HBA-TYH H.B. 3095 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3095 By: Burnam Insurance 3/24/1999 Introduced BACKGROUND AND PURPOSE Currently, discriminatory insurance practices are present in Texas. Additionally, many Texans drive without liability insurance coverage. Numerous factors prevent Texans from receiving affordable auto insurance. H.B. 3095 creates an auto insurance verification program, requires insurance companies to offer good driver standard policies, sets the rates of the Texas Automobile Insurance Plan Association, and prohibits the use of credit histories in insurance underwriting. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Texas Department of Insurance in SECTION 4.01 (Sec. 601.502, Transportation Code) of this bill. SECTION BY SECTION ANALYSIS ARTICLE 1. RESTRICTIONS ON USE OF CERTAIN UNDERWRITING GUIDELINES SECTION 1.01. Amends Subchapter B, Chapter 21, Insurance Code, by adding Article 21.21-11, as follows: Art. 21.21-11. PROHIBITION ON USE IN MOTOR VEHICLE INSURANCE OF UNDERWRITING GUIDELINES BASED ON CREDIT HISTORY OR CREDIT RATING Sec. 1. DEFINITIONS. Defines, for this article, "insurer" and "underwriting guidline." Sec. 2. APPLICATION. Provides that this article applies only to a personal automobile insurance policy. Sec. 3. PROHIBITION; EXEMPTION. Prohibits an insurer from using an underwriting guideline that is based in whole or in part on the credit history or credit rating of an insured, an applicant for insurance coverage, or any person other than the named insured or the applicant who would be insured under the policy. Provides that this section does not apply to the use of a credit history or credit rating by an insurer solely to determine whether the insurer will offer an installment payment plan for the payment of premiums to an insured or applicant for insurance. Sec. 4. PENALTY. Provides that an insurer who violates this article commits an unfair practice in violation of Article 21.21 (Unfair Competition and Unfair Practices) and is subject to the penalties imposed under that article. ARTICLE 2. INSURANCE COVERAGE FOR GOOD DRIVERS SECTION 2.01. Amends the heading of Article 21.49-2B, Insurance Code, as follows: Art. 21.49-2B. AVAILABILITY, CANCELLATION, AND NONRENEWAL OF CERTAIN PROPERTY AND CASUALTY POLICIES SECTION 2.02. Amends Article 21.49-2B, Insurance Code, by adding Section 4A, as follows: Sec. 4A. COVERAGE FOR GOOD DRIVERS. (a) Defines, for this section, "good driver" and "traffic safety regulation." (b) Prohibits a motor vehicle insurer, except as otherwise provided by this article, from canceling, nonrenewing, or refuseing to offer a policy of motor vehicle insurance to a good driver. (c) Requires the motor vehicle insurer to provide to the named insured or applicant a notice, in the form prescribed by the commissioner of insurance (commissioner), that includes the enumerated information, at least 30 days before the date a motor vehicle insurer who does not offer a policy regulated by Article 5.101 (Flexible Rating Program for Certain Insurance Lines) of this code is required to renew a policy under which a good driver is an insured, or on application for a policy by an individual who qualifies as a good driver. (d) Provides that a violation of this section is an unfair and deceptive practice in the business of insurance under Article 21.21. Provides that compliance with this section does not create an exemption from Article 21.21-6 (Unfair Discrimination), as added by Chapter 415, Acts of the 74th Legislature, Regular Session, 1995, or other requirements. ARTICLE 3. COVERAGE WRITTEN THROUGH TEXAS AUTOMOBILE INSURANCE PLAN ASSOCIATION SECTION 3.01. Amends Section 5(a), Article 21.81, Insurance Code, as follows: (a) Requires the rates for insurance provided through the association, except as otherwise provided by this subsection, to be 150 percent of the benchmark rates set under the flexible rating program established under Article 5.101. Requires the surcharges assessed for at-fault accidents to be set by the commissioner and authorizes it to exceed the surcharges established under Rule 42, Texas Automobile Rules and Rating Manual, as that rule exists on February 1, 1997. Provides that there is no limit on the maximum allowable surcharge. Deletes text pertaining to the hearing process for determining appropriate rates. SECTION 3.02. Amends Section 3, Article 5.101, Insurance Code, by amending Subsection (c) and by adding Subsection (r), as follows: (c) Includes the amount that expected costs incurred may exceed expected premium and other revenue earned for all insurance provided through the Texas Automobile Insurance Plan Association under Article 21.81 (Texas Automobile Insurance Plan Association) as a factor the commissioner is authorized to consider in promulgating the benchmark rate. (r) Requires the commissioner, in setting a benchmark rate for uninsured motorist coverages, to consider all rate-regulated market