RS C.S.H.B. 2221 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 2221 By: Turner, Bob 4-22-97 Committee Report (Substituted) BACKGROUND Under current law, stipulated premium companies (regulated under Chapter 22, Insurance Code) may assume liability on a life insurance risk on any one life in an amount of $10,000 or less, unless the particular stipulated premium company possesses capital in an amount of $700,000 or more, and a surplus of $700,000 or more. Article 21.07, Insurance Code, governs licensing of agents for stipulated premium companies; these are frequently called "Group II" licenses. (Licenses under Article 21.07-1 are frequently called "Group I" licenses.) Group II licenses currently are divided into the following three categories: (i) for writing health and accident insurance, passage of a written examination is required and the license is stamped "Health and Accident Insurance;" (ii) for writing life insurance in excess of $7,500 on any one life, passage of a written examination is required and the license is stamped "Life Insurance in Excess of $7,500.00; and (iii) for writing life insurance of $7,500.00, or less, passage of a written examination is not required. Group II agents who currently sell life policies for the insured amounts of $7,500 or less are simply selling death benefit life insurance and, in most instances, for a limited purpose. It is not the merchandising of life insurance in the sophisticated ways of estate planning and other similar large uses. Thus the necessary insurance knowledge of the agent is usually limited to funding a funeral and providing "clean up funds" (for payment of debts of the insured existing at the time of death). Inflation over the years has caused the price of funerals to increase substantially. Thus, greater amounts of insurance are now needed just to pay funeral costs. In the market place today, individuals, through pre-need contracts, are purchasing a funeral service provided upon the death of the insured individual at some time in the future, but at today's fixed contract price. The restraints of current law limit the ability of stipulated premium companies to issue life policies to keep up with inflation and to employ agents to merchandise such policies. PURPOSE The purpose of this legislation is to permit the sale of life insurance policies by stipulated premium companies through agents who are not required to take an examination but which authority to such agent would be limited to the initial amount of $10,000 or less, or sell through Group I agents licensed under Article 21.07-1, Insurance Code, who are appointed by the stipulated premium company. RULEMAKING AUTHORITY It is the committees opinion that no new rule making authority is expressly granted; however, previously granted language is updated to reflect commissioner instead of board of insurance in SECTION 2 of bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 3, Art. 21.07, Insurance Code, is amended as follows: Sec. 3. ISSUANCE OF LICENSE UNDER CERTAIN CIRCUMSTANCES Updates language of statute to reflect commissioner instead of board of insurance. SECTION 2. Amends Section 4A, Article 21.07, Insurance Code, as follows: Sec. 4A. EXAMINATION OF APPLICANT FOR LICENSE TO WRITE LIFE INSURANCE UPON ANY ONE LIFE IN EXCESS OF $10,000. Increases amount article reflects from $7,500 to $10,000. Changes language to reflect commissioner instead of board of insurance. SECTION 3. Amends Article 21.07, Insurance Code, by adding section 15A as follows: Sec. 15A. CERTAIN AGENTS FOR STIPULATED PREMIUM COMPANIES A person or corporation that holds a license issued under article 21.07-1, Insurance Code, may write life insurance under that license, for a stipulated company, without obtaining a license under this article. A stipulated premium company may appoint as its agent a person or corporation that holds a license under article 21.07-1, Insurance Code. SECTION 4. Amends Article 22.07, Insurance Code, by adding Sec. 3 as follows: Sec. 3. If the surplus of an insurance premium company is between $50,000 and $200,000 the company shall reinsure the insurance amount that exceeds $10,000 on a life insurance risk on any one life. SECTION 5. Amends Section 1(b), Article 22.13, Insurance Code, to read as follows: (b) If a premium company assumes a life insurance risk under a life insurance policy, the initial death benefit of $10,000 or less may increase to an amount greater than $10,000. For a policy in which the benefit exceeds $10,000 the benefit at the end of each policy year may not exceed the greater of the maximum increase compounded annually or the CPI-U compounded annually. The maximum increase that may be specified in a life insurance policy subject to this article is five percent compounded annually. Defines "Consumers Price Index." SECTION 6. Amends Article 22.23(a) to read as follows: (a)(1) Adds exception to insuring individual life for no more than $10,000. SECTION 7. Effective Date September 1, 1997, and applies to policies issued or renewed on or after January 1, 1998. SECTION 8. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE SECTION 1. Includes change to refer to "commissioner" rather than "State Board of Insurance" and "the department" instead of "it." SECTION 2. Combines original bill sections 2 and 3, updates language in the bill by substituting "commissioner" for "board of insurance;" "the applicant's" for the word "his;" and "$10,000" for the words "$7,500" throughout the section. SECTION 3. Changes original bill section 4 by adding a title to the new Section 15A, making technical changes in terminology, including a specific reference to the applicable Session Law, and deleting redundant language referring to the appointment of an agent by a stipulated premium company. SECTION 4. Inserts a new Section 3 of Article 22.07, Insurance Code, to require that a stipulated premium company having a surplus of $50,000 - $200,000 must reinsure an insurance amount in excess of $10,000 on a life insurance risk on any one life. SECTION 5. Changes original bill section 5 by limiting the amount by which a policy having a death benefit originally issued for $10,000 or less may exceed that amount to an annual increase that is the greater of the maximum increase specified in the policy or the urban consumer price index, compounded annually, and in no event greater than 5%, compounded annually, and defining terms. SECTION 6. Changes original bill section 6 by republishing the Insurance Code section and adding a cross-reference to Article 22.23A, Insurance Code, relating to the prohibition against insuring in amounts greater than $10,000 on any one life except as provided by Articles 22.13 and 22.23A. SECTION 7. Changes original bill section 7, effective date clause, by adding language specifying that the provisions of the bill will apply only to policies delivered, issued or renewed on or after January 1, 1998.