HBA-DMH C.S.H.B. 2159 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2159 By: Thompson Insurance 4/4/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Credit life insurance and credit accident and health insurance products are sold in conjunction with credit transactions. Generally, such products are made available to a consumer who purchases an item of substantial cost and intends to make payments on that purchase. The purpose of the insurance product is to protect the debtor during the term of the contract by ensuring the loan will be repaid if the debtor is unable to pay because of serious illness or death. Currently, the commissioner of insurance (commissioner) sets the applicable rates for this product. C.S.H.B. 2159 authorizes an insurer to establish rates if the rates comply with certain conditions determined by the commissioner. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority expressly delegated to the commissioner of insurance in SECTION 1 (Section 3, Article 3.28, Insurance Code) and SECTION 2 (Section 8, Article 3.53, Insurance Code) of this bill. ANALYSIS C.S.H.B. 2159 amends the Insurance Code to authorize the commissioner of insurance (commissioner) by rule, rather than the State Board of Insurance (board), to adopt after notice and hearing a presumptive premium rate for various classes of business and terms of coverage for credit life insurance and credit accident and health insurance (insurance). The bill requires an insurer that does not adopt a different presumptive premium rate to adopt the presumptive rate adopted by the commissioner. The commissioner is required to set forth in the order adopting a presumptive rate findings and conclusions on all material issues presented at a hearing. Not later than the 30th day after the date a presumptive rate takes effect, the bill requires an insurer to file with the commissioner the insurer's proposed rate for insurance. The bill prohibits an insurer from using a rate that is more than 30 percent higher or more than 30 percent lower than the presumptive rate. The bill authorizes the commissioner to conduct a hearing to determine whether a rate filed by an insurer is in compliance. If, after a hearing, the commissioner finds that a rate is not in compliance, the bill requires the commissioner to enter an order suspending the rate and stating the specific reasons that the rate is noncompliant. In an order filed suspending a rate, the bill requires the commissioner to establish a date after which the insurer is required to charge the presumptive rate. These provisions do not preclude an insurer from refiling a rate. The bill requires a hearing to be a contested hearing conducted under the Administrative Procedure Act and governed by insurance rules for judicial review. The bill authorizes an insurer to file with the commissioner a proposed rate for insurance that is more than 30 percent higher than or more than 30 percent lower than the presumptive rate adopted by the commissioner. The bill authorizes the commissioner to disapprove a rate filed on the ground that the rate is not in compliance. If the commissioner does not disapprove the rate within a specified time period, the rate is considered approved. The bill provides that a rate is not excessive unless the rate is unreasonably high for the coverage provided and a reasonable degree of competition does not exist with respect to the classification to which the rate is applicable. A rate filed is not inadequate unless either the rate is insufficient to sustain projected losses and expenses, or the rate substantially impairs, or is likely to substantially impair, competition with respect to the sale of the product. The bill provides that the minimum reserve requirements applicable to a credit life policy issued under provisions regarding credit life and credit health and accident insurance are met if, in aggregate, the reserves are maintained at 100 percent of the 1980 Commissioner's Standard Ordinary Mortality Table, with interest not to exceed 5.5 percent. The bill establishes that provisions regarding the duties of the State Office of Administrative Hearings and the commissioner in certain rate setting proceedings do not apply to a proceeding relating to adopting a presumptive rate. The bill prohibits the reserves from being less than the unearned premium reserve required for such policies. If the commissioner approves a later version of the Commissioner's Standard Ordinary Mortality Table the bill authorizes the commissioner to use a later version of the mortality table. EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2159 differs from the original bill by increasing from 75 percent to 100 percent of the 1980 Commissioner's Standard Ordinary Mortality Table, or a later version of the mortality table if authorized by the commissioner, the minimum reserve requirements applicable to a policy issued under provisions regarding credit life and credit health and accident insurance. The substitute prohibits the reserves from being less than the unearned premium reserve required for such policies. The substitute requires a hearing regarding rate compliance, approval, or disapproval to be a contested hearing conducted under the Administrative Procedure Act and governed by insurance rules for judicial review. The substitute provides that an aggrieved person files a petition for judicial review in a district court in Travis county. The substitute requires the commissioner to set forth in the order adopting a presumptive rate findings and conclusions on all material issues presented at the hearing.