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
The Commissioner of Insurance at a public hearing held on September 11, 1996, at 
9:00 a.m., under Docket Number 2237, in Room 100 of the Texas Department of 
Insurance Building, 333 Guadalupe Street in Austin, Texas, adopted a fire 
suppression rating system for residential property insurance purposes (this 
includes homeowners, dwelling, farm and ranch owners, and farm and ranch 
insurance coverage). The Commissioner's action included: (1) repeal of the Texas 
Key Rate Schedule effective January 1, 1997; (2) adoption of the Fire 
Suppression Rating Schedule and Texas Addendum effective for residential 
property insurance purposes on the effective date of the residential property 
insurance benchmark rates determined pursuant to the benchmark rate hearing held 
in November 1996 under Docket Number 454-96-1638.G; (3) adoption of public 
protection classifications for cities, towns, and unincorporated areas in Texas 
effective January 1, 1997; and (4) the freezing on January 1, 1997, of any 
existing key rates of cities and towns in Texas. The actions taken by the 
Commissioner were proposed by Department staff in a petition filed on July 2, 
1996 (Reference Number P-0796-25-I). Notice was published in the August 6, 1996 
issue of the Texas Register (21 TexReg 7427 and 7488). The Commissioner adopted 
the staff's petition without any changes to the proposal as published. 
(1) Repeal of the Texas Key Rate Schedule. The Commissioner has determined that 
it is necessary and in the public interest to repeal the Texas Key Rate 
Schedule. The key rate schedule has been used to grade public fire protection of 
cities and towns in Texas for the past 80 years. The Commissioner has determined 
that the repeal of the Texas Key Rate Schedule is necessary and in the public 
interest because it is obsolete and is no longer a reasonable method of grading 
public fire protection of a community. The majority of the key rate schedule 
remains unchanged since its original adoption sometime around 1918 to 1920 with 
only minor amendments to the schedule through the years. The key rate schedule 
for establishing the public fire protection of a city or town is based on the 
population of the city or town, with the size of the population the factor that 
determines the level of need for fire equipment, manpower and adequate water 
distribution for protecting against fire losses. The use of population as a 
means of judging the level of necessary fire defenses of a city or town is based 
on the development of cities in the early 1900s with the existence of core 
central business districts with concentrations of major fire exposures which 
produced mass conflagration hazards. The continued existence of only single core 
business districts in a city or town with structures of combustible construction 
and common walls causing a substantial risk of mass conflagration hazards has 
long ago been replaced by a diversification of businesses into outlying areas of 
cities and towns. Many of the business structures built today are of non-
combustible material, are single buildings, and are located in outlying areas of 
a city. Using population and core business districts as the basis for 
determining public fire protection is outdated and is no longer a reasonable 
method of establishing or grading public fire protection of a city or town. This 
outmoded approach does not give adequate consideration to the need of differing 
fire flow requirements of a city or town (the quantity of water calculated as 
necessary to extinguish fire at each specific location or area in a city or 
town) with differing fire hazards nor does it consider the appropriate 
diversification of manpower and fire fighting equipment necessary to respond to 
differing fire hazards. Cities and towns are no longer generic in their 
development. One city may be a bedroom community while another may be highly 
industrialized. Texas remains the only state using population as the basis for 
determining the necessary public fire protection of its cities and towns. 
(2) Adoption of Fire Suppression Rating Schedule and Texas Addendum. The 
Commissioner has determined that it is necessary and in the public interest to 
adopt the Fire Suppression Rating Schedule and the Texas Addendum to the Fire 
Suppression Rating Schedule to replace the Texas Key Rate Schedule. The 
Commissioner has determined that the adoption of the Fire Suppression Rating 
Schedule and Texas Addendum is necessary to provide the State of Texas with an 
up-to-date rating schedule that recognizes public fire protection must be based 
on the needed fire flow to evaluate a city or town's fire defense  needs. This 
evaluation permits the flexibility necessary to accurately assess the unique 
fire defense requirements resulting from major structures such as shopping 
centers, office and industrial parks, etc., which may be remote from a central 
core. The diversification of city planning in locating businesses, use of non-
combustible construction material, and the use of non-conventional water systems 
have eliminated the need to concentrate on conflagration hazards, which is the 
basis of the key rate schedule, as the most important factor in determining 
adequate fire defenses. 
