TEXAS DEPARTMENT OF INSURANCENotification Pursuant to the Insurance Code, Chapter 5, Subchapter LAs required by the Insurance Code, Article 5.96 and 5.97, the Texas Register publishes notice of proposed actions by the Texas Board of Insurance. Notice of action proposed under Article 5.96 must be published in the Texas Register not later than the 30th day before the board adopts the proposal. Notice of action proposed under Article 5.97 must be published in the Texas Register not later than the 10th day before the Board of Insurance adopts the proposal. The Administrative Procedure Act, the Government Code, Chapters 2001 and 2002, does not apply to board action under Articles 5.96 and 5.97. The complete text of the proposal summarized here may be examined in the offices of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas 78714- 9104.) This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Administrative Procedure Act. Notification Pursuant to the Texas Insurance Code, Chapter 5, Subchapter L The Commissioner of Insurance, at a public hearing under Docket Number 2242 scheduled for September 11, 1996, at 9:00 a.m. in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas, will consider a proposal made in a staff petition. Staff's petition seeks amendment of the Texas Automobile Rules and Rating Manual (the Manual), to adopt new and/or adjusted 1996 and 1997 model Private Passenger Automobile Physical Damage Rating Symbols and revised identification information. Staff's petition (Reference Number A-0796-28-I) was filed on July 11, 1996. This proposal will be considered together with Docket Number 2243, staff's Second Petition (Reference Number A-0796-29-I) filed on July 11, 1996, which also seeks amendment to the Manual, to adopt new and/or adjusted 1996 and 1997 model Private Passenger Automobile Physical Damage Rating Symbols and revised identification information. The new and/or adjusted symbols for the Manual's Symbols and Identification Section reflect data compiled on damageability, repairability, and other relevant loss factors for the various model years of the listed vehicles. A copy of the petition containing the full text of the proposed amendments to the Manual is available for review in the office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas. For further information or to request copies of the petition, please contact Angie Arizpe at (512) 322-6326; refer to (Reference Number A-0796-28-I). Written comments should be directed to Office of the Chief Clerk, Texas Department of Insurance, P.O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of comments is to be submitted to David Durden, Deputy Commissioner, Property and Casualty Insurance Lines, Texas Department of Insurance, P.O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on July 26, 1996. TRD-9610804 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: July 26, 1996 The Commissioner of Insurance, at a public hearing under Docket Number 2243 scheduled for September 11, 1996, at 9:00 a.m. in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas, will consider a proposal made in a staff petition. Staff's petition (entitled "Second Petition...") seeks amendment of the Texas Automobile Rules and Rating Manual (the Manual), to adopt new and/or adjusted 1996 and 1997 model Private Passenger Automobile Physical Damage Rating Symbols and revised identification information. Staff's petition (Reference Number A-10796-29-I) was filed on July 11, 1996. This proposal will be considered together with Docket Number 2242, staff's petition (Reference Number A-0796-28-I) filed on July 11, 1996, which also seeks amendment to the Manual, to adopt new and/or adjusted 1996 and 1997 model Private Passenger Automobile Physical Damage Rating Symbols and revised identification information. The new and/or adjusted symbols for the Manual's Symbols and Identification Section reflect data compiled on damageability, repairability, and other relevant loss factors for the various model years of the listed vehicles. A copy of the petition containing the full text of the proposed amendments to the Manual is available for review in the office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas. For further information or to request copies of the petition, please contact Angie Arizpe, at (512) 322-6326; refer to (Reference Number A-0796-29-I). Written comments should be directed to Office of the Chief Clerk, Texas Department of Insurance, P.O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of comments is to be submitted to David Durden, Deputy Commissioner, Property and Casualty Insurance Lines, Texas Department of Insurance, P.O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). Issued in Austin, Texas, on July 26, 1996. TRD-9610805 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: July 26, 1996 The Commissioner of Insurance will hold a public hearing under Docket Number 2237 on September 11, 1996, at 9:00 a.m., in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas, to consider a petition by the staff of the Texas Department of Insurance proposing: (1) the repeal of the existing rating schedule for grading the public fire protection in Texas for residential and commercial property insurance purposes, referred to as the Texas Key Rate Schedule, and the replacement of this schedule with the Fire Suppression Rating Schedule developed by the Insurance Services Office and filed by staff and the Texas Addendum to the Fire Suppression Rating Schedule as filed by the Texas Commission on Fire Protection and amended by staff; (2) the adoption of the public protection classifications for cities, towns, and unincorporated areas in Texas as developed by the Insurance Services Office and filed by Staff; and (3) the freezing on January 1, 1997, of any existing key rates of cities and towns in Texas. The term "residential property insurance" includes homeowners, dwelling, farm and ranch owners, and farm and ranch insurance coverage. The petition requests the repeal of the existing rating schedule for grading the public fire protection in Texas for residential and commercial property insurance purposes, referred to as the Texas Key Rate Schedule, and the replacement of this schedule with the Fire Suppression Rating Schedule developed by the Insurance Services Office and filed by staff and the Texas Addendum to