79R262 PB-F
By: Eiland H.B. No. 998
A BILL TO BE ENTITLED
AN ACT
relating to insurance market conduct surveillance; imposing
sanctions.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Title 5, Insurance Code, is amended by adding
Subtitle G to read as follows:
SUBTITLE G. REGULATION OF INSURER MARKET CONDUCT
CHAPTER 751. MARKET CONDUCT SURVEILLANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 751.001. SHORT TITLE. This chapter may be cited as the
Insurance Market Conduct Surveillance Act.
Sec. 751.002. PURPOSE. The purpose of this chapter is to
establish a framework for department market conduct actions,
including:
(1) processes and systems for identifying, assessing,
and prioritizing market conduct problems that have a substantial
adverse impact on consumers, policyholders, and claimants;
(2) development of appropriate market conduct actions
by the commissioner as required to:
(A) substantiate market conduct problems; and
(B) remedy significant market conduct problems;
and
(3) procedures to communicate and coordinate market
conduct actions with other states to foster the most efficient and
effective use of resources.
Sec. 751.003. DEFINITIONS. In this chapter:
(1) "Complaint" means a written or documented oral
communication, the primary intent of which is to express a
grievance or an expression of dissatisfaction.
(2) "Desk examination" means a targeted examination
conducted by an examiner at a location other than an insurer's
premises. The term includes an examination performed at the
department's offices during which the insurer provides requested
documents for department review by hard copy or by microfiche,
disk, or other electronic media.
(3) "Market analysis" means a process under which
market conduct surveillance personnel collect and analyze
information from filed schedules, surveys, required reports, and
other sources as necessary to:
(A) develop a baseline understanding of the
marketplace; and
(B) identify insurer patterns or practices that:
(i) deviate significantly from the norm; or
(ii) may pose a potential risk to the
insurance consumer.
(4) "Market analysis handbook" means the outline of
the elements and objectives of market analysis as developed and
adopted by the National Association of Insurance Commissioners, and
used to establish a uniform process by which states may establish
and implement market analysis programs.
(5) "Market conduct action" means any activity that
the commissioner may initiate to assess and address insurer market
practices. The term includes a market analysis and a targeted
examination. The term does not include:
(A) a commissioner action taken to resolve an
individual consumer complaint; or
(B) another report relating to a specific
instance of insurer misconduct.
(6) "Market conduct examiner's handbook" means the set
of guidelines, developed and adopted by the National Association of
Insurance Commissioners, that document established practices to be
used by market conduct surveillance personnel in developing and
executing an examination under this chapter.
(7) "Market conduct surveillance personnel" means
those individuals employed by or under contract with the department
who collect, analyze, review, or act on information regarding
insurer patterns or practices.
(8) "Market conduct uniform examination procedures"
means the set of guidelines developed and adopted by the National
Association of Insurance Commissioners designed to be used by
market conduct surveillance personnel in conducting an examination
under this chapter.
(9) "On-site examination" means a targeted
examination that is conducted at:
(A) the insurer's home office; or
(B) another location at which the records under
review are stored.
(10) "Qualified contract examiner" means a person
qualified by education, experience, and any applicable
professional designations who is under contract with the
commissioner to perform market conduct actions.
(11) "Standard data request" means the set of field
names and descriptions developed and adopted by the National
Association of Insurance Commissioners for use by market conduct
surveillance personnel in an examination.
(12) "Targeted examination" means a focused
examination based on the results of market analysis that indicate
the need to review either a specific line of the business of
insurance or specific insurance business practices, including:
(A) underwriting and rating;
(B) marketing and sales;
(C) complaint handling operations and
management;
(D) advertising materials;
(E) licensing;
(F) policyholder services;
(G) nonforfeitures;
(H) claims handling; or
(I) policy forms and filings.
(13) "Third-party model or product" means a model or
product provided by an entity that is separate from and not under
direct or indirect corporate control of the insurer using the model
or product.
Sec. 751.004. IMMUNITY. (a) A cause of action does not
arise, and liability may not be imposed, for any statements made or
conduct performed in good faith while implementing this chapter,
against:
(1) the commissioner;
(2) an authorized representative of the commissioner;
or
(3) an examiner appointed by the commissioner.
