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SUBCHAPTER L. RULES OF PRACTICE AND PROCEDURE FOR INDUSTRY-WIDE BENCHMARK RATE PROCEEDINGS 28 TAC §§ 1.1301-1.1306

The Commissioner of Insurance adopts new §§1.1301 ­ 1.1306 concerning procedures for industry-wide benchmark rate proceedings for automobile and residential property insurance. Sections 1.1302 ­ 1.1306 are adopted with changes to the proposed text as published in the July 19, 2002 issue of the Texas Register (27 TexReg 6489). Section 1.1301 is adopted without changes and it will not be republished.

The new sections are necessary to provide rules of practice and procedure to promulgate the benchmark rates for automobile and residential property under Insurance Code Article 5.101 §3(d), as amended by the 77 th Legislature in House Bill (HB) 2102. The purpose of HB 2102, in pertinent part, was to streamline the rate-setting process so that rates would better reflect market conditions at the time they are established. The amendments in HB 2102 also change the proceedings to promulgate the benchmark rates from contested case to rulemaking proceedings. It is necessary to set forth the procedures for these rulemaking proceedings in rules because neither of the two rulemaking procedures under which the department promulgates rules applies to the benchmark rate proceedings and because Insurance Code §37.001 requires that the department adopt rules governing proceedings to promulgate rates.

The sections 1.1302 ­ 1.1306 are adopted with the following changes. In response to issues raised in comments, the department amended §1.1302(6) to use the term "hearing participant," to add the phrase "who would be affected by or have an interest in" to the definition of "hearing participant," and to include both persons submitting recommendations with supporting actuarial analyses as well as persons submitting recommendations or supporting actuarial analyses. Section 1.1302(8) is amended to change the reference to "hearing participant" to comport with the change in §1.1302(6) and to include §1.1304 in the reference to the procedural sections in the subchapter.

Based on comments, the department amended §1.1303(a) to refer to the document to be published evidencing the department´s proposal as the "proposed rule;" to clarify that the publication of the notice on the department´s internet site is not mandatory; to correct the reference to "interested persons;" and to add a date requirement by which recommendations for rate changes must be submitted unless specified in the notice. Subsections 1.1303(b) and (c) are amended to change the references to "hearing participant" to comport with the change in §1.1302(6).

Further, in response to issues raised in comments, the title of §1.1304 and §§ 1.1304(a) and (b) are amended to refer to the document to be published as the "proposed rule." Section 1.1304(b) is amended to clarify that the publication of the proposed rule on the department´s internet site is not mandatory.

In addition, based on comments, §1.1305 is amended by adding a new subsection "(a)" and changing the remaining subsection letters accordingly. Section 1.1305(c) is amended to clarify that the commissioner may limit the amount of time a hearing participant may use to ask relevant questions. Subsections 1.1305(b) - (d) are amended to change the references to "hearing participant" to comport with the change in §1.1302(6).

Finally, the department amended §1.1306(c) to clarify that the rule the commissioner promulgates includes the changes to the benchmark rates.

The new sections will function as follows. Section 1.1301 sets forth the scope of the subchapter, while §1.1302 defines certain key words and terms to be used in the subchapter. Section 1.1303 provides the procedure for the prehearing phase in which the commissioner will solicit recommendations for changes to the benchmark rates and may convene an informal conference with hearing participants. Section 1.1304 provides the process under which the department´s proposal for a change to the benchmark rates is published for public comment and for the maintenance of all documents submitted to the department. Section 1.1305 sets forth procedures for the actual hearing on the department´s proposed rule for a change in the benchmark rates. Section 1.1306 describes the process for the adoption of a rule establishing the benchmark rates.

Comment: One commenter supported the adoption of the sections.

Agency Response: The department appreciates the support.

Comment: One commenter suggested changing the term "interested participant" to "hearing participant" in §1.1302(6) to avoid confusion and distinguish those who have submitted rate recommendations. The commenter also recommended changing the references from "interested participants" to "hearing participants" in §§1.1302(8), 1.1303 (b) - (c), and 1.1305 (b) ­ (d) so that they would be consistent with this change.

Agency Response: The department agrees that the term should be changed to "hearing participant" to avoid confusion, but not to distinguish those who have submitted rate recommendations. The department believes that the term "hearing participant" should include all persons allowed by statute to participate in the hearing and has defined the term to include both those who have submitted rate change recommendations with supporting actuarial analyses and those who have submitted either rate change recommendations or supporting actuarial analyses. The department also agrees with changing the references in §§1.1302(8), 1.1303 (b) - (c), and !.1305 (b) ­ (d) so that they are consistent with this change.

