78R8850 T
By: Taylor H.B. No. 2737
A BILL TO BE ENTITLED
AN ACT
relating to FAIR Plan (Fair Access to Insurance Requirements) Act.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 21, Insurance Code, is amended by
amending Article 21.49A to read as follows:
Art. 21.49A. FAIR Plan (Fair Access to Insurance
Requirements) Act
Sec. 1. Authority; Purpose. (a) If the commissioner
determines, after a public hearing, that in all or any part of the
state residential property insurance is not reasonably available in
the voluntary market to a substantial number of insurable risks
[and that at least 50 percent of the applicants to the residential
property market assistance program who are qualified under the plan
of operation, after the commissioner has made insurer participation
mandatory under the plan of operation, have not been placed with an
insurer in the previous 12-month period,] the commissioner may
establish a FAIR (Fair Access to Insurance Requirements) Plan to
deliver residential property insurance to citizens of this state in
underserved areas, which shall be determined and designated by the
commissioner by rule. Each insurer, as defined herein, as a
condition of its authority to transact residential property
insurance in this state, shall participate in the FAIR Plan
Association in accordance with this Act.
(b) The FAIR Plan may not provide windstorm and hail
insurance coverage for a risk eligible for that coverage under
Article 21.49 of this code.
Sec. 2. Definitions. (1) "FAIR Plan Association" or
"association" means a nonprofit association established pursuant
to this Act to develop and administer a program to provide
residential property insurance in designated underserved areas in
this state.
(2) "Insurer" means any licensed insurer writing
property and casualty insurance in this state, including:
(A) a Lloyd's plan company; and
(B) a reciprocal or interinsurance exchange.
(3) "Residential property insurance" means the
coverage against loss to real or tangible personal property at a
fixed location provided in a homeowners policy, residential fire
and allied lines policy, or farm and ranch owners policy.
(4) "Inspection bureau" means the organization or
organizations designated by the FAIR Plan Association with the
approval of the commissioner to make inspections to determine the
condition of the properties for which residential property
insurance is sought and to perform such other duties as may be
authorized by the FAIR Plan Association or the commissioner. The
manner and scope of the inspection and evaluation report for
residential property shall be prescribed by the association
pursuant to the plan of operation.
(5) "Net direct premiums" means gross direct written
premiums less return premiums upon canceled contracts
(irrespective of reinsurance assumed or ceded) written on
residential property pursuant to this Act.
(6) "Underserved area(s)" means area(s) designated as
underserved by the commissioner by rule. In determining which
areas will be designated as underserved, the commissioner shall
consider the factors specified in Section 1, Article 5.35-3, of
this code.
Sec. 3. Governing Committee; Plan of Operation. (a) The
FAIR Plan shall be administered by the governing committee of the
association pursuant to a plan of operation. Subject to the
approval of the commissioner, the governing committee shall develop
the plan of operation and propose amendments thereto. The plan of
operation and any amendments thereto shall be adopted by the
commissioner by rule. The governing committee may on its own
initiative or at the request of the commissioner amend the plan of
operation.
(b) The governing committee shall be composed of 11 members
appointed by the commissioner as follows:
(1) five members who represent the interests of
insurers;
(2) four public members; and
(3) two members who are licensed local recording
agents.
(c) The commissioner or the commissioner's designated
representative from within the Texas Department of Insurance shall
serve as an ex officio member.
(d) To be eligible to serve on the governing committee as a
representative of insurers, a person must be a full-time employee
of an authorized insurer.
(e) The plan of operation shall provide:
(1) for establishment of a FAIR Plan Association for
the issuing of residential property insurance pursuant to this Act
and the distribution of the losses and the expenses in the writing
of such insurance in this state;
(2) that all insurers licensed to write property
insurance and writing residential property insurance shall
participate in the writings, expenses, profits, and losses of the
association, in the proportion that the net direct premiums, of
each participating insurer, written in this state during the
preceding calendar year, bear to the aggregate net direct premium
written in this state by all participating insurers; such
information shall be determined in accordance with the residential
property statistical plan adopted by the commissioner;
(3) that a participating insurer is entitled to
receive credit for similar insurance voluntarily written in a
designated underserved area and its participation in the writings
in the association shall be reduced in accordance with the
provisions of the plan of operation;
(4) for the immediate binding of eligible risks; for
the use of premium installment payment plans, adequate marketing,
and service facilities; and for the establishment of reasonable
service standards;
(5) procedures for efficient, economical, fair, and
nondiscriminatory administration of the FAIR Plan Association;
(6) procedures for determining the net level of
participation required for each insurer in the FAIR Plan
Association;
(7) for the use of deductibles and other underwriting
devices and for assessment of all members in amounts sufficient to
operate the association; and establish maximum limits of liability
to be placed through the program; and commissions to be paid to the
licensed agents submitting applications;
(8) that the association issue policies in its own
name;
(9) reasonable underwriting standards for determining
insurability of the risk;
(10) procedures for the assumption and ceding of
reinsurance by the association; and
(11) any other procedures or operational matters
deemed necessary by the governing committee or the commissioner.
