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.

PROPOSED ACTION
The Commissioner of Insurance, at a public hearing under Docket Number 2295 
scheduled for July 8, 1997 at 10:00 a.m. in Room 100 of the William P. Hobby Jr. 
State Office 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), Rule 14, to amend the plan for 
installments for premium payments for the Personal Auto Policy. Staff also 
proposes to amend the Texas Standard Provisions for Automobile Insurance 
Policies (the Standard Provisions), Personal Auto Policy, Special Instructions 
in regard to installment payments. Staff's petition (Reference Number A-0597-15-
I) was filed on May 20, 1997. 
Staff proposes to amend the Manual's Rule 14 to reduce the percentage of the 
down payment that is to be required by an insurer writing a Personal Auto Policy 
that is to be purchased under this rule's installment payment plan. Rule 14 
currently allows an insurer to require a down payment of no more than 25% of the 
total premium for 12-month policies and 40% for 6-month policies. Staff proposes 
to amend Rule 14 to provide for a down payment of 12.5% of the total premium for 
a 12-month policy, or 25% of the total premium for a 6-month policy that is to 
be paid off under this rule's installment payment plan. For a 12 month policy, 
the down payment will consist of 1/12 of the total premium (first installment) 
plus an additional advance premium equal to 1/24 of the total premium (50% of 
the monthly installment). For a 6 month policy, the down payment will consist of 
1/6 of the total premium (first installment) plus an additional advance premium 
equal to 1/12 of the total premium (50% of the monthly installment). 
Staff proposes to amend the Standard Provisions, Personal Auto Policy, Special 
Instructions, by changing current #11 to #12, and by adding a new #11, titled 
"Installment Payment Plan" and providing as follows: 
"Each insurance company must either print on, stamp on, or attach to the 
declarations page the following statement: 'We agree to make available to you an 
installment payment plan as described in Rule 14 of the Texas Automobile Rules 
and Rating Manual, except when an installment payment plan is prohibited by rule 
or statute.' " 
The affordability of personal automobile insurance causes many consumers to 
choose not to purchase such insurance. Some consumers have difficulty making the 
down payments for the Personal Auto Policy as set forth in the current 
installment payment plan in Manual Rule 14, which requires the down payment to 
be 40% of the total premium for a 6-month policy and 25% of the total premium 
for a 12-month policy. One way to address the increasing number of uninsured 
motorists, particularly those uninsured motorists willing to purchase insurance, 
but who cannot afford the down payment, is to provide a payment plan with a more 
favorable down payment. Staff's recommendation will provide that an insurer 
using this plan shall require a down payment of 12.5% of the total premium for a 
12-month policy or 25% for a 6-month policy. The remaining payments would pay 
off the balance in equal monthly installments and allow the insurer to maintain 
an additional advance premium of 1/24 of the total premium for 12-month policies 
and 1/12 of the total premium for 6-month policies. As previously mentioned, 
Rule 14 currently allows a 25% down payment for 12-month policies and 40% for 6-
month policies. 
Under Staff's proposal, the additional advance premium should virtually 
eliminate the need for any further down payments to be made by the insured upon 
the renewal of a policy and may provide protection to an insurer in the event of 
a cancellation caused by inadvertent nonpayment of an installment when due. In 
the event an installment is not paid when due, an additional advance premium may 
be applied to the insured's account on a pro-rata basis. In other words, at the 
insurer's option, coverage may be extended until the full amount of the deposit 
is depleted. By allowing an additional advance premium to be applied on a pro-
rata basis, both the insured and the insurer may benefit. The insured may 
benefit by having continuous coverage for the period of time provided by 
application of the additional advance premium. The insurer may benefit by having 
time to ascertain that the installment has not been paid, to mail a cancellation 
notice, and to avoid providing a period of coverage without paid premium. 
Under Staff's recommendation, insurers would continue being allowed to offer 
other payment options to a new applicant in addition to the Rule 14 plan, but 
the proposed plan must be made available to each new applicant except when an 
installment payment plan is prohibited by rule or statute. It appears likely 
that more applicants will choose the plan under Rule 14, if amended as proposed, 
for that plan will clearly be more affordable than Rule 14's current plan. 
The recommendation to amend the Special Instructions for the Personal Auto 
Policy, will assist insurers in complying with the existing requirement set 
forth in the order that created Rule 14 (Board Order Number 59537, issued April 
13, 1992). On page 3 of that order appears the requirement, "The Policy shall 
include the following statement: 'We agree to make available to you an 
installment payment plan as described in the Texas Automobile Rules and Rating 
Manual.' " Board Order Number 59537 did not give any further guidance on how to 
incorporate the required language into the policy, resulting in some confusion 
on this issue, but that problem can be eliminated by Staff's proposal. 
The requirement of placing the above statement into the policy was to ensure 
that county mutual insurers offer the installment plan contained in Manual Rule 
14. The Board in adopting Board Order Number 59537 clearly intended that the 
payment plan under Rule 14 apply to county mutual insurers, and placed the 
requirement in the policy form to which county mutual insurers are subject 
pursuant to the Insurance Code, Article 5.06 and Article 17.25, Section 5. 
Article 5.06, with certain exceptions, prohibits motor vehicle insurers from 
using policy forms other than those adopted by the Commissioner (or formerly by 
the Board of Insurance). Additionally, the tape recording of the January 15, 
1992 meeting of the Board confirms that county mutual companies are subject to 
Board Order Number 59537, and that they must offer the Rule 14 installment 
payment plan. That requirement will be more clearly implemented by Staff's 
proposal to amend the Standard Provisions as set forth above. 
Staff further proposes that the required policy language be amended by addition 
of "except when an installment payment plan is prohibited by rule or statute." 
This amendment is necessary due to passage of HB 627, amending Transportation 
Code Section 601.083, requiring a certified policy to be issued for at least a 
period of six months and paid in full.
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) 463-6326; refer to (Reference Number A-0597-15-I). 
Comments on the proposed changes must be submitted in writing within 30 days 
after publication of the proposal in the Texas Register, to the 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 a valid exercise of the agency's authority.
Issued in Austin, Texas, on May 21, 1997.
TRD-9706757
Caroline Scott
General Counsel and Chief Clerk
Texas Department of Insurance
Filed: May 21, 1997