the Fire Suppression Rating Schedule as filed by the Texas Commission on Fire Protection and amended by staff. The proposed Fire Suppression Rating Schedule consists of four documents: (i) the 1980 edition of the Fire Suppression Rating Schedule developed by the Insurance Services Office; (ii) the Texas Addendum to the Fire Suppression Rating Schedule, which gives credit for fire prevention, fire investigation, public education, and construction code enforcement; (iii) the Texas Supplement to the Fire Suppression Rating Schedule, which details how credit will be given for volunteer firefighter certification and attendance at Firemen's Training School at Texas A&M University; and (iv) the Texas Supplement to the Fire Suppression Rating Schedule, which indicates where the Addendum credit will be applied to the Fire Suppression Rating Schedule. The staff in its petition includes the two Texas Supplements to the Fire Suppression Rating Schedule as part of the Texas Addendum and all references in this notice to the Texas Addendum include these two supplements. If adopted, the Fire Suppression Rating Schedule and the Texas Addendum will be used to establish the public fire protection classification of cities, towns, and unincorporated areas in Texas as a means of determining appropriate insurance costs for residential and commercial property insurance. The Texas Addendum as filed by the Texas Commission on Fire Protection includes (in proposed Rule 701 on page 13) a method of developing a key rate from the public fire protection classification determined from the application of the Fire Suppression Rating Schedule. According to the petition, staff disagrees with this procedure as an inappropriate and inaccurate method of determining and grading public fire protection and therefore does not recommend the adoption of this procedure as part of the Texas Addendum. Staff, instead, proposes the consideration and adoption of the Texas Addendum, as filed by the Texas Commission on Fire Protection but amended to delete the part of proposed Rule 701 relating to the development of a key rate classification. Under staff's proposal, only public protection classifications could be used under the new rating schedule, and key rates would no longer be developed or used for determining the appropriate premiums for residential and commercial property insurance. The petition also requests that the Texas Addendum as filed by the Texas Commission on Fire Protection be amended to delete all other references to the "Key Rate Schedule" contained in the Addendum, most of which are contained in page heading designations. This amendment is necessary because the Texas Addendum will be used with the proposed Fire Suppression Rating Schedule. The petition provides background and justification on (i) the need for the adoption of the proposed Fire Suppression Rating Schedule, (ii) the elements of the proposed Fire Suppression Rating Schedule, (iii) the respective roles of the Texas Department of Insurance (Department) and the Texas Commission on Fire Protection, and (iv) the effect of the proposed new rating schedule on residential property insurance. (i) The repeal of the Texas Key Rate Schedule and the replacement of this schedule with the Fire Suppression Rating Schedule is necessary, according to the petition, because the key rate system is obsolete. It was adopted sometime around 1918-1920 and uses population and core business districts as the basis for determining public fire protection. According to the petition, the key rate system is no longer a reasonable method of establishing or grading public fire protection of a community because it does not give adequate consideration to the need of differing fire flow requirements of a city or town (the quantity of water calculated as necessary to extinguish fire at each specific location or area in a city or town) with differing fire hazards nor does it consider the appropriate diversification of manpower and fire fighting equipment necessary to respond to differing fire hazards. Cities and towns are no longer generic in their development. One city may be a bedroom community while another may be highly industrialized. Texas remains the only state using population as the basis for determining the necessary public fire protection of its cities and towns, which in turn is a factor used to determine the residential and commercial property insurance premium costs to its citizens. In all other states, the Fire Suppression Rating Schedule and the needed fire flow to control the fire exposure present in a city is used to determine the grading of public fire protection. The proposed Fire Suppression Rating Schedule is based on the premise that the spread of a fire can be stopped and the damage limited to the building of origin. According to the petition, the adoption of the proposed Fire Suppression Rating Schedule is necessary to enable the State of Texas to have an up-to-date rating schedule that recognizes public fire protection must be based on the needed fire flow to evaluate a city or town's fire defense needs. The diversification of city planning in locating businesses, use of non-combustible construction material, and the use of non-conventional water systems have eliminated the need to concentrate on conflagration hazards, which is the basis of the key rate schedule, as the most important factor in determining adequate fire defenses. (ii) The Fire Suppression Rating Schedule is based on a point system with appropriate credits applied to recognize each community's fire protection capabilities; this results in the assignment of a protection classification grading. The specific elements reviewed for this grading include fire alarm system (receipt of alarm, operators, and alarm dispatch circuits), fire department (engine companies, ladder/service companies, distribution of companies, pumper capacity, department manning and training), and water supply (supply works, fire flow delivery, distribution of fire hydrants, hydrant size, type and installation, and hydrant inspections and condition). Fire prevention, however, is an element that is not adequately addressed in the Fire Suppression Rating Schedule, and therefore, it is necessary, according to the petition, to adopt the Texas Addendum in addition to the Fire Suppression Rating Schedule. The proposed Texas