| TO: | Honorable John Carona, Chair, Senate Committee On Business & Commerce |
| FROM: | Ursula Parks, Director, Legislative Budget Board |
| IN RE: | SB18 by Carona (Relating to the establishment of the Texas Property Insurance Program and the operation of the FAIR Plan Association and the Texas Windstorm Insurance Association.), As Introduced |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2014 | $0 |
| 2015 | $0 |
| 2016 | $0 |
| 2017 | $0 |
| 2018 | $0 |
| Fiscal Year | Probable Revenue Gain/(Loss) from General Revenue Fund 1 |
Probable Savings/(Cost) from General Revenue Fund 1 |
Probable Revenue Gain/(Loss) from Insurance Maint Tax Fees 8042 |
Probable Savings/(Cost) from Insurance Maint Tax Fees 8042 |
|---|---|---|---|---|
| 2014 | $5,200,000 | ($5,200,000) | $341,960 | ($341,960) |
| 2015 | $0 | $0 | $332,549 | ($332,549) |
| 2016 | $0 | $0 | ($1,510,354) | $1,510,354 |
| 2017 | $0 | $0 | ($1,510,354) | $1,510,354 |
| 2018 | $0 | $0 | ($1,510,354) | $1,510,354 |
| Fiscal Year | Probable Revenue Gain/(Loss) from Catastrophe Reserve Trust Fund-Outside the Treasury |
Change in Number of State Employees from FY 2013 |
|---|---|---|
| 2014 | $350,000,000 | 2.0 |
| 2015 | $350,000,000 | 2.0 |
| 2016 | $350,000,000 | (23.0) |
| 2017 | $0 | (23.0) |
| 2018 | $0 | (23.0) |
The bill would amend the Insurance Code relating to the establishment of the Texas Property Insurance Program (TPIP) and the operation of the FAIR Plan Association and the Texas Windstorm Insurance Association (TWIA).
The bill would amend Chapter 2210 of the Insurance Code, regarding TWIA. The bill would alter the process by which TWIA would pay for certain losses related to a disaster, including repealing TWIA's ability to issue bonds. The bill would direct TWIA to pay for losses in excess of premium and other revenues from available reserves of the association and available amounts in the Catastrophe Reserve Trust Fund. If those amounts are not sufficient to cover all costs, a $2 billion assessment shall be levied against the members of TWIA proportionate to their participation rate in the association. Insurers would then be able to take premium credits at the rate of 20 percent of their paid assessment per year for five or more consecutive years. Losses in excess of the $2 billion assessment would be paid by reinsurance purchased by TWIA totaling $2 billion in coverage each year paid for by an assessment on insurers for the cost of the coverage; however, the bill would limit the total amount of funding resources available to TWIA to no more than $5 billion.
The bill would allow the Texas Department of Insurance (TDI) to contract with a managing agent to administer the TPIP. Beginning on January 1, 2014, the managing agent would also manage TWIA and the Texas FAIR Plan Association and administer their plans of operation. Beginning on April 1, 2015, the bill would prohibit TWIA and the Texas FAIR Plan Association from offering new residential coverage and from offering any residential coverage on or after October 1, 2015. The bill would require TDI to establish and maintain a property insurance clearinghouse through which agents may submit residential property insurance applications to insurers to solicit offers of coverage. TDI would assess members of TWIA for the cost of establishing the clearinghouse and, if necessary, to maintain it. The bill would also allow the managing agent of TPIP to charge applicants a fee to provide for the cost of maintaining the clearinghouse. The managing agent would be required to develop underwriting guidelines for coverage issued through the clearinghouse. This bill would describe the process for applying for a policy through the clearinghouse, for the assignment of coverage to insurers, and for the calculation of premium rates for TPIP policies and for the challenge of those rates.
On or after April 1, 2015, each insurer of residential property insurance in this state would be required to participate in the TPIP, including accepting program policy assignments through the clearinghouse. The managing general agent of TPIP would be required to develop an algorithm to determine the assignment of coverage. Beginning April 1, 2014, insurers would be required to offer a program policy to each person who applies for residential coverage if the person meets the insurers underwriting guidelines.
