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.