77R12801 E
By Eiland, Seaman H.B. No. 2102
Substitute the following for H.B. No. 2102:
By Eiland C.S.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. Section 3, Article 5.101, Insurance Code, is
1-6 amended by amending Subsections (b), (c), (d), and (o) and by
1-7 adding Subsection (r) to read as follows:
1-8 (b) The commissioner shall promulgate by rule a benchmark
1-9 rate for each line subject to this article after notice and hearing
1-10 [under Chapter 2001, Government Code (the Administrative Procedure
1-11 Act)]. The commissioner shall set the benchmark rate to produce a
1-12 range that:
1-13 (1) promotes stability in that line; and
1-14 (2) produces rates that are just, reasonable, adequate
1-15 and not excessive for the risks to which they apply, and not
1-16 confiscatory.
1-17 (c) In promulgating the benchmark rate, the commissioner may
1-18 give due consideration to:
1-19 (1) past and prospective loss experience within the
1-20 state and outside the state if the state data are not credible;
1-21 (2) the peculiar hazards and experience of individual
1-22 risks, past and prospective, within and outside the state;
1-23 (3) a reasonable margin for profit;
1-24 (4) expenses of operation of all insurers, allocated
2-1 to each line of insurance in proportion to the amount the net
2-2 direct premiums of that line bear to the aggregate of net direct
2-3 premiums for all lines assessed under that article, and excluding
2-4 only those [which may not include disallowed] expenses that are
2-5 disallowed under Subsection (o) of this section;
2-6 (5) the extent and nature of competition in that
2-7 market;
2-8 (6) the availability or lack of availability in that
2-9 market;
2-10 (7) the level and range of rates and rate changes
2-11 among insurers;
2-12 (8) investment and underwriting experience of
2-13 insurers;
2-14 (9) reinsurance availability;
2-15 (10) consumer complaints;
2-16 (11) extent of denials and restrictions of coverage;
2-17 (12) the volume of cancellations and nonrenewals; and
2-18 (13) any other factor considered appropriate by the
2-19 commissioner.
2-20 (d) Each flexibility band is based on a benchmark rate
2-21 promulgated by rule by the commissioner. The commissioner shall
2-22 conduct hearings annually to determine the benchmark rates by line
2-23 [on or before September 1 of each year]. Before each hearing
2-24 conducted under this subsection, the commissioner shall request
2-25 recommendations from insurers, trade associations, the public
2-26 insurance counsel, and any other interested person or entity
2-27 regarding changes to the benchmark rates. The recommendations must
3-1 include any supporting actuarial analyses. Notice of each hearing
3-2 proposing changes to the benchmark rates must be published in the
3-3 Texas Register. The commissioner shall receive public comment for
3-4 at least 30 days after the notice is published. The determination
3-5 of the rate shall not include disallowed expenses under Subsection
3-6 (o) of this section. An insurer, the public insurance counsel, and
3-7 any other interested person may present views, analyses, and
3-8 arguments in response to the commissioner's request for
3-9 recommendations, either before or [testimony] at the hearing, and
3-10 may file information for consideration by the commissioner. The
3-11 public insurance counsel and any insurer, trade association, or
3-12 other interested person or entity that has submitted proposed
3-13 changes or actuarial analyses may ask questions of any person
3-14 testifying at [An advisory organization which collects ratemaking
3-15 data shall not be a party to] the hearing. A trade association
3-16 that does not collect historical data and that does not provide
3-17 statistical plans, prospective loss costs, or supplementary rating
3-18 information to its members may, on behalf of its members that are
3-19 small or medium-sized insurers, as defined by the commissioner,
3-20 present rate making data and make recommendations to the
3-21 commissioner before or at the hearing. There is no immunity from
3-22 antitrust liability for a trade association that presents rate
3-23 making data or makes recommendations to the commissioner [at the
3-24 hearing]. The definition of "small and medium-sized insurers"
3-25 shall be a limitation upon the scope of the presentation to be made
3-26 by a trade association, but may not limit the participation of a
3-27 trade association because its membership includes other sized
4-1 insurers. After the hearing, the commissioner shall adopt a rule
4-2 promulgating the benchmark rates. An insurer shall use that
4-3 benchmark rate and the flexibility band to develop rates used for
4-4 the line for the year following the setting of the benchmark rate.
