BILL ANALYSIS



H.B. 2670
By: Crabb
4-25-95
Committee Report (Amended)


BACKGROUND

     Public entities are required by law (Section 504.011 of the
Labor Code) to provide workers' compensation insurance coverage for
their employees.  The public entity is given the option of
providing the coverage by either self-insuring, providing coverage
under a workers' compensation insurance policy, or entering into an
inter-local agreement with other political subdivisions for the
provision of self-insurance.  Public insurance pools have been
created, through the use of inter-local agreements, to provide
workers' compensation coverage for public entities.

     Currently, the state does not regulate either political
subdivisions who self-insure or public pools created to provide
workers' compensation insurance.  Insurance carriers are regulated
by the Texas Department of Insurance (TDI) to ensure that they are
solvent and are operating in accordance with statutory mandates.

     During 1994, the House Business and Industry Committee was
charged with studying insurance pools that provide workers'
compensation coverage for public entities and determining whether
regulation is needed to protect members and claimants or otherwise
protect the integrity of pools.  The Committee made recommendations
in its interim report to the 74th Legislature, which drew heavily
from model legislation developed by the National Association of
Insurance Commissioners and standards for public pools developed by
the Public Risk Management Association.  This legislation contains
those recommendations.

PURPOSE

The purpose of this bill is to provide limited regulation of
insurance pools for the protection of members and claimants.  The
major modifications proposed by this bill:

     -     create the Texas Political Subdivisions Workers'
           Compensation Pooling Standards Act;

     -     require public pools to file governing documents and
           financial statements with the Secretary of State;

     -     require ongoing board of trustee training;

     -     require annual financial audits and actuarial
           evaluations; and

     -     define information which must be included in a contract
           between a pool and a third-party administrator.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency or institution.

SECTION BY SECTION ANALYSIS

     SECTION 1.     Amends Subtitle C, Title 5, Local Government
Code by adding Chapter 175.

     Sec. 175.001.  Names the new chapter the Texas Political
Subdivisions Workers' Compensation Pooling Standards Act.

     Sec. 175.002.  Provides the purpose of the chapter.

     Sec. 175.003.  (a)  Allows a pool board of trustees to provide
workers' compensation coverage for pool staff, including persons
under contract.

     (b)  Political subdivisions which create a pool must select a
board of trustees.  Exempts members and employees of the board from
liability for claims.

     (c)  Prohibits an officer or employee of a contractor from
being a trustee on a board.

     (d)  Requires the selection process for trustees to be
presented in the pool's governing documents.

     (e)  Allows a pool to be administered by pool staff or by a
third-party contractor.

     (f)  Requires trustees to obtain information from a third-party contractor before hiring.  The information must include:  any
ownership in an insurance carrier or other provider of services to
the pool and any commission or other benefit the third-party
administrator will receive.

     Sec. 175.004.  (a)  Requires a pool's governing documents to
be filed with the Secretary of State and made available to pool
members.  The documents and any amendments must be filed within 90
days of adoption by board of trustees.

     (b)  Defines the required governing documents.

     (c)  Requires the Secretary of State to notify the pool and
appropriate attorney for the state if a pool fails to file
governing documents or amendments.  If the documents are not filed
within 10 days, the pool is liable to the state for $5,000.00.

     Sec. 175.005.  (a)  Requires trustees to have at least 8 hours
of professional instruction in specified areas.

     (b)  Requires the training referred to in subsection (a) to be
completed within 180 days of selection or of the effective date of
the chapter.

     (c)  Requires a trustee to receive at least 8 hours of
training each year.

     Sec. 175.006.  (a)  Requires an annual audit of the pool's
fiscal account and records which is performed by a nationally
recognized independent auditor.

     (b)  The auditor must be a certified public accountant.

     (c)  Provides a description of how the audit shall be
conducted and elements which must be included.

     (d)  Requires annual audits to be submitted to the Secretary
of State and to all pool members.

     (e)  Requires an annual actuarial evaluation of claims
reserves and liabilities of the pool.

     (f)  Requires that the actuarial evaluation be performed by a
Fellow of the Casualty Actuarial Society.

     (g)  Requires the actuarial review to include:  a description
of underwriting and rating procedures and an examination and
recommendations for reserves.

     (h)  Requires the actuarial review to be filed with the
Secretary of State and all pool members.

