By Eiland, Seaman H.B. No. 2102
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the determination of premium rates for certain lines of
1-3 insurance.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Sections 3(b), (c), (d), and (o), Article 5.101,
1-6 Insurance Code, are amended to read as follows:
1-7 (b) The commissioner shall promulgate by rule a benchmark
1-8 rate for each line subject to this article after notice and hearing
1-9 [under Chapter 2001, Government Code (the Administrative Procedure
1-10 Act)]. The commissioner shall set the benchmark rate to produce a
1-11 range that:
1-12 (1) promotes stability in that line; and
1-13 (2) produces rates that are just, reasonable, adequate
1-14 and not excessive for the risks to which they apply, and not
1-15 confiscatory.
1-16 (c) In promulgating the benchmark rate, the commissioner may
1-17 give due consideration to:
1-18 (1) past and prospective loss experience within the
1-19 state and outside the state if the state data are not credible;
1-20 (2) the peculiar hazards and experience of individual
1-21 risks, past and prospective, within and outside the state;
1-22 (3) a reasonable margin for profit;
1-23 (4) expenses of operation of all insurers, excluding
1-24 only those [which may not include disallowed] expenses that are
2-1 disallowed under Subsection (o) of this section;
2-2 (5) the extent and nature of competition in that
2-3 market;
2-4 (6) the availability or lack of availability in that
2-5 market;
2-6 (7) the level and range of rates and rate changes
2-7 among insurers;
2-8 (8) investment and underwriting experience of
2-9 insurers;
2-10 (9) reinsurance availability;
2-11 (10) consumer complaints;
2-12 (11) extent of denials and restrictions of coverage;
2-13 (12) the volume of cancellations and nonrenewals; and
2-14 (13) any other factor considered appropriate by the
2-15 commissioner.
2-16 (d) Each flexibility band is based on a benchmark rate
2-17 promulgated by rule by the commissioner. The commissioner shall
2-18 conduct hearings annually to determine the benchmark rates by line
2-19 [on or before September 1 of each year]. Before each hearing
2-20 conducted under this subsection, the commissioner shall request
2-21 recommendations from insurers, trade associations, the public
2-22 insurance counsel, and any other interested person or entity
2-23 regarding changes to the benchmark rates. The recommendations must
2-24 include any supporting actuarial analyses. Notice of each hearing
2-25 proposing changes to the benchmark rates must be published in the
2-26 Texas Register. The commissioner shall receive public comment for
2-27 at least 30 days after the notice is published. The determination
3-1 of the rate shall not include disallowed expenses under Subsection
3-2 (o) of this section. An insurer, the public insurance counsel, and
3-3 any other interested person may present views, analyses, and
3-4 arguments in response to the commissioner's request for
3-5 recommendations, either before or [testimony] at the hearing, and
3-6 may file information for consideration by the commissioner. The
3-7 public insurance counsel and any insurer, trade association, or
3-8 other interested person or entity that has submitted proposed
3-9 changes or actuarial analyses may ask questions of any person
3-10 testifying at [An advisory organization which collects ratemaking
3-11 data shall not be a party to] the hearing. A trade association
3-12 that does not collect historical data and that does not provide
3-13 statistical plans, prospective loss costs, or supplementary rating
3-14 information to its members may, on behalf of its members that are
3-15 small or medium-sized insurers, as defined by the commissioner,
3-16 present rate making data and make recommendations to the
3-17 commissioner before or at the hearing. There is no immunity from
3-18 antitrust liability for a trade association that presents rate
3-19 making data or makes recommendations to the commissioner [at the
3-20 hearing]. The definition of "small and medium-sized insurers"
3-21 shall be a limitation upon the scope of the presentation to be made
3-22 by a trade association, but may not limit the participation of a
3-23 trade association because its membership includes other sized
3-24 insurers. After the hearing, the commissioner shall adopt a rule
3-25 promulgating the benchmark rates. An insurer shall use that
3-26 benchmark rate and the flexibility band to develop rates used for
3-27 the line for the year following the setting of the benchmark rate.
