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COMMISSIONER'S BULLETIN # B-0028-03

July 14, 2003


To:


Re: ALL COMPANIES, CORPORATIONS, EXCHANGES, MUTUALS, RECIPROCALS, ASSOCIATIONS, LLOYDS, OR OTHER INSURERS WRITING PROPERTY AND CASUALTY INSURANCE IN THE STATE OF TEXAS AND TO OTHER AGENTS AND REPRESENTATIVES AND THE PUBLIC GENERALLY

Governor Perry signed into law Senate Bill 14 (the Act) that went into effect on June 11, 2003. The purpose of this bulletin is to inform insurers of certain provisions contained in the Act as they relate to policy forms, rates, credit scoring models and underwriting guidelines affecting property and casualty personal and commercial lines of insurance. As it becomes available, the Department will provide more detailed information regarding rule proposals, including Frequently Asked Questions, on our website and there will be an opportunity to submit additional questions. It is essential that insurers review the entire text of the Act to ensure compliance. You may access the text of the Act at www.capitol.state.tx.us.

RESIDENTIAL PROPERTY and PERSONAL AUTOMOBILE

RATES FOR RESIDENTIAL PROPERTY

Notice of Rate Increase Required

  • Effective June 11, 2003 and expiring December 1, 2004, Article 5.142, Section 15, Notice to Policyholder, requires an insurer to send to a policyholder notice of any rate increase scheduled to take effect on the renewal of the policy that exceeds 10 percent of the amount paid by the policyholder for coverage under the policy immediately before renewal. (Article 1 of the Act)
  • Effective June 11, 2003, Article 5.13-2, Section 15, Notice of Rate Increase, requires an insurer to send notice to a policyholder of any rate increase scheduled to take effect on the renewal of the policy that will result in an increase in the premium amount to be paid of at least 10 percent greater than the lesser of the premium amount paid by the policyholder for coverage under the policy during the 12-month period preceding the renewal date of the policy or the policy period preceding the renewal date of the policy. The notice must be sent before the renewal date but not later than the 30th day before the increase is scheduled to take effect. (Article 6 of the Act)

Rate Filings for Residential Property

  • Article 5.142, Rates for Residential Property Insurance Coverage, requires an insurer to file a rate and receive approval before the rate may be used by the insurer. This article expires December 1, 2004. (Article 1 of the Act)
  • By rule, the commissioner may simplify filing requirements for small and new insurers, as defined by the Act, and allow for the immediate use of filed rates provided the rate filing does not constitute a significant overall rate increase, as determined by the rule. (Article 1 of the Act)
  • Effective December 1, 2004, an insurer must file rates in accordance with the provisions of Article 5.13-2, Rates and Forms for Certain Property and Casualty Insurance. (Article 6 of the Act)

RATES FOR PERSONAL AUTOMOBILE

  • Article 5.101, Flexible Rating Program for Personal Automobile Insurance applies until December 1, 2004, for rate regulated companies. (Article 1, Part B of the Act)
  • Effective December 1, 2004, insurers must file rates in accordance with the provisions of Article 5.13-2, Rates and Forms for Certain Property and Casualty Insurance. (Article 6 of the Act)

POLICY FORMS AND ENDORSEMENTS

Cancellation of Homeowners Insurance Policy

  • Effective June 11, 2003, Article 21.49-2B, Section 4, amends the cancellation provisions for homeowners insurance policies.
  • Pursuant to Article 5.13-2, insurers must amend their homeowners insurance policies to comply with the amendments to Article 21.49-2B. Insurers must incorporate the provisions outlined in this bulletin by amendatory endorsement, or policies must be corrected to include the necessary provisions within the policy form. All amendatory endorsements and amended policy forms must be submitted to the Texas Department of Insurance for approval. The following is the pertinent text contained in amended Subsection (i):
    An insurer may cancel a homeowners insurance policy if the policy has been in effect less than 60 days if:
    1. the insurer identifies a condition that:
      1. creates an increased risk of hazard;
      2. was not disclosed in the application for insurance coverage; and
      3. is not the subject of a prior claim; or
    2. before the effective date of the policy, the insurer does not accept a copy of a required inspection report that:
      1. was completed by an inspector licensed by the Texas Real Estate Commission or who is otherwise authorized to perform inspections; and
      2. is dated not earlier than the 90th day before the effective date of the policy.

