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S.B. No. 14
AN ACT
relating to rates for certain property and casualty insurance and
regulation of insurer market conduct.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Article 5.144, Insurance Code, is amended by
amending Subsection (b) and adding Subsections (b-1) and (b-2) to
read as follows:
(b) Except as provided by Subsection (d) of this article, if
the commissioner determines that an insurer has charged a rate for
personal automobile insurance or residential property insurance
that is excessive or unfairly discriminatory, as described by
Article 5.13-2 [or 5.101] of this code, the commissioner may order
the insurer to:
(1) issue a refund of the excessive or unfairly
discriminatory portion of the premium, plus interest on that
amount, directly to each affected policyholder if the amount of
that portion of the premium is at least 7.5 percent of the total
premium charged for the coverage; or
(2) if the amount of that portion of the premium is
less than 7.5 percent:
(A) provide each affected policyholder who
renews the policy a future premium discount in the amount of the
excessive or unfairly discriminatory portion of the premium, plus
interest on that amount; and
(B) provide each affected policyholder who does
not renew or whose coverage is otherwise terminated a refund in the
amount described by Subdivision (1) of this subsection.
(b-1) The rate for interest assessed under Subsection (b) of
this article is the lesser of 18 percent or the sum of six percent
and the prime rate for the calendar year in which the commissioner's
order finding that the rate is excessive or unfairly discriminatory
is issued. For purposes of this subsection, the prime rate is the
prime rate as published in The Wall Street Journal for the first day
of the calendar year that is not a Saturday, Sunday, or legal
holiday. The period for the refund and interest begins on the date
the department first provides the insurer with formal written
notice that the insurer's filed rate is excessive or unfairly
discriminatory, and interest continues to accrue until the refund
is paid. An insurer may not be required to pay any interest penalty
if the insurer prevails in an appeal of the commissioner's order
under Subchapter D, Chapter 36, of this code.
(b-2) An insurer may not claim a premium tax credit to which
the insurer is otherwise entitled unless the insurer complies with
Subsection (b) of this article.
SECTION 2. Article 5.171, Insurance Code, is amended to
read as follows:
Art. 5.171. RATING TERRITORIES. Notwithstanding any other
provision of this code, an insurer, in writing residential property
or personal automobile insurance, may not use rating territories
that subdivide a county unless:
(1) the county is subdivided; and
(2) the rate for any subdivisions within that county
is not greater than 15 percent higher than the rate used in any
other subdivisions in the county by that insurer, except that the
commissioner may by rule allow a greater rate difference [for
residential property insurance or personal automobile insurance].
SECTION 3. Title 5, Insurance Code, is amended by adding
Subtitle G to read as follows:
SUBTITLE G. REGULATION OF INSURER MARKET CONDUCT
CHAPTER 751. MARKET CONDUCT SURVEILLANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 751.001. SHORT TITLE. This chapter may be cited as the
Insurance Market Conduct Surveillance Act.
Sec. 751.002. PURPOSE AND SCOPE. (a) The purpose of this
chapter is to establish a framework for department market conduct
actions, including:
(1) processes and systems for identifying, assessing,
and prioritizing market conduct problems that have a substantial
adverse impact on consumers, policyholders, and claimants;
(2) development of appropriate market conduct actions
by the commissioner as required to:
(A) substantiate market conduct problems; and
(B) remedy significant market conduct problems;
and
(3) procedures to communicate and coordinate market
conduct actions with other states to foster the most efficient and
effective use of resources.
(b) Notwithstanding any other law of this state, the
department or commissioner, as applicable, may undertake market
analysis or market conduct action only as provided by this chapter.
Sec. 751.003. DEFINITIONS. (a) In this chapter:
(1) "Complaint" means a written or documented oral
communication, the primary intent of which is to express a
grievance or an expression of dissatisfaction.
(2) "Desk examination" means a targeted examination
conducted by an examiner at a location other than an insurer's
premises. The term includes an examination performed at the
department's offices during which the insurer provides requested
documents for department review by hard copy or by microfiche,
disk, or other electronic media.
