Part 1.
TEXAS DEPARTMENT OF INSURANCE
Chapter 5.
PROPERTY AND CASUALTY INSURANCE
The Texas Department of Insurance proposes amendments to §5.4501
concerning the adoption by reference of the rules manual (Manual) governing
the writing of windstorm and hail insurance coverage by the Texas Windstorm
Insurance Association (Association or TWIA) and to §5.4700, concerning
rate reductions applicable to windstorm and hail insurance policies issued
by the Association. Insurance Code Article 21.49, §8E requires the commissioner
to determine the percentage of equitable across-the-board reductions in insurance
rates for policies or coverages that are issued by the Association to cover
new residential construction, excluding additions or repairs to existing structures,
built to the standards of a new building code. Pursuant to §8E, the commissioner
is to determine these percentage reductions by not later than the 180th day
after the date a new building code is implemented, and if the percentage reductions
have not been determined by the 180th day, §8E(d) requires a six percent
across-the-board reduction. The proposed amendments are necessary to specify
the percentage rate reductions required by §8E as a result of the adoption
of a new building code, the 2000 International Residential Code as revised
by the Texas Revisions to the International Residential Code (IRC), effective
February 1, 2003. The 2000 International Building Code, as revised by the
Texas Revisions to the International Building Code (IBC), effective February
1, 2003, is also included since some residential construction may be certified
using this code (the IBC indicates that residential construction shall comply
with the IRC). In addition, the proposed amendments are necessary to provide
rate reductions for new residential construction, excluding additions or repairs
to existing structures, that have been built to a higher standard of construction
than that required by the new building code, and to provide rate reductions
for residential structures constructed prior to February 1, 2003, which are
retro-fitted with exterior opening protection that meets the windborne debris
impact-resisting standards of the new building code as revised by the Texas
Revisions. The proposed amendments conform §5.4700 to include the IRC
and IBC, specify the proposed percentage rate reductions, and provide an effective
date of July 31, 2003. The Association petitioned the department (Ref. No.
P-0403-10, file-stamped by the Chief Clerk on April 15, 2003), to consider
the submission of its methodology for the TWIA rates and proposed discounts
based on the IRC and to propose a change to the Manual page showing the premium
discounts. The Association's methodology is based on the department's analysis
used to calculate the credits for the 1998 TWIA Building Code for Windstorm
Resistant Construction, effective September 1, 1998, and review of the potential
impact of the IRC. The estimation of savings in the calculation of indicated
credits is based on damage ratios for structures and for contents under the
IRC and the old building codes given various severities of storms (categories
one through five on the Saffir-Simpson scale). The analyses are based on engineering
studies performed by Texas A&M University, and are contained in the publication
"Cost-effectiveness of the New Building Code for Windstorm Resistant Construction
Along the Texas Coast, Final Report" by N. Stubbs, et al. The damage ratios,
separately for structures and contents, are weighted by the anticipated distributions
of storms by Saffir-Simpson category to obtain estimated overall damage ratios
under the new and old codes. The TWIA's proposed percentage reductions have
been reviewed by the department's actuarial staff and are incorporated into
the proposed amendments to §5.4700. The department notes that staff's
final recommendations may vary and that the percentages adopted by the commissioner
may vary from staff's recommendations based on evidence presented at the hearing
and any comments received regarding this proposal. The proposed amendments
to the TWIA Manual, which governs the writing of new policy forms and endorsements
by the Association, are necessary to show the premium discounts that conform
to the proposed amendments to §5.4700. Section III, Subsection C, Item
3, Mandatory Building Code Credits, is proposed to be amended to show the
dwelling and personal property discounts for the seaward, Inland I, and Inland
II areas and the mandatory credits for exterior openings based on compliance
with the IRC/IBC. The proposed amendment to §5.4501 adds a proposed effective
date for the adoption by reference of the amended Manual. A copy of the Association's
petition along with the proposed amendments to the Manual are available for
review in the Office of the Chief Clerk, Texas Department of Insurance, 333
Guadalupe Street, Austin, Texas, 78714-9104. To request a copy of the petition
with the attachments, please contact Sylvia Gutierrez at (512) 463-6327, and
refer to Ref. No. P-0403-10.
The department will consider the adoption of the proposed amendments to §§5.4501
and 5.4700 in a public hearing under Docket Number 2551, scheduled for 1:30
o'clock, p.m. on June 18, 2003, in Room 100 of the William P. Hobby, Jr. State
Office Building, 333 Guadalupe Street, Austin, Texas.
