78R15352 E
By: Jackson, et al. S.B. No. 14
Substitute the following for S.B. No. 14:
By: Smithee C.S.S.B. No. 14
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of residential property and commercial
and personal automobile insurance; providing a criminal penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. RATE REQUIREMENTS
PART A. RATE FILINGS
SECTION 1.01. Chapter 5, Insurance Code, is amended by
adding Subchapter Q to read as follows:
SUBCHAPTER Q. RATES FOR CERTAIN LINES
Art. 5.142. RATES FOR PERSONAL AUTOMOBILE INSURANCE
COVERAGE AND RESIDENTIAL PROPERTY INSURANCE COVERAGE
Sec. 1. SCOPE; PURPOSE. (a) This article governs the
regulation of rates for personal automobile insurance and
residential property insurance.
(b) The purposes of this article are to:
(1) promote the public welfare by regulating personal
automobile insurance rates and residential property insurance
rates to prohibit excessive, inadequate, unreasonable, or unfairly
discriminatory rates;
(2) promote the availability of personal automobile
and residential property insurance;
(3) promote price competition among insurers to
provide rates and premiums that are responsive to competitive
market conditions; and
(4) prohibit price-fixing agreements and other
anticompetitive behavior by insurers.
Sec. 2. DEFINITIONS. (a) In this article:
(1) "Advisory organization" means an organization
licensed under Article 5.73 of this code.
(2) "Classification" means the grouping of risks with
similar risk characteristics so that differences in expected costs
may be appropriately recognized.
(3) "Disallowed expenses" includes:
(A) administrative expenses, not including
acquisition, loss control, and safety engineering expenses, that
exceed 110 percent of the industry median for those expenses;
(B) lobbying expenses;
(C) advertising expenses, other than for
advertising:
(i) directly related to the services or
products provided by the insurer; or
(ii) designed and directed at loss
prevention;
(D) amounts paid by an insurer:
(i) as damages in an action brought against
the insurer for bad faith, fraud, or any matters other than payment
under the insurance contract; or
(ii) as fees, fines, penalties, or
exemplary damages for a civil or criminal violation of law;
(E) contributions to:
(i) social, religious, political, or
fraternal organizations; or
(ii) organizations engaged in legislative
advocacy;
(F) except as authorized by rule by the
commissioner, fees and assessments paid to advisory organizations;
and
(G) any unreasonably incurred expenses, as
determined by the commissioner after notice and hearing.
(4) "Filer" means an insurer that files rates,
supplementary rating information, supporting information, rating
manuals, or any other information required to be filed under this
article.
(5) "Insurer" means an insurance company, reciprocal
or interinsurance exchange, mutual insurance company, capital
stock company, county mutual insurance company except as provided
by Section 13, Article 5.13-2, of this code, Lloyd's plan, or other
legal entity authorized to write personal automobile insurance or
residential property insurance in this state. The term includes an
affiliate, as described by this code, if that affiliate is
authorized to write personal automobile insurance or residential
property insurance. The term does not include:
(A) the Texas Windstorm Insurance Association
under Article 21.49 of this code;
(B) the FAIR Plan Association under Article
21.49A of this code;
(C) the Texas Automobile Insurance Plan
Association under Article 21.81 of this code; or
(D) an insurer that is not engaged in the
business of personal automobile insurance or residential property
insurance in this state before the effective date of S.B. 14, Acts
of the 78th Legislature, Regular Session, 2003.
(6) "Line" means a type of insurance subject to this
article.
(7) "Personal automobile insurance" means motor
vehicle insurance coverage for the ownership, maintenance, or use
of a private passenger, utility, or miscellaneous type motor
vehicle, including a motor home, trailer, or recreational vehicle,
that is:
(A) owned or leased by an individual or
individuals; and
(B) not primarily used for the delivery of goods,
materials, or services, other than for use in farm or ranch
operations.
(8) "Rate" means 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, and
before any application of individual risk variations based on loss
or expense considerations.
(9) "Rating manual" means a publication or schedule
that lists rules, classifications, territory codes and
descriptions, rates, premiums, and other similar information used
by an insurer to determine the applicable premium charged an
insured for personal automobile insurance or residential property
insurance.
(10) "Residential property insurance" means insurance
coverage against loss to real or tangible personal property at a
fixed location that is provided through a homeowners policy,
including a tenants policy, a condominium owners policy, or a
residential fire and allied lines policy.
(11) "Supplementary rating information" means any
manual, rating schedule, plan of rules, rating rules,
classification systems, territory codes and descriptions, rating
plans, and other similar information used by the insurer to
determine the applicable premium for an insured. The term includes
factors and relativities, including increased limits factors,
classification relativities, deductible relativities, premium
discount, and other similar factors and rating plans, including
experience, schedule, and retrospective rating.
(12) "Supporting information" means:
(A) the experience and judgment of the filer and
the experience or information of advisory organizations or other
insurers relied on by the filer;
(B) the interpretation of any other information
relied on by the filer;
(C) descriptions of methods used in making the
rates; and
(D) any other information required by the
commissioner by rule to be filed.
(b) For purposes of this subchapter, a rate is:
(1) excessive if the rate is likely to produce a
long-term profit that is unreasonably high in relation to the
insurance coverage provided;
(2) inadequate if the rate is insufficient to sustain
projected losses and expenses to which the rate applies, and
continued use of the rate:
(A) endangers the solvency of an insurer using
the rate; or
(B) has the effect of substantially lessening
competition or creating a monopoly within any market; or
(3) unfairly discriminatory if the rate:
(A) cannot be actuarially justified;
(B) does not bear a reasonable relationship to
the expected loss and expense experience among risks; or
(C) is based in whole or in part on the race,
creed, color, ethnicity, or national origin of the policyholder or
an insured.
Sec. 3. RATING CRITERIA. (a) An insurer shall set rates
for each line in accordance with this section.
(b) In setting rates, an insurer shall consider:
(1) past and prospective loss experience inside this
state, and outside this state if the state data are not credible;
(2) the peculiar hazards and experiences of individual
risks, past and prospective, inside and outside this state;
(3) the insurer's actuarially credible historical
premium, exposure, loss, and expense experience;
(4) catastrophe hazards within this state;
(5) operating expenses, excluding disallowed
expenses;
(6) investment income;
(7) a reasonable margin for profit; and
(8) any other factors inside and outside this state
determined to be relevant by the insurer and not disallowed by the
commissioner.
(c) An insurer may:
(1) group risks by classification for the
establishment of rates and minimum premiums; and
(2) modify classification rates to produce rates for
individual risks in accordance with rating plans that establish
standards for measuring variations in those risks on the basis of
any factor listed in Subsection (b) of this section.
(d) Rates established under this section may not be
excessive, inadequate, unreasonable, or unfairly discriminatory
for the risks to which they apply.
(e) In setting rates applicable solely to policyholders in
this state, an insurer shall use its own historical premium and loss
data, as well as its own data for expenses and for profit and
contingency factors. The commissioner may require an audit of the
insurer's historical premium and loss data. The insurer may
separately supplement its own historical premium and loss data with
industry-wide historical premium and loss data from this state as
necessary. The commissioner by rule may establish requirements for
reporting historical premium and loss data under this subsection.
(f) In determining a rating territory, an insurer shall use
methods based on sound actuarial principles.
Sec. 4. RATE FILINGS. (a) An insurer shall file with the
department all rates, applicable rating manuals, supplementary
rating information, and additional information on an annual basis
as required by the commissioner for risks written in this state.
(b) The commissioner by rule shall determine the
information required to be provided in the filing, including:
(1) the categories of supporting information;
(2) the categories of supplementary rating
information;
(3) any statistics or other information to support the
rates to be used by the insurer, including information necessary to
evidence that the computation of the rate does not include
disallowed expenses; and
(4) information concerning policy fees, service fees,
and other fees that are charged or collected by the insurer under
Article 21.35A or 21.35B of this code.
(c) The insurer shall file with each rate filing a
certificate by an officer of the insurer that all rate
classifications, the rates applicable to those classifications,
and the risk factors to which those classifications apply are based
on reasonably sound and verifiable actuarial principles and that no
classifications are unfairly discriminatory as to race, color,
religion, ethnicity, or national origin.
(d) Other than the annual rate filings required under
Subsection (a) of this section, the commissioner may require an
insurer to file with the department all rates, applicable rating
manuals, supplementary rating information, and additional
information required under Subsections (b) and (c) of this section:
(1) on using a new policy form that has been approved
by the commissioner for a line of insurance offered by the insurer;
(2) on changing the underwriting guidelines used by
the insurer;
(3) if the commissioner receives a substantial number
of consumer complaints, as determined by the commissioner, about an
insurer's prices or practices;
(4) if the commissioner determines that there is a
significant difference between the insurer's current loss trends
and the insurer's prospective loss trends reported in the prior
annual rate filing; or
(5) if the commissioner otherwise determines that good
cause exists to review an insurer's rating information.
(e) Unless otherwise required by the commissioner, after an
initial annual rate filing required under this section is approved
by the commissioner, an insurer is not required to make subsequent
annual filings if the rate to be used by the insurer is the same as
the rate in effect.
(f) An insurer shall provide to the department in the manner
prescribed by the commissioner information necessary to verify the
information filed by the insurer under Subsection (c) of this
section.
(g) The commissioner by rule shall establish what
constitutes "good cause" for purposes of Subsection (d)(5) of this
section.
(h) The commissioner may not require an insurer to file
information that is not contained in the books and records kept by
the insurer in the insurer's normal course of business.
Sec. 5. PRIOR APPROVAL REQUIRED. (a) Except as provided by
Subsection (j) of this section, an insurer may not use a rate until
the rate has been filed with the department and approved by the
commissioner as provided by this section. For purposes of this
section, a rate is filed with the department on the date the rate
filing is received by the department.
(b) Not later than the 30th day after the date the rate is
filed with the department, the commissioner shall:
(1) approve the rate if the commissioner determines
that the rate complies with the requirements of this article; or
(2) disapprove the rate if the commissioner determines
that the rate does not comply with the requirements of this article.
(c) Except as provided by Subsection (e) of this section or
Section 9(c) of this article, if the rate has not been approved or
disapproved by the commissioner before the expiration of the 30-day
period described by Subsection (b) of this section, the rate is
considered approved and the insurer may use the rate unless the rate
proposed in the filing represents an increase of 12.5 percent or
more from the insurer's prior filed and approved rate.
(d) The commissioner and the insurer may not by agreement
extend the 30-day period described by Subsection (b) of this
section.
(e) For good cause, the commissioner may extend the period
for approval or disapproval of a rate for one additional 30-day
period on the expiration of the 30-day period described by
Subsection (b) of this section.
(f) If the department determines that the information filed
by the insurer under this article is incomplete or otherwise
deficient, the department, not later than the 10th day after the
date the insurer files the rate with the department, may request
additional information from the insurer. If the department
requests additional information from the insurer during the first
30-day review period provided under Subsection (b) of this section
or under the second 30-day review period provided under Subsection
(e) of this section, the period of time between the date of the
department's submission of the request for additional information
to the insurer and the date of the receipt of the additional
information by the department from the insurer is not counted to
determine what constitutes the first 30-day review period or the
second 30-day review period. For purposes of this subsection, the
date of the department's submission of the request for additional
information is the date of the electronic mailing or telephone call
or the postmarked date on the department's letter relating to the
request for additional information.
(g) The commissioner shall approve the rate filing if the
proposed rate is adequate, not excessive, and not unfairly
discriminatory.
(h) If the commissioner approves a rate filing, the
commissioner shall provide written or electronic notification of
the approval to the insurer. On receipt of the notice of the
commissioner's approval of a rate, the insurer may use the rate.
(i) From the date of the filing of the rate with the
department to the effective date of the new rate, the insurer's
previously filed rate that is in effect on the date of the filing
remains in effect.
(j) After approval of a rate filing under this section, an
insurer may use any rate subsequently filed by the insurer, without
prior approval of the commissioner, if the subsequently filed rate
does not exceed the lesser of 107.5 percent of the rate approved by
the commissioner or 110 percent of any rate used by the insurer
within the previous 12-month period. Filed rates under this
subsection take effect on the date specified by the insurer.
Sec. 6. DISAPPROVAL OF RATE. (a) The commissioner may
disapprove a rate filed under this article if the commissioner
determines that the rate does not meet the requirements of this
article.
(b) If the commissioner disapproves a rate, the
commissioner shall notify the insurer that made the rate filing and
shall issue a disapproval order on the date the commissioner
provides notice to the insurer. The notice to the insurer and the
commissioner's disapproval order must specify how the rate fails to
meet the requirements of this article. The commissioner may
provide the notice electronically if a subsequent written notice is
also provided. The order must state the date on which the further
use of the disapproved rate is prohibited. The commissioner may
specify in the order a rate that would be approved by the
commissioner.
(c) An insurer may not use a rate in this state after
disapproval of the rate by the commissioner.