The following is the text contained in the new Subsection (j):

(j) For the purposes of Subsection (i), an inspection report is deemed accepted if an insurer does not reject the inspection report given to the insurer under Subsection (i)(2) before the 11th day after the date the inspection report is received by the insurer. (Article 16 of the Act)

Filing of Policy Forms and Endorsements for Residential Property and Personal Automobile Insurance

  • Effective June 11, 2003, Article 5.145, Policy Forms for Personal Automobile Insurance Coverage and Residential Property Insurance Coverage, provides that:
    • Insurers are governed by the provisions of Article 5.13-2, Section 8 relating to policy forms and endorsements for personal automobile insurance and residential property insurance; and
    • Insurers may continue to use policy forms and endorsements promulgated, approved, or adopted by the commissioner under Article 5.35 and 5.06 on written notification to the commissioner. Mail notification to the Texas Department of Insurance, Property & Casualty Intake Unit, Mail Code 104-3B, P.O. Box 149104, Austin, TX, 78714-9104 or e-mail to PCFilingsIntake@tdi.texas.gov. (Article 2 of the Act)

USE OF CREDIT SCORING

Use of Credit Scoring in Certain Personal Lines of Insurance:

  • An insurer that is using an insurance credit scoring system on June 11, 2003 to underwrite and rate risks (or entity acting on behalf of that insurer) must file with the commissioner, the credit scoring models described by Article 21.49-2U, Section 9, not later than September 9, 2003 (the 90th day after the effective date of the Act). (Article 3 of the Act)
  • An insurer that uses an insurance credit scoring system after June 11, 2003 must file the insurer's insurance credit scoring models with the commissioner before using the models. (Article 3, Part B of the Act)
  • Effective January 1, 2004, certain restrictions are placed on the use and application of credit scoring for personal automobile policies, residential property policies, residential fire and allied lines policies and noncommercial policies covering a boat, personal watercraft, snowmobile, or recreational vehicle. (Article 3 of the Act)
  • Effective January 1, 2004, an insurer using an insurance credit scoring system in underwriting or rating shall disclose to each applicant for insurance and each insured whether credit information, which includes a credit report, will be obtained and used as part of the insurance credit scoring process, as described in Article 21.49-2U, Section 7. (Article 3 of the Act)
  • Effective January 1, 2004, if an insurer takes an action resulting in an adverse effect with respect to an applicant for insurance coverage, the insurer shall provide notice to the applicant or insured within 30 days as described in Article 21.49-2U, Section 8. (Article 3 of the Act)

UNDERWRITING GUIDELINES

Regulation of Underwriting Guidelines

  • Effective June 11, 2003, Texas Insurance Code, Chapter 38, Section 38.002, Underwriting Guidelines for Personal Automobile and Residential Property Insurance; Filing; Confidentiality, provides that:
    • Each insurer must file a copy of the insurer's underwriting guidelines with the department.
    • The insurer must update its filing each time the underwriting guidelines are changed.
    • If a group of insurers files one set of underwriting guidelines for the group, the group shall identify which underwriting guidelines apply to each company in the group. (Article 8 of the Act)

RATING TERRITORIES

  • Article 5.171, Rating Territories, prohibits an insurer from using rating territories that subdivide a county unless the rate for any subdivision within a county is no greater than 15% higher than any other rate used by the insurer in any other subdivision of that county. The commissioner may by rule, allow a greater rate difference for residential property insurance or personal automobile insurance. Article 5.171 is effective June 11, 2003 for all insurers except for county mutuals, Lloyd's plans, reciprocals and interinsurance exchanges. It is effective January 1, 2004 for county mutuals, Lloyds, reciprocals and interinsurance exchanges. (Article 1, Part A and Section 22.02 of the Act)

CERTAIN COMMERCIAL AND PERSONAL LINES OF INSURANCE

The Act amended Article 5.13-2, Texas Insurance Code, by providing for the regulation of the following lines of insurance effective June 11, 2003:

  • Commercial automobile insurance
    • Insurers may continue to use policy forms and endorsements promulgated, approved, or adopted by the commissioner under Article 5.06 on written notification to the commissioner. Mail notification to the Texas Department of Insurance, Property & Casualty Intake Unit, Mail Code 104-3B, P.O. Box 149104, Austin, TX, 78714-9104 or e-mail to PCFilingsIntake@tdi.texas.gov.
    • County mutual insurance companies are subject to Article 5.13-2.
  • Inland marine insurance
    • Regulation of forms and rates is applicable only to regulated classes of inland marine as defined by 28 TAC § 5.5001 - 5.5002.
  • Rain insurance
  • Hail insurance on farm crops
  • Personal casualty
  • Personal liability
  • Personal umbrella
  • Involuntary unemployment insurance
  • Fidelity and surety bonds - other than criminal court appearance bonds
  • Financial guaranty (Article 5 of the Act)

Companies may submit filings of policy forms, rates, credit scoring models, and underwriting guidelines to the Texas Department of Insurance, Property & Casualty Intake Unit, Mail Code 104-3B, P.O. Box 149104, Austin, TX, 78714-9104.

Questions regarding this bulletin may be directed to Grover Corum, Automobile/Homeowners Section at (512) 322-3430 ( Grover.Corum@tdi.state.tx.us), Mark Worman, Commercial Property/Casualty Section at (512) 305-7544 ( Mark.Worman@tdi.state.tx.us), or Tammy Lara, Property & Casualty Actuarial at (512) 475-3017 (tammy.lara@tdi.state.tx.us).

Marilyn Hamilton, Associate Commissioner
Property & Casualty Program MC 104-PC



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