ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 4. AGRICULTURE PART I. Texas Department of Agriculture CHAPTER 1. General Procedures SUBCHAPTER G. Interagency Agreements 4 TAC sec.1.310 The Texas Department of Agriculture (the department) adopts new sec.1.310, concerning a joint memorandum of understanding between the Texas Department of Agriculture (the department) and the State Office of Administrative Hearings (SOAH) for the conducting of contested case hearings by SOAH for the department without changes to the proposed text as published in the January 5, 1996, issue of the Texas Register (21 TexReg 191). The new section is adopted in order to establish, by rule, the provisions of the interagency agreement between SOAH and the department as required by sec.3.01 of Senate Bill 372, 74th Legislature, 1995, now codified at Texas Agriculture Code, sec.12.032. The new section establishes the duties of SOAH and the department in regards to the conducting of administrative hearings by SOAH, and establishes procedures for the referral of cases and conducting of hearings including provisions for providing notice of hearings, filing of documents and issuance of orders on cases. No comments were received regarding adoption of the new section. The new section is adopted under the Texas Agriculture Code, sec.12.032, which provides the Texas Department of Agriculture with the authority to adopt by rule a memorandum of understanding under which SOAH conducts administrative hearings for the department. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 20, 1996. TRD-9602422 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: March 12, 1996 Proposal publication date: January 5, 1996 For further information, please call: (512) 463-7583 PART I. Texas Board of Architectural Examiners CHAPTER 3. Landscape Architecture SUBCHAPTER E. Fees 22 TAC sec.3.81 The Texas Board of Architectural Examiners adopts an amendment to sec.3.81, regarding Fees, without changes to the text as published in the December 8, 1995, issue of the Texs Register (20 TexReg 10341). This rule will allow the agency to recover the costs incurred when processing and requesting replacement of a returned check. This amendment estalishes authority for the agency to charge a fee in order to recover costs for processing dischonored checks. No comments were received regarding adoption of the amendment. The amendment is adopoted under the Texas Civil Statutes, Article 249c, which provide the Texas Board of Architectural Examiners with authority to promulgate rules. This proposed amendment does not affect any other statutes. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 13, 1996. TRD-9602066 Cathy L. Hendricks Executive Director Texas Board of Architectural Examiners Effective date: March 5, 1996 Proposal publication date: December 8, 1995 For further information, please call: (512) 305-8535 PART XXI. Texas State Board of Examiners of Psychologists CHAPTER 461. General Rulings 22 TAC sec.461.18 The Texas State Board of Examiners of Psychologists adopts an amendment to sec.461.18, concerning Complaint Procedure Notification, without changes to the proposed text as published in the January 2, 1996, issue of theTexas Register (21 TexReg 17). The rule is being amended to correct the address and phone number of the Board since the Board's office changed locations and to show that all licensees and certificands are provided with the notification statement approved by the Board. The amendment will ensure that the information provided to the public regarding assistance for filing complaints is correct. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, 4512c, which provide the Texas State Board of Examiners of Psychologists with the authority to promulgate rules consistent with the Statute. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on February 20, 1996. TRD-9602464 Rebecca E. Forkner Executive Director Texas State Board of Examiners of Psychologists Effective date: March 13, 1996 Proposal publication date: January 2, 1996 For further information, please call: (512) 305-7700 CHAPTER 471. Renewals 22 TAC sec.471.1 The Texas State Board of Examiners of Psychologists adopts an amendment to sec.471.1, concerning Notification of Renewal, without changes to the proposed text as published in the January 2, 1996, issue of the Texas Register (21 TexReg 19). The rule is being amended to simplify the wording of the rule so that the rule does not have to be amended each time there is a change in classifications of licensees and/or certificands. The amendment will make the rules easier for the public to follow. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, 4512c, which provide the Texas State Board of Examiners of Psychologists with the authority to promulgate rules consistent with the Statute. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on February 20, 1996. TRD-9602465 Rebecca E. Forkner Executive Director Texas State Board of Examiners of Psychologists Effective date: March 13, 1996 Proposal publication date: January 2, 1996 For further information, please call: (512) 305-7700 PART XXIII. Texas Real Estate Commission CHAPTER 535. Provisions of the Real Estate License Act Education, Experience, Educational Programs, Time Periods, and Type of License 22 TAC sec.sec.535.62-535.64 The Texas Real Estate Commission adopts amendments to sec.535.62, concerning waiver of examination, to sec.535.63, concerning real estate broker education and experience, and to sec.535.64, concerning real estate salesman education, with changes to the proposed text as published in the January 16, 1996, issue of the Texas Register (21 TexReg 419). These amendments permit previously licensed real estate brokers or salesmen to apply for the same kind of license previously held without being subject to all current requirements for licensing. The amendments generally allow previous licensees to be relicensed without examination if the application is filed no more than two years after expiration of the previous license. Applicants for either a real estate broker or real estate salesman license will be required to complete at least 15 hours of mandatory continuing education (MCE) courses within the two-year period prior to the filing of the application before receiving an active license, or, if the prior salesman's license was subject to completion of core real estate courses, the applicant must complete any courses which would have been required for timely renewal of the prior license. Adoption of the amendments is necessary to facilitate the return to practice by prior licensees, while ensuring the licensees' competency and knowledge are shown by either examination or completion of educational courses. Under sec.535.132 of this title (relating to Nonresidents) nonresidents previously licensed as brokers or salesmen also will be able to apply for a license under the provisions of the amended sections. Comments were received from licensees and former licensees generally in support of the amendments. No comments were received in opposition to the amendments. Several former licensees suggested that there be no education or examination requirements for former licensees. The commission determined that the proposed education requirements were appropriate and that after two years a competency examination is necessary to protect the public. The amendment to sec.535.62 waives the examination requirement for broker and salesman applicants who file their applications no more than two years after the expiration of a prior license. On final adoption, the text was modified to extend the waiver to a previously licensed broker who is applying for a salesman license to be consistent with the other waivers provided by these sections. A minor change to the text clarified that applications filed more than two years after expiration of the prior license would not quality for the examination waiver. The amendment to sec.535.63 authorizes the commission to waive the education and experience requirements currently in place for broker licensing, although the broker applicant licensed no more than five years prior to filing the application will have to have completed 15 hours of MCE courses within the two year period prior to receiving an active license. The text was reformatted for ease in reading, and language was changed to clarify that the waiver does not apply if the application is filed more than five years after expiration of the prior license. A provision relating to nonresident applicants was deleted as unnecessary, since another section addresses the requirements for nonresidents. The amendment to 535.64 authorizes the commission to waive the current education requirements for salesman applicants licensed no more than five years prior to the filing of the education, although the applicant must either complete 15 hours of MCE courses within the two-year period prior to receiving an active license, or, if the prior license was issued subject to the completion of core real estate courses, the applicant must have completed any core courses which would have been required for timely renewal of the prior license. The text was reformatted for ease in reading, and language was changed to clarify that the waiver does not apply if the application is filed more than five years after expiration of the prior license. A provision relating to nonresident applicants was deleted as unnecessary, since another section addresses the requirements for nonresidents. The amendments are adopted under Texas Civil Statutes, Article 6573a, sec.24(g), which authorize the Texas Real Estate Commission to by rule provide for a waiver of some or all of the requirements for a real estate broker or real estate salesman license if the applicant was previously licensed within the five-year period prior to the filing of the application. sec.535.62.Waiver of Examination. (a) The commission shall waive the examination of an applicant for broker license who has, no more than two years prior to the filing of the application, been licensed as a broker in this state. The commission shall waive the examination of an applicant for salesman license who has, no more than two years prior to the filing of the application, been licensed in this state as a broker or salesman. (b) (No change.) sec.535.63.Brokers: Education and Experience. (a) (No change.) (b) Applicable experience and education requirements may only be waived in accordance with the provisions of this section. (c)-(e) (No change.) (f) The commission may waive education and experience required for a real estate broker license if the applicant satisfies the following conditions. (1) The applicant must have been licensed as Texas real estate broker no more than five years prior to the filing of the application. (2) The applicant must have completed at least 15 hours of mandatory continuing education (MCE) courses within the two-year period prior to the filing of an application for an active license. sec.535.64.Salesmen: Education. (a)-(b) (No change.) (c) The commission may waive the education required for a real estate salesman license if the applicant satisfies the following conditions. (1) The applicant must have been licensed either as a Texas real estate broker or as a Texas real estate salesman no more than five years prior to the filing of the application. (2) The applicant must have completed any core real estate courses which would have been required for a timely renewal of the prior license, or if the renewal of the prior license was not subject to the completion of core real estate courses, the applicant must have completed at least 15 hours of mandatory continuing education (MCE) courses within the two-year period prior to the filing of an application for an active license. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 21, 1996. TRD-9602472 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: April 1, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 465-3900 Mandatory Continuing Education 22 TAC sec.535.71, sec.535.72 The Texas Real Estate Commission adopts an amendment to sec.535.71, concerning approval of mandatory education providers, courses and instructors, and to sec.535.72, concerning presentation of courses, advertising and records, without changes to the proposed text as published in the January 16, 1996, issue of the Texas Register (21 TexReg 420). The amendment to sec.535.71 authorizes the commission to require persons applying for approval as mandatory continuing education (MCE) instructors to attend any training program offered by the commission which the commission determines significantly relates to the subject the persons are applying to teach. In lieu of attendance at the commission's training program, the applicant also could certify that the applicant has viewed a videotape of the program or received the training in another manner acceptable to the commission. The amendment to sec.535.72 establishes a process for the commission to ensure that significant information about changes in the law of agency or other topics is provided to students and included in the presentation of MCE courses. If the commission determines that the information should be included in a course previously approved by the commission, the commission will notify the MCE provider of the requirement and furnish the provider with a copy of the information. The provider will then be required to furnish copies of the information to students and to ensure that the provider's instructors included the information in the presentation of the course. Failure to comply would constitute grounds to discipline the provider or to disapprove a subsequent application for a providership. Adoption of these amendments is necessary to provide a means for the commission to ensure that significant information reaches MCE students accurately and in a timely fashion. No comments were received regarding adoption of the amendments. The amendments are adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which authorize the Texas Real Estate Commission to make and enforce all rules and regulations necessary for the performance of its duties. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 21, 1996. TRD-9602546 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: April 1, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 465-3900 Nonresidents 22 TAC sec.535.132 The Texas Real Estate Commission adopts an amendment to sec.535.132, concerning a nonresident's eligibility for a Texas real estate broker or real estate salesman license, with changes to the proposed text as published in the January 16, 1996, issue of the Texas Register (21 TexReg 421). The amendment permits a resident of another state to apply for a license if the person was licensed as a Texas real estate broker or salesman no more than five years prior to the filing of the application. Adoption of the amendment is necessary for the commission to impose licensing requirements on nonresident prior licensees which are consistent with the requirements for resident prior licensees. On final adoption, the text was modified to reference other sections providing waivers of examination, experience, and education, and to clarify that the provision is not applicable to applicants licensed more than five years prior to the filing of the application. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which authorize the Texas Real Estate Commission to make and enforce all rules and regulations necessary for the performance of its duties. sec.535.132. Eligibility for Licensure. (a) A person residing in another state may apply for a license under the provisions of Texas Civil Statutes, Article 6573a (the Act), sec.14(b) and this section if the person: (1) (No change.) (2) was licensed as a Texas real estate salesman or broker no more than five years prior to the filing of the application. The commission may waive examination, education and experience requirements if the applicant satisfies the conditions established by sec.535.61 of this title (relating to Waiver of Examinations) and by either sec.535.62 of this title (relating to Brokers: Education and Experience) or sec.535.63 of this title (relating to Salesmen: Education). (b)-(f) (No change.) This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 21, 1996. TRD-9602547 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: April 1, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 465-3900 Residential Rental Locators 22 TAC sec.535.300 The Texas Real Estate Commission adopts new sec.535.300, concerning residential rental locators, with changes to the proposed text as published in the January 16, 1996, issue of the Texas Register (21 TexReg 421). The new section establishes advertising guidelines for real estate brokers or salesmen who act as residential rental locators. The term "residential rental locator" refers to a person who offers for consideration to locate a unit in an apartment complex for lease to a prospective tenant. Adoption of advertising guidelines for residential rental locators is required of the commission by Texas Civil Statutes, Article 6573a, sec.24, adopted by the 74th Legislature (1995) so as to be effective January 1, 1996. Comments were submitted by the Texas Apartment Association (TAA) in general support of the proposal and offering suggestions for deletions and additions to the advertising guidelines. TAA and an individual licensee suggested the guidelines should contain a definition of the term "advertising" to clarify that the rule applies to all forms of advertising. The commission declined to make the requested change, since, with the exception of one provision relating to notice in printed publications, the guidelines address all advertising generally. The commission agreed to consider amendments to the new section once it had become effective. TAA also suggested clarification of the advertising language required by the section. Because the comment did not suggest how the section should be clarified, the commission could not act to make a change. TAA also suggested that some consideration should be given to allowing locators to state in an advertisement that a unit is expected to become available in the future, even if it is not available at the time the advertisement is placed. The commission did not modify the proposed section in this regard, because it already permits the locator to advertise a unit becoming available in the future, so long as the locator's advertisement states a time when the unit is available. TAA and an individual also suggested deletion of the provision which deemed a locator in compliance with specific disclosure requirements if the locator's advertisement in a printed publication contained a notice regarding residential rental locators and their regulation by the commission. The commission agreed to consider the suggestion when it amends the section in the future, but adopted the section without the change so as to permit more immediate implementation of advertising guidelines for the residential locator industry. TAA and an individual licensee also suggested that the section contain a provision requiring the locator to obtain authorization of the property owner before placing an advertisement for a property. The commission agreed to study this suggestion, but did not make the change since locators must be licensed as real estate brokers or salesmen, and real estate licensees are subject to an existing statutory provision to obtain consent before offering an owner's property. TAA and the individual licensee also suggested that locator's real estate broker license number be included in the advertisement; TAA commented that the advertisement also should include the name of the company, or words such as "locator" or "agent". The commission did not make the requested change, since the proposed section requires locators to comply with general disclosure of brokerage or agency imposed by Texas Civil Statutes, Article 6573a, sec.15(a)(6)(P), and to comply with existing commission rules. An existing commission rule prohibits salesmen from placing an advertisement in which only their names appear or causing a member of the public to conclude that the salesmen are responsible for the operation of the business. Two changes were made in response to suggestions from staff or commission members. The language of the notice regarding residential rental locators and their regulation by the commission was revised to include the full 1-800 telephone number of the commission and to provide a local telephone number for persons unable to access the 1-800 number. A change was also made in the provision which required a locator who advertises property generally to have at least one property available at a stated time or within 30 days after the advertisement is placed which meets the general description. The provision was modified to require the locator to have available at least one property at the lowest rent stated in the advertisement in order to prohibit "bait and switch" advertising. The new section is adopted under Texas Civil Statutes, Article 6573a, sec.24, which authorize the Texas Real Estate Commission to make and enforce advertising guidelines for residential rental locators. sec.535.300. Advertising by Residential Rental Locators. (a) This section is intended to establish standards relating to permissible forms of advertising by a person licensed as a real estate broker or salesman and functioning as a residential rental locator ("locator"). For the purposes of this section, the term "residential rental locator" shall have the meaning provided by Texas Civil Statutes, Article 6573a, (the Act), sec.24. (b) If a locator advertises more than one apartment unit in the same advertisement and lists amenities or features generally without providing the features or amenities available at a specific rent for a specific unit, the advertisement must include a statement having a meaning substantially equivalent to one of the following. (1) "All units do not have the advertised features or amenities." (2) "The rent is $_____ or more, depending