(d) An insurer whose rate is disapproved under this section
is not entitled to a hearing before the commissioner's disapproval
order is issued.
(e) After receiving notice of the commissioner's
disapproval of the rate filed by the insurer, the insurer, not later
than the 20th day after the date a disapproval order is issued under
this section, may request:
(1) a rate hearing to be conducted by the State Office
of Administrative Hearings; or
(2) a binding arbitration to be conducted by
arbitrators selected in the manner described by Subsection (h) of
this section.
(f) After completion of the rate hearing under Subsection
(e)(1) of this section, the administrative law judge shall prepare
a proposal for decision under Section 40.058 of this code and remand
the case to the commissioner recommending:
(1) that the commissioner affirm the commissioner's
order;
(2) additional review of the order by the commissioner
to be completed not later than the 10th day after the date the
commissioner receives the administrative law judge's proposal,
that the parties enter into negotiations, or that the commissioner
take other appropriate action with respect to the order within a
time period specified by the administrative law judge;
(3) adoption of a temporary rate pending further
review; or
(4) adoption of the rate filed by the insurer.
(g) An insurer requesting binding arbitration under
Subsection (e)(2) of this section:
(1) waives the insurer's right to appeal the
commissioner's disapproval of a filed rate beyond the binding
arbitration; and
(2) shall pay the entire cost of the binding
arbitration.
(h) Binding arbitration conducted under Subsection (e) of
this section must be conducted by three arbitrators, one selected
by the department, one selected by the insurer, and one agreed on by
the arbitrators chosen by the department and the insurer. The three
arbitrators shall reach a decision by considering a rate proposed
by the insurer and a rate proposed by the department. The rate
proposed by the department or by the insurer on which two of the
three arbitrators agree shall be the insurer's effective rate.
(i) The office of public insurance counsel may participate
in a hearing or binding arbitration conducted under this section
and present evidence at the hearing or arbitration.
Sec. 7. BASIS FOR RATE APPROVAL. (a) In deciding whether
to approve or disapprove a rate filing of an insurer under this
article, the commissioner shall consider whether:
(1) the insurer's rate complies with the rating
criteria adopted under Section 3 of this article;
(2) the insurer's underwriting guidelines are fair and
not discriminatory;
(3) the insurer has applied credit scoring in
accordance with Article 21.49-2U of this code; and
(4) any applicable management fees charged by the
insurer comply with law and are not unreasonable or excessive under
accepted regulatory standards.
(b) The insurer must itemize any applicable management fees
charged by the insurer, including an analysis of each fee that
states each component of the fee, and an itemization of
profit-load.
Sec. 8. USE OF UNDERWRITING GUIDELINES AND RATING MANUALS.
On approval of a rate filing by the commissioner under Section 5 of
this article, and subject to Article 21.49-2V of this code, if
applicable, an insurer may use the insurer's underwriting
guidelines and rating manuals in preparing future rate filings as
required under this article.
Sec. 9. EFFECT OF INSURER NONCOMPLIANCE. (a) If the
commissioner determines that any of the information required under
Section 4 of this article to be included in the rate filing has not
been provided to the department by an insurer in the rate filing,
the commissioner in writing shall notify the insurer:
(1) that the insurer is not in compliance with this
article; and
(2) the date by which the insurer must provide the
information not included in the rate filing.
(b) Unless the commissioner determines otherwise, the
30-day approval period described under Section 5(b) of this article
does not begin until the date the commissioner determines that the
insurer has filed a complete rate filing as required by this
article. For purposes of this subsection, a rate filing is
considered complete on the later of:
(1) the 11th day after the date an insurer files a rate
with the department under this article; or
(2) the day the department receives all information
requested under Section 5(f) of this article.
(c) Section 5(c) of this article does not apply to an
insurer that:
(1) has violated this article, another law, or a rule
adopted under this code relating to:
(A) rating information required to be provided by
an insurer; or
(B) rates generally;
(2) has violated any law or rule adopted under this
code relating to underwriting requirements; or
(3) has not complied with an order issued by the
commissioner during the three years preceding the date of the rate
filing required under this article.
(d) If a rate filed by an insurer described by Subsection
(c) of this section has not been approved or disapproved by the
commissioner before the expiration of the 30-day period described
by Section 5(b) of this article, the rate is considered denied. An
insurer may appeal the commissioner's disapproval of a rate under
this subsection as provided by Section 6 of this article.
Sec. 10. PUBLIC INFORMATION. Subject to Section 552.110,
Government Code, each rate filing and any supporting information
filed under this article are public information and must be
disclosed under Chapter 552, Government Code, as of the date the
filing is received by the commissioner.
Sec. 11. CERTAIN USE OF FILED RATE INFORMATION. (a) Any
information filed by an insurer with the department under this
article may be disclosed to:
(1) individual members, agencies, or committees of the
legislature; and
(2) an agency in the executive branch of state
government or an employee of that agency.
(b) An individual member, agency, or committee of the
legislature that receives information under Subsection (a)(1) of
this section may use the information only for legislative purposes.
An agency or employee of an agency that receives information under
Subsection (a)(2) of this section may use the information only for
the official purposes of the agency.
(c) Confidential information disclosed under this section
remains confidential.
Sec. 12. SUPERVISION REQUIREMENT. If the commissioner
determines after a hearing that an insurer's rates require
supervision because of the insurer's financial condition or the
insurer's rating practices, the commissioner may require the
insurer to file with the commissioner all rates, supplementary
rating information, and any supporting information prescribed by
the commissioner.
Sec. 13. RIGHTS OF PUBLIC INSURANCE COUNSEL. (a) On
request to the commissioner, the public insurance counsel may
review all rate filings and additional information provided by an
insurer under this article. Confidential information reviewed
under this subsection remains confidential.
(b) The public insurance counsel, not later than the 30th
day after the date of a rate filing under Section 5 of this article,
may object to an insurer's rate filing or the criteria relied on by
the insurer to determine the rate by filing a written objection with
the commissioner. The written objection must contain the reasons
for the objection.
Sec. 14. RATE HEARINGS; ADMINISTRATIVE PROCEDURES. Subject
to Chapter 40 of this code, Chapter 2001, Government Code, applies
to all hearings on rates conducted under this article. To the
extent of any conflict between this article and Chapter 2001,
Government Code, this article prevails.
Sec. 15. APPEAL. (a) An insurer or the public insurance
counsel may, not later than the 30th day after the date the
commissioner issues an order under this article, appeal the order
in accordance with Subchapter D, Chapter 36, of this code.
(b) An insurer that appeals an order of the commissioner
issued under this article shall pay all costs associated with the
appeal, including any attorney's fees incurred by the department,
if the insurer does not prevail on appeal.
Sec. 16. BURDEN OF PROOF. To prevail in a rate hearing
under Section 14 of this article or an appeal under Section 15 of
this article, an insurer must establish that the commissioner's
order is an abuse of discretion.
Sec. 17. RULES. The commissioner shall adopt rules as
necessary to implement this article.
Sec. 18. NOTICE TO POLICYHOLDER. (a) An insurer shall send
to each holder of a policy of insurance subject to this article
notice of any rate increase scheduled to take effect on the renewal
of the policy that exceeds 10 percent of the amount paid by the
policyholder for coverage under the policy immediately before
renewal.
(b) The insurer shall send the notice required by Subsection
(a) of this section before the renewal date but not later than the
30th day before the date the rate increase is scheduled to take
effect.
Sec. 19. ADVISORY ORGANIZATIONS. (a) An advisory
organization may file with the commissioner for use by insurers
loss and loss adjustment expense information. An insurer that
subscribes to the advisory organization may use information filed
under this subsection after the information is approved by the
commissioner.
(b) An advisory organization may not publish rates for
insurance subject to this article.
Art. 5.143. EXCEPTIONS TO RATE FILING AND APPROVAL
REQUIREMENTS
Sec. 1. DEFINITIONS. In this article:
(1) "Insurer" means a property and casualty insurer
authorized to engage in the business of residential property
insurance in this state. The term includes:
(A) a Lloyd's plan, a county mutual insurance
company, and a reciprocal or interinsurance exchange; and
(B) the affiliate of an insurer, as described by
this code.
(2) "Residential property insurance" includes:
(A) homeowners insurance; and
(B) residential fire and allied lines insurance.
Sec. 2. INSURER MARKET SHARE. An insurer with a market
share of five percent or more that acquires an interest in an
insurer with a smaller market share or that splits into smaller
entities, to be owned in whole or in part by the insurer with the
larger market share, is required to continue to file rates for all
affected entities, as required by the commissioner under Section 3
of this article.
Sec. 3. EXEMPTION FROM CERTAIN FILING REQUIREMENTS. (a) On
the request of an insurer, the commissioner may, in accordance with
this article, partially or wholly exempt the insurer from:
(1) the requirement to file certain data with the
department; and
(2) the rate approval requirements adopted under
Article 5.142 of this code.
(b) An exemption under Subsection (a)(1) of this section
does not apply to requirements that the insurer file its rates and
its market capacity information with the department.
(c) An exemption granted under Subsection (a) may be limited
to a specific period.
Sec. 4. REDUCED FILING--INSURER WITH MARKET SHARE OF FIVE
PERCENT OR MORE. An insurer with a market share of five percent or
more is subject to rate approval under Article 5.142 of this code.
However, on request by the insurer, the commissioner may grant the
insurer a partial reduction in the amount of data required to be
filed with the department if:
(1) the commissioner has determined:
(A) that the filed rate represents an increase of
not more than 7.5 percent of the rate previously approved for use by
the insurer under this article; and
(B) that granting the reduced filing will not
adversely affect consumers or the market; and
(2) the insurer certifies to the department, and the
commissioner finds, that the insurer is in compliance with the
requirements adopted under Section 6 of this article.
Sec. 5. REDUCED FILING--INSURER WITH MARKET SHARE OF LESS
THAN FIVE PERCENT. (a) An insurer with a market share of less than
five percent is subject to the rate filing requirements of Article
5.142 of this code. However, on request of the insurer, the
commissioner may grant the insurer a partial or total reduction in
the amount of supporting information required to be filed with the
department or in the rate approval requirements imposed under
Article 5.142 of this code if:
(1) the commissioner has determined that granting the
request will not adversely affect consumers or the market; and
(2) the insurer certifies to the department, and the
commissioner finds, that the insurer is in compliance with the
requirements adopted under Section 6 of this article.
(b) An insurer subject to this section may file for an
exemption under Subsection (a) of this section at any time.
Sec. 6. INSURER REQUIREMENTS. To be eligible for a
reduction in rate filing or approval requirements under Section 4
or 5 of this article, an insurer:
(1) shall agree, through an enforceable contract
entered into with the department, that the insurer will not leave
the residential property insurance market in this state, or
substantially reduce its market share in this state, before the
first anniversary of the date of the agreement, without:
(A) the express approval of the commissioner; and
(B) the filing of a withdrawal plan that is
satisfactory to the commissioner;
(2) shall certify that the insurer's average filed
rates do not exceed the rates used by the insurer during the
preceding year by the greater of:
(A) 7.5 percent; or
(B) 2.5 percent plus the established or projected
cost-of-living increase for the preceding year, as determined by
the commissioner;
(3) must have promptly responded to prior data
requirements and requests from the department; and
(4) may not be subject to any contested disciplinary
action by the department.
Sec. 7. REDUCED FILING--INSURER WITH MARKET SHARE OF LESS
THAN ONE-HALF OF ONE PERCENT. (a) Subject to Section 5 of this
article, an insurer that has a market share of less than one-half of
one percent is subject to the rate filing requirements of Article
5.142 of this code, but may, on request to the commissioner, be
exempted from any other specific filing for a period not to exceed
three years from the date of the insurer's request if the
commissioner:
(1) does not disapprove the rate filing made by the
insurer; and
(2) determines that granting the request will not
adversely affect consumers or the market.
(b) An insurer subject to this section may file for an
exemption under Subsection (a) of this section at any time.
Sec. 8. EFFECT OF SURPLUS LINES COVERAGE. (a) An eligible
surplus lines insurer is exempt from the rate filing and approval
requirements adopted under Article 5.142 of this article except as
provided by Subsection (b) of this section.
(b) An insurer affiliated with an eligible surplus lines
insurer must add all surplus lines coverage written by the
affiliate to the insurer's total writings to determine if the
insurer's market share is five percent or more on a finding by the
commissioner, after notice and opportunity for hearing, that the
insurer is using the surplus lines affiliate to avoid rate
regulation. If the five percent threshold is exceeded, all the
insurer's rates, including rates for surplus lines coverage, are
subject to the filing and approval requirements adopted under
Article 5.142 of this article.
Sec. 9. RATE STANDARDS. (a) Rates otherwise exempt from
regulation under the provisions of this article may not be
excessive, inadequate, unreasonable, or unfairly discriminatory
for the risks to which they apply.
(b) In determining a rating territory, an insurer shall use
methods based on sound actuarial principles.