Addendum enhances the Fire Suppression Rating Schedule by adding specific recognition of fire prevention, fire investigation, public education, and building code enforcement as important elements in the grading of public fire protection not otherwise recognized in the proposed rating schedule. (iii) The Department and the Commissioner of Insurance are authorized in Articles 5.29, 5.30, 5.33, and 5.101 of the Insurance Code to promulgate and implement residential property insurance benchmark rates and rating schedules that directly relate to the benchmark rates. The Texas Commission on Fire Protection is authorized in sec.419.901 of the Government Code to perform certain duties with regard to the key rate schedule of the Commissioner or its equivalent as determined by the Commissioner. Prior to September 1, 1991, the former State Board of Insurance (Board) adopted a rating schedule for determining public fire protection; employed inspectors to conduct on-site inspections of the public fire protection of cities and towns; approved the individual key rates established for a city or town based on the inspection and application of the key rate schedule by the Department; and adopted manual rules for application of key rates. In 1991, the 72nd Legislature enacted legislation to transfer certain duties relating to the key rate schedule to the Texas Commission on Fire Protection (Fire Commission). The Legislature enacted sec.419.901 of the Government Code (Acts 1991, 72nd Legislature, Chapter 628, sec.4, effective September 1, 1991) authorizing the Texas Commission on Fire Protection to: (a) review the key rate schedule of the Commissioner at least once every four years and to recommend changes that the Commission believes should be made in the schedule; and (b) inspect municipalities using the key rate schedule, recommend the key rate for individual municipalities to the Commissioner for approval, and report information obtained as a result of the inspections to the Commissioner. In 1993, the Legislature abolished the three-member state insurance board and granted all authority of that board to the Commissioner of Insurance (Acts 1993, 73rd Legislature, Chapter 685, sec.1.01, effective Sept. 1, 1993). The petition states that in enacting sec.419.901 of the Government Code, which transferred certain duties relating to the key rate schedule to the Texas Commission on Fire Protection, the Legislature did not in any manner affect the authority of the Commissioner of Insurance to promulgate rates for residential property insurance or to approve rates for commercial property insurance, including the adoption of any rating schedule to grade public fire protection for a city, town, or unincorporated area as a factor to be used in developing appropriate insurance premium costs. The Commissioner has the authority, pursuant to Articles 5.33 and 5.101 of the Insurance Code, to amend the existing key rate schedule or repeal the existing key rate schedule and adopt a new rating schedule that more appropriately recognizes up-to-date elements of the public fire protection of cities, towns, and unincorporated areas in Texas. According to the petition, the Commissioner, in fact, is obligated to assure that the rating schedule for grading public protection of Texas communities is the most appropriate and accurate means of determining and grading public fire protection. The Fire Commission, however, pursuant to sec.419.901 of the Government Code, will continue to exercise the same responsibilities under sec.419.901 as it currently exercises with the Department's key rate schedule. Pursuant to its authority in sec.419.901, subsection (a), to recommend changes in the schedule that the Fire Commission believes should be made, the Fire Commission recommended the proposed Fire Suppression Rating Schedule and the Texas Addendum. (iv) Adoption of the proposed new rating schedule will affect residential property insurance in two ways: (a) a change in the method of determining the premium charge for residential property insurance, and (b) repeal of the "fringe rule" which allows risks located outside of a protected first key town, but within five miles of the first key town and within 1,000 feet of a fire hydrant connected to a public or private water system to be rated using the key rate of the first key town. Currently, residential property insurance premiums are determined largely on the basis of three factors: the amount of insurance desired, the construction of the dwelling risk, and the applicable key rate of the city or town in which the risk is located. Since the key rates vary by city, it is impossible to have a premium determined for each individual key rate. Therefore, for the purposes of development of a premium chart (as set forth in the Homeowners and Dwelling sections in the Texas Personal Lines Manual) for determining appropriate premium charges for a residential property insurance policy, ranges of key rates are combined into several groups. The introduction of the proposed Fire Suppression Rating Schedule will result in the development of public protection classes for each city or town in Texas on a scale of one to ten. This public protection class scale approach will be in lieu of the assignment of a specific key rate under the current system. Under the proposed system, premiums will be developed for individual risks on the basis of three factors: amount of insurance desired, construction of the dwelling risk, and the applicable public fire protection classification of the city, town, or unincorporated area in which the risk is located. The only factor that will change is the applicable public fire protection classification of the city, town, or unincorporated area in which the risk is located, which will be applied in lieu of the applicable key rate. Although the method of determination of the applicable premium under the two systems appears to be similar and there is some correlation between the two systems, the existing key rate of a particular city or town need not have a direct relationship to the new public protection classification. According to the petition, this could, in some instances, produce wide swings in the premiums for residential risks. The petition proposes that these possible swings in premium costs be addressed on two levels and that both of these be determined