83R5457 TJS/PMO-F

By: Carona S.B. No. 18

A BILL TO BE ENTITLED

AN ACT

relating to the establishment of the Texas Property Insurance Program and the operation of the FAIR Plan Association and the Texas Windstorm Insurance Association.

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

SECTION 1. Section 2210.0081, Insurance Code, is amended to read as follows:

Sec. 2210.0081. CERTAIN ACTIONS BROUGHT AGAINST ASSOCIATION BY COMMISSIONER. In an action brought by the commissioner against the association under Chapter 441, [:

[(1) the association's inability to satisfy obligations under Subchapter M related to the issuance of public securities under this chapter constitutes a condition that makes the association's continuation in business hazardous to the public or to the association's policyholders for the purposes of Section 441.052;

[(2)] the time for the association to comply with the requirements of supervision or for the conservator to complete the conservator's duties, as applicable, is limited to three years from the date the commissioner commences the action against the association[; and

[(3) unless the commissioner takes further action against the association under Chapter 441, as a condition of release from supervision, the association must demonstrate to the satisfaction of the commissioner that the association is able to satisfy obligations under Subchapter M related to the issuance of public securities under this chapter].

SECTION 2. Section 2210.014(b), Insurance Code, is amended to read as follows:

(b) Chapter 542 does not apply to the processing and settlement of claims by the association or to an agent or representative of the association.

SECTION 3. Sections 2210.056(b) and (c), Insurance Code, are amended to read as follows:

(b) The association's assets may not be used for or diverted to any purpose other than to:

(1) satisfy, in whole or in part, the liability of the association on claims made on policies written by the association;

(2) make investments authorized under applicable law;

(3) pay reasonable and necessary administrative expenses incurred in connection with the operation of the association and the processing of claims against the association;

(4) satisfy, in whole or in part, the obligations of the association incurred in connection with Subchapter [Subchapters B-1,] J, [and M,] including reinsurance [, public securities, and financial instruments]; or

(5) make remittance under the laws of this state to be used by this state to:

(A) pay claims made on policies written by the association;

(B) purchase reinsurance covering losses under those policies; or

(C) prepare for or mitigate the effects of catastrophic natural events.

(c) On dissolution of the association, all assets of the association [, other than assets pledged for the repayment of public securities issued under this chapter,] revert to this state.

SECTION 4. Subchapter B, Chapter 2210, Insurance Code, is amended by adding Section 2210.0561 to read as follows:

Sec. 2210.0561. PAYMENT OF EXCESS LOSSES; PAYMENT FROM RESERVES AND TRUST FUND. (a) If, in a catastrophe year, an occurrence or series of occurrences in a catastrophe area results in insured losses and operating expenses of the association in excess of premium and other revenue of the association, the excess losses and operating expenses shall be paid as provided by this section.

(b) The association shall pay losses in excess of premium and other revenue of the association from available reserves of the association and available amounts in the catastrophe reserve trust fund.

(c) Losses not paid under Subsection (b) shall be paid as follows:

(1) $2 billion shall be assessed against the members of the association as provided by Subsection (d); and

(2) losses in excess of those paid under Subdivision (1) shall be paid by reinsurance purchased as provided in Section 2210.453.

(d) The proportion of the losses allocable to each insurer under Subsection (c)(1) shall be determined in the manner used to determine each insurer's participation in the association for the year under Section 2210.052.

(e) An insurer may credit an amount paid in accordance with Subsection (c)(1) in a calendar year against the insurer's premium tax under Chapter 221. The tax credit authorized under this subsection shall be allowed at a rate not to exceed 20 percent per year for five or more successive years following the year of payment of the claims. The balance of payments made by the insurer and not claimed as a premium tax credit may be reflected in the books and records of the insurer as an admitted asset of the insurer for all purposes, including exhibition in an annual statement under Section 862.001.

SECTION 5. Subchapter B, Chapter 2210, Insurance Code, is amended by adding Section 2210.062 to read as follows:

Sec. 2210.062. ADMINISTRATION BY MANAGING GENERAL AGENT. Notwithstanding any other law, the managing general agent contracted to administer the Texas Property Insurance Program under Chapter 2214 shall manage the association and administer the plan of operation beginning January 1, 2014.

SECTION 6. Section 2210.152(a), Insurance Code, is amended to read as follows:

(a) The plan of operation must:

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

(2) include:

(A) a plan for the equitable assessment of the members of the association to defray losses and expenses;

(B) underwriting standards;

(C) procedures for accepting and ceding reinsurance;

(D) [procedures for obtaining and repaying amounts under any financial instruments authorized under this chapter;

[(E)] procedures for determining the amount of insurance to be provided to specific risks;

(E) [(F)] time limits and procedures for processing applications for insurance; and

(F) [(G)] other provisions as considered necessary by the department to implement the purposes of this chapter.

SECTION 7. Subchapter E, Chapter 2210, Insurance Code, is amended by adding Sections 2210.2022, 2210.211, 2210.212, and 2210.213 to read as follows:

Sec. 2210.2022. INFORMATION REQUIRED FOR CERTAIN APPLICATIONS. An application for an association policy, including an application to renew a policy, submitted after the later of the date the Texas Property Insurance Program clearinghouse established under Chapter 2214 becomes operational or January 1, 2014, must include information on the applicant's policy, if any, that covers perils other than windstorm and hail, if any, including:

(1) the total premium for that policy, including a policy number for coverage issued by the FAIR Plan Association under Chapter 2211, if applicable, and:

(A) the amount of insurance on the dwelling; or

(B) if the policy is a tenant's or condominium owner's policy, the insured amount for the contents coverage;

(2) for liability coverage, liability limits for:

(A) personal liability coverage;

(B) medical payments coverage; and

(C) additional living expenses coverage when the structure is uninhabitable due to damage resulting from an incurred insured loss; and

(3) the deductibles applicable for each policy.

Sec. 2210.211. MANDATORY MIGRATION OF CERTAIN INSUREDS TO TEXAS PROPERTY INSURANCE PROGRAM. (a) On the later of the date the Texas Property Insurance Program clearinghouse established under Chapter 2214 becomes operational or January 1, 2014, the managing general agent contracted to administer the clearinghouse under that chapter shall make a database of association policies available to all insurers through the clearinghouse for the purpose of soliciting offers of coverage.

(b) The database must include information on each insured's association policy and any policy that covers other perils, if known, including:

(1) the insured's total premium amount on the association policy; and

(2) for coverage for perils other than windstorm and hail:

(A) the total premium for that policy, including a policy issued by the FAIR Plan Association under Chapter 2211, if applicable, and:

(i) the amount of insurance on the dwelling; or

(ii) if the policy is a tenant's or condominium owner's policy, the insured amount for the contents coverage;

(B) liability limits for liability coverage for:

(i) personal liability coverage;

(ii) medical payments coverage; and

(iii) additional living expenses coverage when the structure is uninhabitable due to damage resulting from an incurred insured loss; and

(C) the deductibles applicable for each policy.

(c) If the insured does not have coverage for perils other than windstorm and hail to provide the information required under Subsection (b), the managing general agent shall use the applicable rate for FAIR Plan Association coverage.

(d) The association shall assign the association's rights and duties under the association policy to an insurer that makes an offer of coverage through the clearinghouse that provides:

(1) the same or greater limits for coverages listed in Subsection (b) than are provided by those coverages;

(2) deductibles for coverages that are listed in Subsection (b) that are not greater than the deductibles on those coverages; and

(3) a premium per dollar of coverage that is not greater than the insured's current combined premium per dollar of coverage for coverages listed in Subsection (b).

(e) The rate calculation method described by Section 2214.402 shall be used to calculate premium per dollar of coverage in this section.

Sec. 2210.212. RESIDENTIAL INSURANCE PROHIBITED. Notwithstanding any other law, the association may not:

(1) on or after April 1, 2015, issue any form of coverage on a residential structure or corporeal movable property contained in or about a dwelling that the association has not continuously insured for the 12-month period immediately preceding the date of application; and

(2) on or after October 1, 2015, issue any form of coverage on a residential structure or corporeal movable property contained in or about a dwelling.

Sec. 2210.213. RESIDENTIAL INSURANCE RENEWAL. (a) Notwithstanding any other law, after April 1, 2015, the association may not renew any form of coverage on a residential structure or corporeal movable property in or about a dwelling unless an application is first made through the Texas Property Insurance Program clearinghouse established under Chapter 2214.

(b) The information and other materials required under Section 2214.351 must be submitted to the managing general agent, as provided by that section, at least 30 days but not more than 45 days before the expiration of the association policy and must comply with all requirements for an application under that section, except that the applicant shall submit the premium required for renewal of association coverage in lieu of the premium required by that section.

(c) An applicant's agent must submit each offer of coverage received from the clearinghouse to the applicant.

(d) The application must include information on the applicant's association policy and any policy that covers other perils, including:

(1) the applicant's association policy number and total premium amount on that policy; and

(2) for coverage for perils other than windstorm and hail:

(A) the total premium for that policy, including a policy number for coverage issued by the FAIR Plan Association under Chapter 2211, if applicable, and:

(i) the amount of insurance on the dwelling; or

(ii) if the policy is a tenant's or condominium owner's policy, the insured amount for the contents coverage;

(B) liability limits for liability coverage for:

(i) personal liability coverage;

(ii) medical payments coverage; and

(iii) additional living expenses coverage when the structure is uninhabitable due to damage resulting from an incurred insured loss; and

(C) the deductibles applicable for each policy.

