HBA-NRS C.S.H.B. 2102 77(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 2102
By: Eiland
Insurance
4/16/2001
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

Current law requires the commissioner of insurance to conduct hearings to
determine benchmark rates under the flexible rating program. The average
time span between the initial notice of a hearing until a rate is set is
more than one year and, since rates are based on data from years prior to
the start of this process, the rates may not reflect current market
conditions. Allowing the commissioner of insurance to exercise rulemaking
authority in setting benchmark rates and to determine and prescribe Texas
Automobile Insurance Plan Association (TAIPA) rates would reduce the number
of steps involved in the rate setting process. This would help reduce the
gap between the effective date of new rates and the time period represented
by the data used to set the rates. C.S.H.B. 2102 allows the commissioner of
insurance to exercise rulemaking authority in setting benchmark rates and
to prescribe TAIPA rates. 

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 (Section 3, Article 5.101, Insurance Code). 

ANALYSIS

C.S.H.B. 2102 requires the commissioner of insurance (commissioner) to
promulgate by rule a benchmark rate for each insurance line subject to the
flexible rating program after a notice and hearing and to have each
flexibility band based on a benchmark rate promulgated by rule by the
commissioner. In promulgating the benchmark rate, the bill authorizes the
commissioner to give due consideration to expenses and operation of all
insurers, allocated to each line of insurance in proportion to the amount
the net direct premiums of the benchmark line bear to the aggregate of net
direct premiums for all lines assessed and excluding only those expenses
that are disallowed under the flexible rating program. The bill requires
the commissioner to request recommendations regarding changes to the
benchmark rates before each annual hearing. Notice of each hearing
involving benchmark rates must be published in the Texas Register and the
bill requires the commissioner to receive public comment for at least 30
days after the notice of a hearing is published or at the hearing.  

The bill authorizes the public insurance counsel and any insurer, trade
association, or other interested person or entity that has submitted
proposed changes or actuarial analyses to ask questions of any person
testifying at the hearing. After the hearing, the bill requires the
commissioner to adopt a rule promulgating the benchmark rate. The bill
provides that disallowed expenses include among other items any
unreasonably incurred expense, as determined by the commissioner after
notice and hearing in a proceeding separate from the hearing to determine
benchmark rates by line. The commissioner is prohibited from excluding any
part of the expenses of an individual insurer or group of affiliated
insurers unless the expenses are specifically disallowed by this bill. If a
disallowed expense determined by the commissioner after notice and hearing
in a proceeding separate from the hearing to determine benchmark rates by
line involves an individual insurer or group of affiliated insurers, the
commissioner must provide notice to each insurer in a separate proceeding
to each insurer or group of affiliated insurers involved (Sec. 3, Art.
5.101). 

The bill  provides that the adoption of rules under agency actions
affecting small businesses do not apply  to a benchmark rate hearing. The
bill removes provisions relating to discovery and evidence presented at a
benchmark rate hearing (Sec. 5, Art. 5.101). The bill provides that
judicial review of an order promulgating benchmark rates is under the
substantial evidence rule. The bill authorizes a person aggrieved by the
action of the commissioner in setting the benchmark rate to file a petition
for judicial review in a district court in Travis County not later than the
30th day after the date on which the commissioner adopts a final order on a
benchmark rate (Sec. 6, Art. 5.101).    

The bill requires the commissioner to determine and prescribe appropriate
rates to be charged for insurance provided through the Texas Automobile
Insurance Plan Association (TAIPA). The bill removes the provision
requiring the commissioner to conduct a hearing on rates for insurance
provided through TAIPA. The bill requires TAIPA to file its rates to be
charged with the Texas Department of Insurance (department) for the
commissioner's approval and prohibits TAIPA from filing more than once in
any 12 month period. The bill authorizes TAIPA, the public insurance
counsel, and any other interested person or entity that has submitted
proposed changes or actuarial analyses to ask questions of any person
testifying at the hearing. Before approving, disapproving, or modifying a
filing, the bill requires the commissioner to provide all interested
persons a reasonable opportunity to review and comment on the filing.  

C.S.H.B. 2102 requires the commissioner to schedule a hearing on the filing
not later than the 45th day after the date on which the department receives
the filing. The bill requires the department to file with the Texas
Register a notice that a filing has been made no later than the seventh day
after the date the filing is received by the department and specifies
content the notification must contain. After conclusion of the hearing, the
bill requires the commissioner to approve, disapprove, or modify the filing
in writing. If the commissioner disapproves a filing, the bill requires the
commissioner to state in writing the reasons for the disapproval and the
criteria to be met by TAIPA to obtain approval. The bill authorizes  TAIPA
to file with the commissioner an amended filing for compliance not later
than the 10th day after the date on which TAIPA receives the commissioner's
disapproval. The bill sets forth provisions relating to an amended filing
(Sec. 5, Art. 21.81).  

EFFECTIVE DATE

September 1, 2001. The Act applies only to premium rates for an insurance
policy delivered, issued for delivery, or renewed on or after January 1,
2002. 

COMPARISON OF ORIGINAL TO SUBSTITUTE

C.S.H.B. 2102 modifies the original bill by authorizing the commissioner of
insurance (commissioner) in promulgating the benchmark rate to give due
consideration to expenses and operation of all insurers, allocated to each
line of insurance in proportion to the amount the net direct premiums of
the benchmark line bear to the aggregate of net direct premiums for all
lines assessed (Sec. 3, Art. 5.101). The substitute authorizes particular
persons to ask questions of those testifying at the annual benchmark rate
hearing (Sec. 3, Art. 5.101 and Sec. 5, Art. 21.81). The substitute
provides that disallowed expenses under the flexible rating program
includes unreasonably incurred expenses determined by the commissioner
after notice and hearing separate from the benchmark hearing (Sec. 3, Art.
5.101). The substitute allows for a petition of judicial review as a result
of a person being aggrieved by the actions of the commissioner (Sec. 6,
Art. 5.101).