81R2183 AJA-F
By: Ellis S.B. No. 149
A BILL TO BE ENTITLED
AN ACT
relating to the availability of property insurance under the Fair
Access to Insurance Requirements (FAIR) Plan.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2211.001, Insurance Code, is amended by
amending Subdivisions (6), (7), and (8) and adding Subdivisions
(1-b), (6-a), (6-b), and (7-a) to read as follows:
(1-b) "Commercial property insurance" means coverage
provided in a commercial fire and allied lines insurance policy
against loss incurred to real or tangible business personal
property, including loss of business income due to direct physical
loss of or damage to property at the covered premises. The term
includes farm and ranch insurance and farm and ranch owners
insurance.
(6) "Net direct premiums" means gross direct written
premiums less return premiums on canceled contracts, regardless of
reinsurance assumed or ceded, written on residential and commercial
property under this chapter.
(6-a) "Participating insurer" includes an insurer
writing property insurance.
(6-b) "Property insurance," except as otherwise
provided by this chapter, includes both commercial property
insurance and residential property insurance.
(7) "Residential property insurance" means the
coverage provided by a homeowners insurance policy or [,]
residential fire and allied lines insurance policy[, or farm and
ranch owners insurance policy] against loss incurred to real or
tangible personal property at a fixed location.
(7-a) "Supplementary rating information" means any
manual, rating schedule, plan of rules, rating rules,
classification systems, territory codes and descriptions, rating
plans, and other similar information used by the association to
determine the applicable premium for an insured. The term includes
factors and relativities, including increased limits factors,
classification relativities, deductible relativities, premium
discount, and other similar factors and rating plans.
(8) "Underserved area" or "underserved areas" means an
area or areas designated as underserved by the commissioner under
this chapter by rule.
SECTION 2. Section 2211.051, Insurance Code, is amended to
read as follows:
Sec. 2211.051. ESTABLISHMENT OF FAIR PLAN. (a) The
commissioner may establish a Fair Access to Insurance Requirements
Plan to deliver:
(1) residential property insurance to residents of
this state in underserved areas designated under Section
2211.152(b), if the commissioner determines, after a public
hearing, that:
(A) [(1)] in all or any part of the state,
residential property insurance is not reasonably available in the
voluntary market to a substantial number of insurable risks; or
(B) [(2)] at least 25 percent of the applicants
to the residential property market assistance program who are
qualified under that program's plan of operation have not been
placed with an insurer in the preceding six months; and
(2) commercial property insurance to those persons
within a group or groups that share similar risk characteristics
and who have an insurable interest in commercial property in
underserved areas designated under Section 2211.152(c), if the
commissioner determines, after a public hearing, that in all or any
part of the state commercial property insurance is not reasonably
available in the voluntary market to that group or groups.
(b) The commissioner has sole discretion to designate:
(1) the underserved areas of this state, as designated
under Section 2211.152(c), in which the FAIR Plan may provide
commercial property insurance; and
(2) those persons and risk characteristics that
establish a group or groups whose members share similar risk
characteristics for the purposes of this chapter, including by
defining a group as including all persons seeking commercial
property insurance.
(c) In establishing eligibility for commercial property
insurance, the commissioner may consider:
(1) whether such a determination creates an adverse
impact to the association's exposure; and
(2) any other factors the commissioner considers
relevant.
SECTION 3. Section 2211.054, Insurance Code, is amended to
read as follows:
Sec. 2211.054. CONTENTS OF PLAN OF OPERATION. The plan of
operation must:
(1) provide for a nonprofit association to issue
[residential] property insurance under this chapter and distribute
the losses and expenses in writing that insurance in this state;
(2) provide that all insurers that write [residential]
property insurance shall participate in the association in
accordance with Sections 2211.101(b) and (c);
(3) provide that a participating insurer is entitled
to receive credit in accordance with Section 2211.101(d);
(4) provide for the immediate binding of eligible
risks;
(5) provide for the use of premium installment payment
plans, adequate marketing, and service facilities;
(6) provide for the establishment of reasonable
service standards;
(7) provide procedures for efficient, economical,
fair, and nondiscriminatory administration of the association;
(8) provide procedures for determining the net level
of participation required for each insurer in the association;
(9) provide for the use of deductibles and other
underwriting devices;
(10) provide for assessment of all members in amounts
sufficient to operate the association;
(11) establish maximum limits of liability to be
placed through the program;
(12) establish commissions to be paid to the insurance
agents submitting applications;
(13) provide that the association issue policies in
the association's own name;
(14) provide reasonable underwriting standards for
determining insurability of a risk;
(15) provide procedures for the association to assume
and cede reinsurance; and
(16) provide any other procedure or operational matter
the governing committee or the commissioner considers necessary.
