By: Van de Putte, et al. S.B. No. 400
A BILL TO BE ENTITLED
AN ACT
Relating to the regulation and reform of certain lines of
insurance; providing a penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. SHORT TITLE. This Act may be cited as The
Insurance Reform and Consumer Protection Act.
SECTION 2. The following provisions of the Insurance Code
are repealed:
(1) Article 5.26, Section (h);
(2) Article 5.50;
(3) Section 911.001;
(4) Section 912.002;
(5) Section 912.201;
(6) Section 941.003(a);
(7) Section 941.003(b);
(8) Section 941.003(c);
(9) Section 942.003(a);
(10) Section 942.003(b); and
(11) Section 942.003(c).
SECTION 3. The following provisions of the Insurance Code
are repealed:
(1) Article 5.01, Section (f);
(2) Article 5.01-2, Section (b);
(3) Article 5.03, Section (g);
(4) Article 5.04, Section (c);
(5) Article 5.09, Section (c);
(6) Article 5.11, Section (c);
(7) Article 5.25, Section (b);
(8) Article 5.25A, Section (b);
(9) Article 5.26, Section (i);
(10) Article 5.28, Section (d);
(11) Article 5.29, Section (b);
(12) Article 5.30, Section (b);
(13) Article 5.31, Section (b);
(14) Article 5.32, Section (b);
(15) Article 5.34, Section (b);
(16) Article 5.39, Section (b);
(17) Article 5.40, Section (d);
(18) Article 5.41, Section (b);
(19) Article 5.96, Section (a-1);
(20) Article 5.101; and
(21) Section 40.061.
SECTION 4. Subchapter C, Chapter 5, Insurance Code, is
amended by adding Article 5.26-1 to read as follows:
Article 5.26-1. RATE ROLLBACK.
Notwithstanding Article 5.26 of this Chapter, for any form of
insurance subject to this chapter issued or renewed on or after June
1, 2003, every insurer shall reduce its rates to levels which are no
greater than the insurer's rates for the same coverage that were in
effect on January 1, 2001. The insurer shall use those rates until
the commissioner approves new rates under Article 5.26.
SECTION 5. Subchapter B, Chapter 21, Insurance Code, is
amended by adding Article 21.21-12 to read as follows:
Article 21.21-12. REGULATION OF UNDERWRITING GUIDELINES.
Sec. 1. DEFINITIONS. In this article:
(1) "Actuarially sound" means the underwriting
guideline is shown to differentiate among consumers who have
different expected costs associated with the transfer of risk, all
other relevant factors being the same. The burden of proof in any
proceeding regarding whether an underwriting guideline is
actuarially sound shall be on the party that used or intends to use
the underwriting guideline to show that the underwriting guideline
is actuarially sound.
(2) "Credit scoring" and "insurance scoring" mean an
underwriting guideline based in whole or in part on information
related to an individual's credit, credit worthiness, credit
standing, credit capacity, credit history, payment habits, or
financial responsibility.
(3) "Person" means any individual, insurance company,
reciprocal or interinsurance exchange, mutual, farm mutual
insurance company, capital stock company, fraternal benefit
society, local mutual aid association, county mutual insurance
company, association, Lloyd's plan company, farm mutual company,
and any other legal entity engaged in the business of insurance,
including agents.
(4) "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.
(5) "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.
(6) "Underwriting guideline" means a rule, standard,
marketing decision, guideline, or practice, whether written, oral
or electronic, used by an insurer or its agent to examine, bind,
accept, reject, renew, nonrenew, cancel, or limit coverages made
available to classes of consumers or individual consumers.
Sec. 2. PROHIBITION. No person shall use an underwriting
guideline for personal automobile insurance or residential
property insurance, other than underwriting guidelines covered in
section 3 of this article, without the prior approval of the
commissioner.
