I. Overview of Legislative Changes
A. The 75th Texas Legislature enacted changes to the Texas Insurance Code affecting the regulation of Farm and Ranch and Farm and Ranch Owners insurance. Effective January 1, 1998, Farm and Ranch and Farm and Ranch Owners insurance are regulated as commercial property insurance under Article 5.13-2, Texas Insurance Code. Under Article 5.13-2, forms and endorsements must be approved by the Commissioner of Insurance (Commissioner) prior to use (prior approval), and rates must be filed with the Commissioner prior to use (file and use).
B. Section 8(f) of Article 5.13-2 exempts from the prior approval requirement forms and endorsements issued to large risks. Effective, January 1, 1998, a large risk is defined as an insured that has:
1) total insured property values of $5 million or more;
2) total annual gross revenues of $10 million or more; or
3) a total premium of $25,000 or more for property insurance, $25,000 or more for general liability insurance, or $50,000 or more for multi-peril insurance.
II. Filing Instructions
Insurers writing Farm and Ranch and Farm and Ranch Owners insurance on or after April 15, 1998, must comply with the instructions provided in this bulletin.
A. Forms:
1. Use of Currently Approved Forms and Endorsements
An insurer may submit a reference filing to continue to use Farm and Ranch and Farm and Ranch Owners forms and endorsements that were adopted under Article 5.35(a) of the Texas Insurance Code as minimum coverage and in effect prior to January 1, 1998. The filing should be submitted using the Property/Casualty Filing Transmittal Form and referencing the appropriate filing number. The TDI reference number for Farm and Ranch forms and endorsements is TDI-98-FR820-PF. The TDI reference number for Farm and Ranch Owners forms and endorsements is TDI 98-FR-O720-PF. An insurer submitting a reference filing in accordance with this subsection does not need to include a copy of the actual forms and endorsements.
2. Use of New Forms
An insurer may file new Farm and Ranch and Farm and Ranch Owners forms and endorsements for use in Texas. Such filings will be subject to review by the Texas Department of Insurance and prior approval by the Commissioner.
3. Use of Individual Insurer Forms
An insurer may continue to use endorsements previously approved for the insurer on an individual basis by submitting a reference filing. The insurer must use the Property/Casualty Filing Transmittal Form and reference the TDI filing number of the previously approved endorsement. An insurer submitting a reference filing in accordance with this subsection does not need to include a copy of the actual forms and endorsements.
4. Additional Requirements and Instructions
Refer to the Property and Casualty Filings Made Easy Manual for additional filing requirements and instructions.
B. Rules:
1. Use of Currently Approved Rules
An insurer may submit a reference filing to continue to use the policy writing and rating rules adopted by the Commissioner for use with the Farm and Ranch and Farm and Ranch Owners forms and endorsements and is in effect prior to January 1, 1998. The filing should be submitted using the Property/Casualty Filing Transmittal Form and referencing the appropriate filing number. The TDI reference number for Farm and Ranch rules is TDI-98-FR820-MR. The TDI reference number for Farm and Ranch Owners rules is TDI-98-FRO720-MR. An insurer submitting a reference filing in accordance with this subsection does not need to include a copy of the actual rules.
2. Use of New Rules
An insurer may choose to file new Farm and Ranch and Farm and Ranch Owners rules for use in Texas. Such filings will be subject to the file and use provisions of Article 5.13-2.
C. Loss Costs/Rates:
1. Mandatory Action Required by Insurers
a) Effective January 1, 1998, insurers are required to make rate filings for Farm and Ranch and Farm and Ranch Owners insurance in accordance with the provisions in Article 5.13-2, rather than those in Article 5.101 (Flexible Rating Program). Many companies will not be able to immediately develop independent rates and file them under Article 5.13-2. Furthermore, no approved advisory organization has submitted a Farm and Ranch and/or Farm and Ranch Owners reference filing. Therefore, the Department of Insurance (Department) is making available advisory loss costs for Farm and Ranch and Farm and Ranch Owners insurance which reflect the data submitted at the last residential property benchmark hearing. These interim loss costs may be utilized, according to the following guidelines, by any company writing Farm and Ranch and/or Farm and Ranch Owners insurance. The loss costs are available on the Department's website at www.tdi.state.tx.us. All insurers intending to use the advisory loss costs must file with the Department prior to their use.
b) Insurers must make a rate filing no later than April 15, 1998, which states the company's intention to do one of the following:
1. The company will reference the Farm and Ranch and/or Farm and Ranch Owners advisory loss costs issued by the Department (TDI Farm and Ranch Reference No. TDI 98-FR820-ALC or Farm and Ranch Owners Reference No. TDI 98-FRO720-ALC) using their filed loss cost multiplier. Note that the advisory loss costs are for use with the Farm and Ranch and Farm and Ranch Owner forms, endorsements, and rules promulgated by the Department prior to January 1, 1998. Any additions or exclusions to the promulgated forms will require that the advisory loss costs be modified appropriately.
