28 TAC §5.5002
The Texas Department of Insurance proposes an amendment to
§5.5002, relating to the definition of inland marine insurance. The amendment
adds a new subparagraph (PP) to paragraph (5) to provide that electronic equipment
protection coverage is a class of inland marine insurance for which rates,
rules, and forms must be filed with the department for approval. The purpose
of §5.5002 is to identify the various classifications of risks defined
by the department as inland marine insurance. The section designates each
defined class or subclass of inland marine insurance as "filed" or "non-regulated"
which indicates whether the rates, rules, and forms for such class or subclass
of inland marine insurance must be filed with the department for approval.
The amendment is necessary to add electronic equipment protection as a defined
classification of risk subject to being insured as inland marine insurance.
The amendment designates the regulatory status of electronic equipment protection
as "filed" which provides that the rules, rates, and forms must be filed with
the department and approved by the commissioner. The amendment further provides
that coverage for electronic equipment includes the electronic equipment,
electronic media, and extra expense incurred in order to continue normal operations
and that coverage must be provided while the property is in transit.
Electronic equipment coverage has historically been regulated as commercial
property insurance. Traditionally, property insurance covers real property
and personal property at set locations. Electronic equipment has been generally
classified as personal property at a set location and, therefore, was classified
as a commercial property exposure. Article 5.25, the fire rating statute in
Texas prior to October 1, 1991, required the department to establish maximum
fire rates for all property insured for the peril of fire. Policy forms providing
coverage specifically on electronic equipment were introduced prior to October
1, 1991 and the existing regulatory scheme required that such forms be promulgated
standard forms and that the rates be promulgated. While other states allowed
electronic equipment to be insured as inland marine insurance, Texas considered
classification of electronic equipment protection as inland marine insurance
to be in conflict with the maximum fire rating laws in Texas. Those classes
designated as "filed" classes under the definition of inland marine insurance
are regulated under the regulatory system of prior approval for policy forms
and rates, and to have classified electronic equipment protection as an inland
marine coverage prior to October 1, 1991 would have imposed a less stringent
regulatory system on this type of coverage. Therefore, the department would
not allow electronic equipment protection to be classified as inland marine
insurance in Texas.
The enactment of House Bill 2, 72nd Legislative Session, created new Article
5.13-2 (effective October 1, 1991) which placed commercial property insurance
under a new regulatory system of prior approval for policy forms and file
and use for rates. The statutory change of regulating commercial property
insurance under Article 5.13-2 rather than under Article 5.25 eliminated the
regulatory requirement that the department promulgate maximum fire rates for
commercial property insurance. All of the classes of risks traditionally considered
commercial property insurance (including electronic equipment protection)
which had a regulatory system of promulgated forms and rates under Article
5.25 were placed under a new regulatory system enacted in Article 5.13-2 of
prior approval for policy forms and file and use for rates.
The department has determined that in the absence of the maximum fire
rating law (Article 5.25) as the controlling regulation for all fire insurance,
more flexibility now exists as to the choice of the method of insuring specific
types of property. Since commercial property is now under the less stringent
regulatory scheme of Article 5.13-2, there is no longer a compelling reason
not to allow specific types of property, such as electronic equipment, to
be insured as inland marine insurance rather than property insurance. The
classification of electronic equipment protection as an inland marine coverage
does not create a conflict in the regulatory scheme because the regulatory
scheme for inland marine and commercial property are similar now that commercial
property is regulated under Article 5.13-2. Allowing electronic equipment
protection to be classified as inland marine insurance does not conflict with
the regulatory scheme under Article 5.13-2 which requires prior approval of
policy forms and file and use for rates.
On July 22, 1997 the Texas Insurance Organization (TIO) filed a petition
with the Chief Clerk requesting that the department amend the definition of
inland marine insurance in 28 TAC §5.5002 to allow electronic equipment
protection to be written as inland marine insurance. The text of the rule
in TIO's petition designated electronic equipment protection as "filed" making
it subject to prior approval for both policy forms and rates. Because many
insurers do write electronic equipment as inland marine insurance in other
states, the department believes it is cost effective for those insurers to
be able to write such property as inland marine insurance in Texas. Insurers
that write electronic equipment protection as inland marine insurance in other
states, must develop and support a separate system in Texas because currently
electronic equipment protection can only be written as commercial property
insurance in Texas. Additionally, the department believes that the current
regulation of electronic equipment protection pursuant to Article 5.13-2 will
remain unchanged allowing insurers the option of writing electronic equipment
protection either as commercial property insurance or as inland marine insurance.