Marilyn Hamilton, associate commissioner, Property and Casualty Program,
has determined that for each year of the first five years the amended sections
will be in effect, there will be no fiscal impact to state and local governments
as a result of the enforcement or administration of the rules. There will
be no measurable effect on local employment or the local economy as a result
of the proposal.
Ms. Hamilton has determined that for each year of the first five years
the sections are in effect, the public benefit anticipated as a result of
the proposed amendments will be the greater likelihood that coastal residents
will build structures that are safer and less susceptible to damage from hurricanes.
Because the proposed amendments provide for rate reductions on policies issued
by the Association for new residential construction built to new building
code standards or higher standards than required by the building code, or
for certain retro-fitted residential structures built prior to February 1,
2003, coastal residents will have a financial incentive to build or retro-fit
to these standards. These incentives will encourage coastal residents and
coastal builders to build residential structures that are safer and less susceptible
to wind damage from hurricanes and thereby not only reduce the cost of insurance
but also mitigate property damage and loss of life. Mitigating damage to insured
property built to these standards should also reduce the amount of insured
losses of the Association in the event of a hurricane. The Association is
the entity required to comply with the percentage rate reductions. The average
number of new residential structures constructed in the designated catastrophe
areas in accordance with the building code standards and certified by the
department is approximately 6136 annually. Assuming an average value of $83,440
for a frame construction dwelling and $43,274 for the personal property located
in the dwelling, the average premium for a windstorm and hail insurance policy
issued by the Association is $606. If a new residential structure of average
value is constructed to meet the new building code standards, the reduction
in premium for the residential structure and its contents is estimated to
be $158 per policy annually. Using the approximately 6136 new structures built
annually in the catastrophe area, the total premium volume reduction to the
Association resulting from the application of a rate reduction on premiums
is estimated to be $969,488 annually after the first year the rule is in effect.
This figure may vary depending on the actual values of the residences being
constructed, the location of the structure, the actual construction elements
of the structure, the number of new structures insured by the Association
and the percentage rate reduction applicable to the area in which the structure
is located. Any reduction in premium volume of the Association attributed
to residential structures being retro-fitted with exterior opening protections
would be in relation to the number of existing insured structures that qualify
for a rate reduction. The Association will not incur costs in printing and
distributing the revised page of the manual because the manual is printed
and distributed by other information service companies which provide updates
to subscribers at no additional charge. Government Code §2006.001 defines
"small business" and "micro-business" in pertinent part as a legal entity,
including a corporation, partnership, or sole proprietorship that is formed
for the purpose of making a profit. Since the Association was not formed for
the purpose of making a profit, it does not meet the definition, and thus
it is not necessary to include a small or micro-business analysis in this
proposal.
To be considered, written comments on the proposal must be submitted no
later than 5:00 p.m. on June 23, 2003, to Gene C. Jarmon, General Counsel
and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box
149104, Austin, Texas 78714-9104. An additional copy of the comment must be
simultaneously submitted to Marilyn Hamilton, Associate Commissioner, Property
and Casualty Program, MC 104-PC, Texas Department of Insurance, P. O. Box
149104, Austin, Texas 78714-9104.
Subchapter E. TEXAS WINDSTORM INSURANCE ASSOCIATION
6.
MANUAL
28 TAC §5.4501
The amended sections are proposed under the Insurance Code
Article 21.49 and §36.001. Article 21.49, §8E requires the commissioner
to determine the percentage of equitable across-the-board reductions in insurance
rates for policies or coverages that are issued by the Association to cover
new residential construction, excluding additions or repairs to existing structures,
built to the standards of a new building code. Article 21.49 §8 authorizes
the Commissioner of Insurance to approve, modify, or disapprove every manual
of classification, rules, rates, rating plans, and every modification of any
of the foregoing used by the Association. Article 21.49 §5A authorizes
the Commissioner of Insurance to issue after notice and hearing, any orders
which are considered necessary to carry out the purposes of Article 21.49
including, but not limited to, maximum rates, competitive rates, and policy
forms. Section 36.001 provides that the Commissioner of Insurance may adopt
rules to execute the duties and functions of the Texas Department of Insurance
as authorized by statute.
The following article is affected by this proposal: Insurance Code Article
21.49
§5.4501.Rules for the Texas Windstorm Insurance Association.
The Texas Department of Insurance adopts by reference a rules manual
for the Texas Windstorm Insurance Association as amended effective, June 15,
1999. The Texas Department of Insurance adopts by reference amendments effective
May 1, 2001, October 15, 2002, [
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 May 7, 2003.
