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You are here: Home . rules . 2008 . 0728-059

SUBCHAPTER D. EFFECT OF CRIMINAL CONDUCT

28 TAC §§1.501 and1.503

INTRODUCTION. The Texas Department of Insurance proposes amendments to §§1.501 and 1.503, concerning the effect of criminal conduct on licenses. The proposed amendments to §§1.501 and 1.503 are necessary to: (i)implement the Occupations Code Chapter 53 and HB 472, enacted by the 80th Legislature, Regular Session, effective September 1, 2007, which amends the Insurance Code Chapter 4151; (ii) clarify an existing non-substantive inconsistency within §1.501(b)(1); (iii) clarify the applicability of the Department's existing guidelines in §1.502 to certain persons from whom biographical information is required; (iv) implement rules that are consistent with the Department's recently proposed amendments to §5.6403 of this title (relating to Application for Initial Certificate of Approval); and (v) clarify the applicability of the Department's existing fingerprint requirements in §1.504(a) to certain persons from whom biographical information is required. Implementation of the Occupations Code Chapter 53 and HB 472 The proposed amendments to §§1.501 and 1.503, particularly §1.503(1), are necessary to implement the Occupations Code Chapter 53 and HB 472, enacted by the 80th Legislature, Regular Session, effective September 1, 2007, which amends the Insurance Code Chapter 4151. The Insurance Code §4151.051 prohibits a person from acting as or holding itself out as an administrator, as that term is defined under the Insurance Code Chapter 4151, unless the person holds a certificate of authority under the Insurance Code Chapter 4151. For a person submitting an application for a certificate of authority under the Insurance Code Chapter 4151, the Insurance Code §4151.053 requires the Commissioner to determine the fitness of the applicant to hold the authorization, including determining whether granting the authorization would violate a state or federal law. This statutory requirement requires the Department to consider the provisions of 18 U. S. C. §§1033 and 1034, which prohibit an individual who has been convicted of a state or federal felony involving dishonesty or breach of trust from engaging in the business of insurance that affects interstate commerce or from participating in such business unless the individual is specifically authorized to do so by an insurance regulatory official. An individual may be in violation of federal law and may be subject to the penalties prescribed in 18 U. S. C. §§1033 and 1034 if he or she: (1)has been convicted of a state or federal felony involving dishonesty or breach of trust; (2) engages in the business of insurance that affects interstate commerce or participates in such business; and (3) does not hold the authorization required under 18 U. S. C. §§1033 and 1034. Such activity is directly relevant to the statutorily required determination under the Insurance Code §4151.053. Further, HB 472 enacts the Insurance Code §4151.301, which authorizes the Department to deny an application for a certificate of authority under the Insurance Code Chapter 4151 if the Department determines that an applicant, individually, or through an officer, director, or shareholder, has been convicted of a felony. The Insurance Code §4001.103 also permits the Department to deny an application for an authorization if the applicant fails to provide a complete set of fingerprints on request by the Department. The Insurance Code §4001.103 is made applicable to administrators that are regulated under the Insurance Code Chapter 4151 through the Insurance Code §4001.002. The Insurance Code §4001.002 provides that the Insurance Code Title 13 applies to each person licensed under Title 13 Subtitle B, C, or D.Chapter 4151 administrators are licensed under Subtitle D. Further, the Occupations Code §53.021 authorizes the Department to disqualify a person from receiving a license on the grounds that the person has been convicted of a felony or misdemeanor that directly relates to the duties and responsibilities of the licensed occupation. Additionally, the Government Code §§411.106 and 411.087 authorize the Department to access an applicant's criminal history information from both the Texas Department of Public Safety (DPS) and the Federal Bureau of Investigation (FBI). Collectively, these statutes require and authorize the Department to determine a person's fitness for holding an authorization under the Insurance Code Chapter 4151 or to have the ability to control, direct, or manage the affairs of an authorized entity under the Insurance Code Chapter 4151 when that person has committed a criminal offense or has engaged in fraudulent or dishonest activity. The fitness of an applicant to hold an authorization under Chapter 4151 is especially important because of the unique services offered and performed by administrators under Chapter 4151. Administrators often have control over and access to the financial accounts, claims files, books and records, and premium and contribution collections of an insurer. Additionally, administrators are authorized under the Insurance Code Chapter 4151 to hold premiums, contributions, return premiums, and return contributions in fiduciary bank accounts on behalf of insurers. Further, administrators often have access to or control over certain accounts funded by insurers for claims payment purposes. In addition to affecting the insurance business of an insurer, the actions of administrators also affect Texas consumers and the general public. Very often, consumers interact directly with administrators when discussing claims payment procedures and guidelines, premium or contribution payments, review of medical billing, and other customer service related matters. The nature of this interaction requires the public to place trust in and reliance upon these administrators due to the complex and varied nature of insurance and insurance-related products. As such, the Department considers the determination of the honesty, trustworthiness, and reliability of each of these administrators to be an essential regulatory function. For all of these reasons, the Department has determined that the use of criminal history information is the best means to assist the Department in performing its statutory duty of determining a person's fitness for holding an authorization under the Insurance Code Chapter 4151 or having the ability to control, direct, or manage the affairs of an authorized entity under the Insurance Code Chapter 4151. The proposed amendments to §§1.501 and 1.503 apply the Department's existing requirements and procedures regarding prior criminal conduct and fraudulent and dishonest activity to Chapter 4151 administrators. Applying the Department's current fingerprinting and criminal history review process to these administrators promotes stability, uniformity, and consistency in Department regulation and reduces additional costs and unnecessary use of resources. Additionally, the proposed amendments to §§1.501 and 1.503 will help maintain effective regulation of the insurance industry by ensuring that persons receiving authorizations under the Insurance Code Chapter 4151 or persons having the ability to control, direct, or manage the affairs of an authorized entity under the Insurance Code Chapter 4151 are honest, trustworthy, and reliable. Under the proposal, and in the manner prescribed by existing rules in Chapter 1, Subchapter D, the Department will consider, in determining the applicant's fitness for a certificate of authority under the Insurance Code Chapter 4151, the criminal history information of each applicant and the criminal history information of any individual who has the right to control, direct, or manage the affairs of the applicant. The Department has consulted with the DPS and, for the following reasons, has determined that fingerprint checks, and in particular, electronic fingerprint checks, provide the most effective method of identifying an individual and obtaining that individual's criminal history information. First, fingerprint checks prevent individuals with a criminal history in another state from attempting to evade detection by simply moving to Texas Second, fingerprint collection by an independent third party vendor allows for independent verification of the identity of the individual being fingerprinted and increases confidence in the review process. Third, improvements in electronic fingerprint technology have increased the accuracy of fingerprint capture and have substantially reduced the time frame for processing the fingerprint to obtain the criminal history information. For these reasons, the existing rules in Subchapter D require affected individuals to be fingerprinted by an acceptable vendor. The individual's fingerprints will either be submitted directly to the DPS, if captured by the DPS electronic vendor, or to the Department, and then to the DPS, if captured on paper. Further, the Department understands from the DPS that all fingerprints will be processed through both the DPS and the FBI.

