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By: Wohlgemuth H.B. No. 3346
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of insurance written on personal risks.
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. INSURANCE RATES FOR PERSONAL RISKS
Art. 5.141. REGULATION OF RATES FOR INSURANCE WRITTEN ON
PERSONAL RISKS.
Sec. 1. SCOPE AND PURPOSE. (a) This article applies to
personal auto and residential property insurance written on
personal risks in this state by any insurer authorized to do
business in this state.
(b) The purposes of this article are to:
(1) recognize and enhance the role well-informed
consumers play in the competitive marketplace;
(2) promote competition among insurers;
(3) protect policyholders and the public against
adverse effects of excessive, inadequate or unfairly
discriminatory rates;
(4) prohibit unlawful price fixing agreements by or
among insurers;
(5) authorize essential cooperative activities among
insurers in the ratemaking process and to regulate such activities
to prohibit practices that tend to substantially lessen competition
or create monopolies; and
(6) provide necessary regulatory authority in the
absence of a competitive marketplace.
Sec. 2. DEFINITIONS
(1) "Classification system" or "classification" means
the process of grouping risks with similar risk characteristics so
that differences in costs may be recognized.
(2) "Commissioner" means the Commissioner of
Insurance.
(3) "Competitive market" means any market except those
which have been found to be non-competitive pursuant to Section 5.
(4) "Developed losses" means losses (including loss
adjustment expenses) adjusted, using standard actuarial
techniques, to eliminate the effect of differences between current
payment or reserve estimates and those which are anticipated to
provide actual ultimate loss (including loss adjustment expense)
payments.
(5) "Expenses" means that portion of a rate
attributable to acquisition, field supervision, collection
expenses, general expenses, taxes, licenses and fees.
(6) "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 risk insurance in the state. The term
includes an affiliate, as described by Section 823.003(a) of this
code if that affiliate is writing personal risk insurance in the
state. The term does not include the Texas Windstorm Insurance
Association created and operated under Article 21.49 of this code
or the FAIR Plan created and operated under article 21.49A of this
code.
(7) "Loss adjustment expense" means the expenses
incurred by the insurer in the course of settling claims.
(8) "Market" is the statewide interaction between
buyers and sellers in the procurement of a line of insurance
coverage pursuant to the provisions of this Act.
(9) "Non-competitive market" means a market, which is
subject to a ruling pursuant to Section 5 that a market is not
competitive for a line of insurance, and, for the purposes of this
Act, residual markets, and pools are non-competitive markets.
(10) "Personal risk" means homeowners, tenants,
non-fleet private passenger automobiles, mobile homes and other
property and casualty insurance for person, family or household
needs. This includes any property and casualty insurance that is
otherwise intended for non-commercial coverage.
(11) "Prospective loss cost" means that portion of a
rate that does not include provisions for expenses (other than loss
adjustment expenses) or profit, and are based on historical
aggregate losses and loss adjustment expenses adjusted through
development to their ultimate value and projected through trending
to a future point in time.
(12) "Rate" means that cost of insurance per exposure
unit whether expressed as a single number or as a prospective loss
cost with an adjustment to account for the treatment of expenses,
profit, and individual insurer variation in loss experience, prior
to any application of individual risk variations based on loss or
expense considerations, and does not include minimum premiums.
(13) "Supplementary rate information" means any
manual or plan of rates, classification, rating schedule, minimum
premium, policy fee, rating rule and any other similar information
needed to determine an applicable rate in effect or to be in effect.
(14) "Supporting information" means (a) the
experience and judgment of the filer and the experience or data of
other insurers or organizations relied upon by the filer, (b) the
interpretation of any statistical data relied upon by the filer,
(c) a description of methods used in making the rates and (d) other
similar information relied upon by the filer.
(15) "Trending" means any procedure for projecting
losses to the average date of loss, or premiums or exposures to the
average day of writing, for the period during which the policies are
to be effective.
Sec. 3. COMPETITIVE MARKET
A. A competitive market for a line of personal risk
insurance is presumed to exist unless the commissioner, after
notice and hearing, determines that a market is not competitive for
a particular line of insurance and issues a ruling to that effect.
The burden of proof in any hearing shall be placed on the party or
parties advocating the position that competition does not exist.