The Fire Suppression Rating Schedule adopted by the Commissioner was developed 
in 1980 by the Insurance Services Office as a fire insurance rating tool and 
measures the major elements of a community's fire protection facilities, 
including the fire alarm system (receipt of alarm, operators, and alarm dispatch 
circuits), fire department (engine companies, ladder/service companies, 
distribution of companies, pumper capacity, department manning and training), 
and water supply (supply works, fire flow delivery, distribution of fire 
hydrants, hydrant size, type and installation, and hydrant inspections and 
condition). The schedule is currently used in all of the other states to 
determine the grading of public fire protection. The Texas Addendum to the Fire 
Suppression Rating Schedule adopted by the Commissioner was filed by the Texas 
Commission on Fire Protection and amended by staff. The Addendum is necessary to 
provide a system of credits for fire prevention, fire investigation, public 
education, and construction code enforcement. The Addendum includes two 
supplements--one supplement details how credit will be given for volunteer 
firefighter certification and attendance at Firemen's Training School at Texas 
A&M University, and the other supplement indicates where the Addendum credit 
will be applied to the Fire Suppression Rating Schedule. The newly adopted Fire 
Suppression Rating Schedule and Texas Addendum will be used to establish the 
public fire protection classifications of cities, towns, and unincorporated 
areas in Texas as a means of determining appropriate insurance costs for 
residential property insurance. Under the new rating system, only public 
protection classifications developed under the new rating schedule and addendum 
and that are approved by the Commissioner may be used in Texas to determine 
appropriate premiums for residential property insurance, and key rates will no 
longer be developed or used for this purpose. 
It is the position of the Commissioner that the adoption of the Fire Suppression 
Rating Schedule and Texas Addendum does not change the duties or 
responsibilities of the Texas Commission on Fire Protection (Fire Commission) 
pursuant to sec.419.901 of the Government Code. The Fire Commission may continue 
to exercise the same responsibilities under sec.419.901 of the Government Code 
as it currently exercises with the Department's key rate schedule, i.e., review 
the schedule as adopted by the Commissioner at least once every four years and 
recommend changes that the Fire Commission believes should be made in the 
schedule; and inspect municipalities using the new schedule, recommend the 
grading for individual municipalities to the Commissioner for approval, and 
report information obtained as a result of the inspections to the Commissioner.
This position is based on the analysis by the Commissioner that in enacting 
sec.419.901 of the Government Code (Acts 1991, 72nd Legislature, Chapter 628, 
sec.4, effective. Sept. 1, 1991), which transferred certain duties relating to 
the key rate schedule to the Fire Commission, the Legislature did not in any 
manner affect the authority of the Commissioner of Insurance to promulgate rates 
for residential property insurance or to approve rates for commercial property 
insurance, including the adoption of any rating schedule to grade public fire 
protection for a city, town, or unincorporated area as a factor to be used in 
developing appropriate insurance premium costs. Article 5.33 of the Insurance 
Code grants the Commissioner "full authority and power to give each city, town, 
village, or locality credit for each and every hazard they may reduce or 
entirely remove and also for all added fire fighting equipment, increased police 
protection, or any other equipment or improvement that has a tendency to reduce 
the fire hazard of any such city, town, village or locality. . . ." Article 
5.101 of the Insurance Code requires the Commissioner to promulgate a benchmark 
rate for each line of insurance subject to Article 5.101, including residential 
property insurance, which can include a benchmark rate by classification. Public 
protection classifications are specific classifications for which a specific 
benchmark rate will be determined and adopted by the Commissioner. Based on the 
authority granted to the Commissioner in Articles 5.33 and 5.101, the 
Commissioner may amend the existing key rate schedule or repeal the existing key 
rate schedule and adopt a new rating schedule that more appropriately recognizes 
up-to-date elements of the public fire protection of cities, towns, and 
unincorporated areas in Texas. It is the Commissioner's position that pursuant 
to the Commissioner's statutory authority to promulgate residential property 
insurance benchmark rates, that he is, in fact, obligated to assure that the 
rating schedule for grading public protection of Texas communities is the most 
appropriate and accurate means of determining and grading public fire 
protection. 
