HBA-TYH, KSM H.B. 2752 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 2752 By: Smithee Insurance 7/22/1999 Enrolled BACKGROUND AND PURPOSE Prior to the 76th Legislature, Section 1, Article 5.73 (Advisory Organizations), Insurance Code, authorized an insurer to subscribe to an advisory organization from which it could have received statistical plans, historical data, prospective loss costs, supplementary rating information, policy forms and endorsements, research and performance of inspections except final rates or recommendations regarding profit or expense provisions, other than loss adjustment expenses. Premium comparison information was listed in the statute. Insurers needed to obtain this information from private vendors and Texas Department of Insurance files. H.B. 2752 permits an insurer to submit to and receive from an advisory organization rates of individual insurers that are effective at the time the information is submitted or received or that have been effective among the information. In addition, this bill deletes final rates as a piece of information that an insurer is not permitted to submit to and receive from an organization. Section 4A, Article 5.73, Insurance Code, prohibited an advisory organization from receiving from or supplying to insurers statistical plans, historical data, prospective loss costs, supplementary rating information, policy forms and endorsements, research and performance of inspections except final rates or recommendations regarding profit or expense provisions, other than loss adjustment expenses, unless the advisory organization establishes a subsidiary. The subsidiary needed to be domiciled in this state, have an office in this state, and have a governing board composed of an ex officio member appointed by the commissioner of insurance (commissioner) and five representatives of property and casualty insurers licensed in this state who subscribed to or purchased products from the advisory organization. This requirement has created an unnecessary expense. H.B. 2752 deletes the prohibition against an organization supplying information to insurers unless it had first established a subsidiary. Section 4B, Article 5.73, Insurance Code, provided that each insurer relying on prospective loss costs provided by an advisory organization needed to justify, by expert evidence, its need for that information on the grounds of insufficiency of that insurer's data and experience. An insurer unable to demonstrate its need for prospective loss costs provided by an advisory organization was prohibited from filing or using that information. Although an actuarial justification was acceptable, it would have been be unnecessary and burdensome for an insurance company to duplicate the efforts of the organization. H.B. 2752 deletes the requirement that an insurer relying on prospective loss costs provided by an organization must justify its need for that information. This bill authorizes the commissioner to review the rate filing of an insurer that relies on the prospective loss costs provided by an organization and to require the insurer to provide the insurer's actual data and loss experience in addition to the information provided by an organization. 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 1, Article 5.73, Insurance Code, to include rates of individual insurers that are effective at the time the information is submitted or received or that have been effective among the information an insurer is permitted to submit to and receive from an advisory organization. Deletes final rates as a piece of information that an insurer is not permitted to submit to and receive from an organization. Provides an exception. Makes a nonsubstantive change. SECTION 2. Amends Section 4A, Article 5.73, Insurance Code, as follows: (a) Authorizes an advisory organization (organization) to file prospective loss costs, supplementary rating information, and policy forms with the commissioner of insurance (commissioner). Authorizes an insurer that subscribes to an organization to use this information and to incorporate the information into the insurer's filings. Subjects a filing made by an organization to the provisions of this code or the other insurance laws of this state governing rate filings. Deletes the prohibition against an organization supplying information to insurers unless it had first established a subsidiary. (b) Authorizes a corporation, unincorporated association, partnership, or individual to apply to the commissioner for a license as an organization for the types of insurance specified in the application. Includes a statement of the applicant's qualifications to act as an organization and a fee of $100 among the things that an applicant, rather than an organization, must, rather than is required to, file with the commissioner. Makes nonsubstantive and conforming changes. (c) Prohibits an insurer from submitting information to or receiving information from an organization unless the organization holds a license issued under this article. (d) Requires the commissioner to issue a license to an applicant, without regard to the state of domicile or residence of the applicant or the location of the applicant's place of business if the commissioner determines that the applicant is qualified. (e) Requires the commissioner to grant or deny a license to an applicant on or before the 60th day after the date the commissioner receives the application. (f) Sets forth that a license issued under this article remains in effect until the commissioner suspends or revokes the license. Makes conforming changes. SECTION 3. Amends Section 4B, Article 5.73, Insurance Code, to authorize the commissioner to review the rate filing of an insurer that relies on the prospective loss costs provided by an organization and may require the insurer to provide the insurer's actual data and loss experience in addition to the information provided by an organization. Deletes the requirement that an insurer relying on prospective loss costs provided by an organization must justify its need for that information. SECTION 4. (a) Effective date: September 1, 1999. (b) Authorizes an organization that is in existence and operating as an advisory organization on the effective date of this Act to provide the described information pending issuance or denial of a license. SECTION 5. Emergency clause.