Sec. 4. FAIR Plan Association. Pursuant to procedures and
requirements set forth in the plan of operation, the FAIR Plan
Association (association) shall develop and administer a program
for participation by all insurers licensed to write property
insurance in this state and writing residential property insurance
in this state. The association shall make residential property
insurance available to applicants in underserved areas whose
property is insurable in accordance with reasonable underwriting
standards but who, after diligent efforts, are unable to procure
such insurance through the voluntary market, as evidenced by two
declinations from insurers licensed to write and actually writing
residential property insurance in the state.
Sec. 5. Powers of the Association; Centralized Operations
Authorized. (a) The association is authorized, for FAIR Plan
purposes only, to issue policies of insurance and endorsements
thereto in its own name or a trade name duly adopted for that
purpose, and to act on behalf of all participating insurers in
connection with said policies and otherwise in any manner necessary
to accomplish the purposes of this Act, including but not limited to
issuance of policies, collection of premiums, issuance of
cancellations, and payment of commissions, losses, judgments, and
expenses.
(b) The participating insurers shall be liable to the
association as provided in this Act and the plan of operation for
the expenses and liabilities so incurred by the association, and
the association shall make assessments against the participating
insurers as required to meet such expenses and liabilities. In
connection with any policy issued by the association:
(1) service of any notice, proof of loss, legal
process, or other communication with respect to the policy shall be
made upon the association; and
(2) any action by the insured constituting a claim
under the policy shall be brought only against the association, and
the association shall be the proper party for all purposes in any
action brought under or in connection with any such policy. The
foregoing requirements shall be set forth in any policy issued by
the association and the form and content of any such policy shall be
subject to the approval of the commissioner.
(c) The association is authorized to assume and cede
reinsurance in conformity with the plan of operation.
(d) Each insurer must participate in the writings,
expenses, profits, and losses of the association in the proportion
that its net direct premiums written bear to the aggregate net
direct premiums written by all insurers.
Sec. 6. Property Inspection; FAIR Plan Procedure. (a) Any
person having an insurable interest in real or tangible personal
property at a fixed location in an underserved area who, after
diligent effort has been unable to obtain residential property
insurance, as evidenced by two current declinations from insurers
licensed to write property insurance and actually writing
residential property insurance in the state, is entitled upon
application to the association to an inspection and evaluation of
the property by representatives of the inspection bureau.
(b) Applications may be made on behalf of the applicant by a
licensed general lines property and casualty [local recording]
agent and shall be submitted on forms prescribed by the
association.
(c) Promptly after the request for inspection is received,
an inspection must be made and an inspection report filed with the
association and made available to the applicant upon request.
(d) If the inspection bureau finds that the residential
property meets the reasonable underwriting standards established
in the plan of operation, the applicant shall be so informed in
writing and a policy or binder shall be issued by the association.
If the residential property does not meet the criteria, the
applicant shall be informed, in writing, of the reasons for the
failure of the residential property to meet the criteria.
(e) If, at any time, the applicant makes improvements in the
residential property or its condition which the applicant believes
are sufficient to make the residential property meet the criteria,
a representative of the inspection bureau shall reinspect the
residential property upon request. In any case, the applicant for
residential property insurance shall be eligible for one
reinspection any time within 60 days after the initial FAIR Plan
inspection. If upon reinspection the residential property meets
the reasonable underwriting standards established in the plan of
operation, the applicant shall be so informed in writing and a
policy or binder shall be issued by the association.
