BILL ANALYSIS S.B. 1365 By: Wentworth (Dear) 05-11-95 Committee Report (Amended) BACKGROUND Insurance companies which operate under Articles 5.13 and 5.16, Insurance Code, historically do not offer an indemnity product. As a result, it is impossible to produce actuarial data for the purpose of making rates. PURPOSE S.B. 1365 removes the requirement that certain prepaid legal service providers be required to produce non-existing actuarial data for the purpose of establishing rates. 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 Article 5.13-1, Insurance Code, by amending Subsections (a), (b), and (f) and adding Subsection (g), as follows: (a) Deletes requirement that all rates, rate plans, and charges, are to be established in accordance with actuarial principles for various categories of insureds; the prohibition that the rates and charges not be excessive, inadequate, or discriminatory; and that the benefits be reasonable. (b) Authorizes the State Board of Insurance (board) to require that prepaid legal services contracts have rates that are adequate to reasonably provide the benefits under the prepaid legal services contracts. (f) Provides that this subsection does not apply to a prepaid legal services contract that provides only consultation and advice on simple legal matters, either alone or in combination with the referral service, and that provides fee discounts for other matters. (g) Prohibits the board from determining, fixing, prescribing, setting, or promulgating maximum rates or maximum amounts of premium to be charge for a prepaid legal service contract issued under this chapter. Requires the board to approve such rates as filed by any insurer unless it finds that such filing does not meet the requirements of this article. Deletes the provision that this article shall not be construed as to require the board to establish a single or uniform rate for each risk or risks or to compel all insurers to adhere to such rates previously filed by other insurers, and the board's empowerment to approve such different rates for different insurers. SECTION 2. Amends Subsection (a), Section 23.01, Insurance Code, as follows: (a) On an application of any seven or more persons to the secretary of state for a corporate charter under the Texas Non-Profit Corporation ACT a corporation amy be incorporated for the sole purpose of establishing, maintaining, and operating non-profit legal service plans. SECTION 3. Articles 23.10, 23.14, and 23.15, Insurance Code, as follows: Art. 23.10. CORPORATIONS NON PROFIT; FUNDS; INVESTMENTS. Requires the claim fund to be composed of at least 70 percent, rather than 80 percent, of the regular payments by participants, and the application fees. Makes a conforming change. Art. 23.14. SUPERVISION. (a) Makes conforming changes. (b) Prohibits the board from determining, fixing, prescribing, setting, or promulgating maximum rates or maximum amounts of premium to be charged for a non profit legal services plan under this chapter. Art. 23.15. New heading: DUTIES OF CONTRACTING ATTORNEYS; ADEQUATE FINANCIAL STANDING. Deletes a requirement that the board approve the ratio of benefits to be paid to anticipated revenues from the rate schedule proposed to be used if found to be actuarially sound. Deletes a provision prohibiting prepaid legal services contract or benefit certificate thereunder from being used by corporations complying with this chapter without such finding. SECTION 4. Effective date: September 1, 1995. Makes application of this Act prospective beginning January 1, 1996. SECTION 5. Emergency clause. EXPLANATION OF AMENDMENTS The Committee amendment to S.B. 1365 requires all legal service contracts and promotional material to be truthful, accurate and properly describe the coverage offered. The description of coverage offered should include as either an indemnity coverage or a contract that provides only consultation and advice on simple legal matters, either alone or in combination with a referral service, and provides for fee discounts for other matters. SUMMARY OF COMMITTEE ACTION In accordance with House rules, S.B. 1365 was heard in a public hearing on May 10, 1995. The Chair laid out S.B. 1365 and recognized the following persons to testify in support of S.B. 1365: Cordell Hull; The Signature Corporation; Richard S. Geiger, representing himself. The Chair left S.B. 1365 as pending business before the Committee. Pursuant to an announcement filed with the Journal Clerk and read by the Reading Clerk, the House Committee on Insurance met in a formal meeting on May 11, 1995 at desk #24 on the House Floor and was called to order by the Chair, Representative John Smithee. The Chair laid out S.B. 1365 as pending business before the Committee. The Chair recognized Representative Averitt who offered an amendment to S.B. 1365. The Chair recognized G. Lewis who moved the Committee adopt the amendment to S.B. 1365. The Chair heard no objections and the amendment was adopted. The Chair recognized Representative Averitt who moved the Committee report S.B. 1365 as amended to the full House with the recommendation that it do pass, be printed, and be sent to the Committee on Local and Consent. Representative Duncan seconded the motion and the motion prevailed by the following vote: AYES: (7); NAYES: (0); PNV: (0); ABSENT: (2).