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.

Texas Department of Insurance
ADOPTED ACTION
The Commissioner of Insurance has adopted (i) rating rules in the Homeowners 
Section and Dwelling Section of the Texas Personal Lines Manual (Manual) to 
provide for mandatory credits under a homeowners policy and dwelling policy for 
roof coverings, other than metal roof coverings, on residential risks which meet 
the Underwriters Laboratories (U.L.) test criteria under U.L. Standard 2218 that 
establishes a classification system for measuring the impact resistance of roof 
coverings; and (ii) a form entitled "Roofing Installation Information and 
Certification for Reduction in Residential Insurance Premiums" (referred to 
herein as "Certificate of Installation") to be completed by the installer of a 
roof covering product on a residential risk or the general contractor 
supervising the construction or repair of a residential risk which meets the 
test criteria under U.L. Standard 2218. The Manual rules and form were proposed 
by Department staff in a petition filed on September 25, 1997.
Notice of the proposal (Reference Number P-0997-30-I) was published in the 
October 10, 1997, issue of the Texas Register (22 TexReg 10183). The Manual 
rules and form were considered at a public hearing on December 3, 1997, at 10:00 
a.m., under Docket Number 2309 in Room 100 of the Texas Department of Insurance 
Building, 333 Guadalupe Street in Austin, Texas.
The Commissioner has adopted, with changes to the proposal as noticed in the 
Texas Register, new rating rules in the Homeowners and Dwelling Sections of the 
Texas Personal Manual to establish mandatory premium credits for residential 
property insurance policies for the installation of an impact resistant roof 
covering that meets U.L. Standard 2218 ( the term "U.L. Standard 2218" as used 
throughout this Order shall be read to include any other impact test standard 
approved by the Texas Department of Insurance unless the context clearly 
indicates otherwise). The Commissioner has adopted, with changes to the proposal 
as noticed in the Texas Register, the Roofing Installation Information And 
Certification For Reduction In Residential Insurance Premiums form.
The adopted new rules to sections of the Manual are as follows: 1) In the 
Homeowners Section, Manual Rule VI-N, entitled "Mandatory Roof Covering Credits" 
is added. 2) In the Dwelling Section, Manual Rule VI-K, entitled "Mandatory Roof 
Covering Credits" is added. 
These rules provide mandatory premium credits of up to 35% for homeowners and up 
to 46% for dwelling policies for the installation of a roof covering that meets 
the classifications specified in U.L. Standard 2218. The amount of premium 
credit applied to a policy depends on the type of policy (homeowners or 
dwelling), the classification of the roof covering installed on the risk, and 
the rating territory in which the risk is located. 
The mandatory roofing credits adopted by the Commissioner are based on the 
following analysis and methodology. Staff utilized ten years of homeowners and 
dwelling loss data categorized by cause of loss and by territory. A ten year 
sampling of data was selected in order to be consistent with the territorial 
ratemaking procedure that was used for setting the most recent residential 
property benchmark rates. In addition to the cause of loss data utilized to 
isolate wind and hail losses, claims experts who specialize in insurance 
adjusting for hail damage were interviewed to determine the overall extent of 
damage to roof coverings in hail storms compared to the total damage to 
structures in hail storms. 
In order to produce the hail damage roof credits for homeowners, each year of 
data was adjusted to take into account loss trends, using trend factors 
underlying the latest benchmark rates. Losses were also adjusted by rating 
territory and by year to remove the effects of catastrophic events during the 
experience period and loaded with the thirty year territorial catastrophe loads 
underlying the latest benchmark rates, except as noted in the paragraph that 
follows. 
No adjustment was made for catastrophes in the first or second tier seacoast 
counties for the reasons that follow. Many of the extraordinary losses along the 
seacoast, especially in Nueces county, were due to foundation claims. These are 
considered regular losses rather than catastrophic events. Much of the 
catastrophic loading along the seacoast is heavily influenced by hurricane 
losses, which would not be affected by a hail resistant roof. Since there were 
few hurricane losses during the experience period, this has the effect of 
tempering the wind/hail ratio slightly. Additionally, the wind/hail ratio for 
the seacoast area was tempered by an additional 50% to take into account the 
rarity of hailstorms in that region. 
