LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session May 7, 2001 TO: Honorable David Sibley, Chair, Senate Committee on Business & Commerce FROM: John Keel, Director, Legislative Budget Board IN RE: HB2159 by Thompson (Relating to premium rates and minimum reserves for credit life and accident and health insurance.), As Engrossed ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB2159, As Engrossed: positive impact of $0 through the biennium * * ending August 31, 2003. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $0 * * 2003 0 * * 2004 0 * * 2005 0 * * 2006 0 * **************************************************** All Funds, Five-Year Impact: ************************************************************************** *Fiscal Probable Probable Revenue Change in Number of * * Year Savings/(Cost) from Gain/(Loss) from State Employees from * * Texas Department of Texas Department of FY 2001 * * Insurance Operating Insurance Operating * * Fund Account/ Fund Account/ * * GR-Dedicated GR-Dedicated * * 0036 0036 * * 2002 $(534,771) $534,771 8.0 * * 2003 (491,882) 491,882 8.0 * * 2004 (491,882) 491,882 8.0 * * 2005 (491,882) 491,882 8.0 * * 2006 (491,882) 491,882 8.0 * ************************************************************************** Technology Impact Computers and software for the additional Full-time Equivalent Positions (FTEs) totaling $21,592 in fiscal year 2002. Fiscal Analysis The provisions of the bill amend the Texas Insurance Code which allows minimum reserves for credit life and credit accident and health insurance to be set at 75 percent of the 1980 Commissioner's Standard Ordinary Mortality Table. The changes also set guidelines and hearings procedures for establishing premium rates for credit life and credit accident and health insurance policies. Under provisions of the bill, the Commissioner of Insurance sets a presumptive premium rate from which insurers would be allowed to vary by 30 percent. Insurers, however, may file a rate that is more than 30 percent higher or less than 30 percent lower than the adopted presumptive rate. The Commissioner may enter an order suspending a rate that does not comply with the provisions of the bill after holding a hearing to determine if the rate is in compliance. A rate is considered approved unless the Commissioner disapproves it within 60 days of the insurer's filing the rate. The bill establishes standards for excessive and inadequate rates. The bill requires the Texas Department of Insurance (TDI) to provide a report on rates for credit life and accident and health insurance in consultation with the Office of Public Insurance Counsel (OPIC). The bill takes effect immediately if it receives a vote of two-thirds of each house. If the bill does not receive the vote necessary for immediate effect, the bill takes effect September 1, 2001. Methodology TDI estimates that it will need an additional eight FTEs to implement the provisions of the bill. TDI estimates that those additional FTEs would include an insurance specialist and half-time actuary due to an increase of rate filing from seven to twelve rate filings a month for rate deviations. TDI estimates that half of these deviated rate filings (42) in a given year would be disapproved, and therefore require Commissioner's hearings. According to TDI, individual rate hearings usually take 5 days per hearing. At 5 days per hearing and 42 hearings per year, actuarial staff time needed just for hearings (including preparation and testimony) would be 1,680 hours, or one actuary. TDI estimates that it will need an additional part-time actuary to provide a report on rates for credit life and accident and health insurance in consultation with OPIC. Additionally, rate hearings will need an expert analysis of the degree of competition with respect to the classification to which the rate is applicable. TDI would need one director to gather and analyze appropriate market data for each hearing. Two additional attorneys and one legal assistant supported by one legal secretary would be needed to handle the expected 42 additional hearings per year. The two attorneys would provide representation in the rate making hearings and hearings regarding the disapproval of individual company rate filings and participate in the rulemaking process. The legal assistant would organize and maintain case files for the rate making hearings and individual company rate filings and provide assistance at the hearings. The legal secretary would assist the attorneys and legal assistant in the rate making process. It is assumed that TDI would adjust its fees to cover the cost of implementing the bill. Local Government Impact No fiscal implication to units of local government is anticipated. Source Agencies: 454 Texas Department of Insurance LBB Staff: JK, JO, RT, DE