(3) "Market analysis" means a process under which
market conduct surveillance personnel collect and analyze
information from filed schedules, surveys, required reports, and
other sources as necessary to:
(A) develop a baseline understanding of the
marketplace; and
(B) identify insurer patterns or practices that:
(i) deviate significantly from the norm; or
(ii) pose a potential risk to the insurance
consumer.
(4) "Market analysis handbook" means the outline of
the elements and objectives of market analysis as developed and
adopted by the National Association of Insurance Commissioners, and
used to establish a uniform process by which states may establish
and implement market analysis programs.
(5) "Market conduct action" means any activity that
the commissioner may initiate to assess and address insurer market
practices before conducting a targeted examination. The term does
not include a commissioner action taken to resolve:
(A) an individual consumer complaint; or
(B) another report relating to a specific
instance of insurer misconduct.
(6) "Market conduct examination" means a review of one
or more lines of business of an insurer domiciled in this state that
is not conducted for cause. The term includes a review of rating,
tier classification, underwriting, policyholder service, claims,
marketing and sales, producer licensing, complaint handling
practices, or compliance procedures and policies.
(7) "Market conduct examiners handbook" means the set
of guidelines, developed and adopted by the National Association of
Insurance Commissioners, that document established practices to be
used by market conduct surveillance personnel in developing and
executing an examination under this chapter.
(8) "Market conduct surveillance personnel" means
those individuals employed by or under contract with the department
who collect, analyze, review, or act on information regarding
insurer patterns or practices.
(9) "Market conduct uniform examination procedures"
means the set of guidelines developed and adopted by the National
Association of Insurance Commissioners designed to be used by
market conduct surveillance personnel in conducting an examination
under this chapter.
(10) "On-site examination" means a targeted
examination that is conducted at:
(A) the insurer's home office; or
(B) another location at which the records under
review are stored.
(11) "Qualified contract examiner" means a person
qualified by education, experience, and any applicable
professional designations who is under contract with the
commissioner to perform market conduct actions.
(12) "Standard data request" means the set of field
names and descriptions developed and adopted by the National
Association of Insurance Commissioners for use by market conduct
surveillance personnel in an examination.
(13) "Targeted examination" means a limited
review and analysis, conducted through a desk examination or an
on-site examination and in accordance with the market conduct
uniform examination procedures, of specific insurer conduct,
practices, or risks identified through market analysis that have
not been remedied by the insurer, including:
(A) underwriting and rating;
(B) marketing and sales;
(C) complaint handling operations and
management;
(D) advertising materials;
(E) licensing;
(F) policyholder services;
(G) claims handling;
(H) policy forms and filings; or
(I) tier classification.
(14) "Third-party model or product" means a model or
product provided by an entity that is separate from and not under
direct or indirect corporate control of the insurer using the model
or product.
(b) In this chapter, "affiliate" and "subsidiary" have the
meanings described by Section 823.003.
Sec. 751.004. IMMUNITY. (a) A cause of action does not
arise, and liability may not be imposed, for any statements made or
conduct performed in good faith while implementing this chapter,
against:
(1) the commissioner;
(2) an authorized representative of the commissioner;
or
(3) an examiner appointed by the commissioner.
(b) A cause of action does not arise, and liability may not
be imposed, against any person for the act of communicating or
delivering information or data to the commissioner or the
commissioner's authorized representative or examiner under an
examination made under this chapter, if the act of communication or
delivery was performed in good faith and without fraudulent intent
or the intent to deceive.
(c) A person identified in Subsection (a) is entitled to
attorney's fees and costs if the person is the prevailing party in a
civil cause of action for libel, slander, or any other relevant tort
arising out of activities conducted in implementing this chapter,
and the party bringing the action was not substantially justified
in doing so. For purposes of this subsection, an action is
"substantially justified" if the action had a reasonable basis in
law or fact at the time that it was initiated.
(d) This section does not abrogate or modify any common law
or statutory privilege or immunity.
