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).