Since the catastrophe adjusted wind/hail ratio for a given territory may reflect 
episodic instances of catastrophe losses rather than long term exposure, the 
territories were grouped into "zones" in order to enhance credibility. Zones 
were created based on the indicated wind/hail ratios and geographic location. 
For homeowners, since Tarrant, Nueces, and El Paso counties showed significantly 
different experience when compared to surrounding territories, a separate zone 
was established for each of these counties. 
Based on Staff's interviews with hail claims specialists, it was determined that 
approximately 75-85% of wind/hail losses are roof damage. It was estimated that 
a Class 4 roof covering, which is able to withstand 2 inch hail, would eliminate 
approximately 75% of the wind/hail losses that are roof damage. A Class 3 roof 
covering, which is able to withstand 1 3/4 inch hail, is estimated to eliminate 
approximately 55% of hail roof damage; a Class 2 roof covering, which is able to 
withstand 1 1/2 inch hail, is estimated to eliminate approximately 35% of hail 
roof damage; and a Class 1 roof covering, which is able to withstand 1 1/4 inch 
hail, is estimated to eliminate approximately 20% of hail roof damage. 
Based on the methodology stated above and taking into account the statewide 
ratio of wind/hail losses to total losses, the elimination of loss adjustment 
expenses and variable expenses due to eliminated claims, and fixed expenses a 
state wide credit was determined for each class of roof. The statewide credits 
were then allocated to each zone based on the catastrophe adjusted zone ratio of 
wind/hail losses to total losses. 
The hail damage roof credits for dwelling extended coverage were calculated in 
an analogous manner to the homeowners credits, taking into account differing 
expenses and catastrophe adjusted ratios of wind/hail losses to total losses. 
Under the adopted manual rules, the credits are to be applied to the basic 
premium for homeowners policies and to the basic premium for extended coverage 
for dwelling policies. The mandatory credits apply only where the existing roof 
covering on a residence is replaced with a new roof covering meeting U.L. 
Standard 2218 or where a roof covering meeting U.L. Standard 2218 is installed 
on new residential construction. 
The mandatory credits apply to all roof coverings, that meet U.L. Standard 2218, 
other than metal roof coverings. Many metal roof coverings, which may meet U.L. 
Standard 2218 for impact resistance by withstanding a rupture of the roof 
membrane under test conditions, continue to suffer cosmetic damage in hail 
storms requiring replacement of the metal roof covering. It is inappropriate to 
allow premium credits for metal roof coverings meeting U.L. Standard 2218 
without assurances of a corresponding reduction of losses. If insurers are 
required to offer premium reductions for U.L. Standard 2218 metal roof coverings 
that do not rupture but still suffer cosmetic damage requiring replacement, a 
restriction of the market may occur for residences with U.L. Standard 2218 metal 
roof coverings. The omission of metal roof coverings under this proposal does 
not prejudice the filing of a petition at a future date proposing roof credits 
for metal roof coverings that meet the U.L. Standard 2218 and other appropriate 
criteria to address cosmetic damage caused by hail storms. 
The adopted Manual rules further provide that in order for mandatory roof 
covering credits to be applicable to homeowners and dwelling insurance, roof 
coverings, other than metal roof coverings, meeting the requirements of U.L. 
Standard 2218 which are installed on and after January 1, 1999, must meet 
certain labeling requirements as specified in the rules. Individual shingles, 
tiles, shakes, panels, sheets, etc. of roof covering must bear the Underwriters 
Laboratories label or the label of a testing laboratory approved by the 
Department indicating the classification of the product under U.L. Standard 
2218, the manufacturer's name, the date the product was manufactured, and the 
brand name of the product. For those roof covering products installed prior to 
January 1, 1999, only the package containing the roof covering products will be 
required to be labeled with the same information as will be required for the 
individual shingles, tiles, shakes, panels, sheets, etc. 