(e) If the applicant does not have coverage for perils other than windstorm and hail to provide the information required under Subsection (d), the managing general agent shall use the applicable rate for FAIR Plan Association coverage that would have applied except for Section 2211.1515.

(f) Notwithstanding Section 2214.352, assigned coverage is not bound on the submission of an application under this section.

(g) The applicant may not renew association coverage if the applicant receives an offer for Texas Property Insurance Program coverage that provides:

(1) the same or greater limits for coverages listed in Subsection (d) than are provided by those coverages;

(2) deductibles for coverages that are listed in Subsection (d) that are not greater than the deductibles on those coverages; and

(3) a premium per dollar of coverage that is not greater than 110 percent of the applicant's current combined premium per dollar of coverage for coverages listed in Subsection (d).

(h) The rate calculation method described by Section 2214.402 shall be used to calculate premium per dollar of coverage in this section.

(i) If the applicant accepts an offer of coverage placed through the Texas Property Insurance Program clearinghouse under this section, the applicant's agent has exclusive use of expirations on the business as provided by Section 2214.551.

SECTION 8. Section 2210.355(b), Insurance Code, is amended to read as follows:

(b) In adopting rates under this chapter, the following must be considered:

(1) the past and prospective loss experience within and outside this state of hazards for which insurance is made available through the plan of operation, if any;

(2) expenses of operation, including acquisition costs;

(3) a reasonable margin for profit and contingencies; and

(4) [payment of public security obligations for Class 1 public securities issued under this chapter, including the additional amount of any debt service coverage determined by the association to be required for the issuance of marketable public securities; and

[(5)] all other relevant factors, within and outside this state.

SECTION 9. Section 2210.363(a), Insurance Code, is amended to read as follows:

(a) The association may offer a person insured under this chapter an actuarially justified premium discount on a policy issued by the association, or an actuarially justified credit against a surcharge assessed against the person, [other than a surcharge assessed under Subchapter M,] if:

(1) the construction, alteration, remodeling, enlargement, or repair of, or an addition to, insurable property exceeds applicable building code standards set forth in the plan of operation; or

(2) the person elects to purchase a binding arbitration endorsement under Section 2210.554.

SECTION 10. Subchapter H, Chapter 2210, Insurance Code, is amended by adding Section 2210.364 to read as follows:

Sec. 2210.364. RATES FOR CERTAIN POLICIES. Notwithstanding any other provision of this subchapter, on or after the later of the date the Texas Property Insurance Program clearinghouse established under Chapter 2214 becomes operational or January 1, 2014, any new coverage issued by the association on a residential structure and corporeal movable property located in or about a dwelling must use rates that, as closely as practicable, reflect the market rate for each rating class or territory. The market rate must be calculated in accordance with the rate calculation method required by Section 2214.402.

SECTION 11. Section 2210.452(c), Insurance Code, is amended to read as follows:

(c) At the end of each calendar year or policy year, the association shall use the net gain from operations of the association, including all premium and other revenue of the association in excess of incurred losses and [,] operating expenses, [public security obligations, and public security administrative expenses,] to make payments to the trust fund, to procure reinsurance, or to make payments to the trust fund and to procure reinsurance.

SECTION 12. Subchapter J, Chapter 2210, Insurance Code, is amended by adding Section 2210.4521 to read as follows:

Sec. 2210.4521. TRUST FUND ASSESSMENT. (a) In addition to other funding sources, the trust fund shall be funded by a surcharge assessed on all policyholders of policies that cover insured property that is located in this state, including automobiles. The premium surcharge shall be assessed on each Texas windstorm and hail insurance policy and each property and casualty insurance policy, including an automobile insurance policy, issued or renewed on or after January 1, 2014.

(b) The premium surcharge under Subsection (a) applies to:

(1) all policies written under the following lines of insurance:

(A) fire and allied lines;

(B) farm and ranch owners;

(C) residential property insurance;

(D) private passenger automobile liability and physical damage insurance; and

(E) commercial automobile liability and physical damage insurance; and

(2) the property insurance portion of a commercial multiple peril insurance policy.

(c) A premium surcharge under this section is a separate charge in addition to the premiums collected and is not subject to premium tax or commissions. Failure by a policyholder to pay the surcharge constitutes failure to pay premium for purposes of policy cancellation.

(d) The amount of the surcharge for property and automobiles located in the catastrophe area shall be five percent.

(e) The amount of the surcharge for property and automobiles not located in the catastrophe area shall be one percent.

(f) The surcharge shall be collected on all policies issued or renewed on or after January 1, 2014, through September 30, 2016, except the commissioner may order that surcharges cease prior to September 30, 2016, if the commissioner determines that the association has sufficient funds in the catastrophe reserve trust fund.

(g) Insurers, including the association, the Texas FAIR Plan Association, and insurers issuing policies for the Texas Automobile Insurance Plan Association, shall collect the surcharge under this section.

SECTION 13. Section 2210.453, Insurance Code, is amended to read as follows:

Sec. 2210.453. REINSURANCE. (a) Except as provided by Subsection (b), the association shall annually purchase reinsurance in the amount of $2 billion.

(b) The amount of reinsurance purchased under Subsection (a) may not raise the funding sources available to the association under Sections 2210.0561(b) and (c)(1) to an amount greater than $5 billion.

(c) The association shall assess member insurers the cost of reinsurance purchased under this section. The proportion of the reinsurance cost allocable to each insurer under this section shall be determined in the manner used to determine each insurer's participation in the association for the year under Section 2210.052. [The association may:

[(1) make payments into the trust fund; and

[(2) purchase reinsurance.

[(b) The association may purchase reinsurance that operates in addition to or in concert with the trust fund, public securities, financial instruments, and assessments authorized by this chapter.

[(c) If the association does not purchase reinsurance as authorized by this section, the board, not later than June 1 of each year, shall submit to the commissioner, the legislative oversight board established under Subchapter N, the governor, the lieutenant governor, and the speaker of the house of representatives a report containing an actuarial plan for paying losses in the event of a catastrophe with estimated damages of $2.5 billion or more. The report required by this subsection must:

[(1) document and denominate the association's resources available to pay claims, including cash or other highly liquid assets, assessments that the association is projected to impose, pre-event and post-event bonding capacity, and private-sector recognized risk-transfer mechanisms, including catastrophe bonds and reinsurance;

[(2) include an independent, third-party appraisal of the likelihood of an assessment, the maximum potential size of the assessment, and an estimate of the probability that the assessment would not be adequate to meet the association's needs; and

[(3) include an analysis of financing alternatives to assessments that includes the costs of borrowing and the consequences that additional purchase of reinsurance, catastrophe bonds, or other private-sector recognized risk-transfer instruments would have in reducing the size or potential of assessments.

[(d) A person who prepares a report required by Subsection (c) may not contract to provide any other service to the association, except for the preparation of similar reports, before the third anniversary of the date the last report prepared by the person under that subsection is submitted.

[(e) The report submitted under this section is for informational purposes only and does not bind the association to a particular course of action.]

SECTION 14. Subchapter K, Chapter 2210, Insurance Code, is amended by adding Section 2210.507 to read as follows:

Sec. 2210.507. LIABILITY LIMITS AND DEDUCTIBLES ON CERTAIN POLICIES. (a) Notwithstanding any other provision of this subchapter, on or after the later of the date the Texas Property Insurance Program clearinghouse established under Chapter 2214 becomes operational or January 1, 2014, the maximum liability limit for coverage issued on a residential structure and the corporeal movable property located in or about a dwelling may not exceed $500,000.

(b) An association policy described by Subsection (a) must have a standard deductible of five percent of the dwelling coverage amount for losses due to a covered peril.

SECTION 15. Subchapter L-1, Chapter 2210, Insurance Code, is amended by adding Section 2210.5725 to read as follows:

Sec. 2210.5725. ASSOCIATION CLAIMS PROCESSING. (a) An insurer that has primary coverage on property for loss by fire must adjust all claims made on or after June 1, 2013, on an association policy covering the same property if the insurer excludes coverage for the perils of windstorm and hail on more than 10 percent of the insurance policies the insurer writes in the catastrophe area.

(b) An insurer not subject to Subsection (a) may adjust claims made after June 1, 2013, on an association policy covering the property that the insurer covers for loss by fire.

(c) An insurer acting under this section is an agent of the association for purposes of Sections 2210.014 and 2210.572 and shall process claims as prescribed by this chapter and the plan of operation.

(d) An insurer acting under this section is not liable for any amount payable under the terms of the association policy.

SECTION 16. Subchapter B, Chapter 2211, Insurance Code, is amended by adding Sections 2211.0522 and 2211.0555 to read as follows:

Sec. 2211.0522. ADMINISTRATION BY MANAGING GENERAL AGENT. Notwithstanding Section 2211.052 or any other law, the managing general agent contracted to administer the Texas Property Insurance Program under Chapter 2214 shall manage the association and administer the plan of operation beginning January 1, 2014.