4-1 (o) For the purposes of this section, "disallowed expenses"
4-2 include:
4-3 (1) administrative expenses, not including acquisition
4-4 expenses, not including acquisition, loss control and safety
4-5 engineering expenses, that exceed 110 percent of the industry
4-6 median for those expenses;
4-7 (2) lobbying expenses;
4-8 (3) advertising expenses, other than advertising that
4-9 is directly related to the services or products provided by the
4-10 insurer, advertising designed and directed at loss prevention, or
4-11 advertising the promotion of organizations exempt from federal
4-12 taxation under Section 501(c)(3) of the Internal Revenue Code;
4-13 (4) amounts paid by an insurer as damages in a suit
4-14 against the insurer for bad faith or as fines or penalties for
4-15 violation of law;
4-16 (5) contributions to organizations engaged in
4-17 legislative advocacy;
4-18 (6) fees and penalties imposed on the insurer for
4-19 civil or criminal violations of law;
4-20 (7) contributions to social, religious, political, or
4-21 fraternal organizations;
4-22 (8) fees and assessments paid to advisory
4-23 organizations; and
4-24 (9) any unreasonably incurred expenses, as determined
4-25 by the commissioner after notice and hearing in a proceeding
4-26 separate from the benchmark hearing under this article.
4-27 SECTION 2. Section 5, Article 5.101, Insurance Code, is
5-1 amended to read as follows:
5-2 Sec. 5. APPLICABILITY OF CERTAIN GOVERNMENT CODE
5-3 REQUIREMENTS [ADMINISTRATIVE PROCEDURE ACT APPLICABLE; BENCHMARK
5-4 RATE HEARINGS]. (a) Subject to Chapter 40 of this code, Chapter
5-5 2001, Government Code [(the Administrative Procedure Act)], applies
5-6 to all rate hearings conducted under this article, other than a
5-7 benchmark rate hearing conducted under Section 3(d) of this article
5-8 [subject to Article 1.33B of this code and Subsections (b)-(d) of
5-9 this section].
5-10 (b) Subchapter A, Chapter 2006, Government Code, does not
5-11 apply to a benchmark rate hearing conducted under Section 3(d) of
5-12 this article. [In a hearing on benchmark rates conducted under this
5-13 article, discovery directed to any party to the proceeding
5-14 concerning that party's premium, loss, expense, profit, or rate of
5-15 return experience or its operations is prohibited, except to the
5-16 extent that the party presents evidence, relies on, or provides to
5-17 another party its own individual insurer data in the benchmark rate
5-18 hearing. This subsection does not deny or restrict any party's
5-19 right to produce or rely on relevant information concerning an
5-20 individual insurer as evidence in a benchmark rate hearing.]
5-21 [(c) As part of a benchmark rate hearing, any party may
5-22 present evidence regarding, and the administrative law judge shall
5-23 make proposed findings concerning, any adjustments or amendments
5-24 that should be made to the statistical reporting rules and
5-25 statistical plans to aid in presenting a case at future benchmark
5-26 rate hearings.]
5-27 [(d) If the record indicates evidence under Subsection (c)
6-1 of this section, the commissioner may initiate a proceeding under
6-2 Article 5.96 of this code to determine and make adjustments and
6-3 amendments to the rules and statistical plans as necessary to
6-4 further aid in determining whether rates and rating systems in use
6-5 under this article comply with the regulatory standards imposed
6-6 under this article. The commissioner shall consider the evidence
6-7 taken at the benchmark rate hearings under Subsection (c) of this
6-8 section, and shall address that evidence in any order or action
6-9 taken as a result of the proceeding.]
6-10 SECTION 3. Article 5.101, Insurance Code, is amended by
6-11 adding Section 6 to read as follows:
6-12 Sec. 6. APPEAL. A person aggrieved by an order of the
6-13 commissioner setting benchmark rates may, not later than the 30th
6-14 day after the date on which the commissioner issued the order,
6-15 appeal the order. An appeal of an order of the commissioner
6-16 setting benchmark rates under this article must be made in
6-17 accordance with Subchapter D, Chapter 36, of this code.