at the next annual residential property insurance benchmark rate hearing. First, at the regional/territorial level, changes under the proposed system will need to be balanced to those under the existing system so that the transition will be, to the greatest extent possible, revenue neutral. Secondly, differences in premiums at the individual policy level can be addressed by the adoption of a transition rule to cap any increases or decreases in premiums over a reasonable period of time. The second area of impact of the proposed new system on residential property insurance rating is the repeal of the "fringe rule." The "fringe rule," Rule VI-3-C in both the Homeowners and Dwelling sections of the Texas Personal Lines Manual, authorizes fringe area rating for certain risks located in third key towns or in unprotected areas. To be fringe area rated using the rate of an incorporated first key town the risk must be located within five miles of a first key town and must be within the required distance to a national standard type two or three-way fire hydrant connected to a public or private water system serving a community. To be fringe area rated using the rate of an unincorporated first key town the risk must be located within five miles of the outer boundary of a platted subdivision classified as a first key town and must be within the required distance to a national standard type two or three-way fire hydrant connected to a public or private water system serving a community. Originally adopted over 30 years ago, the rule initially applied only to risks located within five miles of an incorporated first key town. The rule was adopted as a means of rating the growing number of risks located in subdivisions and areas immediately surrounding a larger city but outside the city limits of the city. Following the enactment of Article 5.25A of the Insurance Code in 1989 (Acts 1989, 71st Legislature, Chapter 481, sec.1, effective September 1, 1989), the rule was amended to extend fringe area rating to dwellings located outside of unincorporated towns. Article 5.25A was amended by the Legislature in 1991 (subsection (b) added) to provide that notwithstanding subsection (a) of Article 5.25A on and after March 1, 1992, rates for homeowners insurance coverage under Subchapter C (of Chapter 5 of the Insurance Code) are to be determined as provided in Subchapter M (Flexible Rating Program for Certain Insurance Lines, i.e., benchmark rate-flex rating procedures) with a December 31, 1995 expiration date for this provision. The Legislature in 1995 amended Article 5.25A (Acts 1995, 74th Legislature, Chapter 984, sec.14, effective Sept. 1, 1995) to delete the 1995 expiration provision. The need for fringe area rating was based on the fact that fire services were provided to these areas by the city and in many cases these areas had public or private water systems serving the area; therefore, the fire protection afforded these areas was considered much better than for other risks located outside the city limits of a city or town in areas without any water systems or fire departments willing to respond to fires. According to the petition, the conditions that originally supported the fringe area rating concept no longer exist. Many city fire departments will no longer respond to any fire outside the city limits of the specific city or town. Because of this, areas that were once fringe and dependent upon response of a city's fire department have now developed fire fighting capabilities with volunteer fire departments and have much more developed water distribution systems for fire hydrants. In today's world, it is reasonable, according to the petition, that an area located within five miles of a first key town, whether incorporated or unincorporated, should be graded on the public fire protection that is afforded that area and not on the public fire protection of another city, which may or may not respond to fires outside the city limits of the city. Fringe area rating is not only out- of-date, but because key rates and public fire protection classifications are not directly related to each other, it is not possible, according to the petition, to continue the fringe area rating concept under the proposed Fire Suppression Rating Schedule and public protection classification system. For example, the proposed Fire Suppression Rating Schedule requires determination of fire flow (the quantity of water calculated as necessary to extinguish fire at each specific location or area in a city or town) for communities to be graded, and, today, it is unreasonable and erroneous, according to the petition, to conclude that the fire flow of a city is the appropriate fire flow for an area outside of that city. For example, a city may be a bedroom community with no major industrial activity and thereby require less fire flow for adequate fire protection purposes, but within five miles of that city there may be an area with major industrial development with very different fire flow needs. Also, according to the petition, maintaining fringe area rating is not possible because the proposed system does not use as part of the Fire Suppression Rating Schedule the classification of cities or towns as first key, second key, and third key (determined by the actual key rate of each individual city or town) or the equivalent of this rating, which is necessary for application of the fringe area rating concept. There is no direct relationship, according to the petition, between key rates and public protection classes that would allow a determination of any equivalent to the first key, second key, and third key towns. For example, under the current key rate system, City X can have a key rate of 26 cents and be a first key town and City Y can have a key rate of 42 cents and be a second key town. Under the proposed Fire Suppression Rating Schedule, both of these cities may have a public protection classification of 3, meaning that they have equivalent levels of fire protection based on the specific needs of each city. In addition, fringe rating is based on certain distance requirements to fire hydrants (0 to 500 feet-full key of first key town; 500 to 1,000 feet-full key of first key town + $.10; over 1,000 feet-not eligible for fringe rating). Under the proposed rating schedule, distance of individual risks from fire hydrants