Clarification of §1.501(b) Inconsistency

The proposed amendment to §1.501(b)(1) is necessary to clarify a non-substantive inconsistency in the introductory paragraph of §1.501(b)(1). The existing introductory paragraph of §1.501(b)(1) applies the provisions of §1.502 to an applicant for, or a holder of, a license, registration, permit, authorization, or certification issued by the Department under certain Insurance Code provisions enumerated in existing §1.501(b)(1)(A) - (U). Section 1.502 contains the Department's current guidelines relating to the matters the Department will consider in determining whether to grant, deny, suspend, or revoke any license or authorization under its jurisdiction. Additionally, §1.502 prescribes the crimes which the Department considers to be of such a serious nature that they are of prime importance in determining an applicant's fitness for licensure or authorization. While existing §1.501(b)(1)(R) refers to the Insurance Code Chapter 4151 as an applicable Insurance Code provision under which the Department may issue an authorization, existing §1.501(b)(1), which specifies the various types of applicants and holders of a license, registration, permit, authorization, or certification under the Insurance Code, does not specifically refer to administrators. Administrators are authorized under the Insurance Code Chapter 4151. This omission creates an internal inconsistency between existing §1.501(b)(1) and existing §1.501(b)(1)(R). The proposed amendment to §1.501(b)(1) is necessary to include the term administrator in the introductory paragraph of §1.501(b)(1) to make it consistent with existing §1.501(b)(1)(R).