(b) A cause of action does not arise, and liability may not
be imposed, against any person for the act of communicating or
delivering information or data to the commissioner or the
commissioner's authorized representative or examiner under an
examination made under this chapter, if the act of communication or
delivery was performed in good faith and without fraudulent intent
or the intent to deceive.
(c) A person identified in Subsection (a) is entitled to
attorney's fees and costs if the person is the prevailing party in a
civil cause of action for libel, slander, or any other relevant tort
arising out of activities conducted in implementing this chapter,
and the party bringing the action was not substantially justified
in doing so. For purposes of this subsection, an action is
"substantially justified" if the action had a reasonable basis in
law or fact at the time that it was initiated.
(d) This section does not abrogate or modify any common law
or statutory privilege or immunity.
[Sections 751.005-751.050 reserved for expansion]
SUBCHAPTER B. GENERAL POWERS AND DUTIES OF COMMISSIONER
Sec. 751.051. PARTICIPATION IN NATIONAL MARKET CONDUCT
DATABASES. (a) The commissioner shall collect and report market
data to the National Association of Insurance Commissioner's market
information systems, including the complaint database system, the
examination tracking system, the regulatory information retrieval
system, or other successor systems of that association, as
determined by the commissioner.
(b) Information collected and maintained by the department
shall be compiled in a manner that meets the requirements of the
National Association of Insurance Commissioners.
Sec. 751.052. COORDINATION WITH OTHER STATES. The
commissioner shall share information and coordinate the
department's market analysis and examination efforts with other
states through the National Association of Insurance
Commissioners.
Sec. 751.053. INFORMATION FROM COMMISSIONER. (a) At least
once annually or more frequently if determined necessary by the
commissioner, the commissioner shall provide in an appropriate
manner to insurers and other entities subject to this code
information regarding new laws and rules, enforcement actions, and
other information the commissioner considers relevant to ensure
compliance with market conduct requirements.
(b) Failure by the commissioner to provide the information
described by Subsection (a) does not constitute a defense for an
insurer who fails to comply with an insurance law of this state.
Sec. 751.054. REPORT OF VIOLATIONS. (a) The commissioner
shall designate an individual within the department whose
responsibilities shall include the receipt of information from
employees of insurers and other entities regulated by the
department regarding violations of laws or rules by their
employers. The commissioner's designee shall be properly trained
in the handling of that information.
(b) Information received under this section is a
confidential communication and is not public information.
[Sections 751.055-751.100 reserved for expansion]
SUBCHAPTER C. MARKET ANALYSIS PROCEDURES
Sec. 751.101. COLLECTION OF INFORMATION; COMMISSIONER
ANALYSIS. (a) The commissioner shall gather insurance market
information from:
(1) data available to the department, including survey
results and information required to be reported to the department;
(2) information collected by the National Association
of Insurance Commissioners and other public and private sources;
and
(3) information from within and outside the insurance
industry.
(b) The commissioner shall analyze the information compiled
under Subsection (a) as necessary to:
(1) develop a baseline understanding of the insurance
marketplace; and
(2) identify for further review insurers or insurance
practices that deviate significantly from the norm or that may pose
a potential risk to the insurance consumer.
(c) The commissioner shall use the market analysis handbook
as a resource in performing the analysis required under this
section.
Sec. 751.102. ADDITIONAL ANALYSIS OF MARKET ACTIONS. (a)
If, as a result of the market analysis, the commissioner determines
that further inquiry into a particular insurer or insurance
practice is needed, the commissioner may consider taking one or
more of the market conduct actions described by Subsection (b)
before conducting a targeted, on-site market conduct examination.
If a market conduct action selected by the commissioner requires
the participation of or a response by the affected insurer, the
commissioner shall notify the insurer of the action selected in
writing.
(b) Market conduct actions described by Subsection (a) may
include:
(1) correspondence with the insurer;
(2) insurer interviews;
(3) information gathering;
(4) policy and procedure reviews;
(5) interrogatories;
(6) review of insurer self-evaluation and compliance
programs, including insurer membership in a best-practice
organization; and
(7) desk examinations.
(c) The commissioner shall select market conduct actions
that are cost effective for the department and the insurer while
protecting the interests of the insurance consumer.
(d) The commissioner shall take steps reasonably necessary
to:
(1) eliminate duplicative inquiries; and
(2) coordinate the market conduct actions and findings
of this state with those of other states.