Sec. 10. FILING FROM INSURER BOOKS AND RECORDS. The
commissioner may not require an insurer to file information that is
not contained in the books and records kept by the insurer in the
insurer's normal course of business.
PART B. CONFORMING AMENDMENT
SECTION 1.02. Section 4C, Article 5.73, Insurance Code, is
amended to read as follows:
Sec. 4C. Except as provided by Section 19, Article 5.142, of
this code, an [An] insurer may not receive from an advisory
organization prospective loss costs for personal automobile,
homeowners', or dwelling fire insurance.
PART C. TRANSITION
SECTION 1.03. An insurer that was not rate regulated before
the effective date of Article 5.142, Insurance Code, as added by
this article, may renew business in an affiliated company as
necessary to comply with this article. Business renewed in an
affiliated company is not considered nonrenewed business of the
company from which the business is transferred.
SECTION 1.04. (a) Articles 5.142 and 5.143, Insurance
Code, as added by this article, expire September 1, 2004.
(b) The expiration of Articles 5.142 and 5.143, Insurance
Code, as added by this article, does not affect an action or
proceeding against an insurer subject to those laws for a failure to
comply with those laws before their expiration, regardless of when
the action or proceeding is commenced, and those laws are continued
in effect for this purpose.
ARTICLE 2. UNDERWRITING GUIDELINES AND REQUIREMENTS;
USE OF CREDIT SCORING
SECTION 2.01. Subchapter E, Chapter 21, Insurance Code, is
amended by adding Article 21.49-2U to read as follows:
Art. 21.49-2U. USE OF CREDIT SCORING IN CERTAIN PERSONAL
LINES OF INSURANCE
Sec. 1. DEFINITIONS. In this article:
(1) "Adverse effect" means an action taken by an
insurer in connection with the underwriting of insurance for a
consumer that results in the denial of coverage, the cancellation
or nonrenewal of coverage, or the offer to and acceptance by a
consumer of a policy form, premium rate, or deductible other than
the policy form, premium rate, or deductible for which the consumer
specifically applied.
(2) "Agent" means a person licensed or required to be
licensed as a general property and casualty insurance agent under
Article 21.14 of this code.
(3) "Applicant for insurance coverage" means an
individual who has applied to an insurer for coverage under a
personal insurance policy.
(4) "Consumer" means an individual whose credit
information is used or whose credit score is computed in the
underwriting or rating of a personal insurance policy. The term
includes an applicant for insurance coverage.
(5) "Consumer reporting agency" means any person that,
for monetary fees or dues or on a cooperative nonprofit basis,
regularly engages in the practice of assembling or evaluating
consumer credit information or other information on consumers for
the purpose of furnishing consumer reports to third parties.
(6) "Credit information" means any credit-related
information derived from a credit report, found on a credit report
itself, or provided in an application for personal insurance. The
term does not include information that is not credit-related,
regardless of whether that information is contained in a credit
report or in an application for insurance coverage or is used to
compute a credit score.
(7) "Credit report" means any written, oral, or other
communication of information by a consumer reporting agency that:
(A) bears on a consumer's creditworthiness,
credit standing, or credit capacity; and
(B) is used or expected to be used or collected in
whole or in part to serve as a factor to determine personal
insurance premiums, eligibility for coverage, or tier placement.
(8) "Credit score" or "insurance score" means a number
or rating derived from an algorithm, computer application, model,
or other process that is based on credit information and used to
predict the future insurance loss exposure of a consumer.
(9) "Insured" means a consumer who has purchased an
insurance policy from an insurer.
(10) "Insurer" means an insurer authorized to write
property and casualty insurance in this state, including an
insurance company, reciprocal or interinsurance exchange, mutual
insurance company, capital stock company, county mutual insurance
company, association, Lloyd's plan, or other entity writing
personal insurance in this state. The term includes an affiliate,
as described by this code, if that affiliate is authorized to write
personal insurance in this state. The term does not include an
eligible surplus lines insurer under this code.
(11) "Personal insurance" means:
(A) a personal automobile insurance policy;
(B) a residential property insurance policy;
(C) a residential fire and allied lines insurance
policy; or
(D) a noncommercial insurance policy covering a
boat, personal watercraft, snowmobile, or recreational vehicle.
Sec. 2. APPLICATION. This article applies to an insurer
that writes personal insurance coverage and uses credit information
or credit reports for the underwriting or rating of that coverage.
Sec. 3. PROHIBITED USE OF CREDIT INFORMATION. (a) An
insurer may not:
(1) use a credit score that is computed using factors
that constitute unfair discrimination, as that term is used under
Article 21.21-6 of this code, as added by Chapter 415, Acts of the
74th Legislature, Regular Session, 1995;
(2) deny, cancel, or nonrenew a policy of personal
insurance solely on the basis of credit information without
consideration of any other applicable underwriting factor
independent of credit information; or
(3) take an action that results in an adverse effect
against a consumer because the consumer does not have a credit card
account without consideration of any other applicable factor
independent of credit information.
(b) An insurer may not consider an absence of credit
information or an inability to determine credit information for an
applicant for insurance coverage or insured as a factor in
underwriting or rating an insurance policy unless the insurer:
(1) has statistical, actuarial, or reasonable
underwriting information that:
(A) is reasonably related to actual or
anticipated loss experience; and
(B) shows that the absence of credit information
could result in actual or anticipated loss differences;
(2) treats the consumer as if the applicant for
insurance coverage or insured had neutral credit information, as
defined by the insurer; or
(3) excludes the use of credit information as a factor
in underwriting and uses only other underwriting criteria.
Sec. 4. NEGATIVE FACTORS. (a) An insurer may not use any of
the following as a negative factor in any credit scoring
methodology or in reviewing credit information to underwrite or
rate a policy of personal insurance:
(1) a credit inquiry that is not initiated by the
consumer;
(2) an inquiry relating to insurance coverage, if so
identified on a consumer's credit report; or
(3) a collection account with a medical industry code,
if so identified on the consumer's credit report.
(b) Multiple lender inquiries made within 30 days of a prior
inquiry, if coded by the consumer reporting agency on the
consumer's credit report as from the home mortgage industry, shall
be considered by an insurer as only one inquiry.
(c) Multiple lender inquiries made within 30 days of a prior
inquiry, if coded by the consumer reporting agency on the
consumer's credit report as from the motor vehicle lending
industry, shall be considered by an insurer as only one inquiry.
Sec. 5. EFFECT OF EXTRAORDINARY EVENTS. (a)
Notwithstanding any other law, an insurer shall, on written request
from an applicant for insurance coverage or an insured, provide
reasonable exceptions to the insurer's rates, rating
classifications, or underwriting rules for a consumer whose credit
information has been directly influenced by a catastrophic illness
or injury, by the death of a spouse, child, or parent, by temporary
loss of employment, or by identity theft. In such a case, the
insurer may consider only credit information not affected by the
event or shall assign a neutral credit score.
(b) An insurer may require reasonable written and
independently verifiable documentation of the event and the effect
of the event on the person's credit before granting an exception.
An insurer is not required to consider repeated events or events the
insurer reconsidered previously as an extraordinary event.
(c) An insurer may also consider granting an exception to an
applicant for insurance coverage or an insured for an extraordinary
event not listed in this section.
(d) An insurer is not out of compliance with any law or rule
relating to underwriting, rating, or rate filing as a result of
granting an exception under this article.
Sec. 6. DISPUTE RESOLUTION; ERROR CORRECTION. (a) If it is
determined through the dispute resolution process established
under Section 611(a)(5), Fair Credit Reporting Act (15 U.S.C.
Section 1681i), as amended, that the credit information of a
current insured was inaccurate or incomplete or could not be
verified and the insurer receives notice of that determination from
the consumer reporting agency or from the insured, the insurer
shall re-underwrite and re-rate the insured not later than the 30th
day after the date of receipt of the notice.
(b) After re-underwriting or re-rating the insured, the
insurer shall make any adjustments necessary within 30 days,
consistent with the insurer's underwriting and rating guidelines.
If an insurer determines that the insured has overpaid premium, the
insurer shall credit the amount of overpayment. The insurer shall
compute the overpayment back to the shorter of:
(1) the last 12 months of coverage; or
(2) the actual policy period.
Sec. 7. DISCLOSURE TO CONSUMERS FOR USE OF CREDIT SCORING.
(a) An insurer may use credit scoring to develop rates, rating
classifications, or underwriting criteria regarding lines of
insurance subject to this article except as prohibited by Article
21.21-6 of this code, as added by Chapter 415, Acts of the 74th
Legislature, Regular Session, 1995.
(b) An insurer that uses credit scoring in the underwriting
or rating of insurance subject to this article shall disclose to
each applicant for insurance coverage that the applicant's credit
report may be used in the underwriting or rating of the applicant's
policy. The disclosure must be provided at the time of application
by the insurer or agent and may be given in writing or
electronically.
(c) If a policy is issued to the applicant for insurance
coverage, an insurer or agent is not required to make the disclosure
required under Subsection (b) of this section on any subsequent
renewal of the coverage.
(d) Use of the following sample disclosure statement
constitutes compliance with this section: "In connection with this
application for insurance, we may review your credit report or
obtain or use a credit score based on the information contained in
that credit report. We may use a third party in connection with the
development of your credit score."
Sec. 8. NOTICE OF ACTION RESULTING IN ADVERSE EFFECT. (a)
If an insurer takes an action resulting in an adverse effect with
respect to an applicant for insurance coverage or insured based in
whole or in part on information contained in a credit report, the
insurer shall provide to the applicant or insured within 30 days:
(1) written or electronic notice of the action
resulting in an adverse effect and the reasons for that action;
(2) the name, address, and telephone number of the
consumer reporting agency, including a toll-free number
established by the agency and the consumer reporting agency's
Internet website, if applicable;
(3) written or electronic notice that the consumer
reporting agency did not make the decision to take the action
resulting in an adverse effect and will be unable to provide the
applicant or insured the specific reasons why the action was taken;
and
(4) written or electronic notice of the applicant's or
insured's right to:
(A) obtain a free copy of the consumer report
from the consumer reporting agency during the 60-day period after
the date of the notice; and
(B) dispute with the consumer reporting agency
the accuracy or completeness of any information in the consumer
report furnished by the agency.
(b) The insurer shall include a description of not more than
four factors that were the primary influences of the action
resulting in the adverse effect.
(c) The use by the insurer of a generalized term such as
"poor credit history," "poor credit rating," or "poor credit score"
does not constitute sufficient notice under this section of the
action resulting in the adverse effect.
(d) Standardized credit explanations provided by a consumer
reporting agency or other third-party vendors are also sufficient
to comply with this section.
Sec. 9. MANDATED FILING WITH DEPARTMENT. (a) An insurer
that uses credit scores to underwrite and rate risks shall file
within 90 days of the effective date of this article the insurer's
scoring models or other credit scoring processes with the
department. Another entity may file credit scoring models on
behalf of an insurer. A filing that includes credit scoring may
include loss experience justifying the use of credit information.
(b) A filing relating to credit information is a trade
secret and is confidential for purposes of Chapter 552, Government
Code.
Sec. 10. INDEMNIFICATION. (a) An insurer shall indemnify,
defend, and hold its agent harmless from and against all liability,
fees, and costs that arise out of or relate to the actions, errors,
or omissions of an agent who obtains or uses credit information or
credit scores for the insurer if the agent follows the instructions
of or procedures established by the insurer and complies with any
applicable law or rule.
(b) This section may not be construed to establish a cause
of action that does not exist in the absence of this section.
Sec. 11. SALE OF POLICY TERM INFORMATION BY CONSUMER
REPORTING AGENCY PROHIBITED. (a) A consumer reporting agency may
not provide or sell data or lists that include any information that,
in whole or in part, was submitted in conjunction with an insurance
inquiry about a consumer's credit information or a request for a
credit report or credit score, including:
(1) the expiration dates of an insurance policy or any
other information that may identify periods during which a
consumer's insurance may expire; and
(2) the terms and conditions of the consumer's
insurance coverage.
(b) The restriction under Subsection (a) of this section
does not apply to data or lists that the consumer reporting agency
provides to:
(1) the agent from whom information was received;
(2) the insurer on whose behalf the agent acted; or
(3) that insurer's affiliates.
(c) This section may not be construed to restrict the
ability of an insurer to obtain a claims history report or a report
regarding a motor vehicle.
Sec. 12. RULES. The commissioner may adopt rules as
necessary to implement this article.
Sec. 13. EFFECT OF VIOLATION. An insurer that violates this
article or a rule adopted under this article commits an unfair
practice in violation of Article 21.21 of this code and is subject
to sanctions under Chapter 82 of this code.
Sec. 14. REPORT. (a) The commissioner shall submit a
report to the governor, the lieutenant governor, the speaker of the
house of representatives, and the members of the 79th Legislature
on the information collected from the insurer filings required
under this article and other information obtained by the department
regarding the use of credit information by insurers. The report
must be submitted before January 1, 2005.