Sec. 2211.0555. ASSOCIATION CLAIMS PROCESSING. (a) The managing general agent contracted to operate the Texas Property Insurance Program under Chapter 2214 shall adjust claims made on or after January 1, 2014, on an association policy.

(b) The managing general agent is not liable for any amount payable under the terms of an association policy.

SECTION 17. Subchapter D, Chapter 2211, Insurance Code, is amended by adding Sections 2211.1514, 2211.1515, and 2211.1516 to read as follows:

Sec. 2211.1514. MANDATORY MIGRATION OF CERTAIN POLICYHOLDERS TO TEXAS PROPERTY INSURANCE PROGRAM. (a) On the later of the date the Texas Property Insurance Program clearinghouse established under Chapter 2214 becomes operational or January 1, 2014, the managing general agent contracted to administer the clearinghouse under that chapter shall make a database of association policies available to all insurers through the clearinghouse for the purpose of soliciting offers of coverage.

(b) The database must include information on each insured's association policy and any policy that covers other perils, if known, including:

(1) the insured's total premium amount on the association policy;

(2) the total premium for a policy that covers losses due to windstorm and hail, if any, including a policy issued by the Texas Windstorm Insurance Association under Chapter 2210, if applicable, and:

(A) the amount of insurance on the dwelling; or

(B) if the policy is a tenant's or condominium owner's policy, the insured amount for the contents coverage;

(3) for any policy providing applicable liability coverage, liability limits for:

(A) personal liability coverage;

(B) medical payments coverage; and

(C) additional living expenses coverage when the structure is uninhabitable due to damage resulting from an incurred insured loss; and

(4) the deductibles applicable for each policy.

(c) The association shall assign the association's rights and duties under the association policy to an insurer that makes an offer of coverage through the clearinghouse that provides:

(1) the same or greater limits for coverages listed in Subsection (b) than are provided by those coverages;

(2) deductibles for coverages that are listed in Subsection (b) that are not greater than the deductibles on those coverages; and

(3) a premium per dollar of coverage that is not greater than the insured's current combined premium per dollar of coverage for coverages listed in Subsection (b).

(d) The rate calculation method described by Section 2214.402 shall be used to calculate premium per dollar of coverage in this section.

Sec. 2211.1515. RESIDENTIAL PROPERTY INSURANCE PROHIBITED. Notwithstanding any other law, the association may not:

(1) on or after April 15, 2015, issue any form of coverage on residential real or tangible personal property that the association has not continuously insured for the 12-month period immediately preceding the date of application; and

(2) on or after October 1, 2015, issue any form of coverage on residential real or tangible personal property.

Sec. 2211.1516. RESIDENTIAL PROPERTY INSURANCE RENEWAL. (a) Notwithstanding any other law, after April 15, 2015, the association may not renew any form of coverage on residential real or tangible personal property unless an application is first made through the Texas Property Insurance Program clearinghouse established under Chapter 2214.

(b) The information required under Section 2214.351 must be submitted to the managing general agent, as provided by that section, at least 30 days but not more than 45 days before the expiration of the association policy, and must comply with all requirements for an application under that section, except that the applicant may submit the premium required for renewal of association coverage in lieu of the premium required under that section.

(c) An applicant's agent must submit each offer of coverage received from the clearinghouse to the applicant.

(d) The application must include information on the applicant's association policy and any policy that covers other perils, including:

(1) the applicant's association policy number and total premium amount on that policy;

(2) for coverage for windstorm and hail, if not covered by the association policy, the total premium for that policy, including a policy number for coverage issued by the Texas Windstorm Insurance Association under Chapter 2210, if any, and:

(A) the amount of insurance on the dwelling; or

(B) if the policy is a tenant's or condominium owner's policy, the insured amount for the contents coverage;

(3) for liability coverage, liability limits for:

(A) personal liability coverage;

(B) medical payments coverage; and

(C) additional living expenses coverage when the structure is uninhabitable due to damage resulting from an incurred insured loss; and

(4) the deductibles applicable for each policy.

(e) If the applicant does not have windstorm and hail coverage to provide the information required under Subsection (d), the managing general agent shall use the applicable rate for Texas Windstorm Insurance Association coverage that would have applied except for Section 2210.364.

(f) Notwithstanding the requirements of Section 2214.352, assigned coverage is not bound upon the submission of an application under this section.

(g) The applicant may not renew association coverage if the applicant receives an offer for coverage that provides:

(1) the same or greater limits for coverages listed in Subsection (d) than are provided by those coverages;

(2) deductibles for coverages that are listed in Subsection (d) that are greater than the deductibles on those coverages; and

(3) a premium per dollar of coverage that is not greater than 110 percent of the applicant's current combined premium per dollar of coverage for coverages listed in Subsection (d).

(h) The method described by Section 2214.402 shall be used to calculate premium per dollar of coverage in this section.

(i) If the applicant accepts an offer of coverage placed through the Texas Property Insurance Program clearinghouse under this section, the applicant's agent shall have exclusive use of expirations on the business as provided by Section 2214.551.

SECTION 18. Subtitle G, Title 10, Insurance Code, is amended by adding Chapter 2214 to read as follows:

CHAPTER 2214. TEXAS PROPERTY INSURANCE PROGRAM

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 2214.001. DEFINITIONS. In this chapter:

(1) "Affiliated group of insurers" means two or more insurers that are subject to common ownership or that operate in this state under common management or control.

(2) "Applicant" means an applicant for a program policy and includes a policyholder renewing coverage.

(3) "Clearinghouse" means the electronic property insurance clearinghouse established under Subchapter C.

(4) "Insurer" means an authorized insurer writing residential property insurance in this state, including:

(A) a Lloyd's plan;

(B) a reciprocal or interinsurance exchange;

(C) a farm mutual insurance company operating under Chapter 911;

(D) a county mutual insurance company, including a nonaffiliated county mutual fire insurance company described by Section 912.310 that is writing exclusively industrial fire insurance policies as described by Section 912.310(a)(2); and

(E) a mutual insurance company or a statewide mutual assessment company engaged in business under Chapter 12 or 13, Title 78, Revised Statutes, respectively, before those chapters' repeal by Section 18, Chapter 40, Acts of the 41st Legislature, 1st Called Session, 1929, as amended by Section 1, Chapter 60, General Laws, Acts of the 41st Legislature, 2nd Called Session, 1929, that retains the rights and privileges under the repealed law to the extent provided by those sections.

(5) "Managing general agent" means the managing general agent licensed under Chapter 4053 and contractually retained to administer the plan of operation.

(6) "Program" means the Texas Property Insurance Program established under this chapter.

(7) "Program policy" means a residential insurance policy issued using a form promulgated by the commissioner under Subchapter M.

(8) "Residential property insurance" means insurance coverage against loss to real or tangible personal property at a fixed location that is provided through a homeowners insurance policy, including a tenants insurance policy, a condominium owners insurance policy, or a residential dwelling fire and allied lines insurance policy.

Sec. 2214.002. STATEWIDE APPLICATION. The program applies throughout the state and is not limited to any particular geographic region.

Sec. 2214.003. COMMISSIONER IMPLEMENTATION AUTHORITY. (a) The commissioner may issue any order that the commissioner considers necessary to implement this chapter.

(b) The commissioner may adopt rules in the manner prescribed by Subchapter A, Chapter 36, as reasonable and necessary to implement this chapter.

Sec. 2214.004. APPEALS TO COMMISSIONER AND JUDICIAL REVIEW. (a) An applicant or affected insurer may appeal an action of the managing general agent to the managing general agent. The managing general agent's decision may be appealed to the commissioner not later than the 30th day after the date of the managing general agent's decision.

(b) The commissioner may refer an appeal under this section to the State Office of Administrative Hearings.

(c) An order or decision issued by the commissioner under this chapter is subject to judicial review in accordance with Subchapter D, Chapter 36.

Sec. 2214.005. DATA COLLECTION. The commissioner may require each insurer to submit information necessary to implement this chapter, including information necessary to establish the assignment algorithm described by Section 2214.052.

Sec. 2214.006. PREMIUM AND OTHER CHARGES EXCLUSIVE. An agent or insurer may not charge an applicant or insured any fee or other amount not authorized by this chapter.

SUBCHAPTER B. INSURER PARTICIPATION

Sec. 2214.051. PARTICIPATION REQUIREMENT. (a) Except as otherwise provided by this section, on or after April 1, 2015, each insurer, as a condition of the insurer's authority to engage in the business of residential property insurance in this state, shall participate in the program as provided by this chapter, including accepting program policy assignments through the clearinghouse in accordance with this chapter.