[Sections 751.005-751.050 reserved for expansion]
SUBCHAPTER B. GENERAL POWERS AND DUTIES OF COMMISSIONER
Sec. 751.051. PARTICIPATION IN NATIONAL MARKET CONDUCT
DATABASES. (a) The commissioner shall collect and report market
data to the National Association of Insurance Commissioners' market
information systems, including the complaint database system, the
examination tracking system, the regulatory information retrieval
system, or other successor systems of that association, as
determined by the commissioner.
(b) Information collected and maintained by the department
shall be compiled in a manner that meets the requirements of the
National Association of Insurance Commissioners.
Sec. 751.052. COORDINATION WITH OTHER STATES. The
commissioner shall coordinate the department's market analysis and
examination efforts with other states through the National
Association of Insurance Commissioners.
Sec. 751.053. INFORMATION FROM COMMISSIONER. (a) At least
once annually or more frequently if determined necessary by the
commissioner, the commissioner shall provide in an appropriate
manner to insurers and other entities subject to this code
information regarding new laws and rules, enforcement actions, and
other information the commissioner considers relevant to ensure
compliance with market conduct requirements.
(b) The commissioner may provide the notice required under
Subsection (a) in an electronic format that is designed to give
insurers and other entities adequate notice.
(c) Failure by the commissioner to provide the information
described by Subsection (a) does not constitute a defense for an
insurer who fails to comply with an insurance law of this state.
Sec. 751.054. REPORT OF VIOLATIONS. (a) The commissioner
shall designate an individual within the department whose
responsibilities shall include the receipt of information from
employees of insurers and other entities regulated by the
department regarding violations of laws or rules by their
employers. The commissioner's designee shall be properly trained
in the handling of that information.
(b) Information received under this section is a
confidential communication and is not public information.
Sec. 751.055. EXERCISE OF SUBPOENA AUTHORITY. The
commissioner has the subpoena power authorized by Subchapter C,
Chapter 36, for the production of documents under this chapter and
enforcement of this subtitle.
[Sections 751.056-751.100 reserved for expansion]
SUBCHAPTER C. RELATIONS WITH OTHER STATES
Sec. 751.101. COMMISSIONER AUTHORITY; INTERACTIONS WITH
OTHER INSURANCE COMMISSIONERS OF OTHER STATES. (a) The
commissioner has responsibility for conducting market conduct
examinations on domestic insurers. The commissioner may delegate
that responsibility to the insurance commissioner of another state,
if that insurance commissioner agrees to accept the delegated
responsibility. If the commissioner elects to delegate
responsibility for examining an insurer, the commissioner shall
accept a report of the examination prepared by the insurance
commissioner to whom the responsibility has been delegated.
(b) If the insurer to be examined is part of an insurance
holding company system, the commissioner may also seek to
simultaneously examine any affiliate of the insurer that is
authorized to write the same types of insurance in this state as the
insurer if the insurance commissioner of the state in which the
affiliate is organized consents and delegates responsibility for
that examination.
(c) In lieu of conducting a targeted examination of an
insurer that holds a certificate of authority in this state but is
not a domestic insurer, the commissioner shall accept a report of a
market conduct examination regarding that insurer prepared by the
insurance commissioner of the state in which the insurer is
organized or by another state if:
(1) the laws of the examining state that are
applicable to the subject of the examination are substantially
similar to those of this state; and
(2) the examining state has a market conduct
surveillance system that the commissioner deems comparable to the
market conduct surveillance system required under this chapter.
(d) The commissioner's determination under Subsection
(c)(2) is discretionary with the commissioner and is not subject to
appeal.
(e) Subject to a determination under Subsection (c), if a
market conduct examination conducted by another state results in a
finding that an insurer should modify a specific practice or
procedure, the commissioner shall accept documentation that the
insurer has made a similar modification in this state in lieu of
initiating a market conduct action or examination related to that
practice or procedure. The commissioner may require other or
additional practice or procedure modifications.