(b) The report required under this section must include:
(1) a summary statement regarding the use of credit
information, credit reports, and credit scores by insurers,
presented in a manner that protects the identity of individual
insurers and consumers;
(2) a description of insurer practices and the effect
of different credit models, presented in a manner that protects the
identity of individual insurers and consumers;
(3) the number of consumer complaints submitted to the
department regarding the use of credit information;
(4) a description of favorable and unfavorable effects
on consumers related to the use of credit scoring from information
that may be provided by insurers, including the number of consumers
receiving lower or higher premiums;
(5) any disproportionate impact on any class of
individuals, including classes based on income, race, or ethnicity,
resulting from the use of credit, to the extent that information is
readily available;
(6) recommendations from the department to the
legislature regarding the use of credit information by insurers;
and
(7) any other information considered necessary by the
commissioner.
(c) This section expires March 1, 2005.
Sec. 15. DUTIES OF DEPARTMENT. The department shall:
(1) update insurer profiles maintained on the
department's Internet website to provide information to consumers
stating whether or not an insurer uses credit scoring; and
(2) post the report required under Section 14 of this
article on the department's Internet website.
SECTION 2.02. Subchapter E, Chapter 21, Insurance Code, is
amended by adding Article 21.49-2V to read as follows:
Art. 21.49-2V. REQUIREMENTS REGARDING UNDERWRITING
GUIDELINES
Sec. 1. DEFINITIONS. In this article:
(1) "Insurer" means an insurer authorized to write
property and casualty insurance in this state, including an
insurance company, reciprocal or interinsurance exchange, mutual
insurance company, capital stock company, county mutual insurance
company, association, and Lloyd's plan. The term includes an
affiliate, as described by this code, if that affiliate is
authorized to write insurance subject to this article in this
state. The term does not include an agent licensed under Chapter 21
of this code.
(2) "Underwriting guideline" means a rule, standard,
marketing decision, or practice that is used by an insurer or an
agent of an insurer to examine, bind, accept, reject, cancel, or
limit insurance coverage to groups of consumers of insurance.
Sec. 2. APPLICATION. This article applies only to an
insurer that writes:
(1) a personal automobile insurance policy;
(2) a homeowners insurance policy;
(3) a farm and ranch or farm and ranch owners insurance
policy; or
(4) a residential fire and allied lines insurance
policy.
Sec. 3. SUBMISSION OF GUIDELINES BY INSURER. (a) Each
insurer must submit to the commissioner and the office of public
insurance counsel, in the form prescribed by the department, the
insurer's underwriting guidelines. The information submitted
under this subsection must be sufficient to permit the department
to analyze the propriety of the use of the underwriting guidelines.
(b) Underwriting guidelines must be sound, actuarially
justified, or otherwise substantially commensurate with the
contemplated risk. Underwriting guidelines may not be unfairly
discriminatory. The commissioner may, however, authorize an
insurer to use underwriting guidelines that are applicable to
certain groups if the underwriting guidelines are based on criteria
that do not discriminate based on race, sex, religion, ethnicity,
or national origin.
(c) The office of public insurance counsel may file with the
commissioner any objections of that office to the use of an
underwriting guideline submitted under Subsection (a) of this
section.
(d) Except as provided by Section 4(b) of this article, any
change by an insurer in an underwriting guideline submitted under
Subsection (a) of this section must be filed with the department not
later than the 10th day after the date on which the insurer begins
to use the changed guideline.
Sec. 4. EXAMINATION BY COMMISSIONER. (a) The commissioner
may approve, reject, or choose not to approve or reject an
underwriting guideline filed under Section 3(d) of this article.
If the commissioner does not reject or chooses not to approve or
reject an underwriting guideline filed under Section 3(d) of this
article, the insurer may use the filed underwriting guideline.
(b) An insurer that proposes a change in an underwriting
guideline that will result in the re-underwriting and nonrenewal of
more than 10 percent of the insurer's policyholders must file the
proposed change with the department. The insurer may use the filed
underwriting guideline beginning on the 11th day after the date the
insurer files the guideline if the commissioner does not reject the
guideline on or before the 10th day after the date the insurer files
the guideline.
Sec. 5. ISSUANCE AND RENEWAL CONDITION. Except as
otherwise provided by law, an insurer may require that membership
dues in its sponsoring organization be paid as a condition for
issuance or renewal of a policy.
Sec. 6. CONFIDENTIALITY. (a) An insurer that provides
information to the commissioner or the office of public insurance
counsel under Section 3 or 4 of this article may request the office
of the attorney general to classify the information as proprietary
information confidential under Section 552.110, Government Code.
(b) Unless the office of the attorney general makes a
determination under Subsection (a) of this section that the
information is confidential proprietary information, the
information is public information.
SECTION 2.03. Section 38.002, Insurance Code, is amended by
adding Subsection (g) to read as follows:
(g) In this section, "insurer" includes a reciprocal or
interinsurance exchange, a county mutual insurance company, and a
Lloyd's plan.
SECTION 2.04. Articles 21.49-2U and 21.49-2V, Insurance
Code, as added by this article, apply only to an insurance policy
delivered, issued for delivery, or renewed on or after the
effective date of this Act. A policy delivered, issued for
delivery, or renewed before that date is governed by the law as it
existed immediately before the effective date of this Act, and that
law is continued in effect for that purpose.
ARTICLE 3. COMMERCIAL AUTOMOBILE INSURANCE
SECTION 3.01. Article 5.13, Insurance Code, is amended to
read as follows:
Art. 5.13. SCOPE OF SUBCHAPTER [SUB-CHAPTER]. (a) This
subchapter [Sub-chapter] applies to every insurance company,
corporation, interinsurance exchange, mutual, reciprocal,
association, Lloyd's plan, [Lloyds] or other organization or
insurer writing any of the characters of insurance business herein
set forth, hereinafter called "Insurer"; provided that nothing in
this entire subchapter [Sub-chapter] shall [ever] be construed to
apply to any county or farm mutual insurance company or
association, as regulated under Chapters 16 and 17 of this code,
except that Article 5.13-2 of this code shall apply to a county
mutual insurance company with respect to rates for commercial
automobile insurance [Code].
(b) This subchapter [Sub-chapter] applies to the writing of
casualty insurance and the writing of fidelity, surety, and
guaranty bonds, on risks or operations in this State except as
herein stated.
(c) Except as otherwise provided by this subchapter, this
subchapter [This Sub-chapter] does not apply to the writing of
motor vehicle, life, health, accident, professional liability,
reinsurance, aircraft, fraternal benefit, fire, lightning,
tornado, windstorm, hail, smoke or smudge, cyclone, earthquake,
volcanic eruption, rain, frost and freeze, weather or climatic
conditions, excess or deficiency of moisture, flood, the rising of
the waters of the ocean or its tributaries, bombardment, invasion,
insurrection, riot, civil war or commotion, military or usurped
power, any order of a civil authority made to prevent the spread of
a conflagration, epidemic or catastrophe, vandalism or malicious
mischief, strike or lockout, water or other fluid or substance,
resulting from the breakage or leakage of sprinklers, pumps, or
other apparatus erected for extinguishing fires, water pipes or
other conduits or containers, or resulting from casual water
entering through leaks or opening in buildings or by seepage
through building walls, including insurance against accidental
injury of such sprinklers, pumps, fire apparatus, conduits or
container, workers' [workmen's] compensation, inland marine, ocean
marine, marine, or title insurance; nor does this subchapter
[Sub-chapter] apply to the writing of explosion insurance, except
insurance against loss from injury to person or property which
results accidentally from steam boilers, heaters or pressure
vessels, electrical devices, engines and all machinery and
appliances used in connection therewith or operation thereby.
(d) This subchapter [Sub-chapter] shall not be construed as
limiting in any manner the types or classes of insurance which may
be written by the several types of insurers under appropriate
statutes or their charters or permits.
(e) The regulatory power herein conferred is vested in the
commissioner [Board of Insurance Commissioners of the State of
Texas. Within the Board, the Casualty Insurance Commissioner shall
have primary supervision of regulation herein provided, subject
however to the final authority of the entire Board].
SECTION 3.02. The heading to Article 5.13-2, Insurance
Code, is amended to read as follows:
Art. 5.13-2. RATES FOR GENERAL LIABILITY, COMMERCIAL
AUTOMOBILE, AND COMMERCIAL PROPERTY INSURANCE COVERAGE
SECTION 3.03. Sections 1 and 2, Article 5.13-2, Insurance
Code, are amended to read as follows:
Sec. 1. PURPOSE. This article governs the regulation of
general liability, commercial automobile, commercial property,
which shall include farm and ranch owners and farm and ranch
policies, all commercial casualty, and medical professional
liability insurance rates and forms. It does not govern
[automobile,] fidelity, surety, or guaranty bonds. The purposes of
this article are to:
(1) promote the public welfare by regulating insurance
rates to prohibit excessive, inadequate, or unfairly
discriminatory rates;
(2) promote availability of insurance;
(3) promote price competition among insurers to
provide rates and premiums that are responsive to competitive
market conditions;
(4) prohibit price-fixing agreements and other
anticompetitive behavior by insurers;
(5) regulate the insurance forms used for lines of
insurance subject to this article to ensure that they are not
unjust, unfair, inequitable, misleading, or deceptive; and
(6) provide regulatory procedures for the maintenance
of appropriate information reporting systems.
Sec. 2. SCOPE. This article applies to all lines of general
liability, commercial automobile, commercial property, all
commercial casualty, and medical professional liability insurance
written under policies or contracts of insurance issued by a
licensed insurer, other than a fidelity, surety, or guaranty bond
or an automobile insurance policy.
SECTION 3.04. Section 3(2), Article 5.13-2, Insurance Code,
is amended to read as follows:
(2) "Insurer" means an insurer to which Article 5.13
of this code applies, but does not include the Texas Windstorm
Insurance Association. However, the provisions of Sections 4, 5,
6, and 7 of this article shall not apply to Lloyd's plans or
reciprocals with respect to commercial property insurance. The
provisions of Sections 4, 5, 6, and 7 of this article shall apply to
county mutual insurance companies with respect to commercial
automobile insurance.
SECTION 3.05. Article 5.13-2, Insurance Code, is amended by
adding Section 11 to read as follows:
Sec. 11. APPLICATION TO CERTAIN INSURERS. (a)
Notwithstanding Article 5.13 of this code, any other provision of
this article, or any other provision of this code, an insurer that
becomes authorized to write personal automobile insurance or
residential property insurance in this state on or after the
effective date of S.B. 14, Acts of the 78th Legislature, Regular
Session, 2003, including a reciprocal or interinsurance exchange,
mutual insurance company, capital stock company, county mutual
insurance company, and a Lloyd's plan, is subject to Sections 4, 5,
6, and 7 of this article in relation to rates for personal
automobile insurance or residential property insurance.
(b) This section expires September 1, 2004.
SECTION 3.06. This article expires September 1, 2004.
SECTION 3.07. Article 5.13-2, Insurance Code, is amended by
adding Section 12 to read as follows:
Sec. 12. RESIDENTIAL PROPERTY INSURANCE. (a)
Notwithstanding any other provision of this article, Article 5.13
of this code, or Subchapter Q of this chapter, rates for residential
property insurance are determined under this article in accordance
with this section. This section applies to any insurer subject to
Article 5.142 of this code. This section applies only to rates for
residential property insurance.
(b) Not later than the fifth day after the effective date of
S.B. 14, Acts of the 78th Legislature, Regular Session, 2003, the
commissioner shall adopt rating criteria for the review of initial
rate filings made under this article. The rating criteria must be
those the commissioner shall use to determine if a filed rate
complies with the rate standards described by this article.
(c) The rating criteria adopted under this section shall be
posted on the Internet and distributed by bulletin.
(d) The commissioner may use the procedures for adopting an
emergency rule under Chapter 2001, Government Code, to adopt rating
criteria under this section and may modify those procedures as
necessary to adopt rating criteria within the time established by
Subsection (b) of this section.
(e) Not later than the 20th day after the rating criteria
are published under Subsection (c) of this section, each insurer
authorized to write residential property insurance in this state
shall file with the commissioner the insurer's rates, supporting
information, and supplementary rating information and any other
information required by the commissioner by rule. The insurer may
reference a rate filed by the insurer in accordance with S.B. 310,
Acts of the 78th Legislature, Regular Session, 2003, or otherwise
previously filed, if that information is updated and supplemented
as necessary to comply with this subsection.
(f) Except as otherwise provided by Subsections (g) and (h)
of this section, the rate filed by an insurer under this section
shall take effect on the 10th day after the date the commissioner
receives the insurer's filing required under Subsection (e) of this
section.
(g) An insurer may decrease a rate in accordance with this
article or file a request with the commissioner to increase the
insurer's rate that is in effect. The commissioner may approve the
rate increase if the commissioner finds that the rate in effect is
inadequate or confiscatory.
