86R14232 PMO-D
By: King of Hemphill H.B. No. 3076
A BILL TO BE ENTITLED
AN ACT
relating to the establishment of the Texas Tornado and Wildfire
Insurance Association; authorizing fees.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle G, Title 10, Insurance Code, is amended
by adding Chapter 2214 to read as follows:
CHAPTER 2214. TEXAS TORNADO AND WILDFIRE INSURANCE ASSOCIATION
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 2214.001. PURPOSE. The primary purpose of the Texas
Tornado and Wildfire Insurance Association is the provision of an
adequate market for property insurance to provide coverage for
losses from tornado and wildfire in this state. The legislature
finds that the provision of adequate tornado and wildfire insurance
is necessary to the economic welfare of this state, and without that
insurance, the orderly growth and development of this state would
be severely impeded. This chapter provides a method by which
adequate tornado and wildfire insurance may be obtained in this
state. The association is intended to serve as a residual insurer
of last resort for tornado and wildfire insurance in this state.
The association shall:
(1) function in such a manner as to not be a direct
competitor in the private market; and
(2) provide tornado and wildfire insurance coverage to
those who are unable to obtain that coverage in the private market.
Sec. 2214.002. SHORT TITLE; COVERAGE AVAILABLE. (a) This
chapter may be cited as the Texas Tornado and Wildfire Insurance
Association Act.
(b) This chapter authorizes the association to issue only
tornado and wildfire insurance.
Sec. 2214.003. GENERAL DEFINITIONS. In this chapter,
unless the context clearly indicates otherwise:
(1) "Association" means the Texas Tornado and Wildfire
Insurance Association.
(2) "Board of directors" means the board of directors
of the association.
(3) "Net direct premium" means gross direct written
premium less return premium on each canceled contract, regardless
of assumed or ceded reinsurance, that is written on property in this
state, as defined by the board of directors.
(4) "Plan of operation" means the plan adopted under
this chapter for the operation of the association.
(5) "Tornado and wildfire insurance" means deductible
insurance against:
(A) direct loss to insurable property incurred as
a result of tornado or wildfire, as those terms are defined and
limited in policies and forms approved by the department; and
(B) indirect losses resulting from the direct
loss.
(6) "Wildfire" means an uncontrolled blaze fueled by
weather, wind, and dry underbrush, trees, grasses, or other
flammable material.
Sec. 2214.004. DEFINITION OF INSURABLE PROPERTY. For
purposes of this chapter and subject to this section, "insurable
property" has the meaning assigned by the plan of operation.
Sec. 2214.005. DESIGNATION AS CATASTROPHE AREA; REVOCATION
OF DESIGNATION. An area of this state may be designated as a
catastrophe area in the plan of operation. The commissioner by rule
may revoke the designation.
Sec. 2214.006. APPLICABILITY OF CHAPTER TO CERTAIN
INSURERS. (a) Except as provided by Subsection (b), this chapter
applies to each insurer authorized to engage in the business of
property insurance in this state, including a county mutual
insurance company, a Lloyd's plan, and a reciprocal or
interinsurance exchange.
(b) This chapter does not apply to:
(1) a farm mutual insurance company operating under
Chapter 911;
(2) a nonaffiliated county mutual fire insurance
company described by Section 912.310 that is writing exclusively
industrial fire insurance policies as described by Section
912.310(a)(2); or
(3) a mutual insurance company or a statewide mutual
assessment company engaged in business under Chapter 12 or 13,
Title 78, Revised Statutes, respectively, before those chapters'
repeal by Section 18, Chapter 40, Acts of the 41st Legislature, 1st
Called Session, 1929, as amended by Section 1, Chapter 60, General
Laws, Acts of the 41st Legislature, 2nd Called Session, 1929, that
retains the rights and privileges under the repealed law to the
extent provided by those sections.
Sec. 2214.007. DEPARTMENT ORDERS; GENERAL RULEMAKING
AUTHORITY. (a) The commissioner may issue any orders that the
commissioner considers necessary to implement this chapter.
(b) The commissioner may adopt rules in the manner
prescribed by Subchapter A, Chapter 36, as reasonable and necessary
to implement this chapter.
Sec. 2214.008. LIST OF PRIVATE INSURERS; INCENTIVE PLAN.
(a) The department shall maintain a list of all insurers that
engage in the business of property and casualty insurance in the
voluntary market in this state.
