LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session April 8, 2001 TO: Honorable John T. Smithee, Chair, House Committee on Insurance FROM: John Keel, Director, Legislative Budget Board IN RE: HB2548 by Dutton (Relating to the regulation of automobile insurance rates.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB2548, As Introduced: 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 Savings/(Cost) from Change in Number of State * * Year Texas Department of Insurance Employees from FY 2001 * * Operating Fund Account/ * * GR-Dedicated * * 0036 * * 2002 $421,982 (8.1) * * 2003 421,982 (8.1) * * 2004 421,982 (8.1) * * 2005 421,982 (8.1) * * 2006 421,982 (8.1) * *************************************************************************** Fiscal Analysis The bill amends and repeals various Articles of the Insurance Code. The provisions of the bill would allow insurers to set their own rates for both personal and commercial auto risks. The Texas Department of Insurance (TDI) would not have authority to disapprove such rates. Each insurer would file with TDI a schedule of premium rates charged for motor vehicle insurance and the amount of the policy fee, membership fee, or initial charge to be charged to a policyholder or applicant. With the exception of the 5 percent discount for drug and alcohol awareness training, insurers would be allowed to set the amount of auto insurance discounts. TDI would continue to have authority to promulgate reasonable rules and statistical plans. Unfair rate discrimination would continue to be prohibited, and auto policy forms and endorsements would still be prescribed by TDI. The effective date of the bill is September 1, 2001. Methodology According to TDI, the function of processing experience ratings and data, which is related to the benchmark system, will no longer be needed for commercial automobile insurance regulation. Currently four FTEs are needed to process automobile experience ratings and associated data. This work is performed by insurance specialists and an insurance technician. There are additional activities that would be eliminated by the move from the benchmark system to a file-and-use system. They would include processing other filings or submissions associated with the benchmark system and handling a variety of insurers' inquiries with a workload equivalent to another FTE. The savings would be related to the elimination of current salary allocations for four insurance specialist positions and one insurance technician and associated miscellaneous operating expenses such as training, telephone and supplies. In addition, changing the current benchmark system of regulation to a strict file-and-use system would eliminate the need for three Actuary FTEs and an additional annual savings for related operating costs. It would also no longer require the need for ten percent of an attorney's time with the reduction related to the rate filings. Also, TDI has a contract for actuarial services for rate hearings and is estimated at $200 per hour. The total amount expended for the expert witness for the auto benchmark rate hearing for fiscal year 2000 was $35,000. Passage of the legislation would result in no longer needing the expert witness for auto rate hearings for savings of approximately $35,000 per year. 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