B 1. If the commissioner determines after hearing that a
market is not competitive for a particular line of personal risk
insurance, the commissioner shall issue a ruling within 30 days of
the administrative hearing. Any ruling that a market is not
competitive shall include action the state, including the
commissioner, shall undertake to return the market to a competitive
market. The ruling shall identify which factors listed below are
causing the market not to be competitive and what action the state
shall take to address that factor.
2. Such ruling shall expire one year after issue
unless rescinded earlier by the commissioner or unless the
commissioner renews the ruling after a hearing and a finding as to
continued lack of competition. Any ruling that renews the finding
that competition does not exist within a market for a line of
insurance shall include findings regarding:
a) the action the state and the commissioner have
taken to return the market to a competitive market and b) an
explanation regarding why those actions have failed to return the
market to a competitive market.
3. The commissioner's ruling, or any renewal of that
ruling in the form of findings and conclusion of law shall become
the formal basis for the commissioner's determination and once
issued will be subject to challenge in a state court of competent
jurisdiction pursuant to Subchapter D, Chapter 36, of this code.
C. The following factors shall be considered by the
commissioner for purposes of determining if a market for a
particular line of insurance is not competitive. A determination
that a line of insurance is not competitive shall not be based
solely on any one factor. The factors are:
1. The number of insurers or groups of affiliated
insurers actively engaged in providing coverage taking into account
the specialization traditionally required for the line of
insurance;
2. Measures of market concentration and changes of
market concentration over time including but not limited to the use
of the Herfindahl-Hirschman Index (HHI) and the United States
Department of Justice merger guidelines for an unconcentrated
market;
3. Ease of entry and the existence of financial or
economic barriers that could prevent new firms from entering the
market;
4. The extent to which any insurer or group of
affiliated insurers controls all or a dominant portion of the
market and has actively sought to prevent competition;
5. Whether the total number of companies writing the
line of insurance in this state is sufficient to provide multiple
options;
6. The availability of insurance coverage to
consumers;
7. The opportunities available to consumers in the
market to acquire pricing and other consumer information.
D. If, in considering the factors in section 3(C) the
Commissioner determines that a market is not competitive for a line
of insurance due solely to legislative and or regulatory
impediments, the commissioner may not regulate rates as if the
market was noncompetitive as provided in Sections 4, 5 and 6.
E. The commissioner shall monitor the degree and continued
existence of competition in this State on an on-going basis. In
doing so, the commissioner may utilize existing relevant
information, analytical systems and other sources; or rely on some
combination thereof. Such activities may be conducted internally
within the insurance department, or in cooperation with other state
insurance departments.
F. The commissioner is required, at all times, to take any
and all actions within the scope of the commissioner's power to
preserve and protect competitive markets.
SECTION 4. RATING STANDARDS AND METHODS
A. Rates shall not be excessive, inadequate or
unfairly discriminatory. 1. For the purpose of this article,
"Excessive" means a rate that is likely to produce a long-term
profit that is unreasonably high for the personal risk insurance
provided. No rate in a competitive market shall be considered
excessive.
2. For the purpose of this article, "Inadequate" means
a rate which is unreasonably low for the personal risk insurance
provided and
a. the continued use of which endangers the
solvency of the insurers using it or
b. will have the effect of substantially
lessening competition or creating a monopoly in any market.
3. For the purpose of this article, "Unfairly
discriminatory" refers to rates that cannot be actuarially
justified. It does not refer to rates that produce differences in
premiums for policyholders with like loss exposures, so long as the
rate reflects such differences with reasonable accuracy. A rate is
not unfairly discriminatory if it averages broadly among persons
insured under a group, franchise or blanket policy, or a mass
marketing plan. No rate in a competitive market shall be considered
unfairly discriminatory based on actuarial soundness.
B. In determining whether rates in a non-competitive market
are excessive, inadequate or unfairly discriminatory,
consideration may be given to the following elements:
1. Basic Rate Factors. Due consideration shall be
given to past and prospective loss and expense experience within
and outside of this state, to catastrophe hazards and
contingencies, to events or trends within and outside of this
state, to dividends or savings to policy-holders, members or
subscribers, and to all other factors and judgments deemed relevant
by the insurer.
2. Classification. Risks may be grouped by
classifications for the establishment of rates and minimum
premiums. Classification rates may be modified for individual
risks in accordance with rating plans or schedules which establish
standards for measuring probable variations in hazards or expenses,
or both.
