By: West, Van de Putte S.B. No. 828

(In the Senate - Filed February 22, 2007; March 7, 2007, read first time and referred to Committee on Business and Commerce; April 19, 2007, reported adversely, with favorable Committee Substitute by the following vote: Yeas 6, Nays 0; April 19, 2007, sent to printer.)

COMMITTEE SUBSTITUTE FOR S.B. No. 828 By: Lucio

A BILL TO BE ENTITLED

AN ACT

relating to the collection and use of certain information by certain insurers.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle G, Title 5, Insurance Code, is amended by adding Chapter 752 to read as follows:

CHAPTER 752. DATA MINING AND PATTERN RECOGNITION

Sec. 752.001. DEFINITIONS. In this chapter:

(1) "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 the use is in farm or ranch operations and provided that the vehicles are owned or leased by an individual or individuals.

(2) "Regulated insurer" means each insurer subject to rate regulation by the department for residential property insurance or personal automobile insurance, including a domestic or foreign, stock or mutual, fire or casualty insurance company, a domestic or foreign Lloyd's plan, a domestic or foreign reciprocal or interinsurance exchange, and a county mutual insurance company. The term includes an affiliate, as described by this code, if that affiliate is authorized to write residential property insurance or personal automobile insurance.

(3) "Residential property insurance" means insurance against loss to real property at a fixed location or tangible personal property provided in a homeowners policy, a tenant policy, a condominium unit owners policy, or a residential fire and allied lines policy.

Sec. 752.002. COLLECTION OF INFORMATION CONCERNING DATA MINING AND PATTERN RECOGNITION. (a) The commissioner by rule may require a regulated insurer to report to the department concerning:

(1) technologies such as statistical techniques, devices, or models to be used by or on behalf of the regulated insurer to establish new classifications or to change existing methods of classification for rating, tiering, or underwriting, as described by Subsection (b); and

(2) the manner in which the regulated insurer intends to use the relationships derived from the technologies described by Subdivision (1) in:

(A) underwriting and creating and defining new risk classifications or changing an existing method of classification;

(B) setting or determining rates and premiums; or

(C) using new classifications or a change in an existing method of classification to deny coverage, limit coverage, or refuse to renew or cancel coverage for existing individual insureds.

(b) Information filed as required by Subsection (a)(1) must include:

(1) information necessary for the department to identify:

(A) the expected costs for a particular classification; and

(B) relationships among variables that are used to predict differences in expected losses of covered persons or applicants for coverage; and

(2) other information, to the extent reasonably available, concerning the new classification or change in an existing method of classification that is intended to be otherwise used in rating, tiering, or underwriting activities of the regulated insurer.

(c) In exercising the commissioner's authority under this section, the commissioner may require that regulated insurers:

(1) file underlying data relating to new classifications or a change to an existing method of classification as supplementary rating information under Chapter 2251;

(2) support the specific uses of information derived from the technologies; and

(3) state whether the new classification or change to an existing method of classification preserves a reasonable level of risk transfer.

(d) Technologies and related information obtained from a regulated insurer by the department under this chapter are confidential and are not subject to disclosure under Chapter 552, Government Code, except to the extent the regulated insurer specifically authorizes the release.

Sec. 752.003. OVERSIGHT OF DATA MINING AND PATTERN RECOGNITION; TRANSITION PLAN. (a) The commissioner may limit the use of a new classification or a change to an existing method of classification derived from a technology described by Section 752.002 if the commissioner finds that:

(1) the new classification or change to an existing method of classification was not previously used by the regulated insurer in underwriting or in establishing rating classifications or rating tiers; and

(2) one of the following conditions exists:

(A) the new classification or change to an existing method of classification would result in:

(i) a refusal to renew or to limit coverage of an existing policyholder; or

(ii) an increase or decrease of 15 percent or more in premium for any existing policyholder; or

(B) the new classification or change to an existing method of classification violates state law.

(b) The limitations adopted under Subsection (a) may require the regulated insurer to:

(1) use a transition plan, as described by Subsection (c), to phase in the application or use of classifications, rating tier differentials, or underwriting guidelines over not more than two renewal periods;

(2) furnish available underlying data relating to the new classifications or changes to an existing method of classification, including whether the new classifications or changes to an existing method of classification create overlaps among classifications and the manner that the overlap has been recognized in underwriting or setting or determining rates or premiums; or

(3) require the regulated insurer to furnish available information on whether the new classifications or changes to an existing method of classification will promote loss prevention or the availability of insurance in underserved areas.

(c) A transition plan required by Subsection (b)(1) must:

(1) be reasonable;

(2) promote market and rate stability;

(3) take into consideration any changes that may impact overall rates and premiums, other than the new classifications or changes to an existing method of classification or uses of the relationships derived from the technology; and

(4) moderate or otherwise mitigate overall rate and premium increases for individual policyholders over one or two renewal periods.

(d) This chapter does not limit the authority of the commissioner to disapprove rates or rating classifications that violate state law.

Sec. 752.004. REPORT TO LEGISLATURE. The department shall include in its biennial report to the legislature under Section 32.022 information concerning the use of relationships derived from technologies described by Section 752.002(a)(1) by regulated insurers. The report must describe the impact that the use of those relationships has on insurance, policyholders, and applicants for insurance in this state, and may include recommendations for proposed legislation appropriate to regulate new classifications or changes to existing methods of classification that are derived from the use of those technologies.

SECTION 2. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.

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