Sec. 3. PERMISSIBLE UNDERWRITING GUIDELINES. An insurer is
not required to obtain the commissioner's approval to use an
underwriting guideline that complies with paragraph (1), (2), or
(3) of this section:
(1) Underwriting guidelines for personal automobile
insurance that are based on the following characteristics:
(A) average miles driven in a year or other
specified time period;
(B) accidents in which a person to be insured
under the policy can reasonably be considered to have been at fault
and which resulted in bodily injury or property damage;
(C) a final conviction in any court in the United
States, forfeiture of bond, or payment of a fine or an amount
accepted by the court if the conviction, forfeiture or payment was a
result of an allegation that a violation of a law regulating the
operation of motor vehicles was committed;
(D) the making of a fraudulent insurance claim;
or
(E) number of years of driving experience or
number of years licensed to drive.
(2) Underwriting guidelines for residential property
insurance that are based on the following characteristics:
(A) the physical condition of the property to be
insured, provided the underwriting guideline has specific and
objective measures to evaluate the hazard;
(B) claim experience on a residential property
policy arising out of the owner's negligence;
(C) if a structure to be insured is vacant or
unoccupied for more than 60 days;
(D) the making of a fraudulent insurance claim;
or
(E) an act of arson.
(3) underwriting guidelines promulgated by the
commissioner by rule, if the commissioner determines after a
hearing that the underwriting guideline:
(A) is actuarially sound;
(B) promotes the mitigation of losses; and
(C) does not have an adverse impact based on
income level.
Sec. 4. PRIOR APPROVAL STANDARDS. The commissioner shall
not approve the use of an underwriting guideline unless the
underwriting guideline:
(A) is actuarially sound;
(B) promotes the mitigation of losses; and
(C) does not have an adverse impact based on
income level.
Sec. 5. CREDIT SCORING AND INSURANCE SCORING. The
commissioner shall not approve, nor shall any person use, an
underwriting guideline or rating factor based in whole or in part on
credit scoring or insurance scoring.
SECTION 6. Chapter 38, Insurance Code, is amended by
amending Section 38.002 to read as follows:
(a) The department or the office of public insurance counsel
[may] shall obtain a copy of an insurer's underwriting guidelines.
(b) Underwriting guidelines are not confidential, and the
department [or] and the office of public insurance counsel [may
not] shall make the guidelines available to the public.
[(c) The department or the office of public insurance
counsel may disclose to the public a summary of an insurer's
underwriting guidelines in a manner that does not directly or
indirectly identify the insurer.
[(d) When underwriting guidelines are furnished to the
department or the office of public insurance counsel, only a person
within the department or the office of public insurance counsel
with a need to know may have access to the guidelines. The
department and the office of public insurance counsel shall
establish internal control systems to limit access to the
guidelines and shall keep records of the access provided.
[(e) This section does not preclude the use of underwriting
guidelines as evidence in prosecuting a violation of this code.
Each copy of an insurer's underwriting guidelines that is used in
prosecuting a violation is presumed to be confidential and is
subject to a protective order until all appeals of the case have
been exhausted. If an insurer is found, after the exhaustion of all
appeals, to have violated this code, a copy of the underwriting
guidelines used as evidence of the violation is no longer presumed
to be confidential.
[(f) A violation of this section is a violation of Chapter
552, Government Code.]
SECTION 7. Chapter 827, Insurance Code, is amended by
amending Sections 827.001, 827.002, 827.003, 827.006, 827.007,
827.008, and 827.010 to read as follows:
Sec. 827.001. DEFINITIONS [DEFINITION]. In this chapter:
(1) "Affiliate" means an insurer that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, another insurer.
(2) "Insurer" means any licensed insurer or other
entity writing insurance in this state, including a reciprocal
exchange, interinsurer, Lloyds insurer, fraternal benefit society,
county mutual, farm mutual, and any other legal entity engaged in
the business of insurance.
(3) "Rating[, "rating] territory" means a rating
territory established by the department.
