Part I. Texas Department of Insurance

Chapter 5. Property and Casualty Insurance

Subchapter F. Inland Marine Insurance

Definition and Classification of Inland Marine Insurance

28 TAC §5.5002

The Texas Department of Insurance proposes an amendment to §5.5002(5)(Q), relating to inland marine insurance. The amendment is necessary to provide that credit property insurance coverage resulting from an open or closed end consumer credit transaction that is a retail installment transaction under the Texas Finance Code is a class of inland marine insurance for which rules, rates, and forms must be filed with the department for approval. The amendment provides that credit property insurance coverage resulting from consumer credit transactions must comply with all applicable provisions of the subparagraph. The amendment sets out the meaning of an open or closed end consumer credit transaction that is a retail installment transaction. The amendment provides that coverage under credit property insurance policies resulting from an open or closed end consumer transaction shall be limited to "durable personal property," and provides a definition for that term. The amendment prohibits premium calculations based on amounts paid for services, meals, entertainment, nondurable property, finance/service charges, loan interest, delivery charges, or other insurance premiums, for coverages resulting from consumer credit transactions. The amendment provides for adequate disclosure in consumer credit property insurance transactions. It requires that five items of information be provided to the prospective insured at the time of invitation to contract, and requires additional disclosure in the policy about when the vendor's interest in an item of insured property ends, as well as the mechanics of that determination. The amendment requires claim forms and instructions be provided at the time of insurer acceptance of the coverage. The amendment provides that credit property insurance coverage resulting from commercial credit transactions, as set out in clause (ii) of the amendment, continues to be non-regulated.

Lyndon Anderson, associate commissioner for property and casualty at the Texas Department of Insurance, has determined that for the first five-year period the proposed amendment is in effect there will be no fiscal impact to the state or local units of government as a result of enforcing or administering the section. Mr. Anderson also has determined there will be no other implications for the local economy and no impact on local employment as a result of administering the proposed amendment.

Mr. Anderson also has determined that for each year of the first five years the proposed amendment is in effect the public benefit anticipated as a result of enforcing or administering the proposed amendment will be credit property insurance availability at rates which are fair, reasonable, not excessive, and more competitive than those resulting under the current regulation. An additional benefit is the assurance that under the amended section consumers will be purchasing credit insurance only on property considered to be insurable, and therefore appropriate subject matter for insurance coverage.

Mr. Anderson also has determined that for the first year the proposed amendment is in effect, individual insurer compliance cost under the amended rule will vary, but should not exceed $5,000 per filing, based on department experience. This cost could be materially lower for any insurer which has developed and made rate and form filings for other property and casualty insurance coverages. The ultimate amount of first-year compliance cost will be determined by the overall efficiency of an insurer in developing and making its rate and form filings, and the number of filings made. The compliance cost in the second through fifth years should not vary materially from the first-year cost.

Mr. Anderson further has determined that the proposed amendment will not have an adverse effect on insurers qualifying as small businesses under the Government Code, §2006.001, because those insurers authorized to write inland marine coverages in this state which would qualify as small businesses do not write the class of coverage subject to the filing and approval provisions of the proposed amendment. A computerized search of the 1996 Annual Statements for the 868 property and casualty insurers authorized to write inland marine coverages revealed that 383 actually reported written premium for inland marine coverages. Seven of the 383 insurers reporting inland marine written premium write less than $1 million annual premium. Department inquiry of each of these seven insurers revealed that none of the reported inland marine premium on their annual statement reporting forms is attributable to credit property insurance, and each indicated it does not issue credit property insurance in this state.

Comments on the proposal may be submitted to the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104, Mail Code 113-2A, within 30 days following the date of this publication. An additional copy of comments should be submitted to Lyndon Anderson, Associate Commissioner, Property Division, P.O. Box 149104, MC #103-1A, Austin, Texas 78714-9104. A request for a public hearing on the proposed amendment should be submitted separately to the Office of the Chief Clerk.

The amendment is proposed pursuant to the Insurance Code, Article 5.53. Article 5.53 authorizes the commissioner to adopt a definition and classes of inland marine insurance.

The proposed amendment affects regulation pursuant to the following statutes: Insurance Code, Article 5.53

§5.5002.Texas Definition of Inland Marine Insurance.

Inland marine insurance is defined and classified as follows.

(1)-(4)

(No change.)

(5)

Other inland marine risks.

(A)-(P)

(No change.)