As a result of comments on the proposal, the Commissioner has adopted the Manual 
rules with changes to the rules as proposed. The following changes were made to 
rating rule VI.-N in the Homeowners Section and rating rule VI.-K in the 
Dwelling Section: 1. A paragraph was added to item number 1 to clarify that the 
credits will be reviewed as soon as credible statistical data is available but 
not later than five years from the effective date of the credits and that the 
credits may be modified based on this new data. 2. A note was added to item 
number 1 to clarify that the Department will accept other impact resistance 
testing standards approved by the Department and that the impact resistance 
testing may be conducted by any testing facility that is approved by the 
Department. 3. An additional sentence was added to item number 3 to clarify that 
the Certificate of Installation is solely for the purpose of obtaining a premium 
credit and it is not to be construed as any type of express or implied warranty. 
This change was necessary to address the concerns of manufacturers and 
installers of impact resistant roofing materials that by completion of the 
Certificate of Installation a warranty was being made with respect to hail 
damage. 4. Additional language was added to item number 5 to clarify that with 
respect to product labeling the Department will accept the U.L. label or the 
label of any testing laboratory approved by the Department.
This change was necessary to clarify that U.L. is not the only testing 
laboratory that can test and label impact resistant roofing products. 5. 
Language was deleted and additional language was added to item number 6 to allow 
insurers to give premium credits on an optional basis to homeowners who 
installed impact resistant roof coverings prior to February 1, 1998. These 
changes were necessary because there are many homeowners who have already taken 
the initiative to install roofing materials on their homes, which insurers may 
consider to be impact resistant, and it would be unfair for this group not to 
have the opportunity to receive the credit. 6. A new paragraph 7 was added to 
clarify that the certification process used in the roof credits program is 
solely for the purpose of qualifying for a reduction in residential insurance 
premium and it is not intended to create any type of express or implied warranty 
by the manufacturer, supplier, or installer. 
The adopted Manual rules provide for the use of a promulgated Certificate of 
Installation. The Certificate of Installation will be provided to the 
policyholder by the installer of the roof covering or the general contractor 
supervising the construction or repair of a residential risk. All information on 
the Certificate of Installation is to be completed and signed by the individual 
or general contractor responsible for the installation of the roof covering. 
Under the adopted manual rules, the policyholder must present the Certificate of 
Installation along with that portion of the material packaging containing the 
Underwriters Laboratories label and manufacturer's name to an insurer for the 
application of the appropriate mandatory roof covering credit. However, the 
presentation of the Certificate of Installation will not preclude the insurer 
from inspecting the risk for verification of the roof covering installation. 
The Certificate of Installation will be completed by the installer of a roof 
covering product or the general contractor supervising the construction or 
repair of the residential risk, it will certify that the roof covering meets the 
Underwriters Laboratories test criteria under U.L. Standard 2218, and it will 
indicate the appropriate classification of the roof covering. The Certificate of 
Installation along with that portion of the material packaging containing the 
Underwriters Laboratories label and manufacturer's name will become the document 
verifying that the roof covering meets the necessary requirements of U.L. 
Standard 2218, and the policyholder will be required to provide a copy of the 
Certificate of Installation and the packaging to an insurer to obtain the 
mandatory roof covering credit. 
As a result of comments on the proposal, the Commissioner has adopted the 
Certificate of Installation form with changes to the form as proposed. The 
Certificate of Installation was adopted with the following changes: 1. The title 
of the Certificate of Installation form was changed to delete the words "Impact 
Resistant." This change was made at the request of a commenter who expressed 
concern that this language might lead consumers to believe that the roofing 
products being installed were hail proof. 2. Additional language was added to 
the section entitled "Notice To The Homeowner" to clarify that the purpose of 
the Certificate of Installation is to enable homeowners to obtain premium 
credits and that completion of the form does not constitute a warranty of the 
product by the manufacturer, supplier, or installer. This change was made in 
response to concerns by manufacturers, suppliers, and installers that by 
completion of the Certificate of Installation consumers were being led to 
believe that a warranty regarding hail resistance of the roofing product was 
being made. 3. A statement is being added to the form alerting homeowners and 
installers to the fact that any misrepresentation relating to the completion of 
the form constitutes insurance fraud. This change was made to dissuade those who 
might be tempted to make misrepresentations on the form in order to obtain the 
premium credit. 
The proposed rules are necessary to provide mandatory roof covering credits for 
residential risks which have a roof covering, other than a metal roof covering, 
that meets the Underwriters Laboratories test criteria under U.L. Standard 2218. 