The Commissioner has determined that the adoption of the new rating schedule 
will change the method of determining the premium charge for residential 
property insurance. Under the key rate system, residential property insurance 
premiums are determined largely on the basis of three factors: the amount of 
insurance desired, the construction of the dwelling risk, and the applicable key 
rate of the city or town in which the risk is located. Because key rates vary by 
city, it is impossible to have a premium determined for each individual key 
rate, and therefore, ranges of key rates are combined into several groups for 
the purpose of development of a premium chart (as set forth in the Homeowners 
and Dwelling sections of the Texas Personal Lines Manual) for determining 
appropriate premium charges for a residential property insurance policy. The 
introduction of the Fire Suppression Rating Schedule will result in the 
development of public protection classes for each city or town in Texas on a 
scale of one to ten. This public protection class scale approach will be in lieu 
of the assignment of a specific key rate. Under the new system, premiums will be 
developed for individual risks on the basis of three factors: amount of 
insurance desired, construction of the dwelling risk, and the applicable public 
protection classification of the city, town, or unincorporated area in which the 
risk is located. The only factor that will change is the applicable public fire 
protection classification of the city, town, or unincorporated area in which the 
risk is located, which will be applied in lieu of the applicable key rate. 
Although the method of determination of the applicable premium under the two 
systems is somewhat similar and there is some correlation between the two 
systems, the existing key rate of a particular city or town does not necessarily 
have a direct relationship to the new public protection classification.
The transition from the key rates to public protection classifications could, in 
some instances, produce significant differences in the premiums for residential 
risks in some communities. The Commissioner has determined that measures to 
alleviate the impact of these possible significant differences in premium costs 
should be addressed pursuant to the residential property insurance benchmark 
rate hearing held in November 1996 under Docket Number 454-96-1638.G. The 
Commissioner has determined that these measures should ensure that the 
transition from the key rate system to the fire suppression rating system shall 
be, to the greatest extent possible, revenue neutral, and should spread any 
significant increases or decreases in premiums over a reasonable period of time. 
(3) Adoption of Public Protection Classifications. The Commissioner has 
determined that it is necessary and in the public interest to adopt the public 
protection classifications of cities, towns, and unincorporated areas of Texas, 
as developed by the Insurance Services Office (July 1, 1996) and submitted to 
the Texas Department of Insurance, for use in determining residential and 
commercial property insurance premiums. Although Texas has not previously 
recognized public protection classifications as a means of determining insurance 
costs in Texas, these public protection classifications have been developed by 
the Insurance Services Office for the purpose of providing underwriting 
information to its member companies. The adoption of these protection 
classifications is necessary to ensure a smooth transition from the key rate 
schedule to the newly adopted Fire Suppression Rating Schedule within a 
reasonable time period. The Commissioner has determined that to require a 
complete reinspection and regrading of all the areas eligible for a public 
protection classification would take, at a minimum, six to ten years. The 
Commissioner has further determined that it is not feasible or reasonable to 
maintain two rating systems for this extended period of time. Because the fire 
services in Texas rely on a public fire protection rating system as a means of 
developing future fire service needs of a community, and the existence of two 
systems over a long period of time will produce conflicting requirements, the 
Commissioner has determined that it is important that any transition to a new 
rating system for public fire protection be done in as short a time period as 
possible to minimize the time in which there are conflicts between rating 
schedules and in which duplicate costs are being incurred for the inspection and 
grading of communities. The adoption of the public protection classifications 
will allow the implementation of the new Fire Suppression Rating Schedule 
without the need to reinspect and regrade all communities in Texas eligible for 
a public protection classification. Currently, 1,200+ communities in Texas have 
been graded by the Insurance Services Office for assignment of the appropriate 
public protection classification. Of these 1,200+ communities, 209 were graded 
using the Texas Addendum. The Commissioner has determined that when the 
remainder are graded using the Texas Addendum, these classifications shall be 
submitted to the Commissioner for approval. The Commissioner has further 
determined that any changes in the adopted public protection classifications 
shall be submitted to the Commissioner for approval before they may be used in 
Texas. The Fire Suppression Rating Schedule and Texas Addendum will be used to 
maintain current and accurate public protection classifications for all Texas 
communities. The Commissioner has determined that the Public Protection 
Classifications for Texas should be adopted to be effective January 1, 1997. 
