HBA-TYH H.B. 1092 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1092 By: Burnam Insurance 3/9/1999 Introduced BACKGROUND AND PURPOSE Currently, the benchmark with flex band system provides insurers with substantial pricing flexibility. The benchmark rate is the rate set annually by the commissioner of insurance (commissioner) for particular types of insurance and the flexibility band (flex band) is the range of rates, plus or minus 30 percent of the benchmark, within which an insurer may offer rates. The limits on rate increases protect consumers because insurers have in the past reacted to catastrophic events by increasing rates. The limits imposed by the flex band provide the commissioner with the ability to maintain orderly markets. At the same time, most insurers will not be affected by the flex band limitations. The benchmark ratemaking hearings provide the public an opportunity to present testimony and file information concerning auto and property rates each year. H.B. 1092 sets out two provisions regarding flex-rating for county mutuals. First, the commissioner will set separate, presumably higher, benchmark rates for county mutuals. This recognizes the higher losses of the non-standard market and ensures the ability to file and use within the county mutual flex bands. Second, the proposal retains the county mutuals' ability to offer several rating tiers or programs within one company, which may be useful for serving the non-standard market. H.B. 1092 requires the commissioner to establish a separate benchmark for county mutual auto insurance and requires county mutuals to file and use rates within 30 percent of the benchmark. County mutuals could continue to use multiple rating tiers and rating programs. The bill also requires Lloyd's associations and reciprocal and interinsurance exchanges to file and use within the current benchmark. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Article 5.101, Insurance Code, by adding Section 6, as follows: Sec. 6. APPLICATION OF FLEX-RATING TO COUNTY MUTUAL INSURANCE COMPANIES, LLOYD'S ASSOCIATIONS, AND RECIPROCAL AND INTERINSURANCE EXCHANGES. (a) Provides that this article applies to a county mutual insurance company, an underwriter at a Lloyd's, and a reciprocal or interinsurance exchange. (b) Provides that each county mutual insurance company, underwriter at a Lloyd's, and reciprocal or interinsurance exchange is subject to the rate and rating manual filing requirements of Section 3 of this article, except as provided by Subsection (c) of this section. (c) Requires the commissioner of insurance (commissioner) to establish separate benchmark rates for county mutual insurance companies. Requires the commissioner, in promulgating benchmark rates applicable to county mutual insurance companies, to consider the factors described by Section 3(c) of this article based only on the experience of county mutual insurance companies. Authorizes a county mutual insurance company to use multiple rating tiers or rating programs within that company only if it makes a separate filing for each rating tier or rating program. SECTION 2. Amends Article 17.22, Insurance Code, as follows: Art. 17.22. New Title: APPLICATION OF INSURANCE LAWS. Provides that in addition to any laws made applicable under Subsection (a) of this article, rather than Code, county mutual insurance companies are subject to Article 5.101, in addition to various other specified articles of this code. Deletes the original Subsection (b) which provides that the flexible rating program created under Subchapter M, Chapter 5 (Flexible Rating Program for Certain Insurance Lines), of this code does not apply to county mutual insurance companies. Creates Subsection (b) from existing text of Subsection (a). Makes conforming and nonsubstantive changes. SECTION 3. Amends Article 18.23 (b), Insurance Code, to make conforming and nonsubstantive changes. SECTION 4. Amends Article 19.12 (b), Insurance Code, to make conforming and nonsubstantive changes. SECTION 5. Provides that this Act applies only to rates for an insurance policy that is delivered, issued for delivery, or renewed on or after January 1, 2000. Provides that rates for a policy that is delivered, issued for delivery, or renewed before January 1, 2000, are governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose. SECTION 6. Effective date: September 1, 1999. SECTION 7. Emergency clause.