TEXAS DEPARTMENT OF INSURANCE Notification 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 PROPOSED ACTION The Commissioner of Insurance, at a public hearing under Docket Number 2359 scheduled for July 1, 1998 at 9:00 a.m., in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas, will consider a proposal made in a staff petition. Staff's petition seeks amendment of the Texas Automobile Rules and Rating Manual (the Manual), Rule 75.C.1.a., involving surcharges under the Texas Driving Insurance Plan. Staff's petition (Reference Number A-0598-13-I), was filed on May 11, 1998. Staff proposes changing the thresholds for assigning surcharge points for auto accidents by amending Manual Rule 75.C.1.a., Texas Driving Insurance Plan. Specifically, Staff proposes changing the bodily injury threshold from $0 to $3000, and the property damage threshold from $500 to $1000. Manual Rule 75.C.1.a. (Rule 75) currently requires assignment of a surcharge point to an insured who has an at-fault auto accident resulting in any bodily injury. An example would be minimal expenses for a doctor's examination for very minor injuries resulting from an auto accident. Staff is concerned that those minimal expenses significantly affect the insured's premiums. To alleviate this problem, Staff proposes changing the $0 threshold, so that a point will not be assigned unless an auto accident results in bodily injury in excess of $3000. Currently Rule 75 requires assignment of a surcharge point to an insured who has an at-fault auto accident resulting in property damage in excess of $500, regardless of whether anyone is injured. The rule formerly provided for a property damage threshold of $200 for accidents occurring prior to February 1, 1985. Since 1985, repair costs have increased significantly and the distribution of automobiles on the road has changed dramatically. Consequently, very minor damage can easily exceed $500. Therefore, Staff recommends changing the $500 property damage threshold to $1000. Staff's Chief Economist has analyzed possible changes in thresholds in an exhibit attached to Staff's petition, and also in a more specific recommendation in the following two paragraphs. The revised property liability threshold of $1000 was determined in the following manner. Automobile claims were assumed to follow a lognormal distribution, a distribution that is commonly attributed to such claims. The probability density function (p.d.f.) of a lognormal distribution can be completely described by two parameters: the mean and standard deviation of the distribution and allows an estimation of the proportion of claims that fall between any two points on the distribution. The average paid claim in 1985 for property damage liability from Fast Track data was $1,146. Various standard deviations were assumed to model a number of p.d.f.'s. Based on these p.d.f.'s, the estimated proportion of claims that fell below the $500 threshold in 1985 was calculated. The revised threshold was then determined by finding that threshold which would show the same estimated proportion of claims below it, based on, i). a lognormal distribution, ii). average paid claims of $2,063 from 3rd quarter 1997 Fast Track data, and iii). the same assumed standard deviations as used for 1985 claims. This threshold was determined to be $1000. The bodily injury liability threshold of $3,000 was determined in the following manner. Lognormal distributions, using the average paid claims of $7,335 from 3rd quarter 1997 Fast Track data and various standard deviations, were modeled. The threshold was selected as that dollar amount that showed the same estimated proportion of claims falling below the threshold as for the property damage threshold. This threshold was determined to be approximately $3,000. A copy of the petition containing the full text of the proposed amendments to the Manual is available for review in the office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas. For further information or to request copies of the petition, please contact Angie Arizpe at (512) 463-6326; refer to (Reference Number A-0598-13-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, Texas Department of Insurance, P. O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of comments is to be submitted to David Durden, Deputy Commissioner, Automobile and Homeowners Group, Texas Department of Insurance, P. O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. TRD-9807787 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: May 12, 1998