is not a factor in the grading as it is under the current key rate system. The petition also requests the consideration and adoption of the public protection classifications of cities, towns, and unincorporated areas of Texas, as developed by the Insurance Services Office and submitted to the Texas Department of Insurance, for use in determining residential and commercial property insurance premiums. The application of the proposed Fire Suppression Rating Schedule will produce public protection classifications for cities, towns, or unincorporated areas based on the fire protection afforded to the individual city, town, or unincorporated area. The elements used to determine the public protection classifications include the fire alarm system, fire department, water supply, and the Texas Addendum credit. The classification established for each city, town, or unincorporated area will be the basis for determining the appropriate insurance costs for insuring risks located in these areas. According to the petition, currently, 1,200+ communities in Texas have been graded by the Insurance Services Office for assignment of the appropriate public protection classification. (Of these 1,200+ communities, 209 were graded using the Texas Addendum; when the remainder are graded using the Texas Addendum, these classifications will be submitted to the Department for approval.) Although Texas has not previously recognized public protection classifications as a means of determining insurance costs in Texas, these public protection classifications have been developed by the Insurance Services Office for the purpose of providing underwriting information to its member companies. The petition recommends the adoption of the public protection classifications established by the Insurance Services Office to ensure a smooth transition from the key rate schedule to the proposed Fire Suppression Rating Schedule within a reasonable time period. According to the petition, to require a complete reinspection and regrading of all the areas eligible for a public protection classification would take, at a minimum, six to ten years. The petition states that it is not feasible or reasonable to maintain two rating systems for this extended period of time. The fire services in Texas rely on a public fire protection rating system as a means of developing future fire service needs of a community and the existence of two systems over a long period of time will produce conflicting requirements. The petition states that it is important that any transition to a new rating system for public fire protection be done in as short a time period as possible to minimize the time in which there are conflicts between rating schedules and in which duplicate costs are being incurred for the inspection and grading of communities. The adoption of the public protection classifications established by the Insurance Services Office, according to the petition, will allow the implementation of the proposed Fire Suppression Rating Schedule without the need to reinspect and regrade all communities in Texas eligible for a public protection classification. Once adopted, the Fire Suppression Rating Schedule and Texas Addendum will be used to maintain current and accurate public protection classifications for all Texas communities, and, according to the petition, this could result in improved fire defenses for these communities over time. In addition, the petition requests the consideration and adoption of a freeze on all existing key rates of cities and towns in Texas, which were determined under the existing Texas Key Rate Schedule, with such freeze to be effective on and after January 1, 1997. The freeze, according to the petition, is necessary to halt the development of key rate adjustments based on a rating schedule that will no longer be operative. The effective date for the implementation of the Fire Suppression Rating Schedule with the Texas Addendum and public protection classifications will vary depending on whether the risks are commercial risks eligible for class rating, commercial risks not eligible for class rating, or residential risks. According to the petition, the adoption of the proposed new Fire Suppression Rating Schedule to replace the existing Texas Key Rate Schedule requires a variable transition period from the date of adoption of the new schedule to the actual date of implementation of the new schedule. For example, class rating for eligible commercial risks will occur in January 1997; this will require the use of the proposed Fire Suppression Rating Schedule and public protection classifications at that time. Those commercial risks not subject to class rating, however, will not be subject to the new rating schedule or public protection classifications until late 1997 to give insurers time for the filing of new rating schedules for these types of risks, pursuant to Article 5.13-2 of the Insurance Code. The petition recommends that the proposed Fire Suppression Rating Schedule and public protection classifications be adopted for use for residential property insurance purposes on the effective date of the residential property insurance benchmark rates determined pursuant to the benchmark rate hearing held in the fall of 1996. To accommodate these different effective dates for introducing the new rating schedule and the public protection classifications, it is necessary that there be a variable transition period in which the existing key rate schedule and existing individual key rates of cities and towns and the proposed new rating schedule co-exist. The petition recommends that during the transition period, the existing key rate schedule could not be used to amend or alter existing individual key rates of cities and towns on and after January 1, 1997. The petition requests that the existing key rate schedule and the individual key rates remain frozen on and after January 1, 1997, until such time as the Fire Suppression Rating Schedule and public protection classifications become effective depending on the type of risks. According to the petition, upon the adoption of the actions requested, staff shall propose for consideration and adoption in a separate rulemaking proceeding all changes in the Homeowners, Dwelling, Farm and Ranch Owners, and Farm and Ranch sections of the Texas Personal Lines Manual necessary