Comment: One commenter suggested amending the definition of "hearing participant" in §1.1302(6) by adding the phrase "who would be affected by or have an interest in" to further specify those entities to be included in the definition.

Agency Response: The department agrees with this addition and has made the modification to the subsection accordingly.

Comment: One commenter suggested amending the definition of "hearing participant" in §1.1302(6) to include the phrase "and has submitted changes to the benchmark rates which included supporting actuarial analyses." The commenter asserted that its proposed addition is consistent with the intent of HB 2102 and consistent with Texas law regarding standing.

Agency Response: The department disagrees with this addition because it believes that the addition is inconsistent with a reference to potential hearing participants in Article 5.101 §3(d) where the statute allows persons submitting recommendations or supporting actuarial analysis to participate in the hearing by asking relevant questions. The department believes that the commenter´s suggested language excluding such persons from the definition would be contrary to this statutory language. Consequently the department amended the definition of "hearing participants" to include both persons submitting recommendations with supporting actuarial analyses as well as persons submitting recommendations or supporting actuarial analyses.

Comment: One commenter suggested amending the definition of "recommendations" in §1.1302(8) to include "§1.1304" in the reference to the procedural sections in the subchapter.

Agency Response: The department agrees with this change and has made the modification to the subsection accordingly.

Comment: One commenter suggested amending §1.1303(a) by adding a specific date by which the department must publish a notice of request for recommendations annually.

Agency Response: The department disagrees with this addition because the statute does not set a specific date, leaving the date up to the discretion of the department. The department has not made a change based on this comment.

Comment: One commenter suggested replacing the term "petition" with "proposed rule" in §1.1303(a) in reference to the document to be published by the department evidencing its proposal to amend existing benchmark rates.

Agency Response: The department agrees with this amendment because the term "proposed rule" more accurately describes the document to be published, and has made the modification accordingly.

Comment: One commenter suggested amending §1.1303(a) and §1.1304(b) by deleting the references to the department´s internet site. The commenter asserted that since there is no statutory requirement to publish the notice of request for recommendations, the proposed rule and the notice of hearing on the department´s website, including this reference may confuse persons into thinking that publication on the department´s internet site is a prerequisite to going forward with the process.

Agency Response: While the department agrees that publication in the department´s internet site is not a prerequisite to going forward, the department supports publishing the notices and the proposed rule on the internet as a convenience to the public. Consequently, the department has amended the subsections to include a sentence that says that the department may also publish the notices or the proposed rule on the department´s internet site.

Comment: One commenter suggested amending §1.1303(a) by replacing the reference from "interested participants" to "interested persons" to more accurately describe the status of the persons at this point in the process.

Agency Response: The department agrees with this change and has made the modification accordingly.

Comment: One commenter suggested amending §1.1303(a) to refer to "commissioner" rather than "department" as the entity developing the proposed rule.

Agency Response: The department disagrees because the proper entity to propose the rule is the department rather than the commissioner. While the commissioner will decide whether to adopt the proposed rule, the department staff will propose the rule to the commissioner. The department has not made a change based on this comment.

Comment: One commenter suggested amending §1.1303(a) to require that recommendations for rate changes be made not later than 45 days after the notice for requesting recommendations is published.

Agency Response: The department agrees with this addition but also recognizes that the rule allows the department to set a shorter deadline for the recommendations in the notice of request for recommendations. The department has made the modification accordingly.

Comment: One commenter suggested changing the reference from "petition" in the title of §1.1304, and in §1.1304(a) and (b), to "notice" because it asserted that "notice" is the correct term to use when referring to the document to be published under rulemaking procedures under the Gov´t. Code §2001.051 et seq. It also asserted that the term "petition" is appropriate under an Article 5.96 proceeding, but not under the rulemaking proceeding contemplated in this rule.

Agency Response: The department agrees that the term "petition" is not the appropriate term, but disagrees that is should be replaced by "notice." Instead the department has changed the term to "proposed rule" because the proposed rule is the document to be published along with a notice of hearing, as indicated in the rule. In addition, the department disagrees that the procedure in this rule is subject to the provisions of the Gov´t. Code §2001.051 et seq., which relates to contested case proceedings. Article 5.101 §3(d) describes the procedure promulgating the benchmark rates to be rulemaking rather than contested case.

Comment: One commenter suggested amending §1.1304(c) to require that any workpapers, exhibits or supporting actuarial analyses used by the department staff in preparing any proposed changes be made available to any interested person. The commenter asserted that this suggestion is consistent with past practice and would allow hearing participants to understand the differences between the notice and submissions.