6-18 SECTION 4. Section 5, Article 21.81, Insurance Code, is
6-19 amended to read as follows:
6-20 Sec. 5. RATES FOR INSURANCE; HEARING. (a) [At least
6-21 annually, the commissioner shall conduct a hearing for the purpose
6-22 of determining appropriate rates to be charged for insurance
6-23 provided through the association. The association may appear as a
6-24 matter of right, shall be admitted as a party to present testimony
6-25 at the hearing, and may file information for consideration by the
6-26 commissioner.] The commissioner shall determine and prescribe
6-27 appropriate rates to be charged for insurance provided through the
7-1 association [rates] that are just, reasonable, adequate, not
7-2 excessive, not confiscatory, and not unfairly discriminatory for
7-3 the risks to which they apply. Rates shall be set in an amount
7-4 sufficient to carry all claims to maturity and to meet the expenses
7-5 incurred in the writing and servicing of the business. In making a
7-6 determination, the commissioner shall consider the reports of
7-7 aggregated premiums earned and losses and expenses incurred in the
7-8 writing of motor vehicle insurance through the plan collected under
7-9 the statistical plan provided for by Subsection (b) of this
7-10 section.
7-11 (b) The commissioner shall promulgate reasonable rules and
7-12 statistical plans to be used by each insurer in the recording and
7-13 reporting of its premium, loss, and expense experience which must
7-14 be reported separately for business assigned to it and other data
7-15 required by the commissioner.
7-16 (c) The association shall file annually with the department
7-17 for approval by the commissioner rates to be charged for insurance
7-18 provided through the association. The association may not make
7-19 such a filing more than once in any 12-month period. Subchapter B,
7-20 Chapter 40, of this code does not apply to:
7-21 (1) a filing made under this subsection;
7-22 (2) Subsections (d)-(h) of this section; or
7-23 (3) a department action with respect to such a filing.
7-24 (d) Before approving, disapproving, or modifying a filing
7-25 made under Subsection (c) of this section, the commissioner shall
7-26 provide all interested persons a reasonable opportunity to:
7-27 (1) review the filing;
8-1 (2) obtain copies of the filing on payment of any
8-2 legally required copying cost; and
8-3 (3) submit to the commissioner written comments,
8-4 analyses, or information related to the filing.
8-5 (e) Not later than the 45th day after the date on which the
8-6 department receives the filing required under Subsection (c) of
8-7 this section, the commissioner shall schedule a hearing at which
8-8 interested persons may present written or oral comments relating to
8-9 the filing. A hearing under this subsection is not a contested
8-10 case hearing under Chapter 2001, Government Code. The association,
8-11 the public insurance counsel, and any other interested person or
8-12 entity that has submitted proposed changes or actuarial analyses
8-13 may ask questions of any person testifying at the hearing.
8-14 (f) The department shall file with the Texas Register notice
8-15 that a filing has been made under Subsection (c) of this section
8-16 not later than the seventh day after the date the filing is
8-17 received by the department. The notice must include information
8-18 relating to:
8-19 (1) the availability of the filing for public
8-20 inspection at the department during regular business hours and the
8-21 procedures for obtaining copies of the filing;
8-22 (2) procedures for making written comments related to
8-23 the filing; and
8-24 (3) the time, place, and date of the hearing scheduled
8-25 under Subsection (e) of this section.
8-26 (g) After the conclusion of the hearing, the commissioner
8-27 shall approve, disapprove, or modify the filing in writing. If the
9-1 commissioner disapproves a filing, the commissioner shall state in
9-2 writing the reasons for the disapproval and the criteria to be met
9-3 by the association to obtain approval. The association may file
9-4 with the commissioner, not later than the 10th day after the date
9-5 on which the association receives the commissioner's written
9-6 disapproval, an amended filing to comply with the commissioner's
9-7 comments.
9-8 (h) Before approving or disapproving an amended filing, the
9-9 commissioner shall provide all interested persons a reasonable
9-10 opportunity to review the amended filing, obtain copies of the
9-11 amended filing on payment of any legally required copying cost, and
9-12 submit to the commissioner written comments or information related
9-13 to the amended filing in the manner provided by Subsection (d) of
9-14 this section, and may hold a hearing not later than the 20th day
9-15 after the date on which the department receives the amended filing
9-16 in the manner provided by Subsection (e) of this section. Not
9-17 later than the 10th day after the date on which the hearing on the
9-18 amended filing is concluded, the commissioner shall approve or
9-19 disapprove the amended filing. Not later than the 30th day after
9-20 the date on which the amended filing is received by the department,
9-21 the commissioner shall disapprove the amended filing or it is
9-22 considered approved. The requirements adopted under Subsections
9-23 (f) and (g) of this section apply to a hearing conducted under this
9-24 subsection.
