Notification Pursuant to the Insurance Code, Chapter 5, Subchapter L (Editor's Note: As 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.) The Commissioner of Insurance will hold a public hearing under Docket Number 2228 on June 27, 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 the adoption of amendments to the Texas Automobile Rules and Rating Manual to revise Rule 7, Premium Computation, and to incorporate the provisions of Rule 8, Factors and Multipliers, and Rule 9, Rounding Rule, into amended Rule 7. These three rules relate to the calculation of premiums and rates for automobile insurance. The staff petition also proposes the repeal of existing Rules 8 and 9 because the substance of these rules is incorporated into the proposed amendments to Rule 7 and are no longer necessary. The petition requests an amendment to Rule 7, Premium Computation, in the Texas Automobile Rules and Rating Manual to clearly specify through narrative and example the method for calculating automobile insurance premiums. Rule 7 is amended to outline on a step-by-step basis the method to be used to calculate the premium for each peril, coverage, and exposure for which a separate premium is shown on the policy. Step A of proposed Rule 7 incorporates part A of existing Rule 7 to provide that the computation shall begin with the benchmark premium or rate and specifies the premium tables and rates to be used based on the policy term. Under the proposed rule, the substance of existing Rule 8, which addresses the application of factors or multipliers on a consecutive basis, is incorporated as Step B of proposed Rule 7 in the calculation method. Existing Rule 9, which addresses the rounding of rates and premiums, is incorporated as Step C in the proposed calculation method and is amended for clarification. Step C provides that, for all intermediate calculations, insurers are to apply factors or multipliers and round the result of each step to three decimal places, unless otherwise provided by a specific Manual rule. In addition, Rule 7 is amended to add Step D to require that the policy term factor be applied to the resulting premium calculated in Step C. This requirement supersedes any contrary provisions in the Manual. Rule 7 is also amended to add Step E to clarify that only the final premium for each peril, coverage, or exposure for which a separate premium is calculated is rounded to the nearest whole dollar. Under the proposed rule, this rounding to the nearest whole dollar shall occur only once in the premium computation in determining the final premium for each peril, coverage, or exposure. Step E also provides that this rounding of the resulting final premium to the nearest whole dollar shall not apply to the resulting final premium for towing and labor costs. The proposed amendments to Rule 7 also include an example to demonstrate the application of the proposed premium computation method. According to the staff petition, the proposed amendments are necessary because the existing rules on Premium Computation (Rule 7), Factors or Multipliers (Rule 8), and Rounding Rule (Rule 9) are confusing and unclear, causing insurers to apply the rules differently in calculating automobile insurance premiums. Some insurers are rounding the annual automobile policy premiums to the nearest whole dollar and rounding again to the nearest whole dollar after applying the six- month term factor. In addition, insurers use different approaches in rounding the results of intermediate calculation steps when determining an automobile insurance premium. Some insurers round intermediate calculation results to three decimal places while other insurers round these results to two decimal places. This difference in rounding procedures is caused by the confusing wording of the existing rounding rules. For example, the rules require final rates to be rounded to three decimal places; the rules contain examples of premiums rounded to two decimal places; and the rules do not directly address the rounding of intermediate calculations. This confusion is compounded by the absence of definitions of "rate" and "premium" in existing Manual rules, causing insurers to be inconsistent in rounding rates and premiums. As a result, a policyholder may be paying a different premium from that of another policyholder based solely on the insurer's premium computation method. The petition states that the amendments to Rule 7 clearly outline the proper method of computing automobile insurance premiums through detailed narrative and example. In addition, the petition indicates, that Rule 7 is amended to clearly specify that only the final premium for each peril, coverage, or exposure is rounded to the nearest whole dollar. The adoption of the proposed amendments will introduce greater uniformity in premium computation and will eliminate the confusion in the existing rules. Also, the application of the proposed premium computation rule will foster fairness and consistency in the market and will benefit both policyholders and insurers. Staff requests that the proposed amendments be adopted to apply to all automobile insurance policies issued on or before November 1, 1996. The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, Articles 5.96, 5.98, and 5.101. Copies of the full text of the staff petition and the proposed amendments 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 amendments, please contact Sylvia Gutierrez at (512) 463-6326 (refer to Reference Number A-0596-18-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, P.O. Box 149104, MC113-2A, Austin, Texas 78714-9104. An additional copy of the comment should be submitted to David Durden, Deputy Commissioner for Property and Casualty Lines, P.O. Box 149104, MC104-5A, Austin, Texas 78714- 9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the 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 May 17, 1996. TRD-9606932 Alicia M. Fechtel General Counsel and Chief Clerk Texas Department of Insurance For further information, please call: (512) 463-6327