experience, including experience for insurance provided through the Texas Automobile Insurance Plan Association under Article 21.81. ARTICLE 4. VERIFICATION OF ESTABLISHMENT OF FINANCIAL RESPONSIBILITY SECTION 4.01. Amends Chapter 601, Transportation Code, by adding Subchapter N, as follows: SUBCHAPTER N. VERIFICATION OF COMPLIANCE WITH AND ENFORCEMENT OF FINANCIAL RESPONSIBILITY REQUIREMENTS Sec. 601.501. DEFINITION. Defines, for this subchapter, "verification date." Sec. 601.502. VERIFICATION OF ESTABLISHMENT OF FINANCIAL RESPONSIBILITY THROUGH RANDOM SAMPLING. (a) Requires the Texas Department of Insurance (department) to randomly select samples of registrations of motor vehicles subject to this chapter, or samples of owners of motor vehicles subject to this chapter, to verify whether the owner has established financial responsibility in accordance with Section 601.051(a) (Requirement of Financial Responsibility). Prohibits a sample selected from being classified on the basis of the owner's race, color, religion, sex, national origin, age, marital status, physical or mental disability, economic status, or geographic location. (b) Authorizes the department, in addition to the general random sampling of motor vehicle registrations, to randomly select other persons to verify that the person has established financial responsibility, including the enumerated persons. (c) Requires the department, in preparation for random selection of samples and verification of establishment of financial responsibility, to send to the owner of a randomly selected motor vehicle, or to a randomly selected motor vehicle owner, a request for information about the motor vehicle and the owner's method of establishing financial responsibility. Provides that the request must require the owner to state whether the owner has, as of the verification date, established financial responsibility in accordance with Section 601.051(a). (d) Requires the department to establish by rule the frequency of sample selection for the verification process, not to exceed 20,000 contacts per month. (e) Requires the department to prescribe by rule the methods employed for the random selection of samples and the procedures necessary for implementation of the verification process, the form for verification of financial responsibility, and the information to be requested in the prescribed form. (f) Authorizes the department to require the information provided by the owner to include a statement by the owner that the owner had, as of the verification date, established financial responsibility through the enumerated methods. (g) Requires the owner to whom the notice is sent, within 30 days of the verification date, to furnish the requested information to the department in the form prescribed by the department, accompanied by the owner's signed affirmation that the information is true and correct. (h) Provides that an owner whose response indicates that the owner had not established financial responsibility in accordance with Section 601.051, or who fails to respond to the request, is considered to have registered or maintained registration of a motor vehicle in violation of Section 601.051. (i) Authorizes the department to conduct a verification investigation as provided by Section 601.503, if the owner responds to the request for information by asserting that the owner had, as of the verification date, established financial responsibility in accordance with a method authorized by Section 601.051(a). Sec. 601.503. VERIFICATION INVESTIGATION. (a) Authorizes the department, to verify a response received from an owner under Section 601.502, to furnish necessary information to the insurer, surety, or officer named in the response. Requires the insurer, surety, or officer, within 30 days of receipt of the information, to inform the department whether, as of the verification date, financial responsibility had been established for the affected motor vehicle in accordance with Section 601.051(a). (b) Requires the department, if the response received from an owner under Section 601.502 states that financial responsibility has been established through self-insurance, to examine the department's records to verify that a certificate of self-insurance has been issued in accordance with Section 601.124 (Self-Insurance). Sec. 601.504. NOTICE; SUSPENSION; REINSTATEMENT. (a) Requires the department, if the department determines that an owner has registered or maintained the registration of a motor vehicle without establishing financial responsibility in accordance with Section 601.051(a), to notify the owner that the owner's motor vehicle registration is suspended on the 45th day after the date of the mailing of the notice unless the owner, within 30 days of the mailing of the notice, provides proof in the manner prescribed by the department that financial responsibility was in effect on the verification date. (b) Requires the department, after notice, to