Lyndon Anderson, associate commissioner for the property and casualty program
of the Texas Department of Insurance, has determined that for the first five-year
period the proposed amendment is in effect, there will be no fiscal impact
to the state or local units of government as a result of enforcing or administering
the section. Mr. Anderson also has determined there will be no other implications
for the local economy and no impact on local employment as a result of administering
the proposed amendment.
Mr. Anderson also has determined that for each year of the first five years
the proposed amendment is in effect the public benefit anticipated as a result
of enforcing or administering the proposed amendment will be the more efficient
processing of policies by many insurers resulting in a reduction in the expense
of doing the business of insurance in Texas. Mr. Anderson has also determined
that the proposed amendment will allow insurers greater flexibility and more
options in providing the needed coverage resulting in the increased availability
of coverage and additional coverage options for consumers. There is no anticipated
adverse economic effect on large or small insurers who are required to comply
with the proposed amendment. It is anticipated that there would be a benefit
to both large and small insurers because with the addition of electronic equipment
protection as a class of inland marine insurance, insurers will be able to
file the same forms in Texas that they file nationwide, thereby, reducing
the insurers' cost of doing business in Texas. Although insurers may have
some costs associated with making new filings, those additional costs may
be offset by the fact that the insurers will not have to produce a Texas specific
policy form which is different from the other programs that the insurers write
in other states.
Comments on the proposal to be considered by the department must be submitted
within 30 days after publication of the proposed section in the
Texas Register
to Lynda Nesenholtz, General Counsel and Chief Clerk,
Texas Department of Insurance, P.O. Box 149104, Mail Code 113-2A, Austin,
Texas 78714-9104. An additional copy of comments should be submitted to Lyndon
Anderson, Associate Commissioner, Property and Casualty Division, P. O. Box
149104, MC 103-1A, Austin, Texas 78714-9104. A request for public hearing
on the proposed amendment should be submitted separately to the Office of
Chief Clerk.
The amendment to §5.5002(5) is proposed pursuant to the
Insurance Code, Articles 5.13-2, 5.53, 5.98, and 1.03A; and the Government
Code §§2001.004-2001.038. Article 5.13-2 authorizes the commissioner
to approve policy forms for commercial property insurance. Article 5.53 authorizes
the commissioner to adopt a definition and classes of inland marine insurance.
Article 5.98 authorizes the commissioner to adopt reasonable rules and rates
that are appropriate to accomplish the purposes of Chapter 5. Article 1.03A
authorizes the commissioner to adopt reasonable rules and regulations, which
must be for general and uniform regulation, for the conduct and execution
of the duties and functions of the department only as authorized by a statute.
The Government Code, §§20001.004-2001.038 (Administrative Procedure
Act) authorize and require each state agency to adopt rules of practice stating
the nature and requirements of available formal and informal procedures and
prescribe the procedures for adoption of rules by a state administrative agency.
The following articles of the Insurance Code are affected by this section:
Statute Insurance Code, Articles 5.13-2; 5.53
§5.5002.Texas Definition of Inland Marine Insurance.
Inland marine insurance is defined and classified as follows.
(1)-(4)
(No change.)
(5)
Other inland marine risks.
(A)-(OO)
(No change.)
(PP)
Electronic Equipment Protection Policy
(filed). Coverage may be provided for electronic equipment, including data
processing equipment and components, connections, extensions, and systems;
electronic media including converted data; and extra expense incurred in order
to continue normal operations which are interrupted as a result of a loss
insured. The policy must provide coverage on such property while in transit.
This agency hereby certifies that the proposal
has been reviewed by legal counsel and found to be within the agency's legal
authority to adopt.
Filed with the Office of the Secretary of State, on
January 11, 1999.
TRD-9900119
Lynda H. Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: February 21, 1999
For further information, please call: (512) 463-6327