TRD-200302833
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: June 22, 2003
For further information, please call: (512) 463-6327
28 TAC §5.4700
The amended sections are proposed under the Insurance Code
Article 21.49 and §36.001. Article 21.49, §8E requires the commissioner
to determine the percentage of equitable across-the-board reductions in insurance
rates for policies or coverages that are issued by the Association to cover
new residential construction, excluding additions or repairs to existing structures,
built to the standards of a new building code. Article 21.49 §8 authorizes
the Commissioner of Insurance to approve, modify, or disapprove every manual
of classification, rules, rates, rating plans, and every modification of any
of the foregoing used by the Association. Article 21.49 §5A authorizes
the Commissioner of Insurance to issue after notice and hearing, any orders
which are considered necessary to carry out the purposes of Article 21.49
including, but not limited to, maximum rates, competitive rates, and policy
forms. Section 36.001 provides that the Commissioner of Insurance may adopt
rules to execute the duties and functions of the Texas Department of Insurance
as authorized by statute.
The following article is affected by this proposal: Insurance Code Article
21.49
§5.4700.Rate Reduction [
(a)
Purpose. The purpose of this section is:
(1)
to specify, pursuant to Article 21.49, §8E of the
Insurance Code, the percentage of rate
reduction
[
(2)
to specify the percentage of rate
reduction
[
(3)
to specify the percentage of rate
reduction
[
(b)
Definitions. The following words and terms when used in
this section shall have the following meanings unless the context clearly
indicates otherwise.
(1)
Article 21.49, §8E-- Section 8E of Article 21.49 of
the Insurance Code as added by Acts 1997, 75th Legislature, chapter 1000, §3,
effective September 1, 1997.
(2)
Association--Texas Windstorm Insurance Association.
(3)
TWIA
Building Code--Texas Windstorm Insurance
Association Building Code for Windstorm Resistant Construction, which became
effective on September 1, 1998.
(4)
Department--Texas Department of Insurance
(5)
Exterior openings--Openings in the exterior walls or roofs
of residential structures, including, but not limited to, windows, doors,
garage doors, and skylights.
(6)
Inland I areas--Areas inland of the Intracoastal Canal
and within approximately 25 miles of the Texas coastline and east of the boundary
line specified in §5.4008(b)(2)(A) of this title, and certain areas in
Harris County as specified in §5.4008(b)(2)(B) of this title [
(7)
Inland II areas--Areas inland and west of the boundary
line specified in §5.4008(b)(2)(A) of this title [
(8)
IRC--2000 International Residential
Code, as revised by the Texas Revisions, which became effective on February
1, 2003.
(9)
IBC--2000 International Building
Code, as revised by the Texas Revisions, which became effective on February
1, 2003.
(c)
Percentage Rate
Reduction
[
(1)
Areas seaward of the Intracoastal Canal. The Association
shall implement a rate reduction of 26% for dwelling coverage and 20% for
personal property coverage for new residential construction built to the
TWIA
Building Code standards
and 28% for dwelling coverage and
23% for personal property coverage for new residential construction built
to the IRC/IBC standards
for residential structures located in areas
seaward of the Intracoastal Canal.
(2)
Inland I areas. The Association shall implement a rate
reduction of 24% for dwelling coverage and 19% for personal property coverage
for new residential construction built to the
TWIA
Building Code
standards
and 26% for dwelling coverage and 21% for personal property
coverage for new residential construction built to the IRC/IBC standards
for
residential structures located in the Inland I areas.
(3)
Inland II areas. The Association
shall implement a rate reduction of 26% for dwelling coverage and 20% for
personal property coverage for new residential construction built to the IRC/IBC
standards for residential structures located in the Inland II areas.
(d)
Percentage Rate
Reduction
[
(1)
Inland I areas. The Association shall implement a rate
reduction of 29% for dwelling coverage and 23% for personal property coverage
for new residential construction in the Inland I areas that meets the
TWIA
Building Code standards for a residential structure located in
areas seaward of the Intracoastal Canal
and 31% for dwelling coverage
and 25% for personal property coverage for new residential construction in
the Inland I areas that meets the IRC/IBC standards for a residential structure
located in areas seaward of the Intracoastal Canal
.
(2)
Inland II areas.
(A)
The Association shall implement a rate reduction of 27%
for dwelling coverage and 21% for personal property coverage for new residential
construction located in the Inland II area that meets the
TWIA
Building
Code standards for a residential structure located in the Inland I areas
and 28% for dwelling coverage and 23% for personal property coverage for new
residential construction in the Inland II area that meets the IRC/IBC standards
for a residential structure located in the Inland I areas
.