Sec. 827.002. EXEMPTION. This chapter does not apply to a
transfer of business from an insurer to a company that:
(1) is under common ownership with the insurer; [and]
(2) is authorized to engage in the business of
insurance in this state; and[.]
(3) is not a reciprocal exchange, interinsurer, Lloyds
insurer, fraternal benefit society, county mutual, or farm mutual
insurer.
Sec. 827.003. WITHDRAWAL PLAN REQUIRED. An [authorized]
insurer shall file with the commissioner a plan for orderly
withdrawal if the insurer proposes to:
(1) withdraw from writing a line of insurance in this
state or reduce the insurer's total annual premium volume by [75] 50
percent or more; or
(2) reduce, in a rating territory, the insurer's total
annual premium volume in a personal line of motor vehicle
comprehensive or residential property insurance by 50 percent or
more.
Sec. 827.006. [RESUMPTION OF] WRITING INSURANCE AFTER
[COMPLETE] WITHDRAWAL. [An] When an insurer [that] withdraws from
writing [all lines of insurance] either private passenger
automobile insurance or residential property insurance in this
state, the insurer and its affiliates may not, without the approval
of the commissioner, [resume writing] write any line of insurance
in this state before the fifth anniversary of the date of
withdrawal.
Sec. 827.007. PENALTIES. The commissioner may impose the
civil penalties under Chapter 82 on an insurer that fails to comply
with any requirement of this Chapter. [obtain the commissioner's
approval before the insurer:
[(1) withdraws from writing a line of insurance in
this state; or
[(2) reduces the insurer's total annual premium volume
by 75 percent or more in any year.]
Sec. 827.008. RESTRICTION PLAN. (a) Before an insurer[,
in response to a catastrophic natural event that occurred during
the preceding six months,] may restrict writing new private
passenger automobile insurance or residential property insurance
business in the state or a rating territory [in a personal line of
comprehensive motor vehicle or residential property insurance],
the insurer must file a proposed restriction plan with the
commissioner for the commissioner's approval [review and comment].
A residential property insurer may not restrict its writing of
residential property insurance Homeowners "B" policy forms, as
promulgated by the commissioner. If the insurer offers a
Homeowners "A" policy form, or a policy form approved under
Insurance Code Article 5.35(b) or (c), the insurer must also offer
the consumer a Homeowners "B" policy.
(b) The commissioner's approval of a restriction plan filed
under Subsection (a) is [not] required. An insurer that files a
restriction plan may not institute the plan until on or after the
15th day after the date the plan is approved by the commissioner
[filed]. The commissioner shall not approve a restriction plan
unless the commissioner determines that the plan will not have an
adverse impact on the affordability and availability of insurance
in this state.
[(c) Notwithstanding Subsection (b), a withdrawal plan must
be filed and approved under Sections 827.003 and 827.004 if an
insurer's decision not to accept new business in a personal line of
comprehensive motor vehicle or residential property insurance
results in a reduction of the insurer's total annual premium volume
by 50 percent or more.]
Sec. 827.010. MORATORIUM. (a) The commissioner may impose
a moratorium of not longer than two years on:
(1) the approval of withdrawal plans; or
(2) the [implementation] approval of plans to restrict
the writing of new business described by Section 827.008.
(b) A moratorium under this section may be imposed on plans
implemented after the commissioner has published notice of
intention to impose a moratorium on plans under Subsection (a)(2).
(c) The commissioner may annually renew a moratorium
imposed under this section.
(d) To impose or renew a moratorium under this section, the
commissioner must determine, after notice and hearing, that [a
catastrophic event has occurred and that as a result of that event]
a particular line of insurance is not reasonably expected to be
available and affordable to a substantial number of policy holders
or potential policy holders in this state or, in the case of
personal lines of motor vehicle comprehensive or residential
property insurance, in a rating territory.
(e) The provisions of Chapter 2001, Government Code,
relating to contested cases apply to the notice and hearing.
(f) The commissioner by rule shall establish reasonable
criteria for applying the standards for determining whether to
impose a moratorium under this section.
