HBA-NRS C.S.H.B. 45 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 45 By: McClendon Insurance 3/26/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Current law requires an insurer of motor vehicle insurance coverage to offer a time-based rating plan to its customers. However, certain customers such as the elderly and families with more than one motor vehicle could benefit from a mile-based rating plan for motor vehicle insurance coverage in savings from insurance premiums. C.S.H.B. 45 authorizes an insurer of motor vehicle insurance coverage to offer a choice between a mile-based rating plan and a time-based rating plan for motor vehicle insurance coverage. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the commissioner of insurance in SECTION 1 (Section 5, Article 5.01-4, Insurance Code) and SECTION 4 of this bill. ANALYSIS C.S.H.B. 45 amends the Insurance Code relating to time-based and mile-based rating plans for motor vehicle insurance. The bill authorizes an insurer that delivers, issues for delivery, or renews a policy of motor vehicle insurance in this state to offer each person who purchases motor vehicle insurance coverage a choice between a mile-based rating plan and a time-based rating plan for coverage for losses caused by collision or other driving-related accidents. The bill authorizes the insurer to require a person purchasing coverage to use the same rating plan for all vehicles covered under the person's motor vehicle insurance policy. The bill prohibits a motor vehicle insurance policy using a mile-based rating plan from terminating coverage after a specified number of miles have been driven and must provide coverage for a specified period. The bill requires each insurer that offers the mile-based rating plan to annually file with the commissioner of insurance (commissioner) for the commissioner's approval a schedule of that insurer's premium rates for motor vehicle insurance based on the time-based and mile-based rating plan used by that insurer. The bill requires the insurer to file with the rate schedule a statement of any fee to be charged to policyholders or applicants for insurance for participation in the mile-based rating plan. The bill requires the commissioner to analyze the premium rates filed by an insurer. If the commissioner determines that the filed rates are excessive in comparison to the premium rates charged for similar coverage under a time-based rating plan used by the insurer, the bill requires the commissioner to reject the rates after notice to the insurer and an opportunity for a hearing. The bill provides that the commissioner must notify the insurer that the rates are rejected not later than the 60th day after the date on which the rates are filed. The bill prohibits an insurer from using rates rejected by the commissioner. Premium rates used by an insurer under the mile-based rating plan are exempt from other rate regulation established under provisions regarding motor vehicle or automobile insurance and the benchmark rates established under provisions regarding the flexible rating program for certain insurance lines. The bill requires an insurer to separately report experience based on use of the mile-based and time-based rating plans, when reporting incurred losses and earned premiums as required by provisions related to motor vehicle or automobile insurance, the flexible rating program for certain insurance lines, or county mutual insurance companies. The classifications used by an insurer for motor vehicles insured under the mile-based rating plan are exempt from provisions related to motor vehicle or automobile insurance, except for time-based and mile-based rating plans, and the flexible rating program for certain insurance lines. The bill requires the commissioner to compile specified information on mile-based rating plans and analyze the effect of mile-based rating plans on premium rates offered for motor vehicle insurance based on timebased rating plans and the number of uninsured motorists in the state. The bill requires the commissioner of insurance to adopt rules to govern the use of a mile-based rating plan, including rules regarding prepayment arrangements, proof of financial responsibility, auditing of the odometer of a vehicle for the purpose of determining whether coverage is in force, and policy forms. The bill specifies that provisions relating to time-based and mile-based rating plans expire September 1, 2005. The bill prohibits the use of an insurance policy or other document evidencing proof of purchase of a personal automobile insurance policy written for less than 1,000 miles if the policy premium is computed using a mile-based rating plan, to obtain an original or renewal driver's license, an automobile registration or license plates, or a motor vehicle inspection certificate. Before an agent or insurer accepts premiums or fees for such a policy or binder, the bill provides that the agent or insurer make written disclosure that the policy or binder may not be used to obtain an inspection certificate, driver's license, registration, or license plates. The bill provides that the flexible rating program for certain insurance lines does not apply to premium rates for motor vehicle insurance using the mile-based rating plan. This bill provides that the time-based and mile-based rating plans apply only to a motor vehicle insurance policy delivered, issued for delivery, or renewed on or after January 1, 2002. The bill requires the commissioner of insurance to adopt all rules necessary to implement time-based and mile-based rating plans not later than December 31, 2001. EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 45 modifies the original bill to authorize, instead of require, an insurer that delivers, issues for delivery, or renews a policy of motor vehicle insurance to offer each person who purchases motor vehicle insurance coverage from that insurer a choice between a mile-based rating plan and time-based rating plan for coverage for losses caused by collision or other driving-related accidents. The substitute adds new language that prohibits a motor vehicle insurance policy using a mile-based rating plan from terminating coverage after a specified number of miles have been driven and establishes that the policy must provide coverage for a specified period. The substitute removes provisions, set to expire January 1, 2004, authorizing a phase-in period for which a policy under a mile-based rating plan is offered and removes provisions authorizing the implementation of the mile-based rating plan on a county-by-county basis. The substitute differs from the original bill by requiring each insurer offering a mile-based rating plan to annually file with the commissioner, for the commissioner's approval, a schedule of the insurer's premium rates for motor vehicle insurance based on the mile-based rating plan and time-based rating plan along with a statement of any fee to be charged to policyholders or applicants for insurance for participation in the mile-based rating plan. The substitute sets forth new provisions relating to the commissioner's analysis of premium rates filed by an insurer and requires the commissioner to reject premium rates filed that are excessive in comparison to the premium rates charged for similar coverage under a time-based rating plan, after notice is sent to the insurer concerning the rejected rates and the insurer is given an opportunity for a hearing. The substitute now requires the commissioner to compile information and analyze the effect of mile-based rating plans in the state and specifies that provisions relating to time-based rating plans and mile-based rating plans expire September 1, 2005.