(b) An insurer may not be assigned an insurance policy through the clearinghouse if:

(1) the insurer has a surplus of less than $10 million; or

(2) the insurer or, if applicable, the affiliated group of insurers to which the insurer belongs, has statewide residential property insurance premium of less than $25 million and the insurer is independently operating as:

(A) a farm mutual insurance company operating under Chapter 911;

(B) a nonaffiliated county mutual fire insurance company described by Section 912.310 that is writing exclusively industrial fire insurance policies as described by Section 912.310(a)(2); or

(C) a mutual insurance company or a statewide mutual assessment company engaged in business under Chapter 12 or 13, Title 78, Revised Statutes, respectively, before those chapters' repeal by Section 18, Chapter 40, Acts of the 41st Legislature, 1st Called Session, 1929, as amended by Section 1, Chapter 60, General Laws, Acts of the 41st Legislature, 2nd Called Session, 1929, that retains the rights and privileges under the repealed law to the extent provided by those sections.

(c) The Texas Windstorm Insurance Association established by Chapter 2210 and the FAIR Plan Association established by Chapter 2211 may not participate in the program for any purpose.

Sec. 2214.052. ASSIGNMENT ALGORITHM. (a) The managing general agent shall develop an algorithm to determine the assignment of coverage under Section 2214.352 in accordance with this section. The assignment algorithm is subject to approval by the commissioner and must be included in the plan of operation.

(b) The assignment algorithm developed under this section must provide that each insurer's participation in the program be based on the insurer's risk-adjusted exposure in this state during the preceding relevant period as determined under Section 2214.053, in the proportion that the insurer's risk-adjusted exposure bears to the aggregate risk-adjusted exposure in this state of all participating insurers for that period as determined under Section 2214.053.

(c) For purposes of determining risk-adjusted exposure under Subsection (b), an insurer shall receive a risk-based exposure credit for residential property insurance voluntarily written.

(d) For purposes of determining program participation requirements, an affiliated group of insurers are treated as a single insurer.

(e) The managing general agent shall review the assignment algorithm at least once every three years.

Sec. 2214.053. COMPUTATION OF ASSIGNMENT RATIOS. (a) Not later than January 1 of each year, the managing general agent shall compute each insurer's risk-adjusted exposure based on information the department provides to the managing general agent. The department shall provide the information necessary to comply with this section not later than September 30 of the preceding year.

(b) If the managing general agent determines, in accordance with the plan of operation, that a participating insurer can no longer participate in the program, the managing general agent shall immediately:

(1) recompute the risk-adjusted exposure assignment ratios to exclude from the ratios assignment to that insurer; and

(2) redistribute assignments among the remaining participating insurers.

(c) At least quarterly, the managing general agent shall recompute the risk-adjusted exposure assignment ratios to adjust for assignments and other insurer writings.

(d) The managing general agent shall review the formula and method for determining the risk-adjusted exposure assignment ratios and assigning policies at least once every three years.

Sec. 2214.054. MANDATORY OFFER OF COVERAGE. (a) An insurer shall offer a program policy to each person who applies to the insurer for residential property insurance on or after April 1, 2014, if the person meets the insurer's underwriting guidelines for a program policy voluntarily written by the insurer.

(b) The insurer's underwriting guidelines for a program policy voluntarily written by the insurer must not differ substantially from the insurer's other residential property insurance underwriting guidelines, unless the differences are actuarially justified and substantially commensurate with the contemplated risk as a result of differences in coverage offered under the program policy.

(c) Each insurer must submit the insurer's program policy underwriting guidelines for a program policy voluntarily written by the insurer under Section 38.002.

(d) Subsection (a) does not apply to applications submitted through the clearinghouse.

Sec. 2214.055. CLAIMS. Each insurer shall adjust and pay each claim made on a program policy assigned to or voluntarily written by the insurer.

SUBCHAPTER C. ELECTRONIC PROPERTY INSURANCE CLEARINGHOUSE

Sec. 2214.101. ELECTRONIC PROPERTY INSURANCE CLEARINGHOUSE. The department shall establish and maintain an electronic property insurance clearinghouse through which an agent may submit a residential property insurance application, including a program policy application, to insurers to solicit offers of coverage.

Sec. 2214.102. CONTRACT WITH VENDOR. The commissioner may enter into a contract with a vendor to establish the clearinghouse, including a contract for:

(1) the purchase of hardware; or

(2) the development of software and technology.

Sec. 2214.103. ASSESSMENT TO ESTABLISH CLEARINGHOUSE. (a) After notice and opportunity for hearing, the commissioner shall assess insurers participating in the Texas Windstorm Insurance Association under Chapter 2210 for the necessary cost to establish the clearinghouse. Each insurer's proportion of the assessment shall be based on the insurer's participation level as determined in Section 2210.052.

(b) The commissioner may make one or more assessments under this section.

(c) The department shall return to the insurers assessed under this section any money collected under this section that is not used to establish the clearinghouse.

Sec. 2214.104. COMMISSIONS, FEES, AND ASSESSMENTS TO MAINTAIN AND ADMINISTER CLEARINGHOUSE. (a) The managing general agent may charge an applicant a fee or collect a commission as necessary to provide for the cost of administering and maintaining the clearinghouse. The fee and commission rates must be specified in the managing general agent's contract with the department.

(b) If the amount of the fees and commissions collected by the managing general agent is not sufficient to meet the minimum costs of maintaining and administering the clearinghouse, the commissioner may assess insurers for the amount necessary to maintain and administer the clearinghouse based on the insurer's participation level as determined under Section 2214.052.

Sec. 2214.105. HARDWARE AND PROPRIETARY INFORMATION. (a) Any hardware purchased under this subchapter and any information, analyses, programs, or data acquired or created by a vendor under a contract under this subchapter are property of the state.

(b) Information, analyses, programs, or data described by Subsection (a) are confidential and exempt from public disclosure under Chapter 552, Government Code.

SUBCHAPTER D. MANAGING GENERAL AGENT

Sec. 2214.151. MANAGING GENERAL AGENT CONTRACT. (a) The department may contract with a managing general agent to administer the program plan of operation, including administering and maintaining the clearinghouse.

(b) The commissioner shall supervise the managing general agent in the function of the agent's duties and the implementation of this chapter. The commissioner may require the managing general agent to:

(1) correspond directly with insurers, agents, and applicants with regard to the administration of the clearinghouse;

(2) collect and remit premiums for policies processed through the clearinghouse directly from and to insurers, agents, and applicants;

(3) collect fees and commissions for administration of the program directly from insurers, agents, and applicants;

(4) provide for the administration and maintenance of the clearinghouse;

(5) provide reports concerning risks insured under this chapter as the commissioner considers necessary; and

(6) perform any other duties required under this chapter.

(c) Except as provided by Sections 2210.062 and 2211.0555, the managing general agent may not adjust or process claims or complaints related to program policies or coverage.

(d) The term of the managing general agent contract may not exceed five years.

(e) In awarding a contract to a managing general agent under this section, the commissioner shall, to the extent the commissioner considers practicable, consider the effect of any affiliation, common ownership or control, or other potential conflict of interest between the managing general agent and a participating insurer.

Sec. 2214.152. COMPENSATION OF MANAGING GENERAL AGENT. The contract between the commissioner and the managing general agent must specify the managing general agent's minimum compensation. The compensation must be based in part on reasonable projections of the cost to administer and maintain the clearinghouse.

Sec. 2214.153. PROPRIETARY INFORMATION. (a) Any information, analyses, programs, or data acquired or created by the managing general agent under a contract under this subchapter are property of the state.

(b) Information, analyses, programs, or data described by Subsection (a) are confidential and exempt from public disclosure under Chapter 552, Government Code.

Sec. 2214.154. OFFICE; RECORDS. (a) The managing general agent shall maintain an office in Austin, Texas.

(b) Records and other information relating to the operation of the program must be maintained in the managing general agent's Austin office.

Sec. 2214.155. AUDIT. The managing general agent is subject to audit by the commissioner and shall pay the costs incurred by the commissioner in performing an audit under this section.

Sec. 2214.156. ANNUAL REPORT TO COMMISSIONER. Not later than March 1 of each year, the managing general agent shall submit a report to the commissioner regarding the operation of the program. The report must be made in accordance with the terms of the managing general agent's contract with the department.

SUBCHAPTER E. PLAN OF OPERATION

Sec. 2214.201. PLAN OF OPERATION; AMENDMENTS. (a) The managing general agent shall administer the program under a plan of operation approved by the commissioner after notice and opportunity for hearing.

(b) The plan of operation must provide for:

(1) the efficient, economical, fair, and nondiscriminatory administration of the program; and

(2) automated electronic insurance transactions between insurers, agents, and the managing general agent, including the clearinghouse.

(c) The commissioner may amend the plan of operation as necessary after notice and opportunity for hearing.

SUBCHAPTER F. ELIGIBLE PROPERTY

Sec. 2214.251. ELIGIBILITY REQUIREMENTS. (a) The managing general agent may not assign or bind program coverage and an insurer may not issue or renew assigned program coverage for a risk, unless:

(1) the risk is insurable property;

(2) the property is covered by a flood insurance policy if all or any part of the property is located in Zone V or another similar zone with an additional hazard associated with storm waves, as defined by the National Flood Insurance Program, and if flood insurance under that federal program is available, except that the flood insurance coverage policy need not exceed the lesser of the amount of program coverage applied for or the maximum amount of available National Flood Insurance Program flood insurance; and

(3) after diligent efforts, the applicant and the applicant's agent are unable to obtain residential property insurance through the voluntary market, as evidenced by one declination from an insurer authorized to engage in the business of, and writing, residential property insurance in this state.

