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You are here: Home . rules . 2004 . 0308-059

SUBCHAPTER D. FIRE AND ALLIED LINES INSURANCE

The Texas Department of Insurance proposes new §5.3702, concerning the designation of geographic areas as underserved for residential property insurance for purposes of the Insurance Code, Article 5.13-2C. The proposed section is necessary to designate the areas determined by the Commissioner of Insurance to be underserved areas for purposes of Article 5.13-2C which provides exemptions from rate filing and approval requirements for certain insurers. The proposed section identifies the factors and the methodology used in determining the areas to be underserved. Article 5.35-3, which is referenced in Article 5.13-2C §2(a)(2), 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 residential property in the underserved area and any other relevant factors as determined by the Commissioner. Upon the determination of such areas, an insurer authorized to write property or casualty insurance in this state and writing residential property insurance in this state, will be evaluated in accordance with the criteria established in Article 5.13-2C as to whether or not it qualifies for an exemption from the rate filing and approval requirements of Articles 5.142 and 5.13-2.

Proposed subsection (a) specifies the purpose of the section. Proposed subsection (b) defines terms used in the section. Subsection (c) proposes ZIP Code areas to be designated as underserved areas for purposes of Article 5.13-2C. Subsection (d) outlines the factors and methodology proposed for use in determining which areas should be designated as underserved.

The factors and methodology outlined in proposed subsection (d) would enable the Commissioner to determine whether residential property insurance is not currently reasonably available or is potentially not reasonably available to a substantial number of owners of insurable property in specific geographic areas of the state. This determination is necessary to enable the Commissioner to designate such areas as underserved for purposes of Articles 5.13-2C. Because there is no single comprehensive measure to determine whether residential property insurance is or is not reasonably available to a substantial number of owners of insurable property either on a statewide basis or in any particular area of the state, the department has identified characteristics of particular geographic areas which are likely to be associated with greater difficulty by consumers in obtaining residential property insurance. In determining whether to propose the designation of an area as underserved, great weight was placed on the potential for residential property insurance not being reasonably available to a substantial number of owners of insurable property in that area. The department proposes the consideration of geographic factors based on two types of weather-related loss exposure underwriting restrictions used by insurers writing residential property insurance in Texas that would limit the availability of residential property insurance coverages to a greater extent in some geographic areas than in others. The first type of weather-related loss exposure concerns the potential for catastrophic hurricanes and other types of windstorms in the counties that border the Gulf of Mexico and the inability of residents to obtain windstorm and hail insurance through the voluntary market in these areas. The Texas Windstorm Insurance Association (TWIA) was formed by the legislative enactment of Article 21.49 because windstorm and hail insurance was not reasonably available to a substantial number of owners of insurable property in the coasta l c ounties. The department believes that the areas where windstorm and hail insurance is not reasonably available include both First Tier Coastal Counties (Tier 1) and Second Tier Coastal Counties (Tier 2) as defined in Article 21.49 §3 (l) and (m). The owners of insurable property in the Tier 1 and Tier 2 counties have a significantly greater difficulty in obtaining windstorm and hail insurance in the voluntary market than those property owners who reside outside of these areas. For these reasons, it is proposed that the location of a ZIP Code in the geographic areas that comprise the Tier 1 and Tier 2 coastal counties be considered a factor in determining whether an area is underserved for purposes of Article 5.13-2C. A second geographic area that has historically been affected by weather-related loss exposure underwriting factors is Dallas and Tarrant counties. Due to the frequency and severity of hail storms and the ensuing large losses in these counties, insurers have restricted their writing of residential property insurance and have limited the availability of certain property insurance coverages in these counties. Based on this lack of availability of residential property insurance to a substantial number of owners of insurable property in Dallas and Tarrant counties, it is proposed that the location of a ZIP Code in these counties be considered a factor in determining whether an area is underserved for purposes of Article 5.13-2C. It is proposed that ZIP Codes which are located in Tier 1, Tier 2, Dallas, or Tarrant counties be assigned five points.

The department also identified certain demographic factors that have historically been correlated with the limited availability of residential property insurance. The proposed factors to be considered are: low median household income (geographic areas with median household incomes of $36,000 or less), low median home value (geographic areas with the median value of owner-occupied dwellings of $75,000 or less), median year the house was constructed (geographic areas that contain dwellings with a median year built of 1974 or earlier), and high percentage of uninsured households for residential property insurance (geographic areas where the percent of insured households is less than 50%). It is proposed that if the demographic factor for a specific ZIP Code indicates actual or potential difficulty for consumers in obtaining residential property insurance, the ZIP Code be assigned one point. If a ZIP Code does not receive at least one point it will receive zero points for the specific factor.