[Sections 751.102-751.150 reserved for expansion]
SUBCHAPTER D. MARKET ANALYSIS PROCEDURES
Sec. 751.151. COLLECTION OF INFORMATION; COMMISSIONER
ANALYSIS. (a) Subject to Subsection (d), the commissioner shall
gather insurance market information from:
(1) data available to the department, including survey
results and information required to be reported to the department;
(2) information collected by the National Association
of Insurance Commissioners and other public and private sources;
and
(3) information from within and outside the insurance
industry.
(b) The commissioner shall analyze the information compiled
under Subsection (a) as necessary to:
(1) develop a baseline understanding of the insurance
marketplace; and
(2) identify for further review insurers or insurance
practices that deviate significantly from the norm or that pose a
potential risk to the insurance consumer.
(c) The commissioner shall use the market analysis handbook
as a resource in performing the analysis required under this
section.
(d) Except as otherwise specifically provided, the
department or the commissioner, as applicable, may not require an
insurer to report information in a manner that is inconsistent with
the records the insurer maintains in the ordinary course of
business or can create at a reasonable expense or effort.
Sec. 751.152. ADDITIONAL ANALYSIS OF MARKET ACTIONS.
(a) If, as a result of the market analysis, the commissioner
determines that further inquiry into a particular insurer or
insurance practice is needed, the commissioner shall consider
taking one or more of the market conduct actions described by
Subsection (b) before conducting a targeted examination. If a
market conduct action selected by the commissioner requires the
participation of or a response by the affected insurer, the
commissioner shall notify the insurer of the action selected in
writing.
(b) Market conduct actions described by Subsection (a) may
include:
(1) correspondence with the insurer;
(2) insurer interviews;
(3) information gathering;
(4) policy and procedure reviews;
(5) interrogatories; and
(6) review of insurer self-evaluation and compliance
programs, including insurer membership in a best-practice
organization.
(c) The commissioner shall select market conduct actions
that are efficient and cost-effective for the department and the
insurer while protecting the interests of the insurance consumer.
(d) The commissioner shall take steps reasonably necessary
to:
(1) eliminate requests for information that
duplicates or conflicts with information provided as part of an
insurer's annual financial statement, the annual market conduct
statement of the National Association of Insurance Commissioners,
or other required schedules, surveys, or reports that are regularly
submitted to the commissioner, or with data requests made by other
states if that information is available to the commissioner, unless
the information is state specific; and
(2) coordinate the market conduct actions and findings
of this state with those of other states.
Sec. 751.153. PROTOCOLS FOR MARKET CONDUCT ACTIONS.
(a) Each market conduct action taken as a result of a market
analysis:
(1) must focus on the general business practices and
compliance activities of insurers, rather than identifying
infrequent or unintentional random errors that do not cause
significant consumer harm; and
(2) may not result in a market conduct examination,
unless the head of the insurance regulatory agency in the insurer's
state of domicile determines that a market conduct examination is
needed.
(b) The commissioner may determine the frequency and timing
of the market conduct actions. The timing of an action depends on
the specific market conduct action to be initiated unless
extraordinary circumstances indicating a risk to consumers require
immediate action.
(c) If the commissioner has information that more than one
insurer is engaged in practices that may violate statutes or rules,
the commissioner may schedule and coordinate multiple examinations
simultaneously.
(d) The commissioner shall provide an insurer with an
opportunity to resolve to the satisfaction of the commissioner any
matter that arises as a result of a market analysis before any
additional market conduct actions are taken against the insurer.
If the insurer has modified a practice or procedure as a result of a
market conduct action taken or examination conducted by the
insurance commissioner of another state, and the commissioner deems
that state's market conduct surveillance system comparable to the
system required under this chapter, the commissioner may accept the
modified practice or procedure and may require other or additional
practice or procedure modifications.
(e) For an application by the department of a handbook,
guideline, or other product referenced in this chapter that is the
work product of the National Association of Insurance Commissioners
that changes the way in which market conduct actions are conducted,
the commissioner shall give notice and provide interested parties
with an opportunity for a public hearing as provided by Chapter
2001, Government Code, if the change:
(1) necessitates a change in a statute or rule; or
(2) deviates from the applicable handbook, guideline,
or other product most recently adopted by the National Association
of Insurance Commissioners.
