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. ADOPTED ADOPTION OF AMENDMENTS TO THE PERSONAL LINES MANUAL AND FORMS TO ESTABLISH A PREMIUM REDUCTION FOR APPROVED RESIDENTIAL FIRE PROTECTION SPRINKLER SYSTEMS The Commissioner of Insurance has adopted amendments to the Texas Personal Lines Manual (Manual) to establish mandatory premium reductions for residential property insurance for homeowners who install approved fire protection sprinkler systems. The Commissioner has further adopted forms entitled "Inspector's Fire Protection Sprinkler System Report" and "Residential Sprinkler System Premium Reduction Certificate" which are to be used by inspectors and the Texas Department of Insurance (Department) to demonstrate to insurers that an applicant is entitled to the premium reduction. The Manual rules and forms were proposed by Department staff in a petition filed on October 30, 1996. Notice of the proposal (Reference Number P-1096-50-I) was published in the November 5, 1996, issue of the Texas Register (21 TexReg 10914). The Manual rules and forms were considered at a public hearing on December 9, 1996, at 9:00 a.m., under docket Number 2267 in Room 102 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas. The Commissioner has adopted without changes to the proposal as noticed in the Texas Register, amendments to the Homeowners, Dwelling, Farm and Ranch Owners and Farm and Ranch Sections of the Manual to establish a premium credit for approved fire protection sprinkler systems for residential property insurance policies. The Commissioner has adopted, with two changes to the proposal as noticed in the Texas Register, the Inspector's Fire Protection Sprinkler System Report form and the Residential Sprinkler System Premium Reduction Certificate form. The adopted new rules to each section of the Manual are as follows: (1) In the Homeowners Section, new Rule VI-L, "Reduction in Homeowners Premium -- Automatic Sprinkler System" is added and existing Rule VI-L, "Rate and Premium Calculation Rule" is redesignated as Rule VI-M, "Rate and Premium Calculation Rule." (2) In the Dwelling Section, new subsection 5, "Reduction in Dwelling Premium -- Automatic Sprinkler System" is added to Rule VI-C, "Additional Premium Modifications." (3) In the Farm and Ranch Owners Section, new Rule VI-L, "Reduction in Farm and Ranch Owners Premium -- Automatic Sprinkler System" is added. (4) In the Farm and Ranch Section, new subsection 4, "Reduction in Farm and Ranch Dwelling Premium -- Automatic Sprinkler System" is added to Rule VI-D, "Additional Premium Modifications." These adopted Manual rules provide a mandatory insurance premium reduction for policyholders who have installed a fire protection sprinkler system in the policyholder's residence. The rules also establish the amount of the premium reduction and state that the premium reduction applies to the total homeowners premium, the dwelling fire and lightning premium, the farm and ranch owners dwelling premium, and the farm and ranch fire and lightning premium respectively. Premium reduction credits of 8% and 12% for policyholders who obtain a Residential Sprinkler System Premium Reduction Certificate were adopted. The amount of the credit was determined after reviewing data supplied by the Insurance Services Office (ISO) regarding Automatic Sprinkler System Discounts in a dwelling. The ISO provides for a maximum 8% credit for automatic sprinklers located in all areas except the attic, bathroom, closet, and attached structure areas that are protected by a fire detector. These standards are similar to the standards contained in the Homeowners Section of the Personal Lines Manual. The Commissioner has determined that the NFPA13D standards adopted by the Texas Commission on Fire Protection are comparable in many respects to the 8% discount utilized by ISO and authorized in the Personal Lines Manual. Based on this analysis, the Commissioner adopted an 8% premium reduction for Homeowners, and Farm and Ranch Owners insurance. The 8% premium reduction applies to the total Homeowners premium, and the total Farm and Ranch Owners premium. The Commissioner also determined that for Dwelling and Farm and Ranch policies the fire rate comprises a greater portion of the premium. For this reason, the Commissioner adopted a 12% premium reduction for Dwelling and Farm and Ranch policies. The 12% premium reduction applies to the actual fire premium for Dwelling and Farm and Ranch policies. There is a lack of Texas data concerning the adopted premium reductions. The Department will monitor the Texas experience developed under this program and make any needed modifications to the premium reduction percentages as indicated by the new data. The adopted amendments to the current Manual rules governing the rating of sprinklered risks are as follows: (1) In the Homeowners Section, Manual Rule VI- F was amended to add a note that specifies that risks with sprinkler systems complying with NFPA 13D will be referred to new Manual Rule VI-L for the applicable credit. (2) In the Dwelling Section, Manual Rule VI-B was amended to add a note that specifies that risks with sprinkler systems complying with NFPA 13D will be referred to new Manual Rule VI-C.5. for the applicable credit. (3) In the Farm and Ranch Owners Section, Manual Rule VI-F was amended to add a note that specifies that risks with sprinkler systems complying with NFPA 13D will be referred to new Manual Rule VI-L for the applicable credit. (4) In the Farm and Ranch Section, Manual Rule VI-B was amended