on the features of the unit." (3) "The rent quoted is the minimum for a unit which may not have all the features advertised." (c) Advertisements in a printed publication shall be deemed to be in compliance with the requirements of subsection (b) of this section if the publication in which an advertisement appears contains this notice at the beginning of the section in which the advertisement appears: Notice. Residential rental locators are required to be licensed by the Texas Real Estate Commission (P. O. Box 12188, Austin, Texas 78711-2188, 1-800-250-8732 or (512) 465-3960). Locators may advertise apartment units in general terms, and all units may not have the same features. The amount of rent quoted in an advertisement may be the starting rent for a basic unit or for a unit which does not have all advertised features. (d) An advertisement by a locator of an apartment unit by general terms is misleading unless at the time the advertisement is placed at least one unit meeting the description of the unit contained in the advertisement is available through the locator at the lowest rent stated in the advertisement within either a time stated in the advertisement or within 30 days after the advertisement is submitted for publication if no time is stated. (e) Advertising by locators must also comply with the provisions of the Act, sec.15(a)(6)(P) and sec.535.154 of this title (relating to Misleading Advertising). This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 21, 1996. TRD-9602548 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: April 1, 1996 Proposal publication date: January 16, 1996 For further information, please call: (512) 465-3900 TITLE 28. INSURANCE PART I. Texas Department of Insurance CHAPTER 3. Life, Accident and Health Insurance and Annuities SUBCHAPTER A. Requirements for Filing of Policy Forms, Riders, Amendments, and Endorsements for Life, Accident, and Health Insurance and Annuities 28 TAC sec.sec.3.1-3.21 The Commissioner of Insurance adopts an amendments to sec.3.1, and new sec.sec.3.2-3.21, concerning requirements for filing of policy forms, riders, amendments, and endorsements for life, accident, and health insurance and annuities. Sections 3.1, 3.3-3.7, 3.12-3.16, 3.18, 3.19 and 3.21 are adopted with changes to the proposed text as published in the October 20, 1995 issue of the Texas Register (20 TexReg 8561). Sections 3.2, 3.8-3.11, and 3.20 are adopted without changes and will not be republished. A public hearing was requested on the proposal and held December 14, 1995. Simultaneous to this notice of adopted amendment of sec.3.1 and new sec.sec.3.2 through 3.21, the commissioner is adopting repeal of existing sec.sec.3.2 through 3.5. Notice of final adoption of that repeal is published elsewhere in this issue of the Texas Register. The sections are necessary to streamline and strengthen the overall regulatory process by which life product and health product forms are filed and reviewed for official action, to enhance the overall effectiveness and efficiency of the form filing and review process, and to implement legislation from the 74th legislative session relating to the life/health form filing and review process in the Insurance Code, Article 3.42. Adopted sec.3.1 deletes reference to and inclusion of viatical settlement forms, which are regulated elsewhere in this title. In sec.3.3(h), paragraphs (1) and (2) have been added to specify fee amounts applicable to particular kinds of filings, rather than simply cross-referencing sec.7.1301 of this title, relating to regulatory fees. In sec.3.4(b) (8) and (9), as well as in sec.3.5(c)(12) and (13), changes were made to clarify that the description which must be supplied with applicable group life, accident/health or annuity submissions is the group type to be issued the forms, rather than the specific group or groups within the group type. Section 3.6 has been changed to include language to reflect staff policy on review procedure on corrections to pending forms. Paragraph (3) of sec.3.7(b) has been deleted and subsequent paragraphs renumbered appropriately. Paragraph (4) in sec.3.12(d) has been changed to clarify its meaning and application. Subsection sec.3.12(e) has been changed to specifically refer to the amount of the filing fee, $50. The captions to sec.3.12 -- sec.3.16 have been changed to more clearly describe the content of those sections. Paragraph (3) of sec.3.15(g) has been changed to include specific items of actuarial and other information necessary to be provided in the event of cumulative rate increases exceeding 150% in any one-year period. Section 3.18 has been changed to delete an explanatory sentence. Subparagraph (A) of sec.3.19(a)(2) has been changed to clarify that submissions placed in pending status at the request of issuers will be held in such status for no more than 45 days, not for a set period of 45 days. Adopted Form Cert - FR, Figure 1, described in sec.3.20, has been revised to include an item for supplemental-coverage-only use. Adopted Form Gen. Rev, Figure 2, described in sec.3.20, has been revised to delete the prepaid legal services checklist item. That type of service is regulated elsewhere in this title. Section 3.21 has been changed to clarify the applicability of these sections and Article 3.42 to submissions received by the department during the period of transition of both the Insurance Code, Article 3.42, as amended by the 74th Legislature, regular session, and these sections as adopted. The amendment and new sections as adopted establish a cohesive, uniform procedure for the filing and review of life product and health product forms which must be filed and reviewed for official action, with the purpose of enhancing the overall effectiveness and efficiency of the form filing and review process, and implementing legislation from the 74th legislative session relating to the life/health form filing and review process in the Insurance Code, Article 3.42. The amendment to sec.3.1 provides appropriate paragraph designations for types of forms which must be filed under Chapter 3, Subchapter A of this title. Section 3.2 addresses the adoption by reference of department forms utilized in the policy form review process. Section 3.3 addresses general submission requirements associated with all filings required under the Insurance Code, Article 3.42 and within the scope of Subchapter A. It sets out the procedural details associated with filing and with post-filing communications between the department and the filer. Section 3.4 sets out the general provisions and specific details relating to the regular and general review process. Section 3.5 sets out eligibility criteria and procedural details for an expedited form review process. Section 3.6 sets out specific details for circumstances where a form filing consists essentially of corrections for a filing pending official action. Section 3.7 addresses procedural details for filings which are resubmissions of previously disapproved forms. Section 3.8 provides procedural guidance and a cross reference to Subchapter Z for filings that are made pursuant to rules addressing exemption from review for certain forms. Section 3.9 addresses procedural distinctions for filings which are submissions of exact copies of previously approved forms with only a change to the company name, office address, or other company specific identification information. Section 3.10 sets out procedural distinctions for filings which constitute substitutions of previously approved forms which have never been issued in Texas. Section 3.11 sets out procedural distinctions for filings of prototype forms. Sections 3.12 and 3.13 address specific additional submission requirements for all product types and for life and annuity forms, respectively. Sections 3.14, 3.15 and 3.16 address specific additional submission requirements for group life, group accident and health, and group annuity forms; individual accident and health forms; and credit life and credit disability forms, respectively. Section 3.17 addresses miscellaneous requirements for specialty coverages and conversion filings. Section 3.18 highlights that form filings must be in full compliance with the provisions of Subchapter A to be considered for approval. Section 3.19 provides procedural details for circumstances where a submission meets all procedural requirements of Subchapter A, but fails to fully comply with applicable insurance statutes and rules and for that reason is not capable of affirmative approval without submitted corrections to bring the filing in full compliance with the law. Section 3.20 provides an appendix and full reproduction of three forms adopted to be adopted by reference in sec.3.2 and utilized by the department in the review process in order to make the process flow smoothly and efficiently. The forms relate to required certifications for certain types of filings, and to essential checklists for both routine and expedited review processes. Section 3.21 clarifies the procedural legal framework applicable to form submissions received by the department prior to January 1, 1996, subsequent to January 1, 1996 but prior to the effective date of these sections, and subsequent to the effective date of these sections. GENERAL COMMENT: One comment concluded the sections will be overly costly to those who must comply with them, and will cause delays in the regulatory process. RESPONSE: The department disagrees. The sections in their entirety provide a cohesive and uniform approach to the filing and review of forms, and each of the sections are designed to contribute to the overall objective of a strong, streamlined filing and review process. The department believes the sections will result in enhanced time and resource efficiency, thereby saving money for both the department and issuers who must comply. The new sections are more explicit than the sections they replace, and thus reduce uncertainty, ultimately resulting in reduced overall costs for filing and approval, as well as increased operational efficiency. Moreover, the sections are designed to reduce the amount of communication time necessary between the department staff and any issuer required to comply with these sections following the time of any submission. The reduction in necessary followup telephone, telefacsimile, and correspondence time should save both time and money. Additionally, the sections do not for the most part enlarge upon what constitutes a complete submission, but instead are designed to simply make it easier for issuers to make a complete submission on initial filing. COMMENT: One comment urged that no fee be assessed for resubmission of forms previously disapproved, or if there is one, it should be no more than $50. RESPONSE: The department disagrees, because reviewing a previously disapproved form upon resubmission is not cost-free, nor is it permissive or discretionary. It is mandatory. Moreover, the assessment of a fee -- even a $100 fee -- only serves to defray the costs associated with such a review; it is insufficient to cover all costs associated with the review. Nonetheless the department has reduced the fee for resubmission from $100 to $50 by making changes to sec.3.3(h) and sec.3.12(e) stating that the fee for such filings is $50. COMMENT: One comment suggested that the provisions in sec.3.4(b)(8) and (9) and sec.3.5(c)(12) and (13) requiring that a description of the group to which the form is to be issued are really requiring identification of the type of group to which the form is to be issued. RESPONSE: The department agrees, and the adoption includes clarifying technical changes to sec.3.4(b)(8) and (9), and sec.3.5(c)(12) and (13) to indicate that the description which must be provided pursuant to such paragraphs is the group type, not the specific group. COMMENT: One comment suggested that the rules should reflect an agency policy of reasonable effort to get filings to a compliance status prior to the statutory time limitations so that if the official action on the filing is disapproval, such disapproval will not necessarily be based on incompleteness of the submission. RESPONSE: The department has added an opening statement in sec.3.6 to reflect staff policy on review procedure relating to corrections to pending forms. COMMENT: One comment stated that resubmission requirements should be set out to require as little paper exchange as possible. RESPONSE: The department agrees and has changed sec.3.7(b) to delete the inclusion of certain items on resubmissions. COMMENT: One comment suggested changing "a" to "any company's" in the first sentence of sec.3.9 to exempt from review any issuer's filing represented to be an exact copy of any prior approved form. RESPONSE: The department disagrees. Effective regulatory oversight requires retention of sec.3.9 as published. It is designed to exempt exact copies of issuer-specific prior approved forms only. COMMENT: One comment suggested sec.3.12(d)(4) be changed to clarify its meaning and application. RESPONSE: The department agrees and the adopted section contains such clarifying change. COMMENT: One comment asked whether sec.sec.3.12, 3.13 and 3.14 are to apply to group annuities, or whether only sec.sec.3.12 and 3.14 are to apply to such products. RESPONSE: The department notes that the intent of the regulation is that sec.3.12 apply to all product types, that sec.3.13 is a first added increment that applies to all life and annuity forms, and that sec.3.14 represents a second necessary increment for group life, group health, and group annuity forms. Therefore, sec.sec.3.12, 3.13 and 3.14 all apply to group annuities. The adoption changes the captions on sec.sec.3.12, 3.13, 3.14, 3.15, and 3.16, to provide a clearer description of the subject matter and application of such sections. COMMENT: One comment expressed concern that sec.3.15(g)(3) contained "rate-regulation" language, and recommended removing the word "support" and the 150% threshold triggering the requirement for provision of rate information. Another comment suggested replacing the 150% threshold with a 50% threshold. RESPONSE: The department does not believe sec.3.15(g)(3) as published contains rate-regulation language. The department may seek and obtain information relating to rates under statute. However, the adoption removes the word "support" from the paragraph and adds subparagraphs setting out the nature and type of information to be submitted in the event of rate increases of the type described in the paragraph, in order to remove the appearance that such rate increases, of and by themselves, result in a presumption that rates are unreasonable in relation to benefits. The department believes that 150% is an appropriate threshold and makes no change to that percentage. COMMENT: One comment asked for clarification about the time frames for review addressed in sec.3.19, specifically how the 45-day interval addressed in subparagraph (A) of sec.3.19(a)(2) works in relation to the 30-day interval addressed in subparagraph (B) of the same paragraph. RESPONSE: The department agrees that a clarifying change to subparagraph (A) helps reconcile the two time frames and has changed the subparagraph so it is clear that a filing will be held in a pending status for no more than 45 days. Official action by the department must occur no later than 45 days from the date an issuer requests an extension for review. If as a result of subsequent corrective submissions the department could approve the filing any time prior to 45 days, such approval would be granted, and following approval, the filing would no longer be in a pending status. COMMENT: One comment stated that the second sentence of sec.3.18 is not clear and should be deleted, and that filings should receive review action if they are in substantial compliance. RESPONSE: The department does not believe that the second sentence of this section is confusing or inaccurate, but has deleted the sentence. The department emphasizes that removal of the second sentence from this section has no impact on how the sections will function. COMMENT: Some comments recommended substituting each occurrence of the words "resubmit," "resubmitted," and "resubmission" with the words "reconsider," "reconsidered," and "reconsideration," respectively. RESPONSE: The department disagrees. The terms "resubmission" and "reconsideration" are parallel in that resubmission is the manner in which reconsideration under the statute would have to take place. Disapproval is a final official action with respect to a policy form. When the statute addresses reconsideration of a form which has been disapproved by the commissioner, and the commissioner subsequently is to take yet another final official action -- either approval or disapproval -- with respect to the form, the form has to be resubmitted with corrections. Moreover, the term customarily used to refer to subsequent consideration of a prior disapproved form within the industry is "resubmission," making it a common and familiar term. Comments generally in favor of the sections, some with recommended changes to one or more sections were made by the following: The Insurance Alliance of America, Southwestern Life Insurance Company, Texas Life Insurance Association and Variable Annuity Life Insurance Company. The amendment and new sections are adopted pursuant to the Insurance Code, Articles 3.42 and 1.03A. The Insurance Code, Article 3.42(p) provides that the commissioner is authorized to adopt such reasonable rules and regulations as are necessary to implement and accomplish the specific provisions of Article 3.42 within the standards and purposes of the article. Article 1.03A authorizes the commissioner to promulgate and adopt rules and regulations for the conduct and execution of the duties and functions by the department. sec.3.1.Scope of Subchapter. This subchapter applies to all forms listed in paragraphs (1)-(9) of this section, as follow: (1) individual life forms; (2) individual annuity forms; (3) group annuity forms; (4) group life forms; (5) group accident and health forms; (6) group combination life, accident, and health forms; (7) credit life forms; (8) credit accident and health forms; and (9) individual accident and health forms. sec.3.3.General Submission Requirements. (a) Address. Send form filings to the Life/Health Group, Filings Intake, Mail Code 106-1E, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104 or 333 Guadalupe, Austin, Texas 78701. To expedite the return of notices of adopted disapprovals or approvals, a company may enclose an appropriately sized overnight mail envelope together with either a completed form for transmittal or the company's billing number. (b) Identification of form type. The form filings shall be identified by the type of product and coverage in each of the categories set out in paragraphs (1) and (2) of this subsection, as follows: (1) Group, Individual, or Credit; and (2) Accident & Health, Annuity, Conversion, Life, Combination Life, Accident, & Health, Long Term Care, Medicare Supplement, Prepaid Funeral, Chapter 26 (relating to Small Employer Health Insurance Availability), Chapter 26 Prototype, or Rate Filing. (c) Number of copies. All correspondence, forms and/or rates, including resubmissions and corrections for pending forms, shall be submitted in duplicate. (d) Specimen language and fill-in material. All forms, except for applications, shall be filled in with specimen language and specimen fill-in material. (1) Specimen language and fill-in material shall reflect the most restrictive option available under variability. Additional descriptions of variability options shall be provided upon request or as otherwise required. (2) For life and annuity forms, the fill-in material in both copies of the form shall be completed for specimen age 35 unless the form is not issued at age 35. If the form is not issued at age 35, the youngest age at which the form may be issued shall be used for the fill-in material. If reduced death benefits are provided for any age at issue, the specimen form shall be filled in for the age at issue for which the greatest reduction in benefits is made. The fill-in material shall be for the longest premium paying period available under the form. (e) Type of paper. Forms shall be submitted on paper that will accept a rubber stamp and that is suitable for permanent filing and microfilming. Glossy stock paper is not acceptable. (f) Print format. All filings must be legible. (1) Forms and corrections shall be submitted for review on paper measuring 8 1/2 inches by 11 inches. (2) Forms and corrections should not be submitted for review in any print format which consists of booklets which are bound or are printed on paper other than 8 1/2 inches by 11 inches in measure. (3) Forms may be submitted in typewritten, computer generated, or printer's proof format. (4) Handwritten forms or handwritten corrections will not be accepted. (g) Form numbers. Each form shall be designated by a form number sufficient to distinguish it from all other forms used by the company. The form number shall be located in the lower left-hand corner of the cover page or on the first page of the form if the form number would be visible with the cover closed. (1) Forms submitted for consideration pursuant to the Insurance Code, Article 3.53 shall have additional identifying form numbers. Refer to sec.3.5201, Subchapter FF of this title (relating to Credit Life and Credit Accident and Health) for specific form number requirements. (2) Forms submitted for consideration pursuant to the Insurance Code, Chapter 26 may require additional identifying form numbers. Refer to sec.26.14 of this title (relating to Small Employer Health Insurance Availability Act) for specific form number requirements. (h) Filing fee. Each new submission or resubmission shall be accompanied by the appropriate filing fee. (1) The appropriate fee for filing policy forms, amendments, endorsements and riders for review is $100; and the appropriate fee for filing policy forms, amendments, endorsements and riders exempt from review is $50, as provided in sec.7.1301 of this title (relating to Regulatory Fees). (2) The appropriate fee for filing policy forms which are resubmissions of previously disapproved forms or forms which have been withdrawn from the review process is $50. (i) Insurance Code Authority. Each submission shall contain a statement identifying the specific authority of the Insurance Code under which the forms are submitted for review. The statement shall specify whether the filing is being submitted under the Insurance Code, Article 3.42(c) or (d) (relating to Policy Form Approval), or Article 3.53 (relating to Credit Life and Credit Accident and Health). Some of the distinctions between Article 3.42(c) and (d) filings are set forth in paragraphs (1) and (2) of this subsection as follow. (1) A filing under the Insurance Code, Article 3.42(c), allows the company to immediately issue, deliver, or use such form prior to review and approval, as applicable, after it has been received. All such filings shall be accompanied by the certification required by Article 3.42(c) in the format prescribed in Form CERT FR (See Figure 1, as described in sec.3.20 of this title (relating to Appendix).) If a form as filed is disapproved by the Commissioner, the company, upon receiving written notice, shall immediately cease issuing or using such form. (2) A filing under the Insurance Code, Article 3.42(d), requires the company to file the form for review and approval, as applicable, prior to issuance, delivery or use of such form as required by Article 3.42. (j) Contact Person. One person shall be designated as the contact person for each filing submitted. Each submission should provide the name, address, phone number, and fax number, if available, of the contact person for that filing. If the forms are submitted by anyone other than the company itself, the forms shall be accompanied by a dated letter of specific authorization for such forms, designating the consulting firm, actuary, legal counsel, or other designated contact person for that filing. (k) Transmittal Letter. The appropriate transmittal letter as described in sec.3.4 of this title (relating to Regular and General Review Process) or sec.3.5 of this title (relating to Expedited Review Process) shall be included with a filing made under this section. sec.3.4.Regular and General Review Process. (a) General Provisions. Any form filing requiring complete review for approval or acceptance for filing from this department will fall into the category addressed in this section, including but not limited to filings described in paragraphs (1)-4) of this subsection, as follow: (1) any new forms which have not previously been filed under Insurance Code, Article 3.42(c) or (d); (2) any forms or rates required by statute or regulation to be approved prior to use, including, but not limited to, forms filed under Insurance Code, Article 3.53 (relating to Credit Life and Credit Accident and Health); (3) all filings submitted for informational purposes, including, but not limited to, rate filings; or (4) any form filings not otherwise meeting the criteria for expedited review as described in sec.3.5 of this title (relating to Expedited Review Process). (b) Transmittal Checklist for Regular and General Review Process. A transmittal checklist must accompany any filing of this type and may be in the format prescribed in Form GEN REV (See Figure 2 as described in sec.3.20 of this title (relating to Appendix).) or any similar format which supplies the information detailed in paragraphs (1)-(10) of this subsection, as follows. (1) The identifying form number of each form being submitted must be supplied. (Refer to Figure 2, Form GEN REV, Item 1 , as described in sec.3.20 of this title (relating to Appendix).) (2) If the forms are new or informational, a statement to that effect shall be included. (Refer to Figure 2, Form GEN REV, Item 2, as described in sec.3.20 of this title (relating to Appendix).) (3) A statement electing review under either Article 3.42(c) or (d), or Article 3.53 must be included. (Refer to Figure 2, Form GEN REV, Item 3, as described in sec.3.20 of this title (relating to Appendix).) (4) A statement of the type of product and coverage provided by the forms must be supplied. (Refer to Figure 2, Form GEN REV, Item 4, as described in sec.3.20 of this title (relating to Appendix).) (5) If the submission is a rate filing, all specific descriptions and required information related to the rate submission shall be provided. (Refer to Figure 2, Form GEN REV, Item 5, as described in sec.3.20 of this title (relating to Appendix).) (6) If the submitted form (application, rider, amendment, endorsement, insert page, or supplemental form) is for use with specific policies, a listing of the policy form numbers with which the submitted form is to be used, approval dates for those forms, along with a statement explaining when the form will be used with the policy forms in the listing, must be supplied. (Refer to Figure 2, Form GEN REV, Item 6, as described in sec.3.20 of this title (relating to Appendix).) (7) If the submitted form (application, rider, amendment, endorsement, insert page, or supplemental form) is for general use with various policies, a description of the types of policies with which the submitted form is to be used and a statement explaining when the form will be used with those policies must be supplied. (Refer to Figure 2, Form GEN REV, Item 6, as described in sec.3.20 of this title (relating to Appendix).) (8) For any group life forms or group or blanket accident or health forms, the section of the Insurance Code, Article 3.50, Article 3.51-6, or both, that describes the group type to be issued the forms must be supplied. (Refer to Figure 2, Form GEN REV, Item 7, as described in sec.3.20 of this title (relating to Appendix).) (A) The composition of the group to be covered must meet the definition in the statute. (B) If the company is submitting the form for consideration for issuance on a discretionary basis under the Insurance Code, Article 3.50, sec.1(6), Article 3.51-6, sec.1(a)(6), or Article 3.51-6, sec.2(a)(9), the company must specify the appropriate statute in the transmittal letter. Consideration under a discretionary group category should only be requested if the group is not otherwise described in the Insurance Code, Article 3.50, sec.1, Article 3.51-6, sec.1(a), or Article 3.51-6, sec.2(a). (9) For any group annuity forms, a description of the group type to be issued the forms must be supplied, consistent with provisions of paragraph (8) of this subsection. (10) Any actuarial information necessary for a complete review of the forms must be supplied. (Refer to Figure 2, Form GEN REV, Item 10, as described in sec.3.20 of this title (relating to Appendix).) Specific requirements are set forth in sec.sec.3.12 -3.17 of this title (relating to Specific Additional Submission Requirements). (11) Any additional information necessary for a comprehensive review of the forms must be supplied, including but not limited to: (A) identification of forms submitted for use as alternate or additional plans (Refer to Figure 2, Form GEN REV, Item 8, as described in sec.3.20 of this title (relating to Appendix).) under the provisions of Insurance Code, Chapter 26 (relating to Small Employer Health Insurance Availability Act); and (B) any applicable readability certification. (Refer to Figure 2, Form GEN REV, Item 9, as described in sec.3.20 of this title (relating to Appendix).) sec.3.5.Expedited Review Process. (a) General Provisions. In order to shorten the time required for review and approval, companies may elect to use the expedited review process of this section for form filings which are substantially similar to previously approved forms. Use of the Expedited Review Transmittal Checklist and procedures will provide the Life/Health Group with information necessary to expedite the review process and eliminate unnecessary or duplicative review of previously approved language. If the information required by this section and outlined in subsections (b) and (c) of this section is unavailable or is incomplete, the form filing will be subject to the regular and general review process outlined in sec.3.4 of this title (relating to Regular and General Review Process). (b) Information on substantially similar prior approved forms. If the forms are substantially similar to a previously approved form, the information set forth in paragraphs (1) through (4), as follow, shall be provided in order to expedite the review of the forms. (1) A statement shall be supplied, identifying the forms as substantially similar to previously approved forms. (Refer to Figure 3, Form EXP REV, Item 5, as described in sec.3.20 of this title (relating to Appendix).) (2) A statement must be provided which specifically identifies the form number and approval date of the previously approved form, as well as the company name for which the form was previously approved. (Refer to Figure 3, Form EXP REV, Item 5, as described in sec.3.20 of this title (relating to Appendix).) (3) A summary of the differences between the previously approved form and the new form shall be provided, including a description of any deleted text. The submitted copy of the form shall clearly identify all changes made to the form. New or modified text must be underlined. Highlighting any portion of the form is strictly prohibited, since the highlighted portions may be illegible when the form is converted to a microform for purposes of tracking and retention. (4) A certification that no changes have been made to the form other than those identified and that all remaining text complies with all applicable statutes and regulations shall be provided in the format prescribed in Form CERT FR, Item "Similar to Previously Approved Forms." (See Figure 1 as described in sec.3.20 of this title (relating to Appendix).) (c) Transmittal Checklist for Expedited Review Process. A transmittal checklist containing the following information, as applicable, will be required for all expedited review filings in the format prescribed in Form EXP REV. (See Figure 3 as described in sec.3.20 of this title (relating to Appendix).) (1) A statement of the type of product and coverage provided by the forms must be supplied. (Refer to Figure 3, Form EXP REV, Item 1, as described in sec.3.20 of this title (relating to Appendix).) (2) A statement identifying whether a filing is submitted for review under Insurance Code, Article 3.42(c) or Article 3.42(d) must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 2, as described in sec.3.20 of this title (relating to Appendix).) (3) The identifying form number of each form submitted must be supplied. (Refer to Figure 3, Form EXP REV, Item 3, as described in sec.3.20 of this title (relating to Appendix).) (4) A readability certification must be supplied, as required. (Refer to Figure 3, Form EXP REV, Item 4, as described in sec.3.20 of this title (relating to Appendix).) (5) A statement related to any submissions of substantially similar forms must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 5, as described in sec.3.20 of this title (relating to Appendix).) (6) A statement related to any corrections submitted for pending forms must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 6, as described in sec.3.20 of this title (relating to Appendix).) (7) A statement related to any resubmissions of previously disapproved forms must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 7, as described in sec.3.20 of this title (relating to Appendix).) (8) A statement related to any filing which is exempt must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 8, as described in sec.3.20 of this title (relating to Appendix).) (9) A statement related to any submissions of exact copies must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 9, as described in sec.3.20 of this title (relating to Appendix).) (10) A statement related to any submissions of substitutions for previously approved forms must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 10, as described in sec.3.20 of this title (relating to Appendix).) (11) Any additional information necessary for a comprehensive review of the form must be supplied, including but not limited to information specified in subparagraphs (A) through (C) of this paragraph, as follow: (A) the identification of any previously approved forms which are intended for use with the forms currently submitted (Refer to Figure 3, Form EXP REV, Item 11, as described in sec.3.20 of this title (relating to Appendix)); (B) a statement indicating whether or not the forms are intended for general use or for use with a specific form or group (Refer to Figure 3, Form EXP REV, Item 1, as described in sec.3.20 of this title (relating to Appendix)); and (C) any specific information identified for the applicable product or submission type described sec.sec.3.12 through 3.17 of this subchapter (relating to Specific Additional Submission Requirements). (12) For any group life forms or group or blanket accident or health forms, the section of the Insurance Code, Article 3.50, Article 3.51-6, or both, that describes the group type to be issued the forms must be supplied. (Refer to Figure 3, Form EXP REV, Item 13, as described in sec.3.20 of this title (relating to Appendix).) (A) The composition of the group to be covered must meet the definition in the statute. (B) If the company is submitting the form for consideration for issuance on a discretionary basis under the Insurance Code, Article 3.50, sec.1(6); Article 3.51-6, sec.1(a)(6); or Article 3.51-6, sec.2(a)(9), the company must specify the appropriate statute in the transmittal letter. Consideration under a discretionary group category should only be requested if the group is not otherwise described in the Insurance Code, Article 3.50, sec.1; Article 3.51-6, sec.1(a); or Article 3.51-6, sec.2(a). (13) For any group annuity forms, a description of the group type to be issued the forms must be supplied, consistent with provisions of paragraph (12) of this subsection. (14) A description of any prescribed prototype forms must be supplied, as applicable. (Refer to Figure 3, Form EXP REV, Item 14, as described in sec.3.20 of this title (relating to Appendix).) Certifications should be attached as required under sec.26.19 of this title (relating to Small Employer Health Insurance Availability Act) or other applicable regulation related to a prescribed prototype form. (15) Any actuarial information necessary for a complete review of the forms must be supplied. (Refer to Figure 3, Form EXP REV, Item 15, as described in sec.3.20 of this title (relating to Appendix).) Specific requirements are set forth in sec.sec.3.12 through 3.17 of this title (relating to Specific Additional Submission Requirements). sec.3.6.Corrections to Pending Forms. The Department may request additional information to correct compliance deficiencies for a form filing which has been reviewed by a Life/Health Group form review technician and which contains such deficiencies. If the form filing is a corrected version of pending forms which have previously been reviewed, the information set out in paragraphs (1)-(6) of this section shall be provided upon submission for review: (1) The company shall be required to use the transmittal letter in the format prescribed in Form EXP REV (See Figure 3 as described in sec.3.20 of this title (relating to Appendix).) in accordance with the applicable provisions described in sec.3.5(c) of this title (relating to Expedited Review Transmittal Checklist). (2) A statement identifying the forms as corrected versions of pending forms shall be provided. (Refer to Figure 3, Form EXP REV, Item 6, as described in sec.3.20 of this title (relating to Appendix).) (3) The transmittal letter shall be addressed to the analyst reviewing the form. (4) The form numbers of the pending forms for which the corrections are submitted shall be provided. (Refer to Figure 3, Form EXP REV, Item 6, as described in sec.3.20 of this title (relating to Appendix).) (5) A summary of the differences between the reviewed version of the form and the newly corrected version of the form shall be provided, including a description of any deleted text. The submitted copy of the corrected form or corrected pages shall clearly identify all changes made to the form. New or modified text must be underlined. Highlighting any portion of the form is strictly prohibited, since the highlighted portions may be illegible when the form is converted to a microform for purposes of tracking and retention. (6) A certification that no changes have been made to the form other than those identified shall be provided in the format prescribed in Form CERT FR, Item "Corrections." (See Figure 1 as described in sec.3.20 of this title (relating to Appendix).) sec.3.7.Resubmissions of Previously Disapproved Forms. (a) The Insurance Code, Article 3.42 (relating to Policy Form Approval), provides the company 45 days from the date of any order disapproving a form to make the changes required to obtain approval and resubmit the forms. (b) If a form filing is a resubmission of a previously disapproved form, all items of information set forth in paragraphs (1)-(4) of this subsection shall be provided upon submission: (1) The company shall be required to use the Expedited Review Transmittal Checklist in the format prescribed in Form EXP REV (See Figure 3 as described in sec.3.20 of this title (relating to Appendix)) in accordance with the applicable provisions described in sec.3.5(c) of this title (relating to Expedited Review Transmittal Checklist). (2) A statement specifying the form numbers of the previously disapproved forms and date of disapproval must be supplied. (Refer to Figure 3, Form EXP REV, Item 7, as described in sec.3.20 of this title (relating to Appendix).) (3) A summary of the differences between the disapproved version of the form and the resubmitted version of the form shall be provided, including a description of any deleted text. The submitted copy of the corrected form shall clearly identify all changes made to the form. New or modified text must be underlined. Highlighting any portion of the form is strictly prohibited, since the highlighted portions may be illegible when the form is converted to a microform for purposes of tracking and retention. (4) A certification that no changes have been made to the form other than those identified and that all remaining text complies with the applicable statutes and regulations shall be provided in the format prescribed in Form CERT FR, Item "Resubmissions." (See Figure 1 as described in sec.3.20 of this title (relating to Appendix).) (c) Previously disapproved forms which are resubmitted within 45 days of any order disapproving a form shall be affirmatively approved or disapproved within the statutory deemer period of 45 days from the receipt date. (d) Any previously disapproved form which is resubmitted more than 45 days after the date of the order disapproving the form shall be subject to the statutory deemer period for new filings in accordance with Insurance Code, Article 3.42(c) or (d). sec.3.12.Specific Additional Information and Submission Requirements for All Product Types. (a) Riders, endorsements, amendments, insert pages, and other supplemental forms. Although it is recognized that a rider, endorsement, amendment, insert page, or supplemental form is merely a part of the entire written contract between the policyholder and the company, each form will generally be reviewed and approved (as applicable) and/or accepted for filing independently of the base contract of which it is a part, so long as all conditions in paragraphs (1) through (5) of this subsection are met as follow: (1) the form does not change the basic concept and/or plan of the contract; (2) the form can be comprehensibly analyzed and reviewed and is understandable apart from the base policy (contract); (3) the form does not provide benefits which are combined with base policy benefits in a manner such that the benefits of the form cannot be analyzed and reviewed apart from the base policy; (4) the form, if changing the benefits provided under the base contract for some issues of the base contract, will not be used in such a manner that subsequent issuance of the base contract will provide benefits on a basis which is unfairly discriminatory; and (5) policy schedule/data pages showing material pertinent to the form are supplied in instances where such material is necessary for comprehensive review of the form, including specimen language in accordance with sec.3.3(d) of this title (relating to General Submission Requirements). (b) Severable/Nonseverable. A form which can be reviewed independently of the base contract is considered severable and may be submitted independently of the base contract if the appropriate information is provided with the form filing. A form which cannot be reviewed independently of the base contract is considered nonseverable and will not be accepted for independent review. (c) Acceptance for independent review. Based on demonstration of conditions set out in paragraphs (1) through (5) of subsection (a) of this section, and all other relevant facts and circumstances, the commissioner will determine whether a form submitted for review pursuant to this subchapter is acceptable for independent review. In addition, the provisions of paragraphs (1) and (2) of this subsection apply to independent review. (1) For life product and annuity product form filings, the contract form to which a nonseverable rider, endorsement, amendment, insert page, or other supplemental form is to be attached, must be filed under an adjusted form number if that contract form has been previously approved without the nonseverable form. The adjusted form number may be made by a typewritten prefix or suffix or rubber stamp for cases where the contract is issued with the nonseverable form. (2) For group and individual accident and health, credit life and credit accident and health product form filings, the