4-5 (o) For the purposes of this section, "disallowed expenses"
4-6 include:
4-7 (1) administrative expenses, not including acquisition
4-8 expenses, not including acquisition, loss control and safety
4-9 engineering expenses, that exceed 110 percent of the industry
4-10 median for those expenses;
4-11 (2) lobbying expenses;
4-12 (3) advertising expenses, other than advertising that
4-13 is directly related to the services or products provided by the
4-14 insurer, advertising designed and directed at loss prevention, or
4-15 advertising the promotion of organizations exempt from federal
4-16 taxation under Section 501(c)(3) of the Internal Revenue Code;
4-17 (4) amounts paid by an insurer as damages in a suit
4-18 against the insurer for bad faith or as fines or penalties for
4-19 violation of law;
4-20 (5) contributions to organizations engaged in
4-21 legislative advocacy;
4-22 (6) fees and penalties imposed on the insurer for
4-23 civil or criminal violations of law;
4-24 (7) contributions to social, religious, political, or
4-25 fraternal organizations;
4-26 (8) fees and assessments paid to advisory
4-27 organizations; and
5-1 (9) any unreasonably incurred expenses, as determined
5-2 by the commissioner after notice and hearing in a proceeding
5-3 separate from the benchmark hearing under this article.
5-4 (r) The commissioner may not exclude any part of the
5-5 expenses of an individual insurer or group of affiliated insurers
5-6 unless the expenses are specifically disallowed under Subsection
5-7 (o) of this section. If a disallowed expense under Subsection
5-8 (o)(9) of this section involves an individual insurer or group of
5-9 affiliated insurers, the commissioner must provide notice under
5-10 that subsection to each insurer or group of affiliated insurers
5-11 involved.
5-12 SECTION 2. Section 5, Article 5.101, Insurance Code, is
5-13 amended to read as follows:
5-14 Sec. 5. APPLICABILITY OF CERTAIN GOVERNMENT CODE
5-15 REQUIREMENTS [ADMINISTRATIVE PROCEDURE ACT APPLICABLE; BENCHMARK
5-16 RATE HEARINGS]. (a) Subject to Chapter 40 of this code, Chapter
5-17 2001, Government Code [(the Administrative Procedure Act)], applies
5-18 to all rate hearings conducted under this article, other than a
5-19 benchmark rate hearing conducted under Section 3(d) of this article
5-20 [subject to Article 1.33B of this code and Subsections (b)-(d) of
5-21 this section].
5-22 (b) Subchapter A, Chapter 2006, Government Code, does not
5-23 apply to a benchmark rate hearing conducted under Section 3(d) of
5-24 this article. [In a hearing on benchmark rates conducted under this
5-25 article, discovery directed to any party to the proceeding
5-26 concerning that party's premium, loss, expense, profit, or rate of
5-27 return experience or its operations is prohibited, except to the
6-1 extent that the party presents evidence, relies on, or provides to
6-2 another party its own individual insurer data in the benchmark rate
6-3 hearing. This subsection does not deny or restrict any party's
6-4 right to produce or rely on relevant information concerning an
6-5 individual insurer as evidence in a benchmark rate hearing.]
6-6 [(c) As part of a benchmark rate hearing, any party may
6-7 present evidence regarding, and the administrative law judge shall
6-8 make proposed findings concerning, any adjustments or amendments
6-9 that should be made to the statistical reporting rules and
6-10 statistical plans to aid in presenting a case at future benchmark
6-11 rate hearings.]
6-12 [(d) If the record indicates evidence under Subsection (c)
6-13 of this section, the commissioner may initiate a proceeding under
6-14 Article 5.96 of this code to determine and make adjustments and
6-15 amendments to the rules and statistical plans as necessary to
6-16 further aid in determining whether rates and rating systems in use
6-17 under this article comply with the regulatory standards imposed
6-18 under this article. The commissioner shall consider the evidence
6-19 taken at the benchmark rate hearings under Subsection (c) of this
6-20 section, and shall address that evidence in any order or action
6-21 taken as a result of the proceeding.]
6-22 SECTION 3. Article 5.101, Insurance Code, is amended by
6-23 adding Section 6 to read as follows:
6-24 Sec. 6. JUDICIAL REVIEW. (a) Judicial review of an order
6-25 promulgating benchmark rates is under the substantial evidence
6-26 rule.
6-27 (b) A person aggrieved by the action of the commissioner in
7-1 setting the benchmark rates may, not later than the 30th day after
7-2 the date on which the commissioner adopts a final order on a
7-3 benchmark rate, file a petition for judicial review in a district
7-4 court in Travis County.
7-5 SECTION 4. Section 5, Article 21.81, Insurance Code, is
7-6 amended to read as follows:
7-7 Sec. 5. RATES FOR INSURANCE; HEARING. (a) [At least
7-8 annually, the commissioner shall conduct a hearing for the purpose
7-9 of determining appropriate rates to be charged for insurance
7-10 provided through the association. The association may appear as a
7-11 matter of right, shall be admitted as a party to present testimony
7-12 at the hearing, and may file information for consideration by the
7-13 commissioner.] The commissioner shall determine and prescribe
7-14 appropriate rates to be charged for insurance provided through the
7-15 association [rates] that are just, reasonable, adequate, not
7-16 excessive, not confiscatory, and not unfairly discriminatory for
7-17 the risks to which they apply. Rates shall be set in an amount
7-18 sufficient to carry all claims to maturity and to meet the expenses
7-19 incurred in the writing and servicing of the business. In making a
7-20 determination, the commissioner shall consider the reports of
7-21 aggregated premiums earned and losses and expenses incurred in the
7-22 writing of motor vehicle insurance through the plan collected under
7-23 the statistical plan provided for by Subsection (b) of this
7-24 section.