(h) Not later than the 120th day after the date an insurer
files its rates under this article, the department shall review the
rate filing to ensure compliance with this article. The
commissioner by order may disapprove or further reduce an insurer's
rate filed under Subsection (e) of this section if the commissioner
finds that the insurer's rate is excessive. An insurer is not
entitled to a hearing prior to the issuance of an order by the
commissioner under this subsection.
(i) After receiving notice of the commissioner's
disapproval of the rate filed by the insurer, the insurer, not later
than the 10th day after the date a disapproval order is issued under
Subsection (h) of this section, may request a rate hearing to be
conducted by the State Office of Administrative Hearings in
accordance with Chapter 40 of this code. To prevail in a hearing
conducted under this subsection, an insurer must establish that a
reduced rate would be inadequate or confiscatory.
(j) After completion of the rate hearing under Subsection
(i) of this section, the administrative law judge shall prepare a
proposal for decision under Section 40.058 of this code and remand
the case to the commissioner recommending:
(1) that the commissioner affirm the commissioner's
order;
(2) additional review of the order by the
commissioner, that the parties enter into negotiations, or that the
commissioner take other appropriate action with respect to the
order;
(3) adoption of a temporary rate pending further
review; or
(4) adoption of the rate filed by the insurer.
(k) An insurer may appeal a decision made under Subsection
(j) of this section to the Travis County district court, or the
insurer may request a binding arbitration to be conducted by
arbitrators selected in the manner described by Subsection (l) of
this section.
(l) Binding arbitration conducted under Subsection (k) of
this section must be conducted by three arbitrators, one selected
by the department, one selected by the insurer, and one agreed on by
the arbitrators chosen by the department and the insurer. The three
arbitrators shall reach a decision by considering a rate proposed
by the insurer and a rate proposed by the department. The rate
proposed by the department or by the insurer on which two of the
three arbitrators agree shall be the insurer's effective rate.
(m) During the time a hearing or an appeal is pending under
this section, an insurer may use its rate in effect or a rate
approved by the commissioner. After a final determination is made
under Subsection (i), (k), or (l) of this section, if the insurer is
ordered to reduce its rate in effect to comply with the rating
determination, the commissioner may order a refund to a
policyholder as provided by Subsection (n) of this section.
(n) The commissioner's order under Subsection (m) of this
section may require the insurer to reduce the insurer's rates to
comply with the rate standards under this article and to make a
refund to policyholders in an amount equal to the excess of premiums
paid under the insurer's invalidated rates, plus interest as
provided by this subsection. The interest on the refund amount
begins to accrue on the first day a policyholder pays an excess
premium and ceases to accrue on the date the insurer issues the
refund under this subsection. The commissioner shall declare a
rate found to be excessive under this section by 3.5 percent or less
to be de minimus. An insurer is not required to directly refund an
overcharge of less than 3.5 percent to the policyholder if the
insurer agrees to reduce future rates by the amount of the
overcharge plus the prime rate of interest, as determined by the
commissioner, plus one percent.
(o) An insurer has the burden of proof in any hearing or
appeal under this section.
(p) An insurer requesting binding arbitration under
Subsection (k) of this section shall pay the entire cost of the
binding arbitration.
(q) This section expires September 1, 2004.
SECTION 3.08. The expiration of Section 12, Article 5.13-2,
Insurance Code, as added by this article, does not affect a hearing
or proceeding conducted under Section 12, Article 5.13-2, in
connection with an action taken under that law before its
expiration regardless of when the hearing or proceeding was
commenced, and that law is continued in effect for this purpose.
SECTION 3.09. Article 5.13-2, Insurance Code, is amended by
adding Section 13 to read as follows:
Sec. 13. STANDARD RATE INDEX FOR PERSONAL AUTOMOBILE
INSURANCE; EXEMPTION. (a) Notwithstanding Article 5.142 of this
code or any other provision of this article, this article governs
rate regulation of personal automobile insurance issued by a county
mutual insurance company as prescribed by this section.
(b) Using standard and generally accepted actuarial
techniques, the commissioner shall annually compute and publish a
statewide standard rate index that accurately reflects the average
statewide rates for classifications for each of the following
coverages for personal automobile insurance policies:
(1) bodily injury liability;
(2) property damage liability;
(3) personal injury protection;
(4) medical payments;
(5) uninsured and underinsured motorists;
(6) physical damage--collision; and
(7) physical damage--other than collision.
(c) The commissioner shall compute the rate index using the
benchmark rate in effect for personal automobile insurance under
Article 5.101 of this code on the effective date of S.B. 14, Acts of
the 78th Legislature, Regular Session, 2003, and adjusted annually
thereafter by the commissioner to reflect average changes in claims
costs in the personal automobile insurance market in this state.
(d) The commissioner may compute and establish standard
rate indexes other than the rate index required under Subsection
(b) of this section for any of the personal automobile insurance
coverages listed under that subsection as necessary to implement
this section.
(e) For purposes of this section, "nonstandard rates" means
rates that are 130 percent or more than the standard rate index as
determined by the commissioner under this section.
(f) A county mutual insurance company that issues personal
automobile insurance polices at nonstandard rates is not subject to
the filing requirements of this article or Article 5.142 of this
code if the insurer and the insurer's affiliated companies or group
have a market share of less than 3.5 percent.
(g) A county mutual insurance company described by
Subsection (f) of this section that increases its aggregate rates
by 10 percent or more in a 12-month period must file its rates in
accordance with this article.
(h) The commissioner by rule may designate other types of
insurers that historically and as of the effective date of S.B. 14,
Acts of the 78th Legislature, Regular Session, 2003, have served or
are serving the high-risk, nonstandard market. An insurer
designated by the commissioner as having served or serving the
nonstandard market is governed by this section.
SECTION 3.10. Article 5.13-2, Insurance Code, is amended by
adding Section 14 to read as follows:
Sec. 14. REVIEW OF RATES. In reviewing rates under this
article, the commissioner shall consider any state or federal
legislation that has been enacted and that may impact rates for
liability coverage included in a policy subject to this article.
SECTION 3.11. Article 5.13-2, Insurance Code, is amended by
adding Section 15 to read as follows:
Sec. 15. NOTICE OF PREMIUM CHARGES. (a) An insurer shall
send a policyholder of a policy of residential property insurance
issued by the insurer notice of any rate increase scheduled to take
effect on the renewal of the policy that will result in an increase
in the premium amount to be paid by the policyholder that is at
least 10 percent greater than the lesser of the premium amount paid
by the policyholder for coverage under the policy during:
(1) the 12-month period preceding the renewal date of
the policy; or
(2) the policy period preceding the renewal date of
the policy.
(b) An insurer shall send the notice required by Subsection
(a) of this section before the renewal date but not later than the
30th day before the date the rate increase is scheduled to take
effect.
(c) In addition to the mandatory notice under Subsection (a)
of this section, the insurer may send the notice required by
Subsection (a) of this section to any policyholder of residential
property insurance issued by the insurer, regardless of whether
that policyholder's premium amount to be paid will increase as a
result of the scheduled rate change.
(d) The commissioner by rule may exempt an insurer from the
notice requirements under this section for a short-term policy, as
defined by the commissioner, that is written by the insurer.
ARTICLE 4. RATE REGULATION EFFECTIVE SEPTEMBER 1, 2004
SECTION 4.01. Article 5.13, Insurance Code, is amended to
read as follows:
Art. 5.13. SCOPE OF SUBCHAPTER [SUB-CHAPTER]. (a) This
subchapter [Sub-chapter] applies to every insurance company,
corporation, interinsurance exchange, mutual, reciprocal,
association, Lloyd's plan, [Lloyds] or other organization or
insurer writing any of the characters of insurance business herein
set forth, hereinafter called "Insurer"; provided that nothing in
this entire subchapter [Sub-chapter] shall [ever] be construed to
apply to any county or farm mutual insurance company or
association, as regulated under Chapters 911 [16] and 912 [17] of
this code, except that Article 5.13-2 of this code shall apply to a
county mutual insurance company with respect to rates for personal
and commercial automobile insurance and residential and commercial
property insurance [Code].
(b) This subchapter [Sub-chapter] applies to the writing of
casualty insurance and the writing of fidelity, surety, and
guaranty bonds, on risks or operations in this State except as
herein stated.
(c) Except as otherwise provided by this subchapter, this
subchapter [This Sub-chapter] does not apply to the writing of
motor vehicle, life, health, accident, professional liability,
reinsurance, aircraft, fraternal benefit, fire, lightning,
tornado, windstorm, hail, smoke or smudge, cyclone, earthquake,
volcanic eruption, rain, frost and freeze, weather or climatic
conditions, excess or deficiency of moisture, flood, the rising of
the waters of the ocean or its tributaries, bombardment, invasion,
insurrection, riot, civil war or commotion, military or usurped
power, any order of a civil authority made to prevent the spread of
a conflagration, epidemic or catastrophe, vandalism or malicious
mischief, strike or lockout, water or other fluid or substance,
resulting from the breakage or leakage of sprinklers, pumps, or
other apparatus erected for extinguishing fires, water pipes or
other conduits or containers, or resulting from casual water
entering through leaks or opening in buildings or by seepage
through building walls, including insurance against accidental
injury of such sprinklers, pumps, fire apparatus, conduits or
container, workers' [workmen's] compensation, noncommercial inland
marine, ocean marine, marine, or title insurance; nor does this
subchapter [Sub-chapter] apply to the writing of explosion
insurance, except insurance against loss from injury to person or
property which results accidentally from steam boilers, heaters or
pressure vessels, electrical devices, engines and all machinery and
appliances used in connection therewith or operation thereby.
(d) This subchapter [Sub-chapter] shall not be construed as
limiting in any manner the types or classes of insurance which may
be written by the several types of insurers under appropriate
statutes or their charters or permits.
(e) The regulatory power herein conferred is vested in the
commissioner [Board of Insurance Commissioners of the State of
Texas. Within the Board, the Casualty Insurance Commissioner shall
have primary supervision of regulation herein provided, subject
however to the final authority of the entire Board].
SECTION 4.02. The heading to Article 5.13-2, Insurance
Code, is amended to read as follows:
Art. 5.13-2. RATES FOR GENERAL LIABILITY, PERSONAL AND
COMMERCIAL AUTOMOBILE, COMMERCIAL INLAND MARINE, AND RESIDENTIAL
AND COMMERCIAL PROPERTY INSURANCE COVERAGE
SECTION 4.03. Sections 1 and 2, Article 5.13-2, Insurance
Code, are amended to read as follows:
Sec. 1. PURPOSE. This article governs the regulation of
general liability, personal and commercial automobile, commercial
inland marine, residential and commercial property, which shall
include farm and ranch owners and farm and ranch policies, all
commercial casualty, and medical professional liability insurance
rates and forms. It does not govern [automobile,] fidelity,
surety, or guaranty bonds. The purposes of this article are to:
(1) promote the public welfare by regulating insurance
rates to prohibit excessive, inadequate, or unfairly
discriminatory rates;
(2) promote availability of insurance;
(3) promote price competition among insurers to
provide rates and premiums that are responsive to competitive
market conditions;
(4) prohibit price-fixing agreements and other
anticompetitive behavior by insurers;
(5) regulate the insurance forms used for lines of
insurance subject to this article to ensure that they are not
unjust, unfair, inequitable, misleading, or deceptive; and
(6) provide regulatory procedures for the maintenance
of appropriate information reporting systems.
Sec. 2. SCOPE. This article applies to all lines of general
liability, personal and commercial automobile, commercial inland
marine, residential and commercial property, all commercial
casualty, and medical professional liability insurance written
under policies or contracts of insurance issued by a licensed
insurer, other than a fidelity, surety, or guaranty bond [or an
automobile insurance policy].
SECTION 4.04. Section 3(2), Article 5.13-2, Insurance Code,
is amended to read as follows:
(2) "Insurer" means an insurer to which Article 5.13
of this code applies, but does not include the Texas Windstorm
Insurance Association or the Texas FAIR Plan Association. However,
the provisions of Sections 4, 5, 6, and 7 of this article shall not
apply to Lloyd's plans or reciprocals with respect to commercial
property insurance. The provisions of Sections 4, 5, 6, and 7 of
this article shall apply to Lloyd's plans, reciprocal and
interinsurance exchanges, and county mutual insurance companies
with respect to personal and commercial automobile insurance and
residential property insurance.
SECTION 4.05. Section 5(a), Article 5.13-2, Insurance Code,
is amended to read as follows:
(a) Each insurer shall file with the commissioner all rates,
supplementary rating information, and reasonable and pertinent
supporting information for risks written in this state. For an
insurer with less than five percent of the market, the commissioner
shall consider insurer and market-specific attributes, as
applicable, and shall promulgate filing requirements accordingly
to accommodate premium volume and loss experience, targeted
markets, limitations on coverage, and any potential barriers to
market entry or growth.
SECTION 4.06. This article takes effect September 1, 2004.