company may separately submit amendments, riders, endorsements, or alternate insert pages to be added to a previously approved form to make it comply with Texas statutes and rules, to add additional benefits to a previously approved contract, or to amend a previously approved contract. Each must bear an identifying form number as required by sec.3.3(g) of this title (relating to General Submission Requirements). (d) Complete submission of a base policy form or certificate form. In order to be complete, the submission of a base policy form or certificate form shall include the application to be used with it, any amendments or endorsements which will be included in all issues of the form, and all insert pages which may be used with the form; however, the provisions of paragraphs (1) through (4) of this subsection also must be met, as applicable, in order for a submission to be considered complete. (1) Any optional rider which is severable should not be included in the base policy. (2) Any previously approved severable form (e.g., application, rider, endorsement, or amendment) to be used with a new form filing need not be resubmitted; however, the type of form, form number and form approval date must be submitted. (3) Riders used to provide mandated benefits or other compliance provisions are nonseverable from the policy and/or certificate and must be filed with each new submission bearing a unique identifying form number. (4) The company is responsible for assuring the appropriate use of previously approved forms, including but not limited to the appropriate use of any riders, amendments, endorsements or other forms for which approval is obtained under these sections in connection with other previously approved forms. (e) Resubmitted forms. If the company resubmits previously disapproved forms, or forms which have been withdrawn from the review process, the resubmission must include all forms for which the company is seeking approval, accompanied by the required $50 filing fee. (f) Variable material. Any variable material in a form must be bracketed. A clear explanation of how the material will vary must be provided. Sample language should represent the most restrictive variable option. The material may not be less favorable than required by Texas statutes or rules. sec.3.13.Specific Additional Information and Submission Requirements for All Life and Annuity Forms. (a) Severable forms. In accordance with the definitions provided in sec.3.12(b) of this title (relating to Specific Additional Submission Requirements for All Product Types), some examples of severable forms are set out in paragraphs (1) through (7) of this subsection, as follow: (1) a waiver of premium rider; (2) an application; (3) an endorsement amending the calculation of nonforfeiture benefits, so long as the endorsement is for use in a particular market (such as all new issues of a particular policy); (4) an endorsement amending the partial surrender provision, so long as the endorsement is for use in a particular market (such as all new issues of a policy when the initial amount of insurance is $100,000 or more); (5) an insert page depicting nonforfeiture values for a previously approved form, so long as the policy form is intended for use in a market which requires the use of nonforfeiture values which are different from those approved in the original policy form; (6) an update endorsement which is optional to existing policyholders of a particular policy form and which provides a benefit that is more favorable than benefits which are provided under the inforce policy; and (7) an acceleration-of-life-insurance-benefits provision, so long as it is part of a rider which meets the requirements of sec.3.129 of this title (relating to Acceleration of Life Insurance Benefits) or other applicable statutes or regulations, and further provided that such rider is filed with a listing of the form numbers of approved policy forms to which it will be attached. (b) Nonseverable forms. In accordance with the definitions provided in sec.3.12(b) of this title (relating to Specific Additional Submission Requirements for All Product Types), some examples of nonseverable forms are set out in paragraphs (1) through (7) of this subsection, as follow: (1) a form which adds an option to suspend premium payments; (2) a form which changes the contract from a fixed premium life policy to a flexible premium life policy; (3) a form which changes the contract from a fixed benefit policy to a variable benefit policy; (4) a policy cover or policy shell; (5) a corrective endorsement which adds language to a form that is required by state statute or regulation; (6) a form which is designed to provide additional insurance with cash values and which refers to the policy for the paid-up nonforfeiture benefits to be provided by the cash value of the form; and (7) an insert page providing nonforfeiture benefits on the basis of one interest rate (such as 6.0%) which is to be issued as part of a particular policy form when that policy form is also being issued with an insert page providing nonforfeiture benefits on the basis of a different interest rate (such as 5.0%). (c) Complete submission of a base policy form or certificate form. In accordance with the requirements of sec.3.12 of this title (relating to Specific Additional Submission Requirements for All Product Types), an example of a complete life insurance submission would consist of an application and the basic life insurance policy form, which if intended for issue as a unisex plan and a sex distinct plan would also include the insert pages for both plans. (d) Variable material. In addition to the requirements of sec.3.12 of this title (relating to Specific Additional Submission Requirements for All Product Types), the provisions in paragraphs (1) and (2) of this subsection apply to submission of variable material. (1) The text and specifications of nonforfeiture assumptions included in individual life forms generally cannot be considered variable material. (2) Any variable material in a form should be bracketed and be accompanied with a clear explanation of how the material will vary. It is acceptable for certain material to vary due solely to the age, sex, or classification of the insured; but other types of variations may require a limited partial refiling or a complete refiling, depending on the manner in which the company plans to use the variations. (e) Limited/partial refilings. Changes to forms or pages of forms which have received prior approval and which meet the criteria for severability set out in sec.3.12 of this title (relating to Specific Additional Submission Requirements for All Product Types) will be treated as limited/partial refilings. Some examples of acceptable limited/partial refilings include the items described in paragraphs (3) through (5) of subsection (a) of this section. In addition, the examples set forth in paragraphs (1) through (3) of this subsection constitute acceptable limited/partial refilings, as follow, provided that severability criteria is met: (1) a change in the text or nonforfeiture assumptions of a previously approved form; (2) a change in the current interest rate of a previously approved form, where such rates are guaranteed and shown in the policy; and (3) a change in the reserves (if defined in the text) of a previously approved form. (f) Actuarial information. Each form (including insert pages and other forms which change the nonforfeiture values of a particular form) shall be accompanied by the information set forth in paragraphs (1) through (3) of this section, when applicable. (1) The mathematical formulas and sample calculations for the items set out in subparagraphs (A) through (D) of this paragraph shall accompany the form submission: (A) net premiums for the specimen age and plan of insurance; (B) specimen nonforfeiture calculations necessary to verify consistency between the nonforfeiture values and the text of the form for years one, 20 and 50; (C) terminal reserves for the specimen age and plan; and (D) any other calculations necessary to verify nonforfeiture values and reserves. (2) An actuarial memorandum which provides the information in subparagraphs (A) through (F) of this paragraph shall accompany the form submission, as applicable. (A) For universal life and interest sensitive forms, the mortality table, guaranteed interest rates, maximum surrender charges, maximum expense charges, maximum risk rates (cost of insurance rates), maximum loads, and maximum fees at issue must be provided. Upon a change in basic coverage, bands and risk classes for all ages should be provided. (B) For universal life forms, actuarial proof that cash surrender values meet the minimum requirements of the Insurance Code, Article 3.44a, must be provided. The actuarial proof should also include an actuarial certification that cash surrender values will always equal or exceed the minimum values required by law. A comparison table of all guaranteed cash surrender values, standard nonforfeiture law minimum cash surrender values, guaranteed death benefits, and reserves should be provided. Such comparison should be based on the fill-in issue age (usually age 35), a premium which will provide coverage to the latest available maturity date, the minimum issue amount, minimum guaranteed interest rates, maximum guaranteed cost of insurance rates (mortality rates), and maximum guaranteed charges. A month-by-month calculation of the values shown in the comparison for the first and fiftieth years should be provided. (C) For variable life forms, actuarial material should be provided as required by sec.3.804 of this title (relating to Insurance Contract and Filing Requirements), and as required by this section, if the form contains an option to allocate premiums to a fixed account. (D) For annuities, an actuarial memorandum should be provided specifying the guaranteed interest rates, the maximum surrender charges, and any other maximum charges applicable in the determination of nonforfeiture values. If the insurer intends to change the guaranteed interest rates specified in the form, notification must be submitted to the department prior to the change. The notification must specify the new guaranteed interest rate and the date when it will be effective for new issues of a specified policy form, as required by sec.3.1004 of this title (relating to Policy Form Review). (E) For variable annuities, the actuarial material required by sec.3.705 of this title (relating to Contract Requirements) should be provided as well as actuarial material required by this section for annuities, to the extent such material is applicable. (F) For contracts which contain a market-value adjustment, an actuarial memorandum should be provided that addresses the items in clauses (i) through (v) of this subparagraph with respect to the market value adjustment: (i) identify the name of the separate account; (ii) indicate the basis for the market-value adjustment formula and that the formula provides the reasonable equity to both the contract holder and the insurance company; (iii) detail that the reserve liabilities are established in accordance with actuarial procedures that recognize: I that assets of the separate account are based on market values; II the variable nature of the benefits provided; and III any mortality guarantees; (iv) include a table of minimum guaranteed values based on the longest guaranteed investment period (The table should show the policy values and cash surrender values, reflecting both upward and downward market- value adjustments. The minimum guaranteed values cannot be less that the minimum values required by law); and (v) provide a numerical illustration reproducing the values shown in the table for the first, second, and third years of investment, and at the end of the guaranteed investment period. (3) A statement shall be provided certifying that all plans of insurance, in addition to the specimen plan, for which the form will be used will have premiums, reserves, and nonforfeiture values calculated in a manner consistent with the information furnished with the specimen plan. Any qualifications to such certification must be specified, including any variation in formulas at different ages at issue or at time of a change. sec.3.14.Specific Additional Information and Submission Requirements for Group Life, Group Accident and Health, and Group Annuity Forms. (a) Severable forms. In accordance with the definitions provided in sec.3.12(b) of this title (relating to Specific Additional Submission Requirements for All Product Types), some examples of severable forms are set out in paragraphs (1) through (3) of this subsection, as follow: (1) applications which are for general use; (2) optional benefit riders; and (3) endorsements which are to be used to bring previously approved or exempted forms into compliance with newly enacted or adopted legislation or rules. (b) Nonseverable forms. In accordance with the definitions provided in sec.3.12(b) of this title (relating to Specific Additional Submission Requirements for All Product Types), some examples of nonseverable forms are set out in paragraphs (1) and (2) of this subsection, as follow: (1) certificates of coverage; and (2) riders containing mandated benefits or Texas specific provisions which are used to bring a new form submission into compliance with Texas laws; (c) Complete submission of a base policy form or certificate form. In accordance with the requirements of sec.3.12 of this title (relating to Specific Additional Submission Requirements for All Product Types), two examples of a complete group accident and health submission are provided in paragraphs (1) and (2) of this subsection, as follow. (1) A long term disability policy for use with multiple employer trusteed group must include the policy form including any alternate face pages for various industries, the certificate of coverage, the group master application, the participation agreement for the employer units, the employee enrollment form or application, any optional benefit riders, any riders or endorsements necessary to bring the policy or certificate into compliance with Texas mandates or specific provisions, and the trust agreement. (2) A major medical policy for use with an association group must include the master policy form, the certificate of coverage, the group master application, the member application or enrollment form, any optional benefit riders, any riders or endorsements necessary to bring the policy and the certificate into compliance with Texas mandates or specific provisions, the constitution, bylaws, and Articles of Incorporation for the association, and required forms providing conversion coverages. (d) Submission of certificate. A copy of the master policy must accompany any certificate submitted, even if the master policy is issued outside of Texas. (e) Designation of group type on form submission. The company must clearly state the type of group to which the form will be issued, by specific reference to the appropriate section of the Insurance Code, Article 3.50, Article 3.51-6, or both. A separate policy and certificate must be submitted for each type of group. A submission of a single policy and certificate for use with more than one type of group is prohibited. (f) Association group. The instructions in paragraphs (1) through (3) of this subsection apply to submission of a form intended to be issued to an association. (1) The company shall submit documentation including, but not limited to, a copy of the association constitution and by-laws to show that the association meets the requirements of the Insurance Code, Article 3.50, sec.(1)(10), Article 3.51-6, sec.1(a)(2), or both. (2) The company may submit forms on an "ABC association" basis. If a form is approved on this basis, the company shall submit the documentation required in paragraph (1) of this subsection when the form is issued. In addition, the company shall submit an alternate policy face page, identifying the association and the policy number assigned, each time the form is issued to a different eligible association. (3) The company shall submit a listing of all associations participating in any permitted multiple association trusteed arrangements in addition to a copy of the trust agreement. The listing of participating associations shall be included with the initial submission of the forms. Documentation required in paragraph (1) of this subsection shall be submitted with the required listing. Notification of additional participating associations shall be provided upon enrollment and shall include the documentation required in paragraph (1) of this subsection for each association initiating participation after the initial submission of the forms. (g) Multiple employer trusteed group. The instructions in paragraphs (1) through (3) of this subsection apply to submission of a form intended to be issued to a multiple employer trusteed group. (1) The company shall file a copy of the trust agreement for information. (2) The company shall use alternate policy face pages with the policy numbers assigned, as well as alternate insert pages, for various related industries. (3) The company may submit forms on an "ABC Trust" basis. If a form is approved on this basis, the company shall file the individual trust agreements when the form is issued. In addition, the company shall submit an alternate policy face page, identifying the policyholder and the policy number assigned, each time the form is issued to a particular trust. (h) Readability Score. The forms shall be scored for readability, as applicable, in accordance with Subchapter G of this title (relating to Plain Language Requirements for Health Benefit Policies). (i) Ineligible groups. In the event that the group for which a form is submitted is ineligible under the provisions of Insurance Code Article 3.50, Article 3.51-6, or both, the form shall be affirmatively disapproved within the statutory deemer period. A comprehensive review of the text of the form will not be completed for forms filed for use with ineligible groups. sec.3.15.Specific Additional Information and Submission Requirements for Individual Accident and Health Forms. (a) Severable forms. In accordance with the definitions provided in sec.3.12(b) of this title (relating to Specific Additional Submission Requirements for All Product Types), some examples of severable forms follow, in paragraphs (1) through (7) of this subsection: (1) applications which are for general use; (2) optional benefit riders; (3) endorsements which are to be used to bring previously approved or exempted forms into compliance with newly enacted or adopted legislation or rules; (4) forms defining or identifying premium payor; (5) riders deleting any waiting period provision; (6) riders providing a reduction in benefits in lieu of a rate increase; and (7) riders providing a waiver of premium benefit. (b) Nonseverable forms. In accordance with the definitions provided in sec.3.12(b) of this title (relating to Specific Additional Submission Requirements for All Product Types), an example of a nonseverable form is a rider form containing mandated benefits or Texas specific provisions which are used to bring a new form submission into compliance with Texas laws. (c) Complete submission of a base policy form or certificate form. In accordance with the requirements of sec.3.12 of this title (relating to Specific Additional Submission Requirements for All Product Types), an example of a complete individual accident and health submission would include a policy form, an application form including any applicable Medicare duplication disclosure, any nonseverable riders, amendments or endorsements, an outline of coverage, a complaint notice, and applicable rates. (d) Outlines of Coverage. The appropriate outline of coverage shall be filed with each policy form submission. The outline of coverage shall be scored for readability in accordance with sec.3.3092(c) of this title (relating to Outline of Coverage under Minimum Standards for Individual Accident and Health Insurance). The readability test and the resulting score must be submitted along with the outline. (e) Readability Score. The forms shall be scored for readability, as applicable, in accordance with Subchapter G of this title (relating to Plain Language Requirements for Health Benefit Policies) or Subchapter S, sec.3.3102(g) of this title (relating to Language Readability). (f) Marketing. A brief statement of the marketing approach to be used shall be filed with each form submission. (g) Rates. The information relating to rate schedules set forth in paragraphs (1) through (3) of this subsection must be submitted. (1) The rate schedule to be utilized with each individual accident and health policy or rider shall be filed in duplicate at the time the policy or rider form is submitted for approval. (2) All rate increases shall be filed in duplicate. (3) Any cumulative rate increases exceeding 150% in any one year period require actuarial data relating to the amount of increase. The actuarial data shall include, at a minimum, the items of information specified in subparagraphs (A) through (D) of this paragraph, as follow: (A) the form number or numbers to which the submitted data applies; (B) the schedule or schedules of rates to be used; (C) a concise explanation of the rating process, including assumptions, claims data, methodology, and formulas used in development of gross premium rates; and (D) a statement of actual and projected experience as a basis for the rate adjustments. (h) Supplemental coverages. Any supplemental coverage policy form submitted shall be accompanied by a letter, signed by an officer of the company, certifying that the policy shall be marketed only as supplemental coverage as that term is defined under sec.3.3080 of this title (relating to Supplemental Coverage). sec.3.16.Specific Additional Information and Submission Requirements for Credit Life and Disability Forms. (a) Severable forms, Nonseverable forms, and Complete submission of a base