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 SECTION 5. Subchapter B, Chapter 40, Insurance Code, is
10-4 amended by adding Section 40.061 to read as follows:
10-5 Sec. 40.061. FLEXIBLE RATING PROGRAM. Notwithstanding
10-6 Sections 40.051-40.060, hearings for benchmark rates for all lines
10-7 of insurance subject to Article 5.101 of this code are conducted as
10-8 provided by Section 3(d) of that article.
10-9 SECTION 6. Section 37.052(d), Insurance Code, is amended to
10-10 read as follows:
10-11 (d) The department may appear as a matter of right as a
10-12 party, present evidence, or question a witness in a proceeding
10-13 before the commissioner or the designated hearings officer in which
10-14 insurance rates are set under this code. [This subsection expires
10-15 September 1, 2001.]
10-16 SECTION 7. This Act applies only to premium rates for an
10-17 insurance policy delivered, issued for delivery, or renewed on or
10-18 after January 1, 2002. Rates for a policy delivered, issued for
10-19 delivery, or renewed before January 1, 2002, are governed by the
10-20 law as it existed immediately before the effective date of this
10-21 Act, and that law is continued in effect for that purpose.
10-22 SECTION 8. This Act takes effect September 1, 2001.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 2102 was passed by the House on May
3, 2001, by a non-record vote; and that the House concurred in
Senate amendments to H.B. No. 2102 on May 25, 2001, by a non-record
vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 2102 was passed by the Senate, with
amendments, on May 22, 2001, by the following vote: Yeas 30, Nays
0, 1 present, not voting.
_______________________________
Secretary of the Senate
APPROVED: __________________________
Date
__________________________
Governor