Clarification of the Applicability of §1.502

Existing §1.501(b)(3) enumerates the individuals by organization title that are subject to the provisions of §1.502. Section 1.502 contains the Department's current guidelines relating to the matters the Department will consider in determining whether to grant, deny, suspend, or revoke any license or authorization under its jurisdiction. Additionally, §1.502 prescribes the crimes which the Department considers to be of such a serious nature that they are of prime importance in determining an applicant's fitness for licensure or authorization. Under existing §1.501(b)(3), the provisions of §1.502 apply to those who are or become partners or officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are applicants for, or holders of, a license, authorization, permit, certification, or registration under provisions specified in §1.501(b)(1) and (2) and from whom biographical information is required. The proposed amendment to §1.501(b)(3) clarifies the applicability of §1.502 to include, in addition to those specified under the existing rule, those who are or become principals and those who have similar responsibilities to principals, partners, officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are applicants for, or holders of, a license, authorization, permit, certification, or registration under provisions specified in §1.501(b)(1) and (2) and from whom biographical information is required. This proposed change is necessary because the existing rule causes uncertainty and confusion for individuals holding organization titles other than those specifically enumerated. For example, existing §1.501(b)(3) refers to officers, directors, controlling shareholders, and limited liability company members and managers but does not refer to a principal. If an individual is a principal and performs the same functions as an individual who holds one or more of the enumerated organization titles, it is unclear if the provisions of §1.502 apply to the individual who is a principal. Additionally, organizations will continue to evolve and will necessarily use different organization titles to describe different individuals involved in the operation of their organizations. An officer of a large organization may perform similar functions as the principal of a smaller organization or sole proprietorship. Therefore, to remove the uncertainty and confusion in existing §1.501(b)(3), the proposed amendment to §1.501(b)(3) adds the term principal to the list of enumerated organization titles and adds the phrase or have similar responsibilities to to existing §1.501(b)(3). This will impose the requirements of §1.502 on any individual who is or becomes a principal and to any individual who has similar responsibilities to any individual holding any of the enumerated organization titles in §1.501(b)(3), including the organization title of principal. The proposed amendment is consistent with the intent of existing §1.501(b)(3), authorized under the Occupations Code Chapter 53, the Labor Code Chapter 407A, and the Insurance Code Chapters 801, 822, 823, 841, 843, 844, 846, 981, 1111, 1305, 2551, 2552, 2651, 2652, 4001, 4005, 4051, 4052, 4053, 4054, 4055, 4056, 4101, 4102, 4151, 4152, 4153, 4201, and 4202, which is to require the key individuals of an organization with management, discretionary, or decision making authority to comply with the requirements of §1.502 of the subchapter.

Consistency with Amendments to §5.6403

The proposed amendment to §1.501(b)(5) provides necessary consistency with the proposed amendments affecting §5.6403(e) and (f) of this title, which were published in the July 25, 2008 issue of the Texas Register (33 TexReg 5835). The proposed amendment to §5.6403(e) requires a biographical affidavit to be submitted to the Department by each member of the initial board of trustees of a workers' compensation self-insurance group (group), subsequent members of the board of trustees of a group, and the executive officers of a person identified pursuant to proposed amended §5.6403(12)(A) or (B). Additionally, under proposed amended §5.6403(e), a particular individual does not have to file a biographical affidavit with the Department if a biographical affidavit from the individual has been filed with the Department within the prior three years and contains substantially accurate information. The proposed amendment to §5.6403(e) further elaborates that a biographical affidavit contains substantially accurate information if the responses given by the individual in the affidavit on file with the Department continue to indicate sufficient experience, ability, standing, and good record to make success of a group probable. The proposed amendment to §5.6403(f) requires each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of a person identified pursuant to proposed amended §5.6403(c)(12)(A) or (B) to comply with the requirements of Chapter 1 Subchapter D of this title (relating to Effect of Criminal Conduct). Under these proposed amendments, each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of certain delegated entities of a group are required to file biographical information with the Department and to comply with the fingerprint and criminal history requirements of Chapter 1, Subchapter D. The proposed amendment to §1.501(b)(5) is necessary to provide that proposed amended §1.501(b)(5) and proposed amended §5.6403(e) and (f) apply equally to each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of certain delegated entities of a group.

