2003S0021-3 11/19/02
By: Smithee H.B. No. 748
A BILL TO BE ENTITLED
AN ACT
relating to automobile and residential property insurance rate
regulation.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 5, Insurance Code, is amended by adding
Subchapter P to read as follows:
SUBCHAPTER P. PERSONAL AUTOMOBILE AND RESIDENTIAL PROPERTY
INSURANCE RATES AND FORMS
Art. 5.141. RATES FOR PERSONAL AUTOMOBILE AND RESIDENTIAL
PROPERTY INSURANCE COVERAGE
Sec. 1. SCOPE; PURPOSE. (a) This article governs the
regulation of rates for personal automobile insurance and
residential property insurance.
(b) The purposes of this article are to:
(1) promote the public welfare by regulating personal
automobile and residential property insurance rates to prohibit
excessive, inadequate, or unfairly discriminatory rates;
(2) promote the availability of personal automobile
and residential property insurance;
(3) promote price competition among insurers to
provide rates and premiums that are responsive to competitive
market conditions; and
(4) prohibit price-fixing agreements and other
anticompetitive behavior by insurers.
(c) Notwithstanding Subsection (a) of this section, this
article does not apply to premium rates for motor vehicle insurance
computed using a mile-based rating plan under Article 5.01-4 of
this code.
Sec. 2. DEFINITIONS. In this article:
(1) "Classification" means a generic application to
similar risks within the same line.
(2) "Disallowed expenses" means:
(A) administrative expenses, not including
acquisition expenses, not including acquisition, loss control, and
safety engineering expenses, that exceed 110 percent of the
industry median for those expenses;
(B) lobbying expenses;
(C) advertising expenses, except the following:
(i) advertising that is directly related to
the services or products provided by the insurer;
(ii) advertising designed and directed at
loss prevention; or
(iii) advertising for the promotion of
organizations exempt from federal taxation under Section
501(c)(3), Internal Revenue Code of 1986, and its subsequent
amendments;
(D) amounts paid by an insurer as damages in a
suit against the insurer for bad faith or as fines or penalties for
violation of law;
(E) contributions to organizations engaged in
legislative advocacy;
(F) fees and penalties imposed on the insurer for
civil or criminal violations of law;
(G) contributions to social, religious,
political, or fraternal organizations;
(H) fees and assessments paid to advisory
organizations; and
(I) any unreasonably incurred expenses, as
determined by the commissioner after notice and hearing.
(3) "Filer" means an insurer that files rates,
supplementary rating information, supporting information, rating
manuals, or any other information required to be filed under this
article.
(4) "Insurer" means an insurance company, reciprocal
or interinsurance exchange, mutual, capital stock company,
fraternal benefit society, local mutual aid association, county
mutual insurance company, association, Lloyd's plan company, or
other entity writing personal automobile insurance or residential
property insurance in the state. The term includes an affiliate, as
described by Section 823.003(a) of this code. The term does not
include the Texas Windstorm Insurance Association created and
operated under Article 21.49 of this code.
(5) "Line" means a type of insurance subject to this
article.
(6) "Personal automobile insurance" means an
automobile insurance policy providing insurance coverages for the
ownership, maintenance, or use of private passenger, utility, and
miscellaneous type motor vehicles and trailers including mobile
homes and recreational trailers, and not primarily used for the
delivery of goods, materials, or services, unless such use is in
farm or ranch operations, and provided that such vehicles are owned
or leased by an individual or individuals.
(7) "Rate" or "rating plan" means the charge for a
particular line for each unit of exposure.
(8) "Residential property insurance" means insurance
against loss to real or tangible personal property at a fixed
location provided in a homeowners policy, a tenant policy, a
condominium owners policy, or a residential fire and allied lines
policy.
(9) "Supplementary rating information" means any
manual, rating schedule, plan of rules, rating rules,
classification systems, territory codes and descriptions, rating
plans, and other similar information used by the insurer to
determine the applicable premium for an insured. The term includes
factors and relativities, such as increased limits factors,
classification relativities, deductible relativities, premium
discount, and other similar factors and rating plans such as
experience, schedule, and retrospective rating.
(10) "Supporting information" means:
(A) the experience and judgment of the filer and
the experience or information of other insurers relied on by the
filer;
(B) the interpretation of any other information
relied on by the filer;
(C) descriptions of methods used in making the
rates; and
(D) any other information required by the
department to be filed.
Sec. 3. RATE STANDARDS. (a) Rates under this article
shall be set in accordance with the provisions of this section.