to add a note that specifies that risks with sprinkler systems complying with NFPA 13D will be referred to new Manual Rule VI-D. 4. for the applicable credit. These amendments provide that risks having a sprinkler system installed in accordance with National Fire Protection Association Standard 13 should be submitted to the Texas Department of Insurance for applicable premium charges. The adopted amendments add a reference for sprinklered risks complying with NFPA 13D that states the residential fire protection sprinkler system premium reduction rules apply. The adopted forms are: 1) Inspector's Fire Protection Sprinkler System Report (Report) and 2) Residential Sprinkler System Premium Reduction Certificate (Certificate). The Report was adopted without changes to the proposal as noticed in the Texas Register. The Report will be used to certify that the residential sprinkler system meets the standards established by the Texas Commission on Fire Protection and qualifies for a premium reduction under Article 5.33B of the Texas Insurance Code. The Report must be completed by a licensed Responsible Managing Employee (RME) dwelling inspector or a sprinkler contractor registered by the Texas Commission on Fire Protection and it must be provided to the Texas Department of Insurance. The Certificate was adopted with two changes to the proposal as noticed in the Texas Register. Based on information provided by staff, it was recognized that the determination of the percentage of premium reduction could be handled more efficiently by the insurers since they rate the policies and have the information concerning the type of policy issued which dictates the percentage of premium reduction. In the Certificate, the language "___%" in the first and last paragraph requiring the Department to write in the percentage of premium reduction was changed to "a". These changes require the Department to certify that a property owner is entitled to a reduction but it allows the insurer to assign the actual percentage of reduction. The Certificate will be used by the Department to certify to the insurer that the applicant is entitled to a premium reduction on the applicant's residential property insurance. The Certificate is to be issued by the Texas Department of Insurance upon receipt of an Inspector's Fire Protection Sprinkler System Report form that certifies that the residential fire protection sprinkler system meets applicable standards and qualifies the applicant's property for a premium reduction. Insurance Code Article 5.33B, entitled Reduction in Homeowners Insurance Premiums for Approved Sprinkler Systems, was enacted by the 74th Texas Legislature and became effective September 1, 1995. Section 2 of Article 5.33B states that a policyholder of a one-family or two-family dwelling is entitled to a premium reduction for residential property insurance coverage if the policyholder has installed on the covered property a fire protection sprinkler system that is approved under this article by an inspector. Article 5.33B requires that an inspector must inspect the property and file with the Texas Department of Insurance a written report that states whether the sprinkler system meets applicable standards. Article 5.33B defines applicable standards as the standards for a fire protection sprinkler system that are adopted by rule by the Texas Commission on Fire Protection. Article 5.33B provides that if the inspector's report indicates that the property qualifies for a premium reduction the Department shall issue a premium reduction certificate entitling the applicant to a premium reduction. Article 5.33B also requires the Commissioner of Insurance to establish, by rule, the amount of the premium reduction applicable to a residential property insurance policy. Effective August 26, 1996, the Texas Commission on Fire Protection adopted amendments to several rules and added a new rule to Title 37 Texas Administrative Code Chapter 541 concerning the regulation of the business of inspecting, planning, selling, servicing, installing, and maintaining fire protection sprinkler systems. The new and revised rules establish the minimum standards for a fire protection sprinkler system in one and two-family dwellings and authorize certain licensed inspectors--a dwelling type responsible managing employee--to conduct a premium reduction inspection of a fire protection sprinkler system in a one or two-family dwelling. The adopted rules, forms and rates are necessary to implement the provisions of Article 5.33B. The adopted rules establish the amount of the discount, incorporate the fire protection sprinkler system standards adopted by the Commissioner, and require the presentation of a valid Certificate form. The adoption also prescribes the "Inspector's Fire Protection Sprinkler System Report" form and "Residential Sprinkler System Premium Reduction Certificate" form that will be used with this program. The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, Articles 5.33B, 5.96, and 5.98. The Manual rules and forms as adopted by the Commissioner of Insurance are on file in the Chief Clerk's Office of the Texas Department of Insurance under Reference Number P-1096-50-l and are incorporated by reference in the Manual by Commissioner's Order Number 96-1483. 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). 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. Issued in Austin, Texas, on December 20, 1996. TRD-9618569 Caroline Scott Assistant General Counsel Texas Department of Insurance Filed: December 20, 1996