Clarification of the Applicability of §1.504(a)

Existing §1.503(2)(A) and (B) enumerate the individuals by organization title that are subject to the provisions of §1.504(a) of the subchapter. Section 1.504(a) contains the Department's current requirements relating to the submission of an individual's complete set of fingerprints and related processing fees and additional identifying information required by the DPS and the FBI for processing the complete set of fingerprints. Under existing §1.501(2)(A), the provisions of §1.504(a) apply to those who are partners or officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are applicants for a license, certification, permit, registration, or authorization under provisions specified in §1.503(1) and from whom biographical information is required. Under existing §1.501(2)(B), the provisions of §1.504(a) apply to those who become partners or officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are holders of a license, authorization, permit, certification, or registration under provisions specified in §1.503(1) and from whom biographical information is required. The proposed amendment to §1.503(2)(A) clarifies the applicability of §1.502 to include, in addition to those specified under the existing rule, those who are principals and those who have similar responsibilities to principals, partners, officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are applicants for a license, certification, permit, registration, or authorization under provisions specified in §1.503(1) and from whom biographical information is required. The proposed amendment to §1.503(2)(B) clarifies the applicability of §1.502 to include, in addition to those specified under the existing rule, those who become principals and those who have similar responsibilities to principals, partners, officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are holders of a license, authorization, permit, certification, or registration under provisions specified in §1.503(1) and from whom biographical information is required. These proposed changes are necessary because the existing rules cause uncertainty and confusion for individuals holding organization titles other than those specifically enumerated. For example, existing §1.503(2)(A) and (B) refer to officers, directors, controlling shareholders, and limited liability company members and managers but do not refer to a principal. If an individual is a principal and performs the same functions as an individual who holds one or more of the enumerated organization titles, it is unclear if the provisions of §1.503(2)(A) and (B) apply to the individual who is a principal. Additionally, organizations will continue to evolve and will necessarily use different organization titles to describe different individuals involved in the operation of their organizations. An officer of a large organization may perform similar functions as the principal of a smaller organization or sole proprietorship. Therefore, to remove the uncertainty and confusion in existing §1.503(2)(A) and (B), the proposed amendment to §1.503(2)(A) adds the term principal to the list of enumerated organization titles and adds the phrase or have similar responsibilities to to existing §1.503(2)(A). Additionally, the proposed amendment to §1.503(2)(B) adds the term principal to the list of enumerated organization titles and adds the phrase or have similar responsibilities to to existing §1.503(2)(B). These proposed amendments impose the requirements of §1.504(a) on any individual who is or becomes a principal and on any individual who has similar responsibilities to any individual holding any of the enumerated organization titles in §1.503(2)(A) or (B), including the organization title of principal. The proposed amendments are consistent with the intent of existing §1.503(2)(A) and (B), authorized under the Government Code §§411.083, 411.087 and 411.106, the Labor Code Chapter 407A, and the Insurance Code Chapters 801, 822, 823, 841, 843, 844, 846, 981, 1111, 1305, 2551, 2552, 2651, 2652, 4001, 4005, 4051, 4052, 4053, 4054, 4056, 4101, 4102, 4152, 4153, 4201, and 4202, which is to require the key individuals of an organization with management, discretionary, or decision making authority to comply with the requirements of §1.504(a) of the subchapter.

Consistency with Amendments to §5.6403

The proposed amendment to §1.503(4) provides necessary consistency with the proposed amendments affecting §5.6403(e) and (f) of this title, which were published in the July 25, 2008 issue of the Texas Register (33 TexReg 5835). The proposed amendment to §5.6403(e) requires a biographical affidavit to be submitted to the Department by each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of a person identified pursuant to proposed amended §5.6403(12)(A) or (B). Additionally, under proposed amended §5.6403(e), a particular individual does not have to file a biographical affidavit with the Department if a biographical affidavit from the individual has been filed with the Department within the prior three years and contains substantially accurate information. The proposed amendment to §5.6403(e) further elaborates that a biographical affidavit contains substantially accurate information if the responses given by the individual in the affidavit on file with the Department continue to indicate sufficient experience, ability, standing, and good record to make success of a group probable. The proposed amendment to §5.6403(f) requires each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of a person identified pursuant to proposed amended §5.6403(c)(12)(A) or (B) to comply with the requirements of Chapter 1 Subchapter D of this title (relating to Effect of Criminal Conduct). Under these proposed amendments, each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of certain delegated entities of a group are required to file biographical information with the Department and to comply with the fingerprint and criminal history requirements of Chapter 1, Subchapter D. The proposed amendment to §1.503(4) is necessary to provide that proposed amended §1.503(4) and proposed amended §5.6403(e) and (f) apply equally to each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of certain designated delegated entities of a group.

Section-by-Section Overview. The following is a section-by-section overview of the proposal.

