28 TAC § 5.5005
The Commissioner of Insurance adopts new §5.5005 concerning the rating of commercial multi-peril policies. The section is adopted with changes to the proposed text as published in the September 17, 2004 , issue of the Texas Register (28 TexReg 8985).
New §5.5005 implements legislative amendments enacted by the Regular Session of the 78 th Legislature in Senate Bill 14 (SB 14), effective June 11, 2003 . In 1992, the State Board of Insurance selected Article 5.13-2 of the Texas Insurance Code as the regulatory scheme for regulating commercial multi-peril policies and adopted §5.9101 to govern the regulation of forms and rates for commercial multi-peril policies. SB 14 amended various provisions of Chapter 5 of the Texas Insurance Code, including Articles 5.13 and 5.13-2. These legislative amendments added several lines of insurance previously subject to prior approval rate regulation to file and use rate regulation under Article 5.13-2. Additionally, these amendments eliminated regulatory procedures for policy forms and endorsements in Chapter 5 that would otherwise apply to personal and certain commercial lines of insurance except for Article 5.13-2 §8 which provides specific procedures for regulating various personal and commercial policy forms and endorsements. Pursuant to these amendments commercial multi-peril policy forms are subject to Article 5.13-2. To conform to the regulatory changes enacted by SB 14, new §5.5005 is adopted simultaneously with the adopted repeal of §5.9101. Notice of the adopted repeal appears elsewhere in this issue of the Texas Register .
Adopted §5.5005 is necessary to reflect the amendments to Article 5.13-2 of the Insurance Code and to provide that all insurers including Lloyd's plans, reciprocals, and interinsurance exchanges (hereafter "Lloyds and reciprocals") are subject to rate regulation for commercial multi-peril insurance. It is the department's interpretation that the legislative intent of certain amendments to Article 5.13-2 is to provide uniform rate regulation of insurers. Prior to SB 14, county mutual insurance companies were exempt from rate regulation for commercial automobile insurance. SB 14 removed that exemption for county mutual insurance companies effective June 11, 2003 . The Legislature intended to create a more competitive commercial automobile insurance market by uniformly regulating commercial automobile rates for all insurers. Adopted §5.5005 is consistent with the amendments to Article 5.13-2 in that all authorized insurance companies, including Lloyds and reciprocals, that include commercial automobile coverage in a commercial multi-peril policy are subject to the rate regulatory provisions of Article 5.13-2. Article 5.13-2 §3 provides that Lloyds and reciprocals are not subject to rate filing requirements with respect to commercial property and inland marine insurance. However, in light of the Legislature´s clear intent in SB 14 to place all authorized insurers writing commercial automobile insurance under rate regulation, it does not follow that the exemption in §3 is intended to allow Lloyds and reciprocals to achieve de facto deregulation of commercial automobile rates by combining commercial automobile coverage with a line of insurance that would otherwise be exempt from rate filing. Commercial multi-peril insurance is reported as a separate line of insurance in the Fire and Casualty Annual Statement Form 2, Page 14 Texas Supplement, Exhibit of Premium and Losses, and it is further defined as a separate line of insuran ce in 28 TAC §7.1803 (a)(2)(G). Although commercial multi-peril insurance constitutes a separate and distinct line of insurance, it is essential to regulate a combination of the lines of insurance subject to Article 5.13-2 in the manner set forth in that article. However, the department recognizes that pursuant to repealed §5.9101, Lloyds and reciprocals were not subject to rate filing requirements for lines of insurance specified in the rule when those lines were combined to create a multi-peril policy. In lieu of the exemption from rate filing in §5.9101, adopted §5.5005 requires Lloyds and reciprocals to file a schedule of the amounts (hereafter "informational filing") that policyholders or applicant s will be charged. Requiring Lloyds and reciprocals to make informational filings for all lines of insurance contained in a multi-peril policy, including commercial property and inland marine lines of insurance, is necessary to enable the department to compare rates charged by these insurers with those charged by the rest of the industry. Such comparison will allow the department to determine if more information is needed to determine if rates are fair, just, reasonable, adequate and not excessive. Since the commercial multi-peril rate may be a blended rate, the department would not be able to discern whether the rates are fair, just, reasonable, adequate and not excessive without information on all of the lines of insurance contained in the policy. In recognition of the intent of the SB 14 legislation, the informational filing requirements apply only to commercial multi-peril policies filed by a Lloyds or reciprocal that contain the lines of insurance specified in subsection (d) and do not apply if commercial automobile or other lines not specified are included. Except as provided in subsection (d) rates for commercial multi-peril policies are subject to the rate regulatory provisions of Article 5.13-2 of the Texas Insurance Code.
Subsection (a) sets forth the purpose of the section. Subsection (b) defines terms used in the section. Subsection (c) states the general rule that the rates for commercial multi-peril policies are governed by the provisions of Article 5.13-2 except as provided in subsection (d). Subsection (d) requires Lloyds and reciprocals to file a schedule of amounts charged a policyholder or applicant for the policy for all the lines of insurance that are included in a commercial multi-peril policy as described in that section. Subsection (e) provides that Lloyds and reciprocals shall retain the statutory exemption from rate filings for commercial property and inland marine lines of insurance provided these lines are not combined with other lines of insurance in a commercial multi-peril policy. A minor clerical change was made to subsection (c).