Additionally, the department has identified a factor that correlates the market share of a set of insurer groups with the availability of residential property insurance. The department examined data reported by insurers pursuant to the Texas Statistical Plan for Residential Risks and determined the insurer groups that cumulatively write at least 90% of the residential property insurance policies that are in force in Texas. The department then analyzed data for each of the individual geographic ZIP Codes (excluding single point ZIP Codes) and calculated the percent of policies in force that are being written by the same insurer groups that write 90% of the policies in force on a state wide basis. It is proposed that if an individual ZIP Code´s cumulative market share calculation shows that the insurer groups that write 90% of the policies in force state wide are writing less than 90% of the policies in force in a particular ZIP Code, then this Zip Code will receive one point. Further, if an individual ZIP Code´s cumulative market share calculation shows that the insurer groups that write 90% of the policies in force state wide are writing 90% or more of the policies in force in a particular ZIP Code, then this Zip Code will receive zero points.

Geographic factors based upon the established lack of availability of certain types of residential property insurance in Tier 1 and Tier 2 counties and in Dallas and Tarrant counties and demographic factors and a market share factor that are correlated with the limited availability of residential property insurance were proposed for analysis by ZIP Code area or county, and points were assigned to each of the factors. Based on the factors and points assigned to each factor, the number of points assigned will be totaled by ZIP Code. It is proposed that areas with five or more points will be identified as underserved or potentially underserved and generally designated as underserved areas. Generally, to be underserved a ZIP Code can meet any one of the geographic based criteria or it must meet all four of the demographic based criteria and the market share criteria.

Marilyn Hamilton, Associate Commissioner for the Property and Casualty Program, has determined that for each year of the first five years the proposed section is in effect, there will be no fiscal implications for state government or local government as a result of enforcing or administering the proposed section. Ms. Hamilton has also determined that for each year of the first five years the proposed section will be in effect, there will be no adverse effect on local employment or the local economy.

Ms Hamilton has further determined that for each year of the first five years the proposed section is in effect the public benefit anticipated as a result of administering the proposed section will be that the regulation of the department will conform with the requirements of recently enacted Article 5.13-2C. An additional public benefit will be that the exemption from rate filing and approval requirements will provide an incentive for insurers to write residential property insurance in underserved areas of the state which should increase the availability of residential property insurance in these areas. There would be no difference in the costs of compliance between a large and small business as a result of the proposed section. In addition, the proposed section does not affect the cost of labor per hour and thus there is no disproportionate economic impact on small or micro businesses. The cost of compliance with the proposed section for large, small, and micro-businesses results entirely from the legislative enactment of Article 5.13-2C, enacted by the 78th Legislature, and is not a result of the administration or enforcement of the section. The proposed section 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 proposed section must be submitted no later than 5:00 p.m. on April 19, 2004 to Gene C. Jarmon, General Counsel and Chief Clerk, MC 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas, 78714-9104. An additional copy of the comment should be simultaneously submitted to Marilyn Hamilton, Associate Commissioner, Property and Casualty Program, MC 104-PC, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. Request for public hearing should be submitted separately to the Chief Clerk´s Office.

The new section is proposed pursuant to the Insurance Code, Articles 5.13-2C, 5.35-3 and §36.001. The Insurance Code Article 5.13-2C provides that an insurer may be exempt from the rate filing and approval requirements of Articles 5.142 and 5.13-2 if the total amount of premium collected for residential property insurance by an insurer is less than 2% of the total premium for the state and if more than 50% of the policies issued in the state are valued at less than $100,000 and are located in an underserved area for residential property insurance under Article 5.35-3. Article 5.35-3, §1(a) provides that by rule the Commissioner may determine and designate areas as underserved areas for residential property insurance. Section 36.001 of the Insurance Code provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

The following statutes are affected by this proposal: Insurance Code Articles 5.13-2C and 5.35-3

§5.3702. Designation of Underserved Areas for Residential Property Insurance for Purposes of the Insurance Code Article 5.13-2C

(a) Purpose. The purpose of this section is to:

(1) designate the areas determined by the Commissioner of Insurance to be underserved areas for purposes of residential property insurance pursuant to the Insurance Code Article 5.13-2C; and

(2) identify the factors and methodology used in determining such underserved areas.

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

(1) Underserved area--An area determined and designated in this section as an underserved area by the Commissioner of Insurance for purposes of an exemption from rate filings and approval requirements for certain insurers pursuant to the Insurance Code Article 5.13-2C.

(2) Commissioner--Commissioner of Insurance.

(3) Department--Texas Department of Insurance.

(4) Market share--the number of residential property insurance policies that an individual insurer has in force expressed as a percentage of the total number of residential property insurance policies in force in a defined geographic area (i.e. state wide or in a specific ZIP Code).