Wind and hail causes substantial damage to residential property in Texas and on 
the average accounts for approximately 40% of all residential insured property 
losses in the state. Hail produces the most damage directly to the roof covering 
of a residence. The hail resistance of residential roof covering materials has 
not been markedly improved in the past twenty years. Until the development of 
the Underwriters Laboratories test for impact resistance of roof coverings under 
the U.L. Standard 2218, there has been no generally recognized or accepted 
independent method of testing the impact or hail resistance of residential roof 
covering materials. In the absence of a recognized testing method, there have 
been no grading systems established by the roof covering materials manufacturing 
industry and, therefore, consumers have not had any means of determining the 
ability of a particular type of roof covering to withstand hail. 
Many areas in the State of Texas are exposed to severe hail storms causing 
hundreds of millions of dollars in losses with roof coverings on residential 
risks sustaining the majority of the damage and losses. The severe hail storms 
which have occurred in recent years are causing an undesirable effect on the 
residential property insurance market in Texas. In the areas of Texas where hail 
damage occurs most frequently, residential property owners are having problems 
with obtaining residential property insurance from licensed insurers. This lack 
of availability compels consumers to seek insurance in the surplus lines market 
at much higher rates or to forego purchasing residential property insurance. 
Insurers are restricting their writings in the areas where hail occurs most 
frequently because their exposure of risk in these areas is too great in the 
event of a major hail storm. Excessive losses due to hail storms have caused 
rates to increase for specific areas of Texas, and any continued pattern of hail 
storms causing severe damage will continue to produce increased insurance rates. 
Although there is no immediate solution to the problems created by increasing 
losses from hail storms, one long term solution is to find ways to reduce the 
losses that are caused by hail storms. The use of improved more durable building 
products is an important method of mitigating the losses that are caused by hail 
storms. 
The Residential Property Loss Mitigation Advisory Committee (Advisory Committee) 
was appointed by the Commissioner to seek ways to mitigate losses as a means of 
reducing insurance costs to consumers and making residential insurance more 
available from insurers. The Advisory Committee was required to make 
recommendations to the Commissioner on appropriate methods of accomplishing a 
reduction in losses to residential property. The Advisory Committee has focused 
its review of mitigating losses to residential property in a number of areas, 
however, the single area that provides the greatest potential for corrective 
measures to mitigate losses is in the area of damage and loss from hail storms. 
The component of a residential risk with the greatest exposure to hail damage is 
the roof, and more specifically the roof covering. The more effective a roof 
covering product is in withstanding the impact of hail and preventing the 
rupture of the roof membrane in a hail storm, the less damage the hail storm 
will cause. There is a need to establish a means of grading the impact 
resistance of roof covering products, to provide incentives to consumers to 
purchase the more impact resistant roof covering products, and for manufacturers 
to produce such products. The first step in this process is the establishment of 
a grading system to gauge the impact resistance of roof covering products and 
this has been accomplished by the development of an impact resistance test by 
the Underwriters Laboratories known as U.L. Standard 2218. In simplistic terms, 
this test uses steel balls of varying sizes which are dropped from varying 
heights under controlled conditions as the means of determining the impact 
resistance of various roof covering products. Though this test does not 
perfectly simulate damage that can be caused by the impact of hail stones, it is 
a reasonable test to use in determining the impact resistance of roof covering 
products and was developed by a well recognized and respected testing 
laboratory. To ensure that manufacturers of roof covering products will 
manufacture products that meet such a test, it is important to provide consumers 
with incentives to purchase roof covering products meeting U.L. Standard 2218. 
The adopted new rules provide the incentives to consumers to purchase roof 
covering products that meet U.L. Standard 2218 by offering a premium credit on 
homeowners and dwelling policies that insure risks having a roof covering 
installed which meets U.L. Standard 2218. 
The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, 
Articles 5.35, 5.101, 5.96, and 5.98. 
The Manual rules and form as adopted by the Commissioner of Insurance are on 
file in the Chief Clerk's Office of the Texas Department of Insurance under 
Reference Number P-0997-30-I and are incorporated by reference in the Manual by 
Commissioner's Order Number 98-0069 
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. 
TRD-9800671
Caroline Scott
General Counsel and Chief Clerk
Texas Department of Insurance
Filed: January 15, 1998