79R5855 DLF/KCR-D
By: Burnam H.B. No. 3398
A BILL TO BE ENTITLED
AN ACT
relating to regulation of certain personal lines of insurance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. FINDINGS AND PURPOSE
SECTION 1.01. (a) The 79th Legislature finds that:
(1) Texans pay the highest homeowners insurance rates
in the nation;
(2) actions of the 78th Legislature failed to
substantially bring down Texas homeowners insurance rates;
(3) actions of the 78th Legislature failed to
substantially curtail the use of capricious and discriminatory
insurance industry practices, such as insurance credit scoring and
neighborhood redlining, that discriminate against Texans of color
as well as Texans of lower and moderate income levels;
(4) the Texas Department of Insurance has repeatedly
agreed to settlements favorable to insurers found to be
overcharging or discriminating against the insurer's own
policyholders; and
(5) while Texas homeowners continue to be subjected to
unfair insurance industry practices and exorbitant insurance
rates, insurers are experiencing their lowest loss ratios of the
last 15 years.
(b) Because of the conditions listed in Subsection (a) of
this section, the purpose of this Act is to provide meaningful
relief to Texas consumers from unfair insurance rates and unfair
insurance industry practices by:
(1) requiring rate reviews and rate rollbacks;
(2) requiring that insurers submit rates, forms, and
underwriting guidelines to the Texas Department of Insurance for
prior approval before use;
(3) banning insurance credit scoring in all personal
lines of insurance;
(4) implementing a 15 percent cap on variation in base
rates within a county that may not be modified; and
(5) implementing other provisions to increase the flow
of information and increase fairness in the insurance market in
Texas.
ARTICLE 2. PRIOR APPROVAL OF RATES AND POLICY FORMS
SECTION 2.01. Article 5.13(a), Insurance Code, is amended
to read as follows:
(a) This subchapter applies to every insurance company,
corporation, interinsurance exchange, mutual, reciprocal,
association, Lloyd's plan, 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 shall be construed to apply to any county or farm mutual
insurance company or association, as regulated under Chapters 911
and 912 of this code, except that Article 5.13-2 of this code shall
apply to a county mutual insurance company with respect to
[personal automobile and] commercial automobile insurance,
[residential and] commercial property insurance, and inland marine
insurance.
SECTION 2.02. Section 2, Section 5.13-2, Insurance Code, is
amended by amending Subsection (a) and adding Subsection (c) to
read as follows:
(a) This article applies to all lines of the following
insurance written under policies or contracts of insurance issued
by an insurer authorized to engage in the business of insurance in
this state:
(1) general liability insurance;
(2) [residential and] commercial property insurance,
including farm and ranch insurance and farm and ranch owners
insurance;
(3) personal and commercial casualty insurance,
except as provided by Subsection (b) of this section;
(4) medical professional liability insurance;
(5) fidelity and surety bonds other than criminal
court appearance bonds;
(6) personal umbrella insurance;
(7) personal liability insurance;
(8) [guaranteed auto protection (GAP) insurance;
[(9)] involuntary unemployment insurance;
(9) [(10)] financial guaranty insurance;
(10) [(11)] inland marine insurance;
(11) [(12)] rain insurance;
(12) [(13)] hail insurance on farm crops; and
(13) [(14) personal and] commercial automobile
insurance.
(c) Notwithstanding any other law, rates and forms for
personal automobile insurance, including guaranteed auto
protection (GAP) insurance, and residential property insurance are
governed by Subchapters A, C, L, and U, Chapter 5, of this code.
SECTION 2.03. Article 5.171, Insurance Code, is amended to
read as follows:
Art. 5.171. RATING TERRITORIES. Notwithstanding any other
provision of this code, an insurer, in writing any insurance in this
state including residential property or personal automobile
insurance, may not use rating territories that subdivide a county
unless:
(1) the county is subdivided; and
(2) the rate for any subdivisions within that county
is not greater than 15 percent higher than the rate used in any
other subdivisions in the county by that insurer[, except that the
commissioner may by rule allow a greater rate difference for
residential property insurance or personal automobile insurance].
SECTION 2.04. Section 912.002(b), Insurance Code, is
amended to read as follows:
(b) A county mutual insurance company is subject to:
(1) Sections 38.001, 501.202, 501.203, and 822.204;
(2) Chapters 221, 251, 252, 254, and 541; [and]
(3) [(2)] Articles 1.15, 1.15A, 1.16, [1.35B,] 2.10,
21.21-12, [4.10, 5.12, 5.37, 5.38, 5.39, 5.40, 5.49, 21.21,] and
21.49; and
(4) Subchapters A, C, L, and U, Chapter 5.