(b) An insurer's refusal to offer, or an applicant's inability to obtain, insurance coverage that is substantially equivalent to insurance coverage available through a program policy constitutes a declination for purposes of this section.

Sec. 2214.252. CONFIRMATION OF DECLINATION. (a) An applicant's agent shall document and maintain evidence of the declination required by Section 2214.251, including the name of the insurer that provided the declination, for review and audit by the managing general agent on request.

(b) The agent must submit an electronic certification with the electronic program application under Section 2214.351 confirming the declination and providing the name of the insurer.

Sec. 2214.253. CONFIRMATION OF FLOOD INSURANCE. (a) For an applicant that must provide the proof of flood insurance required under Section 2214.251, the agent submitting the application for new or renewal program residential property insurance coverage must:

(1) document and maintain evidence of the required flood insurance policy for review and audit by the managing general agent on request;

(2) submit an electronic certification with the electronic program application under Section 2214.351 that flood insurance, if required, is in force; and

(3) submit for review and audit the policy or binder for flood insurance coverage to the managing general agent not later than the 10th day after the date of notice of a request by the managing general agent.

(b) The assigned insurer may cancel a program policy after 10 days' written notice to the managing general agent, insured's agent, and policyholder if the flood insurance coverage required under Section 2214.251 is not in force, is not renewed, or is canceled.

Sec. 2214.254. DEFINITION OF INSURABLE PROPERTY. (a) "Insurable property" means immovable property at a fixed location in this state, or tangible property located in that immovable property, that has been inspected under Section 2214.301 and determined to be in an insurable condition against the perils covered by the program policy, as determined by the underwriting guidelines adopted in the plan of operation.

(b) For purposes of this chapter, a residential structure located within an area designated as a unit under the Coastal Barrier Resources Act (16 U.S.C. Section 3501) is insurable property if:

(1) the residential structure is not:

(A) a condominium, apartment, duplex, or other multifamily residence; or

(B) a hotel or resort facility;

(2) a building permit or plat for the residential structure was filed with the municipality, the county, or the United States Army Corps of Engineers before June 11, 2003; and

(3) the residential structure is insured by the Texas Windstorm Insurance Association as of December 31, 2014.

(c) For purposes of this chapter, a residential structure that is built wholly or partly over water, including the corporeal movable property contained in the structure, is insurable property if it is insured by the Texas Windstorm Insurance Association as of December 31, 2014.

(d) For purposes of this chapter, a structure is not insurable property if the commissioner of the General Land Office notifies the managing general agent of a determination that the structure is located on the public beach under procedures established under Section 61.011, Natural Resources Code, and that the structure:

(1) constitutes an imminent hazard to safety, health, or public welfare; or

(2) substantially interferes with the free and unrestricted right of the public to enter or leave the public beach or traverse any part of the public beach.

Sec. 2214.255. UNDERWRITING GUIDELINES. (a) The managing general agent shall develop program policy underwriting guidelines for coverage assigned through the clearinghouse. The guidelines must:

(1) be consistent with this chapter; and

(2) consider prior conduct of the applicant, including fraud or arson.

(b) The program policy underwriting guidelines become effective on approval of the commissioner and are included in the plan of operation.

SUBCHAPTER G. INSPECTIONS

Sec. 2214.301. PROPERTY INSPECTIONS FOR INSURABILITY. (a) An agent submitting an application for program insurance through the clearinghouse must provide an inspection report to the managing general agent certifying that the structure meets the program policy underwriting guidelines and is insurable property.

(b) The inspection must:

(1) be completed by a person determined by the managing general agent to be qualified because of training or experience to perform building inspections;

(2) determine that the structure meets the minimum requirements for coverage set forth in the plan of operation; and

(3) take place not earlier than the 90th day before the effective date of the policy.

(c) The managing general agent, or the agent's designee, may inspect any property with assigned program coverage for compliance with the program policy underwriting guidelines.

SUBCHAPTER H. ASSIGNMENT PROCESS

Sec. 2214.351. APPLICATION FOR NEW AND RENEWAL COVERAGE. (a) An application for new and renewal program coverage through the clearinghouse must be submitted by a licensed property and casualty agent who:

(1) is appointed by at least one insurer; and

(2) has consented to the managing general agent's agent agreement.

(b) The request for new or renewal coverage must include:

(1) a completed electronic application;

(2) the required payment;

(3) the inspection report described by Section 2214.301;

(4) a report of a building code inspection, if required by the protocol described by Section 2214.502;

(5) an electronic certification of a declination of coverage providing the name of the declining insurer; and

(6) an electronic certification of flood insurance, if required under Section 2214.251.

(c) The request for renewal of assigned program coverage must be submitted not later than the 30th day, but not before the 45th day, before the date the existing policy expires.

Sec. 2214.352. BINDER AND ISSUANCE OF NEW POLICY. (a) On receipt of an application for a new assigned program policy and the information and payment required by Section 2214.351, the managing general agent immediately shall bind eligible coverage with an assigned insurer selected using the assignment algorithm required to be included in the plan of operation by Section 2214.052.

(b) A binder issued under Subsection (a) provides the coverage of a program policy except that the binder does not provide coverage for a wildfire or weather event that occurs within 72 hours of the time the binder is issued.

(c) The managing general agent shall make the request for coverage available to all insurers through the clearinghouse until the 20th day after the date the binder is issued. During the 20-day period, an insurer may offer the applicant coverage through the managing general agent and the applicant's agent.

(d) The agent must present each offer received from the managing general agent to the applicant. The applicant may accept any offer of coverage at any time.

(e) On the first business day after the expiration of the 20-day period described by Subsection (c):

(1) if the applicant has not received a qualifying offer of coverage as defined by Section 2214.355, the binder converts into a program policy; or

(2) if the applicant receives a qualifying offer of coverage as defined by Section 2214.355, the binder continues in effect until the 30th day after the date the binder is issued, at which time the binder terminates and the applicant becomes ineligible to apply for coverage through the clearinghouse as described by Section 2214.354.

(f) If the applicant accepts a qualifying offer of program coverage or other offer of coverage, the coverage is effective as of the date the assigned coverage was bound under Subsection (a), except as provided in Subsection (g).

(g) The assigned carrier is responsible for all claims incurred during the binder period. If a claim is incurred during the binder period, the assigned carrier is entitled to premium for the binder period and the managing general agent shall credit the assigned carrier with that premium in the assignment algorithm under Section 2214.052.

Sec. 2214.353. CLEARINGHOUSE RENEWAL COVERAGE. (a) An insurer assigned a policy under this chapter shall renew the policy on the first and second anniversary of the date the binder is issued under Section 2214.352, even if the insurer withdraws from the business of insurance in the state, unless:

(1) the insured accepts a voluntary offer of coverage;

(2) the structure to be insured is determined to be ineligible for coverage under Section 2214.251;

(3) the insured cancels the coverage;

(4) the insured does not pay any portion of premium when due;

(5) the insured submits a fraudulent claim;

(6) there is an increase in the hazard covered by the policy that is within the control of the insured that would result in an increase in the premium rate of the policy; or

(7) the insurer becomes insolvent.

(b) At least 45 days before renewal, the assigned insurer shall notify the managing general agent, the insured's agent, and the insured of the coverage renewal date.

(c) On receipt of an application for renewal coverage and the information and payment required by Section 2214.351, the managing general agent shall make the request for coverage available to all insurers through the clearinghouse until the 20th day after the date the request is made available. During the 20-day period, an insurer may offer the applicant coverage through the managing general agent and the applicant's agent.

(d) The agent must present each offer received from the managing general agent to the applicant. The applicant may accept any offer of coverage at any time.

(e) If on termination of an applicant's assigned program policy the applicant has not received a qualifying offer of coverage as defined by Section 2214.355:

(1) the assigned insurer shall renew the assigned program policy, unless the assigned insurer has twice previously renewed coverage as required by Subsection (a); or

(2) the managing general agent shall assign the policy to another insurer in a manner consistent with the requirements of this subchapter if the assigned insurer has twice previously renewed coverage as required by Subsection (a).

(f) If on termination of an applicant's assigned program policy the applicant has received a qualifying offer of coverage as defined by Section 2214.355, the assigned insurer is not required to renew the program policy, the managing general agent may not assign the policy to another insurer, and the applicant becomes ineligible to apply for coverage through the clearinghouse as provided by Section 2214.354.

Sec. 2214.354. ACCEPTANCE OF OTHER COVERAGE; REAPPLICATION TO CLEARINGHOUSE. (a) Except as provided by Sections 2214.352(f) and (g), if an applicant accepts another offer of coverage, an assigned program policy is canceled without notice on the date the other coverage becomes effective.

(b) Except for a renewal application under Section 2214.351, an applicant may not apply to the clearinghouse for coverage on the same property more than once in a 12-month period unless the assigned insurer becomes insolvent.