9-25 (i) A person aggrieved by a decision of the commissioner
9-26 under this section may, not later than the 30th day after the date
9-27 of the commissioner's decision, appeal the decision. An appeal of a
10-1 commissioner's decision under this section must be made in
10-2 accordance with Subchapter D, Chapter 36, of this code.
10-3 (j) Notwithstanding Subsections (a)-(h) of this section or
10-4 any other provision of this article, an applicant is eligible for
10-5 insurance through the association if the applicant and the
10-6 servicing agent certify that the applicant is unable to find
10-7 coverage at a rate that is within the benchmark flexibility band
10-8 adopted under Article 5.101 of this code and that the applicant is
10-9 a good driver. The applicant shall be charged a rate for coverage
10-10 that does not exceed a rate that is greater than the midway point
10-11 between 115 percent of the benchmark rate adopted under Article
10-12 5.101 of this code and the rate adopted under this section. The
10-13 commissioner may adopt rules as necessary to implement this
10-14 subsection. In this subsection, "good driver" means an individual
10-15 who:
10-16 (1) is over the age of:
10-17 (A) if male, 25 years of age; and
10-18 (B) if female, 21 years of age;
10-19 (2) has been licensed for at least three years to
10-20 drive the type of motor vehicle to be insured;
10-21 (3) during the previous three years, has not:
10-22 (A) been at fault in a motor vehicle accident
10-23 that resulted in bodily injury, death, or property damage;
10-24 (B) been convicted of a violation of a traffic
10-25 safety regulation that involved a moving vehicle; or
10-26 (C) been convicted of an offense under Section
10-27 49.04, Penal Code, or Section 106.041, Alcoholic Beverage Code;
11-1 (4) has never made a fraudulent insurance claim; and
11-2 (5) does not drive a sports car or other
11-3 high-performance vehicle.
11-4 SECTION 5. Subchapter B, Chapter 40, Insurance Code, is
11-5 amended by adding Section 40.061 to read as follows:
11-6 Sec. 40.061. FLEXIBLE RATING PROGRAM. Notwithstanding
11-7 Sections 40.051-40.060, hearings for benchmark rates for all lines
11-8 of insurance subject to Article 5.101 of this code are conducted as
11-9 provided by Section 3(d) of that article.
11-10 SECTION 6. The heading to Article 5.131, Insurance Code, is
11-11 amended to read as follows:
11-12 Art. 5.131. [TEMPORARY] RATE ROLLBACK FOR CERTAIN LINES OF
11-13 INSURANCE.
11-14 SECTION 7. Section 1, Article 5.131, Insurance Code, is
11-15 amended to read as follows:
11-16 Sec. 1. FINDINGS. The legislature finds that:
11-17 (1) the cost of litigation against insureds and their
11-18 insurers, the possibility of large and unjust judgments, and the
11-19 uncertainty created by a litigious environment within this state
11-20 have been significant factors in the high cost of certain lines of
11-21 insurance;
11-22 (2) legislation enacted by regular sessions of the
11-23 75th, 76th, and 77th [73rd and 74th] legislatures, and legislation
11-24 passed by or pending in [which may be aided by legislation under
11-25 consideration by] the [104th] Congress of the United States, is
11-26 intended to meaningfully reform the civil justice system of this
11-27 state and this nation and will result in reductions in the cost of
12-1 litigation and in the size of judgments;
12-2 (3) certain decisions by the Supreme Court of Texas
12-3 and federal appellate courts during the years 1995-2001 have
12-4 resulted in reductions in the size of certain judgments;
12-5 (4) it can be reasonably anticipated that there will
12-6 be additional legislation and court decisions in the future that
12-7 will result in reductions in the cost of litigation and in the size
12-8 of judgments;
12-9 (5) while the monetary effect of the legislative
12-10 changes can be actuarially determined within a reasonable degree of
12-11 certainty, insurers will delay implementation of rate reductions
12-12 until they have data evidencing actual loss experience;
12-13 (6) [(4)] the delay described by Subdivision (5) [(3)]
12-14 of this section will result in a windfall for the insurers
12-15 benefited by the changes [legislation] described by Subdivisions
12-16 [Subdivision] (2), (3), and (4) of this section, and this benefit
12-17 should be passed on to their insureds; and
12-18 (7) [(5)] legislative action in the public interest
12-19 and within the police power of the state is required to eliminate
12-20 unnecessary delays to pass these benefits on to the insured public
12-21 of this state.