SECTION 2.05. Section 941.003(b), Insurance Code, is
amended to read as follows:
(b) A Lloyd's plan is subject to:
(1) Section 5, Article 1.10;
(2) Article 1.15A;
(3) Subchapters A, C, L, [Q, T,] and U, Chapter 5;
(4) Chapters 251, 252, and 541;
(5) Articles 21.21-12 [5.35, 5.38, 5.39, 5.40, and
5.49;
[(5) Articles 21.21] and 21.49-8;
(6) Sections 822.203, 822.205, 822.210, and 822.212;
and
(7) Article 5.13-2, as provided by that article.
SECTION 2.06. Section 942.003(b), Insurance Code, is
amended to read as follows:
(b) An exchange is subject to:
(1) Section 5, Article 1.10;
(2) Articles 1.15, 1.15A, and 1.16;
(3) Subchapters A, C, L, [Q, T,] and U, Chapter 5;
(4) [Articles 5.35, 5.37, 5.38, 5.39, and 5.40;
[(5)] Articles 21.21-12 [21.21] and 21.49-8;
(5) Chapter 541;
(6) Sections 822.203, 822.205, 822.210, 822.212,
861.254(a)-(f), 861.255, 862.001(b), and 862.003; and
(7) Article 5.13-2, as provided by that article.
SECTION 2.07. The following laws are repealed:
(1) Article 5.01(f), Insurance Code;
(2) Article 5.03(g), Insurance Code;
(3) Article 5.04(c), Insurance Code;
(4) Article 5.06(12), Insurance Code;
(5) Article 5.09(c), Insurance Code;
(6) Article 5.11(c), Insurance Code;
(7) Section 13, Article 5.13-2, Insurance Code;
(8) Article 5.25(b), Insurance Code;
(9) Article 5.25A(b), Insurance Code;
(10) Article 5.26(i), Insurance Code;
(11) Article 5.29(b), Insurance Code;
(12) Article 5.30(b), Insurance Code;
(13) Article 5.31(b), Insurance Code;
(14) Article 5.32(b), Insurance Code;
(15) Article 5.34(b), Insurance Code;
(16) Article 5.35(k), Insurance Code, as added by
Section 21.22, Chapter 206, Acts of the 78th Legislature, Regular
Session, 2003;
(17) Article 5.39(b), Insurance Code;
(18) Article 5.40(d), Insurance Code;
(19) Article 5.41(b), Insurance Code;
(20) Article 5.96(a-1), Insurance Code;
(21) Article 5.96A(d), Insurance Code; and
(22) Subchapter T, Chapter 5, Insurance Code.
SECTION 2.08. This article applies only to an insurance
policy that is delivered, issued for delivery, or renewed on or
after January 1, 2006. A policy that is delivered, issued for
delivery, or renewed before January 1, 2006, is governed by the law
as it existed immediately before the effective date of this Act, and
that law is continued in effect for this purpose.
ARTICLE 3. RATE FILING AND RATE ASSESSMENT
SECTION 3.01. Subchapter B, Chapter 5, Insurance Code, is
amended by adding Article 5.14 to read as follows:
Article 5.14. FILING OF RESIDENTIAL PROPERTY AND PERSONAL
AUTOMOBILE INSURANCE RATES FOR RATE ASSESSMENT
Sec. 1. APPLICABILITY; DEFINITIONS. (a) This article
applies only to residential property and personal automobile
insurance.
(b) The definitions under Article 5.13-2 of this code apply
to this article.
Sec. 2. CONSTRUCTION WITH OTHER LAW. (a) Notwithstanding
any other law, rates for residential property and personal
automobile insurance are governed by this article from the
effective date of this article until the completion of the rate
assessment under this article and any resulting hearings or other
proceedings under this article.
(b) When the rate assessment and any resulting hearings or
other proceedings under this article are completed, rates for
residential property and personal automobile insurance are
governed by Subchapters A, B, and L, Chapter 5, of this code.
Sec. 3. RATE STANDARDS. (a) A rate filed by an insurer
under Section 4 of this article or a rate ordered by the
commissioner following a rate hearing under Section 5 of this
article may not be excessive, inadequate, unfairly discriminatory,
or unreasonable.
(b) A rate ordered by the commissioner following a rate
hearing under Section 5 of this article must comply with the rate
standards described by Subsection (a) of this section and may not be
confiscatory.