(b) In setting rates, an insurer shall consider:
(1) past and prospective loss experience inside the
state, and outside the state if the state data are not credible;
(2) the peculiar hazards and experiences of individual
risks, past and prospective, inside and outside the state;
(3) the insurer's own historical premium, exposure,
loss, and expense experience to the extent that it is actuarially
credible;
(4) catastrophe hazards within the state;
(5) operating expenses excluding disallowed expenses;
(6) investment income;
(7) a reasonable margin for profit; and
(8) any other relevant factors inside and outside the
state.
(c) The insurer may group risks by classifications for the
establishment of rates and minimum premiums and may modify
classification rates to produce rates for individual risks in
accordance with rating plans that establish standards for measuring
variations in those risks on the basis of any factor listed in
Subsection (b) of this section.
(d) Rates may not be excessive, inadequate, unreasonable,
or unfairly discriminatory for the risks to which they apply.
(e) In setting rates applicable solely to policyholders in
the state, an insurer shall use its own historical premium and loss
data, as well as its own data for expenses and for profit and
contingency factors. The commissioner may require an audit of the
insurer's historical premium and loss data. The insurer may
separately supplement its own historical premium and loss data with
historical premium and loss data as necessary. The commissioner may
by rule establish requirements for reporting historical premium and
loss data under this subsection.
Sec. 4. RATE FILINGS. (a) An insurer must file with the
commissioner all rates, supplementary rating information,
reasonable and pertinent supporting information for risks written
in the state, and all applicable rating manuals. The insurer shall
include in the filing any statistics or other information to
support the rates to be used by the insurer as required by the
commissioner by rule, including information necessary to evidence
that the calculation of the rate does not include disallowed
expenses. The insurer shall include in the filing policy fees,
service fees, and other fees that are charged under Article 21.35A
or Article 21.35B of this code.
(b) Unless disapproved by the commissioner as provided by
Section 9 of this article, the new rate takes effect on the date
specified by the insurer in the filing, but not earlier than the
60th day after the date of filing of the rate with the commissioner,
except as provided by Subsection (c) of this section. For the
purposes of this section, the date the rate is received by the
commissioner is the date of filing of the rate with the
commissioner. From the date of filing of the rate with the
commissioner to the effective date of the new rate, the insurer's
previously filed rate that is in effect as provided in this article
shall remain in effect.
(c) The commissioner may approve a filing on written or
electronic notification to the filer at any time before the 60th day
after the date of filing of the rate with the commissioner or before
the effective date specified by the insurer in the filing. The new
rate may take effect on the receipt of the notice of the
commissioner's approval.
Sec. 5. SUPERVISION REQUIREMENT. If the commissioner
determines after a hearing that an insurer's rates require
supervision because of the insurer's financial condition or the
insurer's rating practices, the commissioner may require the
insurer to file with the commissioner all rates, supplementary rate
information, and any supporting information prescribed by the
commissioner.
Sec. 6. PUBLIC INFORMATION. Each filing and any supporting
information filed under this article is open to public inspection
as of the date of the filing.
Sec. 7. RIGHTS OF INSUREDS AND PUBLIC INSURANCE COUNSEL.
(a) With respect to any filing in effect, an aggrieved insured or
the public insurance counsel may make a written application to the
commissioner for a hearing on the filing. The application must
specify the grounds on which the applicant bases the grievance. If
the commissioner finds that the application is made in good faith,
that the applicant would be so aggrieved if the grounds in the
application are established, and that those grounds otherwise
justify holding the hearing, the commissioner shall hold a hearing
not later than the 30th day after the date of receipt of the
application. The commissioner shall give at least 10 days' written
notice of the hearing to the applicant and to the insurer that made
the filing in question.
(b) If, after the hearing, the commissioner finds that the
filing does not meet the requirements of this article, the
commissioner shall issue an order specifying how the filing fails
to meet the requirements of this article and stating the date on
which, within a reasonable period after the date of the order, the
filing is no longer in effect. The commissioner shall send copies
of the order to the applicant and to each affected insurer.
Sec. 8. QUARTERLY LEGISLATIVE REPORT. Each insurer subject
to this article shall file with the commissioner on a quarterly
basis information relating to changes in losses, premiums, and
market share. The first filing under this article must include the
information beginning with January 1, 2003. The commissioner
shall report on a quarterly basis to the governor, lieutenant
governor, and speaker of the house of representatives on the
information provided by the insurers' reports, information
obtained from market conduct examinations and analyses, and
consumer complaints received by the department.