(B)
The Association shall implement a rate reduction of 32%
for dwelling coverage and 25% for personal property coverage for new residential
construction located in the Inland II areas that meets the
TWIA
Building
Code standards for a residential structure located in the areas seaward of
the Intracoastal Canal
and 33% for dwelling coverage and 28% for personal
property coverage for new residential construction in the Inland II areas
that meets the IRC/IBC standards for a residential structure located in the
areas seaward of the Intracoastal Canal
.
(e)
Percentage Rate
Reduction
[
(f)
Certification Required to Qualify for Rate [
(g)
Effective Date. The rate
reductions
[
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 May 7, 2003.
TRD-200302834
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: June 22, 2003
For further information, please call: (512) 463-6327
and
] May 1, 2003,
and July
31, 2003,
to the rules manual. Copies of the rules manual may be obtained
by contacting the Automobile and Homeowners Division, Mail Code 104-1A, Texas
Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas
78714-9104.
8.
RATES Rollback and Rate Credits ].
rollback
] which must be applied to windstorm and hail insurance policies issued
by the Texas Windstorm Insurance Association for new residential construction,
excluding additions or repairs to existing structures, that have been built
to the standards of the Texas Windstorm Insurance Association Building Code
for Windstorm Resistant Construction, which became effective on September
1, 1998
, or the 2000 International Residential Code/2000 International
Building Code, as revised by the Texas Revisions, which became effective on
February 1, 2003
;
credit
] which must be applied to windstorm and hail insurance policies
issued by the Texas Windstorm Insurance Association for new residential construction,
excluding additions or repairs to existing structures, that have been built
to a higher standard of construction than that required by the Texas Windstorm
Insurance Association Building Code for Windstorm Resistant Construction,
which became effective on September 1, 1998
, or the 2000 International
Residential Code/2000 International Building Code, as revised by the Texas
Revisions, which became effective on February 1, 2003;
and
credit
] which must be applied to windstorm and hail insurance policies
issued by the Texas Windstorm Insurance Association for residential structures
constructed prior to September 1, 1998
, or February 1, 2003, as applicable
, which have been retro-fitted with exterior opening
protection
[
protections
] that
meets
[
meet
] the
windborne debris
impact-resisting
[
criteria
] standards
of the Texas Windstorm Insurance Association Building Code for Windstorm Resistant
Construction, which became effective on September 1, 1998
, or the 2000
International Residential Code/2000 International Building Code, as revised
by the Texas Revisions, which became effective on February 1, 2003,
or
equivalent criteria recognized by the Department pursuant to the procedures
of the Texas Windstorm Insurance Association Building Code for Windstorm Resistant
Construction, which became effective on September 1, 1998
, or the 2000
International Residential Code/2000 International Building Code, as revised
by the Texas Revisions, which became effective on February 1, 2003.
,
] (relating to Applicable Building Code Standards in Designated Catastrophe
Areas for Structures Constructed, Repaired, or to Which Additions Are Made
on and after September 1, 1998).
, relating to
Applicable Building Code Standards in Designated Catastrophe Areas for Structures
Constructed, Repaired, or to Which Additions Are Made on and after September
1, 1998
].
Rollback
]
for New Residential Construction Built to
TWIA
Building Code
or IRC/IBC
Standards.
Credits
]
for New Residential Construction Built to Higher Standards than Required by
the
TWIA
Building Code
or the IRC/IBC
.
Credits
]
for Certain Retro-fitted Residential Structures. The Association shall implement
a rate reduction of 10% for dwelling coverage and 10% for personal property
coverage for residential structures in any of the designated catastrophe areas
which were constructed prior to September 1, 1998,
or February 1, 2003,
as applicable,
which have been retro-fitted with exterior opening
protection
[
protections
] that
meets
[
meet
] the windborne debris
impact-resisting
[
criteria
]
standards of the
TWIA
Building Code
or the IRC/IBC
or
equivalent criteria recognized by the Department pursuant to
TWIA
Building
Code
or IRC/IBC
procedures. All exterior openings of the residential
structure must be protected for the structure to be eligible for the rate
reductions
[
credits
] specified in this subsection.
Rollback
] Reduction [
or Rate Credits
]. A residential structure must
be certified by the Department as meeting the standards specified in the
TWIA
Building Code
or the IRC/IBC
to qualify for the rate
reductions specified in this section.
rollback
and the rate credits
] specified in this section shall be applied to
windstorm and hail insurance policies issued by the Association on and after
February 28, 1999
, for the TWIA Building Code and on and after July 31,
2003, for the IRC/IBC.
Subchapter E. TEXAS WINDSTORM INSURANCE ASSOCIATION