By Eiland H.B. No. 3359
Line and page numbers may not match official copy.
Bill not drafted by TLC or Senate E&E.
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the benchmark rating system for certain lines of
1-3 insurance.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Art. 5.101 Insurance Code is amended to read as
1-6 follows:
1-7 Art. 5.101, Flexible Rating Program for Certain Insurance
1-8 Lines.
1-9 Sec. 1. PURPOSE. The program on flexible rating is designed
1-10 to help stabilize the rates charged for insurance in lines of
1-11 property and casualty insurance covered by Subchapters A and C of
1-12 this chapter. This article does not apply to:
1-13 (1) ocean marine insurance;
1-14 (2) inland marine insurance;
1-15 (3) fidelity, surety and guaranty bond insurance;
1-16 (4) errors and omissions insurance;
1-17 (5) directors' and officers' liability insurance;
1-18 (6) general liability insurance;
1-19 (7) commercial property insurance;
1-20 (8) workers' compensation insurance;
1-21 (9) professional liability insurance for physicians
2-1 and health care providers as defined in Article 5.15-1 of this
2-2 code; or
2-3 (10) attorney's professional liability insurance.
2-4 Sec. 2. DEFINITIONS. In this article:
2-5 (1) "Benchmark rate" means the rate set annually by
2-6 the commissioner by line, relative to which the flexibility bands
2-7 and statutory rate limitations apply.
2-8 (2) "Classification" means a generic application to
2-9 similar risks within the same line.
2-10 (3) "Flexibility band" means the range of rates from
2-11 30 percent below to 30 percent above, inclusive, the benchmark
2-12 rates set by the commissioner by line, within which an insurer,
2-13 during a set period relative to a particular line, may increase or
2-14 decrease rate levels by classification without prior approval by
2-15 the commissioner.
2-16 (4) "Line" means each type of insurance made subject
2-17 to this subchapter, other than fidelity, surety, or guaranty bonds.
2-18 (5) "Rate" or "rating plan" means the charge for a
2-19 particular line for each unit of exposure.
2-20 Sec. 3. Operation of flexible rating program. (a) Under
2-21 the flexible rating program prescribed by this article, rates used
2-22 by insurers in writing property or casualty insurance for lines
2-23 subject to this article are determined through the application of
2-24 flexibility bands to a benchmark rate and are implemented on a file
2-25 and use basis.
3-1 (b) The commissioner shall promulgate a benchmark rate for
3-2 each line subject to this article after notice and hearing under
3-3 Chapter 2001, Government Code (the Administrative Procedure Act).
3-4 The commissioner shall set the benchmark rate to produce a range
3-5 that:
3-6 (1) promotes stability in that line; and
3-7 (2) produces rates that are just, reasonable, adequate
3-8 and not excessive for the risks to which they apply, and not
3-9 confiscatory.
3-10 (c) In promulgating the benchmark rate, the commissioner may
3-11 give due consideration to:
3-12 (1) past and prospective loss experience within the
3-13 state and outside the state if the state data are not credible;
3-14 (2) the peculiar hazards and experience of individual
3-15 risks, past and prospective, within and outside the state;
3-16 (3) a reasonable margin for profit;
3-17 (4) expenses of operation, which may not include
3-18 disallowed expenses under Subsection (o) of this section;
3-19 (5) the extent and nature of competition in that
3-20 market;
3-21 (6) the availability or lack of availability in that
3-22 market;
3-23 (7) the level and range of rates and rate changes
3-24 among insurers;
3-25 (8) investment and underwriting experience of
4-1 insurers;
4-2 (9) reinsurance availability;
4-3 (10) consumer complaints;
4-4 (11) extent of denials and restrictions of coverage;
4-5 (12) the volume of cancellations and nonrenewals; and
4-6 (13) any other factor considered appropriate by the
4-7 commissioner.
