RS C.S.H.B. 1356 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 1356 By: Counts 4-14-97 Committee Report (Substituted) BACKGROUND The issuance of permits to sell prearranged funeral contracts, the form and substance of such contract, and the handling of funds collected from prepaid funeral contract purchasers are strictly regulated by the Department of Banking under Article 548b, Revised Civil Statutes, as amended. Section 1(g) of Article 548b provides two lawful alternatives for investment of purchaser-paid funds and earnings thereon: (1) a life insurance policy or annuity contract approved by the Department of Insurance and issued by an insurance company licensed in Texas, or (2) a "trust" account consisting of deposits with a bank, savings and loan, or trust company. Currently, there is a roughly-even split between the traditional depository institutions and insurance companies in the value of prepaid funeral funds held for Texas residents. Life insurance firms have achieved a growing and competitive presence in prepaid funeral markets and are well-suited to handle this type of business. More entrants can be expected as the population continues to mature. PURPOSE This bill would allow insurers that issue life or annuity coverage under regulated prepaid funeral contracts to simplify the licensing of agents who write insurance only in the narrow market already subject to close oversight by both the Department of Banking and the Department of Insurance. It closely resembles existing law applicable to the limited-market life insurance agents known as "combination" and "industrial" agents (Article 21.07-1, Sec. 5(d), Insurance Code). The insurer would administer its own instruction and licensing examination under a program approved by the Commissioner but subject to the Commissioner's discretionary withdrawal. Present law allows a "combination" licensee to write "ordinary contracts of life insurance" that are sometimes suitable for prepaid funeral contracts. The need for H.B. 1356 is evidenced by a recent Department of Insurance legal advisory, which concludes that present law does not permit combination agents to write annuities. Many prepaid funeral contract purchasers do not qualify for life insurance but their needs can be met safely and securely to a very elderly age with a simple fixed annuity contract. 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 21.07-1, Insurance Code, by adding Section 5A as follows: Sec. 5A - FUNERAL PREARRANGEMENT LIFE INSURANCE AGENT (a) Defines "Funeral prearrangement life insurance agent." (b) The commissioner shall issue a limited purpose license for a person to act as a funeral arrangement agent, after receiving notification from the insurance co. that the person has completed classes and examination in this field. (c)The commissioner shall authorize a legal reserve life insurance co. to administer a funeral prearrangement agent examination upon approval of the course outline and instructions. The commissioner shall promulgate a uniform examination for applicants to take by September 1, 1997. (d) Sets standards for the course. (e) The commissioner may examine each class' method of instruction and examination, and may withdraw accreditation if necessary. (f) A funeral prearrangement licensed under this section may not: (1) Act as an agent for the insurance company unless the agent acts under the supervision of a person who holds a license for that company. (2) Write any coverage or combination of coverages with death benefits exceeding $15,000. (3) Act as an agent for more than one insurance co. (g) The commissioner shall stamp "Funeral Prearrangement Life Insurance Agent License" on a license issued under this article. (h) A license issued under this article expires when the agent ceases to work for that company. (i) An applicant for a license under this article is not subject to the requirements of this act other than sections 5A and 12 of this act. SECTION 2 - Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE Changes: 1. Clarifies license in Sec. 5A(b) to be a limited purpose license. 2. Adds date in SECTION 1 (Sec. 5A(c) of Article) setting time commissioner must promulgate a uniform exam for applicants of this license. 3. Adds new section (d) of article setting standards for class and instruction. Renumbers sections accordingly. 4. Adds requirement that the insurance company notify the commissioner within 15 days after the license holder fails to act for the insurance company in SECTION 1 (Section (h) of article). 5. Language is revised in subsection (i) of article to clarrify what a license holder under this article is subject to.