Sec. 2214.355. QUALIFYING OFFER OF COVERAGE. For purposes of this subchapter, "qualifying offer of coverage" means an offer of residential property insurance that provides:

(1) the same program policy the applicant requested;

(2) the same coverage limits and optional coverages that must be offered on an assigned program policy and that have been requested by the applicant;

(3) the same deductible as the deductible that would be applicable to the program policy; and

(4) coverage at a rate that is equal to or less than the rate that would apply to an assigned program policy.

Sec. 2214.356. EARNED PREMIUM. Premium on a binder issued under this subchapter and the assigned program policy is earned on a pro rata basis beginning on the date the binder is issued.

Sec. 2214.357. ASSIGNMENT DISTRIBUTION PLAN. (a) An insurer may contract with a servicing carrier to accept the insurer's assignments under Sections 2214.352 and 2214.353.

(b) A contract under this section must be approved by the commissioner in writing before an assignment may be transferred under the contract. In reviewing the contract for approval or disapproval, the commissioner shall consider each insurer's:

(1) risk-based exposure, including the number of assignments that are expected and the number that would be transferred under the agreement;

(2) surplus;

(3) location and concentration of risk;

(4) claims handling capacity and history; and

(5) compliance with rules adopted under this section.

(c) The contract described by Subsection (a) must determine which insurer will recognize the assignment as the insurer's writing for the purpose of calculating program participation.

(d) The commissioner may:

(1) adopt reasonable rules for the conduct of business under a contract described by this section; and

(2) establish reasonable standards of eligibility for servicing carriers.

(e) After notice and opportunity for hearing, the commissioner may prohibit an insurer from acting as a servicing carrier.

SUBCHAPTER I. RATES

Sec. 2214.401. RATES FOR CERTAIN POLICIES. (a) Each insurer shall file with the commissioner all rates, rating factors, and supplementary rating information used to determine the premium charged for the program policies the insurer is required to offer under Section 2214.054.

(b) Each insurer shall file with the commissioner the average or neutral rating factor for each rating class used in a rate filing under this section.

(c) Rates and rate filings under this section are governed by Chapter 2251.

Sec. 2214.402. RATE CALCULATION METHOD FILING. (a) The managing general agent shall submit to the commissioner a rate calculation method filing that specifies:

(1) the complete list of all rating classes the managing general agent proposes to use to determine the premium for assigned program policies;

(2) the territories that the managing general agent proposes to use to determine the premium for assigned program policies; and

(3) the precise method the managing general agent proposes to use to calculate the market rate for each rating class and rating territory.

(b) The managing general agent may not use a method filed under Subsection (a) without prior approval by the commissioner as provided by this subchapter.

(c) The rating classes, territories, and method used to determine the market rate must be designed in a manner to ensure that the assigned program rating manual is as compatible as possible with the voluntary market's rating method.

(d) Except as provided by Section 2214.501, the assigned program rates shall use rating classes used by more than 50 percent of the residential property insurance market in this state.

(e) Notwithstanding Subsections (c) and (d), assigned program rates may not:

(1) provide a renewal discount or a multiline discount; or

(2) result in a lower premium based on:

(A) how long the insured has been assigned through the clearinghouse; or

(B) whether the insured has had another policy assigned through the clearinghouse.

(f) Notwithstanding Subsection (c), rating territories used for assigned program rates must:

(1) consist of a single, undivided zip code or a collection of undivided zip codes; and

(2) be based on sound actuarial principles.

(g) Market rates developed by the managing general agent must be based on rates filed under Section 2214.401 by the insurers that constitute at least 80 percent of the market in each rating territory, but not more than the 10 largest insurers in each rating territory. The rate calculation method must use an average that excludes the highest and lowest rate for each combination of rating class and territory, unless there are fewer than four insurers for a given combination of rating class and territory.

(h) A rate calculation method approved under this section must use actuarial assumptions that, for each rating class and territory, produce reasonable estimates of the average rate charged by voluntary insurers.

(i) Each year, the managing general agent shall review the rates, rating classes, territories, and rating method used in the voluntary residential property insurance market to determine whether a change in the rate calculation method established under this section is reasonable and appropriate.

(j) The managing general agent shall submit a rate calculation method filing under this section at least once every four years.

Sec. 2214.403. NOTICE OF RATE CALCULATION METHOD FILING. Not later than the 10th day after the date the managing general agent submits a rate calculation method filing under this subchapter, the department shall post on its Internet website a notice that the managing general agent has submitted a rate calculation method filing for the program.

Sec. 2214.404. HEARING ON RATE CALCULATION METHOD FILING. (a) The commissioner may not approve or disapprove a managing general agent's rate calculation method filing under this subchapter without notice and opportunity for hearing. The commissioner shall schedule a hearing on the filing at the request of the managing general agent or a member of the public.

(b) A hearing under this section is not a contested case under Chapter 2001, Government Code.

Sec. 2214.405. ACTION OF COMMISSIONER ON RATE CALCULATION METHOD FILING. Not later than the 60th day after the date a rate calculation method filing under this subchapter is received, the commissioner shall approve or disapprove the filing. If the commissioner disapproves the filing, the commissioner shall specify:

(1) the reasons for disapproval; and

(2) the changes to the rate calculation method the managing general agent must make in order for the commissioner to approve the filing.

Sec. 2214.406. ASSIGNED PROGRAM RATE FILING. (a) Not later than August 15 of each year, the managing general agent shall file with the commissioner a manual of rates and rating factors for all classes of risks and territories for program policies assigned through the clearinghouse. The filing must contain the data and calculations used to establish each manual rate and rating factor used to determine the premium for a program policy assigned through the clearinghouse.

(b) The rate filing must reflect rates that are 25 percent greater than the market rate for each class and territory. The market rate for each class and territory must be calculated using the rate calculation method approved under Section 2214.405.

(c) The department may review the rate filing only to determine whether the filing contains a computational error and to verify that the filing reflects a correct application of the rate calculation method approved under Section 2214.405.

(d) If, not later than the 30th day after the date of the filing, the department determines that the filing contains a computational error or is not a correct application of the rate calculation method approved under Section 2214.405, the department shall provide a notice to the managing general agent identifying the computational error and any necessary correction. Not later than the 10th day after the date the notice from the department is received, the managing general agent shall submit a corrected filing. The corrected filing is subject to the standard of review described by Subsection (c).

(e) Rates filed under Subsection (a), or a corrected filing described by Subsection (d), take effect January 1 of the year following the year in which the filing is made. Rates resulting from a correct application of the rate calculation method approved under Section 2214.405 are presumed to be adequate, not excessive, and not unfairly discriminatory.

(f) The managing general agent may submit an interim rate filing as reasonably necessary following the occurrence of an extraordinary event or any significant change in the residential property insurance market in this state. The commissioner may direct the managing general agent to submit an interim rate filing, and the public insurance counsel, or an insurer with a statewide residential property market share of five percent or more, may request the managing general agent to submit an interim rate filing.

(g) An interim rate filing under Subsection (f) may not be used without commissioner approval. The commissioner shall approve or disapprove the interim filing after notice and opportunity for hearing. The commissioner may disapprove an interim filing only if the commissioner determines that the filing:

(1) is not reasonably necessary due to an extraordinary event or significant change in the residential property insurance market in this state; or

(2) contains a computational error or does not reflect a correct application of the rate calculation method approved under Section 2214.405.

(h) A rate in effect under this section continues in effect until a subsequent rate takes effect.

Sec. 2214.407. RATE CHALLENGE. (a) An interested person or the managing general agent may bring an action in the district court of Travis County to vacate rates approved under Section 2214.406 and to seek an order directing the managing general agent to recalculate the rates. The district court may grant relief under this section only on finding that:

(1) the filed rates contain a computational error; or

(2) the filed rates result from an incorrect application of the rate calculation method approved under Section 2214.405.

(b) An action under Subsection (a) must be brought not later than, as applicable, the 30th day after:

(1) the date the 30-day period under Section 2214.406(d) expires;

(2) the date the managing general agent submits corrected rates under Section 2214.406(d); or

(3) the date the commissioner approves or disapproves rates under Section 2214.406(g).

SUBCHAPTER J. TRANSITION PERIOD RATES

Sec. 2214.451. DEFINITIONS. In this subchapter:

(1) "Starting transition rate" means the starting transition rate calculated under Section 2214.454.

(2) "Ending transition rate" means the ending transition rate calculated under Section 2214.455.

(3) "Transition premium rate" means the transition premium rate calculated under Section 2214.456.

(4) "Transition premium" means the transition premium amount calculated under Section 2214.457.

Sec. 2214.452. TRANSITION RATE ELIGIBILITY. (a) An applicant is eligible for a transition rate on a program policy that covers a residential property that is occupied as the applicant's primary residence and is insured through the Texas Windstorm Insurance Association under Chapter 2210 or the FAIR Plan Association under Chapter 2211, if:

(1) the applicant's FAIR Plan Association or Texas Windstorm Insurance Association policy is being nonrenewed effective January 1, 2014, or later;

(2) the applicant has been continuously insured through the FAIR Plan Association or the Texas Windstorm Insurance Association for the 12 months immediately preceding the nonrenewal date described by Subdivision (1);

(3) the replacement cost value of the applicant's insured dwelling is less than $250,000, if the applicant seeks a homeowners policy or a residential dwelling fire and allied lines policy;

(4) the replacement cost value of the applicant's insured contents is less than $80,000, if the applicant seeks a tenant policy or a condominium owners policy; and

(5) the applicant submits the information required under this section.

