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You are here: Home . rules . 2004 . 0514a-059
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Subchapter D. Fire and Allied Line Insurance

Division 8: Underserved Areas for Residential Property Insurance

28 TAC §5.3702

The Commissioner of Insurance adopts 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 new section is adopted with changes to the proposed text as published in the March 19, 2004, issue of the Texas Register (28 TexReg 2846).

The new 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 certain rate filing and approval requirements for certain insurers. The 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. 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 designate 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 considered geographic factors based on two types of weather-related loss exposure underwriting restrictions used by insurers writing residential property insurance in Texas that limit the availabilit y o f 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 coastal counties. 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, the location of a ZIP Code in the geographic areas that comprise the Tier 1 and Tier 2 coastal counties are 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, the location of a ZIP Code in these counties is considered a factor in determining whether an area is underserved for purpose s of Article 5.13-2C. ZIP Codes which are located in Tier 1, Tier 2, Dallas, or Tarrant counties are assigned five points. Additionally, the department utilized census data compiled for the year 2000 to identify certain demographic factors that have historically been correlated with the limited availability of residential property insurance. The 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 a high percentage of uninsured households for residential property insurance (geographic areas where the percent of insured households is less than 50%). If the demographic factor for a specific ZIP Code indicates actual or potential difficulty for consumers in obtaining residential property insurance, the ZIP Code is 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. 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 p olicies in force in a particular ZIP Code, then this Zip Code receives 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 receives 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 analyzed by ZIP Code area or county, and points were assigned to each of the factors. Based on the factors that were found to be present in each ZIP Code the points assigned to each factor were totaled for each ZIP Code. Areas with five or more points were identified as underserved or potentially underserved and 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. The department made changes to the rule based on comments. Subsection (a) was amended to add new paragraph (3) that lists as a purpose of the rule to provide a procedure that requires insurers to certify eligibility for the exemption provided by Article 5.13-2C. The department amended subsection (c), which lists the Zip Codes that are designated as underserved areas, to add all of the additional Zip Codes in Harris county that had been inadvertently omitted. In the proposal, staff had only included the Zip Codes in Harris county that were in designated catastrophe areas. However, since Harris county is classified as a Tier 2 county all of the Zip Codes in Harris county have been included. The department added new subsection (e) that requires insurers to certify their compliance with the requirements of Article 5.13-2C and their e ligibility for the exemption and provides a form that insurers may use for this certification. The revisions to the rule based on the comments do not introduce new subject matter or affect new persons.

Subsection (a) specifies the purpose of the section is to designate the areas determined by the Commissioner to be underserved areas for purposes of Article 5.13-2C, identify the factors and methodology used in determining the underserved areas, and provide a procedure that requires insurers to certify eligibility for the exemption provided by Article 5.13-2C. Subsection (b) defines terms used in the section. Subsection (c) lists the ZIP Codes that are designated as underserved areas for purposes of Article 5.13-2C. Subsection (d) outlines the factors and methodology that are used in determining which areas should be designated as underserved. These factors include geographic factors based on two types of weather-related loss exposure underwriting restrictions including being located in Tier 1 or Tier 2 coastal counties or being located in Dallas or Tarrant counties; demographic factors including 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%); and a factor that correlates the market share of a set of insurer groups with the availability of residential property insurance. New subsection (e) outlines a procedure and provides a form for an insurer to certify that it meets the standards and requirements set forth in Article 5.13-2C, and is thereby exempt from any rate filing and approvals that would be otherwise required by either Article 5.142 or Article 5.13-2 of the Insurance Code.

SUMMARY OF COMMENTS AND AGENCY RESPONSE TO COMMENTS.

Comment: One commenter stated that the list of Zip Codes in subsection (c) did not contain all of the Zip Codes in Harris county which is a Tier 2 county and that some Zip Codes in Dallas and Tarrant counties were not included.