Sec. 751.103. PROTOCOLS FOR MARKET CONDUCT ACTIONS. (a)
Each market conduct action taken as a result of a market analysis
must focus on the general business practices and compliance
activities of insurers, rather than identifying infrequent or
unintentional random errors that do not cause significant consumer
harm.
(b) The commissioner may determine the frequency and timing
of the market conduct actions. The timing of an action depends on
the specific market conduct action to be initiated unless
extraordinary circumstances indicating a risk to consumers require
immediate action.
(c) If the commissioner has information that more than one
insurer is engaged in practices that may violate statutes or rules,
the commissioner may schedule and coordinate multiple examinations
simultaneously.
(d) The commissioner may provide an insurer with an
opportunity to resolve to the satisfaction of the commissioner any
matter that arises as a result of a market analysis before any
additional market conduct actions are taken against the insurer.
(e) For an application by the department of a handbook,
guideline, or other product referenced in this chapter that is the
work product of the National Association of Insurance Commissioners
that changes the way in which market conduct actions are conducted,
the commissioner shall give notice and provide interested parties
with an opportunity for a public hearing as provided by Chapter
2001, Government Code, if the change:
(1) necessitates a change in a statute or rule; or
(2) deviates from the applicable handbook, guideline,
or other product most recently adopted by the National Association
of Insurance Commissioners.
(f) Except as otherwise provided by law, each insurer or
person from whom information is sought, and each officer, director,
or agent of that insurer or person, shall provide the commissioner
with convenient and free access to all books, records, accounts,
papers, documents and any computer or other recordings relating to
the property, assets, business and affairs of the insurer or
person.
(g) Each officer, director, employee, insurance producer,
and agent of an insurer or person described by Subsection (f) shall,
to the extent of that individual's ability, facilitate and aid in a
department market conduct action.
[Sections 751.104-751.150 reserved for expansion]
SUBCHAPTER D. MARKET CONDUCT EXAMINATIONS
Sec. 751.151. EXAMINATION. (a) If the commissioner
determines that a market conduct action described by Section
751.102(b) is not appropriate, the department may conduct a
targeted market conduct examination in accordance with the market
conduct uniform examination procedures and the market conduct
examiners handbook.
(b) A targeted examination may be conducted through a desk
examination or an on-site examination. To the extent feasible, the
department shall conduct a market conduct examination through desk
examinations and data requests before conducting an on-site
examination.
(c) The department shall conduct a market conduct
examination in accordance with the market conduct examiners
handbook and the market conduct uniform examinations procedures.
(d) The department shall use the standard data request or a
successor product that is substantially similar to the standard
data request as adopted by the commissioner by rule.
Sec. 751.152. EXAMINATION OF FOREIGN AND ALIEN INSURERS.
In examining a foreign or alien insurer licensed in this state, the
commissioner may, in lieu of conducting an examination under
Section 751.151, accept an examination report made by another state
that has a market surveillance system determined by the
commissioner to be substantially similar to the market surveillance
system adopted under this chapter.
Sec. 751.153. WORK PLAN. Before beginning a targeted
on-site market conduct examination, market conduct surveillance
personnel shall prepare a work plan that includes:
(1) the name and address of the insurer to be examined;
(2) the name and contact information of the
examiner-in-charge;
(3) a statement of the reasons for the targeted,
on-site examination;
(4) a description of the scope of the targeted,
on-site examination;
(5) the date the on-site examination is scheduled to
begin;
(6) notice to any non-insurance department personnel
who will assist in the examination;
(7) a time estimate for the examination; and
(8) if the cost of the examination is billed to the
affected insurer:
(A) a budget for the examination; and
(B) an identification of factors that will be
included in the billing.
Sec. 751.154. NOTICE OF MARKET CONDUCT EXAMINATION. (a)
Unless the examination is conducted in response to extraordinary
circumstances as described by Section 751.103(b), the department
shall notify an affected insurer of an on-site examination not
later than the 60th day before the scheduled date of the beginning
of the examination. The notice must include the examination work
plan and a request that the insurer name an examination coordinator
for the insurer.
(b) In addition to the notice required under Subsection (a),
the commissioner shall post notice that a market conduct
examination has been scheduled on the National Association of
Insurance Commissioners examination tracking system.
