HBA-TYH H.B. 3017 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3017 By: Smithee Insurance 4/5/1999 Introduced BACKGROUND AND PURPOSE In 1991, the legislature adopted the flexible rating program for auto and homeowner's insurance. Under this system, the commissioner of insurance (commissioner) sets a "benchmark rate," and insurance companies can file and use rates within a range of 30 percent above or below the benchmark, unless the commissioner disapproves a company's filing. Also in 1991, a file and use system was adopted for setting rates for commercial general liability and commercial property insurance. These rate regulatory systems replaced the promulgated rate system, in which the State Board of Insurance promulgated the rates for almost all property and casualty insurance, with some restrictive ability for insurance companies to deviate from the promulgated rate. In the years following the adoption of the flexible rating program, there have been complaints that the benchmark process is expensive and slow. There have also been complaints that the required use of standard rate classifications and territories significantly reduced and impeded competition in the market. H.B. 3017 eliminates the benchmark and flexible rating system and replaces it with a file and use system that is very similar to what has been used for most commercial rates since 1991. While the benchmark process would be eliminated, the commissioner of insurance is still authorized, as under current law, to disapprove rates that are not fair, just, reasonable, or unfairly discriminatory. In addition, this bill allows the commissioner to approve policy forms and retains the current exemptions from rate regulation for County Mutual insurance companies, Lloyd's companies, and reciprocal exchanges. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the commissioner of insurance in SECTION 1.01 (Article 5.141, Insurance Code) of this bill. SECTION BY SECTION ANALYSIS ARTICLE 1. PRIVATE PASSENGER AUTOMOBILE AND RESIDENTIAL PROPERTY LINES SECTION 1.01. Amends Chapter 5, Insurance Code, by adding Subchapter P, as follows: SUBCHAPTER P. PRIVATE PASSENGER AUTOMOBILE AND RESIDENTIAL PROPERTY INSURANCE RATES AND FORMS Art. 5.141. RATES AND FORMS FOR PRIVATE PASSENGER AUTOMOBILE AND RESIDENTIAL PROPERTY INSURANCE Sec. 1. DEFINITIONS. Defines "filer," "insurer," "private passenger automobile insurance," "private passenger automobile insurer," "prospective loss costs," "rate," "residential property insurance," "residential property insurer," and "supplementary rating information." Sec. 2. APPLICATION; EXCEPTIONS. (a) Provides that this article applies to all insurance rates and forms for private passenger automobile and residential property insurance, except that Sections 3, 4, 5, and 6 of this article do not apply to a Lloyd's plan insurer, a reciprocal exchange with respect to residential property insurance, or a county mutual insurer with respect to residential property or private passenger automobile insurance. Sec. 3. RATE STANDARDS. Requires rates for insurance to be set in accordance with this section. Requires an insurer, in setting rates, to consider the enumerated items. Authorizes the insurer to group risks by classifications for the establishment of rates and minimum premiums and to modify classification rates to produce rates for individual risks in accordance with rating plans that establish standards for measuring variations in those risks. Prohibits rates from being excessive, inadequate, unfairly discriminatory or unreasonable. Requires an insurer, in setting rates applicable solely to policyholders in this state, to use available premium, loss, claim, and exposure information from this state to the full extent of the actuarial credibility of that information. Authorizes the insurer to use experience from outside this state as necessary to supplement information from this state that is not actuarially credible. Sec. 4. RATE FILINGS; LEGISLATIVE REPORT. (a) Requires each insurer to file with the commissioner of insurance (commissioner) all rates, supplementary rating information, and reasonable and pertinent supporting information for risks written in this state. (b) Authorizes the commissioner, if the commissioner determines after a hearing that an insurer's rates require supervision because of the insurer's financial condition or the insurer's rating practices, to require the insurer to file with the commissioner all rates, supplementary rate information, and any supporting information prescribed by the commissioner. (c) Authorizes an insured that is aggrieved with respect to any filing in effect, or the public insurance counsel, to make a written application to the commissioner for a hearing on the filing. Provides that the application must specify the grounds on which the applicant bases the grievance. Provides that if the commissioner finds that the application is made in good faith, that the applicant would be so aggrieved if the grounds in the application are established, and that those grounds otherwise justify holding the hearing, then the commissioner is required to hold a hearing not later than the 30th day after the date of receipt of the application. Provides that the commissioner must give at least 10 days' written notice to the applicant and to each insurer that made the filing in question. (d) Requires the commissioner, if after the hearing the commissioner finds that the filing does not meet the requirements of this article, to issue an order specifying