Agency response: With respect to Harris county, the department has amended subsection (c), which lists the Zip Codes that are designated as underserved areas, to add all of the additional Zip Codes in Harris county that had been inadvertently omitted. In the proposal, staff had only included the Zip Codes in Harris county that were in designated catastrophe areas. However, since Harris county is designated in Article 21.49 §3(m) as a Tier 2 county all of the Zip Codes in Harris county have been included. With respect to Dallas and Tarrant counties, the Zip Codes that the commenter alleged to be omitted were found to be "mailing Zip Codes." The rule utilizes geographic Zip Codes since the Census Bureau only reports demographic data for geographic ZIP Codes. A geographic ZIP Code is a statistical geographic entity that approximates the delivery area for a U.S. Postal Service five-digit ZIP Code and is an aggregation of census blocks that have the same predominant ZIP Code associated with the residential mailing addresses in the Census Bureau's master address file for census data compiled for the year 2000. The data that is reported for a mailing Zip Code is included in the data for the geographic Zip Code in which the mailing Zip Code is located. Therefore, the mailing Zip Codes have not been included in the rule since the data for such Zip Codes has already been included in the geographic Zip Code data.

Comment: One commenter believes that the rule should provide a mechanism by which those insurers that qualify for the exemption may demonstrate to the department their qualification and entitlement to the exemption. The commenter proposed an amendment to the rule that would require an annual certification by an exempt insurer to the department demonstrating that it meets the standards and requirements set forth in Article 5.13-2C. The commenter further believes that the department should promulgate a certification form for insurers to file this information with the department on an annual basis if they desire to apply for an exemption from rate filing and approvals.

Agency response: The department agrees that a mechanism should be provided to insurers to demonstrate their entitlement to the exemption and has added new subsection (e)(A) which requires the insurer to certify to its eligibility for the exemption when a rate filing would otherwise be required. The Department will review insurers' certifications in accordance with the provisions of Article 5.13-2C. Additionally, in new subsection (e)(B) the department has provided a form for use by insurers to certify their compliance with the requirements of Article 5.13-2C and their entitlement to the exemption but insurers may submit their own forms provided the insurer´s form contains all of the required information.

Comment: One commenter believes that each of the demographic factors should not have equal weight but believes that it would be more appropriate to give greater weight to the market share factor and percent of insured households factor since these measures appear to more directly reflect the underlying availability of insurance in an area than the other demographic factors.

Agency response: At the present time no objective data has been presented to the department to indicate that the market share factor or the percent of insured households factor should be given more weight than the other demographic factors. The department is open to reevaluating the weight given to the various demographic factors in the future if new data is presented that indicates the weighting of the factors should be adjusted.

Comment: One commenter expresses concern that the rule as proposed could encourage small insurers to "over-write" in the high risk coastal areas in their attempt to attain the rate filing exemption. The commenter believes that if a large storm hits the coast, the over exposure in the coastal areas could lead to the insolvency of the smaller insurers and a dissipation of the guaranty fund. Additionally, the commenter believes that the anticipated overexposure of small insurers which the commenter contends might lead to insolvencies outweighs the intended benefit of the rate filing exemption which is to stimulate the writing of residential property insurance policies in the underserved areas. The commenter further recommends removing the geographic factors based on weather-related loss exposure underwriting restrictions; however, if the geographic factors are retained, then the commenter recommends that reinsurance and surplus requirements be included in the rule to address the risk of insolvency.

Agency response: Staff believes that the small insurers would not "over-write" in the coastal areas because they would not have any greater incentive to write in the coastal Zip Codes than in the Zip Codes which are designated as underserved due to demographic or market share factors; hence, there is no reason to eliminate the geographic factors. Furthermore, recent trends in the coastal areas show that insurers in general are reducing their book of business in the coastal areas and requiring Texas Windstorm Insurance Association (TWIA) to insure the risks that are being non-renewed. The statistical data reported by TWIA shows that during the last two and a half years the liability exposure of TWIA has increased an average of 17% per year which indicates that the trend for all insurers including Lloyd´s insurers is to reduce their writing of business in the high risk coastal areas. Additionally, Lloyd´s insurers have not had to make rate filings until the recent requirements for rate filings were imposed in 2003 under SB 14 and Lloyd´s insurers had not exhibited any tendency during this long period of rate deregulation to "over-write" in the high risk coastal areas. The department does not believe that reinsurance and surplus requirements are needed in the rule because there are currently adequate mechanisms in place to monitor the financial condition of insurers including financial examinations and early warning indicators that the department will utilize to attempt to prevent insolvencies from occurring.