3. Expenses. The expense provision shall reflect the
operating methods of the insurer and its own past expense
experience and anticipated future expenses.
4. Contingencies and Profits. The rates may contain a
provision for contingencies and a provision for a reasonable
underwriting profit, and may reflect investment income directly
attributable to unearned premium and loss reserves.
5. Other relevant factors. Any other factors
available at the time of hearing.
Sec. 5. RATE REGULATION IN A MARKET DETERMINED TO BE
NON-COMPETITIVE
A. If the commissioner determines that competition does not
exist in a market and issues a ruling to that effect pursuant to
Section 3, the rates applicable to insurance sold in that market
shall be regulated in accordance with the provisions of Section 4
through 7 applicable to non-competitive markets.
B. Any rate filing in effect at the time the commissioner
determines that competition does not exist pursuant to Section 3
shall be deemed to be in compliance with the laws of this state
unless disapproved pursuant to the procedures and rating standards
contained in Section 4 through 7 applicable to non-competitive
markets.
C. Any insurer having a rate filing in effect at the time the
commissioner determines that competition does not exist pursuant to
Section 3 may be required to furnish supporting information within
30 days of a written request by the commissioner.
Sec. 6. FILING OF RATES, SUPPLEMENTARY RATE INFORMATION AND
SUPPORTING INFORMATION
A. Filings in Competitive Markets. For personal lines,
every insurer shall file with the commissioner all rates and
supplementary rate information to be used in this state no later
than 30 days after the effective date; provided, that such rates and
supplementary rate information need not be filed for inland marine
risks which by general custom are not written according to manual
rules or rating plans. Risks may be classified in any way except
that no risk may be based in whole or in part on race, color, creed
or national origin.
B. Filings In Non-Competitive Markets.
1. Every insurer shall file with the commissioner all
rates, supplementary rate information and supporting information
for non-competitive markets at least 30 days before the proposed
effective date. The commissioner may give written notice, within
30 days of the receipt of the filing, that the commissioner needs
additional time, not to exceed 30 days from the date of such notice
to consider the filing. Upon written application of the insurer,
the commissioner may authorize rates to be effective before the
expiration of the waiting period or an extension thereof. A filing
shall be deemed to meet the requirements of this article and to
become effective unless disapproved pursuant to Section 7 by the
commissioner before the expiration of the waiting period or an
extension thereof.
2. The filing shall be deemed in compliance with the
filing provisions of this section unless the commissioner informs
the insurer within 10 days after receipt of the filing as to what
supplementary rate information or supporting information is
required to complete the filing. Risks may be classified in any way
except that no risk may be based in whole or in part on race, color,
creed or national origin.
C. Every insurer shall maintain all rates, supplementary
rate information and other information upon which the insurer based
its rates. Such information shall be available to the commissioner
for examination or inspection, upon reasonable notice, in order for
the commissioner to determine compliance with the rate standards of
Section 4.
D. Reference Filings. An insurer may file its rates by
either filing its final rates or by filing a multiplier and, if
applicable, an expense constant adjustment to be applied to
prospective loss costs that have been filed by an advisory
organization on behalf of the insurer.
E. Filings Open To Inspection. All rates, supplementary
rate information and any supporting information filed under this
article shall be open to public inspection, upon request, at the
Department of Insurance once they have been filed except for filed
material deemed confidential, trade secret or proprietary. The
right to inspect filed material shall not affect or reduce federal
copyright or other federal or state right in such material
otherwise held by the filer.
Sec. 7. DISAPPROVAL OF RATES
A. Bases for Disapproval
1. The commissioner shall disapprove a rate in a
competitive market only if the commissioner finds pursuant to
subsection (B) of this section that the rate is inadequate under
Section 4(A)(2) or unfairly discriminatory under Section
4(A)(3)(b).
2. The commissioner may disapprove a rate for use in a
non-competitive market only if the commissioner finds pursuant to
subsection (B) of this section that the rate is excessive,
inadequate or unfairly discriminatory under Section 4(A).
B. Procedures For Disapproval
1. Prior to the expiration of the waiting period or an
extension thereof of a filing made pursuant to Section 8,
subsection (B), the commissioner may disapprove by written order
rates filed pursuant to Section 6(B) without hearing. The order
shall specify in what respects such filing fails to meet the
requirements of this Act. Any insurer whose rates are disapproved
under this section shall be given a hearing upon written request
made within 30 days of disapproval.
