Texas Register
(26 TexReg 10627).
This order adopts a new Manual Rule 82 that will allow an insurer the option
to use a mile-based rating plan for the Texas Personal Auto Policy. The policy
form used under the mile-based rating plan will be the same as the form used
for other policies, except it will be amended by the Mile-Based Rating Plan
Endorsement (Endorsement 505), which is also adopted. New Rule 82, as provided
in Insurance Code Article 5.01-4, specifies that each insurer that offers
the mile-based rating plan shall annually file with the Department for approval
a schedule of the rates to be used for that plan.
As specified in Insurance Code Article 5.01-4, Section 5(b)(3), the rule
and the endorsement provide for the insurer to audit the mileage of a covered
auto at any time by checking the odometer or using some other method to determine
whether coverage is in effect. A policy issued through the mile-based rating
plan must comply with Manual Rule 6, Policy Term and Renewal Certificate,
except coverage will terminate on the expiration date shown in the Declarations
or upon a "covered auto" or autos exceeding specified mileage, whichever comes
first. If the specified mileage is exceeded prior to the policy's expiration
date, coverage for that auto terminates, but the policy will remain in effect
until the expiration date of the policy. Coverage will continue until the
expiration date in the Declarations for covered autos that have not exceeded
their specified mileage. The insured may purchase additional mileage, during
the current policy period, for an auto in exchange for additional premium.
For any unused mileage that may exist on the termination date of the policy,
the insurer, according to its rating plan, may give the insured a refund of
unearned premium or a credit to be applied to the renewal policy.
New Manual Rule 82 provides that no other rating rule in the Manual shall
apply to a mile-based rating plan. The following Manual rules are applicable
to a mile-based rating plan: Rule 6 (Policy Term and Renewal Certificate),
Rule 12 (Continuation of Coverage - Cancelled or Terminated Policy), Rule
13 (Cancellations), Rule 14 (Installments for Premium Payments), Rule 15 (Automobile
Theft Prevention Authority Pass-Through Fee), Rule 71 (Definitions), Rule
72 (Personal Auto Policy and Coverage - Eligibility).
Insurance Code Article 5.01-4, which became effective September 1, 2001
requires the Commissioner to "adopt rules as necessary or appropriate to govern
the use of a mile-based rating plan...." Article 5.01-4, which expires September
1, 2005, applies only to a policy that becomes effective on or after January
1, 2002.
Although the statute provides that an insurer's rates under the mile-based
rating plan are exempt from Insurance Code Article 5.101, the Commissioner
has the authority to approve such rates under Article 5.01-4, or to reject
them if the filed rates are found to be excessive in comparison to rates charged
for similar coverage under the current rating plan used by the insurer. Such
rejection cannot be later than the 60th day after the rates are filed. Prior
to any rejection, the insurer must be given notice and an opportunity for
a hearing.
Although the provisions of Insurance Code Article 5.01-4 may be read to
contemplate that a mile-based rating plan policy is to be written for a term
that expires when the covered auto has been driven a specified number of miles,
such a provision must be read in conjunction with Insurance Code Article 21.49-2B,
concerning cancellation and nonrenewal. For example, if coverage under a mile-based
rating plan policy were to expire after a specified number of miles driven,
an insurer could not know in advance the number of miles to be driven, in
order to provide the required 30 days notice of nonrenewal set forth in Article
21.49-2B, Section 5. Article 21.49-2B will apply to a policy issued through
the mile-based rating plan, as the legislature did not choose to amend the
existing statute with regard to policies written on a mile-based rating plan.
Conversely, if a policy's term were to be determined by the number of miles
driven, the policy would never expire if the specified number of miles were
never driven. It would be impossible to determine a fair rate for a policy
that may never expire and that an insurer could not terminate, even for a
driver with multiple at-fault accidents.
In this proceeding, the filed comments resulting in changes to Staff's
proposals, as well as the Commissioner's responses are as follows:
One commenter indicated that proposed Endorsement 505 should be amended
by moving "PART F - GENERAL PROVISIONS" to precede the Policy Period and Territory
language. The commenter also suggested amending the schedule in this endorsement
by adding a "VIN" column for vehicle identification numbers and by changing
the caption of one column from "MILES" to "MILES PURCHASED." The Commissioner
agrees with all of these comments and adopts an amended Endorsement 505 incorporating
these changes. The amended endorsement was introduced at the hearing.
The amendments as adopted by the Commissioner of Insurance are shown in
exhibits on file with the Chief Clerk under Ref. No. A-1201-21-I, which are
incorporated by reference into Commissioner's Order No. 02-0062.
The Commissioner of Insurance has jurisdiction over this matter pursuant
to Insurance Code Articles 5.01-4, 5.06, 5.10, 5.96, 5.98, and 5.101.
This notification is made pursuant to Insurance Code Article 5.96, which
exempts it from the requirements of Government Code Chapter 2001 (Administrative
Procedure Act).
Consistent with Insurance Code Article 5.96(h), the Department will notify
all insurers writing automobile insurance of this adoption by letter summarizing
the Commissioner's action.
IT IS THEREFORE THE ORDER of the Commissioner of Insurance that the Manual
is amended as described herein, and the amendments are adopted to become effective
on the 15th day after publication of the notification of the Commissioner's
action in the
Texas Register
and optionally
applicable to policies that become effective on and after such date.
TRD-200200339
Lynda H. Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Filed: January 23, 2002