policy form or certificate form. Generally, examples in each of these categories for credit life and disability forms will be consistent with the examples provided under sec.3.13 of this subchapter (relating to Specific Additional Submission Requirements for Life and Annuity Forms), sec.3.14 of this subchapter (relating to Specific Additional Requirements for Group Life and Group Accident and Health Forms), and sec.3.15 of this subchapter (relating to Specific Additional Requirements for Individual Accident and Health Forms). (b) Submission of certificate. A copy of the master policy must accompany any certificate submitted, even if the master policy is issued outside Texas. (c) Submission of rates. A schedule of premium rates to be used with all forms delivered or issued for delivery in the state must be submitted. Additionally, the formula or a reference to the method that is used to compute refunds must be submitted. (d) Statement of duration of loans. A statement must be supplied specifying the range of duration of loans or credit transactions for which insurance coverage will be provided. sec.3.17.Miscellaneous Requirements. (a) Medicare Supplement Insurance. Supporting actuarial data shall be submitted with all group and individual Medicare supplement policy rate filings. In addition, Medicare supplement products must comply with all filing requirements set forth in sec.sec.3.3301 through 3.3325 of this title (relating to Minimum Standards for Medicare Supplement Policies). (b) Long Term Care Insurance. Supporting actuarial data shall be submitted with all group and individual long term care policy rate filings. In addition, long term care products must comply with all filing requirements set forth in sec.sec.3.3801 through 3.3850 of this title (relating to minimum Standards for Benefits for Long-term Coverage under Individual and Group Policies). (c) Small Employer Health Insurance. In addition to the filing requirements identified in this subchapter, small employer health insurance products must comply with all filing requirements set forth in sec.26.19 of this title (relating to Filing Requirements for Small Employer Health Insurance). That section provides information regarding the filing requirements for group and individual prototype policy submissions and additional certifications required for small employer health insurance forms submissions generally. (d) Conversion Policies. In addition to the filing requirements identified in this subchapter, conversion products must comply with all filing requirements set forth in sec.3.509 of this title (relating to Form Filing Requirements for Group Health Insurance Mandatory Conversion Privileges). That section provides additional information regarding the filing requirements for group and individual prototype conversion policy submissions and general filing requirements related to policies containing conversion options. sec.3.18.Filing Forms. Forms submitted in full compliance with the filing requirements of this subchapter will be affirmatively approved or disapproved within the applicable statutory deemer period. Each form filed for use in Texas must strictly comply with sec.3.3 of this title (relating to General Submission Requirements); otherwise the form will not be accepted for review and approval (as applicable) and/or accepted for filing. sec.3.19.Pending Status. (a) Circumstances resulting in pending status. Form filings submitted in complete compliance with the requirements of this subchapter, but otherwise failing to completely comply with applicable provisions of the Insurance Code, other insurance statutes, and applicable regulations of the Texas Department of Insurance, will be affirmatively disapproved by the department within the applicable statutory deemer period, unless prior to that time the events outlined in paragraphs (1) and (2) of this subsection occur, as follow: (1) a Life/Health Group form review technician contacts the company to advise it about specific corrections needed to bring the submitted forms into full compliance with the Insurance Code and applicable regulations; and (2) at the time of initial contact the company requests an extension for purposes of bringing the submission into complete compliance with all applicable law. (A) If the company makes the request set out in paragraph (2) of this subsection, the submission shall be held in a pending status for no more than 45 days from the date of initial contact awaiting submission of items necessary to correct the filing and bring it into complete compliance. (B) If no response is received from the company by the end of 30 days following the initial contact, the department shall return one copy of the submitted form material, which shall be considered withdrawn by the company. The matter will then receive no further consideration unless or until the submission is refiled as a new submission. (b) Declination of pending status. If the company declines to avail itself of the procedural remedy outlined in paragraph (2) of subsection (a)(2) of this section, the submission will be processed according to standard review procedures. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 20, 1996. TRD-9602426 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 12, 1996 Proposal publication date: October 20, 1995 For further information, please call: (512) 463-6327 28 TAC sec.sec.3.2-3.5 The Texas Department of Insurance adopts the repeal of sec.sec.3.2-3.5, concerning requirements for filing of policy forms, riders, amendments, and endorsements for life, accident, and health insurance and annuities, without changes to the proposed repeal of such sections as published in the October 20, 1995, issue of the Texas Register (20 TexReg 8570). Simultaneous to this repeal, notice of final adoption of amendments to sec.3.1, and of new sec.sec.3.2-3.20 is published elsewhere in this issue of the Texas Register. Repeal of the sections is necessary because the provisions of sec.sec.3.2-3.5 relate to essentially the same regulatory procedural framework and subject matter as adopted new sec.sec.3.2-3.20, which are more specific provisions for the filing and review of life and accident/health product forms, and which supersede, replace, revise and/or amend the repealed sections. Provisions of the adopted amendment to sec.3.1 and new sec.sec.3.2- 3.20 establish a cohesive, uniform procedure for the filing and review of life product and health product forms which must be filed and reviewed for official action, with the purpose of streamlining and strengthening the filing, review and official action process; enhancing the overall effectiveness and efficiency of form filing and review procedures; and implementing legislation from the 74th legislative session relating to the life/health form filing and review process in the Insurance Code, Article 3.42. Repeal of sec.sec.3.2-3.5 results in the elimination of provisions made obsolete by newer, more specific provisions for filing, review and official action in sec.sec.3.2-3.20. No comments were received regarding adoption of the repeals. The repeals are adopted pursuant to the Insurance Code, Articles 3.42 and 1.03A. The Insurance Code, Article 3.42(p) provides that the commissioner is authorized to adopt such reasonable rules and regulations as are necessary to implement and accomplish the specific provisions of Article 3.42 within the standards and purposes of the article. Article 1.03A authorizes the commissioner of insurance to promulgate and adopt rules and regulations for the conduct and execution of the duties and functions by the department. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 20, 1996. TRD-9602425 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 12, 1996 Proposal publication date: October 20, 1995 For further information, please call: (512) 463-6327 SUBCHAPTER Z. Exemption From Review and Approval of Certain Life, Accident, Health and Annuity Forms and Expedition of Review 28 TAC sec.sec.3.4004, 3.4005, 3.4008, 3.4009, 3.4020 The Commissioner of Insurance adopts amendments to sec.sec.3.4004, 3.4005, 3.4008, and 3.4009, and new sec.3.4020, relating to the exemption of certain life, accident, health and annuity forms from review and approval requirements. Amendments to sec.sec.3.4004, 3.4008 and 3.4009 are adopted with changes to the proposed text as published in the October 17, 1995, issue of the Texas Register (20 TexReg 8396). Amendments to sec.3.4005 and new sec.3.4020 are adopted without change and will not be republished. A public hearing was requested and held December 14, 1995. The amendments are necessary to revise and update the class of described forms for which the department has determined that the review and official action provisions of the Insurance Code, Article 3.42, are not required or necessary for the protection of the public, thereby enhancing the streamlining of the overall filing, review, and official action process for life and health insurance forms. In sec.3.4004(a), (c) and (e) the adoption includes clarifying language indicating that if the laws of Texas or some other state require specific prior approval, a form otherwise subject to the exemption provisions of these sections will be reviewed for approval nonetheless. Adopted amendments to sec.3.4004(b)(10) and (d) include a change in reference from "policies" to "benefits contracts" in connection with prepaid funeral arrangements. The adoption includes a change in sec.3.4004(c) to replace the reference to paragraph (6) with a reference to paragraph (5) since there are only five paragraphs in that subsection. Adopted sec.3.4004(c)(3) and (4) include an explanatory change to provide functional definitions of the terms "waiver of surrender charges," and annuities with "two tier values." A change was made to the exemption set out in sec.3.4004(e)(2)(D) to clarify its application to in-patient confinement and basic hospital expense coverages. Adopted sec.3.4004(f)(1) was revised to clarify that the exception applies to combination coverages provided on a comprehensive basis for both illness and injury. A clarifying change was made to sec.3.4009(c) to indicate that reinstatement of privileges which have been terminated for cause is not automatic in a purely mechanical sense and that the commissioner has continuing review and oversight over the use of such privileges so that in instances where circumstances warrant, the commissioner may extend or diminish the one-year interval between termination and reinstatement of such privileges. The adoption omits any reference to a specific Insurance Code article in sec.3.4009(d), and makes clear that nothing in the sections limits the commissioner from imposing any other sanction authorized by the Insurance Code or other applicable law. The adopted amendments will facilitate an overall strengthening and streamlining of the process by which forms are filed and used by issuers of life products and health products. The amendment to sec.3.4004 sets out various categories of forms for which exemption from review applies, and exceptions to those exemptions. It also reorganizes information about specific form categories and types so that both the exemptions relating to specific form categories/types and the exceptions from exemption for each form category/type are contained in specific subsections. New subsection (g) in sec.3.4004 contains substantive provisions transferred from existing sec.3.4008. The amendment to sec.3.4005 addresses organizational and informational elements generally relating to the operational impact of the sections. The amendment to sec.3.4008 addresses random and targeted audit procedures of forms filed under Subchapter Z. The adopted amendment to sec.3.4009 makes a change to procedures regarding reinstatement of any privilege canceled for failure to comply with the sections. New sec.3.4020 sets out as Figure 1 the full contents of form "TEXAS POLICY FORM CERTIFICATIONS" for uniform use in filing certifications under Chapter 3 of this title and more specifically in connection with filing of forms made exempt from review and official action by these sections, as well as filing of forms similar to forms previously approved by the department. GENERAL COMMENTS COMMENT: Some commenters believed the sections will be overly costly to those who must comply with them, and that they will cause delays in the regulatory process. RESPONSE: The department disagrees. The primary thrust of these sections is to reduce the amount of time between the filing and first use of particular policy forms that the department has determined to be appropriate for use without specific prior approval and within which context the public interest will be served, while the department simultaneously will retain necessary levels of discretion and review to serve consumer protection interests. For issuers it provides a means by which to more effectively and efficiently offer traditional, conventional, widespread-use products. The department believes the sections will result in more efficient administrative regulation of insurance licensees and more effective utilization of public resources by appropriate streamlining of the overall policy form submission, review and official action process. The sections will save both time and money for issuers because streamlining is an integral component of the sections. COMMENT: Some commenters opposed exemption of group and blanket accident and health and group and individual accident and health insurance policy forms, from the standpoint of consumer protection. These commenters recommended that if exemption for such policy form types is retained, the department develop standardized definitions, exclusions, and benefit provisions for the policy forms specified in the proposal, from which issuers could select. This approach, the commenters urged, is a better way of promoting efficiency in the policy form review process. The commenters stated a belief that the review of such forms is necessary for protection of the public, unless all provisions in the form are selected from a menu of department-promulgated, standardized selection options for policy benefits and other provisions. RESPONSE: The department agrees with the concept that standardized policy provisions is an effective way of promoting efficiency and streamlining the policy form review process. However, the department must regulate within the practical limitations of the statutory framework enacted by the legislature. For these types of policy forms, that framework currently consists of certain mandated benefits, certain formatting conventions that must be met, certain minimum standards for defining benefits, restrictions on meaning of certain definitions and other restrictions on imposition of certain kinds of limitations. How the exemption process works within such a framework is set out in Article 3.42, which provides that if a form meets certain criteria, then it is an appropriate candidate for exemption. COMMENTS ABOUT COST OF COMPLIANCE COMMENT: Some commenters stated a belief that the public cost note for the proposal was insufficient because it failed to recognize the difference between the cost for filing of a form that is exempt and one which is not. RESPONSE: The department disagrees that this is a comment directed to these sections. The real focus of this comment is the regulation setting out different and varying fees associated with the filing of particular forms, not this rule. The commenters appear to be addressing provisions of 28 TAC sec.7.1301, a regulation that sets out fees. However, this series of sections does not set out the filing fee requirements, only whether a filing qualifies as exempt or not. COMMENTS TO sec.3.4004. COMMENT: Some commenters suggested that there be a statement in the rules indicating that a company may in particular instances obtain review and approval of a policy form which otherwise is considered to be exempt. The specific example raised was that the sections as published do not make it clear that forms otherwise considered to be exempt from the review/approval process must nonetheless be reviewed and approved if they are going to be marketed by a Texas domestic in a state other than Texas which requires such policies and forms to have received domiciliary approval before being marketed in that state. RESPONSE: The department agrees. The explanatory introductions to subsections (a), (c) and (e) of sec.3.4004 have been revised to specifically include the laws of other states within the term "unless ...required by law to be specifically approved." The combination of Article 3.42 provisions and adopted sec.3.4004(a), (c) and (e) effectively address situations and circumstances of prior approval. COMMENT: Use of the word "policies" in sec.3.4004(b)(10) and (d) in connection with prepaid funeral arrangements is incorrect; the correct term is "contracts." RESPONSE: The department agrees. The word "policies" at both occurrences has been replaced with the words "benefits contracts," consistent with the provisions of Texas Civil Statutes, Article 548b. COMMENT: Some commenters objected to the substance of sec.3.4004(b)(10) and (d) and requested that the exception to exemption for the products addressed in sec.3.4004(b)(10) and (d) be removed, on the following grounds: (1) no public need exists for, and no public benefit is derived from, review of such products;(2) the Banking Department, not the Insurance Department, has exclusive purview over such contracts;(3)exemptions from the review process are not a matter of executive grace to begin with;(4)the legislature has not denied exemption for the types of policy or product forms addressed in the subsections on the basis of the use to which the products addressed in the subsections are to be put. RESPONSE: The department disagrees. Although it agrees with a small part of the comment, it disagrees with the overall tenor of the comment for the following reasons: First, it is inaccurate to state that the Banking Department has exclusive purview over contracts to prefund funeral arrangements. Texas Civil Statutes, Article 548b, relates to the sale of prepaid funeral services or funeral merchandise. Section 1A(a) addresses insurance funded prepaid funeral benefits and provides, essentially, that ". . . no seller covered by this Act shall solicit by any means . . . designation by an individual of prepaid funeral benefits to be provided to be paid out of any fund . . . including insurance policies, . . . unless that fund is to be created by a life insurance policy or an annuity approved by the Board of Insurance and issued by an insurance company licensed by the Board of Insurance or except as provided for trust- funded prepaid funeral benefits by Section 5 of this Act . . ." (emphasis supplied) Significantly, Article 548b, Section 1A provides a legislative directive that the insurance policy or annuity be one which has been approved by the Board of Insurance (i.e., the department). There is no implicit or explicit provision for exemption. There is no inference capable of being drawn that the policy be other than one which has received approval from the department. Thus, in Article 548b, Section 1A, the legislature has spoken very clearly that with respect to a life insurance policy to be used for the purpose of prepaying funeral benefits, though it is of a type and on a form that might to be put to other uses for which it might meet the criteria for exemption, such policy form must be approved by the department. Approval in this instance means specific prior approval, not an exemption filing. The department disagrees with the statement that exemptions from the review process are not a matter of executive grace to begin with, because this statement is ambiguous. If the intent of the statement was that the department does not have unbridled discretion to grant or deny exemptions, the department agrees. However the legislature, in creating that portion of Article 3.42 under which exemptions may be granted by the department, gave the department considerable latitude in deciding which forms ought to be exempt and which forms ought not to be exempt, and the period for which the exemption is to be granted. Certainly the legislature set out a series of standards to be used in that decisionmaking process. Those standards, which the department must follow, are set out in the Insurance Code, Article 3.42(h) Finally, the department agrees that the legislature has not denied an exemption for types of policies or product forms addressed in the subsection based on intended use of such products. However, although the legislature has not denied exemption for those forms in Article 3.42, neither has it granted exemption for such forms in Article 3.42. As a matter of fact the legislature has neither granted nor denied exemption status for any particular types of policy forms. Instead the legislature has given authority to the department through the commissioner within the framework of Article 3.42(h) to develop an approach for exempting particular types of policy forms which meet the criteria set out in the statute. COMMENT: A commenter noted that sec.3.4004(c) contains no paragraph (6) even though the proposal refers to it. RESPONSE: The reference to paragraph (6) in sec.3.4004(c) of the proposal is in error. That sentence in the adopted sections has been corrected to accurately refer to paragraphs (1) through (5). COMMENT: A commenter asked whether "waiver of surrender charges" in sec.3.4004(c)(3) and (4) refers to the nonexistence of any waiver-of-surrender-charges provisions, or only certain kinds of waiver-of-charges provisions. RESPONSE: The department agrees. A subparagraph has been added to sec.3.4004(c)(3) to indicate that "waiver of surrender charges" for purposes of paragraphs (3) and (4) means "a waiver of surrender charges which is applied to any amount greater than 10% of the surrender value." COMMENT: A commenter asked for clarification about the meaning of "two tier values" regarding annuities referenced in sec.3.4004(c)(3) and (4). RESPONSE: The department agrees