Agency Response: The department believes that this suggested amendment is unnecessary because all submissions including any documents submitted by the department staff to the chief clerk are available for public inspection and to all hearing participants without the addition of the suggested amendment. In addition, the department disagrees that this suggested amendment would make the procedure consistent with past procedure. The past procedure required all parties to provide each other with any workpapers, exhibits or supporting actuarial analyses underlying their testimony. The department as a party to those contested cases was subject to the same requirements as other parties, including making their workpapers, exhibits or supporting actuarial analyses available to the other parties. However, in this rulemaking procedure it is likely that the department staff will not be a hearing participant and may therefore not submit any workpapers, exhibits or supporting actuarial analyses to make available to the interested persons. If the commenter´s suggestion was intended to make available whatever workpapers, exhibits or supporting actuarial analyses the department staff may use to advise the commissioner on the final adoption of rates, those workpapers, exhibits or supporting actuarial analyses, if they existed, were not previously provided to the parties in the rate cases. Consequently the department did not make a change in the subsection based on this comment.

Comment: One commenter suggested amending §1.1305 by adding a new subsection "(a)" to specify that hearing participants that submitted recommendations are allowed to make a presentation at the hearing, to require that the order of presentation be determined by level of overall rate change recommended by each hearing participant, and to provide that testimony from other persons would follow the presentations of the hearing participants. The commenter also suggested amending the subsection letters from "(a)," "(b)," and "(c)" to "(b)," "(c)," and "(d)," respectively to accommodate the addition of the new subsection "(a)."

Agency Response: The department agrees to include a provision allowing hearing participants to make a presentation of their respective recommendations. However, the department does not agree that the order of presentation should be set out in these rules and also believes that the proposed method to determine the order of presentation is confusing. Consequently, the department added the language allowing the hearing participants to make a presentation of their recommendations, but left the order of presentation up to the discretion of the commissioner. The department also agrees with amending the subsection letters and has made those changes.

Comment: One commenter suggested amending §1.1305(c) to clarify that the commissioner may limit both the amount of time a hearing participant may speak as well as the amount of time a hearing participant may use to ask relevant questions.

Agency Response: The department agrees with this change and has amended to the subsection accordingly.

Comment: One commenter suggested amending §1.1306(a) to require the commissioner to adopt a rule within 30 days following the hearing.

Agency Response: The department disagrees with the addition of this deadline because the suggested timeframe is probably not sufficient time for the department to finalize promulgation of a rule and no deadline is required by statute. Consequently the department did not modify this subsection.

Comment: One commenter suggested amending §1.1306 by adding a new subsection (e) to limit the effective date of the order promulgating the rule to be no sooner than 30 days after it is provided to interested participants and mailed to insurers.

Agency Response: The department believes that this additional subsection is unnecessary because Insurance Code Article 5.101 §3(d) allows the insurers ample time to comply with any order promulgating changes in the rates without adding this additional time limitation. Under Article 5.101 §3(d), an insurer has 30 days either before or after the effective date of the benchmark rates to file its individual rates and it may set the effective date for its individual rates up to 60 days from the date the individual insurer files its rates. In addition, the department disagrees with adding the time limitation as suggested by the commenter because the date proposed to begin the additional time limitation, which is the date the written order is provided to interested participants and mailed to insurers, may not be easily determined in certain situations. For example, if any interested participants were provided copies of the written order or any insurers were mailed copies of the order on more than one date, it would not be clear as to when the time limitation would begin to run. Consequently, the department disagrees with the addition of subsection (e) and did not make this change.

For: Office of Public Insurance Counsel

For with changes: Insurance Council of Texas

The new sections are adopted under Insurance Code Articles 5.101 §§3(b), 3(d) and 5, and §§37.001, 40.061, and 36.001. Article 5.101 §3(b) and (d) authorizes the Commissioner of Insurance to promulgate industry-wide benchmark rates through rulemaking proceedings, rather than through contested case proceedings. Article 5.101 §5 states that Chapter 2001 of the Texas Government Code does not apply to benchmark rate hearings conducted under Article 5.101 §3(d). Section 40.061 provides that all hearings for benchmark rates for all lines subject to Article 5.101 are conducted as provided by Article 5.101 §3(d) rather than as provided by Insurance Code §§40.051 - 40.060. Section 37.001 requires the Commissioner to adopt rules governing proceedings necessary to approve or promulgate rates under the Insurance Code or any other insurance law of this state. Section 36.001 provides that the Commissioner may adopt rules to execute the duties and functions of the Texas Department of Insurance as authorized by statute.

