BILL ANALYSIS

 

 

Senate Research Center

S.B. 1291

82R9876 TRH-F

By: Hegar

 

Business & Commerce

 

4/8/2011

 

As Filed

 

 

 

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

 

S.B. 1291 provides the Texas Department of Insurance (TDI) with a  self-directed budget for the limited purpose of funding salary, travel, and related personnel expenses incurred by TDI's Financial Examinations and Actuarial Divisions while administering the statutorily required examination function.

 

The Texas Legislature has provided several other state agencies with self-directed budgets, including the Department of Banking.  By comparison, S.B. 1291 is limited to a self-directed budget solely for TDI's examination function.

 

Current Texas law requires TDI to periodically conduct examinations of insurers engaged in the business of insurance under the Insurance Code.  TDI also examines other types of regulated entities.  The majority of these examinations are performed for solvency regualation purposes under the authority of Chapter 401 (Audits and Examinations), Insurance Code.  A smaller number of examinations are conducted under other provisions of the Insurance Code.  Examinations are conducted on-site at the insurer's physical premises located throughout the United States.  Section 401.151(a), Insurance Code, provides that Texas-domestic insurers examined by TDI are required to pay the expenses of the examination in an amount that the commissioner of insurance certifies as just and reasonable.  Section 401.152(a), Insurance Code, provides that insurers domiciled in other states are required to reimburse TDI for the salary and expenses of each examiner participating in an examination of the insurer and for other TDI expenses that are properly allocable to TDI's participation in the examination.  Section 401.156 (Deposit and Use of Assessment and Fee), Insurance Code, provides that TDI is required to deposit an assessment or fee collected under Subchapter D (Examination Expenses), Chapter 401, Insurance Code, to the credit of TDI's operating account.  The TDI operating account is a dedicated account of the general revenue fund that is used to fund and pay expenses associated with the examination of insurers by TDI.

 

TDI is subject to budgetary restrictions that limit its ability to access adequate funds to pay the travel, salary, and related personnel expenses associated with the examination of insurers and other regulated entities by TDI.  As a result, TDI has found it difficult to attract and retain qualified examiners and actuaries, which has negatively impacted TDI's ability to conduct the solvency examinations required by the Insurance Code.  Moreover, budgetary constraints do not permit TDI to incur travel expenses at a level that is sufficient for TDI to adequately conduct these examinations, which is problematic because the examinations are required to be performed at the insurers' physical premises located throughout the United States.


S.B. 1291 addresses these concerns by providing TDI with a self-directed budget for the use of paying salaries, travel, and related personnel expenses associated with the examination activities performed by TDI under the Insurance Code.  Ensuring adequate funding for TDI's examinations is important because examinations are conducted to ensure the financial solvency of insurers, and a lack of adequate funding increases the risk of insurer insolvencies.  The costs of insurer insolvencies are ultimately borne by the state's taxpayers and the public generally.

 

S.B. 1291 includes a number of controls to ensure transparency and oversight, including a continued role by the Legislative Budget Board.

 

As proposed, S.B. 1291 amends current law relating to the budget of certain divisions of the Texas Department of Insurance.

 

RULEMAKING AUTHORITY

 

Rulemaking authority is expressly granted to the Texas Department of Insurance in SECTION 1 (Section 401.252, Insurance Code) of this bill.

 

SECTION BY SECTION ANALYSIS

 

SECTION 1. Amends Chapter 401, Insurance Code, by adding Subchapter F, as follows:

 

SUBCHAPTER F. SELF-DIRECTED BUDGET FOR CERTAIN DIVISIONS

 

Sec. 401.251.  DEFINITIONS.  Defines, in this subchapter, "actuarial division," "examination cost," "financial examinations division," and "financial program."

 

Sec. 401.252.  SELF-DIRECTED BUDGET.  (a) Requires the senior associate commissioner of the financial program to submit to the commissioner of insurance (commissioner) an annual budget of examination costs using generally accepted accounting principles.  Authorizes the budget, notwithstanding any other provision of law, to be adopted and approved only by the commissioner.

 

(b)  Requires the commissioner to submit the budget to the Legislative Budget Board (LBB) for approval not later than July 1 of each year.  Requires the commissioner, if the LBB does not object to the budget in writing as provided by Subsection (c) before July 31 of the same year, to approve the budget.

 

(c)  Requires the LBB, if the LBB objects to the budget, to provide the commissioner with a written statement describing changes to the budget that would result in LBB not objecting to the budget.  Requires the commissioner, not later than August 31 of the year in which the budget was submitted to LBB, to submit to the LBB a budget that conforms with this statement.

 

(d)  Provides that the financial program is solely responsible for all examination costs.  Prohibits the financial program from directly or indirectly causing the Texas Department of Insurance (TDI) operating account to incur any examination cost.

 

(e)  Authorizes TDI, subject to any limitations in this code or another insurance law of this state, to set the amounts of fees required or permitted by statute or rule as necessary to:

 

(1)  carry out the functions of the financial examinations and actuarial divisions relating to the examination of insurers and other regulated entities; and

    

(2)  fund the budget adopted and approved under Subsection (b).

 

(f)  Authorizes the financial program, notwithstanding this section, to receive funds appropriated from the state to fund costs other than examination costs.