4-8 (d) Each flexibility band is based on a benchmark rate
4-9 promulgated by the commissioner. The commissioner shall enter an
4-10 order promulgating [conduct hearing to determine] the benchmark
4-11 rates by line on or before September 1 of each year. The
4-12 determination of the rate shall not include disallowed expenses
4-13 under Subsection (o) of this section. An insurer, the public
4-14 insurance counsel, and any other interested person may present
4-15 testimony at the hearing and may file information for consideration
4-16 by the commissioner. An advisory organization which collects
4-17 ratemaking data shall not be a party to the hearing. A trade
4-18 association that does not collect historical data and that does
4-19 not provide statistical plans, prospective loss costs, or
4-20 supplementary rating information to its members may, on behalf of
4-21 its members that are small or medium-sized insurers, as defined by
4-22 the commissioner, present rate making data and make recommendations
4-23 to the commissioner at the hearing. There is no immunity from
4-24 antitrust liability for a trade association that presents rate
4-25 making data or makes recommendations to the commissioner at the
5-1 hearing. The definition of "small and medium-sized insurers" shall
5-2 be a limitation upon the scope of the presentation to be made by a
5-3 trade association, but may not limit the participation of a trade
5-4 association because its membership includes other sized insurers.
5-5 An insurer shall use that benchmark rate and the flexibility band
5-6 to develop rates used for the line for the year following the
5-7 setting of the benchmark rate.
5-8 (e) An insurer may use any rate by classification within the
5-9 flexibility band without prior approval by the commissioner. The
5-10 rate may not include expenses disallowed under Subsection (o) of
5-11 this section. Within 30 days of the effective date of the
5-12 benchmark rate for a particular line, each insurer which proposes
5-13 to write that line of insurance in this state during the effective
5-14 period of the benchmark rate shall file with the commissioner its
5-15 proposed rate by line, and by classification and territory under
5-16 the rating manual promulgated by the commissioner, unless the
5-17 insurer has obtained approval from the commissioner under
5-18 Subsection (l) of this section to use its own rating manual. The
5-19 insurer shall include in the filing any statistics to support the
5-20 rates to be used by the insurer as required by rule of the
5-21 commissioner, including information necessary to evidence that the
5-22 calculation of the rate does not include disallowed expenses.
5-23 Rates proposed in filings made under this subsection must be just,
5-24 reasonable, adequate and not excessive for the risks to which they
5-25 apply. The rate takes effect on the date specified by the insurer,
6-1 but not later than the 60th day after the date of filing of the
6-2 rate with the commissioner. For the purpose of this section, the
6-3 date the rate is received by the commissioner is the date of
6-4 filing. From and after the effective date of the benchmark rate
6-5 and prior to the insurer's specified effective date of a new rate,
6-6 the insurer's previously filed rate shall remain in effect.
6-7 Subject to the limitations contained in Subsection (p) of this
6-8 section, an insurer may continue its previously filed rates or make
6-9 additional rate filings based on the previous benchmark rate for
6-10 new policies or policies renewing prior to the specified effective
6-11 date of its new rate.
6-12 (f) Filed rates within the flexibility band are effective as
6-13 provided in Subsection (e) of this section and are presumed to be
6-14 valid and in compliance with the requirements of that subsection.
6-15 However, if, after a hearing, the commissioner finds that the
6-16 filing of an insurer under Subsection (e) of this section does not
6-17 meet the requirements of this article, the commissioner shall issue
6-18 an order that specifies how the filing fails to meet the
6-19 requirements of this article and states the date on which, within a
6-20 reasonable period after the order date, the insurer's filing is no
6-21 longer in effect.
6-22 (g) An insurer may not use a rate outside the upper and
6-23 lower limits of the flexibility band without the prior approval of
6-24 the commissioner. A filing made by an insurer subject to the
6-25 approval of the commissioner is considered approved by the
7-1 commissioner unless the commissioner disapproves the filing not
7-2 later than the 60th day after the date of the filing. Any such
7-3 filing must produce rates which are just, reasonable, adequate and
7-4 not excessive for the risks to which they apply, or the
7-5 commissioner shall disapprove the filing. If the commissioner
7-6 requests additional information regarding the filing, the
7-7 commissioner shall act within 60 days after the response to that
7-8 request.