(c) Underserved areas. The ZIP Codes in Figure 28 TAC §5.3702(c) are designated as underserved areas pursuant to the Insurance Code Article 5.13-2C, effective April 13, 2004:

Figure 28 TAC §5.3702(c)

ZIP ZIP ZIP ZIP ZIP
75001 76039 77029 77977 78881
75006 76040 77033 77978 78938
75019 76051 77048 77979 78941
75038 76052 77051 77982 78943
75039 76053 77053 77983 78956
75040 76054 77078 77988 78959
75041 76060 77087 77990 78962
75042 76063 77093 77991 79001
75043 76067 77301 77994 79003
75044 76092 77327 77995 79005
75048 76102 77368 78008 79009
75050 76103 77369 78012 79013
75051 76104 77374 78014 79014
75052 76105 77376 78019 79021
75060 76106 77414 78022 79027
75061 76107 77415 78040 79029
75062 76108 77417 78071 79031
75063 76109 77419 78072 79034
75080 76110 77420 78075 79035
75081 76111 77422 78102 79039
75082 76112 77428 78107 79040
75088 76114 77430 78125 79041
75089 76115 77432 78140 79042
75098 76116 77434 78142 79043
75104 76117 77435 78145 79045
75110 76118 77437 78146 79046
75115 76119 77440 78147 79052
75116 76120 77441 78151 79054
75125 76123 77443 78159 79056
75134 76126 77444 78161 79057
75137 76127 77446 78164 79061
75140 76131 77448 78201 79064
75141 76132 77451 78202 79065
75144 76133 77454 78203 79072
75146 76134 77455 78204 79079
75149 76135 77456 78207 79080
75150 76137 77457 78208 79082
75159 76140 77458 78210 79083
75172 76148 77459 78211 79086
75180 76155 77461 78212 79087
75181 76177 77463 78214 79092
75182 76179 77464 78215 79095
75201 76180 77465 78221 79096
75202 76248 77467 78223 79101
75203 76255 77468 78226 79102
75204 76261 77469 78236 79106
75205 76262 77471 78237 79107
75206 76265 77476 78252 79201
75207 76301 77477 78330 79220
75208 76311 77478 78332 79225
75209 76363 77479 78336 79226
75210 76364 77480 78338 79227
75211 76366 77481 78339 79229
75212 76371 77482 78340 79230
75214 76372 77483 78343 79233
75215 76374 77485 78347 79234
75216 76380 77486 78351 79235
75217 76384 77488 78352 79237
75218 76388 77489 78353 79239
75219 76424 77494 78355 79240
75220 76435 77506 78358 79241
75223 76436 77507 78359 79243
75224 76437 77510 78362 79244
75225 76442 77511 78363 79245
75226 76443 77514 78364 79247
75227 76445 77515 78368 79248
75228 76448 77517 78370 79250
75229 76454 77518 78371 79252
75230 76455 77519 78372 79255
75231 76457 77520 78373 79256
75232 76458 77531 78374 79257
75233 76460 77533 78375 79261
75234 76464 77534 78377 79311
75235 76466 77535 78379 79312
75236 76470 77538 78380 79313
75237 76471 77539 78382 79316
75238 76475 77541 78383 79322
75240 76481 77545 78385 79323
75241 76483 77546 78387 79324
75243 76491 77550 78389 79325
75244 76504 77551 78390 79326
75246 76511 77553 78391 79329
75247 76518 77554 78393 79331
75248 76520 77560 78401 79336
75249 76525 77561 78402 79339
75251 76528 77563 78404 79342
75253 76530 77564 78405 79343
75270 76531 77565 78406 79345
75401 76550 77566 78407 79346
75417 76569 77568 78408 79347
75418 76577 77573 78409 79350
75426 76628 77575 78410 79351
75428 76629 77577 78411 79355
75431 76632 77578 78412 79356
75435 76634 77581 78413 79357
75441 76635 77582 78414 79359
75446 76639 77583 78415 79364
75448 76645 77584 78416 79369
75449 76648 77585 78417 79370
75469 76649 77590 78418 79371
75470 76660 77591 78501 79373
75475 76661 77597 78503 79376
75477 76664 77611 78504 79379
75481 76666 77613 78516 79381
75487 76667 77615 78520 79401
75496 76670 77617 78521 79403
75550 76678 77619 78526 79404
75554 76680 77622 78537 79405
75556 76685 77623 78538 79406
75559 76690 77625 78539 79411
75562 76693 77627 78543 79412
75563 76701 77629 78549 79501
75564 76704 77630 78550 79502
75568 76705 77632 78552 79505
75602 76706 77640 78557 79506
75633 76707 77642 78558 79512
75654 76708 77650 78559 79517
75656 76711 77651 78560 79518
75667 76798 77655 78562 79526
75669 76801 77656 78563 79527
75681 76821 77657 78565 79528
75684 76823 77659 78566 79532
75702 76832 77662 78569 79534
75759 76834 77663 78570 79539
75766 76837 77665 78572 79543
75785 76842 77701 78575 79544
75838 76844 77702 78576 79546
75848 76848 77703 78577 79547
75856 76849 77705 78578 79548
75925 76853 77706 78579 79549
75934 76854 77707 78580 79556
75935 76856 77708 78583 79560
75956 76859 77713 78586 79566
75968 76861 77803 78589 79567
75972 76864 77837 78592 79601
75975 76878 77853 78593 79607
75976 76901 77857 78594 79718
76001 76903 77859 78595 79719
76002 76930 77901 78596 79730
76006 76932 77904 78597 79731
76008 76933 77905 78598 79735
76010 76936 77950 78622 79741
76011 76943 77951 78629 79745
76012 76951 77954 78648 79752
76013 77003 77957 78661 79772
76014 77009 77960 78672 79781
76015 77011 77961 78702 79782
76016 77012 77962 78721 79785
76017 77016 77963 78742 79830
76018 77017 77964 78830 79837
76020 77020 77968 78834 79842
76021 77021 77969 78839 79843
76022 77022 77970 78851 79848
76028 77023 77971 78860 79854
76034 77026 77973 78872 79855
76036 77028 77975 78880 79901