On or after the latter of the date the TPIP clearinghouse becomes operational on January 1, 2014, any new residential coverage issued by TWIA must use rates that reflect the market rate for coverage. On that date, certain restrictions on the maximum amount of coverage and on the deductible amount would also take effect. In addition, on that date the managing general agent of TPIP would make available a database of TWIA and Texas FAIR Plan Association policies to all insurers for the purposes of soliciting offers of coverage.
The bill would provide for a transition period of lower than normal rates for certain policy holders. On or before February 1 of each year, the managing general agent would be required to report to the Comptroller the total transition premium written by each insurer. Insurers could recoup up to 50 percent of the difference between the transition premium and the normal premium through its residential property rates and would be able to claim as a premium tax credit up to 50 percent of that difference in the previous year. The transition premium provisions of this chapter would expire December 31, 2025.
The bill would impose certain restrictions on coverage offered through TPIP and on the deductibles for that coverage. Insurers would be able to assess premium surcharges on policies for certain structures that do not meet building code standards.
The bill would impose an assessment on policyholders of policies that cover insured property. The assessment would be used to fund the Catastrophe Reserve Trust Fund. The surcharge would be 5 percent for property and automobiles located in the catastrophe area and 1 percent for property and automobiles not located in the catastrophe area. The surcharge would not be subject to the premium tax or commissions. The surcharge would be collected on all policies issued or renewed from January 1, 2014 to September 30, 2016. The Commissioner of Insurance could order that the surcharges cease earlier.
This bill would take effect immediately upon enactment, assuming that it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, it would take effect September 1, 2013.
This analysis does not include estimates for amounts related to any assessments, premium tax credits, and fee revenues for sections of the bill related to disasters/catastrophes for which the size and scope of damages is unknown and cannot be determined.
For fiscal year 2014, this analysis assumes a one-time revenue gain to the General Revenue Fund in the amount of $5,200,000 to offset the one-time cost of establishing a property insurance clearinghouse. This analysis does not include an amount for the cost of administering and maintaining the clearinghouse in subsequent years because the bill would allow the new managing agent to charge applicants fees for those costs. For the purposes of this analysis, it is assumed that fees charged by the managing general agent would be collected and deposited outside the Treasury and would be sufficient to cover the cost of administering and maintaining the clearinghouse. Additionally, it is assumed that a cost of $341,960 in General Revenue-Maintenance Tax funds would be required in fiscal year 2014 for 2.0 new FTE positions, the cost of an actuarial consultant, and any related data center costs. In fiscal year 2015, the amount for the 2.0 FTE positions and related costs is estimated to be $332,549 in General Revenue-Maintenance Tax funds.
For fiscal years 2016-2018, this analysis assumes a loss of $1,510,354 in General Revenue-Maintenance Tax funds from the elimination of 25.0 FTE positions from the closing of 4 Windstorm Field Offices, the Windstorm Intake Unit, and Engineering Services. For the purposes of this analysis, it is assumed that any savings in General Revenue-Maintenance Tax funds for implementing the provisions of this bill would be offset by an adjustment of equal amount on the assessment of the maintenance tax or other fees accordingly in the following year.
The table above includes a revenue estimate for the new surcharges created in the bill for the purpose of funding the Catastrophe Reserve Trust Fund outside the treasury. The surcharge would be 5 percent for property and automobiles located in the catastrophe area and 1 percent for property and automobiles not located in the catastrophe area. Based on information provided by TDI, the estimated revenue for the new surcharges would equate to $350,000,000 annually for fiscal years 2014-2016.
Based on information provided by the Texas Public Finance Authority, the Office of Court Administration, the State Auditor's Office, the State Office of Administrative Hearings, the Bond Review Board, the Securities Board, and the Comptroller of Public Accounts, it is assumed that all duties and responsibilities associated with implementing the provisions of the bill could be accomplished by utilizing existing resources.
| Source Agencies: | 212 Office of Court Administration, Texas Judicial Council, 304 Comptroller of Public Accounts, 308 State Auditor's Office, 312 Securities Board, 347 Public Finance Authority, 352 Bond Review Board, 360 State Office of Administrative Hearings, 454 Department of Insurance
|
| LBB Staff: | UP, RB, MW, ER, KKR
|