The Texas Department of Insurance proposes amending §19.1902, §19.1905 and §19.1909 concerning specialty insurance licenses. The proposed amendments allow a specialty license holder to register all locations, except franchises, where its associated consumer transactions occur and specialty insurance products are sold and require the specialty license holder to train those persons selling insurance under its license. The proposed amendments will apply equally to all specialty insurance licenses including the telecommunications specialty license added by amendments to Article 21.09 in Senate Bill 466, 77th Legislature.
These proposed amendments are necessary to maintain effective regulation of the specialty insurance license through responsible license holders and to provide the public with insurance products through trained persons without disruption of the public's access to or the availability of the associated consumer transactions. Many industries covered by the specialty license do not have a franchise business model. Vendors in these industries often utilize a business relationship in which their associated consumer transaction and insurance sales are conducted through other businesses, but controlled by the vendor through the use of forms, specific requirements and procedures.
The current subchapter restricts the use of a specialty license to only those locations owned and operated by the specialty license holder. Each vendor and other business are required to obtain and maintain a separate specialty license. This requirement has raised the concern that these other businesses may discontinue relationships with the vendors and effectively diminish the public's access to and the availability of the associated consumer transactions. The department believes that the legislative intent of Article 21.09 was to provide effective regulation of specialty insurance license holders, but not to otherwise influence business relationships of the industries selling associated consumer transactions or to diminish the public's access to or availability of these consumer products.
The proposed amendments redefine the terms franchisee and franchisor and enable a specialty license holder to register non-franchise locations at which its associated consumer transactions occur and insurance is sold. For the purposes of this subchapter, this proposal also broadens the definition of employee beyond a direct contractual relationship and requires a specialty license holder to be responsible for the related training and actions of persons who are selling insurance products under its specialty license.
The proposed amendments to §19.1902, the definitions section revise the definitions of franchisee and franchisor to prevent the specialty license holder's business relationships from being classified as a franchise solely because of its type of business activity. The proposed amendments add a definition of registered location to standardize this term throughout the subchapter; remove contractual references from the definition of employee; and add a definition of supervision to support the definition of employee. The proposal also deletes the term franchise location and defines the term location as a place of business.
The proposed amendment to §19.1905(a) removes the requirement that insurance sales may only be conducted at locations owned and operated by the specialty license holder. The proposed amendments to §19.1905(b) and (f) require applicants and specialty license holders to register locations at which both the associated consumer transaction and the sale of insurance occur under the specialty license. The proposed amendments to §19.1905(d) and (e) clarify the licensing relationships of franchisees and franchisors under this subchapter.
The proposed amendment to §19.1909(a) reflects that the term employee is not limited to the scope of the individual's employment.
Finally, the proposal deletes the word business where the term business location is used in the subchapter.
Matt Ray, deputy commissioner, licensing division, has determined that for each year of the first five years the proposed amendments will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the proposed rule. There will be no measurable effect on local employment or the local economy as a result of the proposal.
Mr. Ray has determined that for each year of the first five years the proposed amendments are in effect, the anticipated public benefit is that the convenience and availability of certain insurance products will be increased without compromising the level of consumer protection afforded to the citizens of Texas. In addition, the proposed sections will enhance regulation of the insurance industry in Texas and improve the effectiveness of regulation of specialty agents.
It is anticipated that no new costs will be created by the proposed amendments. The economic cost to comply with the proposed amendments results from the legislative enactment of Article 21.09 and its amendment and not as a result of adoption, enforcement or administration of the proposed amendments. There is no difference in the costs of compliance between a large and small business as a result of the proposed sections. In addition, the cost of labor per hour is not affected by the proposed sections and thus there is no disproportionate economic impact on small or micro businesses. It is neither legal nor feasible to waive the provisions of the proposed subchapter for small or micro businesses since the requirements of Article 21.09 apply to all applicants for a specialty license.
To be considered, written comments on the proposal must be submitted no later than 5 p.m. on December 3, 2001 to Lynda H. Nesenholtz, 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 Matt Ray, Deputy Commissioner, Licensing Division, Mail Code 107-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Any requests for a public hearing should be submitted separately to the Office of the Chief Clerk.