(g) The commissioner may limit a moratorium on withdrawal
from or restriction of writing business in personal lines insurance
to certain geographical areas of the state.
SECTION 8. Subchapter A, Chapter 5, Insurance Code, is
amended by amending Article 5.03(b) to read as follows:
(b) The Board shall issue its order in writing setting forth
the terms of approval or reasons for denial of each application
filed for deviation. If the commissioner has not issued an order
approving the filing within 60 days after the filing of the
application, the insurer may request a hearing on the application,
to be held at the State Office of Administrative Hearings under
Government Code Chapter 2001. The burden of proof in any such
hearing shall be on the insurer. The hearings examiner must issue a
proposal for decision within 60 days after the filing of the request
for a hearing. The hearings examiner's proposed order shall be
final unless the commissioner issues a different order within 30
days after the commissioner receives the proposed order. [On
January 1, 1974 and thereafter if the Board has not issued its order
within 30 days after the filing of an application, the application
shall be "deemed approved" by the Board. Provided, however, that
the Board may thereafter require the applicant insurer to furnish
proof to the Board that the matters set out in the application are
true and correct and that such application meets the requirements
of this Article. If after notice and hearing the Board determines
that any application "deemed to have been approved" by the Board
contains false or erroneous information or the Board determines
that the application does not meet the requirements of this Article
the Board may suspend or revoke the approval "deemed to have been
granted."] An insurer that has received approval[, or is "deemed to
have received approval"] for the use of a deviation may apply for an
amendment to such deviation or by notice to the Board withdraw the
deviation.
SECTION 9. Subchapter C, Chapter 5, Insurance Code, is
amended by amending Article 5.26(d) to read as follows:
(d) In considering any application provided for in (b) or
(c) above, the Board shall give consideration to the factors
applied by insurers in determining the bases for rates; the
financial condition of the insurer; the method of operation and
expenses of such insurer; the loss experience of the insurer, past
and prospective, including where pertinent the conflagration and
catastrophe hazards, if any, both within and without this state; to
all factors reasonably related to the kind of insurance involved;
to a reasonable margin for an underwriting profit for the insurer,
and, in the case of participating insurers, to policyholders'
dividends. Such application shall be approved in whole or in part
by the Board, provided the Board finds that the resulting premiums
will be just, adequate, reasonable, not excessive and not unfairly
discriminatory. [The Board shall issue an order permitting the
deviation for such insurer to be filed if it is found to be
justified upon the applicant's showing that the resulting premiums
would be adequate and not unfairly discriminatory. The Board shall
issue an order denying such application if it finds that the
resulting premiums would be inadequate or unfairly
discriminatory.] As soon as reasonably possible after such
application has been made the Board shall in writing permit or deny
the same[; provided, that any such application shall be deemed
permitted unless denied within thirty (30) days; provided, that the
Board may by official order postpone action for one additional
period not exceeding thirty (30) days if deemed necessary for
proper consideration; except that deviations in effect at the time
this Act becomes effective shall be controlled by subdivision (f)
hereof]. If the commissioner has not issued an order approving the
filing within 60 days after the filing of the application, the
insurer may request a hearing on the application, to be held at the
State Office of Administrative Hearings under Government Code
Chapter 2001. The burden of proof in any such hearing shall be on
the insurer. The hearings examiner must issue a proposal for
decision within 60 days after the filing of the request for a
hearing. The hearings examiner's proposed order shall be final
unless the commissioner issues a different order within 30 days
after the commissioner receives the proposed order. Each deviation
permitted to be filed shall be effective for a period of one (1)
year from the date of final granting of such permission whether by
the Board in the first instance or upon direction of the court.
However, a deviation may be withdrawn at any time with the approval
of the Board or terminated by order of the Board, which order must
specify the reasons for such termination. All deviations from
maximum rates shall be governed by this Article.
SECTION 10. 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 to take effect on
that date, this Act takes effect September 1, 2003.