SECTION 4. Section 2211.056(a), Insurance Code, is amended
to read as follows:
(a) The association shall file with the commissioner for
approval the proposed rates and supplementary rating [supplemental
rate] information to be used in connection with the issuance of
insurance policies or endorsements.
SECTION 5. Subchapter B, Chapter 2211, Insurance Code, is
amended by adding Section 2211.060 to read as follows:
Sec. 2211.060. COMMERCIAL PROPERTY INSURANCE LIABILITY
LIMITS. (a) Except as provided by Subsections (c) and (d), maximum
liability limits for the coverage on a single insurable commercial
property may not exceed $3,200,000 for:
(1) a structure; and
(2) the corporeal movable property located in that
structure, and as an extension of coverage, away from those
premises, as provided under the policy.
(b) This section does not apply to insurable commercial
property that is:
(1) owned by, and at least 75 percent of which is
occupied by, a governmental entity; or
(2) not owned by, but is wholly and exclusively
occupied by, a governmental entity.
(c) Not later than September 30 of each year, the governing
committee shall propose inflation adjustments to the maximum
liability limits imposed under Subsection (a) in increments of
$1,000, rounded to the nearest $1,000, based on an index that the
governing committee determines accurately reflects changes in the
cost of construction or commercial property values in the relevant
area.
(d) The governing committee may propose additional
increases in the maximum liability limits as the governing
committee determines necessary to implement the purposes of this
chapter.
(e) The commissioner shall approve the inflation
adjustments and proposed additional increases, with or without
modifications, or disapprove the adjustments and proposed
additional increases.
SECTION 6. Section 2211.101, Insurance Code, is amended to
read as follows:
Sec. 2211.101. COVERAGE PROVIDED TO INSUREDS IN UNDERSERVED
AREA. (a) In accordance with the plan of operation, the
association shall develop and administer a program for
participation by each insurer that writes [residential] property
insurance in this state.
(b) Except as provided by this subsection, each insurer, as
a condition of the insurer's authority to engage in the business of
[residential] property insurance in this state, shall participate
in the association in accordance with this chapter, including
participating in the association's assessments in the proportion
that the insurer's net direct property insurance premiums written
in this state during the preceding calendar year bear to the
aggregate net direct property insurance premiums written in this
state by all participating insurers. The Texas Windstorm Insurance
Association established by Chapter 2210 may not participate in the
association for any purpose.
(c) An insurer's participation under Subsection (b) in the
association's assessments must be determined in accordance with the
association's plan of operation [residential property statistical
plan adopted by the commissioner].
(d) A participating insurer is entitled to receive credit
for similar property insurance voluntarily written in an
underserved area. The participation of an insurer entitled to
receive credit under this subsection must be reduced in accordance
with the plan of operation.
SECTION 7. Section 2211.104, Insurance Code, is amended by
amending Subsection (c) and adding Subsection (f) to read as
follows:
(c) The insurer shall compute the amount of the surcharge
under Subsection (b) as a uniform percentage of the premium on each
policy described by Subsection (b). The percentage must be equal to
one-third of the ratio of the amount of the participating insurer's
assessment or service fee payment to the amount of the insurer's
direct written [earned] premiums, as reported to the department in
the insurer's financial statement for the calendar year preceding
the year in which the assessment or service fee payment is made so
that, over the three-year period, the aggregate of all surcharges
by the insurer under this section is at least equal to the amount of
the assessment or service fee payment.
(f) Notwithstanding Subsections (a)-(d), if the public
securities are issued as authorized by Subsection (a)(1), the
commissioner may establish a schedule providing for collection of
the service fee over the full term of the securities and limiting
insurers to collecting the service fee in accordance with that
schedule.
SECTION 8. Section 2211.151, Insurance Code, is amended to
read as follows:
Sec. 2211.151. MANDATORY COVERAGE PROVIDED TO CERTAIN
INSUREDS. (a) As authorized by the commissioner under Section
2211.051(a)(1), the [The] association shall make residential
property insurance available to each applicant in an underserved
area whose property is insurable in accordance with reasonable
underwriting standards but who, after diligent efforts, is unable
to obtain residential property insurance through the voluntary
market, as evidenced by two declinations from insurers authorized
to engage in the business of, and writing, residential property
insurance in this state.
