HBA-ATS H.B. 1637 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1637 By: Dutton Insurance 3/24/1999 Introduced BACKGROUND AND PURPOSE Texas has always regulated auto insurance rates. Before 1991, state law required the State Board of Insurance (board) to determine and set the premium rates without providing for flexibility in the rates. That changed with the enactment of Article 5.101, Insurance Code, in 1991. Article 5.101 requires the commissioner of insurance (the successor to the board) to set a benchmark rate and allow companies to compete within a specific range, whether above or below the benchmark. Currently, most insurance companies set their own rates, within a range of 30 percent above or below the rate. County mutuals are the exception. They set their own rates, without limitations. The idea behind the flexible rating program was to promote and encourage competition among insurers to keep insurance affordable. Although the law has succeeded in providing some degree of flexibility and competition among automobile insurers and in reducing rates, it has become expensive and time consuming for companies to have the commissioner determine and fix the benchmark rates. Moreover, it may be economically inefficient for a governmental entity to set market rates. It appears that in states where insurers set their own rates and provide a schedule of rates for informational purposes only, lower premiums have been achieved. These open rate jurisdictions protect consumers through antitrust laws and insurance regulators that focus on the solvency of the insurers and their conduct in the marketplace. H.B. 1637 deletes the statutory mandate that the board is the exclusive organization empowered to determine the premium rates for motor vehicle insurance. In addition, this bill strikes the requirement that auto insurance rates are determined under the flexible rating program and includes motor vehicle or automobile insurance among the types of insurance to which the flexible rating program does not apply. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority previously delegated to the commissioner of insurance is modified in SECTION 4 (Article 5.03-5, Insurance Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Article 5.01, Insurance Code, as follows: Art. 5.01. New title: FILING SCHEDULES FOR AUTOMOBILE INSURANCE. (a) Requires any motor vehicle insurer to file, rather than annually file, with the Texas Department of Insurance (department) a schedule of premium rates for insurance and any amount of other fees, rather than file with the State Board of Insurance (board) a report of the insurer's premiums and losses on each classifications of motor vehicle risks written in this state. (b) Deletes existing Subsection (b) which provides that the board is the exclusive organization empowered to determine the premium rates for motor vehicle insurance. (c) Deletes existing Subsection (c) which provides that the board must conduct an annual hearing to review the reports submitted by the insurers and to adopt new premium rates. (d) Deletes existing Subsection (d) which provides that the board is authorized to hire staff to help fulfill its duties, that the board is required to record motor vehicle insurance losses and collect data to help make better risk determinations in the future. (e) Redesignates existing Subsection (e) to Subsection (b). (f) Deletes existing Subsection (f) which provides that motor vehicle insurance rates are determined under the flexible rating program on or after March 1, 1992, notwithstanding Subsections (a) through (d). SECTION 2. Amends Sections 2(b) and (c), Article 5.03-2, Insurance Code, as follows: (b) Deletes the requirement that the amount of the discount an insurer is required to give a customer who owns a motorcycle with a qualifying antitheft device must be greater than a Category I or Category II discount if the board, by rule, authorizes additional discounts based on the installation of additional motorcycle antitheft devices. Deletes rulemaking authority granted to the State Board of Insurance to authorize additional discounts based on the installation of additional motorcycle antitheft devices. (c) Authorizes an insurer, rather than requires the board, to set the amount of the discount under this article (Premium Discounts for Antitheft Devices). SECTION 3. Amends Section 2(c), Article 5.03-3, Insurance Code, to authorize an insurer, rather than require the commissioner of insurance (commissioner), by rule, to set the amount of the discounts under this article (Premium Discount for Academic Achievement). Deletes rulemaking authority granted to the commissioner to set the amount of the discounts under this article and to adopt other rules necessary for the implementation of this article. Makes a nonsubstantive change. SECTION 4. Amends Section 2(f), Article 5.03-5, Insurance Code, to authorize an insurer, rather than require the commissioner, by rule, to set the amount of the discount under this article (Premium Discount for Certain Youth Group Members). Deletes rulemaking authority granted to the commissioner to set the amount of the discount under this article. However, the commissioner is still authorized to adopt rules necessary for the implementation of this article. Makes nonsubstantive and conforming changes. SECTION 5. Amends Article 5.05, Insurance Code, to make conforming changes. SECTION 6. Amends Subsections (1)-(8), Article 5.06, Insurance Code, to make conforming changes. SECTION 7. Amends Article 5.09, Insurance Code, to make conforming changes. SECTION 8. Amends Article 5.11, Insurance Code to make conforming changes. SECTION 9. Amends Section 1, Article 5.101, Insurance Code, to include motor vehicle or automobile insurance among the types of insurance to which Article 5.101 (Flexible Rating Program for Certain Insurance Lines) does not apply. SECTION 10. Repealers: Articles 5.01B (Public Information), 5.01-1 (Premium Rating Plans), 5.012 (Lloyd's Plan Insurers and Reciprocal and Interinsurance), 5.01-3 (Former Military Vehicles), 5.02 (Authority to Assign Certain Types or Classes to Appropriate Rating Laws), 5.03 (Promulgated Rates as Controlling), 5.03-1 (Premium Surcharge), 5.04 (Experience as Factor), and 5.04-1 (Report of Basic Limits Losses), Insurance Code. SECTION 11. Effective date: September 1, 1999. Makes application of this Act prospective for an insurance policy that is delivered, issued for delivery, or renewed on or after January 1, 2000. SECTION 12. Emergency clause.