(b) The department shall develop incentive programs to
encourage authorized insurers to write insurance on a voluntary
basis and to minimize the use of the association as a means to
obtain insurance.
SUBCHAPTER B. ADMINISTRATION OF THE ASSOCIATION
Sec. 2214.051. COMPOSITION OF ASSOCIATION; REQUIRED
MEMBERSHIP. (a) The association is composed of all property
insurers authorized to engage in the business of property insurance
in this state, other than insurers prevented by law from writing on
a statewide basis coverages available through the association.
(b) As a condition of the insurer's authority to engage in
the business of insurance in this state, each insurer subject to
Subsection (a) must be a member of the association and must remain a
member for the duration of the association's existence. An insurer
that ceases to be a member of the association remains liable on
insurance contracts entered into during the insurer's membership in
the association to the same extent and effect as if the insurer's
membership in the association had not been terminated.
(c) An insurer that becomes authorized to write and is
engaged in writing insurance that requires the insurer to be a
member of the association shall become a member of the association
on the January 1 following the effective date of that
authorization. The determination of the insurer's participation in
the association is made as of the date of the insurer's membership
in the manner used to determine participation for all other members
of the association.
Sec. 2214.052. MEMBER PARTICIPATION IN ASSOCIATION. (a)
Each member of the association shall participate in insured losses
and operating expenses of the association, in excess of premium and
other revenue of the association, in the proportion that the net
direct premiums of that member during the preceding calendar year
bears to the aggregate net direct premiums by all members of the
association, as determined using the information provided under
Subsection (b).
(b) The department shall review annual statements, other
reports, and other statistics that the department considers
necessary to obtain the information required under Subsection (a)
and shall provide that information to the association. The
department is entitled to obtain the annual statements, other
reports, and other statistics from any member of the association.
(c) Each member's participation in the association shall be
determined annually in the manner provided by the plan of
operation. For purposes of determining participation in the
association, two or more members that are subject to common
ownership or that operate in this state under common management or
control shall be treated as a single member. The determination
shall also include the net direct premiums of an affiliate that is
under that common management or control, including an affiliate
that is not authorized to engage in the business of property
insurance in this state.
(d) Notwithstanding Subsection (a), a member, in accordance
with the plan of operation, is entitled to receive credit for
similar insurance voluntarily written in areas designated by the
commissioner. The member's participation in the insured losses and
operating expenses of the association in excess of premium and
other revenue of the association shall be reduced in accordance
with the plan of operation.
(e) Notwithstanding Subsections (a)-(d), an insurer that
becomes a member of the association and that has not previously been
a member of the association is not subject to participation in any
insured losses and operating expenses of the association in excess
of premium and other revenue of the association until the second
anniversary of the date on which the insurer first becomes a member
of the association.
Sec. 2214.053. OPERATION OF ASSOCIATION. The association
shall operate in accordance with the plan of operation.
Sec. 2214.054. ANNUAL STATEMENT. (a) The association
shall file annually with the department and the state auditor's
office a statement covering periods designated by the department
that summarizes the transactions, conditions, operations, and
affairs of the association during the preceding year.
(b) The statement must:
(1) be filed at times designated by the department;
(2) contain the information prescribed by the
department; and
(3) be in the form prescribed by the department.
Sec. 2214.055. USE OF ASSOCIATION ASSETS. (a) The
association's net earnings may only be used in accordance with the
plan of operation.
(b) On dissolution of the association, all assets of the
association, other than assets pledged for the repayment of public
securities issued under this chapter, revert to this state.
Sec. 2214.056. EXAMINATION OF ASSOCIATION. (a) The
association is subject to Sections 401.051, 401.052,
401.054-401.062, 401.151, 401.152, 401.155, and 401.156 and
Subchapter A, Chapter 86.
(b) A final examination report of the association resulting
from an examination as provided by this section is a public record
and is available to the public at the offices of the department in
accordance with Chapter 552, Government Code.
Sec. 2214.057. AUDIT OF ASSOCIATION. (a) The association
is subject to audit by the state auditor and shall pay the costs
incurred by the state auditor in performing an audit under this
section.
(b) The association shall pay the costs described by
Subsection (a) promptly after receipt of a statement from the state
auditor's office regarding the amount of those costs.
Sec. 2214.058. CLAIMS PRACTICES AUDIT. The commissioner,
in the manner and at the time the commissioner determines to be
necessary, may conduct a random audit of claim files concerning
claims the bases of which are damage to property insured under this
chapter.