§1.501. Purpose and Application. The proposed amendment to §1.502(b)(1) adds the term administrator to the existing introductory language of §1.502(b)(1). The proposed amendment to §1.502(b)(3) adds the term principal to the enumerated organization titles of individuals that are subject to the provisions of §1.502. Finally, the proposed amendment to §1.502(b)(5) clarifies that each person who is required to file biographical information under §5.6403 of this title (relating to Application for Initial Certificate of Approval) is also subject to the provisions of §1.502.

§1.503. Application of Fingerprint Requirement. The proposed amendment to §1.503(1) applies the fingerprinting requirements of existing §1.504(a) to administrators under the Insurance Code Chapter 4151. The proposed amendment to §1.503(2)(A) and (B) applies the fingerprinting requirements of existing §1.504(a) to individuals who are required to provide biographical information to the Department and who are or have similar responsibilities to principals, partners, officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are applicants for a license, certification, permit, registration, or authorization under provisions specified in §1.503(1) and to individuals who are required to provide biographical information to the Department and who become or will have similar responsibilities to principals, partners, officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are holders of a license, authorization, permit, certification or registration under provisions specified in §1.503(1). Finally, the proposed amendment to §1.503(4) applies the fingerprinting requirements of existing §1.504(a) to each person who is required to file biographical information under §5.6403 of this title (relating to Application for Initial Certificate of Approval).

2. FISCAL NOTE. Danny Saenz, Senior Associate Commissioner for the Financial Division, has determined that for each year of the first five years the proposed amendments will be in effect, there will be an approximate $2,250 - $3,750 annual increase in revenue to state government as a result of the enforcement and administration of this proposal due to the estimated additional fingerprint submissions to the DPS. The Department anticipates 150 - 250 new fingerprint submissions annually based on the following factors. First, the proposed amendments do not impose additional requirements or costs on persons to maintain their current authorizations under the Insurance Code Chapter 4151. As a result, the Department generally does not anticipate that any person holding an authorization under the Insurance Code Chapter 4151 on the effective date of the proposed amendments will be required to submit fingerprints to the DPS, so long as the information submitted by the certificate holder with regard to its key management or decision making personnel at the time of application remains unchanged. Second, the proposed amendments apply to applicants for a certificate of authority under the Insurance Code Chapter 4151 and to any individual that has the right to control, direct, or manage the affairs of an applicant for a certificate of authority under the Insurance Code Chapter 4151. The Department anticipates that it will receive 50 new applications for a certificate of authority under the Insurance Code Chapter 4151 annually. The Department anticipates that between 3 and 5 individuals per applicant will be required to submit fingerprints to the DPS under the proposed amendments, totaling 150 - 250 new fingerprint submissions annually. Lastly, the Government Code §411.088(a)(2) authorizes the DPS to charge a $15 fee for each criminal history record information inquiry. It is the Department's understanding based on information provided by the DPS that this fee is for the costs of processing fingerprints and maintaining the records and systems used by the DPS in processing fingerprint submissions. Therefore, anticipated additional fingerprint submissions may result in increased costs to the DPS, which may substantially offset or eliminate any additional revenue. Further, it is anticipated that most individuals within Texas will utilize the convenience and reliability offered by the authorized electronic fingerprint services and, as such, the Department estimates that there will be no measurable fiscal impact to local governments from the capture of fingerprints on paper cards by local law enforcement agencies as a result of the enforcement or administration of this proposal. There will be no anticipated effect on local employment or the local economy as a result of the proposal.

3. PUBLIC BENEFIT/COST NOTE. Mr. Saenz also has determined that for each year of the first five years the proposed amendments are in effect, the anticipated public benefit will be an efficient, standardized, thorough, and comprehensive review of the suitability of applicants for a certificate of authority under the Insurance Code Chapter 4151 and individuals that have the right to control, direct, or manage the affairs of applicants seeking to obtain a certificate of authority under the Insurance Code Chapter 4151. This enhanced review will ensure that these persons are honest, trustworthy, reliable, and fit to hold an authorization under the Insurance Code Chapter 4151, which should better protect the interests of Texas consumers and the general public. Additionally, this enhanced review should improve the quality of the relationship between applicants and authorization holders under the Insurance Code Chapter 4151 and insurers, providers, physicians, staff members, and the public.

