28 TAC §5.4501
The Texas Department of Insurance proposes amendments to §5.4501 concerning the adoption by reference of the rule manual governing the writing of windstorm and hail insurance coverage by the Texas Windstorm Insurance Association (Association or TWIA). The purpose of the Association is to provide windstorm and hail insurance coverage to coastal residents who are unable to obtain such coverage in the voluntary market. The Manual of the Texas Windstorm Insurance Association (Manual) governs the writing of new policy forms and endorsements by the Association. General Rule J.2 (Deductibles for Commercial Risks and Public Buildings) in the Manual outlines the deductible options and corresponding premium credits that are available for commercial policies.
On January 22, 2002, the Association petitioned the Department to amend the current commercial deductible program (Ref. No. P-0102-2). It is the Association´s long range plan to increase the minimum deductible level on commercial policies to one percent which is the current minimum deductible level on residential policies. The Association´s rationale for increasing the minimum commercial deductible level is to reduce the overall exposure of TWIA and to reduce the frequency of small, non-catastrophic losses. The Association plans to make changes to the one percent deductible level in two or three steps in order to be as fair as possible to its policyholders. The amendments in this proposal are intended to implement the first step of this plan. The first step in the process is to establish a new one-half percent deductible level and raise the minimum deductible from $250 to $500. The department staff supports the proposed amendments as filed by the Association with modifications agreed upon by both department staff and the Association.
Currently, under General Rule J.2.a there are three flat amount deductible options and corresponding credits as follows: (1) for policies with limits that range from $0 to $49,999 there is a $250 deductible with a 3% premium credit, (2) for policies with limits that range from $50,000 to $99,999 there is a $500 deductible with a 6% premium credit, and (3) for policies with limits of $100,000 and above, there is a $1,000 deductible with a 12% premium credit. The Association´s amendment proposes to delete these current flat amount deductible options and replace them with new deductible options that would be based on one-half percent of the limit of insurance for the policy written with a schedule of premium credits that correspond to specific ranges based on the insured limit of insurance. The proposed new table for one-half percent deductibles contains sixteen ranges for the amount of insurance of the policy with corresponding credits for each range, beginning with $100,001 to $200,000 with a credit of 8% and ending with $25,000,001 and over with a credit of 37%. The new table would specify that all one-half percent deductibles are subject to a $500 minimum, therefore, the $250 deductible will no longer be an option.
General Rule J.2.b currently provides for nine large deductible options that include $1,000, $2,500, $5,000, $10,000, $15,000, $20,000, $25,000, $50,000, and $75,000, each with a corresponding table that lists the amount of premium credit based on the amount of insurance purchased by the insured. However, certain credits for the nine large deductible tables would be amended. The key change proposed to the deductible credits is a reduction in the credit for the $1,000 deductible. The current credit of 12% (amount of insurance above $20,000) is being reduced to 10%. To offset the premium impact of this decrease in the credit, some of the credits in the tables for those deductible options that are higher than $1,000 are being increased. These increases are more fully described in the exhibit of the amended Manual pages that is available from the Department upon request.
A copy of the petition along with the proposed amendments to the manual rule are available for review in the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. To request a copy of the petition with the attachments, please contact Angela Arizpe at 512/322-4147, and refer to Ref. No. P-0102-2. The department will consider the adoption of amendments to §5.4501 in a public hearing under Docket Number 2541, scheduled for 9:30 o´clock a.m. on January 8, 2003, in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street, Austin, Texas.
Marilyn Hamilton, Associate Commissioner, Property and Casualty Program, has determined that for each year of the first five years the proposed amendments are in effect, there will be no fiscal implications for state government or local government as a result of enforcing or administering the proposed amendments. Ms. Hamilton has also determined that for each year of the first five years the proposed amendments 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 amendments are in effect, the public benefit anticipated as a result of administering the proposed amendments will be to protect and maintain the assets of the catastrophe reserve trust fund in order to shelter the state´s general revenue fund from dissipation through the loss of premium taxes in the event of catastrophic losses by reducing the overall exposure of TWIA through an increase in commercial deductibles. Additionally, the public benefit to many insureds of raising the minimum deductible from $250 to $500 will be higher deductible credits that may ultimately lead to a reduction in their premium. The increase in the minimum deductible will reduce the number of small, non-catastrophic claims that TWIA is required to process, thereby, potentially reducing TWIA´s administrative costs.
The Association will not incur costs in printing and distributing the revised pages of the manual because the manual is printed and distributed by Uniform Information Services (Uniform) and ICT Services (ICT). Agents who utilize the manual subscribe to it directly from one of these sources. ICT charges $15 annually for the manual including all updates. Uniform charges a $25 annual subscription fee for the manual with an additional charge of $19 to receive automatic updates. ICT will print and distribute the updated manual pages to their subscribers at no additional charge. However, agents who subscribe from Uniform may incur an additional $19 charge to receive the updates if they have only paid to receive an annual copy of the manual. Since there will be no new costs to the Association and only nominal costs to certain agents who write windstorm and hail insurance through the Association to obtain the manual updates, there is no anticipated adverse economic effect on large, small, or micro-businesses who are required to comply with the proposal. Government Code §2006.001 defines "small business" and "micro-business" in pertinent part as a legal entity, including a corporation, partnership, or sole proprietorship that is formed for the purpose of making a profit. Since the Association was not formed for the purpose of making a profit, it does not meet the definition, and thus it is not necessary to include a small or micro-business analysis for the Association in this proposal. Regarding the nominal costs to certain agents who write windstorm and hail insurance through the Association to obtain the manual updates, it is neither legal or feasible to exempt small or micro-businesses or waive compliance considering the purpose of the statute under which the section is to be adopted, that being the Association providing windstorm and hail insurance coverage to residents in designated catastrophe areas in which such coverage is not reasonably available to a substantial number of owners of insurable property .
To be considered, written comments on the proposed amendments must be submitted no later than 5:00 p.m. on January 13, 2003, to Gene C. Jarmon, Acting 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.
The amendments are proposed pursuant to the Insurance Code Article 21.49 and §36.001. Article 21.49 §8 authorizes the Commissioner of Insurance to approve, modify, or disapprove every manual of classification, rules, rates, rating plans, and every modification of any of the foregoing used by the Association. Article 21.49 §5A authorizes the Commissioner of Insurance to issue after notice and hearing, any orders which are considered necessary to carry out the purposes of Article 21.49 including, but not limited to, maximum rates, competitive rates, and policy forms. Insurance Code §36.001 authorizes the Commissioner of Insurance to adopt rules which must be for general and uniform application, for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by statute.
The following statute is affected by this proposal: Insurance Code Article 21.49
§5.4501. Rules for the Texas Windstorm Insurance Association. The Texas Department of Insurance adopts by reference a rules manual for the Texas Windstorm Insurance Association as amended effective, June 15, 1999. The Texas Department of Insurance adopts by reference amendments effective May 1, 2001, [
and] October 15, 2002,
and March 1, 2003, to the rules manual. Copies of the rules manual may be obtained by contacting the Automobile and Homeowners Division, Mail Code
104-5A], Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104.