Sec. 751.155. PRE-EXAMINATION CONFERENCE. Not later than
the 30th day before the scheduled date of the examination, the
commissioner shall conduct a pre-examination conference with the
insurer's examination coordinator and key personnel to clarify
expectations.
Sec. 751.156. EXIT CONFERENCE. Before the conclusion of a
targeted on-site market conduct examination, the member of the
market conduct surveillance personnel who is designated as the
examiner-in-charge shall schedule an exit conference with the
insurer.
Sec. 751.157. EXAMINATION REPORT. (a) Unless the
commissioner and the insurer agree to a different schedule, the
commissioner shall follow the time line established under this
section.
(b) The commissioner shall deliver the draft examination
report to the insurer not later than the 60th day after the date the
examination is completed. For purposes of this section, the date
the examination is completed is the date that the commissioner
confirms in writing that the examination is completed.
(c) Not later than the 30th day after the date on which the
insurer receives the draft examination report, the insurer shall
provide any written comments regarding the report to the
department.
(d) The department shall make a good faith effort to resolve
issues with the insurer informally and shall prepare a final
examination report not later than the 30th day after the date of
receipt of the insurer's written comments on the draft report
unless a mutual agreement is reached to extend the deadline.
(e) The department shall include the insurer's responses in
the final examination report. The responses may be included as an
appendix or in the text of the examination report. An insurer is
not obligated to submit a response. An individual involved in the
examination may not be named in either the report or the insurer
response except to acknowledge the individual's involvement.
(f) The commissioner may make corrections and other changes
to the final examination report as appropriate, and shall issue the
report to the insurer. Not later than the 30th day after receipt of
the final examination report under this subsection, the insurer
shall accept the report, accept the findings of the report, or
request a hearing. The commissioner and the insurer by mutual
agreement may extend the period for an additional 30 days. A
request for a hearing must be made in writing and must follow the
requirements of Chapter 2001, Government Code.
Sec. 751.158. CONFIDENTIALITY OF EXAMINATION REPORT
INFORMATION. (a) Except as provided by Subsection (b), the
commissioner shall maintain the confidentiality of information
included in a final examination report until the 30th day after the
date on which the report is issued. On the expiration of the 30th
day, the information becomes public information unless access to
the information is stayed by a court.
(b) This chapter does not prevent the commissioner from
disclosing at any time the contents of an examination report,
including a preliminary examination report, or the results of an
examination, or any matter relating to an examination report,
preliminary examination report, or the results of an examination,
to the department, the insurance department of any other state, or
an agency of the federal government, if the department or agency
receiving the report or matter relating to the report agrees to
maintain the information as confidential and in a manner consistent
with this chapter.
Sec. 751.159. ASSESSMENT OF COSTS OF EXAMINATION. (a) If
the reasonable and necessary cost of a market conduct examination
is to be assessed against the affected insurer, fees for that cost
must be consistent with those otherwise authorized by law. The fees
must be itemized and bills for the fees must be provided to the
insurer on a monthly basis for review prior to submission for
payment.
(b) The commissioner shall actively manage and oversee
examination costs, including costs associated with the use of
department examiners and with retaining qualified contract
examiners necessary to perform an on-site examination. To the
extent the commissioner retains outside assistance, the
commissioner shall adopt by rule written protocols that:
(1) clearly identify the types of functions to be
subject to outsourcing;
(2) provide specific time lines for completion of the
outsourced review;
(3) require disclosure of recommendations made by
contract examiners;
(4) establish and use a dispute resolution or
arbitration mechanism to resolve conflicts with insurers regarding
examination fees; and
(5) require disclosure of the terms of contracts
entered into with outside consultants, and specifically terms
regarding the fees or hourly rates that may be charged by those
consultants.
(c) The commissioner must review and affirmatively endorse
detailed billings made by a qualified contract examiner before the
detailed billings are sent to the insurer.
[Sections 751.160-751.200 reserved for expansion]
SUBCHAPTER E. CONFIDENTIALITY REQUIREMENTS
Sec. 751.201. CONFIDENTIAL DOCUMENTS. (a) A document is
confidential and privileged if the document is a working paper,
third-party model or product, complaint log, or other document that
is:
(1) created, produced, or obtained by or disclosed to
the commissioner or any other person in the course of:
(A) a market conduct action made under this
chapter; or
(B) a market analysis by the commissioner of the
market conditions of an insurer; or
(2) obtained by the National Association of Insurance
Commissioners as a result of this chapter.