Sec. 4. RATE FILING; RATE ASSESSMENT. (a) Not later than
the 20th day after the effective date of this article, each insurer
writing residential property or personal automobile insurance that
is also subject to Subchapter A or B, Chapter 5, of this code shall
file with the commissioner the insurer's rates, supporting
information, and supplementary rating information. If the insurer
has made a rate filing under Article 5.13-2 of this code not more
than 30 days before the effective date of this article, the insurer
may:
(1) notify the department that the insurer is using
the rate filing submitted under Article 5.13-2 of this code to
comply with the requirements of this article; or
(2) file an update to the material filed under Article
5.13-2 of this code.
(b) If, after reviewing a filing under Subsection (a) of
this section, the commissioner determines that the filing does not
contain information sufficient to allow the commissioner to
determine if the filed rate meets all rate standards under Section 3
of this article, not later than the 10th day after the insurer makes
the filing, the commissioner may request in writing any specific
additional information from the insurer necessary to make the
determination.
(c) Not later than the 30th day after the date the
department receives an insurer's filing under Subsection (a) of
this section, the commissioner shall:
(1) if the filed rate meets all rate standards under
Section 3 of this article, approve the filed rate; or
(2) if the filed rate fails to meet any rate standard
under Section 3 of this article, disapprove the filed rate and issue
an order specifying in what respects the filed rate fails to comply
with the rate standards.
Sec. 5. HEARING. If the commissioner disapproves a rate
under Section 4(c)(2) of this article, the department shall hold a
rate hearing and the commissioner shall issue an order in
accordance with Chapter 40 of this code.
Sec. 6. JUDICIAL REVIEW. (a) Not later than the 10th day
after the date an insurer receives the commissioner's order issued
under Section 5 of this article, the insurer may file a petition for
judicial review in a district court of Travis County. The standard
of review of the commissioner's order is substantial evidence.
(b) During the pendency of an appeal under this section, the
insurer may charge either the insurer's existing rates or the rate
ordered by the commissioner under Section 5 of this article.
Sec. 7. REFUND. If on final appeal a court upholds the
commissioner's order issued under Section 5 of this article, the
insurer shall refund the difference in overcharged premium, if any,
plus interest to each policyholder. The interest rate is the prime
rate for the calendar year in which the refund is issued, plus six
percent.
Sec. 8. CERTAIN SETTLEMENTS PROHIBITED. If an insurer
files a petition for judicial review under Section 6 of this
article, the department may not agree to a settlement of the lawsuit
in any amount that is less than the amount of the refund, including
interest, that the insurer would be obligated to pay under Section 7
of this article.
Sec. 9. EXPIRATION. (a) This article expires September 1,
2006.
(b) The expiration of this article does not affect an action
or proceeding against an insurer subject to this article for a
failure to comply with this article before the expiration of this
article, regardless of when the action or proceeding was commenced,
and this article is continued in effect only for that purpose.
SECTION 3.02. (a) Article 5.14, Insurance Code, as added by
this article, applies to an insurer who is writing residential
property or personal automobile insurance in this state on the
effective date of this Act.
(b) This article applies to a residential property or
personal automobile insurance policy that is delivered, issued for
delivery, or renewed on or after the effective date of this Act and
to rates for such a policy. A residential property or personal
automobile insurance policy delivered, issued for delivery, or
renewed before the effective date of this Act and the rates for such
a policy 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.
ARTICLE 4. USE OF CERTAIN POLICY FORMS
SECTION 4.01. Article 5.35, Insurance Code, is amended by
adding Subsection (l) to read as follows:
(l) An insurer that offers a residential property insurance
policy in this state and that is authorized to offer a Homeowners
"B" policy form, as adopted by the commissioner, must write the
residential property insurance policy using a Homeowners "B" policy
form unless the insured rejects coverage under an HO-B policy in
writing.
SECTION 4.02. This article applies only to an insurance
policy that is delivered, issued for delivery, or renewed on or
after January 1, 2006. A policy that is delivered, issued for
delivery, or renewed before January 1, 2006, is governed by the law
as it existed immediately before the effective date of this Act, and
that law is continued in effect for this purpose.
ARTICLE 5. REGULATION OF UNDERWRITING GUIDELINES
SECTION 5.01. 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.
(2) "Person" includes any individual or entity engaged
in the business of insurance, including any individual or entity
described by Section 82.002 of this code.
(3) "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, that are not primarily used for
the delivery of goods, materials, or services, unless that use is in
farm or ranch operations and the vehicles are owned or leased by one
or more individuals.