suspend the registration of a motor vehicle determined by the department to be in violation of Section 601.051(a), including a motor vehicle operated in violation of Section 601.191(Operation of Motor Vehicle in Violation of Motor Vehicle Liability Insurance Requirement; Offense) by an operator other than the owner of the vehicle. Provides that a suspension under this subsection is not affected by the fact that, after the verification date or the date of conviction of a violation, the owner established the required financial responsibility or terminated ownership of the affected motor vehicle. (c) Authorizes the department to also suspend the registration of a motor vehicle registered in this state on receipt of notice of the conviction of the operator of the motor vehicle in another state of an offense that, if committed in this state, would constitute a violation of Section 601.051(a). (d) Requires the department, for a first violation, to terminate the suspension on payment by the owner of a $75 fine and submission to the department of evidence acceptable to the department of proof of financial responsibility and full payment for that coverage for the subsequent six months. (e) Requires the department, for a second violation within the preceding four years, to terminate the suspension on payment by the owner of a $175 fine and submission to the department of evidence acceptable to the department of proof of financial responsibility and full payment for that coverage for the subsequent six months. (f) Prohibits the department, for a third or subsequent violation within the preceding four years, from terminating the suspension. Provides that the owner's motor vehicle registration is suspended for 180 days and authorizes the registration to be reinstated only on submission by the owner of evidence acceptable to the department of proof of financial responsibility and full payment for that coverage for the subsequent six months. (g) Requires the department to deposit a fee collected under this section in the general revenue fund. SECTION 4.02. Amends Section 601.051, Transportation Code, as follows: Sec. 601.051. REQUIREMENT OF FINANCIAL RESPONSIBILITY. (a) Prohibits a person from registering or maintaining registration of, in addition to operating, a motor vehicle in this state unless financial responsibility is established for that vehicle through the enumerated documents. Makes a conforming change. (b) Prohibits an owner of a motor vehicle from permitting another person to operate, register, or maintain registration of the motor vehicle in this state unless financial responsibility is established for that vehicle and evidenced through a method described by Subsection (a). SECTION 4.03. Amends Section 601.191, Transportation Code, as follows: Sec. 601.191. New Title: OPERATION OF MOTOR VEHICLE IN VIOLATION OF FINANCIAL RESPONSIBILITY REQUIREMENTS. (a) Provides that a person commits an offense if the person operates a motor vehicle in violation of Section 601.051(a), rather than Section 601.051. (b) Deletes exceptions provided by Subsections (c) and (d). Makes a conforming change. (c) Provides that it is a defense to prosecution under this section or under Section 601.195 (Operation of Motor Vehicle in Violation of Requirement to Establish Financial Responsibility; Offense) that the person charged with a violation produces in court satisfactory evidence that, at the time of the arrest, the owner or operator had established financial responsibility in accordance with Section 601.051(a). Deletes text referring to fines for offenses under this section. Deletes Subsection (d) referring to a court's authorization to reduce a fine. SECTION 4.04. Repealer: Section 601.193 (Defense: Financial Responsibility in Effect at Time of Alleged Offense), Transportation Code; Subchapter E (Alternative Methods of Establishing Financial Responsibility), Chapter 601, Transportation Code; and Subsection I (Failure to Maintain Evidence of Financial Responsibility; Impoundment of Motor Vehicle), Chapter 601, Transportation Code. ARTICLE 5. TRANSITION; EFFECTIVE DATE SECTION 5.01. (a) Provides that the change in law made by this Act to Section 601.191, Transportation Code, applies only to the punishment for an offense committed on or after the effective date of this Act. Provides that for purposes of this section, an offense is committed before the effective date of this Act if any element of the offense occurs before the effective date. (b) Provides that an offense committed before the effective date of this Act is covered by the law in effect when the offense was committed, and the former law is continued in effect for this purpose. SECTION 5.02. Makes application of Article 21.21-11, Insurance Code, as added by this Act, and Articles 21.49-2B and 21.81, Insurance Code, as amended by this Act prospective, as of January 1, 2000. SECTION 5.03. Effective date: September 1, 1999. SECTION 5.04. Emergency clause.