(b) To maintain eligibility for transition rates under this section, an insured must be continuously insured under an assigned program policy or by a program policy from a voluntary insurer through the clearinghouse. A program policy that is otherwise eligible for transition rates under this section does not become ineligible due to a change in the name on the policy due to marriage, divorce, or death of the named insured.

Sec. 2214.453. REQUIRED INFORMATION. Not later than the 30th day before the effective date of a program policy assigned through the clearinghouse, an applicant seeking a transition rate under this subchapter, or the applicant's agent, must provide to the managing general agent the following information, as applicable:

(1) if the FAIR Plan Association provided coverage for perils other than windstorm and hail, the insured location and the policy number assigned by the FAIR Plan Association;

(2) if the Texas Windstorm Insurance Association provided windstorm and hail coverage, and no insurer provided coverage of other perils, the insured location and the policy number assigned by the Texas Windstorm Insurance Association; or

(3) if the Texas Windstorm Insurance Association provided windstorm and hail coverage and the FAIR Plan Association or an insurer voluntarily provided coverage of other perils:

(A) the insured location and the policy number assigned by the Texas Windstorm Insurance Association and the FAIR Plan Association, if applicable;

(B) for homeowners policies and residential dwelling fire and allied lines policies, the insured amount for the dwelling on the voluntary policy in effect immediately before the effective date of the program policy;

(C) for tenant policies and condominium owners policies, the insured amount for the contents on the voluntary policy in effect immediately before the effective date of the program policy; and

(D) for any policy that covered perils other than windstorm and hail, the total premium on the policy in effect immediately before the effective date of the program policy.

Sec. 2214.454. STARTING TRANSITION RATE CALCULATION. (a) The managing general agent shall determine the starting transition rate for each applicant eligible for transition rates under this subchapter.

(b) For a homeowners or residential dwelling fire and allied lines policy with respect to which windstorm and hail coverage was provided by the Texas Windstorm Insurance Association and coverage of other perils was voluntarily provided by an insurer or provided by the FAIR Plan Association, the starting transition rate is calculated as:

(1) the total annual premium on the policy issued by the Texas Windstorm Insurance Association divided by the amount of dwelling coverage provided on that policy; plus

(2) the total annual premium on the policy that covered other perils divided by the amount of dwelling coverage provided on that policy.

(c) For a homeowners or residential dwelling fire and allied lines policy with respect to which windstorm and hail coverage was provided by the Texas Windstorm Insurance Association and coverage of other perils was not purchased, the starting transition rate is calculated as the total annual premium on the policy issued by the Texas Windstorm Insurance Association divided by the amount of dwelling coverage provided on that policy, plus 0.004.

(d) For a homeowners or residential dwelling fire and allied lines policy with respect to which both windstorm and hail coverage and coverage of other perils were provided by the FAIR Plan Association, the starting transition rate is calculated as the total annual premium on the policy issued by the FAIR Plan Association divided by the amount of dwelling coverage provided on that policy.

(e) For a tenant and condominium owners policy with respect to which windstorm and hail coverage was provided by the Texas Windstorm Insurance Association and coverage of other perils was voluntarily provided by an insurer or provided by the FAIR Plan Association, the starting transition rate is calculated as:

(1) the total premium on the policy issued by the Texas Windstorm Insurance Association divided by the amount of contents coverage provided on that policy; plus

(2) the total annual premium on the policy that covered other perils divided by the amount of contents coverage provided on that policy.

(f) For a tenant and condominium owners policy with respect to which windstorm and hail coverage was provided by the Texas Windstorm Insurance Association and coverage of other perils was not purchased, the starting transition rate is calculated as the total premium on the policy issued by the Texas Windstorm Insurance Association divided by the amount of contents coverage provided on that policy, plus 0.0055.

(g) For a tenant and condominium owners policy with respect to which both windstorm and hail coverage and coverage of other perils were provided by the FAIR Plan Association, the starting transition rate is calculated as the total annual premium on the policy issued by the FAIR Plan Association divided by the amount of contents coverage provided on that policy.

Sec. 2214.455. ENDING TRANSITION RATE CALCULATION. (a) The managing general agent shall determine the ending transition rate for each applicant eligible for transition rates under this section.

(b) For policies assigned under this chapter, the ending transition rate is the applicant's assigned program policy premium, as determined by the rates filed pursuant to Section 2214.406, on the policy to become effective, divided by:

(1) the amount of dwelling coverage on a homeowners or residential dwelling fire and allied lines policy; or

(2) the amount of contents coverage on a tenant and condominium owners policy.

(c) For a policy voluntarily written through the clearinghouse, the ending transition rate is the premium charged by the insurer, as determined by the rates filed by the insurer pursuant to Chapter 2251, on the policy to become effective, divided by:

(1) the amount of dwelling coverage on a homeowners or residential dwelling fire and allied lines policy; or

(2) the amount of contents coverage on a tenant and condominium owners policy.

Sec. 2214.456. TRANSITION PREMIUM RATE CALCULATION. (a) The managing general agent shall determine the transition premium rate for each applicant eligible for transition rates under this subchapter. The transition premium is determined based on the applicant's amount of insurance.

(b) During the first year of the transition period, the transition premium rate is equal to the starting transition rate calculated under Section 2214.454.

(c) For any policy year during the transition period other than the first year of the transition period, the transition premium rate is equal to the greater of:

(1) five percent more than the transition premium rate that applied during the immediately preceding policy term; or

(2) the transition premium rate used during the immediately preceding policy term, plus an amount equal to a fraction with respect to which:

(A) the numerator is the difference between the ending transition rate and the starting transition rate; and

(B) the denominator is:

(i) 10, for a homeowners policy or residential dwelling fire and allied lines policy in which the dwelling has a replacement cost value of $100,000 or less;

(ii) five, for a homeowners policy or residential dwelling fire and allied lines policy in which the dwelling has a replacement cost value of greater than $100,000 and less than or equal to $150,000;

(iii) three, for a homeowners policy or residential dwelling fire and allied lines policy in which the dwelling has a replacement cost value of greater than $150,000 and less than $250,000; or

(iv) three, for a tenant and condominium owners policy.

(d) The transition premium rate may not exceed the ending transition rate calculated under Section 2214.455.

Sec. 2214.457. TRANSITION PREMIUM CALCULATION. (a) For each policy eligible for transition rates under this subchapter, the premium on the applicant's policy each year is determined as provided by this section.

(b) For homeowners policies and residential dwelling fire and allied lines policies, the transition premium is equal to the transition premium rate multiplied by the dwelling coverage amount on the program policy.

(c) For tenant and condominium owners policies, the transition premium is equal to the transition premium rate multiplied by the contents coverage amount on the program policy.

Sec. 2214.458. RECOVERY OF TRANSITION PERIOD RATES. (a) On or before February 1 of each year, the managing general agent shall report to each insurer writing residential property insurance in this state the total transition premium written by the insurer during the previous calendar year. On or before February 1 of each year, the managing general agent shall report to the comptroller the total transition premium written by each insurer during the previous calendar year. The total transition premium for each insurer is equal to the difference between the premium determined by the assigned program rates filed under Section 2214.406, or the insurer's rates filed under Chapter 2251, as applicable, and the transition premium charged under this subchapter.

(b) An insurer may include a provision in its residential property insurance rates to recoup up to 50 percent of the transition premiums not collected by the insurer in the previous calendar year.

(c) A rate provision permitted under this section may vary by policy type, class, or geographic region.

(d) Residential property insurance rates that include a rate provision permitted under this section are subject to the rate standards established by Chapter 2251.

(e) An insurer may claim, as a premium tax credit for a calendar year, an amount up to 50 percent of the transition premiums not collected by the insurer in the previous calendar year.

Sec. 2214.459. EXPIRATION OF SUBCHAPTER. This subchapter expires December 31, 2025.

SUBCHAPTER K. BUILDING CODE SURCHARGE

Sec. 2214.501. BUILDING CODE SURCHARGE. (a) An insurer may assess an actuarially justified premium surcharge on an assigned program policy issued if the insured structure does not meet building code standards set forth in the program plan of operation.

(b) Building code surcharges may vary by location.

(c) The managing general agent shall periodically evaluate building codes and construction specifications to maintain the rating system and standards to ensure that the plan of operation reflects current industry standards.

Sec. 2214.502. BUILDING CODE INSPECTIONS REQUIRED. (a) The plan of operation shall provide for an inspection protocol for determining a building code surcharge. The protocol must address which structures to inspect to determine whether a surcharge is applicable.

(b) The protocol must rely on documentation and physical inspection, and may include:

(1) inspections certified by qualified inspectors appointed by the managing general agent;

(2) prior department certifications; and

(3) physical inspections by a qualified inspector of exterior components, including roofing, external openings, and siding.