(4) "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.
(5) "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. A person may not use an underwriting
guideline for personal automobile insurance or residential
property insurance, other than underwriting guidelines described
by Section 3 of this article, without the prior approval of the
commissioner.
Sec. 3. PERMISSIBLE UNDERWRITING GUIDELINES. (a) A person
is not required to obtain the commissioner's prior approval to use
an underwriting guideline if the guideline complies with this
section.
(b) An underwriting guideline for personal automobile
insurance may be based on the following characteristics:
(1) average miles driven in a year or other specified
time period;
(2) 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;
(3) an alleged violation of a law regulating the
operation of motor vehicles if the alleged violation resulted in:
(A) a final conviction in any court in the United
States;
(B) forfeiture of bond; or
(C) payment of a fine or an amount accepted by the
court;
(4) the making of a fraudulent insurance claim; or
(5) the number of years of driving experience and
years licensed to drive.
(c) An underwriting guideline for residential property
insurance may be based on the following characteristics:
(1) the physical condition of the property to be
insured, provided the underwriting guideline has specific and
objective measures to evaluate the hazard;
(2) claim experience on a residential property policy
arising out of the owner's negligence;
(3) whether the structure to be insured is vacant or
unoccupied for more than 60 days;
(4) the making of a fraudulent insurance claim; or
(5) an act of arson.
(d) A person may use an underwriting guideline adopted by
the commissioner by rule. The commissioner may adopt an
underwriting guideline under this subsection only if the
commissioner determines after a hearing that the underwriting
guideline:
(1) is actuarially sound;
(2) promotes the mitigation of losses; and
(3) does not have an adverse impact based on the
insured's income level.
Sec. 4. PRIOR APPROVAL STANDARDS. (a) The commissioner may
not approve the use of an underwriting guideline unless the
underwriting guideline:
(1) is actuarially sound;
(2) promotes the mitigation of losses; and
(3) does not have an adverse impact based on the
insured's income level.
(b) The burden of proof in any proceeding regarding whether
an underwriting guideline is actuarially sound is on the party that
used or intends to use the underwriting guideline.
Sec. 5. CREDIT SCORING PROHIBITED. The commissioner may
not approve, and a person may not use, an underwriting guideline
based in whole or in part on credit scoring prohibited under Article
21.49-2U.
SECTION 5.02. This article applies only to an insurance
policy that is delivered, issued for delivery, or renewed on or
after January 1, 2006. A policy that is delivered, issued for
delivery, or renewed before January 1, 2006, is governed by the law
as it existed immediately before the effective date of this Act, and
that law is continued in effect for this purpose.
ARTICLE 6. CREDIT SCORING
SECTION 6.01. Sections 1(2), (4), and (7), Article
21.49-2U, Insurance Code, are amended to read as follows:
(2) "Agent" means a person licensed or required to be
licensed as a general property and casualty insurance agent under
Subchapters B, C, D, or E, Chapter 4051 [Article 21.14 of this
code].
(4) "Consumer" means an individual whose credit
information has been reported to or is in the possession of a
consumer reporting agency or an insurer [is used or whose credit
score is computed in the underwriting or rating of a personal
insurance policy]. The term includes an applicant for insurance
coverage.
(7) "Credit report" means any written, oral, or other
communication of information by a consumer reporting agency that[:
[(A)] bears on a consumer's creditworthiness,
credit standing, or credit capacity [; and
[(B) is used or expected to be used or collected
in whole or in part to serve as a factor to determine personal
insurance premiums, eligibility for coverage, or tier placement].
SECTION 6.02. Section 2, Article 21.49-2U, Insurance Code,
is amended to read as follows:
Sec. 2. APPLICATION. This article applies to each [an]
insurer that writes personal insurance coverage [and uses credit
information or credit reports for the underwriting or rating of
that coverage].
SECTION 6.03. Section 3, Article 21.49-2U, Insurance Code,
is amended to read as follows:
Sec. 3. [PROHIBITED] USE OF CREDIT INFORMATION PROHIBITED.
