28 TAC §5.9960
The Texas Department of Insurance proposes new subchapter V, §5.9960, concerning residential property insurance or personal automobile insurance and allowable rate differences for rating territories that subdivide a county, as provided in Insurance Code, Subchapter U, Article 5.171 (as enacted by the Regular Session of the 78 th Legislature in Senate Bill 14, effective June 11, 2003).
The proposed rule is necessary because under Insurance Code, Article 5.171, an insurer may not use rating territories that subdivide a county unless the county is subdivided and the rate for any subdivision within that county is not greater than 15% higher than the rate used in any other subdivisions in the county by that insurer. Article 5.171 provides that the commissioner may by rule allow a greater rate difference for residential property insurance or personal automobile insurance.
Proposed new §5.9960 prohibits an insurer that writes residential property insurance or personal automobile insurance from using a rate for a subdivision within a county that is greater than 15% higher than the rate used in any other subdivision within that county unless the rate is based on sound actuarial principles and supported by data filed with the department. An insurer must file its rate for a subdivision within a county that is greater than 15% higher than the rate used in any other subdivision within that county in accordance with the statutory filing requirements applicable to that particular insurer and line of insurance. For example, until December 1, 2004, residential property insurers are subject to filing requirements under Insurance Code, Article 5.142 and rules promulgated under Article 5.142, and personal automobile insurers are subject to filing requirements under Insurance Code, Article 5.101 and rules promulgated under Article 5.101. As of December 1, 2004, residential property and personal automobile insurers are subject to filing requirements under Insurance Code, Article 5.13-2 and any rules promulgated under Article 5.13-2.
Proposed new §5.9960 would allow an insurer to recognize territorial rate differences that reflect higher exposure to loss, including loss caused by catastrophic weather events in coastal subdivisions of a county relative to inland subdivisions of the same county, if the territorial rate differences are based on sound actuarial principles and supported with data filed with the department. In this instance, insureds located in inland areas of a county would not pay higher rates in order to subsidize the catastrophic wind exposure of insureds located in coastal areas of the same county. In addition, this proposal would encourage insurers to retain their wind exposure, in lieu of such exposure being written by the Texas Windstorm Insurance Association, a residual market.
The Department will consider the adoption of proposed §5.9960 concerning allowable rate differentials for residential property insurance or personal automobile insurance in a public hearing under Docket No. 2572 scheduled for October 22, 2003, at 9:30 a.m. in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas.
Marilyn Hamilton, Associate Commissioner of Property and Casualty Insurance, has determined that for each year of the first five years the proposed section 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 rule. There will be no measurable effect on local employment or the local economy as a result of the proposal.
Ms. Hamilton has determined that for each year of the first five years the section is in effect, the public benefits anticipated as a result of the proposed section will be the increased availability and affordability of residential property insurance and personal automobile insurance throughout the state. Additionally, the proposed section will promote the public welfare and price competition among insurers through the regulation of insurance rates that prohibits excessive, inadequate, or unfairly discriminatory rates. The cost of compliance with the proposed section for large, small, and micro-businesses results entirely from the legislative enactment of Senate Bill 14, enacted by the Regular Session of the 78 th Legislature, and not as a result of the administration or enforcement of the rules. The proposed amendments may not be waived for insurers that qualify as small or micro-businesses because the requirements of this section are prescribed by statute, and the statute does not provide for an exemption.
To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on October 20, 2003 to Gene 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 comment must be simultaneously submitted to Marilyn Hamilton, Associate Commissioner, Property and Casualty Insurance, Mail Code 104-PC, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.
The new section is proposed under Insurance Code Articles 5.171 and 5.172 and §36.001. Article 5.171 provides that notwithstanding any other provision of the Insurance Code, an insurer may not use rating territories that subdivide a county unless the county is subdivided and the rate for any subdivisions within that county is not greater than 15 percent higher than the rate used in any other subdivisions in the county by that insurer, except that the commissioner may by rule allow a greater rate difference for residential property insurance or personal automobile insurance. Article 5.172 provides that notwithstanding §912.002 (County Mutual Limited Exemption from Insurance Laws; Applicability of Certain Laws), §941.003 (Lloyd´s Plan Limited Exemption from Insurance Laws; Applicability of Certain Laws), §942.003 (Reciprocal and Interinsurance Exchange Limited Exemption from Insurance Laws; Applicability of Certain Laws), or any other provision of the Insurance Code, Subchapter U (Rating Territories for Certain Lines) does not apply to a county mutual company, a Lloyd´s plan, and a reciprocal or interinsurance exchange, before January 1, 2004. Section 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.
The following articles are affected by this proposal: Insurance Code Arts. 5.171 & 5.172
§5.9960. Exception to Rating Territory Requirements under Insurance Code Article 5.171.
(a) The purpose of this section is to provide an exception to Insurance Code Article 5.171 for an insurer that writes residential property insurance or personal automobile insurance in the State of Texas.
(b) This section applies to an insurer that writes residential property insurance or personal automobile insurance in the State of Texas. This section does not apply to a county mutual insurance company, a Lloyd´s plan, or a reciprocal or interinsurance exchange before January 1, 2004.
(c) The following words and terms, when used in this section have the following meanings, unless the context clearly indicates otherwise.
(1) County A county in the State of Texas.
(2) Insurer An insurance company, reciprocal or interinsurance exchange, mutual insurance company, capital stock company, county mutual insurance company, Lloyd´s plan, or other legal entity authorized to write residential property insurance or personal automobile insurance in the State of Texas. The term does not include:
(A) the Texas Windstorm Insurance Association under Insurance Code Article 21.49;
(B) the FAIR Plan Association under Insurance Code Article 21.49A; or
(C) the Texas Automobile Insurance Plan Association under Insurance Code Article 21.81.
(3) Personal automobile insurance Motor vehicle insurance coverage for the ownership, maintenance or use of a private passenger, utility or miscellaneous type motor vehicle, including a motor home, mobile home, trailer or recreational vehicle, that is:
(A) owned or leased by an individual or individuals; and
(B) not primarily used for the delivery of goods, materials, or services, other than for use in farm or ranch operations.
(4) Rate The cost of insurance per exposure unit, whether expressed as a single number or as a prospective loss cost, with an adjustment to account for the treatment of expenses, profit, and individual insurer variation in loss experience, and before any application of individual risk variations based on loss or expense considerations.
(5) Residential property insurance Insurance against loss to real property at a fixed location or tangible personal property provided in a homeowners policy, a tenant policy, a condominium owners policy, or a residential fire and allied lines policy.
(d) Except as provided by subsection (e) of this section, an insurer may not use rating territories that subdivide a county unless the county is subdivided and the rate for any subdivisions within that county is not greater than 15% higher than the rate used in any other subdivisions in the county by that insurer.
(e) For residential property insurance or personal automobile insurance, an insurer may not use a rate for a subdivision within a county that is greater than 15% higher than the rate used in any other subdivision within that county unless the rate is based on sound actuarial principles and supported by data filed with the department.
(f) An insurer must file with the department a rate for a subdivision within a county that is greater than 15% higher than the rate used in any other subdivision within that county in accordance with the statutory filing requirements applicable to that particular insurer and line of insurance.
(g) Filings under this section must be submitted to the Texas Department of Insurance, Property & Casualty Intake Unit, Mail Code 104-3B, 333 Guadalupe, Austin, Texas 78701 or to the Texas Department of Insurance, Property & Casualty Intake Unit, Mail Code 104-3B, P.O. Box 149104, Austin, Texas 78714-9104.