Comment: One commenter believes that designating the coastal and Dallas/Tarrant county areas as underserved will not create more capacity in these areas and will not address anything MAP, FAIR, and TWIA are not already addressing. Additionally, the commenter believes that the department´s experience with the small number of applicants in the residential property MAP program indicates that the underlying reason for the existence of underserved areas is not the lack of availability of insurance in these areas. The commenter further believes that the department´s experience with the FAIR Plan and the rapid increase in the number of policyholders in the FAIR Plan indicates that the underlying reason for the existence of underserved areas is the lack of affordability.

Agency response: The purpose of the rule is to designate areas as underserved to encourage more small insurers to write residential property policies for property valued at less than $100,000 in these underserved areas thereby reducing the growth in the residual insurance markets.

Comment: One commenter believes that the demographic factors are more appropriate than the geographic factors for determining the underserved areas and requests that data be provided so that the insurers and public can determine whether the measurements are fair.

Agency response: The data for median household income, median home values, and median year built are all available from the Census Bureau in the data compiled for the year 2000. The percent of households insured can be computed by combining the census data for the number of households in a ZIP Code with the data from the Texas Statistical Plan for Residential Risks.

Comment: One commenter expresses concern that there is no provision for reassessing the qualification by an insurer for the exemption or for reassessing whether a ZIP Code continues to qualify as an underserved area and believes that this could lead to abuse by an insurer manipulating its book of business to qualify for the exemption and then to stop writing in the underserved areas or the types of home specified in Article 5.13-2C.

Agency response: The department has added new subsection (e)(A) which requires insurers to certify their eligibility for the exemption whenever a rate filing would otherwise be required. The department will review insurers' certifications in accordance with the provisions of Article 5.13-2C. Although the exemption does relieve insurers from the requirement of making rate filings, it does not exempt insurers from complying with the rate standards set out in Article 1.02. Based on a periodic review, any changes in designations of ZIP Codes as underserved areas may be adopted at any time by amending the section pursuant to the Government Code §§2001.004-2001.038 (Administrative Procedure Act).

Comment: One commenter recommends adding a provision that limits the rate filing exemption to only those rates used for the underserved areas.

Agency response: The statutory exemption in Article 5.13-2C states "an insurer...is exempt from the rate filing and approval requirements of Article 5.142 and Article 5.13-2 of this code." The department does not believe that the statutory exemption makes a distinction that allows an exemption from rate filings pertaining only to the underserved areas. If an insurer qualifies for an exemption under Article 5.13-2C then it would be exempt from rate filings with respect to the entire state.

Comment: Commenter recommends that a provision be added to clarify that despite the exemption from rate filing other laws including rate standards, credit scoring restrictions, territorial restrictions, and discrimination provisions still apply.

Agency response: The department does not believe that such a provision would be necessary because Article 5.13-2C only provides an exemption from rate filing and approval requirements of Article 5.142 and Article 5.13-2 and it is clear that insurers could not claim an exemption from other statutory requirements.

NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTION.

For with changes: National Lloyds Insurance Company, Insurance Council of Texas, and Office of Public Insurance Counsel.

The new section is adopted 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.

§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;

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

(3) provide a procedure that requires insurers to certify their eligibility for the exemption provided by Article 5.13-2C.