ARTICLE 5. POLICY FORMS AND ENDORSEMENTS
SECTION 5.01. Chapter 5, Insurance Code, is amended by
adding Subchapter R to read as follows:
SUBCHAPTER R. POLICY FORMS FOR CERTAIN LINES
Art. 5.145. POLICY FORMS FOR PERSONAL AUTOMOBILE INSURANCE
COVERAGE AND RESIDENTIAL PROPERTY INSURANCE COVERAGE
Sec. 1. DEFINITIONS. In this article:
(1) "Insurer" means an insurance company, reciprocal
or interinsurance exchange, mutual insurance company, capital
stock company, county mutual insurance company, Lloyd's plan, or
other legal entity authorized to write personal automobile
insurance or residential property insurance in this state. The
term includes an affiliate, as described by this code, if that
affiliate is authorized to write and is writing personal automobile
insurance or residential property insurance in this state. The
term does not include:
(A) the Texas Windstorm Insurance Association
under Article 21.49 of this code;
(B) the FAIR Plan Association under Article
21.49A of this code; or
(C) the Texas Automobile Insurance Plan
Association under Article 21.81 of this code.
(2) "Personal automobile insurance" means motor
vehicle insurance coverage for the ownership, maintenance, or use
of a private passenger, utility, or miscellaneous type motor
vehicle, including a motor home, trailer, or recreational vehicle,
that is:
(A) owned or leased by an individual or
individuals; and
(B) not primarily used for the delivery of goods,
materials, or services, other than for use in farm or ranch
operations.
(3) "Residential property insurance" means insurance
coverage against loss to residential real property at a fixed
location, or tangible personal property, that is provided in a
homeowners policy, including a tenants policy, a condominium owners
policy, or a residential fire and allied lines policy.
Sec. 2. REGULATION OF POLICY FORMS AND ENDORSEMENTS.
Notwithstanding any other provision in this code, an insurer is
governed by the provisions of Section 8, Article 5.13-2, of this
code relating to policy forms and endorsements for personal
automobile insurance and residential property insurance.
ARTICLE 6. WITHDRAWAL REQUIREMENTS
SECTION 6.01. (a) Effective June 1, 2003, Section 827.001,
Insurance Code, is amended to read as follows:
Sec. 827.001. DEFINITIONS [DEFINITION]. In this chapter:
(1) "Affiliate" has the meaning described by Section
823.003.
(2) "Insurer" means an insurance company or other
legal entity authorized to engage in the business of insurance in
this state, including a reciprocal or interinsurance exchange, a
Lloyd's plan, and a county mutual insurance company. The term
includes an affiliate. The term does not include an eligible
surplus lines insurer regulated under Chapter 981.
(3) "Rating [, "rating] territory" means a rating
territory established by the department.
(b) Until June 1, 2003, Subsection (a), Article 21.49-2C,
Insurance Code, is amended by adding Subdivisions (4) and (5) to
read as follows:
(4) "Affiliate" has the meaning described by Section
2, Article 21.49-1, of this code. This subdivision expires June 1,
2003.
(5) "Insurer" means an insurance company or other
legal entity authorized to engage in the business of insurance in
this state, including a reciprocal or interinsurance exchange, a
Lloyd's plan, and a county mutual insurance company. The term
includes an affiliate. The term does not include an eligible
surplus lines insurer regulated under Article 1.14-2 of this code.
This subdivision expires June 1, 2003.
SECTION 6.02. (a) Effective June 1, 2003, Section 827.002,
Insurance Code, is amended to read as follows:
Sec. 827.002. EXEMPTION. This chapter does not apply to a
transfer of business from an insurer to a company that:
(1) is under common ownership with the insurer; [and]
(2) is authorized to engage in the business of
insurance in this state; and
(3) is subject to, and has not been exempted from, rate
regulation under Article 5.142 or on and after September 1, 2004, is
subject to rate regulation under Article 5.13-2.
(b) Until June 1, 2003, Subsection (b), Article 21.49-2C,
Insurance Code, is amended to read as follows:
(b) This article does not apply to the transfer of the
business from an insurer to a company that is under common
ownership, is admitted to do business in this state, and is subject
to, and has not been exempted from, rate regulation under Article
5.142 of this code. This subsection expires June 1, 2003.
SECTION 6.03. (a) Effective June 1, 2003, Section 827.003,
Insurance Code, is amended to read as follows:
Sec. 827.003. WITHDRAWAL PLAN REQUIRED. An [authorized]
insurer shall file with the commissioner a plan for orderly
withdrawal if the insurer proposes to:
(1) withdraw from writing a line of insurance in this
state or reduce the insurer's total annual premium volume by 75
percent or more; or
(2) reduce, in a rating territory, the insurer's total
annual premium volume in a personal line of motor vehicle
comprehensive or residential property insurance by 50 percent or
more.
(b) Until June 1, 2003, Subsection (a)(1), Article
21.49-2C, Insurance Code, is amended to read as follows:
(1) This subdivision expires June 1, 2003. An
[authorized] insurer shall file with the commissioner a plan for
orderly withdrawal if the insurer proposes to withdraw from writing
a line of insurance in this state or to reduce its total annual
premium volume by 75 percent or more or proposes, in a personal line
of motor vehicle comprehensive or residential property insurance,
to reduce its total annual premium volume in a rating territory by
50 percent or more. The insurer's plan shall be constructed to
protect the interests of the people of this state and shall indicate
the date it intends to begin and complete its withdrawal plan and
must contain provisions for:
(A) meeting the insurer's contractual
obligations;
(B) providing service to its Texas policyholders
and claimants; and
(C) meeting any applicable statutory
obligations, such as the payment of assessments to the guaranty
fund and participation in any assigned risk plans or joint
underwriting arrangements.
SECTION 6.04. (a) Effective June 1, 2003, Section
827.010(d), Insurance Code, is amended to read as follows:
(d) To impose or renew a moratorium under this section, the
commissioner must determine, after notice and hearing, that a
catastrophic event has occurred and that as a result of that event a
particular line of insurance is not reasonably expected to be
available to a substantial number of policyholders or potential
policyholders in this state or, in the case of [personal] lines of
personal automobile [motor vehicle comprehensive] or residential
property insurance, in a rating territory.
(b) Until June 1, 2003, Subsection (g), Article 21.49-2C,
Insurance Code, is amended to read as follows:
(g) The commissioner may impose a moratorium of up to two
years on the approval of plans for withdrawal or implementation of
plans to restrict the writing of new business pursuant to
Subsection (a)(2) of this section, including those such plans
implemented subsequent to the commissioner's publishing of notice
of intention to impose a moratorium regarding the catastrophic
event related to such plans, and may renew the moratorium annually.
To impose or renew a moratorium, the commissioner must find after
notice and public hearing that a catastrophic event has occurred
and that as a result of the event, the relevant line of insurance is
not reasonably expected to be available to a substantial number of
policyholders or potential policyholders in this state, or in the
case of [personal] lines of personal automobile [motor vehicle
comprehensive] or residential property insurance, in a rating
territory. Such notice and hearing shall be governed by provisions
of Chapter 2001, Government Code, related to contested cases and by
Chapter 40 of this code [of Subsection (b), Article 1.33B,
Insurance Code]. The commissioner shall, by rule, establish
reasonable criteria for applying the above set forth standards for
determining whether to impose a moratorium. The commissioner may
limit a moratorium on withdrawal from or reduction in personal
lines insurance to certain geographical areas of this state.
ARTICLE 7. INSURANCE DISCRIMINATION
SECTION 7.01. Article 21.21-6, Insurance Code, as added by
Chapter 415, Acts of the 74th Legislature, Regular Session, 1995,
is amended by adding Section 6 to read as follows:
Sec. 6. CRIMINAL PENALTY. (a) In this section, "person"
means a legal entity described in Section (2)(a), (b), (e), (f), or
(j) of this article or its officers or directors.
(b) A person commits an offense if the person, with criminal
negligence:
(1) offers insurance coverage at a premium based on a
rate that is, because of race, color, religion, ethnicity, or
national origin, different from another premium rate offered or
used by the person for the same coverage and the same risk; or
(2) collects an insurance premium based on a rate that
is, because of race, color, religion, ethnicity, or national
origin, different from another premium rate offered or used by the
person for the same coverage and the same risk.
(c) An offense under this section is a state jail felony.
ARTICLE 8. REVENUE BOND PROGRAM
PART A. FAIR PLAN ASSOCIATION
SECTION 8.01. Subchapter E, Chapter 21, Insurance Code, is
amended by adding Article 21.49A-1 to read as follows:
Art. 21.49A-1. REVENUE BOND PROGRAM FOR FAIR PLAN
ASSOCIATION
Sec. 1. PURPOSE. The legislature finds that the issuance of
public securities to provide a method to raise funds to provide
residential property insurance through the FAIR Plan Association in
this state is for the benefit of the public and in furtherance of a
public purpose.
Sec. 2. DEFINITIONS. In this article:
(1) "Association" means the FAIR Plan Association
established under Article 21.49A of this code.
(2) "Public security resolution" means the resolution
or order authorizing public securities to be issued under this
article.
(3) "Bond" means any debt instrument or public
security issued by the Texas Public Finance Authority.
(4) "Board" means the board of directors of the Texas
Public Finance Authority.
(5) "Insurer" means any insurer required to
participate in the association under Section 5, Article 21.49A, of
this code, including a Lloyd's plan or a reciprocal or
interinsurance exchange.
Sec. 3. PUBLIC SECURITIES AUTHORIZED; APPLICATION OF TEXAS
PUBLIC FINANCE AUTHORITY ACT. (a) At the request of the
association, the Texas Public Finance Authority shall issue public
securities to:
(1) fund the association, including:
(A) to establish and maintain reserves to pay
claims;
(B) to pay operating expenses; and
(C) to purchase reinsurance;
(2) pay costs related to issuance of the public
securities; and
(3) pay other costs related to the public securities
as may be determined by the board.
(b) To the extent not inconsistent with this article,
Chapter 1232, Government Code, applies to public securities issued
under this article. In the event of a conflict, this article
controls.
Sec. 4. APPLICABILITY OF OTHER STATUTES. The following
laws apply to public securities issued under this article to the
extent consistent with this article:
(1) Chapters 1201, 1202, 1204, 1205, 1231, and 1371,
Government Code; and
(2) Subchapter A, Chapter 1206, Government Code.
Sec. 5. LIMITS. The Texas Public Finance Authority may
issue, on behalf of the association, public securities in a total
amount not to exceed $75 million.
Sec. 6. CONDITIONS. (a) Public securities issued under
this article may be issued at public or private sale.
(b) Public securities may mature not more than 10 years
after the date issued.
(c) Public securities must be issued in the name of the
association.
Sec. 7. ADDITIONAL COVENANTS. In a public security
resolution, the board may make additional covenants with respect to
the public securities and the designated income and receipts of the
association pledged to their payment, and may provide for the flow
of funds and the establishment, maintenance, and investment of
funds and accounts with respect to the public securities.
Sec. 8. SPECIAL ACCOUNTS. (a) A public security resolution
may establish special accounts, including an interest and sinking
fund account, reserve account, and other accounts.
(b) The association shall administer the accounts in
accordance with Article 21.49A of this code.
Sec. 9. SECURITY. (a) Public securities are payable only
from the service fee established under Section 10 of this article or
other amounts that the association is authorized to levy, charge,
and collect.
(b) Public securities are obligations solely of the
association. Public securities do not create a pledging, giving,
or lending of the faith, credit, or taxing authority of this state.
(c) Each public security must include a statement that the
state is not obligated to pay any amount on the public security and
that the faith, credit, and taxing authority of this state are not
pledged, given, or lent to those payments.
(d) Each public security issued under this article must
state on its face that the public security is payable solely from
the revenues pledged for that purpose and that the public security
does not and may not constitute a legal or moral obligation of the
state.
Sec. 10. SERVICE FEE. (a) A service fee may be assessed
against:
(1) each insurer; and
(2) the association.
(b) The service fee shall be set by the commissioner in an
amount sufficient to pay all debt service on the public securities.
The service fee shall be paid by each insurer and the association as
required by the commissioner by rule.
(c) The comptroller shall collect the service fee and the
department shall reimburse the comptroller in the manner described
by Article 4.19 of this code.
(d) The commissioner, in consultation with the comptroller,
may coordinate payment and collection of the service fee with other
payments made by insurers and collected by the comptroller.
(e) As a condition of engaging in the business of insurance
in this state, an insurer agrees that if the company leaves the
property insurance market in this state the insurer remains
obligated to pay, until the public securities are retired, the
insurer's share of the service fee assessed under this section in an
amount proportionate to that insurer's share of the property
insurance market, including residential property insurance, in
this state as of the last complete reporting period before the date
on which the insurer ceases to engage in that insurance business in
this state. The proportion assessed against the insurer shall be
based on the insurer's gross premiums for property insurance,
including residential property insurance, for the insurer's last
reporting period.
