KMS C.S.H.B. 1853 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 1853 By: Eiland 4-15-97 Committee Report (Substituted) BACKGROUND The maximum limits of liability that can be provided through the Texas Catastrophe Property Insurance Association on insurable property are established by Article 21.49, Section 8D, Insurance Code. Such limits are required to be indexed for inflation at the annual residential benchmark rate hearing using the BOECKH Index as the measure of inflation. The current maximum limits of liability are insufficient limits for some risks located on the Texas coast and the process for indexing the maximum limits of liability is cumbersome through the benchmark rate hearing process. PURPOSE This bill will increase the maximum limits of liability for insurable property in the Texas Catastrophe Property Insurance Association to $350,000 for a dwelling and contents, $1.5 million for apartments, condominiums and commercial buildings and contents, $2,192,000 for a governmental building and contents and $125,000 for contents in apartments and condominiums; will provide the Commissioner of Insurance the authority to adopt adjustments in the maximum limits of liability based on the indexing for inflation using the BOECKH Index at a hearing other than the benchmark rate hearing; and will provide for an excess reinsurance program in which the TCPIA can purchase reinsurance in excess of the maximum limit of liability applicable to the risk and charge the owner of the property the cost of the reinsurance plus any administrative costs as a means of providing property owners along the coast the ability to insure their property above the maximum limits of liability otherwise provided by statute. RULEMAKING AUTHORITY The bill expressly grants rulemaking authority under SECTION 4 (Section 8E(c). of Article 21.49, Insurance Code) to the Commissioner of Insurance. Updates prior rule making authority to reflect Commissioner instead of Board of Insurance in SECTION 2 (Section 8A(c)Article 21.49, Insurance Code) SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 8(h)(13), Article 21.49, Insurance Code, as follows: Provides that the Texas Catastrophe Property Insurance Association (the Association), with the approval of the Commissioner, may establish a reinsurance program that operates in addition to or in concert with the Catastrophe Reserve Trust Fund. SECTION 2. Amends Section 8A(a) and (c), Article 21.49, Insurance Code, as follows: (a) Provides that replacement cost insurance coverage can be extended to outbuildings as provided under the dwelling extension coverage in the policy. (c) Updates language to reflect commissioner instead of board of insurance. SECTION 3. Amends Section 8D, Article 21.49, Insurance Code, as follows: Provides that the maximum limits of liability of a policy of windstorm and hail insurance issued by the association shall be $350,000 for a dwelling and contents, $2,192,000 for a governmental building and contents, $125,000 for contents of an apartment, condominium or townhouse and $1.5 million for a commercial building and contents. Provides that adjustments in the maximum limits of liability due to the annual indexing for inflation be proposed by the association and approved by the Commissioner of Insurance. Such proposal must be made to the Commissioner by September 30th of each year and the Commissioner must act on the proposal by January 1 of the following year. The association can propose additional adjustments in the maximum limits of liability at any time subject to the approval of the Commissioner, but the Commissioner cannot approve adjustments that reduce the maximum limits of liability below those specifically set by statute. SECTION 4. Amends Article 21.49, Insurance Code, by adding Section 8E as follows: Sec. 8E - REINSURED EXCESS LIMITS Provides for the association to issue a policy of windstorm and hail insurance that includes coverage for an amount in excess of the maximum limits of liability when the association obtains reinsurance for the full amount of the exposure above the maximum limits of liability. The premium for the reinsurance and any administrative cost is charged to the policyholder. The Commissioner must adopt rules to implement the reinsurance program. SECTION 5. Amends Section 19a, Article 21.49, Insurance Code, as follows: Losses in excess of $100 million shall be paid through the catastrophe reserve fund established under sec. 8 of this article and any reinsurance program that is established. SECTION 6 This act applies to policy of windstorm and hail insurance that is delivered, issued for delivery, or renewed on or after January 1, 1998. SECTION 7. Act takes effect September 1, 1997. SECTION 8. Emergency Clause COMPARISON OF COMMITTEE SUBSTITUTE TO ORIGINAL BILL Committee substitute adds provisions to allow the association to establish a reinsurance program that operates in addition to or in concert with the current Catastrophe Reserve Trust Fund. Changes the date the association must propose adjustments in the maximum limits of liability due to the indexing for inflation from September 1, 1997 to September 30, 1997. Adds a new provision to allow the association purchase excess reinsurance on an individual risk to provide an amount of insurance in excess of the maximum limits of liability provided by statute and to pass the cost of such reinsurance to the policyholder.