The amendments are proposed under Insurance Code Article 21.09 and §36.001. Article 21.09 §6 provides the Commissioner may adopt rules necessary to implement the specialty license. Section 36.001 provides that the Commissioner of Insurance may adopt rules to execute the duties and functions of the Texas Department of Insurance only as authorized by statute.
The following statute is affected by the proposal: Insurance Code Article 21.09.
§19.1902. Definitions. The following words and terms, when used in this subchapter, shall have the following meanings unless the context clearly indicates otherwise.
(1) -(8) (No Change.)
(9) Employee -- A person that:
(A) is trained to act individually on behalf of the specialty license holder;
(B) is acting on behalf of and under the supervision of the license holder; and
(C) is not compensated based primarily on the amount of insurance sold.
[
in the service of a specialty license holder under any contract of hire where the specialty license holder has the power or right to direct and control the person in the material details of how the work is to be performed]
(10) Franchisee -- A person that is granted a franchise by a franchisor [
or a person who is an agent or licensee of a travel agency, vehicle rental company or a self-service storage facility without regard to whether a franchise is granted to such person ].
(11) [
Franchise] Location -- A place of business [
independently owned and operated by a franchisee].
(12) Franchisor -- A person that grants a franchise to a franchisee [
or a travel agency, vehicle rental company or self-service storage facility that authorizes an agent or licensee to conduct business under the company's name].
(13) - (16) (No Change.)
( 17) Registered Location -- A location that has been identified by an applicant or specialty license holder to the department as a place at which the applicant's or specialty license holder's associated consumer transactions occur and insurance sales will be conducted under the specialty license and for which all applicable registration fees have been paid.
18) Supervision -- Supplying trained employees with forms, specific requirements and procedures necessary for the sale of insurance under the specialty license.
§19.1905. Place of Business.
(a) An applicant may obtain a single specialty license which authorizes the applicant to conduct insurance business under Article 21.09 at
registered locations [
owned and operated only by the applicant].
(b) An applicant for a specialty license under Article 21.09
shall only [
is required to] register with the department
locations [
each location] where
applicant's associated consumer transactions occur and insurance sales will be conducted under the specialty license. All existing [
business] locations [
owned or operated by the license applicant] where
applicant's associated consumer transactions occur and insurance sales will be conducted must be included with the applicant's original license application form. An applicant may submit a separate registration form as required under §19.902(c) of this title (relating to One Agent, One License) for each [
business] location or a single notarized list containing the physical address of each location.
(c) The registration of an additional [
business] location shall be treated as an expansion of the specialty license holder's authority, and a fee equal to the license fee shall be paid for each additional location as provided by §19.902 of this title.
(d) An applicant or specialty license holder that is also a franchisor may not register a [
business] location
of [
which is independently owned or operated by] a franchisee.
(e) An applicant or specialty license holder that is a franchisee may [
obtain a single specialty license which authorizes the franchisee person to conduct insurance business under Article 21.09 at locations owned and operated only by the franchisee. The independent owner of each franchisee franchise location must submit an application separate from any application submitted by the franchisor. A franchisee may] not register a [
business] location
of [
which is owned or operated by] the franchisor or [
by] another franchisee.
The independent owner of each franchisee must submit an application for specialty license and location registration separate from any application and location registration submitted by the franchisor
(f) A specialty license holder who transfers [
business] locations, opens an additional [
business] location or acquires a [
business] location already in operation is required to register each new location where
specialty license holder's associated consumer transactions occur and insurance sales will be conducted which was not
registered [
owned or operated] by the license holder at the time the original license application was filed with the department. The requirements set out in §19.902(c) of this title shall govern a registration under this subsection.
(g) No applicant for or holder of a specialty license shall be required to file multiple registrations for a previously registered [
business] location as a result of seeking more than one specialty license authority.
(h) A specialty license holder may not solicit insurance from a [
business] location which the license holder has not registered with the department under this section.
§19.1909. Employee Training.
(a) Each employee of a specialty license holder who performs any act of an insurance agent
[within the scope of the individual's employment] shall complete a training program which satisfies the requirements of Article 21.09 §1(d).
(b) - (d) (No Change.)