to implement these matters. The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, Articles 5.29, 5.30, 5.33, 5.101, 5.96, and 5.98. Copies of the full text of the staff petition and the proposed Fire Suppression Rating Schedule and Texas Addendum and proposed Public Protection Classes for Texas are available for review in the Office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. For further information or to request copies of the petition and proposed attachments, please contact Sylvia Gutierrez at (512) 463-6326 (refer to Reference Number P-0796-25-I). Comments on the proposal must be submitted in writing within 30 days after publication of the proposal in the Texas Register to the Office of the Chief Clerk, P.O. Box 149104, MC113-2A, Austin, Texas 78714-9104. An additional copy of the comment should be submitted to Lyndon Anderson, Associate Commissioner for the Property and Casualty Division, P.O. Box 149104, MC103-1A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts action taken under Article 5.96 from the requirements of the Administrative Procedure Act (Government Code, Title 10, Chapter 2001). Issued in Austin, Texas, on July 29, 1996. TRD-9610894 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: July 29, 1996 Exempt Filing Notification Pursuant to the Insurance Code Chapter 5, Subchapter L, Article 5.96 Adoption of Amendments to the Texas Personal Lines Manual Rating Rules for Calculating Rates and Premiums for Residential Property Insurance The Commissioner of Insurance at a public hearing held on June 27, 1996, at 9:00 a.m., under Docket No. 2227 in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street, Austin, Texas, adopted amendments to the rating rules in the Homeowners, Dwelling, Farm and Ranch, and Farm and Ranch Owners Sections of the Texas Personal Lines Manual (Manual). The adopted amendments revise the Rate and Premium Computation Rules in each of the four sections--Rule VI-L in the Homeowners Section, Rule VI-H in the Dwelling Section, Rule VI-K in the Farm and Ranch Owners Section, and Rule VI-J in the Farm and Ranch Section. Rounding of Premium Rules in each of the four sections (Rule VI-E in the Homeowners Section, Rule VI-G, in the Dwelling Section, Rule VI-E in the Farm and Ranch Owners Section, and Rule VI-I in the Farm and Ranch Section) are repealed because the substance of these rules is incorporated into the revised Rate and Premium Computation Rules. Amendments to the Rate and Premium Computation Rules and the repeal of the Rounding of Premium Rules were originally proposed by staff in a petition filed on March 22, 1996; notice of this petition (Reference Number P-0396-09-) was published in the March 29, 1996 issue of the Texas Register (21 TexReg 2533). A hearing was scheduled for May 9, 1996, under Docket Number 2216. Notice of the withdrawal of this petition and the cancellation of the May 9 hearing was published in the May 7, 1996 issue of the Texas Register (21 TexReg 3970). Staff filed on May 13, 1996, the petition proposing the action taken in this order. Notice of this proposal was published in the May 17, 1996 issue of the Texas Register (21 TexReg 4333). The Commissioner adopted, with changes to the proposal as noticed in the May 17 issue of the Texas Register, amendments to the Rate and Premium Computation Rules in each of the four sections of the Manual-- Rule VI-L in the Homeowners Section, Rule VI-H in the Dwelling Section, Rule VI-K in the Farm and Ranch Owners Section, and Rule VI-J in the Farm and Ranch Section. These adopted rules, which incorporate the provisions of the Rounding of Premium Rules in each of the four sections, specify through detailed narrative and example the method for calculating homeowners, dwelling, farm and ranch owners, and farm and ranch insurance premiums. The Commissioner received written comments on the published proposal prior to the June 27 hearing and oral comments at the June 27 hearing. Commenters requested modifications to the proposed amendments to clarify the intent of the application of the rules. As a result of these comments, the Commissioner adopted the proposed amendments to the Rate and Premium Computation Rules with the following non-substantive changes: (1) Language is added to Rule VI-L-1 in the Homeowners Section and Rule VI-K-1 in the Farm and Ranch Owners Section to clarify that the calculation of premium is for each peril, coverage, and exposure for which a separate premium is shown on the policy. (2) Language is added to each of the four rules to clearly indicate that in calculating rates and premiums for new policies, the premium charts and rates in effect on the policy inception date are to be used and for renewal policies, the premium charts and rates in effect on the policy renewal date are to be used. (3) In Rule VI-H-1-a in the Dwelling Section and Rule VI-J-1-a in the Farm and Ranch Section, the reference to "dwelling premium charts" is changed to "premium charts" because not all premium charts contained in these sections are dwelling premium charts. The deletion of the term "dwelling" does not change the application, intent, or purpose of these rules. The Commissioner adopted, without change, the proposal as noticed in the May 17 issue of the Texas Register to repeal the Rounding of Premium Rules in each of the four sections of the Manual--Rule VI-E in the Homeowners Section, Rule VI-G in the Dwelling Section, Rule VI-E in the Farm and Ranch Owners Section, and Rule VI-I in the Farm and Ranch Section--because the substance of these rules is incorporated into the amended Rate and Premium Computation Rules. The Commissioner of Insurance has jurisdiction over this matter pursuant to the Insurance Code, Articles 5.35, 5.96, 5.98, and 5.101. The amendments as adopted by the Commissioner of Insurance are shown in exhibits on file with the Chief Clerk under Reference Number P-0596-17-I, which are incorporated by reference into Commissioner's Order Number 96-0840. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts action taken under Article 5.96 from the requirements of the Administrative Procedures Act (Government Code, Title 10, Chapter 2001). Consistent with the Insurance Code, Article 5.96(h), prior to the effective date of this action, the Texas Department of Insurance will notify all insurers affected by this action. IT IS THEREFORE THE ORDER of the Commissioner of Insurance that the Rate and Premium Computation Rules in each of the four sections of the Texas Personal Lines Manual (Rule VI-L in the Homeowners Section, Rule VI-H in the Dwelling Section, Rule VI-K in the Farm and Ranch Owners Section, and Rule VI-J in the Farm and Ranch Section) as amended and as specified herein, and which are attached to this Order and incorporated into this Order by reference, are adopted to be applicable to all residential property insurance policies issued on and after January 1, 1997. IT IS FURTHER ORDERED that the Rounding of Premium Rules in each of the four sections of the Texas Personal Lines Manual (Rule VI-E in the Homeowners Section, Rule VI-G in the Dwelling Section, Rule VI-E in the Farm and Ranch Owners Section, and Rule VI-I in the Farm and Ranch Section) are repealed effective January 1, 1997. IT IS FURTHER ORDERED that insurers may at their option apply the amendments and repeals adopted pursuant to this Order to residential property insurance policies issued during the period from the date of the signing of this Order to January 1, 1997. Issued in Austin, Texas, on July 31, 1996. TRD-9611012 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: August 23, 1996 Filed: July 31, 1996 Exempt Filing Notification Pursuant to the Insurance Code Chapter 5, Subchapter L, Article 5.96 Adoption of Amendments to the Texas Automobile Rules and Rating Manual Relating to Rate and Premium Calcuation The Commissioner of Insurance, at a public hearing held on June 27, 1996, at 9:00 a.m., under Docket Number 2228 in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas, adopted amendments to Rule 7 (Premium Calculation) and repealed Rule 8 (Factors and Multipliers) and Rule 9 (Rounding Rule) in the Texas Automobile Rules and Rating Manual (Manual). The adopted amendments revise Rule 7, Premium Computation (rule title revised to read "Premium Calculation"), and incorporate the provisions of Rules 8 and 9 into amended Rule 7. Rules 8 and 9 are repealed because the substance of these rules is incorporated into amended Rule 7. Amendments to Rule 7 and the repeal of Rules 8 and 9 were originally proposed by staff in a petition filed on March 22, 1996; notice of this petition (Reference Number A-0396-10-I) was published in the March 29, 1996 issue of the Texas Register (21 TexReg 2534). A hearing was scheduled for May 9, 1996, under Docket Number 2217. Notice of the withdrawal of this petition and the cancellation of the May 9 hearing was published in the May 7, 1996 issue of the Texas Register (21 TexReg 3970). Staff filed on May 13, 1996, the petition proposing the action taken in this order. Notice of this proposal (Reference Number A-0596-18-I) was published in the May 24, 1996 issue of the Texas Register (21 TexReg 4615). The Commissioner adopted, with changes to the proposal as noticed in the May 24, 1996 issue of the Texas Register, amendments to Rule 7, Premium Calculation. The adopted Rule 7, which incorporates the provisions of Rule 8 (Factors and Multipliers) and Rule 9 (Rounding Rule), specifies, through detailed narrative and example, the method of calculating automobile insurance premiums. In addition, the adopted Rule 7 removes any confusion in the application of the premium calculation rules and adopts single rounding as the only correct procedure to calculate automobile insurance premiums. The Commissioner received written comments on the published proposal prior to the June 27 hearing and oral comments at the June 27 hearing. Commenters requested modifications to the proposed amendments to clarify the intent of the application of the rule and to make compliance easier for some computer systems used by individual insurers. As a result of these comments, the Commissioner adopted the proposed amendments to Rule 7 with the following non-substantive changes: (1) The title of Rule 7, Premium Computation, is changed to Premium Calculation for consistency with terminology in the text of the rule. (2) Proposed subsections A.1. and A.2. are redesignated as subsections A.1.a and A.1.b., and are changed to clarify that for new policies, the premium tables and rates in effect on the policy inception date are to be used for the calculation of premiums, and for renewal policies, the premium tables and rates in effect on the policy renewal date are to be used for the calculation of premiums. (3) A new subsection A.1.c. is added to clearly indicate that Rule 11 in the Manual is to be used for interim premium adjustments or calculations. (4) Proposed subsection B of Rule 7 is redesignated A.2. and proposed subsection C of Rule 7 is redesignated A.3. with no change to the text of these two subsections. (5) Proposed subsection D is redesignated A.4., and is revised to clarify that the appropriate term factor to be applied to the resulting premium calculated in previous subsections is the pro rata term factor. In addition, the language on this requirement superseding any contrary provision in the Manual is deleted as unnecessary. (6) Proposed subsection E is redesignated A.5.; the word "computation" is changed to "calculation" for consistency in the text of the rule; and to clarify that the reference in this subsection to towing and labor costs is a reference to coverage, the word "coverage" is added. (7) Based on one commenter's concern regarding the sequence of applying factors in the calculation of premiums and the fact that the application of a term factor was required as the final step in the premium calculation, a new subsection B is added to Rule 7. Subsection B allows an insurer to vary the sequence for applying the term factor specified in new subsection A.4. as long as the result of each calculation specified in subsections A.2. through A.4. is rounded to three decimal places and the rounding required in subsection A.5. is the last step in the premium calculation. (8) New language is added under the example for calculating a premium to allow the sequence of calculation to vary except for the rounding required in subsection A.5. of the rule. The varying of the application of the factor specified in subsection A.4. of the rule does not adversely affect the calculation of the final premium to be charge on an automobile insurance policy. The Commissioner adopted, without change, the proposal as noticed in the May 24, 1996 issue of the Texas Register to repeal Rule 8 (Factors and Multipliers) and Rule 9 (Rounding Rule), because the substance of the two rules is incorporated into amended Rule 7. The Commissioner of Insurance has jurisdiction over this matter pursuant to the Insurance Code, Articles 5.10, 5.96, 5.98, and 5.101. The amendments as adopted by the Commissioner of Insurance are shown in exhibits on file with the Chief Clerk under Reference Number A-0596-18-I, which are incorporated by reference into Commissioner's Order Number 96-0841. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts action taken under Article 5.96 from the requirements of the Administrative Procedures Act (Government Code, Title 10, Chapter 2001). Consistent with the Insurance Code, Article 5.96(h), prior to the effective date of this action, the Texas Department of Insurance will notify all insurers affected by this action. IT IS THEREFORE THE ORDER of the Commissioner of Insurance that Rule 7 (Premium Calculation) of the Texas Automobile Rules and Rating Manual as amended and as specified herein, which is attached to this Order and incorporated into this Order by reference, is adopted to be applicable to all automobile insurance policies issued on and after November 1, 1996. IT IS FURTHER ORDERED that Rule 8 (Factors and Multipliers) and Rule 9 (Rounding Rule) as contained in the Texas Automobile Rules and Rating Manual are repealed effective November 1, 1996. IT IS FURTHER ORDERED that insurers may at their option apply the amendments and repeals adopted pursuant to this Order to automobile insurance policies issued during the period from the date of the signing of this Order to November 1, 1996. This agency hereby certifies that the adopted amendments have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on July 31, 1996. TRD-9611010 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: November 1, 1996 Filed: July 31, 1996 Exempt Filing Notification Pursuant to the Insurance Code Chapter 5, Subchapter L, Article 5.97, Texas Department of Human Services Resident Fund Surerty Bond Surety Bond Form Filing The Commissioner of Insurance, at a public hearing under Docket Number 2233 held at 9:00 a.m., July 25, 1996, in room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street, Austin, Texas, adopted a form filing by the Texas Department of Human Services (Department) for a revised surety bond form entitled "Resident Fund Surety Bond"(Bond).The Bond is a requirement of 42 U.S.C.A. sec.1396r (c) (6) (C) and 40 T.A.C. sec.19.405 (g). The form was filed in the Chief Clerk's Office on June 24, 1996. The Department revised sections of 40 T.A.C. Chapter 19 resulting in a change in the section of the rule that requires the Bond. Previously the Bond had been a requirement of 40 T.A.C. sec.19.204 (j). The Bond is now a requirement of 40 T.A.C. sec.19.405 (g). The Bond is being revised to change the statutory cite to 40 T.A.C. Chapter 19. The broader statutory cite will eliminate the future need for the Department to file a revision if the section of the rule that requires the Bond is revised. There are no other revisions to the Bond. Notice of the revised surety bond form filing (Reference Number O-0696-23), was published in the July 2, 1996, issue of the Texas Register (21 TexReg 6087). The Texas Department of Insurance has jurisdiction over this matter pursuant to the Insurance Code, Articles 5.13, 5.15 and 5.97. The full text of the revised surety bond form, as adopted by the Texas Department of Insurance is filed with the Chief Clerk under (Reference Number O- 0696-23) and is incorporated by reference by Commissioner Order Number 96-0838. This notification is made pursuant to the Insurance Code, Article 5.97, which exempts it from the requirements of the Administrative Procedure Act. The Texas Department of Insurance hereby certifies that the adopted form filing referenced herein has been reviewed by legal counsel and found to be within this agency's authority to adopt. Issued in Austin, Texas, on July 31, 1996. TRD-9611011 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: November 1, 1996 Filed: July 31, 1996 Exempt Filing Notification Pursuant to the Insurance Code Chapter 5, Subchapter L, Article 5.96 Adoption of Amendments to the Revised Texas Private Passenger Automobile Statistical Plan The Commissioner of Insurance, at a public hearing under Docket No. 2232 held at 9:00 a.m., July 25, 1996 in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas, adopted amendments proposed by staff to the Revised Private Passenger Automobile Statistical Plan ("revised Plan"). A summary of staff's petition was published in the May 28, 1996 issue of the Texas Register (21 TexReg 4819). The petition proposes four amendments. An amendment to Section A, General Instructions, of the revised Plan adds Travelers Insurance Group and Nationwide Insurance Group to the Top Reporting Group (TRG) for private passenger automobile statistical reporting. An amendment to Section E, the Detailed Experience Report of the revised Plan adds a field to capture data on the Good Student Discount and adds additional codes to the existing Rental Reimbursement field to track different coverage levels. Finally, staff's petition proposes the elimination of the word "revised" from the title of the Plan. The amendments as adopted by the Commissioner of Insurance are on file with the Chief Clerk under Reference Number A-0596-21-I and are incorporated by reference into Commissioner's Order Number 96-0833. The amendments are adopted as follows: The amendment to Section A, General Instructions is adopted effective with January 1, 1997 experience. The amendments to Section E of the Detailed Experience Report are adopted effective with August 1, 1996 experience. The amendment to the title of the Plan is adopted effective 15 days after notice of this action is published in the Texas Register. The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, Articles 5.96, 5.97, 5.05, 5.98, and 21.69. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). Consistent with the Insurance Code, Article 5.96(h), the department will notify all insurers writing the affected line of insurance in Texas. Issued in Austin, Texas, on July 31, 1996. TRD-9611013 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: August 23, 1996 Filed: July 31, 1996