7-9 (h) An insurer, the public insurance counsel, and any other
7-10 interested person may request, within 30 days of the filing, that
7-11 the commissioner hold a hearing on an insurer's prior approval
7-12 filing. Upon such request, the commissioner shall conduct a
7-13 hearing under Chapter 2001, Government Code (the Administrative
7-14 Procedure Act), after which hearing, the commissioner shall have 60
7-15 days to disapprove the filing, or it is deemed approved.
7-16 (i) The rate filed under Subsection (g) of this section may
7-17 not include expenses disallowed under Subsection (o) of this
7-18 section. In approving an insurer's filing for a rate outside the
7-19 flexibility band, the burden of proof is on the insurer making the
7-20 filing to show, by clear and convincing evidence, that, if the rate
7-21 proposed by the insurer is:
7-22 (1) more than 30 percent above the benchmark rate, the
7-23 rates available within the flexibility band to the relevant market
7-24 are inadequate for the risks insured and that failure to approve
7-25 the filing will cause a lack of availability in the relevant
8-1 market; or
8-2 (2) more than 30 percent below the benchmark rate,
8-3 approval of the filing will not adversely affect the financial
8-4 condition of the insurer.
8-5 (j) An approved rate outside the flexibility band takes
8-6 effect, after approval, on the date specified by the insurer, but
8-7 not later than the 60th day after the date of the approval.
8-8 (k) The commissioner, by rule, shall adopt a rating manual
8-9 of classifications and territories for each line subject to this
8-10 subchapter and shall spread the benchmark rate among those
8-11 classifications and territories. The rating manual promulgated by
8-12 the commissioner shall be used by all insurers unless they receive
8-13 approval to use their own manual under Subsection (l) of this
8-14 section.
8-15 (l) Following written application and approval of the
8-16 commissioner, an insurer may use a rating manual relative to
8-17 classifications and territories of risks, different from that
8-18 promulgated by the commissioner, to calculate the rate used by that
8-19 insurer for an individual risk. The calculation of the rate may
8-20 not include disallowed expenses under Subsection (o) of this
8-21 section. The commissioner shall approve the use of only such
8-22 additions or refinements in its classification plan as will produce
8-23 subclassifications, which, when combined, will enable consideration
8-24 of the insurer's experience under both the commissioner's rating
8-25 manual and its own rating manual. Such application shall be
9-1 approved by the commissioner, after notice and hearing under
9-2 Chapter 2001, Government Code (the Administrative Procedure Act in
9-3 whole or in part, provided the commissioner finds that the
9-4 resulting premiums will be just, adequate, reasonable, not
9-5 excessive, and not unfairly discriminatory, taking into
9-6 consideration the following:
9-7 (1) the financial condition of the insurer;
9-8 (2) the method of operation and expenses of such
9-9 insurer;
9-10 (3) the actual paid and incurred loss experience of
9-11 the insurer;
9-12 (4) investment income of the insurer; and
9-13 (5) that the application meets the reasonable
9-14 conditions, limitations, and restrictions deemed necessary by the
9-15 commissioner.
9-16 (m) In considering all matters set forth in such
9-17 application, the commissioner shall give consideration to the
9-18 composite effect of Subsections (l)(2)-(4) of this section and the
9-19 commissioner shall deny the application if the commissioner finds
9-20 that the resulting premiums would be inadequate, excessive, or
9-21 unfairly discriminatory.
9-22 (n) The effect on the rate charged an individual risk
9-23 through surcharges and discounts under any such approved rating
9-24 manual shall not be greater than plus or minus 15 percent, as a
9-25 deviation from the insurer's filed rate within the flexibility band
10-1 or approved rate outside the flexibility band.