(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 May 13, 2004:

Figure 28 TAC §5.3702(c)

ZIP ZIP ZIP ZIP ZIP ZIP
75001 76017 76933 77461 78071 79003
75006 76018 76936 77463 78072 79005
75019 76020 76943 77464 78075 79009
75038 76021 76951 77465 78102 79013
75039 76022 77002 77467 78107 79014
75040 76028 77003 77468 78125 79021
75041 76034 77004 77469 78140 79027
75042 76036 77005 77471 78142 79029
75043 76039 77006 77476 78145 79031
75044 76040 77007 77477 78146 79034
75048 76051 77008 77478 78147 79035
75050 76052 77009 77479 78151 79039
75051 76053 77010 77480 78159 79040
75052 76054 77011 77481 78161 79041
75060 76060 77012 77482 78164 79042
75061 76063 77013 77483 78201 79043
75062 76067 77014 77485 78202 79045
75063 76092 77015 77486 78203 79046
75080 76102 77016 77488 78204 79052
75081 76103 77017 77489 78207 79054
75082 76104 77018 77493 78208 79056
75088 76105 77019 77494 78210 79057
75089 76106 77020 77502 78211 79061
75098 76107 77021 77503 78212 79064
75104 76108 77022 77504 78214 79065
75110 76109 77023 77505 78215 79072
75115 76110 77024 77506 78221 79079
75116 76111 77025 77507 78223 79080
75125 76112 77026 77510 78226 79082
75134 76114 77027 77511 78236 79083
75137 76115 77028 77514 78237 79086
75140 76116 77029 77515 78252 79087
75141 76117 77030 77517 78330 79092
75144 76118 77031 77518 78332 79095
75146 76119 77032 77519 78336 79096
75149 76120 77033 77520 78338 79101
75150 76123 77034 77521 78339 79102
75159 76126 77035 77530 78340 79106
75172 76127 77036 77531 78343 79107
75180 76131 77037 77532 78347 79201
75181 76132 77038 77533 78351 79220
75182 76133 77039 77534 78352 79225
75201 76134 77040 77535 78353 79226
75202 76135 77041 77536 78355 79227
75203 76137 77042 77538 78358 79229
75204 76140 77043 77539 78359 79230
75205 76148 77044 77541 78362 79233
75206 76155 77045 77545 78363 79234
75207 76177 77046 77546 78364 79235
75208 76179 77047 77547 78368 79237
75209 76180 77048 77550 78370 79239
75210 76248 77049 77551 78371 79240
75211 76255 77050 77553 78372 79241
75212 76261 77051 77554 78373 79243
75214 76262 77053 77560 78374 79244
75215 76265 77054 77561 78375 79245
75216 76301 77055 77562 78377 79247
75217 76311 77056 77563 78379 79248
75218 76363 77057 77564 78380 79250
75219 76364 77058 77565 78382 79252
75220 76366 77059 77566 78383 79255
75223 76371 77060 77568 78385 79256
75224 76372 77061 77571 78387 79257
75225 76374 77062 77573 78389 79261
75226 76380 77063 77575 78390 79311
75227 76384 77064 77577 78391 79312
75228 76388 77065 77578 78393 79313
75229 76424 77066 77581 78401 79316
75230 76435 77067 77582 78402 79322
75231 76436 77068 77583 78404 79323
75232 76437 77069 77584 78405 79324
75233 76442 77070 77585 78406 79325
75234 76443 77071 77586 78407 79326
75235 76445 77072 77587 78408 79329
75236 76448 77073 77590 78409 79331
75237 76454 77074 77591 78410 79336
75238 76455 77075 77597 78411 79339
75240 76457 77076 77598 78412 79342
75241 76458 77077 77611 78413 79343
75243 76460 77078 77613 78414 79345
75244 76464 77079 77615 78415 79346
75246 76466 77080 77617 78416 79347
75247 76470 77081 77619 78417 79350
75248 76471 77082 77622 78418 79351
75249 76475 77083 77623 78501 79355
75251 76481 77084 77625 78503 79356
75253 76483 77085 77627 78504 79357
75270 76491 77086 77629 78516 79359
75401 76504 77087 77630 78520 79364
75417 76511 77088 77632 78521 79369
75418 76518 77089 77640 78526 79370
75426 76520 77090 77642 78537 79371
75428 76525 77091 77650 78538 79373
75431 76528 77092 77651 78539 79376
75435 76530 77093 77655 78543 79379
75441 76531 77094 77656 78549 79381
75446 76550 77095 77657 78550 79401
75448 76569 77096 77659 78552 79403
75449 76577 77098 77662 78557 79404
75469 76628 77099 77663 78558 79405
75470 76629 77301 77665 78559 79406
75475 76632 77327 77701 78560 79411
75477 76634 77336 77702 78562 79412
75481 76635 77338 77703 78563 79501
75487 76639 77339 77705 78565 79502
75496 76645 77345 77706 78566 79505
75550 76648 77346 77707 78569 79506
75554 76649 77368 77708 78570 79512
75556 76660 77369 77713 78572 79517
75559 76661 77373 77803 78575 79518
75562 76664 77374 77837 78576 79526
75563 76666 77375 77853 78577 79527
75564 76667 77376 77857 78578 79528
75568 76670 77379 77859 78579 79532
75602 76678 77388 77901 78580 79534
75633 76680 77389 77904 78583 79539
75654 76685 77396 77905 78586 79543
75656 76690 77401 77950 78589 79544
75667 76693 77414 77951 78592 79546
75669 76701 77415 77954 78593 79547
75681 76704 77417 77957 78594 79548
75684 76705 77419 77960 78595 79549
75702 76706 77420 77961 78596 79556
75759 76707 77422 77962 78597 79560
75766 76708 77428 77963 78598 79566
75785 76711 77429 77964 78622 79567
75838 76798 77430 77968 78629 79601
75848 76801 77432 77969 78648 79607
75856 76821 77433 77970 78661 79718
75925 76823 77434 77971 78672 79719
75934 76832 77435 77973 78702 79730
75935 76834 77437 77975 78721 79731
75956 76837 77440 77977 78742 79735
75968 76842 77441 77978 78830 79741
75972 76844 77443 77979 78834 79745
75975 76848 77444 77982 78839 79752
75976 76849 77446 77983 78851 79772
76001 76853 77447 77988 78860 79781
76002 76854 77448 77990 78872 79782
76006 76856 77449 77991 78880 79785
76008 76859 77450 77994 78881 79830
76010 76861 77451 77995 78938 79837
76011 76864 77454 78008 78941 79842
76012 76878 77455 78012 78943 79843
76013 76901 77456 78014 78956 79848
76014 76903 77457 78019 78959 79854
76015 76930 77458 78022 78962 79855
76016 76932 77459 78040 79001 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.