(Q)

Inland marine insurance classes of coverage, commonly referred to as consumer credit property insurance and commercial credit property insurance, set out in clauses (i) and (ii) of this subparagraph, respectively, as follows:

(i)

Coverage resulting from an open or closed end consumer credit transaction that is a retail installment transaction (filed). For purposes of this subparagraph, "retail installment transaction" has the meaning assigned in the Texas Finance Code, §345.001. The credit property insurance addressed in this clause must comply with provisions in subclauses (I) through (IV) of this clause.

(I)

Policies offering coverage addressed in this clause must include coverage while in transit and may be extended to include the interest of a vendee, mortgagor, or lessee, but in no event shall the policy cover beyond termination of the vendor's, mortgagee's, or lessor's interest.

(II)

Policies extending the coverage addressed in this clause shall be limited to coverage only for durable personal property.

(-a-)

For purposes of this clause, "durable personal property" shall mean consumer durable goods, also known as consumer "hard" goods, designed to be used repeatedly and over an extended time period, not generally consumed in use, and specifically excluding wearing apparel, draperies, piece goods, and similar items.

(-b-)

Premium calculations for coverage addressed in this clause may not be based on amounts paid for services, meals, entertainment, any nondurable property items, finance or service fees, loan interest, delivery charges, or other insurance premiums (egs., credit life, credit disability or involuntary unemployment insurance coverage).

(-c-)

Policies or certificates shall include, for purposes disclosing the point at which the vendor's interest in an item of covered property ends, a statement that:

(-1-)

net payments are applied to oldest unpaid purchases first; and

(-2-)

if more than one item was purchased the same day, payment will be applied to pay off the lowest priced item first.

(III)

An offer to extend coverage addressed in this clause shall include, at the time of the invitation to contract, a prominent written disclosure in no smaller than 12-point boldface type indicating that the coverage being offered:

(-a-)

might duplicate existing coverage if the consumer has a residential property policy;

(-b-)

ceases for any item of covered property at the time the debt on that covered property item is paid in full;

(-c-)

is primary coverage for the property being insured, and the first source to be used in the event of loss;

(-d-)

may be canceled by the consumer at any time; and

(-e-)

costs $(enter amount) per $100 of outstanding principal amount of insured property.

(IV)

Policies or certificates extending coverage addressed in this clause shall be provided to the insured person at the time coverage is accepted, along with claim forms accompanied by written instructions on filing claims under the coverage. Such policies or certificates provided to insureds shall include the disclosure set out in subclause (III) of this clause, subject to the same type face and size requirements.

(ii)

Coverage resulting from commercial credit transactions involving installment [ Installment ] sales, leased property, and deferred payment contracts [ policies ] (non-regulated). For purposes of this subparagraph, a commercial credit transaction is one which does not fall within the meaning of an open or closed end consumer credit transaction that is a retail installment transaction under clause (i) of this subparagraph. The credit property insurance coverage addressed in this clause covers [ Covering ] the interest of a vendor[ , ] or mortgagee[ , and lessor ] in property sold in a commercial transaction under an installment sales contract, or a partial or deferred payment contract ; [ , ] and the interest of a lessor in property [ or ] leased. Credit property insurance [ Such ] policies subject to this clause must include coverage while in transit and may be extended to include the interest of the vendee, mortgagor, or lessee, but in no event shall the policy cover beyond termination of the vendor's, mortgagee's, or lessor's interest.

(R)-(OO)

(No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on January 26, 1998.

TRD-9801145

Caroline Scott

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: March 9, 1998

For further information, please call: (512) 463-6327

28 TAC §5.9101

The Texas Department of Insurance proposes an amendment to §5.9101, which concerns the writing of commercial multi-peril package policies and the filing of policy forms, endorsements, and rates for commercial multi-peril insurance. The amendment is necessary to conform this section to amendments to the Insurance Code, Article 5.13-2 enacted by Senate Bill 1499, 75th Texas Legislature, 1997. The writing of multi-peril policies was authorized through the enactment of Article 5.81. Under 5.81, the Texas Department of Insurance is authorized to prescribe policy forms and rates for multi-peril policies of insurance and the commissioner has the authority to choose the procedure under any of the subchapters of Chapter 5 of the Insurance Code for the purpose of determining the regulatory scheme for commercial multi-peril rates and forms. In 1992, the State Board of Insurance selected, through the adoption of §5.9101, the regulatory scheme in Article 5.13-2, applicable to general liability lines and commercial property lines of insurance, to govern the regulation of forms and rates for commercial multi-peril policies. Senate Bill 1499 amended subsection (e), section 8, of Article 5.13-2 to delete the requirements that forms submitted by individual insurers for approval must provide coverage equivalent to that provided in the policy forms used for these lines of coverage and that an endorsement may not reduce coverage provided under the approved policy form. Since there is no longer an equivalent coverage requirement for multi-peril form filings and no longer a prohibition against filing multi-peril endorsements that reduce coverage, §5.9101 must be amended to reflect these statutory changes.