This will give communities time, before the new rating schedule becomes 
effective on the effective date of the residential property insurance benchmark 
rate determined pursuant to the November 1996 hearing, to obtain information on 
the new classification and the basis for the determination and to take the 
necessary steps for additional review by the Department if a community believes 
that its classification is inaccurate. The public protection classifications, 
however, shall not be used to determine premiums for residential property risks 
until the effective date of the residential property insurance benchmark rate 
determined pursuant to the benchmark rate hearing held in November 1996 under 
Docket Number 454-96-1638.G.
(4) Freeze of existing key rates. The Commissioner has determined that it is 
necessary and in the public interest to freeze all existing key rates of cities 
and towns in Texas effective January 1, 1997. Thus, the existing key rate 
schedule shall not be used to amend or alter existing individual key rates of 
cities and towns on and after January 1, 1997. The Commissioner has determined 
that this freeze is necessary to halt the development of key rate adjustments 
based on a rating schedule that will no longer be operative. The frozen key 
rates shall be used to determine premiums for residential property risks until 
the effective date of the residential property insurance benchmark rate 
determined pursuant to the benchmark rate hearing held in November 1996 under 
Docket Number 454-96-1638.G. 
The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, 
Articles 5.29, 5.30, 5.33, 5.101, 5.96, and 5.98. 
The Fire Suppression Rating Schedule and the Texas Addendum to the Fire 
Suppression Rating Schedule and the Public Protection Classifications for Texas 
as adopted by the Commissioner are on file in the Chief Clerk's Office of the 
Texas Department of Insurance under Reference Number P-0796-25-I and are 
incorporated by reference into Commissioner's Order Number 96-1377. 
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. 
IT IS THEREFORE THE ORDER of the Commissioner of Insurance that (1) the Texas 
Key Rate Schedule is repealed effective January 1, 1997; (2) the Fire 
Suppression Rating Schedule and Texas Addendum to the Fire Suppression Rating 
Schedule, as specified herein and attached to this Order, are adopted to be 
effective for use for residential property insurance purposes on the effective 
date of the residential property insurance benchmark rates determined pursuant 
to the benchmark rate hearing held in November 1996 under Docket Number 454-96-
1638.G;
(3) the Public Protection Classifications for Texas, as specified herein and 
attached to this Order, are adopted effective January 1, 1997; changes to these 
classifications shall be submitted to the Commissioner of Insurance for approval 
before they may be used in Texas; and these public protection classifications 
shall not be used to determine premiums for residential property risks until the 
effective date of the residential property insurance benchmark rate determined 
pursuant to the benchmark rate hearing held in November 1996 under Docket Number 
454-96-1638.G; and (4) existing key rates for cities and towns in Texas are 
frozen effective January 1, 1997, as specified herein, and the frozen key rates 
shall be used to determine premiums for residential property risks until the 
effective date of the residential property insurance benchmark rate determined 
pursuant to the benchmark rate hearing held in November 1996 under Docket Number 
454-96-1638.G. IT IS FURTHER THE ORDER that measures, as specified herein, to 
alleviate the impact of any significant differences in premium costs caused by 
the transition from the key rate system to the fire suppression rating system be 
addressed pursuant to the residential property insurance benchmark rate hearing 
held in November 1996 under Docket Number 454-96-1638.G. 
Issued in Austin, Texas, on November 27, 1996. 
TRD-9617291
Caroline Scott
Assistant General Counsel
Texas Department of Insurance
Filed: November 27, 1996