article, discovery directed to any party to the
proceeding concerning that party's premium, loss, expense,
profit, or rate of return experience or its operations is
prohibited, except to the extent that the party presents
evidence, relies on, or provides to another party its own
individual insurer data in the benchmark rate hearing.
Provides that this subsection does not deny or restrict any
party's right to produce or rely on relevant information
concerning an individual insurer as evidence in a benchmark
rate hearing.
(c) Provides that any party, as part of a benchmark rate
hearing, may present evidence regarding, and the
administrative law judge shall make proposed findings
concerning, any adjustments or amendments that should be
made to the statistical reporting rules and statistical
plans to aid in presenting a case at future benchmark rate
hearings.
(d) Authorizes the commissioner, if the record indicates
evidence under Subsection (c) of this section, to initiate
a proceeding under Article 5.96 of this code to determine
and make adjustments and amendments to the rules and
statistical plans as necessary to further aid in determining
whether rates and rating systems in use under this article
comply with the regulatory standards imposed under this
article. Requires the commissioner to consider the evidence
taken at the benchmark rate hearings under Subsection (c) of
this section, and to address that evidence in any order or
action taken as a result of the proceeding.
SECTION 2. Amends Article 5.01(f), Insurance Code, to delete the
provision that this subsection expires December 31, 1995.
SECTION 3. Amends Article 5.01-2(b), Insurance Code, to make a
conforming change.
SECTION 4. Amends Article 5.03(g), Insurance Code, to make a
conforming change.
SECTION 5. Amends Article 5.04(c), Insurance Code, to make a
conforming change.
SECTION 6. Amends Article 5.09, Insurance Code, to make a
conforming change.
SECTION 7. Amends Article 5.11(c), Insurance Code, to make a
conforming change.
SECTION 8. Amends Section 1, Article 5.13-2, Insurance Code, to
make a conforming change.
SECTION 9. Amends Section 3(2), Article 5.13-2, Insurance Code, to
redefine "insurer" to prohibit the provisions of Sections 4, 5, 6,
and 7 of this article from applying to Lloyd's or reciprocals with
respect to commercial property insurance.
SECTION 10. Amends Section 10, Article 5.13-2, Insurance Code,
as follows:
Sec. 10. New heading: ADMINISTRATIVE PROCEDURE ACT APPLICABLE.
Makes conforming changes.
SECTION 11. Amends Article 5.14(b), Insurance Code, to make a
conforming change.
SECTION 12. Amends Article 5.15(h), Insurance Code, to make a
conforming change.
SECTION 13. Amends Article 5.25(b), Insurance Code, to make
nonsubstantive and conforming changes.
SECTION 14. Amends Article 5.25A(b), Insurance Code, to make a
conforming change.
SECTION 15. Amends Article 5.26(i), Insurance Code, to make a
conforming change.
SECTION 16. Amends Article 5.28(d), Insurance Code, to make a
conforming change.
SECTION 17. Amends Article 5.29(b), Insurance Code, to make a
conforming change.
SECTION 18. Amends Article 5.30(b), Insurance Code, to make a
conforming change.
SECTION 19. Amends Article 5.31(b), Insurance Code, to make a
conforming change.
SECTION 20. Amends Article 5.32(b), Insurance Code, to make a
conforming change.
SECTION 21. Amends Article 5.34(b), Insurance Code, to make a
conforming change.
SECTION 22. Amends Article 5.39(b), Insurance Code, to make a
conforming change.
SECTION 23. Amends Article 5.40(d), Insurance Code, to make a
conforming change.
SECTION 24. Amends Article 5.41(b), Insurance Code, to make a
conforming change.
SECTION 25. Amends Article 5.96(a-1), Insurance Code, to make
nonsubstantive and conforming changes.
SECTION 26. Amends Article 5.96A(d), Insurance Code, to make a
conforming change.
SECTION 27. Amends Article 5.97(n), Insurance Code, to make a
conforming change.
SECTION 28. Amends Chapter 5, Insurance Code, by adding
Subchapter O, as follows:
SUBCHAPTER O. RATE ROLLBACK
Art. 5.131. TEMPORARY RATE ROLLBACK FOR CERTAIN LINES OF INSURANCE
Sec. 1. FINDINGS. Sets forth the findings of the legislature
in relation to the rates of certain lines of insurance.
Sec. 2. SCOPE OF ARTICLE. (a) Provides that this article
applies to any insurer that is authorized to do business in
this state and that is authorized to write any of the types of
coverages or lines and sublines listed in Subsection (b) of
this section.
(b) Sets forth the intent of the legislature in relation to
certain lines and sublines of insurance.
(c) Sets forth policies and coverages to which this article
applies.
Sec. 3. RATE ROLLBACK. (a) Requires the commissioner, on or
before September 1 of each year, to hold a rulemaking hearing
under Chapter 2001, Government Code, to determine the
percentage of equitable across-the-board reductions in
insurance rates required of insurers writing the lines and
sublines of liability coverage described by Section 2(c) of
this article.
(b) Requires the commissioner, not later than October 1,
1995, to issue rules mandating the appropriate rate
reductions to rates for the lines and sublines of liability
coverage described by Section 2(c) of this article and
developed without consideration of the effect of the
legislation described by Section 1 of this article.
(c) Authorizes the commissioner to set the percentage of the
rate reduction by line and subline within any of the
coverages described by Section 2(c) of this article and to
set a percentage either above or below the percentages
listed in Subsection (e) of this section. Requires the
commissioner's order establishing the rate reductions to be
based on the evidence adduced at the rulemaking hearing.