The total probable economic costs to persons required to comply with the proposal should be $45 - $55. This cost estimate is based upon the following factors. The Department has been informed that each individual who must provide fingerprints under §1.503(a)(2) of the subchapter (relating to Application of Fingerprint Requirement) must pay a fingerprinting processing fee of $34.25. The $34.25 fingerprinting processing fee includes a FBI charge of $19.25 and a DPS charge of $15. This fingerprinting processing fee applies to both electronic fingerprint submissions and paper card fingerprint submissions. Additionally, there is a $9.95 fingerprint collection fee charged by companies that are authorized to take electronic fingerprints on behalf of the DPS. While the Department anticipates that most individuals in the State of Texas will utilize the convenience and reliability offered by authorized electronic fingerprint services, an individual may choose to submit a paper fingerprint card instead of an electronic fingerprint submission. In those cases, an individual will be subject to a processing fee of $9.95 to $19.95. The Human Resources Code §80.001(b) authorizes a criminal law enforcement agency to charge an amount not to exceed $10 for capturing fingerprints on a paper fingerprint card. Based on this information, the Department anticipates that an individual choosing to submit his or her fingerprints on a paper fingerprint card may be subject to a fingerprint collection fee of $0.00 to $10.00 charged by a criminal law enforcement agency capturing the fingerprints in addition to a fee of $9.95 charged by an authorized company processing the fingerprints on behalf of the DPS. Lastly, any additional information that must be supplied by an individual at the time of fingerprinting is minimal and the Department does not anticipate an associated cost with providing such required information. Further, the Department anticipates that an individual or applicant should only have to submit a complete set of fingerprints under the proposed amendments one time, so long as the applicant maintains continuous licensure with the Department. These fingerprinting costs are comparable to fingerprinting costs required under similar requirements in other states. For example, California requires a $60 - $65 fingerprinting fee, Florida requires a $58 fingerprinting fee, and Pennsylvania requires a $39 fingerprinting fee.

Any other costs to comply with the proposed amendments result from the enactment of the Occupations Code Chapter 53 and the Insurance Code Chapter 4151, and are not a result of the adoption, enforcement, or administration of the proposal.

4. ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL AND MICRO BUSINESSES. As required by the Government Code §2006.002(c), the Department has determined that between 150 and 250 applicants and individuals will be subject to the proposal and may qualify as small or micro businesses under the Government Code §2006.001. As required by the Government Code §2006.002(c), the Department has determined that the proposal may have an adverse economic effect on these small or micro businesses. Adverse economic impact may result from costs associated with the proposed fingerprinting requirements. The Department's cost analysis and resulting estimated costs in the Public Benefit/Cost Note portion of this proposal is equally applicable to these small or micro businesses.

In accordance with the Government Code §2006.002(c-1), the Department has determined that even though proposed amended §§1.501 and 1.503 may have an adverse economic effect on small or micro businesses that are required to comply with these proposed requirements, the Department is not required to prepare a regulatory flexibility analysis as required in §2006.002(c)(2) of the Government Code. Section 2006.002(c)(2) requires a state agency, before adopting a rule that may have an adverse economic effect on small businesses, to prepare a regulatory flexibility analysis that includes the agency's consideration of alternative methods of achieving the purpose of the proposed rule. Section 2006.002(c-1) of the Government Code requires that the regulatory flexibility analysis "consider, if consistent with the health, safety, and environmental and economic welfare of the state, using regulatory methods that will accomplish the objectives of applicable rules while minimizing adverse impacts on small businesses." Therefore, an agency is not required to consider alternatives that, while possibly minimizing adverse impacts on small and micro businesses, would not be protective of the health, safety, and environmental and economic welfare of the state.

