80R3743 AJA-D

By: Eiland H.B. No. 698

A BILL TO BE ENTITLED

AN ACT

relating to the kinds of property insurance that may be offered by the Fair Access to Insurance Requirements (FAIR) Plan.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 2211.001(6), Insurance Code, is amended to read as follows:

(6) "Net direct premiums" means gross direct written premiums less return premiums on canceled contracts, regardless of reinsurance assumed or ceded, written on residential and commercial property under this chapter.

SECTION 2. Section 2211.051, Insurance Code, is amended to read as follows:

Sec. 2211.051. ESTABLISHMENT OF FAIR PLAN. The commissioner may establish a Fair Access to Insurance Requirements Plan to deliver residential and commercial property insurance to persons in [residents of] this state located in underserved areas if the commissioner determines, after a public hearing, that:

(1) in all or any part of the state, residential or commercial property insurance is not reasonably available in the voluntary market to a substantial number of insurable risks; and

(2) at least 25 percent of the applicants to the residential property market assistance program who are qualified under that program's plan of operation have not been placed with an insurer in the preceding six months.

SECTION 3. Section 2211.054, Insurance Code, is amended to read as follows:

Sec. 2211.054. CONTENTS OF PLAN OF OPERATION. The plan of operation must:

(1) provide for a nonprofit association to issue residential and commercial property insurance under this chapter and distribute the losses and expenses in writing that insurance in this state;

(2) provide that all insurers that write residential or commercial property insurance shall participate in the association in accordance with Sections 2211.101(b) and (c);

(3) provide that a participating insurer is entitled to receive credit in accordance with Section 2211.101(d);

(4) provide for the immediate binding of eligible risks;

(5) provide for the use of premium installment payment plans, adequate marketing, and service facilities;

(6) provide for the establishment of reasonable service standards;

(7) provide procedures for efficient, economical, fair, and nondiscriminatory administration of the association;

(8) provide procedures for determining the net level of participation required for each insurer in the association;

(9) provide for the use of deductibles and other underwriting devices;

(10) provide for assessment of all members in amounts sufficient to operate the association;

(11) establish maximum limits of liability to be placed through the program;

(12) establish commissions to be paid to the insurance agents submitting applications;

(13) provide that the association issue policies in the association's own name;

(14) provide reasonable underwriting standards for determining insurability of a risk;

(15) provide procedures for the association to assume and cede reinsurance; and

(16) provide any other procedure or operational matter the governing committee or the commissioner considers necessary.

SECTION 4. Sections 2211.101(a), (b), and (c), Insurance Code, are amended to read as follows:

(a) In accordance with the plan of operation, the association shall develop and administer a program for participation by each insurer that writes residential or commercial property insurance in this state.

(b) Each insurer, as a condition of the insurer's authority to engage in the business of residential or commercial property insurance in this state, shall participate in the association in accordance with this chapter, including participating in the association's writings, expenses, and losses in the proportion that the insurer's net direct premiums written in this state during the preceding calendar year bear to the aggregate net direct premiums written in this state by all participating insurers.

(c) An insurer's participation under Subsection (b) in the association's writings, expenses, and losses must be determined in accordance with [the] residential and commercial property statistical plans [plan] adopted by the commissioner.

SECTION 5. Section 2211.151, Insurance Code, is amended to read as follows:

Sec. 2211.151. MANDATORY COVERAGE PROVIDED TO CERTAIN INSUREDS. The association shall make residential or commercial property insurance available to each applicant in an underserved area whose property is insurable in accordance with reasonable underwriting standards but who, after diligent efforts, is unable to obtain residential or commercial property insurance through the voluntary market, as evidenced by two declinations from insurers authorized to engage in the business of, and writing, residential or commercial property insurance, as applicable, in this state.

SECTION 6. Section 2211.153, Insurance Code, is amended to read as follows:

Sec. 2211.153. INSPECTION BUREAU. The association, with the approval of the commissioner, shall designate one or more organizations as the inspection bureau. The inspection bureau shall:

(1) make inspections to determine the condition of a property for which residential or commercial property insurance is sought; and

(2) perform other duties authorized by the association or the commissioner.

SECTION 7. Sections 2211.154(a) and (c), Insurance Code, are amended to read as follows:

(a) A person who has an insurable interest in real or tangible personal property at a fixed location in an underserved area and who, after diligent effort, is unable to obtain residential or commercial property insurance, as evidenced by two current declinations from insurers authorized to engage in the business of residential or commercial property insurance, as applicable, in this state and actually writing residential or commercial property insurance in this state, is entitled on application to the association to an inspection and evaluation of the property by representatives of the inspection bureau.

(c) Promptly after the application is received, the inspection bureau shall make an inspection and file an inspection report with the association. The inspection report must be made available to the applicant on request. The association shall prescribe the manner and scope of the inspection and inspection report for residential or commercial property in accordance with the plan of operation.

SECTION 8. Section 2211.155, Insurance Code, is amended to read as follows:

Sec. 2211.155. INSPECTION RESULTS; REINSPECTION. (a) If, after an inspection, the inspection bureau determines that residential or commercial property meets the underwriting standards established in the plan of operation, the applicant must be informed in writing of that determination and the association shall issue a policy or binder. If the [residential] property does not meet the underwriting standards, the applicant must be informed in writing of the reason for the failure of the [residential] property to meet the standards.

(b) If, at any time, an applicant whose [residential] property did not meet the underwriting standards makes improvements to the property or the property's condition that the applicant believes are sufficient to make the property meet the standards, an inspection bureau representative shall reinspect the property on request. In any case, the applicant is eligible for one reinspection on or before the 60th day after the date of the initial inspection.

(c) If, on reinspection, the [residential] property meets the underwriting standards, the applicant must be informed in writing of that fact and the association shall issue a policy or binder.

SECTION 9. Section 2211.201, Insurance Code, is amended to read as follows:

Sec. 2211.201. PURPOSE. The legislature finds that issuing public securities to provide a method to raise funds to provide residential and commercial property insurance in this state through the association is to benefit the public and to further a public purpose.

SECTION 10. Section 2211.209(e), Insurance Code, is amended to read as follows:

(e) As a condition of engaging in the business of insurance in this state, a participating insurer agrees that, if the insurer leaves the property insurance market in this state, the insurer remains obligated to pay the insurer's share of the service fee assessed under this section until the public securities are retired. The amount assessed against an insurer under this subsection must be:

(1) proportionate to the insurer's share of the property insurance market, including residential and commercial property insurance, in this state as of the last complete reporting period before the date the insurer ceases to engage in the property insurance business in this state; and

(2) based on the insurer's gross premiums for property insurance, including residential and commercial property insurance, for the insurer's last reporting period.

SECTION 11. Not later than December 1, 2007, the governing committee of the FAIR Plan shall amend the plan's plan of operation to reflect the changes in law made by this Act. On January 1, 2008, the FAIR Plan shall begin issuing commercial property insurance in accordance with the plan of operation.

SECTION 12. This Act takes effect September 1, 2007.