(a) An insurer may not:
(1) use an underwriting guideline [a credit score]
that is based, in whole or in part, on the credit information,
credit report, or credit score of an applicant for insurance
coverage or any other person other than the applicant who would be
insured under a policy of personal insurance [computed using
factors that constitute unfair discrimination];
(2) refuse to underwrite [deny], cancel, or nonrenew a
policy of personal insurance based, in whole or in part, [solely] on
the [basis of] credit information, credit report, or credit score
of an applicant for insurance coverage or any other person other
than the applicant who would be insured under the policy [without
consideration of any other applicable underwriting factor
independent of credit information]; [or]
(3) take an action that results in an adverse effect
against a consumer because the consumer does not have a credit card
account;
(4) charge an applicant for insurance coverage a
higher premium than otherwise would be charged based, in whole or in
part, on the credit information, credit report, or credit score of
the applicant or any other person other than the applicant who would
be insured under a policy of personal insurance;
(5) rate a risk based, in whole or in part, on the
credit information, credit report, or credit score of an applicant
for insurance coverage or any other person other than the applicant
who would be insured under a policy of personal insurance,
including:
(A) providing or removing a discount;
(B) assigning the applicant for insurance
coverage to a rating tier; or
(C) placing an applicant for insurance coverage
with an affiliated company; or
(6) require a particular payment plan based, in whole
or in part, on the credit information, credit report, or credit
score of the applicant for insurance coverage or any other person
other than the applicant who would be insured under a policy of
personal insurance [without consideration of any other applicable
factor independent of credit information].
(b) An insurer may not consider an absence of credit
information or an inability to determine credit information for an
applicant for insurance coverage or insured as a factor in
underwriting or rating an insurance policy [unless the insurer:
[(1) has statistical, actuarial, or reasonable
underwriting information that:
[(A) is reasonably related to actual or
anticipated loss experience; and
[(B) shows that the absence of credit information
could result in actual or anticipated loss differences;
[(2) treats the consumer as if the applicant for
insurance coverage or insured had neutral credit information, as
defined by the insurer; or
[(3) excludes the use of credit information as a
factor in underwriting and uses only other underwriting criteria].
SECTION 6.04. Section 16, Article 21.49-2U, Insurance Code,
is amended to read as follows:
Sec. 16. DUTIES OF DEPARTMENT. The department shall [:
[(1) update insurer profiles maintained on the
department's Internet website to provide information to consumers
stating whether or not an insurer uses credit scoring; and
[(2)] post the report required under Section 15 of
this article on the department's Internet website.
SECTION 6.05. Sections 4-11 and Section 13, Article
21.49-2U, Insurance Code, are repealed.
ARTICLE 7. WITHDRAWAL AND RESTRICTION PLANS
SECTION 7.01. Section 827.001, Insurance Code, is amended
by adding Subdivision (3) to read as follows:
(3) "Affiliate" has the meaning described by Section
823.003.
SECTION 7.02. Sections 827.006, 827.007, and 827.008,
Insurance Code, are amended to read as follows:
Sec. 827.006. [RESUMPTION OF] WRITING INSURANCE AFTER
[COMPLETE] WITHDRAWAL. An insurer that withdraws from writing
personal automobile or residential property insurance [all lines of
insurance] in this state and any affiliate of that insurer may not,
without the approval of the commissioner, write any line of [resume
writing] 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 violates this
chapter [fails to 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 personal
automobile or residential property insurance business in this state
or a rating territory [in a line of personal automobile or
residential property insurance], the insurer must file a proposed
restriction plan with the commissioner for the commissioner's
review and approval.
(b) The commissioner may 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 [modify, restrict, or limit a restriction plan under
this section as necessary if the commissioner finds that a line of
insurance subject to the restriction plan is not offered in this
state in a quantity or manner to adequately cover the risks in this
state or to adequately protect the residents of this state and
policyholders in this state in light of the impact of the
catastrophic natural event]. The commissioner may by order set the
date on which the insurer's restriction begins.
[(c) 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 line of personal automobile or residential
property insurance results in a reduction of the insurer's total
annual premium volume by 50 percent or more.]
SECTION 7.03. Sections 827.010(a) and (d), Insurance Code,
are amended to read as follows:
(a) The commissioner may impose a moratorium of not longer
than two years on:
(1) the approval of withdrawal plans; or
(2) the approval [implementation] of plans to restrict
the writing of new business described by Section 827.008.
(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 policyholders
or potential policyholders in this state or, in the case of lines of
personal automobile or residential property insurance, in a rating
territory.
SECTION 7.04. The change in law made by this article applies
only to the conduct of an insurer or its affiliate on or after
September 1, 2005. The conduct of an insurer or its affiliate
before September 1, 2005, is governed by the law as it existed at
the time the conduct occurred and that law is continued in effect
for this purpose.
ARTICLE 8. EFFECTIVE DATE
SECTION 8.01. This Act takes effect September 1, 2005.