Sec. 2214.503. INSPECTORS. (a) For purposes of this chapter, "qualified inspector" includes:

(1) a licensed professional engineer who is on the roster described by Section 1001.652, Occupations Code, and meets the requirements specified by the managing general agent to conduct windstorm inspections;

(2) an inspector who:

(A) is certified by the International Code Council, the Building Officials and Code Administrators International, Inc., the International Conference of Building Officials, or the Southern Building Code Congress International, Inc.;

(B) has certifications as a building inspector and coastal construction inspector; and

(C) complies with other requirements specified by the plan of operation; or

(3) a person determined by the managing general agent to be qualified because of training or experience to perform building inspections.

(b) An inspection under this subchapter must be performed by a qualified inspector. The plan of operation shall identify the qualifications required to perform particular types of inspections.

(c) Before performing a building inspection under this subchapter, a qualified inspector must be approved and appointed or employed by the managing general agent.

(d) The managing general agent may appoint or employ qualified inspectors on an at-will basis.

Sec. 2214.504. BUILDING CODE INSPECTION INFORMATION. The managing general agent shall collect and maintain information developed from inspections under this subchapter and report the information to the department. Information developed under this section is property of the state under Section 2214.153.

SUBCHAPTER L. AGENTS

Sec. 2214.551. EXCLUSIVE USE OF EXPIRATIONS. (a) Except as otherwise provided by this section, an agent has the exclusive use of expirations, records, or other written or electronic information directly related to an application submitted to, or a residential property insurance policy written through, the clearinghouse on a voluntary or assignment basis for purposes of soliciting, selling, or negotiating the renewal or sale of residential property insurance coverage.

(b) If the agent has, by contract, entered into an agreement with an insurer or a group of affiliated insurers concerning the use of expirations, the parties' rights to the use of the expirations described by Subsection (a) are determined by the terms of the agent's contract with that insurer or group. An agent, insurer, or group does not have greater rights than those otherwise provided by this section.

(c) Expirations, records, or other written or electronic information provided to the managing general agent or otherwise created by the managing general agent are the property of the state under Section 2214.153.

(d) The managing general agent and an insurer may use any information described by Subsection (a) to review an application or issue a policy, or for any other purpose necessary for placing business through the clearinghouse or reporting, or a purpose otherwise authorized in this chapter.

(e) The rights set forth in Subsections (a) and (b) terminate:

(1) on the date the second renewal of any residential property insurance policy written through the clearinghouse by the insurer terminates, except that if the insurance coverage is again written through the clearinghouse after the second renewal, the exclusive use of expirations period continues;

(2) on the date the insured:

(A) notifies the insurance company that the insured has selected another agent;

(B) submits a renewal application to the clearinghouse through another agent; or

(C) obtains coverage outside of the clearinghouse;

(3) on the date the agent is in default for nonpayment of premiums or other money owed under the agent's agreement with the managing general agent, unless a legitimate dispute exists as to the money owed; or

(4) on the date the managing general agent terminates the agent's agreement, in which case the insurer shall continue coverage for the insured.

(f) An agent or insurer may not enter into a contract with an applicant or insured that is inconsistent with this section.

Sec. 2214.552. AGENT COMMISSIONS. (a) Unless an insurer and an agent enter into an agreement for a different commission rate on program coverage written through the clearinghouse on a voluntary basis, an insurer shall pay the commission rate specified in the plan of operation for that coverage.

(b) An assigned insurer shall pay the commission rate in the plan of operation for program coverage written through the clearinghouse on an assignment basis.

(c) The commission rate must be reasonable, adequate, not unfairly discriminatory, and nonconfiscatory, taking into consideration:

(1) the amount of work performed by an agent in submitting a program application;

(2) the prevailing commission structure in the residential property insurance market;

(3) the uniform electronic filing procedures of the clearinghouse; and

(4) the exclusive use of expirations provided by Section 2214.551.

(d) An agent shall earn a commission at the same rate policy premium is earned in accordance with Section 2214.356.

SUBCHAPTER M. PROGRAM POLICY FORMS

Sec. 2214.601. PROGRAM POLICY FORMS. (a) The commissioner shall promulgate forms and endorsements necessary to implement this chapter.

(b) The promulgated forms must include coverage based on the coverage in nonprogram policies used by more than 50 percent of the insurance market in this state for the following lines:

(1) homeowners;

(2) condominium owners;

(3) tenants; and

(4) residential dwelling fire and allied lines.

(c) The promulgated forms must provide actual cash value coverage, with the option to separately purchase:

(1) replacement cost coverage for dwelling and contents; and

(2) coverage for sudden and accidental discharge, leakage, or overflow of water or steam from or within a plumbing, heating, or air conditioning system or household appliance up to a per-occurrence limit of 10 percent of the dwelling coverage, or 20 percent of the contents coverage for a tenant and condominium owners policy.

(d) The policy must provide coverage for the following perils:

(1) fire and lightning;

(2) sudden and accidental damage from smoke;

(3) wind and hail;

(4) explosion;

(5) aircraft and vehicles;

(6) vandalism and malicious mischief;

(7) riot and civil commotion; and

(8) theft.

(e) The policy must exclude coverage for damage resulting from:

(1) flood, including surface water, waves, storm surge, tides, tidal water, tidal waves, tsunami, seiche, overflow of streams or other bodies of water, or spray from any of these, all whether driven by wind or not;

(2) earth movement;

(3) settling, cracking, bulging, shrinkage, or expansion of foundations;

(4) governmental action;

(5) war;

(6) nuclear hazard;

(7) power failure;

(8) rain, whether driven by wind or not, unless direct force of wind or hail makes an opening in a roof or wall and rain enters through this opening and causes the damage;

(9) electricity;

(10) ordinance or law;

(11) mold, fungi, or other microorganisms; and

(12) asbestos.

(f) The promulgated forms may not exclude coverage for wind and hail.

(g) With the exception of the residential dwelling fire and allied lines form, each program policy must also provide:

(1) personal liability coverage;

(2) medical payments coverage; and

(3) additional living expense coverage when the structure is uninhabitable due to damage resulting from an insured loss.

Sec. 2214.602. DEDUCTIBLE. (a) Homeowners and residential dwelling fire and allied lines program policies assigned through the clearinghouse must have a standard deductible for losses due to a covered peril of three percent of the dwelling coverage amount.

(b) Condominium owners and tenants program policies assigned through the clearinghouse must have a standard deductible for losses due to a covered peril of the greater of three percent of the contents coverage amount or $1,500.

(c) For an additional premium, the managing general agent shall make lower deductibles available to applicants as specified in the plan of operation.

(d) An insurer may offer other deductibles on program policies issued on a voluntary basis.

Sec. 2214.603. COVERAGE LIMITS. (a) The maximum limits for assigned program coverage may not exceed:

(1) $1 million on a single insurable structure used as a dwelling, including an individually owned townhouse unit;

(2) 10 percent of the purchased dwelling coverage limit for other structures; and

(3) either:

(A) 40 percent of the purchased dwelling coverage limit for individually owned corporeal movable property located in the dwelling that is occupied by the owner of that property as the owner's primary residence and, as an extension of coverage, away from those premises, as provided under the policy; or

(B) $80,000 for individually owned corporeal movable property located in an apartment unit, residential condominium unit, or townhouse unit that is occupied by the owner of that property and, as an extension of coverage, away from those premises, as provided under the policy.

(b) In addition to the limits provided by Subsection (a), the maximum limits for coverage for an assigned program homeowners, tenants, or condominium owners policy may not exceed:

(1) $300,000 liability insurance;

(2) $2,500 medical payments; and

(3) either:

(A) 20 percent of the purchased dwelling coverage limit for other additional living expense when the dwelling is uninhabitable due to damage resulting from an insured loss; or

(B) 20 percent of the purchased contents coverage limit under a tenants or condominium owners policy for other additional living expense when the insured location is uninhabitable due to damage resulting from an insured loss.

(c) Notwithstanding Subsections (a) and (b), the commissioner shall review the limits set forth in this section not less than once every five years. After notice and opportunity for hearing, the commissioner may revise the limits and coverages based on residential property insurance policies, other than program policies, used by more than 50 percent of the residential property insurance market in this state.

SECTION 19. Subchapters B-1 and M, Chapter 2210, Insurance Code, are repealed.

SECTION 20. (a) The managing general agent contracted to administer the plan of operation of the Texas Property Insurance Program under Chapter 2214, Insurance Code, as added by this Act, shall establish the electronic property insurance clearinghouse described by Subchapter C of that chapter as soon as practicable after the effective date of this Act, but not later than January 1, 2014.

(b) An insurer shall file all rates, rating factors, and supplementary rating information with the commissioner of insurance as required by Subchapter I, Chapter 2214, Insurance Code, as added by this Act, as soon as practicable after the effective date of this Act, but not later than January 1, 2014.

(c) Notwithstanding Section 2214.406(a), Insurance Code, as added by this Act, the managing general agent contracted to administer the plan of operation of the Texas Property Insurance Program under Chapter 2214, Insurance Code, as added by this Act, shall make the initial rate filing described by that section not later than January 1, 2014.

(d) The commissioner of insurance shall promulgate forms and endorsements under Subchapter M, Chapter 2214, Insurance Code, as added by this Act, as soon as practicable after the effective date of this Act, but not later than January 1, 2014.

SECTION 21. 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 on the 91st day after the last day of the legislative session.