how the filing fails to meet the requirements of this article and stating the date on which, within a reasonable period after the order date, the filing is no longer in effect. Requires the commissioner to send copies of the order to the applicant and to each affected insurer. (e) Requires the commissioner to require each insurer subject to this article to file information with the commissioner on a quarterly basis. Requires each insurer to provide the commissioner with information relating to changes in losses, premiums, and market share as the commissioner considers appropriate. Requires the commissioner to report to the governor, lieutenant governor, and speaker of the house of representatives on a quarterly basis, relating to the information provided by the insurers' reports and to market conduct, especially consumer complaints. Sec. 5. PUBLIC INFORMATION. Provides that each rate filing and any supplementary rating information filed under this article is open to public inspection as of the date of the filing. Sec. 6. DISAPPROVAL. Requires the commissioner to disapprove a rate if the commissioner determines that the rate filing does not meet the standards established under Section 3 of this article. Requires the commissioner, if the commissioner disapproves a filing, to issue an order specifying in what respects the filing fails to meet the requirements of this article. Provides that the filer is entitled to a hearing on written request made to the commissioner not later than the 30th day after the effective date of the disapproval order. Authorizes the commissioner, if the commissioner disapproves a rate that is in effect, to issue a disapproval order only after a hearing held after at least 20 days' written notice to the insurer that made the filing. Provides that the disapproval order must be issued within 15 days of the close of the hearing and must specify how the rate fails to meet the requirements of this article. Provides that the disapproval order must state the date on which the further use of that rate is prohibited. Requires the commissioner to set the date not earlier than the 45th day after the date on which the hearing closes. Sec. 7. FORMS. (a) Prohibits an insurance policy or printed endorsement form for use in writing the types of insurance subject to this article from being delivered or issued for delivery in this state unless the form has been filed with and approved by the commissioner. (b) Requires the insurer to make the filing at least 60 days before the date of any use or delivery for use of the form. Provides that at the expiration of the 60-day period a filed form is considered approved unless, before the expiration of the 60 days, the commissioner approves or disapproves the form by order. Provides that approval of a form by the commissioner constitutes a waiver of any unexpired portion of the 60-day period. Authorizes the commissioner to extend by not more than 10 additional days the period during which the commissioner may approve or disapprove a form by giving notice to the filer of the extension before the expiration of the initial period. Provides that at the expiration of any extension and in the absence of any earlier approval or disapproval, the form is considered approved. Authorizes the commissioner, for good cause shown, to withdraw the commissioner's approval at any time after notice and a hearing. (c) Provides that a commissioner's order disapproving any form or any notice of the commissioner's intention to withdraw a previous approval must state the grounds for the disapproval in enough detail to reasonably inform the filer of the grounds. Provides that an order of withdrawal of a previously approved form takes effect on the expiration of the period prescribed in the order, but not sooner than the 30th day after the effective date of the withdrawal order, as prescribed by the commissioner. (d) Prohibits an insurer from using in this state any form after disapproval of the form or withdrawal of approval by the commissioner. (e) Authorizes the commissioner to disapprove a form or endorsement, or withdraw any previous approval, if the form or endorsement is in violation of the specified conditions. (f) Authorizes the commissioner by rule to promulgate standard insurance policy forms, endorsements, and other related forms that may be used, at the discretion of the insurer, by an insurer instead of the insurer's own forms. Sec. 8. RULES. Authorizes the commissioner to adopt rules as necessary to implement and administer this article. Sec. 9. ADMINISTRATIVE PROCEDURE ACT APPLICABLE. Provides that Chapter 2001, Government Code, applies to all rate hearings. ARTICLE 2. GENERAL LIABILITY AND COMMERCIAL LINES SECTION 2.01. Amends Section 1, Article 5.13-2, Insurance Code, to provide that this article governs the specified items, including commercial automobile. Provides that this article does not govern the specified items, including private passenger automobile. SECTION 2.02. Amends Section 2, Article 5.13-2, Insurance Code, to make conforming changes. ARTICLE 3. WINDSTORM AND HAIL INSURANCE LINES SECTION 3.01. Amends Subsections (h)(1), (2), (3), (10), and (12), Section 8, Article 21.49, Insurance Code, as follows: (h)(1) Provides that each rate used by the Texas Windstorm Association (association) must be uniform for each classification throughout the first tier of coastal counties. Deletes reference to extended coverage benchmark rate, flexibility band, and promulgated rate. (2) Requires the rates for noncommercial