HBA-ATS H.B. 3697 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3697 By: Siebert Business & Industry 4/8/1999 Introduced BACKGROUND AND PURPOSE Created in 1991 by the legislature, the Texas Workers' Compensation Insurance Fund (fund) provides workers' compensation insurance to Texas businesses and their employees and to Texas employers that operate in other states. Although the fund operates as a workers' compensation insurance company in the private sector, its purpose is to serve as a competitive force in the marketplace, guarantee the availability of workers' compensation insurance in this state, and serve as an insurer of last resort. Since January 1, 1992, the fund has written over 250,253 policies that provide coverage to more than 35,000 businesses. Consequently, the fund has become the largest workers' compensation insurer in the state. The fund's mandate that it serve as a competitive force in the marketplace is a recent charge from the legislature. The legislature recognized that the fund has stimulated competition and made coverage available at reasonable rates to a vast number of Texas employers. In turn, the lower workers' compensation insurance rates had spurred competition from other carriers to the point that the fund's market share declined substantially in the past four years as a result of some of the fund's policyholders moving their business to these other carriers. Despite its decreased market share, the fund's favorable tax treatment (unlike other insurers, it pays no federal income tax on income from investments) gives the fund a competitive advantage over other insurers in the market place. According to the Research and Oversight Council on Workers' Compensation, the fund has assets of $1.441 billion, with an investment balance of $1.381 billion. The fund's cumulative net income from investments is estimated to have exceeded cumulative net income from underwriting by a factor of seven to one. As of the end of 1998, the fund had a surplus of $831 million, $644 million of which was in unassigned surplus. The fund's continued pricing advantage in the healthy compensation insurance market (as of 1997, 71 percent of the fund's policy holders paid less than $5,000 in premiums) and its substantial surplus, which has been used to repay most of its $300 million capitalization debt, thereby eliminating the need for maintenance tax surcharges, may warrant a modification of the fund's operating purpose and the use of the fund's surplus. Currently, the surplus is held exclusively for the purposes stated in Article 5.76-3 (Texas Workers' Compensation Insurance Fund), Insurance Code, and is prohibited from being used or appropriated for any other purpose. H.B. 3697 requires the Texas Workers' Compensation Insurance Fund to serve as a stabilizing, rather than as a competitive, force in the marketplace. In addition, this bill deletes the condition that the fund must be held exclusively for the purposes stated in the Insurance Code and the prohibition against the use or appropriation of unassigned surplus funds for any other purpose to provide that unassigned surplus funds are subject to legislative appropriations on the approval of the commissioner of insurance. Under this bill, unassigned surplus funds from the fund may only be appropriated to the general revenue fund and are prohibited from being appropriated for any particular agency or purpose. In addition, appropriations from the fund to the general revenue fund are contingent on the approval of the commissioner of insurance that such appropriations will not adversely affect the financial ability of the fund to perform its duties and responsibilities. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 2(a), Article 5.76-3, Insurance Code, to require the Texas Workers' Compensation Insurance Fund (fund) to serve as a stabilizing, rather than as a competitive, force in the marketplace, among other requirements. SECTION 2. Amends Section 13(c), Article 5.76-3, Insurance Code, as follows: (c) Adds the exception that unassigned surplus funds are subject to legislative appropriations as provided in this subsection on the approval of the commissioner of insurance (commissioner) to the requirement that money in the fund be held for the purposes stated in this article. Deletes the condition that the funds must be held exclusively for the purposes stated in this article. Deletes the prohibition against the use or appropriation of unassigned surplus funds for any other purpose. (1) Adds this subdivision to limit the appropriation of unassigned surplus funds from the fund to the general revenue fund, and to prohibit the appropriation of unassigned surplus funds for any particular agency or purpose. (2) Adds this subdivision to provide that appropriations from the fund to the general revenue fund are contingent on the approval of the commissioner that such appropriations will not adversely affect the financial ability of the fund to perform its duties and responsibilities under this article (Texas Workers' Compensation Insurance Fund). SECTION 3. REPORT TO THE COMPTROLLER. Requires the commissioner to report to the governor, the comptroller of public accounts, and the Legislative Budget Board on the amount of unassigned surplus funds of the fund that could be appropriated to the general revenue fund during the Fiscal Year 2000-2001 biennium that would not adversely affect the financial ability of the fund to perform its duties and responsibilities under this article. Requires the commissioner to make the report no later than 10 days after the effective date of this Act, but in no event later than May 3, 1999. SECTION 4. EMERGENCY. Emergency clause. Effective date: upon passage.