(f) Except as otherwise provided by law, each insurer or
person from whom information is sought, and each officer, director,
or agent of that insurer or person, shall provide the commissioner
with convenient and free access to all books, records, accounts,
papers, documents, and any computer or other recordings relating to
the property, assets, business, and affairs of the insurer or
person.
(g) Each officer, director, employee, insurance producer,
and agent of an insurer or person described by Subsection (f) shall,
to the extent of that individual's ability, facilitate and aid in a
department market conduct action.
[Sections 751.154-751.200 reserved for expansion]
SUBCHAPTER E. EXAMINATIONS
Sec. 751.201. EXAMINATION. (a) If the commissioner
determines that a market conduct action described by Section
751.152(b) is not appropriate, the commissioner may conduct a
targeted examination in accordance with the market conduct uniform
examination procedures and the market conduct examiners handbook.
(b) A targeted examination may be conducted through a desk
examination or an on-site examination. To the extent feasible, the
department shall conduct a market conduct examination through desk
examinations and data requests before conducting an on-site
examination.
(c) The department shall conduct an examination in
accordance with the market conduct examiners handbook and the
market conduct uniform examinations procedures.
(d) The department shall use the standard data request or a
successor product that is substantially similar to the standard
data request as adopted by the commissioner by rule.
(e) If the insurer to be examined is not a domestic insurer,
the commissioner shall coordinate the examination with the
insurance commissioner of the state in which the insurer is
organized.
Sec. 751.202. WORK PLAN. Before beginning an examination,
market conduct surveillance personnel shall prepare a work plan
that includes:
(1) the name and address of the insurer to be examined;
(2) the name and contact information of the
examiner-in-charge;
(3) a statement of the reasons for the examination;
(4) a description of the scope of the examination;
(5) the date the examination is scheduled to begin;
(6) notice to any non-insurance department personnel
who will assist in the examination;
(7) a time estimate for the examination; and
(8) if the cost of the examination is billed to the
affected insurer:
(A) a budget for the examination; and
(B) an identification of factors that will be
included in the billing.
Sec. 751.203. NOTICE OF EXAMINATION. (a) Unless the
examination is conducted in response to extraordinary
circumstances as described by Section 751.153(b), the department
shall notify an affected insurer of an examination not later than
the 60th day before the scheduled date of the beginning of the
examination. The notice must include the examination work plan and
a request that the insurer name an examination coordinator for the
insurer.
(b) In addition to the notice required under Subsection (a),
the commissioner shall post notice that a market conduct
examination has been scheduled on the National Association of
Insurance Commissioners examination tracking system.
(c) If a targeted examination is expanded beyond the reasons
provided to the insurer in the notice of the examination required
under Subsection (a), the commissioner shall provide written notice
to the insurer, explaining the extent of the expansion and the
reasons for the expansion. The department shall provide a revised
work plan to the insurer before the beginning of any significantly
expanded examination.
Sec. 751.204. PRE-EXAMINATION CONFERENCE. Not later than
the 30th day before the scheduled date of the examination, the
commissioner shall conduct a pre-examination conference with the
insurer's examination coordinator and key personnel to clarify
expectations.
Sec. 751.205. EXIT CONFERENCE. Before the conclusion of an
examination, the member of the market conduct surveillance
personnel who is designated as the examiner-in-charge shall
schedule an exit conference with the insurer.
Sec. 751.206. EXAMINATION REPORT. (a) Unless the
commissioner and the insurer agree to a different schedule, the
commissioner shall follow the time line established under this
section.
(b) The commissioner shall deliver the draft examination
report to the insurer not later than the 60th day after the date the
examination is completed. For purposes of this section, the date
the examination is completed is the date on which the exit
conference is conducted.
(c) Not later than the 30th day after the date on which the
insurer receives the draft examination report, the insurer shall
provide any written comments regarding the report to the
department.
(d) The department shall make a good faith effort to resolve
issues with the insurer informally and shall prepare a final
examination report not later than the 30th day after the date of
receipt of the insurer's written comments on the draft report
unless a mutual agreement is reached to extend the deadline.