12-22 SECTION 8. Section 2(c), Article 5.131, Insurance Code, is
12-23 amended to read as follows:
12-24 (c) This article applies only to policies or coverages in
12-25 the following lines or sublines that are issued, issued for
12-26 delivery, or renewed on and after January 1, 2002 [1996]:
12-27 (1) professional liability insurance for a physician,
13-1 other health care provider, or hospital;
13-2 (2) commercial liability insurance for damages arising
13-3 out of the manufacture, design, importation, distribution,
13-4 packaging, labeling, lease, or sale of a product or for completed
13-5 operations coverage;
13-6 (3) private passenger automobile liability insurance
13-7 for bodily injury;
13-8 (4) commercial automobile liability insurance for
13-9 bodily injury;
13-10 (5) private umbrella and excess liability insurance;
13-11 (6) the liability portion of commercial multi-peril
13-12 insurance;
13-13 (7) the liability portion of homeowner's, farm and
13-14 ranch owner's, and renter's insurance;
13-15 (8) the employer's liability portion of workers'
13-16 compensation insurance; and
13-17 (9) other commercial liability insurance, including
13-18 the following lines and sublines:
13-19 (A) premises medical;
13-20 (B) fire legal liability;
13-21 (C) personal advertising injury;
13-22 (D) contractual liability;
13-23 (E) liability for all premises;
13-24 (F) pollution liability;
13-25 (G) owners and contractors protective liability;
13-26 (H) railroad protective liability;
13-27 (I) liquor liability;
14-1 (J) farm liability;
14-2 (K) commercial umbrella and excess liability;
14-3 (L) professional liability other than insurance
14-4 described by Subdivision (1) of this subsection; and
14-5 (M) garage liability.
14-6 SECTION 9. Sections 3(a), (b), (d), and (e), Article 5.131,
14-7 Insurance Code, are amended to read as follows:
14-8 (a) Notwithstanding Chapter 40 [Article 1.33B] of this code,
14-9 on or before September 1 of each year, the commissioner shall hold
14-10 a rulemaking hearing under Chapter 2001, Government Code, to
14-11 determine the percentage of equitable across-the-board reductions
14-12 in insurance rates required of insurers writing the lines and
14-13 sublines of liability coverage described by Section 2(c) of this
14-14 article.
14-15 (b) Not later than October 1, 2001 [1995], the commissioner
14-16 shall issue rules mandating the appropriate rate reductions to
14-17 rates for the lines and sublines of liability coverage described by
14-18 Section 2(c) of this article and developed without consideration of
14-19 the effect of the changes [legislation] described by Section 1 of
14-20 this article.
14-21 (d) The rate reductions adopted under this section are
14-22 applicable to each policy or coverage issued, issued for delivery,
14-23 or renewed on and after January 1, 2002 [1996], and to each policy
14-24 or coverage issued, issued for delivery, or renewed on and after
14-25 the 90th day after the date of each subsequent rule adopted under
14-26 Subsection (a) of this section.