 

(g)  Requires that an assessment, fee, charge, or other source of revenue collected by the financial program relating to the examination of insurers and other regulated entities by the financial examinations division or actuarial division be deposited to the credit of the account described by Section 401.156(a) for the purposes described by that section.

 

Sec. 401.253.  AUDITS.  Provides that this subchapter does not affect the duty of the state auditor to audit the financial program.

 

Sec. 401.254.  RECORDS; REPORTING REQUIREMENTS.  (a)  Requires the financial program to keep financial and statistical information as necessary to disclose completely and accurately the financial program's receipts and examination costs.

 

(b)  Requires the financial program to submit to the commissioner and the LBB an annual report that states:

 

(1)  the revenue received by the financial program from assessments and fees collected by TDI relating to the examination of insurers and other regulated entities;

 

(2)  the total salary for each financial program employee who performs examinations of insurers and other regulated entities;

 

(3)  the portion of the salary paid to each employee from the self-directed budget approved under Section 401.252;

 

(4)  the portion of the salary paid to each employee from funds appropriated to the financial program by the state;

 

(5)  the total travel expenses incurred by each employee who performs examinations of insurers and other regulated entities;

 

(6)  the portion of travel expenses paid for each employee from the self-directed budget approved under Section 401.252;

 

(7)  the portion of travel expenses paid for each employee from funds appropriated to the financial program by the state; and

 

(8)  all other examination costs of the financial program.

 

SECTION 2.  Amends Section 401.151(d), Insurance Code, as follows:

 

(d)  Provides that in determining the amount of the assessment under Subsection (c), TDI:

 

(1)  is required to consider the insurer's total annual premium receipts or admitted assets, or both, that are not attributable to 90 percent of pension plan contracts as defined by Section 818(a), Internal Revenue Code of 1986, or  the total amount of the insurer's insurance in force; and

 

(2)  is prohibited from considering insurance premiums for insurance contracted for by a state or federal governmental entity to provide welfare benefits to designated welfare recipients or contracted for in accordance with or in furtherance of Title 2 (Department of Human Services and Department of Protective and Regulatory Services), Human Resources Code, or the federal Social Security Act (42 U.S.C. Section 301 et seq.).

 

SECTION 3.  Amends Section 401.156, Insurance Code, as follows:

 

Sec. 401.156.  DEPOSIT AND USE OF ASSESSMENT AND FEE.  (a)  Requires TDI to deposit any assessments or fees, rather than an assessment or fee, collected under this subchapter relating to the examination of insurers and other regulated entities by the financial examinations division or actuarial division, as those terms are defined by Section 401.251, to the credit of an account with the Texas Treasury Safekeeping Trust Company, to be used exclusively to pay examination costs, as defined by Section 401.251, rather than to the credit of the TDI operating account.

 

(b)  Requires that revenue that is not related to the examination of insurers or other regulated entities by the financial examinations division or actuarial division be deposited to the credit of the TDI operating account  Deletes existing text requiring that money deposited under this section be used to pay the  salaries and expenses of actuaries and examiners and all other expenses relating to examinations of insurers.

 

(c)  Provides that to the extent that another provision of law conflicts with this section, this section controls.

 

SECTION 4.  Amends Section 651.005, Insurance Code, as follows:

 

Sec. 651.005.  DEPOSIT AND USE OF FEES.  (a) Provides that except as provided by Subsection (b), each fee collected under this chapter:

 

(1)  is required to be deposited to the credit of the TDI operating account; and

 

(2)  is authorized to be used by TDI to enforce this chapter.

 

(b)  Requires that an assessment or fee associated with examination costs, as defined by Section 401.251, be deposited to the account described by Section 401.156(a).

 

SECTION 5.  Amends Section 843.154, Insurance Code, by amending Subsection (b) and adding Subsection (b-1), as follows:

 

(b)  Requires that fees collected under this section, except for fees collected under Subsections (e) (relating to requiring a health maintenance organization to pay certain fees to the commissioner) and (f) (relating to the amount of the fees required to be paid by a health maintenance organization), be deposited to the credit of the TDI operating account.

 

(b-1)  Requires that a fee collected under Subsection (e) or (f) be deposited to the credit of the account described by Section 401.156(a).

 

SECTION 6.  Amends Section 4151.206, Insurance Code, by amending Subsection (b) and adding Subsection (c), as follows:

 

(b)  Requires the commissioner to deposit a fee collected under Subsection (a)(1) (relating to a filing fee for processing an original application) or (2) (relating to a fee for certain examinations), rather than this section, to the credit of the TDI operating account.

 

(c)  Requires the commissioner to deposit a fee collected under Subsection (a)(3) (relating to a filing fee for an annual report) to the credit of the account described by Section 401.156(a).

 

SECTION 7.  Authorizes TDI, to provide a reasonable period for the financial program, as defined by Section 401.251, Insurance Code, as added by this Act, to establish a self-directed budget, for the one-year period following the effective date of this Act, to spend not more than 50 percent of the money appropriated to TDI out of the general revenue fund for the purposes of the financial program for the state fiscal year ending August 31, 2011.  Authorizes this money, subject to Section 401.252, Insurance Code, as added by this Act, to be spent as TDI directs and requires that it be repaid to the general revenue fund by TDI as funds become available.

 

SECTION 8.  Effective date: September 1, 2011.