2. The company will continue to reference the Farm and Ranch and/or Farm and Ranch Owner rates promulgated by the Department prior to January 1, 1998, at the deviation currently on file for the company. The company must reference the TDI filing number of the rate filing currently on file for the company. Any change to this deviation will require actuarial justification. Note that the rates in effect prior to January 1, 1998, are for use only with the Farm and Ranch and Farm and Ranch Owner forms, endorsements and rules promulgated by the Department prior to January 1, 1998.
3. The company will use independently developed Farm and Ranch and/or Farm and Ranch Owner rates filed under the provisions of Article 5.13-2. Such independent rates may be expressed as a debit or credit to the otherwise applicable advisory rates. The debit or credit should reflect any differences in coverage and must be actuarially justified. Independently developed rates may be used with forms, endorsements, and rules promulgated by the Department prior to January 1, 1998, or with independently filed forms, endorsements, and rules approved under Article 5.13-2.
c) All independent rates developed for Farm and Ranch Owners coverage must comply with Commissioner's Bulletin #B-0050-97 for purposes of reflecting the effects of tort reform. The mandated loss and ALAE reduction percentage for the liability portion of Farm and Ranch Owners is 10%. The tort reform rate reduction factor underlying the rates in effect prior to January 1, 1998, is 0.985. The tort reform rate reduction factor underlying the advisory loss costs is 0.983. Both rate reduction factors assume an 18.3% ratio of liability to non-liability losses.
d) For purposes of reporting statistical data, insurers should refer to Commissioner's Bulletin #B-0047-97 (Statistical Bulletin No. 43) for instructions on how to report Farm and Ranch Owner and Farm and Ranch data in the Texas Commercial Lines Statistical Plan.
2. Rate Exhibits to File:
a) Advisory Loss Costs - Insurers must file the following Property and Casualty Filings Made Easy rate exhibits to reference the Farm and Ranch and/or Farm and Ranch Owner interim loss costs: 1) FT-3 (TDI Farm and Ranch Reference No. TDI 98-FR820-ALC or Farm and Ranch Owners Reference No. TDI 98-FRO720-ALC); 2) Rate Exhibits C, F, G, J & L; 3) FT-4; 4) Filing Memorandum; 5) Comprehensive Actuarial Support if filing for a loss cost modification factor other than 1.00; 6) Tort Reform Form TR-5R; and 7) Tort Reform Form TR-CC.
b) Rates Promulgated by the Department prior to January 1, 1998 - Insurers must file the following Property and Casualty Filings Made Easy rate exhibits to continue to use the rates in effect prior to January 1, 1998: 1) FT-3 with previously assigned TDI number; 2) Rate Exhibits C, D, F, J & L; 3) FT-4; 4) Filing Memorandum; 5) Comprehensive Actuarial Support if filing for a rate change; 6) Tort Reform Form TR-2R; and 7) Tort Reform Form TR-CA.
c) Independent Rates - Insurers must file the following Property and Casualty Filings Made Easy rate exhibits if developing their own independent Farm and Ranch and/or Farm and Ranch Owner rates: 1) FT-3; 2) Exhibits C (must include the rate level change associated with the adoption of independent rates), D, F & L; 3) FT-4; 4) Filing Memorandum; 5) Comprehensive Actuarial Support; 6) Tort Reform Form TR-2R; and 7) Tort Reform Forms TR-CA & TR-CD (Use TR-CD only if applicable).
If you have any questions regarding this bulletin relating to forms, endorsements or rules, contact Gary Julian of the Automobile and Homeowners Group at 512/322-2266.
For questions concerning rate development and/or making a rate filing or to request a hard copy of the loss costs, contact Christi Wooley of the Property and Casualty Actuarial Unit at 512/475-3016
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DAVID P. DURDEN
DEPUTY COMMISSIONER
AUTOMOBILE AND HOMEOWNERS GROUP