with the need for clarification and has added a second subparagraph to sec.3.4004(c)(3) to indicate that "two tier values" for purposes of paragraphs (3) and (4) means "values on an annuity available at the maturity date of the contract which are different, depending on whether the value is taken from the contract in a lump sum or left with the issuer for periodic payments, regardless of whether the different values are available at issue or later." COMMENT: A commenter suggested that the exemption set out in sec.3.4004(e)(2)(D) be clarified. RESPONSE: The department agrees, and a revised statement of the exemption has been made to indicate that it applies to in-patient confinement and basic hospital expense coverages. COMMENT: Some commenters recommended clarification of the exception found in sec.3.4004(f)(1) in connection with exemption status of forms addressed in sec.3.4004(e)(2)(A),(D), and (F). The commenters believed that the exception to exemption in sec.3.4004(f)(1) unintentionally would remove the exemption created for the referenced forms in sec.3.4004(e) because of language that is not entirely clear. RESPONSE: The department does not believe the language of sec.3.4004(f)(1) is at odds with exemptions recognized in sec.3.4004(e)(2), but to make provisions clearer, an explanatory change has been made to sec.3.4004(f)(1) indicating that the exception applies to combination coverages provided on a comprehensive basis for both illness and injury. Both the exemption and the exception to such exemptions are stated in terms of coverages, simply what the product or policy form covers and what it does not cover. The exception is not addressing the context or contexts within which benefits are to be provided for the conditions or situations that are covered. If, for example, an issuer filed a specified disease policy form as an exempt form, such a filing would appropriately be an exempt filing under the proposal, so long as all benefits provided under the policy (regardless of the context within which they are provided) were to be associated with and apply to one or more of the diseases or physical conditions specified in the policy. On the other hand, if the policy were to be offering benefits not associated with diseases or conditions specified in the policy but instead associated with some disease or physical condition not specified in the policy, provision of such benefits would strongly indicate coverage for a condition going beyond what is represented in the policy, thus removing the policy form from the class of forms entitled to an exemption under sec.3.4004(e). COMMENTS ABOUT sec.3.4009. COMMENT: One comment questioned the language of the automatic reinstatement of privileges in sec.3.4009(c), noting that it appears to minimize the need for oversight in circumstances where there might be outright continuing abuse of the exemption provisions by an issuer. The comment also repeated earlier consumer protection concerns raised by the same commenters about whether the sections compromise safeguards for consumer protection from harmful products. RESPONSE: The department agrees in part and disagrees in part. The provisions in sec.3.4009(c) have been changed to clarify that the reinstatement of privileges after such privileges have been terminated because of irregularities is not automatic, and that the commissioner has continuing review and oversight so that under appropriate circumstances the interval between termination and reinstatement can be longer than or shorter than a one-year period. With respect to the ongoing consumer protection concerns, the department believes that adoption of the sections results in preservation of adequate safeguards for consumers, because the types of forms placed into exempt status in the regulation were carefully chosen, and because the statutory/regulatory framework otherwise applicable to such products provides enforcement tools and compliance processes to protect consumers. COMMENT: One comment suggested that sec.3.4009(d) recognize the change made to Article 3.42 in the 74th legislative session regarding sanctions authorized in that article relating to the issuance of forms filed under Article 3.42. Alternatively, the comment indicated that if the provisions relating to sanction authority available to the commissioner make specific reference to Article 1.10, they should reference Article 3.42 as well. RESPONSE: The department acknowledges the changes occasioned by the 74th Legislature to Article 3.42 relating to issuance of policies and penalties for wrongful issuance, but considers it unnecessary to include reference to that article in sec.3.4009(d), since such changes are recognized by implication in the published language "any other sanction authorized by law." The purpose of the provision in the rule is to clearly state that the sanctions available under the rule are not intended to be in lieu of any sanctions in the Insurance Code or other law available to the commissioner for imposition for the same or similar behavior. While the reference to Article 1.10 in the proposal was included as a reference to the general and encompassing powers and duties of the commissioner set out in Chapter 1 of the Insurance Code, nonetheless such reference has been deleted in the adoption, because even without it sec.3.4009(d) makes it clear that availability of sanctions under the rules in no way diminishes the authority of the commissioner to impose sanctions available to the commissioner pursuant to the provisions of the Insurance Code or other insurance laws of this state. Comments generally in favor of the sections but with recommendations for change were received from Texas Association of Insurance Officials; Texas Legal Reserve Officials Association; and the Variable Annuity Life Insurance Company. Comments generally opposed to the sections, some with recommendations for change, were received from Consumer's Union; Directors Investment Group, Inc., Funeral Directors Life Insurance Company, Texas Directors Life Insurance Company, Insurance Alliance of America and the Office of Public Insurance Counsel. The amendments and new section are adopted pursuant to the Insurance Code, Articles 3.42 and 1.03A. The Insurance Code, Article 3.42(h) provides that the department may by written order exempt from the requirements of the article certain documents or forms, and may adopt reasonable rules necessary to establish guidelines, procedures, methods, standards and criteria by which various and different types of forms and documents submitted to the department may receive expeditious treatment in the policy form review process. Article 1.03A authorizes the commissioner of insurance to promulgate and adopt rules and regulations for the conduct and execution of the duties and functions by the department. sec.3.4004.Exempt Forms. (a) Group and Individual Life Forms. The group and individual life insurance forms specified in this subsection are exempt from the review and approval requirements of the Insurance Code, Article 3.42, unless the forms are required by the laws of Texas or another state to be specifically approved or are otherwise excepted in subsection (b) of this section: (1) group life insurance master policies, contracts, certificates, applications, enrollment forms, riders, amendments and endorsements applicable thereto, issued under authority of the Insurance Code Article 3.50, sec.1(1), (2), (3), (4), (5), (7), (7A), (8), (9), and (10), listed in subparagraphs (A) and (B) of this paragraph: (A) term policies and riders; and (B) cash value and endowment policies with no more than five death benefit and/or premium changes; (2) any alternate face pages filed subsequent to the original approval of a policy for use with multiple employer trusteed arrangements as defined in Insurance Code, Article 3.50, sec.1(5); (3) individual and joint life insurance forms, including applications, listed in subparagraphs (A) through (P) of this paragraph: (A) ordinary life; (B) limited pay life with no more than five death benefit and/or premium changes; (C) life paid up at specified ages with no more than five death benefit and/or premium changes; (D) single premium life with no more than five death benefit changes; (E) modified premium level death benefit life with no more than five premium changes; (F) level premium life with no more than five death benefit changes; (G) retirement income policies; (H) level or decreasing term policies and riders; (I) increasing term policies and riders; (J) family plans; (K) family income; (L) family plan riders, including but not limited to children's term riders, dependent term riders, and spouse term riders; (M) limited pay endowment; (N) level premium endowment; (O) single premium endowment; and (P) indeterminate premium policies; (4) rider forms listed in subparagraphs (A)-(H) of this paragraph: (A) accidental death benefit riders; (B) waiver of premium riders; (C) guaranteed insurability riders; (D) IRA riders; (E) preliminary term riders; (F) conversion riders; (G) exchange riders; and (H) waiver of cost riders, including waiver of cost and monthly expense charge, and waiver of cost and premium payment; (5) endorsement forms listed in subparagraphs (A) through (I) of this paragraph: (A) ORP endorsements; (B) nontransferability endorsements; (C) H.R. 10 endorsements; (D) tax sheltered annuity endorsements; (E) nonassignability endorsements; (F) settlement option endorsements; (G) individual retirement account endorsements; (H) unisex endorsements; (I) loan endorsements; and (6) limited refilings for life insurance which indicate only a change in the mortality table or interest rates for new issues under the policy form, or changes to the separate account for variable products. (b) Exceptions. The provisions of subsection (a)(1) and (2) of this section shall not apply to any group or individual life insurance forms providing the types of coverages set out in paragraphs (1)-(10) of this subsection, as follow: (1) universal life; (2) universal related life; (3) adjustable life; (4) variable life; (5) re-entry products; (6) business value; (7) any forms containing a market value adjustment; (8) deposit term; (9) forms subject to the Insurance Code article 3.53; or (10) any life insurance product used to fund prepaid funeral policies. (c) Group and Individual Annuity Forms. The group and individual annuity forms, including applications, specified in paragraphs (1)-(5) of this subsection, as follow, are exempt from the review and approval requirements of the Insurance Code, Article 3.42, unless the forms are required by the laws of Texas or another state to be specifically approved or are otherwise excepted in subsection (d) of this section: (1) single premium immediate annuities; (2) deferred annuities used as structured settlement options; (3) deferred annuities that do not include persistency bonuses of any type, waiver of surrender charges, two-tier values, or a market value adjustment; (A) for purposes of this paragraph and paragraph (4) of this subsection, "waiver of surrender charges" means a waiver of surrender charges which is applied to any amount greater than 10% of the surrender value; (B) for purposes of this paragraph and paragraph (4) of this subsection, "two tier values" means values on an annuity available at the maturity date of the contract which are different, depending on whether the value is taken from the contract in a lump sum or left with the issuer for periodic payments, regardless of whether the different values are available at issue or later; (4) group annuities that do not include persistency bonuses of any type, waiver of surrender charges, two-tier values, or a market value adjustment; and (5) limited refilings for annuity products which indicate only a change in the mortality table or interest rates for new issues under the policy form, or changes to the separate account for variable products. (d) Exceptions. The provisions of subsection (c) (1)-(4), of this section shall not include any annuity products used to fund prepaid funeral policies. (e) Group and Individual Accident and Health Forms. The group and individual accident and health insurance forms specified in paragraphs (1)-(3) of this subsection, as follows, are exempt from the review and approval requirements of the Insurance Code, Article 3.42, unless the forms are required by the laws of Texas or another state to be specifically approved or are otherwise excepted in subsection (f) of this section: (1) the group and blanket accident and health forms set out in subparagraphs (A)-(D) of this paragraph: (A) any group accident and health master policies, contracts, certificates, applications, enrollment forms, riders, amendments, and endorsements applicable thereto issued under authority of the Insurance Code Article 3.51-6, sec.1(a)(1) and (2); provided the forms issued under authority of the Insurance Code Article 3.51-6, sec.1(a)(2) are exempt only if delivered or issued for delivery to a labor union or organization of labor unions; (B) any blanket accident and health master policies, contracts, certificates, applications, enrollment forms, riders, amendments, and endorsements applicable thereto, issued under authority of the Insurance Code Article 3.51-6, sec.2(a)(1) through (8); (C) any group master policies, contracts, certificates, applications, enrollment forms, riders, amendments, and endorsements applicable thereto, issued under the authority of the Insurance Code, Article 3.51-6, sec.1(a)(1), (2), or (3) providing Medicare Supplement coverage to an employer, multiple employer arrangement, or a labor union; (D) any group master policies, contracts, certificates, applications, enrollment forms, riders, amendments, and endorsements applicable thereto, issued under the authority of the Insurance Code, Article 3.51-6, sec.1(a)(1) or (2) providing long term care coverage to a single employer or a labor union through a policy which is delivered or issued for delivery outside of Texas; (2) group and individual accident and/or health policies, contracts, certificates, applications, enrollment forms, riders, amendments, endorsements, and related forms (including but not limited to outlines of coverage, notices, and conditional receipts) applicable thereto, providing coverages set forth in subparagraphs (A)-(I) of this paragraph: (A) accident only, (including occupational accident and other specified accident); (B) accidental death and dismemberment; (C) dental; (D) in-patient confinement and basic hospital expense coverages (including policies with coverage on an indemnity or expense-incurred basis): (E) vision; (F) specified disease (including cancer, heart attack, stroke, and other specifically named diseases); (G) group and individual policies providing disability coverages (including but not limited to income replacement, key-man, buy/sell, and overhead expense); (H) policies designed to provide conversion coverages; and (I) other permitted coverages which are designed to supplement other in-force health insurance, including Champus supplements; and (3) any alternate face pages filed subsequent to the original approval of a policy for use with multiple employer trusteed arrangements as defined in Insurance Code, Article 3.51-6, sec.1(a)(3). (f) Exceptions. The provisions of subsection (e) of this section shall not apply to any of the insurance forms set out in paragraphs (1)-(6) of this section. (1) The provisions of subsection (e)(2), of this section shall not apply to any group or individual health insurance policy which provides, on a comprehensive basis for illness and injury, a combination of hospital, medical, and surgical coverages, including but not limited to any major medical policies and any limited benefit hospital, medical, and surgical policies as defined in sec.3.3079 of this title (relating to Minimum Standards for Limited Benefit Coverage). (2) The provisions of subsection (e)(1) and (2), of this section shall not apply to any Medicare supplement policies as defined in the Insurance Code, Article 3.74, except as specifically provided in subparagraph (e)(1)(C). (3) The provisions of subsection (e)(1) and (2), of this section shall not apply to any long term care policies as defined in the Insurance Code, Article 3.70-12 (including but not limited to any policies providing nursing home or home health care coverages), except as specifically provided in subparagraph (e)(1)(D). (4) The provisions of subsection (e)(1) and (2), of this section shall not apply to any forms which contain preferred provider benefit plan provisions as defined in sec.sec.3.3701-.3705 of this title (relating to Preferred Provider Benefit Plans). (5) The provisions of subsection (e)(1) and (2), of this section shall not apply to any group forms which are issued under the authority of Insurance Code, Article 3.51-6, sec.1(a)(6) (relating to discretionary groups). (6) The provisions of subsection (e)(2)(H) of this section shall not apply to any policy subject to the provisions of Subchapter F of this chapter (relating to Mandatory Group Insurance Conversion Option), except for policies providing conversion from a policy included as an exempt form in this section. (g) Copies of Previously Approved Forms. Any form not otherwise exempted under these sections that is an exact copy of a previously approved form is exempt from the review and approval requirements of the Insurance Code, Article 3.42. Such forms must be filed in accordance with and accompanied by the required certification as prescribed in Subchapter A of this chapter (relating to Filing of Policy Forms, Riders, Amendments and Endorsements for Life, Accident and Health Insurance and Annuities). The certification form required to be used in filing the certification is "TEXAS POLICY FORM CERTIFICATIONS, Multi-Use Form," which also is to be utilized for filing certifications for file-and-use under Article 3.42(c), as well as for corrections, resubmissions, substitutions, and filings for forms exempted from review and official action by these sections. Form "TEXAS POLICY FORM CERTIFICATIONS" is available from the Life/Health Group, has been filed with the Texas Register Division of the Secretary of State for public inspection, and is adopted by reference in these sections. The form also is reproduced in full as Figure 1 in sec.3.4020 of this title (Relating to Appendix). sec.3.4008.Audit Procedures. In order to monitor the appropriateness and effectiveness of the exemption provisions, the department will conduct periodic random and targeted audits of forms filed under these sections. Any compliance deficiencies identified during the audit process will be communicated to the insurer with a request for corrective action. Any failure to acknowledge a request and provide a plan for corrective action will be subject to the provisions of sec.3.4009 of this title (related to Sanctions). sec.3.4009.Sanctions. (a) The privileges under these sections are canceled for an insurer if either of the determinations in paragraphs (1) or (2) of this subsection are made after notice and hearing as follows: (1) an insurer's filing made under sec.3.4004 of this title (relating to Exempt Forms) fails to comply with sec.3.4005 of this title (relating to General Information); or (2) an insurer's filing made under sec.3.4004(g) (relating to Copies of Previously Approved Forms) fails to be an exact copy of a filing previously approved. (b) In the event of cancellation of privileges under these sections, the insurer is henceforth required to file for review and approval any and all forms intended for use in Texas, until such time as privileges under these sections are reinstated. (c) Reinstatement of any privilege canceled under these sections will occur after a period of one year from the date the privileges finally terminate, unless otherwise determined by the commissioner. An insurer may make application for reinstatement prior to the passage of one year following termination of such privileges. (d) Nothing in these sections limits the commissioner from imposing any other sanction authorized by the Insurance Code or other applicable law. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 20, 1996. TRD-9602427 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 12, 1996 Proposal publication date: October 17, 1995 For further information, please call: (512) 463-6327 PART I. Texas Natural Resource Conservation Commission CHAPTER 321. Control of Certain Activities by Rules SUBCHAPTER A. Boat Sewage Disposal 28 TAC sec.sec.321.1-321.4, 321.10, 321.15 The Texas Natural Resource Conservation Commission (TNRCC or commission) adopts amendments to sec.sec.321.1-321.4, 321.10 and 321.15, concerning disposal of sewage from marine sanitation devices. Sections 321.1, 321.2, 321.3, and 321.4 are adopted with changes to the proposed text as published in the September 1, 1995, issue of the Texas Register (20 TexReg 6800) . Sections 321.10 and 321.15 are adopted without changes and will not be republished. A purpose of the rules is to add Clear Lake to the list of waterbodies designated as "no-discharge" lakes contained in Subchapter A, Chapter 321, Boat Sewage Disposal. Such designation provides that the discharge from boats of sewage, treated or untreated, is prohibited on Clear Lake. Such prohibition is necessary because of the adverse water quality impacts created by such discharges, including treated discharges, from a high concentration of recreational craft on Clear Lake. Additionally, the rules clarify that the discharge of sewage from boats into non-designated waterbodies must be treated by marine sanitation devices meeting or exceeding applicable federal requirements. Also, the rules reiterate that the discharge of untreated or improperly treated sewage into waters in the state is prohibited. In addition, the rules clarify the size and type boat which must have a marine sanitation device meeting certain standards. These rules are consistent with those established by the U.S. Coast Guard applicable to designated "no- discharge" areas in U.S. territorial waters and promulgated under sec.312 of the federal Clean Water Act. Certification and related fee requirements for marine sanitation devices and pump-out facilities are authorized by sec.sec.26.044 and 26.045 of the Texas Water Code. Because of the large amount of transient, interstate, and ocean-going boat traffic on Clear Lake, the enforcement of the certification and related fee requirement for marine sanitation devices on these boats is problematic. Therefore, the rules exempt boats on Clear Lake from this requirement. However, boats on Clear Lake must still adhere to the discharge prohibition and requirements for marine sanitation devices. Finally, to reflect available agency resources, the rules make discretionary whether an inspection will be required before a marine sanitation device or pump-out facility can be certified. Rather, inspections shall be conducted on a random basis. Section 26.121 of the Texas Water Code prohibits the discharge of waste into or adjacent to waters of the state except as authorized by order, permit, or rule. The discharge of untreated waste is prohibited. The "no-discharge" designation further prohibits the discharge of treated waste into Clear Lake and requires the installation of authorized marine sanitation devices on certain boats and for proper on-shore disposal by use of pump-out facilities, discharge of properly treated waste into a non-designated waterbody or the direct discharge of waste into the Gulf of Mexico beyond the state's three-mile territorial limits. This discharge prohibition is in response to the requests of local citizens, associations, and entities concerned with the impacts of waste discharges from an increasingly large number of water-craft on the contact recreational use of the lake, public health, and the aquatic environment. Sewage waste discharged from boats may degrade water quality by introducing disease-causing micro-organisms into the aquatic environment and depressing oxygen levels as the sewage decays. Sufficient fecal coliform bacterial counts require the closing of shellfish beds. High fecal coliform counts can also require the closing of waterbodies to swimming and other contact recreation. Even treated waste may be unhealthy because: 1) chemical treatment often sanitizes only the outer surfaces of waste clumps; 2) chemicals routinely used in approved marine sanitation devices can be harmful to aquatic life and water quality (chlorine, formaldehyde, formaline, phenol derivatives, ammonia compounds, etc.); 3) poorly maintained marine sanitation devices may not treat effluent to the prescribed standards; and 4) even treated sewage contributes nutrients and lowers dissolved oxygen levels in water, lowering water quality for aquatic life. The Clear Lake area currently harbors approximately 5,600 recreational boats and 500 houseboats. Some of these boats are equipped with on-board toilets which are currently allowed to discharge into the lake after proper treatment of the waste. The area is also used extensively for recreational activities including swimming, fishing, wind surfing, jet-skiing and other water sports. Studies based on historical data and performed under the auspices of the Galveston Bay National Estuary Program indicate relatively high fecal coliform levels in Clear Lake. Further research conducted by TNRCC staff confirm this and the increasing trend of fecal coliform as well as other pollutants in the areas adjacent to and inside marinas where there are high concentrations of boats. Data collected by the Sea Grant Program, Texas A & MUniversity, also reveal that Clear Lake is one of the most concentrated areas in the state in terms of recreational boat traffic, including larger boats which typically have waste discharge devices. The combination of these factors has given rise to public concerns about the impact of waste disposal from such a large number of boats on contact recreational safety, public health, and aquatic life of Clear Lake. In response to these concerns, the commission adopts these rules providing that discharge of sewage from boats no longer be allowed in Clear Lake. Rather, such sewage shall be contained on-board until it can be pumped out, treated, and disposed of properly on-shore; treated properly and discharged into a non-designated water body; or directly discharged into the Gulf of Mexico beyond the state's three-mile territorial limits. Under the federal Clean Water Act, states may petition the U.S. Environmental Protection Agency (EPA) to designate certain water bodies requiring greater environmental protection as "no-discharge" areas where discharge of all sewage, treated or not, is prohibited. EPA will not approve a "no-discharge" area unless there are adequate pump-out facilities available to boat owners. Eight pump-out facilities are operational on Clear Lake, with another four scheduled to be built in the near future. Accordingly, the EPA approved TNRCC's petition making Clear Lake eligible for designation as a "no-discharge" lake on February 6, 1995. A public hearing on the proposed rules was held on September 20, 1995 at the University of Houston, Clear Lake Campus. At that hearing, representatives of the Galveston Bay Foundation, Marine Sanitation Co., and the Clear Lake Marina Association appeared and provided oral comments in general support of the proposed rules. In addition to these comments, written comments were submitted by the Lakeside Yachting Center, Inc. (Lakeside), the Watergate Yachting Center (Watergate), and the Clear Lake Marina Association (the Marina Association). Lakeside expressed unqualified support of the proposed rules. Watergate's comments expressed concerns about certain provisions of the proposed rules. The Marina Association's written comments were in opposition to many of the proposed rules. Both Watergate and the Marina Association recommended that the proposed applicability of the bi-annual certification and related $15 fee requirement for marine sanitation devices provided by sec.321.3, Marine Sanitation Device Required, be eliminated for boats on Clear Lake in order to gain greater public support for the program. Additionally, Watergate and the Marina Association stated that the certification requirement would be difficult and unfair to enforce on a waterbody where there was a great deal of transient, interstate, and ocean-going boat traffic. The commission agrees with these comments and has amended the rules to exempt boats on Clear Lake from the marine sanitation device certification and fee requirements. Additionally, there is some question whether the certification and fee requirement may be applied to boats on lakes other than "inland fresh waters" as referenced by sec.26.044, Texas Water Code. However, boats on Clear Lake must still have the proper on-board equipment to comply with the discharge prohibition. Watergate and the Marina Association also commented that the proposed rules under sec.321.4, Specifications for Approved Marine Sanitation Devices, are too restrictive in prescribing which marine sanitation devices comply with the discharge prohibition. Specifically, Watergate and the Marina Association stated that a marine sanitation device equipped with a locked "Y"-valve to prevent the discharge of waste would qualify. The commission agrees with this comment and has amended the rule accordingly. The Marina Association also commented that "porto-potties" should be expressly allowed under sec.321.4 for boats over 26 feet in length. The commission responds that the rules do not disallow the use of these devices. However, because of their limited capacity and potential odor nuisance problems, they cannot be used exclusively for boats of this size and capability to accommodate a relatively large number of persons and longer voyage duration. Therefore, an additional marine sanitation device is required for boats of this size. Additionally, the Marina Association commented that the rules should provide for a boater education program. The commission agrees that a boater education program should be provided and, therefore, will work with the Galveston Bay Program, the Texas Parks and Wildlife Department, Texas A & M University's Sea Grant Program, and other state and federal agencies, local governments, and private entities and associations to develop and implement an aggressive boater education program. However, because this program would not be in the nature of a regulatory requirement, it is not provided in these rules. The Marina Association commented that a more reasonable and cost-effective approach to controlling boat-generated sewage is to solicit boater cooperation through education and the availability of adequate and proper disposal facilities, rather than imposing more rules and restrictions. The commission responds that educational efforts are a key component to the success of the program and voluntary compliance a preferred method of program implementation. However, these rules are a necessary mechanism to ensure enforcement, when appropriate. Also, the commission responds that the number and availability of pump-out facilities on Clear Lake is sufficient to facilitate compliance with the discharge prohibition, based upon the findings of the EPA in response to the TNRCC's petition for the "no discharge" designation of Clear Lake. Additionally, the privately-owned pump-out facilities, which constitute approximately half of the existing pump-out facilities on Clear Lake, do not present an availability problem since they service approximately half of the boats on Clear Lake whose owners are members of the marina associations that own these private facilities. In addition, Watergate expressed concern that there may be inadequate resources to enforce these provisions. The commission responds that public notice of these requirements will be done, in part, through an aggressive education program. Compliance inspections shall be performed by the TNRCC on a random basis. Enforcement action may be instituted based upon evidence gathered by commission staff or on a complaint basis and may be done in cooperation with the Texas Parks and Wildlife Department and/or qualified local governments. Additionally, sec.26.171 of the Texas Water Code authorizes local governments to inspect boats to determine whether they meet the requirements of this subchapter and to report any violations to the commission for review and action. Pursuant to sec.26.136 of the Texas Water Code, unauthorized discharges are subject to administrative penalties assessed by the agency of up to $10,000 for each violation. In accordance with sec.26.122 of the Water Code, such violation is also subject to a maximum civil penalty of the same amount as well as injunctive relief in state district court. Such civil action may be instituted by the TNRCC, the Texas Parks and Wildlife Department, or a local government with appropriate jurisdiction. Private remedies to abate a condition of pollution or other nuisance may also be available. Additionally, sec.31.129 of the Texas Parks and Wildlife Code provides that a violation of these rules is a Class C misdemeanor. Pursuant to sec.31.121 of the Texas Parks and Wildlife Code, all peace officers of the state and its political subdivisions and game management officers are authorized to enforce these provisions by arresting and taking into custody any person who violates these rules. The Marina Association commented that insufficient data exists to document the water quality impacts created by boat discharges into Clear Lake which would justify the "no discharge" designation. The commission disagrees with this comment. The adverse impacts to water quality, contact recreation, and aquatic life from high levels of fecal coliform are well known and documented in scientific studies performed by both the U.S. Environmental Protection Agency and TNRCC. Studies sponsored by the Galveston Bay National Estuary Program and confirmed by TNRCC staff document high levels of fecal coliform adjacent to marinas and other areas with heavy boat traffic. Additionally, a study by the Sea Grant Program, Texas A & M University, indicates that Clear Lake has the highest concentration of recreational boats in the state. This data and information justifies the "no discharge" designation as a reasonable and necessary measure to protect the water quality of Clear Lake in order to maintain recreational and aquatic life uses and protect public health. The Marina Association comments that the proposed rules are unclear as to the territorial extent of Clear Lake. The commission agrees and has added a definition for Clear Lake in sec.321.1, Definitions, to provide such territorial delineation. The Marina Association commented that the rules are unclear as to whether the rules apply to commercial vessels. The commission responds that the rules are clear that they apply to both recreational and commercial vessels since the rules do not make any express distinction between these type boats or expressly exempt commercial vessels. The following is a section-by-section summary of the adopted rule amendments. Changes to sec.321.1, Definitions, adds a definition for "Clear Lake." Additionally, such changes to sec.321.1 remove references to fresh water in the definition of "boat" and "designated lake." These references have been deleted because Clear Lake is tidally influenced and brackish. Additionally, the amendment to the definition of "designated lake" makes clear that a designated lake that is an on-channel impoundment includes that area of the lake at its normal conservation level. The definition for "houseboat" has been amended to delete "flat-bottomed" as a descriptive phrase since this characteristic is too limiting and irrelevant to the requirement for a marine sanitation device. Finally, a definition is added in sec.321.1 for "water in the state" corresponding to applicable portions of the statutory definition of this term as it is provided by sec.26.001 of the Texas Water Code. Changes to sec.321.2, Discharge Prohibited, add Clear Lake to the list of 24 Texas lakes designated as "no-discharge" areas. The original proposal was to delete sec.321.2(a), but staff determined it should be retained to clarify that the discharge of sewage from boats into non-designated waterbodies must be treated by marine sanitation devices meeting or exceeding applicable federal requirements. Also, the changes to this rule reiterate that the discharge of untreated sewage into waters in the state is prohibited by law. Changes to sec.321.3, Marine Sanitation Device Required, clarifies which recreational boats are subject to this rule and provides that such boats on designated freshwater inland lakes must have their marine sanitation devices certified. Boats on Clear Lake are exempt from this certification requirement and related fees. However, all boats on designated "no-discharge" lakes, including those on Clear Lake, must adhere to the no-discharge requirement and have waste disposal equipment and devices as specified under sec.321.4, Specifications for Approved Marine Sanitation Devices. Changes to sec.321.4, Specifications for Approved Marine Sanitation Devices, delete the unnecessary reference to Texas Department of Health regulations which formed the basis of the criteria contained in this rule. Additionally, these changes make clear that all boats on designated "no-discharge" lakes, including those on Clear Lake, must have waste disposal equipment and devices as specified under the rule. Changes to sec.321.10, Certification of Pump-out Facilities, make inspections of pump-out facilities discretionary rather than mandatory prior to certification. Rather, inspections shall be random and based upon available agency time and resources. Changes to sec.321.15, Renewal of Certification, make inspections of pump-out facilities discretionary rather than mandatory prior to the renewal of a certification. Similarly, inspections shall be random and based upon available agency time and resources. The commission has prepared a Takings Impact Assessment for these rules pursuant to Texas Government Code Ann. Sec. 2007.043. The following is a summary of that Assessment. The specific purpose of the rule is to add Clear Lake to the list of waterbodies designated as "no-discharge" lakes contained in Subchapter A, Chapter 321, Boat Sewage Disposal because of the adverse water quality impacts created by such discharges, including treated discharges, from a high concentration of recreational craft on Clear Lake. The rules will substantially advance this specific purpose by prohibiting the discharge from boats of sewage, treated or untreated on Clear Lake. Promulgation and enforcement of these rules will not affect private real property. The amendments are adopted under Texas Water Code sec.5.103 which provides the TNRCC with the authority to adopt any rules necessary to carry out the powers and duties under the provisions of the Texas Water Code and other laws of this state. sec.321.1.Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise. Boat-Any vessel or other watercraft, whether moved by oars, paddles, sails, or other power mechanism, inboard or outboard, or any other vessel or structure floating on waters in the state, whether or not capable of self-locomotion, including but not limited to cabin cruisers, houseboats, barges, marinas, and similar floating objects. Clear Lake-That body of water located in Harris and Galveston counties and commonly referred to as "Clear Lake" and its immediate tributaries including: Clear Creek east of Interstate Highway 45; Cow Bayou south of NASA Road 1; Horsepen and Armand Bayous south of Bay Area Boulevard; Taylor Lake south of Red Bluff Road; and to the confluence with Galveston Bay at the navigation light in Kemah. Designated lakeAny of the waters listed in sec.321.2(a) of this title (relating to Discharge Prohibited). For on-channel impoundments, this includes the area of the lake at its normal conservation level. Houseboat-Any boat fitted for use as a dwelling or for leisurely cruising, including any barge. Waters in the state-lakes, bays, ponds, impounding reservoirs, springs, rivers, streams, creeks, estuaries, marshes, inlets, canals, the Gulf of Mexico inside the territorial limits of the state, and all other bodies of surface water, natural or artificial, inland or coastal, fresh or salt, navigable or non-navigable, and including the bed and banks of all watercourses and bodies of surface water, that are wholly or partially inside or bordering the state or inside the jurisdiction of the state. sec.321.2.Discharge Prohibited. (a) The commission hereby finds and declares that the protection and enhancement of the quality of the following waters in the state require greater environmental protection than is provided by federal standards applicable to discharges from marine sanitation devices: (1)-(23) (No change.) (24) Lake Whitney; (25) Clear Lake. (b) The discharge of sewage which has not been treated in accordance with federal standards from a boat into waters in the state is prohibited. (c) No person may discharge sewage, treated or untreated, from a boat into or adjacent to any designated lake. sec.321.3.Marine Sanitation Device Required. (a) When operated on any inland freshwater lake designated in sec.321.2(a)(1)-(24) of this title (relating to Discharge Prohibited), the following boats shall be equipped with an approved marine sanitation device certified under sec.321.5 of this title (relating to Certification of Marine Sanitation Devices): (1) any boat which has a permanently installed marine sanitation device; (2) any boat longer than 26 feet in length which has permanent sleeping quarters; and (3) (No change.) (b) (No change.) sec.321.4.Specifications for Approved Marine Sanitation Devices. Boats on all designated lakes meeting the dimensions and physical characteristics provided by sec.321.3 of this title (relating to Marine Sanitation Devices Required) shall have sewage disposal devices and equipment meeting the following requirements: (1) Any marine sanitation device permanently installed on or within any boat on any designated lake shall have an attached holding tank which meets the following specifications: (A) The holding tank shall be located inboard on the boat. (B) The holding tank shall be constructed so as to prevent the discharge of sewage except by pumping. Pumping shall be in accordance with approved and authorized methods as referred to sec.321.8(a) of this title (relating to Disposal of Boat Sewage). (C) The holding tank shall be installed so that it may be completely and efficiently emptied by pumping. (D) The holding tank shall be constructed of corrosion-resistant material. (E) The holding tank shall be so located and constructed as to minimize the possibility of rupture. (F) Any overboard vents shall be located to minimize the inboard return of odors and shall be provided with means to prevent the intake of waters or spray. Vents shall be connected to the tank so as to prevent pressure buildup in the tank and clogging from the contents of the tank. (G) Fittings intended for use in emptying holding tanks shall be designed to make a spill-proof connection with the pump-out facility. Such fittings shall assure a liquid-tight closure during normal operation of the boat, shall afford no obstruction to the flow of sewage, and shall be cleanable. They shall be constructed of corrosion-resistant material. (H) Conformance with coast guard regulations applicable to "no discharge" devices shall be deemed to constitute compliance with this subsection. (2) A boat operating on Clear Lake, but not on any other designated lake, may be equipped with a "Y"- valve or other device on the holding tank that allows for the direct discharge of untreated waste into waters beyond the state's three-mile territorial limit. The "Y"- valve or other device must be secured in the closed position by a padlock, non- releasable tie, removal of the handle or other physical barrier at all times while the boat is operating inside the three-mile territorial limit. (3) A portable marine sanitation device that is designed to facilitate the carry-off of sewage for onshore disposal is acceptable on any boat (other than a houseboat) less than 26 feet in length and as an additional marine sanitation device on any boat. (4) The executive director is authorized to allow the use of portable marine sanitation devices in certain cases where permanent facilities are now required by these sections. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 21, 1996. TRD-9602443 Kevin McCalla Director, Legal Division Texas Natural Resource Conservation Commission Effective date: March 15, 1996 Proposal publication date: September 1, 1995 For further information, please call: (512) 239e. (B) If no response is received from the company by the end of 30 days following the initial contact, the department shall return one copy of the submitted form material, which shall be considered withdrawn by the company. The matter will then receive no further consideration unless or until the submission is refiled as a new submission. (b) Declination of pending status. If the company declines to avail itself of the procedural remedy outlined in paragraph (2) of subsection (a)(2) of this section, the submission will be processed according to standard review procedures. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 20, 1996. TRD-9602426 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 12, 1996 Proposal publication date: October 20, 1995 For further information, please call: (512) 463-6327 28 TAC sec.sec.3.2-3.5 The Texas Department of Insurance adopts the repeal of sec.sec.3.2-3.5, concerning requirements for filing of policy forms, riders, amendments, and endorsements for life, accident, and health insurance and annuities, without changes to the proposed repeal of such sections as published in the October 20, 1995, issue of the Texas Register (20 TexReg 8570). Simultaneous to this repeal, notice of final adoption of amendments to sec.3.1, and of new sec.sec.3.2-3.20 is published elsewhere in this issue of the Texas Register. Repeal of the sections is necessary because the provisions of sec.sec.3.2-3.5 relate to essentially the same regulatory procedural framework and subject matter as adopted new sec.sec.3.2-3.20, which are more specific provisions for the filing and review of life and accident/health product forms, and which supersede, replace, revise and/or amend the repealed sections. Provisions of the adopted amendment to sec.3.1 and new sec.sec.3.2- 3.20 establish a cohesive, uniform procedure for the filing and review of life product and health product forms which must be filed and reviewed for official action, with the purpose of streamlining and strengthening the filing, review and official action process; enhancing the overall effectiveness and efficiency of form filing and review procedures; and implementing legislation from the 74th legislative session relating to the life/health form filing and review process in the Insurance Code, Article 3.42. Repeal of sec.sec.3.2-3.5 results in the elimination of provisions made obsolete by newer, more specific provisions for filing, review and official action in sec.sec.3.2-3.20. No comments were received regarding adoption of the repeals. The repeals are adopted pursuant to the Insurance Code, Articles 3.42 and 1.03A. The Insurance Code, Article 3.42(p) provides that the commissioner is authorized to adopt such reasonable rules and regulations as are necessary to implement and accomplish the specific provisions of Article 3.42 within the standards and purposes of the article. Article 1.03A authorizes the commissioner of insurance to promulgate and adopt rules and regulations for the conduct and execution of the duties and functions by the department. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 20, 1996. TRD-9602425 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 12, 1996 Proposal publication date: October 20, 1995 For further information, please call: (512) 463-6327 SUBCHAPTER Z. Exemption From Review and Approval of Certain Life, Accident, Health and Annuity Forms and Expedition of Review 28 TAC sec.sec.3.4004, 3.4005, 3.4008, 3.4009, 3.4020 The Commissioner of Insurance adopts amendments to sec.sec.3.4004, 3.4005, 3.4008, and 3.4009, and new sec.3.4020, relating to the exemption of certain life, accident, health and annuity forms from review and approval requirements. Amendments to sec.sec.3.4004, 3.4008 and 3.4009 are adopted with changes to the proposed text as published in the October 17, 1995, issue of the Texas Register (20 TexReg 8396). Amendments to sec.3.4005 and new sec.3.4020 are adopted without change and will not be republished. A public hearing was requested and held December 14, 1995. The amendments are necessary to revise and update the class of described forms for which the department has determined that the review and official action provisions of the Insurance Code, Article 3.42, are not required or necessary for the protection of the public, thereby enhancing the streamlining of the overall filing, review, and official action process for life and health insurance forms. In sec.3.4004(a), (c) and (e) the adoption includes clarifying language indicating that if the laws of Texas or some other state require specific prior approval, a form otherwise subject to the exemption provisions of these sections will be reviewed for approval nonetheless. Adopted amendments to sec.3.4004(b)(10) and (d) include a change in reference from "policies" to "benefits contracts" in connection with prepaid funeral arrangements. The adoption includes a change in sec.3.4004(c) to replace the reference to paragraph (6) with a reference to paragraph (5) since there are only five paragraphs in that subsection. Adopted sec.3.4004(c)(3) and (4) include an explanatory change to provide functional definitions of the terms "waiver of surrender charges," and annuities with "two tier values." A change was made to the exemption set out in sec.3.4004(e)(2)(D) to clarify its application to in-patient confinement and basic hospital expense coverages. Adopted sec.3.4004(f)(1) was revised to clarify that the exception applies to combination coverages provided on a comprehensive basis for both illness and injury. A clarifying change was made to sec.3.4009(c) to indicate that reinstatement of privileges which have been terminated for cause is not automatic in a purely mechanical sense and that the commissioner has continuing review and oversight over the use of such privileges so that in instances where circumstances warrant, the commissioner may extend or diminish the one-year interval between termination and reinstatement of such privileges. The adoption omits any reference to a specific Insurance Code article in sec.3.4009(d), and makes clear that nothing in the sections limits the commissioner from imposing any other sanction authorized by the Insurance Code or other applicable law. The adopted amendments will facilitate an overall strengthening and streamlining of the process by which forms are filed and used by issuers of life products and health products. The amendment to sec.3.4004 sets out various categories of forms for which exemption from review applies, and exceptions to those exemptions. It also reorganizes information about specific form categories and types so that both the exemptions relating to specific form categories/types and the exceptions from exemption for each form category/type are contained in specific subsections. New subsection (g) in sec.3.4004 contains substantive provisions transferred from existing sec.3.4008. The amendment to sec.3.4005 addresses organizational and informational elements generally relating to the operational impact of the sections. The amendment to sec.3.4008 addresses random and targeted audit procedures of forms filed under Subchapter Z. The adopted amendment to sec.3.4009 makes a change to procedures regarding reinstatement of any privilege canceled for failure to comply with the sections. New sec.3.4020 sets out as Figure 1 the full contents of form "TEXAS POLICY FORM CERTIFICATIONS" for uniform use in filing certifications under Chapter 3 of this title and more specifically in connection with filing of forms made exempt from review and official action by these sections, as well as filing of forms similar to forms previously approved by the department. GENERAL COMMENTS COMMENT: Some commenters believed the sections will be overly costly to those who must comply with them, and that they will cause delays in the regulatory process. RESPONSE: The department disagrees. The primary thrust of these sections is to reduce the amount of time between the filing and first use of particular policy forms that the department has determined to be appropriate for use without specific prior approval and within which context the public interest will be served, while the department simultaneously will retain necessary levels of discretion and review to serve consumer protection interests. For issuers it provides a means by which to more effectively and efficiently offer traditional, conventional, widespread-use products. The department believes the sections will result in more efficient administrative regulation of insurance licensees and more effective utilization of public resources by appropriate streamlining of the overall policy form submission, review and official action process. The sections will save both time and money for issuers because streamlining is an integral component of the sections. COMMENT: Some commenters opposed exemption of group and blanket accident and health and group and individual accident and health insurance policy forms, from the standpoint of consumer protection. These commenters recommended that if exemption for such policy form types is retained, the department develop standardized definitions, exclusions, and benefit provisions for the policy forms specified in the proposal, from which issuers could select. This approach, the commenters urged, is a better way of promoting efficiency in the policy form review process. The commenters stated a belief that the review of such forms is necessary for protection of the public, unless all provisions in the form are selected from a menu of department-promulgated, standardized selection options for policy benefits and other provisions. RESPONSE: The department agrees with the concept that standardized policy provisions is an effective way of promoting efficiency and streamlining the policy form review process. However, the department must regulate within the practical limitations of the statutory framework enacted by the legislature. For these types of policy forms, that framework currently consists of certain mandated benefits, certain formatting conventions that must be met, certain minimum standards for defining benefits, restrictions on meaning of certain definitions and other restrictions on imposition of certain kinds of limitations. How the exemption process works within such a framework is set out in Article 3.42, which provides that if a form meets certain criteria, then it is an appropriate candidate for exemption. COMMENTS ABOUT COST OF COMPLIANCE COMMENT: Some commenters stated a belief that the public cost note for the proposal was insufficient because it failed to recognize the difference between the cost for filing of a form that is exempt and one which is not. RESPONSE: The department disagrees that this is a comment directed to these sections. The real focus of this comment is the regulation setting out different and varying fees associated with the filing of particular forms, not this rule. The commenters appear to be addressing provisions of 28 TAC sec.7.1301, a regulation that sets out fees. However, this series of sections does not set out the filing fee requirements, only whether a filing qualifies as exempt or not. COMMENTS TO sec.3.4004. COMMENT: Some commenters suggested that there be a statement in the rules indicating that a company may in particular instances obtain review and approval of a policy form which otherwise is considered to be exempt. The specific example raised was that the sections as published do not make it clear that forms otherwise considered to be exempt from the review/approval process must nonetheless be reviewed and approved if they are going to be marketed by a Texas domestic in a state other than Texas which requires such policies and forms to have received domiciliary approval before being marketed in that state. RESPONSE: The department agrees. The explanatory introductions to subsections (a), (c) and (e) of sec.3.4004 have been revised to specifically include the laws of other states within the term "unless ...required by law to be specifically approved." The combination of Article 3.42 provisions and adopted sec.3.4004(a), (c) and (e) effectively address situations and circumstances of prior approval. COMMENT: Use of the word "policies" in sec.3.4004(b)(10) and (d) in connection with prepaid funeral arrangements is incorrect; the correct term is "contracts." RESPONSE: The department agrees. The word "policies" at both occurrences has been replaced with the words "benefits contracts," consistent with the provisions of Texas Civil Statutes, Article 548b. COMMENT: Some commenters objected to the substance of sec.3.4004(b)(10) and (d) and requested that the exception to exemption for the products addressed in sec.3.4004(b)(10) and (d) be removed, on the following grounds: (1) no public need exists for, and no public benefit is derived from, review of such products;(2) the Banking Department, not the Insurance Department, has exclusive purview over such contracts;(3)exemptions from the review process are not a matter of executive grace to begin with;(4)the legislature has not denied exemption for the types of policy or product forms addressed in the subsections on the basis of the use to which the products addressed in the subsections are to be put. RESPONSE: The department disagrees. Although it agrees with a small part of the comment, it disagrees with the overall tenor of the comment for the following reasons: First, it is inaccurate to state that the Banking Department has exclusive purview over contracts to prefund funeral arrangements. Texas Civil Statutes, Article 548b, relates to the sale of prepaid funeral services or funeral merchandise. Section 1A(a) addresses insurance funded prepaid funeral benefits and provides, essentially, that ". . . no seller covered by this Act shall solicit by any means . . . designation by an individual of prepaid funeral benefits to be provided to be paid out of any fund . . . including insurance policies, . . . unless that fund is to be created by a life insurance policy or an annuity approved by the Board of Insurance and issued by an insurance company licensed by the Board of Insurance or except as provided for trust- funded prepaid funeral benefits by Section 5 of this Act . . ." (emphasis supplied) Significantly, Article 548b, Section 1A provides a legislative directive that the insurance policy or annuity be one which has been approved by the Board of Insurance (i.e., the department). There is no implicit or explicit provision for exemption. There is no inference capable of being drawn that the policy be other than one which has received approval from the department. Thus, in Article 548b, Section 1A, the legislature has spoken very clearly that with respect to a life insurance policy to be used for the purpose of prepaying funeral benefits, though it is of a type and on a form that might to be put to other uses for which it might meet the criteria for exemption, such policy form must be approved by the department. Approval in this instance means specific prior approval, not an exemption filing. The department disagrees with the statement that exemptions from the review process are not a matter of executive grace to begin with, because this statement is ambiguous. If the intent of the statement was that the department does not have unbridled discretion to grant or deny exemptions, the department agrees. However the legislature, in creating that portion of Article 3.42 under which exemptions may be granted by the department, gave the department considerable latitude in deciding which forms ought to be exempt and which forms ought not to be exempt, and the period for which the exemption is to be granted. Certainly the legislature set out a series of standards to be used in that decisionmaking process. Those standards, which the department must follow, are set out in the Insurance Code, Article 3.42(h) Finally, the department agrees that the legislature has not denied an exemption for types of policies or product forms addressed in the subsection based on intended use of such products. However, although the legislature has not denied exemption for those forms in Article 3.42, neither has it granted exemption for such forms in Article 3.42. As a matter of fact the legislature has neither granted nor denied exemption status for any particular types of policy forms. Instead the legislature has given authority to the department through the commissioner within the framework of Article 3.42(h) to develop an approach for exempting particular types of policy forms which meet the criteria set out in the statute. COMMENT: A commenter noted that sec.3.4004(c) contains no paragraph (6) even though the proposal refers to it. RESPONSE: The reference to paragraph (6) in sec.3.4004(c) of the proposal is in error. That sentence in the adopted sections has been corrected to accurately refer to paragraphs (1) through (5). COMMENT: A commenter asked whether "waiver of surrender charges" in sec.3.4004(c)(3) and (4) refers to the nonexistence of any waiver-of-surrender-charges provisions, or only certain kinds of waiver-of-charges provisions. RESPONSE: The department agrees. A subparagraph has been added to sec.3.4004(c)(3) to indicate that "waiver of surrender charges" for purposes of paragraphs (3) and (4) means "a waiver of surrender charges which is applied to any amount greater than 10% of the surrender value." COMMENT: A commenter asked for clarification about the meaning of "two tier values" regarding annuities referenced in sec.3.4004(c)(3) and (4). RESPONSE: The department agrees with the need for clarification and has added a second subparagraph to sec.3.4004(c)(3) to indicate that "two tier values" for purposes of paragraphs (3) and (4) means "values on an annuity available at the maturity date of the contract which are different, depending on whether the value is taken from the contract in a lump sum or left with the issuer for periodic payments, regardless of whether the different values are available at issue or later." COMMENT: A commenter suggested that the exemption set out in sec.3.4004(e)(2)(D) be clarified. RESPONSE: The department agrees, and a revised statement of the exemption has been made to indicate that it applies to in-patient confinement and basic hospital expense coverages. COMMENT: Some commenters recommended clarification of the exception found in sec.3.4004(f)(1) in connection with exemption status of forms addressed in sec.3.4004(e)(2)(A),(D), and (F). The commenters believed that the exception to exemption in sec.3.4004(f)(1) unintentionally would remove the exemption created for the referenced forms in sec.3.4004(e) because of language that is not entirely clear. RESPONSE: The department does not believe the language of sec.3.4004(f)(1) is at odds with exemptions recognized in sec.3.4004(e)(2), but to make provisions clearer, an explanatory change has been made to sec.3.4004(f)(1) indicating that the exception applies to combination coverages provided on a comprehensive basis for both illness and injury. Both the exemption and the exception to such exemptions are stated in terms of coverages, simply what the product or policy form covers and what it does not cover. The exception is not addressing the context or contexts within which benefits are to be provided for the conditions or situations that are covered. If, for example, an issuer filed a specified disease policy form as an exempt form, such a filing would appropriately be an exempt filing under the proposal, so long as all benefits provided under the policy (regardless of the context within which they are provided) were to be associated with and apply to one or more of the diseases or physical conditions specified in the policy. On the other hand, if the policy were to be offering benefits not associated with diseases or conditions specified in the policy but instead associated with some disease or physical condition not specified in the policy, provision of such benefits would strongly indicate coverage for a condition going beyond what is represented in the policy, thus removing the policy form from the class of forms entitled to an exemption under sec.3.4004(e). COMMENTS ABOUT sec.3.4009. COMMENT: One comment questioned the language of the automatic reinstatement of privileges in sec.3.4009(c), noting that it appears to minimize the need for oversight in circumstances where there might be outright continuing abuse of the exemption provisions by an issuer. The comment also repeated earlier consumer protection concerns raised by the same commenters about whether the sections compromise safeguards for consumer protection from harmful products. RESPONSE: The department agrees in part and disagrees in part. The provisions in sec.3.4009(c) have been changed to clarify that the reinstatement of privileges after such privileges have been terminated because of irregularities is not automatic, and that the commissioner has continuing review and oversight so that under appropriate circumstances the interval between termination and reinstatement can be longer than or shorter than a one-year period. With respect to the ongoing consumer protection concerns, the department believes that adoption of the sections results in preservation of adequate safeguards for consumers, because the types of forms placed into exempt status in the regulation were carefully chosen, and because the statutory/regulatory framework o