Sec. 11. TAX EXEMPT. The public securities issued under
this article, any interest from those public securities, and all
assets pledged to secure the payment of the public securities are
free from taxation by the state or a political subdivision of this
state.
Sec. 12. AUTHORIZED INVESTMENTS. The public securities
issued under this article constitute authorized investments under
Articles 2.10 and 3.33 and Subpart A, Part I, Article 3.39, of this
code.
Sec. 13. STATE PLEDGE. The state pledges to and agrees with
the owners of any public securities issued in accordance with this
article that the state will not limit or alter the rights vested in
the association to fulfill the terms of any agreements made with the
owners of the public securities or in any way impair the rights and
remedies of those owners until the public securities, bond premium,
if any, or interest, and all costs and expenses in connection with
any action or proceeding by or on behalf of those owners, are fully
met and discharged. The association may include this pledge and
agreement of the state in any agreement with the owners of the
public securities.
Sec. 14. ENFORCEMENT BY MANDAMUS. A writ of mandamus and
all other legal and equitable remedies are available to any party at
interest to require the association and any other party to carry out
agreements and to perform functions and duties under this article,
the Texas Constitution, or a public security resolution.
SECTION 8.02. Section 3(e), Article 21.49A, Insurance Code,
is amended to read as follows:
(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.
SECTION 8.03. Section 5(d), Article 21.49A, Insurance Code,
is amended to read as follows:
(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.
SECTION 8.04. Section 11, Article 21.49A, Insurance Code,
is amended to read as follows:
Sec. 11. ASSESSMENTS AND PREMIUM SURCHARGES. Should a
deficit occur in the association, the association, at the direction
of the commissioner, shall either request the issuance of public
securities as authorized by Article 21.49A-1 of this code or assess
participating insurers in accordance with this section. Each [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
under this section. 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.
SECTION 8.05. Article 21.49A, Insurance Code, is amended by
adding Section 15 to read as follows:
Sec. 15. RETENTION OF PROFITS. The association shall retain
any profits of the association to be used for the purposes of the
association. The profits of the association may not be distributed
to insurers.
PART B. TRANSITION
SECTION 8.06. The changes in law made by this article to
Article 21.49A, Insurance Code, apply only to the profits earned by
the FAIR Plan Association in accordance with Article 21.49A on or
after the effective date of this Act.
ARTICLE 9. CONFORMING AMENDMENTS; REPEALER
SECTION 9.01. Article 5.01(f), Insurance Code, is amended
to read as follows:
(f) Notwithstanding Subsections (a) through (d) of this
article, on and after the effective date of S.B. 14, Acts of the
78th Legislature, Regular Session, 2003 [March 1, 1992], rates for
personal automobile insurance in this state are determined as
provided by Subchapter Q of this chapter, and rates for commercial
motor vehicle insurance in this state are determined as provided by
Article 5.13-2 [the flexible rating program adopted under
Subchapter M] of this code [chapter]. On and after September 1,
2004, rates for personal automobile insurance in this state are
determined as provided by Article 5.13-2 of this code.
SECTION 9.02. Section 4, Article 5.01C, Insurance Code, is
amended to read as follows:
Sec. 4. FORMS. An insurer selling short-term liability
insurance policies under this article must use the policy forms
adopted by the commissioner under Article 5.06 of this code or filed
and in effect as provided by Article 5.145 of this code unless the
insurer is exempt from using those forms.
SECTION 9.03. Article 5.01-2(b), Insurance Code, is amended
to read as follows:
(b) On and after the effective date of S.B. 14, Acts of the
78th Legislature, Regular Session, 2003 [March 1, 1992], rates for
personal automobile [motor vehicle] insurance written by a Lloyd's
plan insurer or a reciprocal or interinsurance exchange are
determined as provided by [the flexible rating program adopted
under] Subchapter Q [M] of this chapter. This subsection expires
June 1, 2003.
SECTION 9.04. Section 4, Article 5.01-4, Insurance Code, is
amended to read as follows:
Sec. 4. APPLICABILITY OF CERTAIN LAWS. (a) In reporting
incurred losses and earned premiums as required under this
subchapter or [,] Subchapter Q [M] of this chapter, or on and after
September 1, 2004, under Article 5.13-2 [or Chapter 17] of this
code, an insurer shall separately report experience based on use of
the mile-based rating plan and the time-based rating plan.
(b) The classifications used by an insurer for motor
vehicles insured under the mile-based rating plan are exempt from
the provisions of this subchapter other than this article, [and]
Subchapter Q [M] of this chapter, and on and after September 1,
2004, Article 5.13-2 of this code.
SECTION 9.05. Article 5.03(g), Insurance Code, is amended
to read as follows:
(g) Notwithstanding Sections (a) through (e) of this
article, on and after the effective date of S.B. 14, Acts of the
78th Legislature, Regular Session, 2003 [March 1, 1992], rates for
personal automobile insurance in this state are determined as
provided by Subchapter Q of this chapter, and rates for commercial
motor vehicle insurance in this state [vehicles] are determined as
provided by Article 5.13-2 [Subchapter M] of this code [chapter].
On and after September 1, 2004, rates for personal automobile
insurance in this state are determined as provided by Article
5.13-2 of this code.
SECTION 9.06. Article 5.04(c), Insurance Code, is amended
to read as follows:
(c) Notwithstanding Subsections (a) and (b) of this
article, on and after the effective date of S.B. 14, Acts of the
78th Legislature, Regular Session, 2003 [March 1, 1992], rates for
personal automobile insurance in this state are determined as
provided by Subchapter Q of this chapter, and rates for commercial
motor vehicle insurance in this state [vehicles] are determined as
provided by Article 5.13-2 [Subchapter M] of this code [chapter].
On and after September 1, 2004, rates for personal automobile
insurance in this state are determined as provided by Article
5.13-2 of this code.
SECTION 9.07. Article 5.06, Insurance Code, is amended by
adding Subsection (12) to read as follows:
(12)(a) Notwithstanding Subsections (1)-(10) of this
article, policy forms and endorsements for personal automobile
insurance in this state are regulated under Article 5.13-2 of this
code.
(b) An insurer may continue to use the policy forms and
endorsements promulgated, approved, or adopted by the commissioner
under this article before the effective date of S.B. 14, Acts of the
78th Legislature, Regular Session, 2003, on notification in writing
to the commissioner that the insurer will continue to use the policy
forms and endorsements promulgated, approved, or adopted by the
commissioner under this article.
SECTION 9.08. Subsection (2), Article 5.06-1, Insurance
Code, is amended to read as follows:
(2) For the purpose of these coverages: (a) the term
"uninsured motor vehicle" shall, subject to the terms and
conditions of such coverage, be deemed to include an insured motor
vehicle where the liability insurer thereof is unable to make
payment with respect to the legal liability of its insured within
the limits specified therein because of insolvency.
(b) The term "underinsured motor vehicle" means an
insured motor vehicle on which there is valid and collectible
liability insurance coverage with limits of liability for the owner
or operator which were originally lower than, or have been reduced
by payment of claims arising from the same accident to, an amount
less than the limit of liability stated in the underinsured
coverage of the insured's policy.
(c) The commissioner [Board] may, in the policy forms
adopted under Article 5.06 of this code, define "uninsured motor
vehicle" to exclude certain motor vehicles whose operators are in
fact uninsured. The commissioner may in the policy forms filed
under Article 5.145 of this code allow the term "uninsured motor
vehicle" to be defined to exclude certain motor vehicles whose
operators are in fact uninsured.
(d) The portion of a policy form adopted under Article
5.06 of this code or filed under Article 5.145 of this code to
provide coverage under this article shall include provisions that,
regardless of the number of persons insured, policies or bonds
applicable, vehicles involved, or claims made, the total aggregate
limit of liability to any one person who sustains bodily injury or
property damage as the result of any one occurrence shall not exceed
the limit of liability for these coverages as stated in the policy
and the total aggregate limit of liability to all claimants, if more
than one, shall not exceed the total limit of liability per
occurrence as stated in the policy; and shall provide for the
exclusion of the recovery of damages for bodily injury or property
damage or both resulting from the intentional acts of the insured.
The portion of a policy form adopted under Article 5.06 of this code
or filed under Article 5.145 of this code to provide coverage under
this article shall require that in order for the insured to recover
under the uninsured motorist coverages where the owner or operator
of any motor vehicle which causes bodily injury or property damage
to the insured is unknown, actual physical contact must have
occurred between the motor vehicle owned or operated by such
unknown person and the person or property of the insured.
SECTION 9.09. Article 5.06-6, Insurance Code, is amended to
read as follows:
Art. 5.06-6. COVERAGES FOR SPOUSES AND FORMER SPOUSES. A
personal automobile policy or any similar policy form adopted or
approved by the commissioner [State Board of Insurance] under
Article 5.06 of this code or filed under Article 5.145 of this code
that covers liability arising out of ownership, maintenance, or use
of a motor vehicle of a spouse, who is otherwise insured by the
policy, shall contain a provision to continue coverage for the
spouse during a period of separation in contemplation of divorce.
SECTION 9.10. Article 5.09(c), Insurance Code, is amended
to read as follows:
(c) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for personal
automobile insurance in this state are determined as provided by
Subchapter Q of this chapter, and rates for commercial motor
vehicle insurance in this state [vehicles] are determined as
provided by Article 5.13-2 [Subchapter M] of this code [chapter].
On and after September 1, 2004, rates for personal automobile
insurance in this state are determined as provided by Article
5.13-2 of this code.
SECTION 9.11. Article 5.11(c), Insurance Code, is amended
to read as follows:
(c) Notwithstanding Subsections (a) and (b) of this
article, on and after the effective date of S.B. 14, Acts of the
78th Legislature, Regular Session, 2003 [March 1, 1992], rates for
personal automobile insurance in this state are determined as
provided by Subchapter Q of this chapter, and rates for commercial
motor vehicle insurance in this state [vehicles] are determined as
provided by Article 5.13-2 [Subchapter M] of this code [chapter].
On and after September 1, 2004, rates for personal automobile
insurance in this state are determined as provided by Article
5.13-2 of this code.
SECTION 9.12. Article 5.25(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code. This subsection does not
affect the requirement for the commissioner to conduct inspections
of commercial property and prescribe a manual of rules and rating
schedules for commercial property under this subchapter.
SECTION 9.13. Article 5.25A(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.14. Article 5.25-2, Insurance Code, is amended to
read as follows:
Art. 5.25-2. CITY FIRE LOSS LISTS
Sec. 1. In this article,
[(1)] "list" means the list of fire and lightning
losses in excess of $100 paid under policy forms adopted or approved
by the commissioner [board] under Article 5.35 of this code or filed
and in effect as provided by Article 5.145 of this code [subchapter]
in a particular city or town prepared by the department [State Board
of Insurance] for distribution to the city or town[;
[(2) "board" means the State Board of Insurance].
Sec. 2. (a) The department [board] shall compile for each
city or town in Texas a list of the insured fire losses paid under
policy forms adopted or approved by the commissioner [board] under
Article 5.35 of this code or filed and in effect as provided by
Article 5.145 of this code [subchapter] in that city or town for the
preceding statistical year.
(b) The list shall include:
(1) the names of persons recovering losses under
policy forms adopted or approved by the commissioner [board] under
Article 5.35 of this code or filed and in effect as provided by
Article 5.145 of this code [subchapter];
(2) the addresses or locations where the losses
occurred; and
(3) the amount paid by the insurance company on each
loss.
(c) The department [board] shall obtain the information to
make the lists from insurance company reports of individual losses
during the statistical year.
Sec. 3. Upon the request of any city or town, or its duly
authorized agent or fire marshall, the department [board] shall
provide that city and town with a copy of the list for its
particular area.
Sec. 4. Each city or town shall investigate its list to
determine the losses actually occurring in its limits and shall
make a report to the department, [board] which report shall
include:
(1) a list of the losses that actually occurred in the
limits of the city or town;
(2) a list of any losses not occurring in the limits of
the city or town; and
(3) other evidence essential to establishing the
losses in the city or town.
Sec. 5. The department [board] shall make such changes or
corrections as to it shall seem appropriate in order to correct the
list of insured fire and lightning losses paid under policy forms
adopted or approved by the commissioner [board] under Article 5.35
of this code or filed and in effect as provided by Article 5.145 of
this code [subchapter] in a particular city or town and said list of
losses, as changed or corrected, shall be used to determine the fire
record credit or debit for each particular city or town for the next
year.
Sec. 6. The commissioner [board] shall set and collect a
charge for compiling and providing a list of fire and lightning
losses paid under policy forms adopted or approved by the
commissioner [board] under Article 5.35 of this code or filed and in
effect as provided by Article 5.145 of this code [subchapter] in a
particular city or town and as the commissioner [board] shall deem
appropriate to administer the fire record system.
Sec. 7. The department [board] is authorized to require
each and every city or town in the State of Texas and each and every
insurance company or carrier of every type and character whatsoever
doing business in the State of Texas to furnish to it a complete and
accurate list of all fire and lightning losses occurring within the
State of Texas and reflected in their records for the purpose of
accumulating statistical information for the control and
prevention of fires.