Sec. 9. DISAPPROVAL. (a) The commissioner shall
disapprove a rate if the commissioner determines that the rate
filing made under this article does not meet the requirements of
this article. The commissioner may give due consideration to the
extent and nature of market competition in the personal automobile
insurance and residential property insurance markets and to the
availability or lack of availability of personal automobile
insurance and residential property insurance in determining
whether to disapprove any rates filed under this article.
(b) If the commissioner disapproves a filing before the 60th
day after the date of the filing of the rate with the commissioner,
the commissioner shall issue an order specifying in what respects
the filing fails to meet the requirements of this article. The
filer is entitled to a hearing on written request made to the
commissioner not later than the 30th day after the effective date of
the disapproval order.
(c) If the commissioner disapproves a rate that is in
effect, the commissioner may issue a disapproval order only after a
hearing held after at least 20 days' written notice to the insurer
that made the filing. The disapproval order must be issued not
later than the 15th day after the close of the hearing and must
specify how the rate fails to meet the requirements of this article.
The disapproval order must state the date on which the further use
of that rate is prohibited. If, after notice and opportunity for
hearing, the commissioner determines that a rate that is in effect
should be disapproved, the commissioner, in the event of any
overcharges to policyholders, shall require the insurer to refund
to policyholders the difference in the amount of premiums paid
under the disapproved rates and the amount of premiums payable
under rates that meet the requirements of this article, except that
refunds to policyholders the commissioner determines are de minimis
may not be required.
(d) If an insurer has no legally effective rate because of
an order disapproving rates, the commissioner shall specify an
interim rate at the time the order is issued. The interim rate may
be modified by the commissioner on the commissioner's own motion or
on motion by the insurer. The interim rate or any modification of
that rate shall take effect immediately on the commissioner's
decision setting the interim rate. When the rates are finally
determined, the commissioner shall order any overcharge in the
interim rates to be refunded to policyholders, except that refunds
to policyholders the commissioner determines are de minimis may not
be required.
Sec. 10. RATE HEARINGS. Subject to Chapter 40 of this code,
Chapter 2001, Government Code, applies to all hearings on rates
conducted under this article. To the extent of any conflict between
this article and Chapter 2001, Government Code, the provisions of
this article prevail.
Sec. 11. APPEAL. Any insurer or other party at interest as
described by Section 7 of this article aggrieved by an order of the
commissioner issued under this article may, not later than the 30th
day after the date on which the commissioner issued the order,
appeal the order in accordance with Subchapter D, Chapter 36 of this
code.
SECTION 2. Subsection (f), Article 5.01, Insurance Code, is
amended to read as follows:
(f) Notwithstanding Subsections (a) through (d) of this
article, on and after June 1, 2003 [March 1, 1992], rates for motor
vehicle insurance in this state are determined [as provided by the
flexible rating program adopted] under Article 5.141 [Subchapter M]
of this code [chapter].
SECTION 3. Article 5.13, Insurance Code, is amended to read
as follows:
Art. 5.13. SCOPE OF SUBCHAPTER [SUB-CHAPTER]. (a) This
subchapter [Sub-chapter] applies to every insurance company,
corporation, interinsurance exchange, mutual, reciprocal,
association, Lloyds, or other organization or insurer writing any
of the characters of insurance business herein set forth,
hereinafter called "Insurer"; provided that nothing in this entire
subchapter [Sub-chapter] shall [ever] be construed to apply to any
county or farm mutual insurance company or association, as
regulated under Chapters 911 [16] and 912 [17] of this code, except
that Section 8, Article 5.13-2 of this code, shall apply to a county
mutual insurance company with respect to commercial automobile
insurance [Code].
(b) This subchapter [Sub-chapter] applies to the writing of
casualty insurance and the writing of fidelity, surety, and
guaranty bonds, on risks or operations in this State except as
herein stated.