(b) As authorized by the commissioner under Section
2211.051(a)(2), the association shall make commercial property
insurance available to each applicant who:
(1) has an insurable interest in real or tangible
commercial property that is insurable in accordance with reasonable
underwriting standards and located at a fixed location in the area
designated by the commissioner under Section 2211.051(a)(2);
(2) shares the risk characteristics of the group
designated by the commissioner under Section 2211.051(a)(2); and
(3) after diligent efforts, is unable to obtain
commercial property insurance through the voluntary market, as
evidenced by two declinations from insurers authorized to engage in
the business of, and writing, that commercial property insurance in
this state.
SECTION 9. Section 2211.152, Insurance Code, is amended to
read as follows:
Sec. 2211.152. DESIGNATION OF AREA AS UNDERSERVED. (a) The
commissioner by rule shall designate the areas determined to be
underserved.
(b) In determining which areas to designate as underserved
for residential property insurance, the commissioner shall
consider the factors specified in Section 2004.002.
(c) In determining which areas to designate as underserved
for commercial property insurance, the commissioner shall
consider:
(1) whether commercial property insurance is not
reasonably available to those persons within a group or groups that
share similar risk characteristics and who have an insurable
interest in commercial property in the area; and
(2) any other factors the commissioner considers
relevant.
SECTION 10. Section 2211.153, Insurance Code, is amended to
read as follows:
Sec. 2211.153. INSPECTION BUREAU. The association, with
the approval of the commissioner, shall designate one or more
organizations as the inspection bureau. The inspection bureau
shall:
(1) make inspections to determine the condition of a
property for which [residential] property insurance is sought; and
(2) perform other duties authorized by the association
or the commissioner.
SECTION 11. Sections 2211.154(a) and (c), Insurance Code,
are amended to read as follows:
(a) A person who has an insurable interest in real or
tangible personal property at a fixed location in an underserved
area and who, after diligent effort, is unable to obtain
[residential] property insurance, as evidenced by two current
declinations from insurers authorized to engage in the business of
[residential] property insurance in this state and actually writing
the [residential] property insurance applied for in this state, is
entitled on application to the association to an inspection and
evaluation of the property by representatives of the inspection
bureau.
(c) Promptly after the application is received, the
inspection bureau shall make an inspection and file an inspection
report with the association. The inspection report must be made
available to the applicant on request. The association shall
prescribe the manner and scope of the inspection and inspection
report for [residential] property in accordance with the plan of
operation.
SECTION 12. Section 2211.155, Insurance Code, is amended to
read as follows:
Sec. 2211.155. INSPECTION RESULTS; REINSPECTION. (a) If,
after an inspection, the inspection bureau determines that
[residential] property meets the underwriting standards
established in the plan of operation, the applicant must be
informed in writing of that determination and the association shall
issue a policy or binder. If the [residential] property does not
meet the underwriting standards, the applicant must be informed in
writing of the reason for the failure of the [residential] property
to meet the standards.
(b) If, at any time, an applicant whose [residential]
property did not meet the underwriting standards makes improvements
to the property or the property's condition that the applicant
believes are sufficient to make the property meet the standards, an
inspection bureau representative shall reinspect the property on
request. In any case, the applicant is eligible for one
reinspection on or before the 60th day after the date of the initial
inspection.
(c) If, on reinspection, the [residential] property meets
the underwriting standards, the applicant must be informed in
writing of that fact and the association shall issue a policy or
binder.
SECTION 13. Section 2211.201, Insurance Code, is amended to
read as follows:
Sec. 2211.201. PURPOSE. The legislature finds that issuing
public securities to provide a method to raise funds to provide
[residential] property insurance in this state through the
association is to benefit the public and to further a public
purpose.
SECTION 14. Section 2211.209(e), Insurance Code, is amended
to read as follows:
(e) As a condition of engaging in the business of insurance
in this state, a participating insurer agrees that, if the insurer
leaves the property insurance market in this state, the insurer
remains obligated to pay the insurer's share of the service fee
assessed under this section until the public securities are
retired. The amount assessed against an insurer under this
subsection must be:
(1) proportionate to the insurer's share of the
property insurance market[, including residential property
insurance,] in this state as of the last complete reporting period
before the date the insurer ceases to engage in the property
insurance business in this state; and
(2) based on the insurer's gross premiums for property
insurance[, including residential property insurance,] for the
insurer's last reporting period.
SECTION 15. Not later than December 1, 2009, the governing
committee of the FAIR Plan shall amend the plan's plan of operation
to reflect the changes in law made by this Act. On January 1, 2010,
the FAIR Plan shall begin issuing commercial property insurance in
accordance with the plan of operation.
SECTION 16. This Act takes effect September 1, 2009.