Sec. 7. Approval of Rates. The association shall file with
the commissioner for approval the proposed rates and supplemental
rate information to be used in connection with the issuance of
policies or endorsements. Rates shall be set in an amount
sufficient to carry all claims to maturity and to meet the expenses
incurred in the writing and servicing of the business. Within 60
days of the filing of the proposed rates, the commissioner shall
enter an order either approving or disapproving, in whole or in
part, the proposed rates. The commissioner may, upon notice to the
association, extend the period for entering an order under this
section an additional 30 days. No such policies or endorsements
shall be issued until such time as the commissioner approves the
rates to be applied to the policy or endorsement. An order
disapproving a rate shall state the grounds for the disapproval and
the findings in support thereof.
Sec. 8. Appeals; Judicial Review. (a) Any applicant or
affected insurer has the right of appeal to the association. A
decision of the association may be appealed to the commissioner
within 30 days after such decision.
(b) All orders or decisions of the commissioner made
pursuant to this Act are subject to judicial review in accordance
with Sec. 36.201-36.205 [Article 1.04] of this code.
Sec. 9. Immunity from Liability. There is no liability on
the part of, and no cause of action against insurers, the inspection
bureau, the association, the governing committee, their agents or
employees, or the commissioner or the commissioner's authorized
representatives, with respect to any inspections required to be
undertaken by this Act or for any acts or omissions in connection
therewith, or for any statements made in any report and
communication concerning the insurability of the property, or in
the findings required by the provisions of this Act, or at the
hearings conducted in connection with such inspections.
Sec. 10. Insolvency. In the event any participating
insurer fails, by reason of insolvency, to pay any assessment, the
association shall cause the reimbursement ratios to be immediately
recalculated, excluding therefrom the amount of the insolvent
insurer's assessment determined by the commissioner to be
uncollectible, so that such uncollectible amount is, in effect,
assumed and redistributed among the remaining participating
insurers.
Sec. 11. Assessments and Premium Surcharges. Should a
deficit occur in the association, the association shall assess
participating insurers in accordance with this section and each
insurer may charge a premium surcharge on every property insurance
policy issued by it insuring property in this state, the effective
date of which policy is within the three-year period commencing 90
days after the date of assessment by the association. The amount of
the surcharge shall be calculated on the basis of a uniform
percentage of the premium on such policies equal to one-third of the
ratio of the amount of an insurer's assessment to the amount of its
direct earned premiums as reported in its financial statement to
the department for the calendar year immediately preceding the year
in which the assessment is made, such that over the period of three
years the aggregate of all such surcharges by an insurer shall be
equal to the amount of the assessment of such insurer. The minimum
surcharges on a policy may be $1; all surcharges may be rounded to
the nearest dollar.
Sec. 12. Sanctions. If the association, inspection bureau,
or participating insurer is found to be in violation of or in
failure to comply with this Act, each entity shall be subject to the
sanctions authorized by Sec. 82.001-82.003 and 82.051-82.056 [in
Article 1.10] of this code, including administrative penalties
authorized under Sec. 84.001-84.003 and 84.021-84.022 [Article
1.10E] of this code. The commissioner may also utilize any other
disciplinary procedures authorized by this code, including the
cease and desist procedures authorized Sec. 83.001-83.004 and
83.051-83.055 [by Article 1.10A] of this code.
Sec. 13. Annual Report. The association shall compile a
calendar year annual operating report and submit such annual report
to the commissioner on or before March 31 of the following calendar
year. This annual report shall be a matter of public record.
Sec. 14. Powers of the Commissioner. (a) In addition to
any powers conferred upon the commissioner by this or any other law,
the commissioner is charged with the authority to supervise the
association and the inspection bureau. In addition, the
commissioner has the power:
(1) to examine the operation of the association and
the inspection bureau through free access to all the books,
records, files, papers, and documents relating to their operation
and may summon, qualify, and examine as witnesses all persons
having knowledge of such operations, including the governing
committee, officers, or employees thereof;
(2) to do all things necessary to enable the State of
Texas and the association to fully participate in any federal
program of reinsurance which may be enacted for purposes similar to
the purposes of this Act;
(3) to require such reports from the association
concerning risks insured by the association pursuant to this Act as
may be deemed necessary; and
(4) to adopt policy forms, endorsements, rates, and
rating and rule manuals for use by the association.
SECTION 2. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2003.