The general purpose of the Insurance Code §§4151.051 and 4151.053 is to require and authorize the Department to determine a person's fitness for holding an authorization under the Insurance Code Chapter 4151 or to have the ability to control, direct, or manage the affairs of an authorized entity under the Insurance Code Chapter 4151. The collective purpose of the Insurance Code §§4001.002, 4001.103, 4151.301, the Occupations Code Chapter 53, and the Government Code §§411.106 and 411.087 is to authorize and provide the Department with the necessary tools to utilize a person's criminal history information in determining that person's fitness for holding an authorization under the Insurance Code Chapter 4151 or to have the ability to control, direct, or manage the affairs of an authorized entity under the Insurance Code Chapter 4151. The purpose of proposed amended §§1.501 and 1.503 is to protect the health, safety, and economic welfare of Texas consumers and the state of Texas generally by ensuring that applicants, holders, and individuals with the right to control, direct, or manage the affairs of applicants or holders of certificates under the Insurance Code Chapter 4151 are honest, trustworthy, reliable, and fit to hold those authorizations. The proposal requires applicants for a certificate of authority under the Insurance Code Chapter 4151 and those who have the right to control, direct, or manage the affairs of an applicant for a certificate of authority under the Insurance Code Chapter 4151 to submit a complete set of fingerprints, payment for all processing fees charged by the DPS or the FBI, and any additional identifying information required by the DPS or the FBI. The Department has determined that the required fingerprint checks will provide the most effective method of identifying an individual and obtaining that individual's criminal history information. It is critical that administrators under the Insurance Code Chapter 4151 be honest, trustworthy, reliable, and fit to hold an authorization under the Insurance Code Chapter 4151 because of the unique relationship administrators have with insurers, Texas consumers, and the general public. Administrators are authorized under the Insurance Code Chapter 4151 to collect premium and contributions from and to adjust and settle claims for Texas residents. As a result, administrators often have access to and control of fiduciary bank accounts and other accounts designated for claims payment. Because administrators are often involved in the adjusting and settling of insurance claims, they also directly interact with Texas consumers, providers, physicians, staff members, and adjusters. While the authority of an administrator is largely determined by the particular insurer that the administrator performs services for, many administrators are given great discretion in carrying out their delegated duties under the Insurance Code, the Labor Code, and any rules adopted thereunder. As such, administrators are often delegated the responsibility for the timely payment of medical benefits and workers' compensation benefits. Many administrators also have control over an insurer's books and records and claims files. Depending upon each insurer's individual preference, an administrator may perform a wide variety of statutorily required duties on behalf of an insurer. While such wide delegation of discretion may be appropriate in many instances, it becomes even more important for the Department to ensure that these authorization holders are suitable and worthy of such trust. To that end, the Department has determined that it is appropriate to require fingerprint submission and criminal history inquiries for all applicants for a certificate of authority under the Insurance Code Chapter 4151 and from any individuals with the right to control, direct, or manage the affairs of applicants for certificates of authority under the Insurance Code Chapter 4151. Collectively, the proposed fingerprint checks will detect individuals with criminal histories in other states, will allow for independent verification of the identity of the individual being fingerprinted, will increase confidence in the application process, and will reduce the time frame for obtaining criminal history information. Lastly, the processing of all fingerprints through both the DPS and the FBI is the best and most accurate method to ensure that applicants under the Insurance Code Chapter 4151 are suitable to hold such authorizations.

Therefore, the Department has determined, in accordance with §2006.002(c-1) of the Government Code, that because the purpose of proposed amended §§1.501 and 1.503 and the authorizing statutes of the Occupations Code, the Government Code, and the Insurance Code is to protect the health, safety, and economic welfare of Texas consumers and the state of Texas, there are no additional regulatory alternatives to the proposed requirements that will sufficiently protect the health, safety, and economic interests of Texas consumers and the welfare of the state.

5. TAKINGS IMPACT ASSESSMENT. The Department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking or require a takings impact assessment under the Government Code §2007.043.

6. REQUEST FOR PUBLIC COMMENT. To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on September 8, 2008, to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comments must be simultaneously submitted to Danny Saenz, Senior Associate Commissioner for the Financial Program, Mail Code 305-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. Any request for a public hearing should be submitted separately to the Office of the Chief Clerk before the close of the public comment period. If a hearing is held, written and oral comments presented at the hearing will be considered.