Comment: One commenter states that Article 5.81 has been effectively repealed, in part, by changes to Article 5.13-2 which permit the writing of multi-peril policies even though multi-peril insurance is not enumerated as a line of insurance. The commenter then conversely states that because Article 5.81 is not specifically mentioned in the Lloyds Plan Chapter 941 or the Reciprocal and Interinsurance exchange Chapter 942, the provisions of Article 5.81 do not apply to Lloyds and reciprocal insurers. The commenter further points out that Article 5.13-2 provides specific exemptions to Lloyds and reciprocal insurers for commercial property, inland marine insurance, rain insurance, or hail insurance on farm crops and concludes that the rule is unnecessary and not within the authority of the department.
Agency Response: The department agrees that Article 5.13-2 is the appropriate statute for regulation of multi-peril policies and as such is within the department´s authority to regulate. It is the department´s position that commercial multi-peril insurance constitutes a separate and distinct line of insurance and that it is essential to regulate a combination of the lines of insurance subject to Article 5.13-2 in the manner set forth in that article. Lloyds and reciprocals do retain the statutory exemption from rate filings for commercial property and inland marine lines of insurance provided these lines are not combined with other lines of insurance in a commercial multi-peril policy.
Comment: Another commenter suggests that the department is overreaching its authority in asking for a schedule of amounts charged (informational filing of rates) in light of the Article 5.13-2 §3 exemptions and 28 TAC §5.9101. Specifically, the commenter states that in requiring Lloyds and reciprocal insurers to submit a schedule of amounts charged policyholders for policies that do not include commercial auto, the department is attempting to "achieve de facto regulation" of exempted lines of insurance.
Agency Response: The department disagrees that requiring a schedule of amounts that are charged to policyholders for multi-peril policies is outside the scope of authority of Article 5.13-2. Multi-peril policies may contain a combination of multiple lines and the specific and limited exemption for Lloyds and reciprocals in Article 5.13-2 §3 is only for commercial property and inland marine lines of insurance that are written on a monoline basis. When an insurer combines commercial property or inland marine insurance with other lines of insurance in a commercial multi-peril policy the department has the authority to require a rate filing as specified in Article 5.13-2 or a reduced filing such as an informational filing for all of the lines of insurance contained in the multi-peril policy.
NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTION .
Against: State Farm Insurance Companies and Insurance Council of Texas .
The new section is adopted under Insurance Code Articles 5.13-2 and 5.98 and §36.001. Article 5.13-2 provides the rate filing requirements for lines of insurance that may be contained in a commercial multi-peril policy. Article 5.98 provides that the Commissioner may adopt reasonable rules which are appropriate to accomplish the purposes of Chapter 5. Section 36.001 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.
§5.5005. Rates for Commercial Multi-peril Policies.
(a) The purpose of this section is to provide a rate regulatory procedure for commercial multi-peril policies.
(b) The following words and terms, when used in this section, shall have the following meaning unless the context indicates otherwise. 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, including any application of individual risk variations based on loss or expense considerations.
(c) Rates for commercial multi-peril policies shall be subject to the rate regulatory provisions of Article 5.13-2 of the Texas Insurance Code, except as provided in subsection (d) of this section.
(d) For a commercial multi-peril policy as described in this subsection, Lloyd's plans, reciprocals, and interinsurance exchanges shall file with the department a schedule of the amounts to be charged policyholders or applicants and the amounts of any rate changes for all lines of insurance that are included in the commercial multi-peril policy, including commercial property and inland marine lines of insurance. The schedule shall include any amount charged, including "rates", "policy fees", "service fees", and "other fees" that are charged or collected under Article 21.35B of the Texas Insurance Code. Commercial multi-peril policies that contain lines of insurance other than those specified in paragraphs (1) - (6) of this subsection shall be subject to the requirements of subsection (c) of this section. For the purpose of receiving a reduction in filing requirements under this subsection, a commercial multi-peril policy filed by a Lloyd´s plan, reciprocal, or interinsurance exchange may contain some combination of only the following lines of insurance:
(1) general liability;
(2) commercial property;
(3) commercial casualty, including boiler and machinery, commercial crime, commercial glass, and professional liability; but excluding commercial automobile, fidelity, surety and guaranty bonds, financial guaranty, and workers compensation;
(4) medical professional liability;
(5) inland marine; and
(6) garage insurance, including all coverages and endorsements included in the Texas Garage Policy, except for those coverages specifically rated on the basis of risk characteristics of the automobile or the person driving.
(e) Nothing in this section shall be construed to preclude the exemptions for Lloyd's plans, reciprocals, and interinsurance exchanges in Insurance Code Article 5.13-2 §3(a)(3) from rate filing for commercial property and inland marine lines of insurance, provided these lines are not included or contained in a commercial multi-peril policy.