§1.1301. Scope. This subchapter applies to all industry-wide automobile and residential property benchmark rate cases held under the Texas Insurance Code Article 5.101 §3(b) and (d).

§1.1302. Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Commissioner ­ The Texas Commissioner of Insurance.

(2) Department ­ The Texas Department of Insurance.

(3) Chief Clerk ­ The Office of the Chief Clerk of the department.

(4) Benchmark rates ­ Industry-wide benchmark rates for automobile or residential property insurance adopted by the commissioner pursuant to Texas Insurance Code Article 5.101 §3(d).

(5) Benchmark rate proceedings ­ Proceedings for the promulgation of industry-wide benchmark rates for automobile or residential property insurance held under Texas Insurance Code Article 5.101 §3(d).

(6) Hearing participant ­ Any interested person, including an insurer, a trade association, the Public Insurance Counsel, or any other person or entity who would be affected by or have an interest in an industry-wide automobile or residential property rate proceeding and:

(A) has submitted a recommendation for a change to benchmark rates with supporting actuarial analyses; or

(B) has submitted a recommendation for a change to benchmark rates or supporting actuarial analyses.

(7) Supporting actuarial analyses ­ Analyses of relevant data relating to all or a portion of existing benchmark rates for which changes are recommended. These include all exhibits and workpapers supporting the analyses.

(8) Recommendations ­ Suggestions for changes in all or part of existing benchmark rates submitted by a hearing participant pursuant to the procedures in §§1.1303-1304 of this subchapter.

§1.1303. Recommendations for Benchmark Rate Changes.

(a) Prior to publishing a proposed rule to amend existing benchmark rates, the department shall publish a notice of request for recommendations in the Texas Register. The department may also publish the notice on the department´s internet site. The notice shall include a date by which interested persons must file their recommendations with the chief clerk in order to be considered by the department in developing a proposed rule to amend the existing benchmark rates. Recommendations shall be made not later than 45 days after the date the notice is published in the Texas Register or the date specified in the notice. The notice shall also indicate the availability of any relevant statistical data collected by the department and how such data may be obtained.

(b) Any hearing participant submitting recommendations must also submit supporting actuarial analyses, as specified in the notice.

(c) The department may convene an informal conference or consultation to obtain clarification or advice from hearing participants.

(d) The department shall consider all timely filed recommendations but the department´s proposed rule to be filed under §1.1304 of this subchapter (relating to Proposed Rule to Change the Benchmark Rates) is not limited by or required to reflect any of the recommendations.

§1.1304. Proposed Rule to Change the Benchmark Rates.

(a) Following review of the recommendations, the department shall publish a proposed rule to amend the existing benchmark rates and a notice of hearing concerning the proposed rule in the Texas Register. If the department proposes no change in the benchmark rates, it shall publish a notice indicating that it proposes no change and a notice of hearing concerning the proposal in the Texas Register. The department may also publish the proposed rule or the notice on the department´s internet site.

(b) Comments on the proposed rule may be submitted to the chief clerk.

(c) The chief clerk shall maintain a record of all documents filed in the benchmark rate proceeding. All documents submitted shall be open to public inspection.

§1.1305. Procedures for Hearing on the Department´s Proposed Rule.

(a) The Commissioner shall convene the hearing at the appointed time and shall allow hearing participants to make a presentation of their respective recommendations. The order of presentation will be determined by the Commissioner.

(b) Any hearing participant that has submitted recommendations or supporting actuarial analyses may ask relevant questions of any other person speaking at the hearing.

(c) The commissioner and the department´s staff may also ask relevant questions of any hearing participant as well as any other person speaking at the hearing.

(d) The commissioner may limit the amount of time each hearing participant or other person may speak or the time each hearing participant may ask relevant questions at the hearing, and may accept written comments in addition to the oral presentation of any hearing participant or other person.

§1.1306. Adoption of Benchmark Rates.

(a) Subsequent to the hearing, the commissioner shall adopt a rule promulgating the benchmark rates.

(b) The commissioner shall file a notice of the adoption of the rule promulgating the changes to the benchmark rates for publication in the adopted rule section of the Texas Register.

(c) The adopted rule promulgating the changes to the benchmark rates will set out the effective date of the benchmark rates adopted therein.

(d) Prior to the effective date of the benchmark rates, the department shall cause a notice of the adopted rule to be mailed to all insurers writing the affected line of insurance in this state and to all persons who submitted recommendations or comments concerning the benchmark rates to the department.



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