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:
  
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*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