David Durden, deputy commissioner for property and casualty lines has determined that for the first five-year period the proposed amendment is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the section and there will be no effect on local employment or the local economy.

Mr. Durden has also determined that for each year of the first five years the proposed amendment is in effect, the public benefit anticipated as a result of administering the section will be that §5.9101 will be in accord with Article 5.13-2 and it is anticipated that it will increase competition in the commercial insurance marketplace as insurers provide a wider variety of products designed to meet the specific needs of insurance consumers. This proposed amendment will also simplify the form filing procedure for the insurers who make individual policy form and endorsement filings. It is anticipated that the proposed amendment will give insurers greater flexibility to adapt their products or respond in a timely fashion to changes in the insurance marketplace. There is no anticipated adverse economic effect on large or small insurers who are required to comply with the proposed amendment. It is anticipated that there would be a benefit to both large and small insurers because with the elimination of the equivalent coverage requirement from policy forms and endorsement filings, insurers will be able to file the same forms in Texas that they file nationwide, thereby, reducing the insurers' cost of doing business in Texas. Although insurers may have some costs associated with making new filings, those additional costs may be offset by the fact that the insurers will not have to produce a Texas specific policy form or endorsement which is different from the other programs that the insurers write in other states.

Comments on the proposal to be considered by the Department must be submitted within 30 days after publication of the proposed section in the Texas Register to Caroline Scott, General Counsel and Chief Clerk, Texas Department of Insurance, P. O. Box 149104, Mail Code 113-2A, Austin, Texas 78714-9104. An additional copy of the comment should be submitted to David Durden, Deputy Commissioner for Property and Casualty Lines, Texas Department of Insurance, P. O. Box 149104, Mail Code 104-5A, Austin, Texas 78714-9104.

The amendment is proposed under the Insurance Code, Articles 5.13-2, 5.81, 5.98, and 1.03A; and the Government Code §§2001.004-2001.038. Article 5.13-2 regulates the policy forms submitted by insurers for approval in general liability, commercial property, commercial casualty, and medical professional liability insurance. Article 5.81 authorizes the commissioner to approve forms for multi-peril policies of insurance and to adopt rules as in the best judgment of the commissioner are necessary and desirable to carry out the purposes and objectives of this article. Article 5.98 authorizes the commissioner to adopt reasonable rules and rates that are appropriate to accomplish the purposes of Chapter 5. Article 1.03A authorizes the commissioner to adopt rules and regulations, which must be for general and uniform regulation, for the conduct and execution of the duties and functions of the department only as authorized by a statute. The Government Code, §§2001.004-2001.038 (Administrative Procedure Act) authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state administrative agency.

The following articles of the Insurance Code are affected by this section: Insurance Code, Articles 5.13-2 and 5.81

§5.9101.Multi-peril Policies.

(a)-(e)

(No change.)

(f)

Forms.

(1)-(4)

(No change.)

(5)

If the Texas Department of Insurance promulgates standard commercial multi-peril insurance forms, endorsements, and other related forms, an insurer, at its discretion, may use these forms instead of the insurer's own forms for writing commercial multi-peril insurance. [ Forms submitted by insurers for approval under this subsection must provide coverage equivalent to that provided in the policy and endorsement forms used for these lines of coverages on the effective date of this section. An endorsement may not reduce coverage provided under the approved policy form. ]

(g)

(No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on January 26, 1998.

