HBA-TBM C.S.H.B. 1408 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1408 By: Junell Insurance 4/18/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE When a person who purchases insurance pays the premium on a quarterly basis, the person runs the risk of paying for coverage that will not be used if the person cancels the policy prior to the end of the prepaid, four-month period. The premium payments made for the months that are not covered are usually not automatically reimbursed by an insurer, as an insurance company has the discretion to either keep those premium payments or reimburse the insured. Presently, the state of Texas does not have any laws that require the insurer to reimburse the insured for unearned premium payments. C.S.H.B. 1408 requires all insurance companies to promptly reimburse to the insured all unearned premium payments. 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 (Article 21.29, Insurance Code) in this bill. ANALYSIS C.S.H.B. 1408 amends the Insurance Code to require a guaranty association to promptly refund to a special assigned deputy receiver an unearned premium. If an insurer issues a policy of insurance that requires the insurer to maintain an unearned premium reserve for the portion of the written policy premium applicable to the unexpired or unused part of the policy period for which the premium has been paid and the policy is canceled or terminated by the insured or the insurer before the end of the policy term with a remaining unearned premium reserve on the policy, the insurer is required to promptly refund to the policyholder the appropriate portion of the unearned premium. The commissioner of insurance is required to adopt rules necessary to implement these provisions. The bill provides that nothing in this article affects the obligation of an insurer to pay an unearned premium to a premium finance company. The provisions in this bill apply only to an insurance premium paid to an insurer on or after January 1, 2002. EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 1408 differs from the original by providing that if an insurer issues a policy of insurance that requires the insurer to maintain an unearned premium reserve for the portion of the written policy premium applicable to the unexpired or unused part of the policy period for which the premium has been paid and the policy is canceled or terminated by the insured or the insurer before the end of the policy term with a remaining unearned premium reserve on the policy, the insurer is required to promptly refund to the policyholder the appropriate portion of the unearned premium. The substitute requires the commissioner to adopt rules necessary to provide appropriate guidelines for determining the portion of an unearned premium that must be refunded to a policyholder. The substitute also provides that nothing in this article affects the obligation of an insurer to pay an unearned premium to a premium finance company. The substitute provides that only a guaranty association is required to promptly refund an unearned premium.