2. If, at any time, the commissioner finds that a rate
applicable to insurance sold in a non-competitive market does not
comply with the standards set forth in Section 6, the commissioner
may, after a hearing held upon not less than 20 days written notice,
issue an order pursuant to subsection 7(C) disapproving such rate.
The Hearing notice shall be sent to every insurer and advisory
organization, which adopted the rate and shall specify the matters
to be considered at the hearing. The disapproval order shall not
affect any contract or policy made or issued prior to the expiration
of the period set forth in said order.
3. If, at any time, the commissioner finds that a rate
applicable to insurance sold in a competitive market is inadequate
under 4(A)(3)(a) or unfairly discriminatory under 4(A)(3)(b), the
commissioner may issue an order pursuant to subsection 7(C)
disapproving the rate. Said order shall not affect any contract or
policy made or issued prior to the expiration period set forth in
said order.
C. Order Of Disapproval. If the commissioner disapproves a\
rate pursuant to subsection (B) of this section, the commissioner
shall issue an order within 30 days of the close of the hearing
specifying in what respects such rate fails to meet the
requirements of this Act. The order shall state an effective date
no sooner than 30 business days after the date of the order when the
use of such rate shall be discontinued. This order shall not affect
any policy made before the effective date of the order.
D. Appeal Of Orders; Establishment Of Reserves. If an order
of disapproval is appealed pursuant to section 16, the insurer may
implement the disapproved rate upon notification to the court, in
which case any excess of the disapproved rate over a rate previously
in effect shall be placed in a reserve established by the insurer.
The court shall have control over the disbursement of funds from
such reserve. Such funds shall be distributed as determined by the
court in its final order except that de minimus refunds to
policyholders shall not be required.
Sec. 8. RECORDS AND REPORTS; EXCHANGE OF INFORMATION
A. In only those markets found to be noncompetitive pursuant
to Section 3, insurers shall file with the commissioner, and the
commissioner shall review, reasonable rules and plans for recording
and reporting of loss and expense experience. The commissioner may
designate one or more advisory organizations to assist in gathering
such experience and making compilations thereof. No insurer shall
be required to record or report its experience in a manner
inconsistent with its own rating system.
B. The commissioner and every insurer and advisory
organization may exchange information and experience data with
insurance regulatory officials, insurers, and advisory
organizations in this and other states and may consult with them
with respect to the collection of statistical data and the
application of rating systems.
C. All information provided pursuant to this section shall
remain confidential. The information shall not be shared outside
the department unless the recipient agrees to maintain
confidentiality and has the legal authority to do so.
Sec. 9. EXAMINATIONS
A. Pursuant to Article 1.15 of this code, the commissioner
may examine any insurer to ascertain compliance with this article.
B. Every insurer shall maintain adequate records from which
commissioner may determine compliance with the provisions of this
article. Such records shall contain the experience, data,
statistics and other information collected or used and shall be
available to the commissioner for examination or inspection upon
reasonable notice.
(1) The reasonable cost of an examination made
pursuant to this section shall be paid by the examined party upon
presentation to it of a detailed account of such costs.
(2) The commissioner may accept the report of an
examination made by the insurance supervisory official of another
state in lieu of an examination under this section.
Sec. 10. LEGISLATIVE OVERSIGHT.
(a) 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.
(b) BIENNIAL REPORT ON SCOPE OF COMPETITION. Before
November 15 of each even-numbered year, the commissioner shall
report to the legislature on the scope of competition in the
personal automobile and residential property insurance market in
this state and the effect of competition and regulation on
consumers. The report under this section must include:
1. an assessment of the effect of competition on the
rates and availability of personal automobile and residential
property insurance coverage;
2. a summary of the commissioner's actions over the
preceding two years that reflects changes in the scope of
competition in regulated insurance markets;
3. an evaluation of the personal automobile and
residential property insurance market entry and exit data; and
4. recommendations to the legislature for legislation
that the commissioner finds appropriate to promote the public
interest in the context of personal automobile and residential
property in this state.
Sec. 11. EXEMPTIONS
The commissioner may, after public notice and hearing, exempt any
line of personal risk insurance from any or all of the provisions of
this article for the purpose of relieving such line of insurance
from filing or any otherwise applicable provisions of this article.