(e) Required certification of exemption to the Department.

(1) An insurer that may be entitled to the exemption from the insurance rate filing and approval requirements of Article 5.142 or Article 5.13-2 of the Insurance Code, pursuant to the provisions of Article 5.13-2C of the Insurance Code, shall file with the Department a Certification of Article 5.13-2C Exemption Compliance (EC-1) form at least ten days preceding the date an insurance rate filing would be otherwise required by the insurer under Article 5.142 or Article 5.13-2.

(2) The Certification of Article 5.13-2C Exemption Compliance ( EC-1) form is provided by the Department for use by insurers seeking an exemption from rate filing and approval requirements pursuant to Article 5.13-2C. This form may be obtained from the Texas Department of Insurance website http:/www.tdi.state.tx.us or by requesting such form from the Property and Casualty Actuarial Division, Mail Code 105-5, P.O. Box 149104, Austin, TX 78714-9104. For purposes of this section, in lieu of submitting a form provided by the department, an insurer may submit to the department the insurer´s own form if the form contains the same information that is required and contained in the form provided by the department. All Application for Article 5.13-2 Exemption forms must be submitted to the Texas Department of Insurance, Property and Casualty Intake Unit, Mail Code 104-3B, P.O. Box 149104, Austin, TX 78714-9104.

EC-1 Form



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