Provides that it is the intent of the legislature that the
rates resulting from the rate reductions imposed by this
article be reasonable, adequate, not unfairly
discriminatory, nonconfiscatory, and not excessive.
(d) Provides that the rate reductions adopted under this
section are applicable to each policy or coverage issued,
issued for delivery, or renewed on or after January 1, 1996,
and to each policy or coverage issued, issued for delivery,
or renewed on and after the 90th day after the date of each
subsequent rule adopted under Subsection (a) of this
section.
(e) Sets forth reductions that apply to each insurer for
each affected policy or coverage issued, issued for
delivery, or renewed on or after January 1, 1996, if the
commissioner has not yet issued an order establishing rate
reductions for a line or subline under this section or the
order has not yet become final because of any reason.
(f) Provides that a rate reduction imposed by a rule adopted
under this section is effective under the terms of the rule
without regard to any legal challenge as to the validity or
implementation of the rule.
(g) Requires the commissioner to consider the effect of the
legislation described by Section 1 of this article in
determining rates under Section 5 of Article 21.81 of this
code.
Sec. 4. ADMINISTRATIVE RELIEF. (a) Requires a rate filed as to
a line or subline of insurance coverage affected by this
article on or after January 1, 1996, and a rate filed on and
after the 90th day following the effective date of a
subsequent rule adopted under Section 3(a) of this article, to
reflect the rate reduction imposed by Section 3 of this
article. Requires the commissioner to disapprove a rate,
subject to the procedures established by Section 7, Article
5.13-2, of this code if the commissioner finds that the filed
rate does not reflect that reduction.
(b) Provides that the commissioner is not required to
disapprove a filed rate that reflects less than the full
amount of the rate reduction imposed by Section 3 of this
article if the commissioner, based on credible data, makes
certain determinations.
Sec. 5. DECLARATION OF INAPPLICABILITY TO CERTAIN LINES.
Requires the commissioner, by order, to declare this article
inapplicable to a line or subline of insurance otherwise
subject to this article at the time the commissioner finds,
based on actuarially credible data, that rates in that line or
subline reflect the actual experience under the legislation
described by Section 1 of this article.
Sec. 6. DURATION OF REDUCTION. Sets forth the duration of each
rate resulting from the reduction required under Section 3 of
this article.
Sec. 7. MODIFICATION. Authorizes the commissioner, by bulletin
or directive, based on the evidence accumulated by the
commissioner before the bulletin or directive is issued, to
modify a rate reduction mandated by the commissioner under
this article if a final, unappealable judgment of a court with
appropriate jurisdiction stays the effect of, enjoins, or
otherwise modifies or declares unconstitutional any of the
legislation described by Section 1 of this article on which
the commissioner based the rate reduction.
Sec. 8. HEARINGS AND ORDERS. Requires a rulemaking hearing
under this article to be held before the commissioner or a
designee. Provides that Article 1.09-5 of this code does not
apply to hearings under this article. Provides that the
rulemaking procedures established by this section do not apply
to any other rate promulgation proceeding.
Sec. 9. PENDING RATE MATTERS. Provides that a rate filed
pursuant to a commissioner's order issued before May 1, 1995,
is not subject to the rate reductions required by this article
before January 1, 1996.
Sec. 10. RECOMMENDATIONS TO LEGISLATURE. Requires the
commissioner to assemble information, conduct hearings, and
take other appropriate measures to assess and evaluate changes
in the marketplace resulting from the implementation of this
article and to report findings and recommendations to the
legislature.
SECTION 29. Amends Article 21.69, Insurance Code, as follows:
Art. 21.69. New heading: STATISTICAL DATA COLLECTION. (a)
Authorizes the commissioner, for a line or subline of
insurance, to designate or contract with a qualified
organization to serve as the statistical agent for the
commissioner to gather data relevant for regulatory purposes
or as otherwise provided in this code.
(b) Requires an organization, to qualify as a statistical
agent, to demonstrate at least five years of experience in
data collection, data maintenance, data quality control,
accounting, and related areas.
(c) Provides that the commissioner's designation or
contracting with a statistical agent under this article
authorizes the statistical agent to collect from the
reporting insurers any fees necessary for the statistical
agent to the costs of data collection from the reporting
insurers for data collection services provided by the
statistical agent. Requires a reporting insurer to pay the
fee to the statistical agent for the data collection
services provided by the statistical agent.
(d) Requires a statistical agent designated or contracted
with by the commissioner under this article to collect data
from reporting insurers under a statistical plan promulgated
by the commissioner.
(e) Requires an insurer to provide all premium and loss cost
data to the commissioner or the commissioner's agent
designated or contracted with under this article as the
commissioner or the agent requires.
(f) Authorizes the statistical agent to provide aggregate
premium and loss cost data to subscribers.
(g) Authorizes the commissioner to adopt rules necessary to
accomplish the purposes of this article. Deletes existing
Article 21.69.
SECTION 30. Amends Article 17.22(b), Insurance Code, to make a
conforming change.
SECTION 31. Requires the commissioner of insurance to conduct
hearings on the benchmark rate under Section 3(d), Article 5.101,
Insurance Code, to be used by insurers in calendar year 1996, no
later than October 1, 1995.
SECTION 32. Effective date: September 1, 1995.
SECTION 33. Emergency clause.