Sec. 12. CONSUMER INFORMATION
The commissioner may utilize, develop or cause to be developed a
consumer information system(s) which will provide and disseminate
price and other relevant information on a readily available basis
to purchasers of personal risk insurance. Such activity may be
conducted internally within the insurance department, or in
cooperation with other state insurance departments. To the extent
deemed necessary and appropriate by the commissioner, insurers,
advisory organizations, statistical agents and other persons or
organizations involved in conducting the business of insurance in
this State, to which this section applies, shall cooperate in the
development and utilization of a consumer information system(s).
Sec. 13. DIVIDENDS
(a) Nothing in this article shall be construed to prohibit
or regulate the payment of dividends, savings or unabsorbed premium
deposits allowed or returned by insurers to their policyholders,
members or subscribers. A plan for the payment of dividends,
savings or unabsorbed premium deposits allowed or returned by
insurers to their policyholders, members or subscribers shall not
be deemed a rating plan or system.
Sec. 14. EXEMPTION FROM ACTIONS OTHER LAWS
No action done, action taken or agreement made pursuant to the
authority conferred by this Article shall constitute a violation of
or grounds for prosecution or civil proceedings under any other law
of this state heretofore or hereafter enacted which does not
specifically refer to insurance.
Sec. 15. EXCLUSIVE GOVERNANCE OF THIS ACT
The administration and enforcement of this Article shall be
governed solely by the provision of this Article except as provided
in this Act. No other law relating to insurance and no other
provisions in this Code heretofore or hereafter enacted shall apply
to or be construed as supplementing or modifying the provisions of
this Article unless such other law or provision expressly so
provides and specifically refers to the sections of this Article
which it intends to supplement or modify.
Sec. 16. PENALTIES
A. The commissioner may impose after notice and hearing a
penalty determined in accordance with Chapter 82, Insurance Code.
B. Technical violations arising from systems or computer
errors of the same type shall be treated as a single violation. In
the event of an overcharge, if the insurer makes restitution,
including payment of interest, no penalty shall be imposed.
C. The commissioner may suspend or revoke the license of any
insurer, advisory organization, or statistical agent which fails to
comply with an order of the commissioner within the time prescribed
by such order, or any extension thereof which the commissioner may
grant.
D. The commissioner may determine when a suspension of
license shall become effective and the period of such suspension,
which the commissioner may modify or rescind in any reasonable
manner.
E. No penalty shall be imposed and no license shall be
suspended or revoked except upon a written order of the
commissioner, stating his or her findings, made after notice and
hearing.
Sec. 17. NOTICE AND HEARING
A. Notice Requirements. All notices rendered pursuant to
the provisions of this Article shall be in writing and shall state
clearly the nature and purpose of the hearing. All relevant facts,
statutes and rules shall be specified so that respondent(s) are
fully informed of the scope of the hearing, including specific
allegations, if any. If a hearing is required, all notices shall
designate a hearing date at least 14 days from the date of the
notice, unless such minimum notice period is waived by respondents.
B. Hearings. Subject to Chapter 40 of the insurance 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. 18. JUDICIAL REVIEW
Any order, ruling, finding, decision or other act of the
commissioner made pursuant to this Article shall be subject to
judicial review in accordance with Subchapter D, Chapter 36,
Insurance Code.
SECTION 2. Article 5.35(c), Insurance Code, is amended to
read as follows:
(c) An insurer may use [The commissioner may approve the use
of] policy forms and endorsements other than those adopted under
Subsection (a) or (b) of this article [adopted by a national
organization of insurance companies or a similar organization,] if
the [such] forms or endorsements are filed with and are approved by
the commissioner no later than 30 days after the effective date of
such forms or endorsements. [in accordance with this article.]
SECTION 3. Article 5.06(4), Insurance Code, is amended to
read as follows:
(4) An insurer may use a policy form or [an]
endorsement [to the policy form adopted or approved by the Board]
under this article if the endorsement is filed with the
commissioner no later than 30 days after the effective date of the
form or endorsement. [approved by the Board.]
SECTION 4. 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 5. This Act takes effect September 1, 2003, and
applies only to rates for an insurance policy delivered, issued for
delivery, or renewed on or after January 1, 2004. Rates for a
policy delivered, issued for delivery, or renewed before January 1
2004, are governed by the law as it existed immediately before the
effective date of this Act, and that law is continued in effect for
that purpose.