(e) The department shall include the insurer's responses in
the final examination report. The responses may be included as an
appendix or in the text of the examination report. An insurer is
not obligated to submit a response. An individual involved in the
examination may not be named in either the report or the insurer
response except to acknowledge the individual's involvement.
(f) The commissioner may make corrections and other changes
to the final examination report as appropriate, and shall issue the
report to the insurer. Not later than the 30th day after receipt of
the final examination report under this subsection, the insurer
shall accept the report, accept the findings of the report, or
request a hearing. The commissioner and the insurer by mutual
agreement may extend the period for an additional 30 days. A
request for a hearing must be made in writing and must follow the
requirements of Chapter 2001, Government Code.
Sec. 751.207. CONFIDENTIALITY OF EXAMINATION REPORT
INFORMATION. (a) A final or preliminary market conduct
examination report, and any information obtained during the course
of an examination, is confidential and is not subject to disclosure
under Chapter 552, Government Code. This section may not be
construed to limit the commissioner's authority to use any final or
preliminary market conduct examination report, any examiner or
company work papers or other documents, or any other information
discovered or developed during the course of an examination in the
furtherance of any legal or regulatory action that the
commissioner, in the commissioner's sole discretion, may deem
appropriate.
(b) This chapter does not prevent the commissioner from
disclosing at any time the contents of a final market conduct
examination report to the department, the insurance department of
any other state, or an agency of the federal government, if the
department or agency receiving the report agrees in writing to
maintain the information as confidential and in a manner consistent
with this chapter.
(c) The commissioner shall provide to an insurer subject to
a final market conduct examination a written agreement described by
Subsection (b) not later than the fifth day after the date the final
market conduct examination is released under Subsection (b).
Sec. 751.208. ASSESSMENT OF COSTS OF EXAMINATION.
(a) Subject to Subsection (d), if the reasonable and necessary
cost of a market conduct examination is to be assessed against the
affected insurer, fees for that cost must be consistent with those
otherwise authorized by law. The fees must be itemized and bills
for the fees must be provided to the insurer on a monthly basis for
review prior to submission for payment.
(b) The commissioner shall actively manage and oversee
examination costs, including costs associated with the use of
department examiners and with retaining qualified contract
examiners necessary to perform an on-site examination. To the
extent the commissioner retains outside assistance, the
commissioner shall adopt by rule written protocols that:
(1) clearly identify the types of functions to be
subject to outsourcing;
(2) provide specific time lines for completion of the
outsourced review;
(3) require disclosure of recommendations made by
contract examiners;
(4) establish and use a dispute resolution or
arbitration mechanism to resolve conflicts with insurers regarding
examination fees; and
(5) require disclosure of the terms of contracts
entered into with outside consultants, and specifically terms
regarding the fees or hourly rates that may be charged by those
consultants.
(c) The commissioner must review and affirmatively endorse
detailed billings made by a qualified contract examiner before the
detailed billings are sent to the insurer.
(d) An insurer may not be required to provide reimbursement
for examiner fees under Subsection (a), whether those fees are
incurred by market conduct surveillance personnel or qualified
contract examiners, to the extent that those fees exceed the fees
prescribed in the market conduct examiners handbook and any
successor documents to that handbook, unless the commissioner
demonstrates that the fees prescribed in the handbook are
inadequate under the circumstances of the examination.
Sec. 751.209. LIMIT ON CERTAIN EXAMINATIONS. The
commissioner may not conduct a market conduct examination more
frequently than once every three years. The commissioner may defer
conducting a market conduct examination for longer than once every
three years.
[Sections 751.210-751.250 reserved for expansion]
SUBCHAPTER F. CONFIDENTIALITY REQUIREMENTS
Sec. 751.251. NO WAIVER. (a) The disclosure to the
commissioner under this subchapter of a document, material, or
information does not constitute the waiver of any applicable
privilege or claim of confidentiality regarding the document,
material, or information.