windstorm and hail insurance written by the association to be filed by the association with the Texas Department of Insurance (department) for approval not later than April 1 of each year. Prohibits the association from filing rates for residential risks for approval by the department more than once in any 12-month period. Provides that Article 1.33B (Certain Hearings Held by State Office of Administrative Hearings) of this code does not apply to a rate filing made under this subdivision. Provides that Subdivisions (4)-(10) of this subsection apply to a rate filing made under this subdivision. Deletes text regarding the setting of modified extended coverage rates. (3) Refers to classes of risks written by the association developed in accordance with Subchapter P, rather than Subchapter C (Fire Insurance and Allied Lines), Chapter 5, Insurance Code. Provides that except as specifically provided by this subdivision, Article 5.141, rather than Article 5.13-2 (Rates for General Liability and Commercial Property Insurance Coverage), Insurance Code, does not apply to the rates of insurance written by the association. Deletes text requiring the rate for commercial windstorm and hail insurance to be 90 percent of the rate for extended coverage for commercial risks. Deletes provision for inapplicability of Article 1.33B to a filing made under this subdivision. (10) Prohibits a rate filing relating to a commercial risk from reflecting an annual premium rate change that is more than 15 percent (higher or lower) of the rate for commercial windstorm and hail insurance in each rate classification in effect on September 1, 1995. Prohibits a rate filing regarding a dwelling extended risk from reflecting an annual premium charge that is more than 15 percent (higher or lower) of the extended coverage benchmark rate for residential windstorm and hail insurance in each rate classification in effect on February 1, 1999. (12) Requires the catastrophe element of extended coverage rates filed with the commissioner under this article that is applicable to risks written by the association to be uniform throughout the designated catastrophe area. Deletes text referring to the seacoast territory. ARTICLE 4. MULTI-PERIL POLICIES SECTION 4.01. Amends Article 5.81, Insurance Code, to transfer powers delegated in this article from the State Board of Insurance to the commissioner. Removes making, approving, promulgating, and prescribing rates for multi-peril policies of insurance from the jurisdiction of the commissioner. Requires the commissioner to use the procedures adopted under Article 5.13-2 to approve forms. Makes conforming changes. ARTICLE 5. CONFORMING AMENDMENTS SECTION 5.01. Amends Article 5.01(f), Insurance Code, to make conforming changes. SECTION 5.02. Amends Article 5.01-2(b), Insurance Code, to make conforming changes. SECTION 5.03. Amends Article 5.03(g), Insurance Code, to make conforming changes. SECTION 5.04. Amends Section 1, Article 5.03-1, Insurance Code, to make conforming changes. SECTION 5.05. Amends Section 2(c), Article 5.03-2, Insurance Code, to make a conforming change. SECTION 5.06. Amends Article 5.04(c), Insurance Code, to make conforming changes. SECTION 5.07. Amends Article 5.05, Insurance Code, to make conforming changes. SECTION 5.08. Amends Subsections (2)(c) and (d), Article 5.06-1, Insurance Code, to make conforming changes. SECTION 5.09. Amends Article 5.06-6, Insurance Code, to make conforming changes. SECTION 5.10. Amends Article 5.09(c), Insurance Code, to make conforming changes. SECTION 5.11. Amends Article 5.11(c), Insurance Code, to make conforming changes. SECTION 5.12. Amends Article 5.25(b), Insurance Code, to make conforming changes. SECTION 5.13. Amends Article 5.25A(b), Insurance Code, to make conforming changes. SECTION 5.14. Amends Article 5.26(i), Insurance Code, to make conforming changes. SECTION 5.15. Amends Article 5.28(d), Insurance Code, to make conforming changes. SECTION 5.16. Amends Article 5.29(b), Insurance Code, to make conforming changes. SECTION 5.17. Amends Article 5.30(b), Insurance Code, to make conforming changes. SECTION 5.18. Amends Article 5.31(b), Insurance Code, to make conforming changes. SECTION 5.19. Amends Article 5.32(b), Insurance Code, to make conforming changes. SECTION 5.20. Amends Article 5.34(b), Insurance Code, to make conforming changes. SECTION 5.21. Amends Article 5.35-1, Insurance Code, to make a conforming change. SECTION 5.22. Amends Article 5.39(b), Insurance Code, to make conforming changes. SECTION 5.23. Amends Article 5.40(d), Insurance Code, to make conforming changes. SECTION 5.24. Amends Article 5.41(b), Insurance Code, to make conforming changes. SECTION 5.25. Amends Article 5.96(a-1), Insurance Code, to make conforming changes. SECTION 5.26. Amends Section 8, Article 21.77, Insurance Code, to make conforming changes. SECTION 5.27. Amends Section 502.153(d), Transportation Code, to make a conforming change. SECTION 5.28. Amends Section 521.143(c), Transportation Code, to make a conforming change. ARTICLE 6. REPEALER SECTION 6.01. Repealed: Article 5.06 (Policy Forms and Endorsements), Article 5.35 (Policy Forms), and Article 5.101 (Flexible Rating Program for Certain Insurance Lines), Insurance Code. ARTICLE 7. TRANSITION; EFFECTIVE DATE; EMERGENCY SECTION 7.01. Makes application of this Act prospective, as of January 1, 2000. SECTION 7.02. Effective date: September 1, 1999. Provides that Article 6 of this Act takes effect January 1, 2000. SECTION 7.03. Emergency clause.