14-27 (e) Notwithstanding Subsection (d) of this section, if, on
15-1 January 1, 2002 [1996], the commissioner has not issued an order
15-2 establishing rate reductions for a line or subline under this
15-3 section, the following reductions, as measured from the base rates
15-4 in effect on April 1, 2001 [1995], apply to each insurer for each
15-5 affected policy or coverage issued, issued for delivery, or renewed
15-6 on and after January 1, 2002 [1996]:
15-7 LINE or SUBLINE PERCENTAGE REDUCTION
15-8 (1) professional liability insurance for
15-9 physician, other health care provider,
15-10 or hospital: 30%
15-11 (2) commercial liability insurance for
15-12 damages arising out of the manufacture,
15-13 design, importation, distribution,
15-14 packaging, labeling, lease, or sale
15-15 of a product or for
15-16 completed operations coverage: 25%
15-17 (3) private passenger automobile liability
15-18 insurance for bodily injury: 15%
15-19 (4) commercial automobile liability
15-20 insurance for bodily injury: 20%
15-21 (5) private umbrella and excess liability
15-22 insurance: 20%
15-23 (6) the liability portion of commercial
15-24 multi-peril insurance: 10%
15-25 (7) the liability portion of homeowner's,
15-26 farm and ranch owner's,
15-27 and renter's insurance: 5%
16-1 (8) the employer's liability portion
16-2 of workers' compensation
16-3 insurance: 10%
16-4 (9) all lines and sublines of other
16-5 commercial liability insurance: 15%
16-6 SECTION 10. Section 4(a), Article 5.131, Insurance Code, is
16-7 amended to read as follows:
16-8 (a) Except as provided by Subsection (b) of this section, a
16-9 rate filed as to a line or subline of insurance coverage affected
16-10 by this article on and after January 1, 2002 [1996], and a rate
16-11 filed on and after the 90th day following the effective date of a
16-12 subsequent rule adopted under Section 3(a) of this article, shall
16-13 reflect the rate reduction imposed by Section 3 of this article.
16-14 The commissioner shall disapprove a rate, subject to the procedures
16-15 established by Section 7, Article 5.13-2, of this code if the
16-16 commissioner finds that the filed rate does not reflect that
16-17 reduction.
16-18 SECTION 11. Section 6, Article 5.131, Insurance Code, is
16-19 amended to read as follows:
16-20 Sec. 6. CONTINUATION [DURATION] OF REDUCTION. After the
16-21 conclusion of each regular biennial legislative session, beginning
16-22 with the 78th legislative session, the commissioner shall conduct a
16-23 review of state and federal legislation and court decisions
16-24 analogous to that conducted under Section 3 of this article to
16-25 determine if that legislation and those court decisions can
16-26 reasonably be anticipated to reduce the cost of litigation or the
16-27 amount of damages. If the commissioner finds that those reductions
17-1 are likely, the commissioner shall order an additional rate
17-2 rollback, as provided by this article, to begin on January 1 of
17-3 each even-numbered year. [Unless the commissioner grants relief
17-4 under Section 4 or 5 of this article, each rate resulting from the
17-5 reduction required under Section 3 of this article remains in
17-6 effect until January 1, 2001.]
17-7 SECTION 12. Section 8, Article 5.131, Insurance Code, is
17-8 amended to read as follows:
17-9 Sec. 8. HEARINGS AND ORDERS. Notwithstanding Chapter 40
17-10 [Article 1.33B] of this code, a rulemaking hearing under this
17-11 article shall be held before the commissioner or the commissioner's
17-12 designee. [Article 1.09-5 of this code does not apply to hearings
17-13 under this article.] The rulemaking procedures established by this
17-14 section do not apply to any other rate promulgation proceeding.
17-15 SECTION 13. Section 9, Article 5.131, Insurance Code, is
17-16 amended to read as follows:
17-17 Sec. 9. PENDING RATE MATTERS. A rate filed pursuant to a
17-18 commissioner's order issued before May 1, 2001 [1995], is not
17-19 subject to the rate reductions required by this article before
17-20 January 1, 2002 [1996].
17-21 SECTION 14. Section 37.052(d), Insurance Code, is amended to
17-22 read as follows:
17-23 (d) The department may appear as a matter of right as a
17-24 party, present evidence, or question a witness in a proceeding
17-25 before the commissioner or the designated hearings officer in which
17-26 insurance rates are set under this code. [This subsection expires
17-27 September 1, 2001.]
18-1 SECTION 15. This Act applies only to premium rates for an
18-2 insurance policy delivered, issued for delivery, or renewed on or
18-3 after January 1, 2002. Rates for a policy delivered, issued for
18-4 delivery, or renewed before January 1, 2002, are governed by the
18-5 law as it existed immediately before the effective date of this
18-6 Act, and that law is continued in effect for that purpose.
18-7 SECTION 16. This Act takes effect September 1, 2001.