(c) This subchapter [Sub-chapter] does not apply to the
writing of motor vehicle, life, health, accident, professional
liability, reinsurance, aircraft, fraternal benefit, fire,
lightning, tornado, windstorm, hail, smoke or smudge, cyclone,
earthquake, volcanic eruption, rain, frost and freeze, weather or
climatic conditions, excess or deficiency of moisture, flood, the
rising of the waters of the ocean or its tributaries, bombardment,
invasion, insurrection, riot, civil war or commotion, military or
usurped power, any order of a civil authority made to prevent the
spread of a conflagration, epidemic or catastrophe, vandalism or
malicious mischief, strike or lockout, water or other fluid or
substance, resulting from the breakage or leakage of sprinklers,
pumps, or other apparatus erected for extinguishing fires, water
pipes or other conduits or containers, or resulting from casual
water entering through leaks or opening in buildings or by seepage
through building walls, including insurance against accidental
injury of such sprinklers, pumps, fire apparatus, conduits or
container, workmen's compensation, inland marine, ocean marine,
marine, or title insurance; nor does this subchapter [Sub-chapter]
apply to the writing of explosion insurance, except insurance
against loss from injury to person or property which results
accidentally from steam boilers, heaters or pressure vessels,
electrical devices, engines and all machinery and appliances used
in connection therewith or operation thereby.
(d) This subchapter [Sub-chapter] shall not be construed as
limiting in any manner the types or classes of insurance which may
be written by the several types of insurers under appropriate
statutes or their charters or permits.
(e) The regulatory power herein conferred is vested in the
commissioner [Board of Insurance Commissioners of the State of
Texas. Within the Board, the Casualty Insurance Commissioner shall
have primary supervision of regulation herein provided, subject
however to the final authority of the entire Board].
SECTION 4. The heading to Article 5.13-2, Insurance Code,
is amended to read as follows:
Art. 5.13-2. RATES FOR GENERAL LIABILITY, COMMERCIAL
AUTOMOBILE, AND COMMERCIAL PROPERTY INSURANCE COVERAGE
SECTION 5. Sections 1 and 2, Article 5.13-2, Insurance
Code, are amended to read as follows:
Sec. 1. PURPOSE. This article governs the regulation of
general liability, commercial automobile, commercial property,
which shall include farm and ranch owners and farm and ranch
policies, all commercial casualty, and medical professional
liability insurance rates and forms. It does not govern
[automobile,] fidelity, surety, or guaranty bonds. The purposes of
this article are to:
(1) promote the public welfare by regulating insurance
rates to prohibit excessive, inadequate, or unfairly
discriminatory rates;
(2) promote availability of insurance;
(3) promote price competition among insurers to
provide rates and premiums that are responsive to competitive
market conditions;
(4) prohibit price-fixing agreements and other
anticompetitive behavior by insurers;
(5) regulate the insurance forms used for lines of
insurance subject to this article to ensure that they are not
unjust, unfair, inequitable, misleading, or deceptive; and
(6) provide regulatory procedures for the maintenance
of appropriate information reporting systems.
Sec. 2. SCOPE. This article applies to all lines of general
liability, commercial automobile, commercial property, all
commercial casualty, and medical professional liability insurance
written under policies or contracts of insurance issued by a
licensed insurer, other than a fidelity, surety, or guaranty bond
or an automobile insurance policy.
SECTION 6. Subdivision (2), Section 3, Article 5.13-2,
Insurance Code, is amended to read as follows:
(2) "Insurer" means an insurer to which Article 5.13
of this code applies, but does not include the Texas Windstorm
Insurance Association. However, the provisions of Sections 4, 5,
6, and 7 of this article shall not apply to Lloyd's or reciprocals
with respect to commercial property insurance. The provisions of
Section 8 of this article shall apply to county mutual insurance
companies with respect to commercial automobile insurance.
SECTION 7. Section 912.002, Insurance Code, is amended to
read as follows:
Sec. 912.002. LIMITED EXEMPTION FROM INSURANCE LAWS;
APPLICABILITY OF CERTAIN LAWS. (a) A county mutual insurance
company is exempt from the operation of all insurance laws of this
state[, including the flexible rating program under Article 5.101,]
except laws that are made applicable by their specific terms or
except as specifically provided by this chapter.
(b) A county mutual insurance company is subject to:
(1) Sections 38.001 and 822.204; [and]
(2) Articles 1.15, 1.15A, 1.16, 2.10, 4.10, 5.12,
5.37, 5.38, 5.39, 5.40, 5.49, 21.21, and 21.49; and
(3) with respect to commercial automobile insurance,
Section 8 of Article 5.13-2.
SECTION 8. The following provisions of the Insurance Code
are repealed:
(1) Section (a-1), Article 5.96;
(2) Article 5.101; and
(3) Section 40.061.
SECTION 9. This Act takes effect June 1, 2003, if it
receives a vote of two-thirds of all the members elected to each
house, as provided by Section 39, Article III, Texas Constitution.
If this Act does not receive the vote necessary for effect on that
date, this Act takes effect September 1, 2003.