(b) Notwithstanding Subsection (a), an insurer may not be
compelled to disclose a self-audit document or waive any statutory
or common law privilege. An insurer may, however, voluntarily
disclose a document described by this subsection to the
commissioner in response to any market conduct action or
examination.
(c) For the purposes of Subsection (b), "self-audit
document" means a document that is prepared as a result of or in
connection with an insurance compliance audit.
Sec. 751.252. AUTHORITY OF COMMISSIONER. (a) The
commissioner may share documents, materials, or other information
obtained by or disclosed to the commissioner under this chapter
with other state, federal, and international regulatory agencies
and law enforcement authorities if the recipient agrees to and has
the legal authority to maintain the confidentiality and privileged
status of the document, material, or other information.
(b) The commissioner may receive documents, materials, or
information, including otherwise confidential and privileged
documents, materials, or information, from the National
Association of Insurance Commissioners and that association's
affiliates or subsidiaries, and from regulatory and law enforcement
officials of other foreign or domestic jurisdictions. The
commissioner shall maintain as confidential or privileged any
document, material, or information received with notice or the
understanding that the document, material, or information is
confidential or privileged under the laws of the jurisdiction that
is the source of the document, material, or information.
(c) Consistent with this section, the commissioner may
enter into agreements governing the sharing and use of information.
[Sections 751.253-751.300 reserved for expansion]
SUBCHAPTER G. MARKET CONDUCT SURVEILLANCE PERSONNEL
Sec. 751.301. PERSONNEL; QUALIFICATIONS. (a) To conduct
market conduct surveillance under this chapter, the commissioner
may designate department staff to perform duties under this
chapter, and may supplement that staff with qualified outside
professional assistance if the commissioner determines that that
assistance is necessary.
(b) Market conduct surveillance personnel must be qualified
by education and experience and, if applicable, must hold
appropriate professional designations.
Sec. 751.302. CONFLICT OF INTEREST. (a) An individual who
is a member of the market conduct surveillance personnel has a
conflict of interest, either directly or indirectly, if the
individual is affiliated with the management of, has been employed
by, or owns a pecuniary interest in an insurer subject to an
examination conducted under this chapter.
(b) This section may not be construed to automatically
preclude the individual from being:
(1) a policyholder or claimant under an insurance
policy;
(2) a grantee of a mortgage or similar instrument on
the individual's residence from a regulated entity if done under
customary terms and in the ordinary course of business;
(3) an investment owner in shares of regulated
diversified investment companies; or
(4) a settlor or beneficiary of a blind trust into
which any otherwise permissible holdings have been placed.
Sec. 751.303. ACCESS TO INFORMATION. (a) Except as
otherwise provided by law, market conduct surveillance personnel
shall, as practicable, have free and full access to all books and
records, and all employees, officers, and directors, of the insurer
during regular business hours.
(b) On the request of market conduct surveillance
personnel, an insurer that uses a third-party model or product for
any of the activities under examination shall make the details of
those models or products available to that personnel.
Sec. 751.304. AUTHORITY OF MARKET CONDUCT SURVEILLANCE
PERSONNEL. Market conduct surveillance personnel may examine
insurance company personnel under oath if that action is ordered by
the commissioner under Subchapter C, Chapter 36.
[Sections 751.305-751.350 reserved for expansion]
SUBCHAPTER H. SANCTIONS
Sec. 751.351. SANCTIONS. (a) The commissioner may impose
sanctions under Chapter 82 against an insurer determined, as a
result of a market conduct action or other action under this
chapter, to have violated this code, a rule adopted under this code,
or another insurance law of this state.
(b) In determining an appropriate sanction under Subsection
(a) the commissioner shall consider:
(1) any actions taken by the insurer to maintain
membership in, and comply with the standards of, best-practice
organizations that promote high ethical standards of conduct in the
insurance marketplace; and
(2) the extent to which the insurer maintains
regulatory compliance programs to self-assess, self-report, and
remediate problems detected by the insurer.