     (i)  Requires the Secretary of State to notify the pool and
appropriate attorney for the state if a pool fails to file the
audit or actuarial review.  If the documents are not filed within
10 days, the pool is liable to the state for $5,000.00.

     Sec. 175.007.  (a)  Requires trustees to invest pool funds in
accordance with the Public Funds Investment Act of 1987 as
applicable.

     (b)  Allows the trustees to invest pool funds as authorized by
the Texas Trust Code.

     (c)  Requires the trustees to adopt an investment and cash
management policy and to review it annually.

     Sec. 175.008.  (a)  Requires a pool to maintain a management
information system capable of tracking claims and providing status
reports to pool members.

     (b)  Requires a pool to review claims processing at least
every three years.

     (c)  Requires the review to be conducted by qualified
individuals independent of the pool and of any claims contractors.

     Sec. 175.009.  (a)  Requires trustees to obtain information
from a third-party administrator before entering into a contract.

     (b)  Information obtained from a third-party administrator
must include:  (1)  any ownership in an insurance company or other
provider of services to the pool and (2)  any commission or other
benefit the third-party administrator will receive.

     (c)  Requires a contract between a third-party administrator
and a pool to include specific pieces of information.

     Sec. 175.010.  (a)  Defines "insolvency" for the purposes of
this chapter.

     (b)  Specifies that this chapter does not impact on a
political subdivision's responsibility for claims, losses,
associated expenses.

     (c)  Requires pool trustees to determine if a pool is
insolvent.  Requires the trustees to notify all pool members if a
pool is insolvent.  The notification must inform members of their
responsibility for outstanding claims.

     (d)  Requires an insolvent pool to terminate its affairs in
accordance with the governing documents.

     (e)  Requires governing documents to include provisions
dealing with the insolvency of a pool.

     Sec. 175.011.  Allows a pool to purchase excess loss coverage
or reinsurance.

     Sec. 175.012.  Clarifies that a pool is not insurance or an
insurer under the Insurance Code and that the State Board of
Insurance does not have jurisdiction over a pool.

     Sec. 175.013.  Authorizes a workers' compensation benefits
payor (political subdivision, group of political subdivisions, or
pool) to be subrogated, as provided under Sec. 111.059, Human
Resources Code, for a personal injury caused by a third party.

     Sec. 175.014.  Specifies that individual claims and reserves
on claims are confidential.

     SECTION 2.  Emergency clause.


EXPLANATION OF AMENDMENTS

Amendment #1 to H.B. 2670 makes technical corrections by deleting
language under Section 175.012 to conform and make risk pools
insurance or insurers under the Insurance Code.  These new changes
give jurisdiction over a pool to the Department of Insurance.  A
pool or its agents shall be required to inform persons who apply
for coverage or who are presently covered by the pool, that the
pool's coverage is insurance.   

SUMMARY OF COMMITTEE ACTION

H.B. 2670 was considered by the Committee on Business and Industry
in a public hearing on March 28, 1995.  No public testimony was
considered on the bill.  H.B. 2670 was left pending before the
committee without objection.  H.B. 2670 was reconsidered by the
committee on pending business on April 4, 1995.  Testifying in
support of H.B. 2670 was Carey Boethel, representing Texas
Association of Counties Workers' Compensation Self-Insurance Fund,
Dubravka Romano, representing Texas Association of School Boards,
R. Marvin Townsend, representing the Texas Municipal League
Intergovernmental Risk Pool, Leonard Spearman, Jr, representing
Harris County Judge Robert Eckels and Harris County Commissioners
Court.  No one testified on or against H.B. 2670.  The committee
considered a completed committee substitute for the bill.  The
committee substitute was withdrawn without objection.  H.B. 2670
was referred to a subcommittee consisting of Representative Brimer. 
H.B. 2670 was considered by the subcommittee in a formal meeting on
April 11, 1995.  The subcommittee considered (1) one amendment to
the bill.  The one (1) amendment was adopted without objection. 
Without objection, H.B. 2670, as amended was left pending before
the subcommittee.  After being recalled from subcommittee, H.B.
2670 was considered by the committee on April 25, 1995.  The
committee considered one (1) amendment to the bill.  The one (1)
amendment was adopted without objection.  H.B. 2670 was reported
favorably as amended with the recommendation that it do pass and be
printed, by a record vote of 7 (seven) ayes, 0 (zero) nays, 0
(zero) present-not-voting, 2 (two) absent.