Part 1.
TEXAS DEPARTMENT OF INSURANCE
Chapter 5.
PROPERTY AND CASUALTY INSURANCE
Subchapter F. INLAND MARINE INSURANCE
28 TAC §5.5002
The Texas Department of Insurance proposes an amendment to
28 TAC §5.5002 relating to the definition of inland marine insurance.
The amendment deletes language that currently excludes automobiles or motor
vehicles from coverage as inland marine floor plan policies. The amendment
also adds language which is necessary to clarify the intent of this paragraph
as a result of the deletion. A floor plan policy is a defined classification
of risk that may be insured as inland marine insurance. The regulatory status
of floor plan policies is designated in the rule as "filed" which indicates
that the rules, rates, and forms must be filed with the department and approved
by the commissioner. Traditionally, the Texas definition of inland marine
has excluded automobiles and/or motor vehicles from being covered as inland
marine floor plan policies. The amendment is necessary to allow insurers to
provide coverage for dealers' automobile inventories as inland marine floor
plan policies, provided that the inventories otherwise meet the eligibility
requirements. Typically, dealers' automobile inventories meet such requirements.
Pursuant to the amendment, insurers in Texas will now have the option of providing
automobile dealers coverage for their inventories as either inland marine
insurance or as motor vehicle insurance.
Currently, insurers in Texas can only provide coverage for dealers' automobile
inventories as motor vehicle insurance under a single contract or as a part
of a commercial multi-peril package policy. Dealers' automobile inventories
have historically been regulated under motor vehicle insurance, subject to
rates, rules and forms prescribed for motor vehicles. For monoline automobile
policies, coverage for dealers' automobile inventories is filed and approved
for use on an individual risk basis.
Since the 1992 adoption of 28 TAC §5.9101, Multi-Peril Polices, insurers
have also been allowed to include coverage for dealers' automobile inventories
in their commercial multi-peril package policies. Insurers may include coverage
for dealers' automobile inventories in their commercial multi-peril package
policies but not as a type of inland marine insurance. The policy forms and
endorsements for commercial multi-peril package policies are subject to prior
approval, and the rates are file and use.
Motors Insurance Corporation (MIC) filed an original and two supplemental
petitions with the Chief Clerk, requesting that the department amend subparagraph
(K) of §5.5002 to remove the language which excludes automobiles or motor
vehicles from being covered as floor plan policies under inland marine insurance.
MIC is particularly interested in writing dealers' automobile inventories
as inland marine floor plan policies. MIC wants to use data it has collected
to calculate premiums and rates individually based on the experience of specific
automobile dealership locations. In order to use specific dealership experience
at this time, MIC must submit each risk as an individual risk submission.
MIC argues that the rating laws for inland marine insurance are intended for
policies such as dealers' automobile inventories. MIC also requests that automobile
floor plan coverage be allowed to be written as either automobile insurance,
subject to the Texas Automobile Rules and Rating Manual, or as inland marine
insurance.
The department believes that dealers' automobile inventories should be
allowed to be regulated as inland marine insurance, while also continuing
to allow dealers' automobile inventories to be covered as motor vehicle insurance.
Insurers, including county mutuals, that currently provide coverage for dealers'
automobile inventories as motor vehicle insurance can continue to do so, while
other insurers can choose to provide coverage as inland marine floor plan
policies. Pursuant to the amendment, insurers will have more options for providing
coverage for dealers' automobile inventories.
David Durden, associate commissioner for the property and casualty division
of the Texas Department of Insurance, has determined that for each of the
first five years the proposed amendment will be in effect, there will be no
fiscal impact to state and local units of government as a result of the enforcement
or administration of the section. Mr. Durden 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. Durden 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 greater flexibility
for insurers when providing coverage to dealers or financial institutions
for their automobile inventories. The amendment will lead to the more efficient
processing of policies by insurers choosing to take advantage of this new
coverage option and allow insurers to react more quickly to market conditions.
This will enable consumers seeking this coverage to obtain the desired coverage
in a more timely and efficient manner. For insurers who choose to write this
coverage as an inland marine floor plan, rates, rules, and forms are filed
once as opposed to annually. Insurers providing this coverage no longer would
be required to file individual risk submissions with the department nor incur
the cost associated with such filings. Dealers would benefit from a rate that
reflects their individual experience. The proposed amendment will result in
more efficiency in the department's review process. Insurers will have a new
coverage option to offer whether they are providing such coverage as a single
policy or as a part of a commercial multi-peril package policy.
There is no anticipated adverse economic effect on large, small or micro
insurers who are authorized to write inland marine insurance and that choose
to provide coverage pursuant to this amendment. Any cost incurred as a result
of this amendment is purely voluntary. It is anticipated that there would
be a benefit to both large and small insurers with the addition of automobile
inventories as a class of inland marine insurance since the cost of doing
business in Texas may be reduced. Insurers not previously authorized to write
inland marine insurance will incur some costs only if they choose to cover
dealers' automobile inventories as inland marine floor plan policies. These
insurers may incur costs associated with changing their articles of incorporation
or drafting new forms; and they will incur the cost of having their certificates
of authority changed by the department. The cost of changing certificates
of authority with the department is $50.00. Any costs incurred may be offset
by the fact that the insurers will not have to make individual risk submissions
to the department.
To be considered, all comments must be received no later than 5:00 p.m.
on May 8, 2000 by Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail
Code 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas
78714-9104. An additional copy of the comment must be submitted simultaneously
to David Durden, Associate Commissioner, Property and Casualty Division, Mail
Code 104-5A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas
78714-9104. Any requests for a public hearing should be submitted separately
to the Office of the Chief Clerk.
The amendment is proposed pursuant to the Insurance Code Articles
5.02, 5.53, 5.98, and §36.001. Article 5.02 authorizes the commissioner
to determine if motor vehicle insurance is also subject to other insurance
rating laws. Article 5.53 authorizes the commissioner to adopt definitions
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. Section 36.001 provides that the Commissioner of Insurance
may adopt rules to execute the duties and functions of the Texas Department
of Insurance only as authorized by statute.
The following articles are affected by this proposal: Insurance Code Article
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)-(J)
(No change.)
(K)
Floor plan policies (filed). Covering property for sale
while in possession of dealers under a floor plan or any similar plan under
which the dealer borrows money from a bank or lending institution with which
to pay the manufacturer, provided:
(i)
such merchandise is specifically identifiable as encumbered
to the bank or lending institution;
(ii)
the dealer's right to sell or otherwise dispose of such
merchandise is conditioned upon its being released from encumbrance by the
bank or lending institution; and
(iii)
that such policies cover
the merchandise
in
transit and do not extend beyond the termination of the dealer's interest
and shall not cover
[
(L)-(PP)
(No change.)
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 March 27, 2000.
TRD-200002205
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: May 7, 2000
For further information, please call: (512) 463-6327
Subchapter A. BASIC MANUAL OF RULES, RATES, AND FORMS FOR THE WRITING OF TITLE INSURANCE IN THE STATE OF TEXAS
provided such policies shall not cover automobiles
or motor vehicles;
] merchandise for which the dealer's collateral is
the stock or inventory as distinguished from merchandise specifically identifiable
as encumbered to the lending institution.
Chapter 9.
TITLE INSURANCE