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SUBCHAPTER D. FIRE AND ALLIED LINES INSURANCE

Division 8. UNDERSERVED AREAS FOR RESIDENTIAL PROPERTY INSURANCE

28 TAC §5.3701

The Commissioner of Insurance adopts on an emergency basis new §5.3701, concerning the designation of the areas determined by the Commissioner of Insurance to be underserved for purposes of residential property insurance pursuant to the Texas Insurance Code Article 21.49-12 (Market Assistance Program). The new section is necessary to designate all 254 counties of the State of Texas as the underserved areas for the Market Assistance Program because it has been determined that residential property insurance is not reasonably available to a substantial number of owners of insurable property in these areas.

On September 25, 2002, the Farmers Insurance Group of Companies (Farmers) announced that it would not renew current homeowners insurance policies beginning November 12, 2002, and would no longer be able to provide Texas consumers with homeowners insurance coverage. Farmers currently has approximately 700,000 residential property insurance policies, representing approximately 20% of the market, in force in Texas and the decision to non-renew will affect each of these households and the Texas homeowners insurance market. It is estimated that as a result of Farmer´s decision to non-renew coverage, each month approximately 55,000 Texas consumers will be required to seek homeowners coverage from another insurer. Additionally, the State Farm Insurance Group of Companies (State Farm), which is the largest writer of homeowners insurance in Texas with over 30% of the market, has not been writing new homeowners policies for over a year. According to statistics obtained from the Surplus Lines Stamping Office of Texas, from September 30, 2001, to September 30, 2002, there has been a 91% increase in the homeowners premium written by surplus lines insurers, which indicates a significant increase in the writing of homeowners policies by surplus lines insurers. This increase is a clear indication that consumers are having difficulty obtaining or have found it impossible to obtain homeowners insurance coverage through the voluntary market, and have had to obtain such coverage in the surplus lines market.

Farmers and State Farm write over 50% of the homeowners market in Texas, and as of November 12, 2002, both of these insurers will no longer be writing new homeowners policies. Therefore, the group of insurers who write less than 50% of the homeowners market in Texas will be left to absorb the estimated 55,000 new policies that will be needed each month as a result of Farmers decision to non-renew its entire book of Texas homeowners policies as well as those homeowners policies that would have been written by State Farm. Considering these facts in tandem with the statistics from the Texas Surplus Lines Stamping Office which show that consumers are currently experiencing difficulty in obtaining homeowners coverage in the voluntary market, it is clear that when the more than 55,000 consumers who will be in need of homeowners coverage in November 2002 begin to seek new policies, these consumers are likely face difficulty in obtaining or will be unable to obtain homeowners insurance coverage through the voluntary market.

Due to the occurrence of the events over the last few months, a disruption in the homeowners market has resulted in decreased availability of homeowners insurance in the voluntary market which presents an imminent peril to the economic welfare of the residents of the State of Texas. This imminent peril to the public economic welfare requires the adoption of this section on an emergency basis to ensure an adequate voluntary market for residential property insurance because without the availability of such insurance the orderly growth and economic development to the State of Texas would be severely impeded. The new section designates all 254 counties of the State of Texas as the underserved areas for the Market Assistance Program because it has been determined that residential property insurance is not reasonably available to a substantial number of owners of insurable property in these areas.

The new section is adopted pursuant to the Insurance Code Articles 21.49-12, 5.35-3 and §36.001 and Government Code §2001.034. Article 21.49-12 §1(a) provides that underserved areas for the MAP shall be determined and designated by the Commissioner by rule using the standards specified in Article 5.35-3 §1. Article 21.49-12 §8 provides that the Commissioner is authorized to adopt rules in addition to the plan of operation that are appropriate to accomplish the purposes of Article 21.49. Article 5.35-3 §1 provides that in determining which areas will be designated as underserved, the Commissioner shall consider whether residential property insurance is not reasonably available to a substantial number of owners of insurable property in the underserved area and any other relevant factor as determined by the Commissioner. Insurance Code §36.001 authorizes the Commissioner of Insurance to adopt rules for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by statute. Government Code §2001.034 provides for the adoption of administrative rules on an emergency basis without notice and comment.

§5.3701. Designation of Underserved Areas for Residential Property Insurance for Purposes of the Insurance Code Article 21.49-12

(a) Purpose. The purpose of this section is to designate the areas of the state determined by the Commissioner to be underserved areas for purposes of obtaining residential property insurance through the market assistance program of Article 21.49-12.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Market Assistance Program--The residential property market assistance program operated pursuant to Article 21.49-12 of the Texas Insurance Code and §§5.9400-5.9416 of this title (relating to Plan of Operation).

(2) Commissioner - Commissioner of Insurance of the State of Texas.

(c) Designation of Underserved Areas. The Commissioner designates all 254 counties of the State of Texas as the underserved areas for the Market Assistance Program because it has been determined that residential property insurance is not reasonably available to a substantial number of owners of insurable property in these areas.



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