TRD-9801128

Caroline Scott

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: March 9, 1998

For further information, please call: (512) 463-6327

28 TAC §5.9302

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Department of Insurance or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Texas Department of Insurance proposes the repeal of §5.9302, concerning the standards for equivalent coverage, as provided for in the Insurance Code, Article 5.13-2 §8(e), for policy forms filed by individual insurers for commercial property insurance, general liability insurance, commercial casualty insurance, and medical professional liability insurance, and as provided in 28 TAC §5.9101(f)(5) (relating to Multi-Peril Policies) for policy forms filed by individual insurers for commercial multi-peril insurance. Section 5.9302 was first adopted in 1992 in accordance with the provisions of Article 5.13-2. Article 5.13-2 was enacted in 1991 by the Legislature for the purpose of establishing a new system of regulation for the rates and forms for general liability and commercial property insurance. Section 5.9302 was adopted as part of the implementation of the new system of regulation mandated in Article 5.13-2. In 1993, Article 5.13-2 was amended to add commercial casualty insurance and medical professional liability insurance under the new system of regulation and to exempt insurers writing large risks from being required to file policy forms. Section 5.9302 was amended to reflect these statutory changes. Prior to the enactment of 5.13-2, insurers writing the lines of insurance which came under the regulation of 5.13-2 were required to use promulgated or standard and uniform policy forms. After the enactment of 5.13-2, insurers were no longer required to use promulgated and standard and uniform policy forms but could submit their own policy forms for approval. However, the individual insurer policy form filings were required to provide coverage equivalent to that provided in the policy forms used for these lines of coverage. Furthermore, filings of endorsements could not reduce coverage under the approved policy form. This equivalent coverage requirement has been evaluated by the department based on a comparison of the policy forms filed by the individual insurers to similar policy forms that were approved by the State Board of Insurance prior to and in effect on October 1, 1991. The repeal of §5.9302 is necessary because Senate Bill 1499, 75th Texas Legislature, 1997, amended Article 5.13-2 to delete the equivalent coverage requirement for individual insurer policy form filings and to delete the prohibition against filing endorsements that reduce coverage. Since there is no longer an equivalent coverage requirement for individual insurer policy form filings and no longer a prohibition against filing endorsements that reduce coverage, §5.9302 must be repealed to remove a section which no longer has a statutory basis.

David Durden, deputy commissioner for property and casualty lines has determined that for the first five-year period the repeal will be in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the repeal and there will be no effect on local employment or the local economy.

Mr. Durden has also determined that for each year of the first five years the proposed repeal is in effect, the public benefit anticipated as a result of administering the repeal will be that a section of the Texas Administrative Code that no longer has a function will be removed. It is anticipated that the proposed repeal will increase competition in the commercial insurance marketplace as insurers provide a wider variety of products designed to meet the specific needs of insurance consumers. This proposed repeal will also streamline the policy filin7g procedures for insurers who make individual policy form filings. It is further anticipated that the proposed repeal will give insurers greater flexibility to adapt their products or respond in a timely fashion to changes in the insurance marketplace. There is no anticipated adverse economic effect on large or small insurers who are required to comply with the proposed repeal. It is anticipated that there would be a benefit to both large and small insurers because with the elimination of the equivalent coverage requirement from policy forms and endorsement filings, insurers will be able to file the same forms in Texas that they file nationwide, thereby, reducing the insurers' cost of doing business in Texas. Although insurers may have some costs associated with making new filings, those additional costs may be offset by the fact that the insurers will not have to produce a Texas specific policy form or endorsement which is different from the other programs that the insurers write in other states.

Comments on the proposal to be considered by the Department must be submitted within 30 days after publication of the proposed section in the Texas Register to Caroline Scott, General Counsel and Chief Clerk, Texas Department of Insurance, P. O. Box 149104, Mail Code 113-2A, Austin, Texas 78714-9104. An additional copy of the comment should be submitted to David Durden, Deputy Commissioner for Property and Casualty Lines, Texas Department of Insurance, P. O. Box 149104, Mail Code 104-5A, Austin, Texas 78714-9104.

The repeal is proposed under the Insurance Code, Articles 5.13-2, 5.81, 5.98, and 1.03A; and the Government Code, §2001.004-2001.038. Article 5.13-2 regulates the policy forms submitted by insurers for approval in general liability, commercial property, commercial casualty, and medical professional liability insurance. Article 5.81 authorizes the commissioner to approve forms for multi-peril policies of insurance and to adopt rules as in the best judgment of the commissioner are necessary and desirable to carry out the purposes and objectives of this article. Article 5.98 authorizes the commissioner to adopt reasonable rules and rates that are appropriate to accomplish the purposes of Chapter 5. Article 1.03A authorizes the commissioner to adopt rules and regulations, which must be for general and uniform regulation, for the conduct and execution of the duties and functions of the department only as authorized by statute. The Government Code, §2001.004-2001.038 (Administrative Procedures Act) authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state administrative agency.

The following articles of the Insurance Code are affected by this repeal: Insurance Code, Articles 5.13-2 and 5.81

§5.9302.Equivalent Coverage Requirements.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on January 26, 1998.

TRD-9801129

Caroline Scott

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: March 9, 1998

For further information, please call: (512) 463-6327