10-2 (o) For the purposes of this section, "disallowed expenses"
10-3 include:
10-4 (1) administrative expenses, not including acquisition
10-5 expenses, not including acquisition, loss control and safety
10-6 engineering expenses, that exceed 110 percent of the industry
10-7 median for those expenses;
10-8 (2) lobbying expenses;
10-9 (3) advertising expenses, other than advertising that
10-10 is directly related to the services or products provided by the
10-11 insurer, advertising designed and directed at loss prevention, or
10-12 advertising the promotion of organizations exempt from federal
10-13 taxation under Section 501(c)(3) of the Internal Revenue Code;
10-14 (4) amounts paid by an insurer as damages in a suit
10-15 against the insurer for bad faith or as fines or penalties for
10-16 violation of law;
10-17 (5) contributions to organizations engaged in
10-18 legislative advocacy;
10-19 (6) fees and penalties imposed on the insurer for
10-20 civil or criminal violations of law;
10-21 (7) contributions to social, religious, political, or
10-22 fraternal organizations;
10-23 (8) fees and assessments paid to advisory
10-24 organizations; and
10-25 (9) any unreasonably incurred expenses, as determined
11-1 by the commissioner.
11-2 (p) An insurer may change a rate adopted under Subsection
11-3 (e) of this section on a file and use basis not more than twice
11-4 during a 12-month period. Additional changes require the prior
11-5 approval of the commissioner.
11-6 (q) An insurer who writes insurance in any line subject to
11-7 this article is required to make rate filings under Subsection (e),
11-8 (g), (h), (i), (k), (l), (m), or (n) of this section, using its own
11-9 historical premium and loss data, as well as its own data for
11-10 expenses and for profit and contingency factors. The commissioner
11-11 may require an audit of the insurer's historical premium and loss
11-12 data. The insurer may separately supplement its own historical
11-13 premium and loss data with historical premium and loss data as
11-14 necessary. The commissioner may, by rule, establish requirements
11-15 for reporting historical premium and loss data under this
11-16 subsection.
11-17 Sec. 4. Effect of endorsements. An insurer that provides
11-18 additional or reduced coverage through an endorsement to a policy
11-19 subject to this article may assess an additional or reduced charge
11-20 for coverage under the endorsement only with the prior approval of
11-21 the commissioner.
11-22 Sec. 5. Administrative Procedure Act applicable; benchmark
11-23 rate hearings. (a) Subchapter B of Chapter 2001, Government Code
11-24 (the Administrative Procedure Act), applies to all rate hearings
11-25 conducted under this article[, subject to Article 1.33B of this
12-1 code and Subsections (b)-(d) of this section.]
12-2 [(b) In a hearing on benchmark rates conducted under this
12-3 article, discovery directed to any party to the proceeding
12-4 concerning that party's premium, loss, expense, profit, or rate of
12-5 return experience or its operations is prohibited, except to the
12-6 extent that the party presents evidence, relies on, or provides to
12-7 another party its own individual insurer data in the benchmark rate
12-8 hearing. This subsection does not deny or restrict any party's
12-9 right to produce or rely on relevant information concerning an
12-10 individual insurer as evidence in a benchmark rate hearing.]
12-11 [(c) As part of a benchmark rate hearing, any party may
12-12 present evidence regarding, and the administrative law judge shall
12-13 make proposed findings concerning, any adjustments or amendments
12-14 that should be made to the statistical reporting rules and
12-15 statistical plans to aid in presenting a case at future benchmark
12-16 rate hearings.]
12-17 [(d) If the record indicates evidence under Subsection (c)
12-18 of this section, the commissioner may initiate a proceeding under
12-19 Article 5.96 of this code to determine and make adjustments and
12-20 amendments to the rules and statistical plans as necessary to
12-21 further aid in determining whether rates and rating systems in use
12-22 under this article comply with the regulatory standards imposed
12-23 under this article. The commissioner shall consider the evidence
12-24 taken at the benchmark rate hearings under Subsection (c) of this
12-25 section, and shall address that evidence in any order or action
13-1 taken as a result of the proceeding.]
13-2 SECTION 2. This Act takes effect September 1, 1999.
13-3 SECTION 3. The importance of this legislation and the
13-4 crowded condition of the calendars in both houses create an
13-5 emergency and an imperative public necessity that the
13-6 constitutional rule requiring bills to be read on three several
13-7 days in each house be suspended, and this rule is hereby suspended.