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.