SECTION 4. Article 5.43, Insurance Code, is amended by
adding Subsections (a-1) and (f) to read as follows:
(a-1) A residential property insurance claim under this
article does not include a claim:
(1) resulting from a loss caused by natural causes;
(2) that is filed but is not paid or payable under the
policy; or
(3) that an insurer is prohibited from using under
Section 3, Article 5.35-4, of this code.
(f) Any change in the amount of a discount provided under
this article must comply with the requirements of Section 551.107
of this code.
SECTION 5. Section 551.107, Insurance Code, is amended by
amending Subsections (b), (c), (e), and (f) and adding Subsection
(g) to read as follows:
(b) A claim under this section does not include a claim:
(1) resulting from a loss caused by natural causes;
[or]
(2) that is filed but is not paid or payable under the
policy; or
(3) that an insurer is prohibited from using under
Section 3, Article 5.35-4.
(c) An insurer may assess a premium surcharge at the time an
insurance policy is renewed if the insured has filed one [two] or
more claims in the preceding three policy years [year]. [The
insurer may assess an additional premium surcharge if an additional
claim is made in the following policy year. The department shall
set the amount of any surcharge that may be assessed under this
subsection.] The amount of the surcharge must be based on sound
actuarial principles [may not exceed 10 percent of the total
premium, including any premium surcharge, actually paid by the
insured in the preceding policy year].
(e) An insurer may notify an insured who has filed two
claims in a period of less than three years that the insurer may
refuse to renew the policy if the insured files a third claim during
the three-year period. If the insurer does not notify the insured
in accordance with this subsection, the insurer may not refuse to
renew the policy because of claims [losses]. The notice form must:
(1) list the policyholder's claims; and
(2) contain the sentence: "The filing by you of
another claim, except for a claim resulting from a loss caused by
natural causes, a claim filed but not paid or payable under the
policy under which it was filed, or an appliance-related claim that
we are prohibited from using under Section 3, Article 5.35-4, Texas
Insurance Code, [Another non-weather related loss] could cause us
to refuse to renew your policy."
(f) In this section, "premium surcharge" means an
additional amount that is added to the base rate. The term does not
include a reduction or elimination of a discount previously
received by an insured, reassignment of an insured from one rating
tier to another, re-rating an insured, or re-underwriting an
insured by using multiple affiliates [An insurer that renews the
insurance policy of an insured who has filed three or more claims
under the policy in a three-year period may assess a premium
surcharge in an amount set by the department].
(g) The commissioner shall adopt rules as necessary to
implement this section.
SECTION 6. Subsection (d), Article 5.43, Insurance Code, is
amended to read as follows:
(d) This article applies to an insurer that uses a tier
classification or discount program that has a premium consequence
based in whole or in part on claims experience without regard to
whether any of the policies that continuously covered the
policyholder, as described by Subsections (b)(1) and (2) of this
article, was a different type of residential property insurance
policy from the policy eligible for the discount.
SECTION 7. The changes in law made by this Act in amending
Section 551.107 and Articles 5.43 and 5.171, Insurance Code, as
amended by this Act, apply only to the rates applicable to insurance
policies that are delivered, issued for delivery, or renewed on or
after January 1, 2006. Rates applicable to policies that are
delivered, issued for delivery, or renewed before January 1, 2006,
are governed by the law as it existed immediately before the
effective date of this Act, and that law is continued in effect for
this purpose.
SECTION 8. This Act takes effect September 1, 2005.
______________________________ ______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 14 passed the Senate on
April 21, 2005, by the following vote: Yeas 31, Nays 0;
May 27, 2005, Senate refused to concur in House amendments and
requested appointment of Conference Committee; May 28, 2005, House
granted request of the Senate; May 29, 2005, Senate adopted
Conference Committee Report by the following vote: Yeas 31,
Nays 0.
______________________________
Secretary of the Senate
I hereby certify that S.B. No. 14 passed the House, with
amendments, on May 25, 2005, by a non-record vote; May 28, 2005,
House granted request of the Senate for appointment of Conference
Committee; May 29, 2005, House adopted Conference Committee Report
by a non-record vote.
______________________________
Chief Clerk of the House
Approved:
______________________________
Date
______________________________
Governor