7. STATUTORY AUTHORITY. The amendments are proposed under the Occupations Code, the Government Code, and the Insurance Code. The Occupations Code Chapter 53 generally prescribes the procedures a licensing authority must employ when considering the consequences of a criminal record on granting or continuing a person's license, authorization, certificate, permit, or registration. The Occupations Code §53.021 authorizes a licensing authority to suspend or revoke a license, disqualify a person from receiving a license, or deny to a person the opportunity to take a licensing examination on the grounds that the person has been convicted of a felony or misdemeanor that directly relates to the duties and responsibilities of the licensed occupation. The Government Code §411.106 permits the Department to obtain criminal history record information from DPS that relates to a person who is an applicant for a license, permit, certificate of authority, certificate of registration, or other authorization issued by the Department. The Government Code §411.087 permits the Department to obtain through the FBI criminal history record information maintained or indexed by the FBI that pertains to that person or to obtain from any other criminal justice agency in this state criminal history record information maintained by that criminal justice agency that relates to that person. The Insurance Code §4001.002(a) provides that, except as otherwise provided by the Insurance Code, the provisions of the Insurance Code Title 13 apply to the persons licensed under Title 13 Subtitle B, C, or D. The Insurance Code §4001.005 authorizes the Commissioner to adopt rules necessary to implement the Insurance Code Title 13. The Insurance Code §4001.103 authorizes the Department to deny an application for an authorization if the applicant fails to provide a complete set of fingerprints on request by the Department. The Insurance Code §4151.006 provides that the Commissioner may adopt rules that are fair, reasonable, and appropriate to augment and implement the Insurance Code Chapter 4151. The Insurance Code §4151.051 prohibits an individual, corporation, organization, trust, partnership, or other legal entity from acting as or holding itself out as an administrator unless the entity is covered by and is engaging in business under a certificate of authority issued under the Insurance Code Chapter 4151. The Insurance Code §4151.053 prescribes the circumstances under which the Commissioner shall approve a certificate of authority under the Insurance Code Chapter 4151, including whether granting the application would violate a federal or state law. The Insurance Code §4151.211 authorizes the Department to determine the trustworthiness and integrity of a person seeking to acquire an ownership interest in an applicant holder under the Insurance Code Chapter 4151. The Insurance Code §4151.301 provides that the Department may deny an application for a certificate of authority or discipline the holder of a certificate of authority under the Insurance Code Chapter 4151 if the applicant or holder, individually, or through an officer, director, or shareholder, has been convicted of a felony. The Insurance Code §36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Department under the Insurance Code and other laws of this state.

8. CROSS REFERENCE TO STATUTE. The following statutes are affected by this proposal:

Rule Statute

§§1.501 and 1.503 Occupations Code Chapter 53; Government Code §§411.106 and §411.087; Insurance Code §§4001.002(a), 4001.005, 4001.103, 4151.006, 4151.051, 4151.053, 4151.211, and 4151.301.

9. TEXT.

§1.501. Purpose and Application.

(a) (No change.)

(b) Section 1.502 of this subchapter applies to the following persons:

(1) applicants for, or holders of, any license, registration, permit, authorization, or certification, including temporary or training licenses or certificates, as agents, adjusters, public insurance adjusters, counselors, risk managers, reinsurance intermediaries, title agents, title escrow officers, title attorneys, utilization review agents, independent review organizations, viatical and life settlement registrants, [ and] workers' compensation health care networks, [ and] management contractors, and administrators, under the following Insurance Code provisions:

(A) - (U) (No change.)

(2)(No change.)

(3) those who are, [ or] become , or have similar responsibilities to principals, partners, [ or] officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are applicants for, or holders of, a license, authorization, permit, certification, or registration under provisions specified in paragraphs (1) and (2) of this subsection and from whom biographical information is required;

(4)(No change.)

(5) each person who is required to file [ member of the initial board of trustees, subsequent members of the board, and the chief executive officer, president, secretary, treasurer, chief financial officer, and controller of the administrator and any service company filing] biographical information under §5.6403 of this title (relating to Application for Initial Certificate of Approval).

§1.503. Application of Fingerprint Requirement.

The fingerprint requirement in §1.504(a) of this subchapter (relating to Fingerprint Requirement) applies to the following individuals:

(1) applicants for any license, registration, certification, authorization or permit, including temporary or training licenses or certificates, as agents, adjusters, public insurance adjusters, counselors, risk managers, reinsurance intermediaries, title agents, title escrow officers, viatical and life settlement registrants, [ and] workers' compensation health care networks , [ and] management contractors, and administrators, under the following Insurance Code provisions:

(A) - (O)(No change.)

(P) Chapter 4151;

(Q)[ (P)]Chapter 4152; or

(R)[ (Q)] Chapter 4153.

(2)with the exception of those individuals associated with licenses issued to corporations and limited liability companies under Insurance Code Chapter 2651 Subchapter A, individuals who are required to provide biographical information and who:

(A) are or have similar responsibilities to principals,partners, [ or] officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are applicants for a license, certification, permit, registration, or authorization under provisions specified in paragraph (1) of this section; or

(B) become or will have similar responsibilities to principals, partners , [ or] officers, directors, or controlling shareholders, including limited liability company members and managers, of entities that are holders of a license, authorization, permit, certification or registration under provisions specified in paragraph (1) of this section.

(3) (No change.)

(4) each person who is required to file [ member of the initial board of trustees, subsequent members of the board, and the chief executive officer, president, secretary, treasurer, chief financial officer, and controller of the administrator and any service company filing] biographical information under §5.6403 of this title (relating to Application for Initial Certificate of Approval).



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