7-25 (b) The commissioner shall promulgate reasonable rules and
7-26 statistical plans to be used by each insurer in the recording and
7-27 reporting of its premium, loss, and expense experience which must
8-1 be reported separately for business assigned to it and other data
8-2 required by the commissioner.
8-3 (c) The association shall file annually with the department
8-4 for approval by the commissioner rates to be charged for insurance
8-5 provided through the association. The association may not make
8-6 such a filing more than once in any 12-month period. Subchapter B,
8-7 Chapter 40, of this code does not apply to:
8-8 (1) a filing made under this subsection;
8-9 (2) Subsections (d)-(h) of this section; or
8-10 (3) a department action with respect to such a filing.
8-11 (d) Before approving, disapproving, or modifying a filing
8-12 made under Subsection (c) of this section, the commissioner shall
8-13 provide all interested persons a reasonable opportunity to:
8-14 (1) review the filing;
8-15 (2) obtain copies of the filing on payment of any
8-16 legally required copying cost; and
8-17 (3) submit to the commissioner written comments,
8-18 analyses, or information related to the filing.
8-19 (e) Not later than the 45th day after the date on which the
8-20 department receives the filing required under Subsection (c) of
8-21 this section, the commissioner shall schedule a hearing at which
8-22 interested persons may present written or oral comments relating to
8-23 the filing. A hearing under this subsection is not a contested
8-24 case hearing under Chapter 2001, Government Code. The association,
8-25 the public insurance counsel, and any other interested person or
8-26 entity that has submitted proposed changes or actuarial analyses
8-27 may ask questions of any person testifying at the hearing.
9-1 (f) The department shall file with the Texas Register notice
9-2 that a filing has been made under Subsection (c) of this section
9-3 not later than the seventh day after the date the filing is
9-4 received by the department. The notice must include information
9-5 relating to:
9-6 (1) the availability of the filing for public
9-7 inspection at the department during regular business hours and the
9-8 procedures for obtaining copies of the filing;
9-9 (2) procedures for making written comments related to
9-10 the filing; and
9-11 (3) the time, place, and date of the hearing scheduled
9-12 under Subsection (e) of this section.
9-13 (g) After the conclusion of the hearing, the commissioner
9-14 shall approve, disapprove, or modify the filing in writing. If the
9-15 commissioner disapproves a filing, the commissioner shall state in
9-16 writing the reasons for the disapproval and the criteria to be met
9-17 by the association to obtain approval. The association may file
9-18 with the commissioner, not later than the 10th day after the date
9-19 on which the association receives the commissioner's written
9-20 disapproval, an amended filing to comply with the commissioner's
9-21 comments.
9-22 (h) Before approving or disapproving an amended filing, the
9-23 commissioner shall provide all interested persons a reasonable
9-24 opportunity to review the amended filing, obtain copies of the
9-25 amended filing on payment of any legally required copying cost, and
9-26 submit to the commissioner written comments or information related
9-27 to the amended filing in the manner provided by Subsection (d) of
10-1 this section, and may hold a hearing not later than the 20th day
10-2 after the date on which the department receives the amended filing
10-3 in the manner provided by Subsection (e) of this section. Not
10-4 later than the 10th day after the date on which the hearing on the
10-5 amended filing is concluded, the commissioner shall approve or
10-6 disapprove the amended filing. Not later than the 30th day after
10-7 the date on which the amended filing is received by the department,
10-8 the commissioner shall disapprove the amended filing or it is
10-9 considered approved. The requirements adopted under Subsections
10-10 (f) and (g) of this section apply to a hearing conducted under this
10-11 subsection.
10-12 SECTION 5. Subchapter B, Chapter 40, Insurance Code, is
10-13 amended by adding Section 40.061 to read as follows:
10-14 Sec. 40.061. FLEXIBLE RATING PROGRAM. Notwithstanding
10-15 Sections 40.051-40.060, hearings for benchmark rates for all lines
10-16 of insurance subject to Article 5.101 of this code are conducted as
10-17 provided by Section 3(d) of that article.
10-18 SECTION 6. This Act applies only to premium rates for an
10-19 insurance policy delivered, issued for delivery, or renewed on or
10-20 after January 1, 2002. Rates for a policy delivered, issued for
10-21 delivery, or renewed before January 1, 2002, are governed by the
10-22 law as it existed immediately before the effective date of this
10-23 Act, and that law is continued in effect for that purpose.
10-24 SECTION 7. This Act takes effect September 1, 2001.