(b) The document confidentiality requirements under
Subsection (a) apply to a copy of the document.
(c) A document made confidential under this section is not
subject to subpoena and may not be subject to discovery or be
admissible in evidence in any private civil action.
Sec. 751.202. NO WAIVER. The disclosure to the
commissioner under this subchapter of a document, material, or
information does not constitute the waiver of any applicable
privilege or claim of confidentiality regarding the document,
material, or information.
Sec. 751.203. AUTHORITY OF COMMISSIONER. (a) The
commissioner may share documents, materials, or other information,
including the confidential and privileged documents, materials, or
information described by Section 751.201, with other state, federal
and international regulatory agencies and law enforcement
authorities and the National Association of Insurance
Commissioners and that association's affiliates and subsidiaries,
if the recipient agrees to and has the legal authority to maintain
the confidentiality and privileged status of the document,
material, or other information.
(b) The commissioner may receive documents, materials, or
information, including otherwise confidential and privileged
documents, materials, or information, from the National
Association of Insurance Commissioners and that association's
affiliates or subsidiaries, and from regulatory and law enforcement
officials of other foreign or domestic jurisdictions. The
commissioner shall maintain as confidential or privileged any
document, material, or information received with notice or the
understanding that the document, material, or information is
confidential or privileged under the laws of the jurisdiction that
is the source of the document, material, or information.
(c) Consistent with this section, the commissioner may
enter into agreements governing the sharing and use of information.
[Sections 751.204-751.250 reserved for expansion]
SUBCHAPTER F. MARKET CONDUCT SURVEILLANCE PERSONNEL
Sec. 751.251. PERSONNEL; QUALIFICATIONS. (a) To conduct
market conduct surveillance under this chapter, the commissioner
may designate department staff to perform duties under this
chapter, and may supplement that staff with qualified outside
professional assistance if the commissioner determines that that
assistance is necessary.
(b) Market conduct surveillance personnel must be qualified
by education and experience and, if applicable, must hold
appropriate professional designations.
Sec. 751.252. CONFLICT OF INTEREST. (a) An individual who
is a member of the market conduct surveillance personnel has a
conflict of interest, either directly or indirectly, if the
individual is affiliated with the management of, has been employed
by, or owns a pecuniary interest in, an insurer subject to an
examination conducted under this chapter.
(b) This section may not be construed to automatically
preclude the individual from being:
(1) a policyholder or claimant under an insurance
policy;
(2) a grantee of a mortgage or similar instrument on
the individual's residence from a regulated entity if done under
customary terms and in the ordinary course of business;
(3) an investment owner in shares of regulated
diversified investment companies; or
(4) a settlor or beneficiary of a blind trust into
which any otherwise permissible holdings have been placed.
Sec. 751.253. ACCESS TO INFORMATION. (a) Except as
otherwise provided by law, market conduct surveillance personnel
shall, as practicable, have free and full access to all books and
records, and all employees, officers, and directors, of the insurer
during regular business hours.
(b) On the request of market conduct surveillance
personnel, an insurer that uses a third-party model or product for
any of the activities under examination shall make the details of
those models or products available to that personnel.
Sec. 751.254. AUTHORITY OF MARKET CONDUCT SURVEILLANCE
PERSONNEL. Market conduct surveillance personnel may issue
subpoenas and examine insurance company personnel under oath if
that action is ordered by the commissioner under Subchapter C,
Chapter 36.
[Sections 751.255-751.300 reserved for expansion]
SUBCHAPTER G. SANCTIONS
Sec. 751.301. SANCTIONS. (a) The commissioner may impose
sanctions under Chapter 82 against an insurer determined, as a
result of a market conduct action or other action under this
chapter, to have violated this code, a rule adopted under this code,
or another insurance law of this state.
(b) In determining an appropriate sanction under Subsection
(a) the commissioner shall consider:
(1) any actions taken by the insurer to maintain
membership in, and comply with the standards of, best-practice
organizations that promote high ethical standards of conduct in the
insurance marketplace; and
(2) the extent to which the insurer maintains
regulatory compliance programs to self-assess, self-report, and
remediate problems detected by the insurer.
SECTION 2. This Act takes effect September 1, 2005.