(d) Factors and methodology. In determining the areas designated as underserved, the Commissioner shall consider whether residential property insurance is not reasonably available to a substantial number of owners of insurable residential property in a specific geographic area and any other relevant factors as determined by the Commissioner. The determination of the areas to be designated as underserved is based on the factors and methodology outlined in this subsection.

(1) There is no single comprehensive measure of whether residential property insurance is or is not reasonably available or is or is not potentially reasonably available to a substantial number of owners of insurable property either on a statewide basis or in any particular area of the state. The Commissioner has identified characteristics of particular geographic areas which are likely to be associated with greater difficulty by consumers in obtaining residential property insurance.

(2) Geographic factors based on weather-related loss exposure and the resulting underwriting restrictions used by insurers writing residential property insurance in Texas that would limit the availability of residential property insurance coverages to a greater extent in some geographic areas than in others are as follows:

(A) Tier 1 and Tier 2 coastal counties. One type of weather-related loss exposure concerns the potential for catastrophic hurricanes and other types of windstorms in the First Tier Coastal Counties (Tier 1) and Second Tier Coastal Counties (Tier 2), as defined in Article 21.49 §3 (l) and (m), and the inability of residents to obtain windstorm and hail insurance through the voluntary market in these areas. The Commissioner has determined that the location of a ZIP Code in the geographic areas that comprise the Tier 1 and Tier 2 coastal counties is a factor to be used in determining whether an area is an underserved area for purposes of Article 5.13-2C. ZIP Codes located along the coast, Tiers 1 and 2, are assigned five points.

(B) Dallas and Tarrant Counties. A second geographic area that has historically been affected by weather-related loss exposure underwriting factors is Dallas and Tarrant counties. Due to the frequency and severity of hail storms and the ensuing claims in these counties, insurers have restricted their writing of residential property insurance and have limited the availability of certain property insurance coverages in these counties. Based on this lack of availability of residential property insurance to a substantial number of owners of insurable property in Dallas and Tarrant counties, the Commissioner has determined that the location of a ZIP Code in these counties be considered a factor in determining whether an area is underserved for purposes of Article 5.13-2C. ZIP Codes located in Dallas or Tarrant counties, are assigned five points.

(3) The specific demographic factors and the points assigned are as follows:

(A) ZIP Codes with median household incomes of $36,000 or less are assigned one point.

(B) ZIP Codes with median value of owner-occupied dwellings of $75,000 or less are assigned one point.

(C) ZIP Codes with a median year built of 1974 or earlier are assigned one point.

(D) ZIP Codes with percentages of insured households of less than 50% are assigned one point.

(4) Market share of a set of insurer groups is a factor that correlates with the availability of residential property insurance. The department examined data reported by insurers pursuant to the Texas Statistical Plan for Residential Risks and determined the insurer groups that account for at least 90% of the cumulative market share of residential property insurance policies written on a state wide basis. The department then analyzed data for each of the geographic ZIP Codes in Texas (excluding single point ZIP Codes) and calculated the cumulative market share written by the same insurer groups for each of the individual ZIP Codes. The cumulative market share for each individual ZIP Code was then compared to the state wide cumulative market share of 90%. If the cumulative market share for an individual ZIP Code is less than 90%, then this ZIP Code will receive one point.

(5) Based on the factors and points specified in paragraphs (2), (3), and (4) of this subsection, the number of points assigned were totaled by ZIP Code. Areas with five or more points were identified as underserved or potentially underserved and generally designated as underserved areas in subsection (c) of this section. To be underserved a ZIP Code can meet any one of the geographic based criteria or it must meet all four of the demographic based criteria and the market share criteria.



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