Sec. 8. The department [board] may, at its discretion,
furnish such list only during such time as the fire record system
remains in force and effect.
SECTION 9.15. Article 5.26(i), Insurance Code, is amended
to read as follows:
(i) Notwithstanding Subsections (a)-(h) of this article, on
and after the effective date of S.B. 14, Acts of the 78th
Legislature, Regular Session, 2003 [March 1, 1992], rates for
homeowners and residential fire and residential allied lines
insurance coverage under this subchapter are determined as provided
by Subchapter Q [M] of this chapter, and rates for other lines of
insurance subject to this subchapter are determined as provided by
Article 5.13-2 of this code, except that on and after September 1,
2004, rates for all lines of insurance subject to this subchapter
are determined as provided by Article 5.13-2 of this code.
SECTION 9.16. Article 5.28(d), Insurance Code, is amended
to read as follows:
(d) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.17. Article 5.29(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.18. Article 5.30(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.19. Article 5.31(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.20. Article 5.32(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.21. Article 5.34(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.22. Article 5.35, Insurance Code, is amended by
adding Subsection (k) to read as follows:
(k)(1) Notwithstanding Subsections (a)-(j) of this article,
policy forms and endorsements for residential property insurance in
this state are regulated under Article 5.13-2 of this code.
(2) An insurer may continue to use the policy forms and
endorsements promulgated, approved, or adopted by the commissioner
under this article before the effective date of S.B. 14, Acts of the
78th Legislature, Regular Session, 2003, on notification in writing
to the commissioner that the insurer will continue to use the policy
forms and endorsements promulgated, approved, or adopted by the
commissioner under this article.
SECTION 9.23. Article 5.35-1, Insurance Code, is amended to
read as follows:
Art. 5.35-1. COVERAGES FOR SPOUSES AND FORMER SPOUSES. A
homeowner's policy or fire policy promulgated under Article 5.35 of
this code or filed and in effect as provided by Article 5.145 of
this code may not be delivered, issued for delivery, or renewed in
this state unless the policy contains the following language: "It
is understood and agreed that this policy, subject to all other
terms and conditions contained in this policy, when covering
residential community property, as defined by state law, shall
remain in full force and effect as to the interest of each spouse
covered, irrespective of divorce or change of ownership between the
spouses unless excluded by endorsement attached to this policy
until the expiration of the policy or until canceled in accordance
with the terms and conditions of this policy."
SECTION 9.24. Article 5.36, Insurance Code, is amended to
read as follows:
Art. 5.36. WRITTEN EXPLANATION OF CERTAIN ENDORSEMENTS
REQUIRED. An insurer may not use an endorsement to a policy form to
which Article 5.35 of this code or Article 5.145 of this code
applies that reduces the amount of coverage, unless requested by
the insured, that would otherwise be provided under the policy
unless the insurer provides the policyholder with a written
explanation of the change made by the endorsement before the
effective date of the change.
SECTION 9.25. Article 5.39(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined, and hearings related to those
rates are conducted, as provided by Subchapter Q [M] of this
chapter, and rates for other lines of insurance subject to this
subchapter are determined as provided by Article 5.13-2 of this
code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.26. Article 5.40(d), Insurance Code, is amended
to read as follows:
(d) Notwithstanding Subsections (a)-(c) of this article, on
and after the effective date of S.B. 14, Acts of the 78th
Legislature, Regular Session, 2003 [March 1, 1992], rates for
homeowners and residential fire and residential allied lines
insurance coverage under this subchapter are determined, and
hearings related to those rates are conducted, as provided by
Subchapter Q [M] of this chapter, and rates for other lines of
insurance subject to this subchapter are determined as provided by
Article 5.13-2 of this code, except that on and after September 1,
2004, rates for all lines of insurance subject to this subchapter
are determined as provided by Article 5.13-2 of this code.
SECTION 9.27. Article 5.41(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) of this article, on and
after the effective date of S.B. 14, Acts of the 78th Legislature,
Regular Session, 2003 [March 1, 1992], rates for homeowners and
residential fire and residential allied lines insurance coverage
under this subchapter are determined as provided by Subchapter Q
[M] of this chapter, and rates for other lines of insurance subject
to this subchapter are determined as provided by Article 5.13-2 of
this code, except that on and after September 1, 2004, rates for all
lines of insurance subject to this subchapter are determined as
provided by Article 5.13-2 of this code.
SECTION 9.28. Article 5.53(g), Insurance Code, is amended
to read as follows:
(g) The writing of inland marine insurance, rain insurance
and insurance against loss by hail on farm crops, shall be governed
by the provisions of Articles 5.25 to 5.48, inclusive, and also
Article [Articles 5.50 to] 5.51[, inclusive,] of this subchapter
and Article 5.67 of Subchapter D[.] of this chapter, in the same
manner and to the same extent as fire insurance and fire insurance
rates are now affected by the provisions of said articles, except
that wherever in any of said articles reference is made to making,
fixing, prescribing, determination or promulgation by the Board of
rates or policy forms or endorsements, the provisions of this
article shall control. On and after September 1, 2004, rates for
commercial inland marine insurance are determined as provided by
Article 5.13-2 of this code. Notwithstanding any other provision
of this subchapter, rates for inland marine insurance, other than
commercial inland marine insurance, are determined as provided by
this article. [Notwithstanding any other provision of this
subchapter, the flexible rating program created under Subchapter M
of this chapter does not apply to this article.]
SECTION 9.29. Article 5.96(a-1), Insurance Code, is amended
to read as follows:
(a-1) This [Except as provided by Section 5(d), Article
5.101, of this code, this] article does not apply to the setting of
[benchmark] rates for motor vehicle insurance and fire and allied
lines insurance under Subchapter Q [M] of this chapter or, on and
after September 1, 2004, rates for motor vehicle insurance and fire
and allied lines insurance under Article 5.13-2 of this code.
SECTION 9.30. Section 8, Article 21.77, Insurance Code, is
amended to read as follows:
Sec. 8. POLICY FORMS. All policy forms for insurance
written under this article shall be prescribed by the commissioner
[board] as provided in Article 5.06 of this code or filed and in
effect as provided in Article 5.145 of this code[, Insurance Code].
SECTION 9.31. (a) Effective June 1, 2003, Section 912.002,
Insurance Code, is amended by amending Subsection (a) and adding
Subsection (c) to read as follows:
(a) A county mutual insurance company is exempt from the
operation of all insurance laws of this state[, including the
flexible rating program under Article 5.101,] except laws that are
made applicable by their specific terms or except as specifically
provided by this chapter.
(c) Rate regulation for a personal automobile insurance
policy written by a county mutual insurance company is subject to
Subchapter Q, Chapter 5. Rate regulation for a residential fire and
allied lines insurance policy written by a county mutual insurance
company is subject to Subchapter Q, Chapter 5. On and after
September 1, 2004, rate regulation for a personal automobile
insurance policy and a residential fire and allied lines insurance
policy written by a county mutual insurance company is subject to
Article 5.13-2. A county mutual insurance company is subject to
Subchapter O, Chapter 5. The commissioner may adopt rules as
necessary to implement this subsection.
(b) Until June 1, 2003, Article 17.22(b), Insurance Code, is
amended to read as follows:
(b) Rate regulation for a personal automobile insurance
policy written by a county mutual insurance company is subject to
Subchapter Q, Chapter 5, of this code. Rate regulation for a
residential fire and allied lines insurance policy written by a
county mutual insurance company is subject to Subchapters O and Q,
Chapter 5, of this code. The commissioner may adopt rules as
necessary to implement this subsection. This subsection expires
June 1, 2003. [The flexible rating program created under
Subchapter M, Chapter 5, of this code does not apply to county
mutual insurance companies.]
SECTION 9.32. Section 912.152, Insurance Code, is amended
to read as follows:
Sec. 912.152. POLICY FORMS. (a) A county mutual insurance
company is subject to Articles 5.06, [and] 5.35, and 5.145.
(b) County [The commissioner, in accordance with Article
5.35, may adopt for use by county] mutual insurance companies shall
file policy forms under Article 5.145 or continue to use the
standard policy forms and endorsements promulgated under Articles
5.06 and 5.35 on notification to the commissioner in writing in the
manner prescribed by those articles that those forms will continue
to be used [uniform policy forms that differ from the forms adopted
for use by other companies and shall prescribe the conditions under
which a county mutual insurance company:
[(1) may use the policy forms adopted under this
subsection; or
[(2) shall use the policy forms adopted for other
companies].
SECTION 9.33. (a) Effective June 1, 2003, Section
941.003(b), Insurance Code, is amended to read as follows:
(b) A Lloyd's plan is subject to:
(1) Section 5, Article 1.10;
(2) Article 1.15A;
(3) Subchapters [Subchapter] A, O, Q, and R, Chapter
5;
(4) Articles 5.35, 5.38, 5.39, 5.40, and 5.49;
(5) Articles 21.21 and 21.49-8; [and]
(6) Sections 822.203, 822.205, 822.210, and 822.212;
and
(7) Article 5.13-2, as provided by that article.
(b) Until June 1, 2003, Article 18.23, Insurance Code, is
amended by adding Subsection (c) to read as follows:
(c) Rate regulation for a personal automobile insurance
policy written by a Lloyd's plan is subject to Subchapter Q, Chapter
5, of this code. Rate regulation for a homeowners or residential
fire and allied lines insurance policy written by a Lloyd's plan is
subject to Subchapter Q, Chapter 5, of this code. The commissioner
may adopt rules as necessary to implement this subsection. A
Lloyd's plan is subject to Subchapter O, Chapter 5, of this code.
This subsection expires June 1, 2003.
SECTION 9.34. (a) Effective June 1, 2003, Section
942.003(b), Insurance Code, is amended to read as follows:
(b) An exchange is subject to:
(1) Section 5, Article 1.10;
(2) Articles 1.15, 1.15A, and 1.16;
(3) Subchapters [Subchapter] A, O, Q, and R, Chapter
5;
(4) Articles 5.35, 5.37, 5.38, 5.39, and 5.40;
(5) Articles 21.21 and 21.49-8; [and]
(6) Sections 822.203, 822.205, 822.210, 822.212,
861.254(a)-(f), 861.255, 862.001(b), and 862.003; and
(7) Article 5.13-2, as provided by that article.
(b) Until June 1, 2003, Article 19.12, Insurance Code, is
amended by adding Subsection (c) to read as follows:
(c) Rate regulation for a personal automobile insurance
policy written by a reciprocal or interinsurance exchange is
subject to Subchapter Q, Chapter 5, of this code. Rate regulation
for a homeowners or residential fire and allied lines insurance
policy written by a reciprocal or interinsurance exchange is
subject to Subchapter Q, Chapter 5, of this code. The commissioner
may adopt rules as necessary to implement this subsection. A
reciprocal or interinsurance exchange is subject to Subchapter O,
Chapter 5, of this code. This subsection expires June 1, 2003.
SECTION 9.35. Section 502.153(d), Transportation Code, is
amended to read as follows:
(d) A personal automobile policy used as evidence of
financial responsibility under this section must comply with
Article 5.06 or 5.145, Insurance Code.
SECTION 9.36. Section 521.143(c), Transportation Code, is
amended to read as follows:
(c) A personal automobile insurance policy used as evidence
of financial responsibility under this section must comply with
Article 5.06 or 5.145, Insurance Code.
SECTION 9.37. The following laws are repealed:
(1) Articles 5.03-2, 5.03-3, 5.03-4, and 5.03-5,
Insurance Code;
(2) Articles 5.26(h), 5.33A, 5.33C, 5.50, 5.101, and
40.061, Insurance Code;
(3) Section 6, Article 17.25, Insurance Code;
(4) Section 4C, Article 5.73, Insurance Code;
(5) as effective June 1, 2003, Section 912.201,
Insurance Code;
(6) as effective June 1, 2003, Sections 941.003(c) and
942.003(c), Insurance Code; and
(7) Article 5.33B, Insurance Code, as added by Chapter
337, Acts of the 74th Legislature, Regular Session, 1995.
ARTICLE 10. GENERAL TRANSITION; EFFECTIVE DATE
SECTION 10.01. This Act applies only to an insurance policy
that is delivered, issued for delivery, or renewed on or after the
120th day after the effective date of this Act. A policy delivered,
issued for delivery, or renewed before the 120th day after the
effective date of this Act is governed by the law as it existed
immediately before the effective date of this Act, and that law is
continued in effect for that purpose.
SECTION 10.02. (a) Except as provided by this section,
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.
(b) Provisions of this Act that specify an effective date
take effect on the date specified in those provisions.
(c) Section 5(j), Article 5.142, Insurance Code, as added by
this Act, takes effect on the first anniversary of the effective
date specified in Subsection (a) of this section and expires on
September 1, 2004, in accordance with Article 1 of this Act.