SUBCHAPTER C. PAYMENT OF LOSSES
Sec. 2214.101. PAYMENT OF LOSSES. The association shall
pay insured losses and operating expenses of the association from
premium and other revenue of the association in accordance with the
plan of operation.
Sec. 2214.102. ASSESSMENTS. (a) Losses not paid under
Section 2214.101 shall be paid from member insurer assessments.
(b) A member of the association may not recoup an assessment
paid under this subsection through a premium surcharge or tax
credit.
SUBCHAPTER D. BOARD OF DIRECTORS; POWERS AND DUTIES
Sec. 2214.151. ACCOUNTABLE TO COMMISSIONER. The board of
directors is responsible and accountable to the commissioner.
Sec. 2214.152. COMPOSITION. (a) The board of directors is
composed of nine members appointed by the commissioner.
(b) All members must have demonstrated experience in
insurance, general business, or actuarial principles sufficient to
make the success of the association probable.
Sec. 2214.153. TERMS. (a) Members of the board of
directors serve six-year staggered terms, with the terms of three
members expiring on February 1 of each odd-numbered year.
(b) A person may serve on the board of directors for not more
than three consecutive full terms, not to exceed 18 years.
(c) A member of the board of directors may be removed by the
commissioner with cause stated in writing and posted on the
association's Internet website. The commissioner shall appoint the
replacement for a director who leaves or is removed from the board
of directors.
Sec. 2214.154. OFFICERS. The board of directors shall
elect from the board's membership an executive committee consisting
of a presiding officer, assistant presiding officer, and
secretary-treasurer.
Sec. 2214.155. MEETINGS. (a) Except for an emergency
meeting, the association shall call and conduct its meetings in
accordance with the plan of operation.
(b) Except for a closed meeting authorized by Subchapter D,
Chapter 551, Government Code, a meeting of the board of directors or
of the members of the association is open to the public.
(c) Notice of a meeting of the board of directors or the
association must be given as provided by Chapter 551, Government
Code.
Sec. 2214.156. OPEN MEETINGS AND OPEN RECORDS. (a) Except
as specifically provided by this chapter or another law, the board
of directors and the association are subject to Chapters 551 and
552, Government Code.
(b) A settlement agreement to which the association is a
party is public information and is not exempted from required
disclosure under Chapter 552, Government Code.
(c) Subsection (b) may not be construed to limit or
otherwise restrict the categories of information that are public
information under Section 552.022, Government Code.
SUBCHAPTER E. PLAN OF OPERATION
Sec. 2214.201. ADOPTION OF PLAN OF OPERATION. With the
advice of the board of directors, the commissioner by rule shall
adopt the plan of operation to provide tornado and wildfire
insurance in this state.
Sec. 2214.202. CONTENTS OF PLAN OF OPERATION. (a) The plan
of operation must:
(1) provide for the efficient, economical, fair, and
nondiscriminatory administration of the association; and
(2) include other provisions as considered necessary
by the department to implement the purposes of this chapter.
(b) The plan of operation may provide for liability limits
for an insured structure and for the corporeal movable property
located in the structure.
Sec. 2214.203. AMENDMENTS TO PLAN OF OPERATION. (a) The
association may present a recommendation for a change in the plan of
operation to the department at:
(1) periodic hearings conducted by the department for
that purpose; or
(2) hearings relating to property and casualty
insurance rates.
(b) The association must present a proposed change to the
department in writing in the manner prescribed by the commissioner.
A proposed change does not take effect unless adopted by the
commissioner by rule.
(c) An interested person may, in accordance with Chapter
2001, Government Code, petition the commissioner to modify the plan
of operation.
SUBCHAPTER F. INSURANCE COVERAGE; APPLICATION AND INSPECTION
Sec. 2214.251. DEFINITION OF INSURABLE INTEREST. In this
subchapter, "insurable interest" includes any lawful and
substantial economic interest in the safety or preservation of
property from loss, destruction, or pecuniary damage.
Sec. 2214.252. APPLICATION FOR COVERAGE. (a) A person who
has an insurable interest in insurable property may apply to the
association for insurance coverage provided under the plan of
operation and an inspection of the property, subject to any rules
established by the board of directors and approved by the
commissioner. The association shall make insurance available in
accordance with the plan of operation to each applicant in this
state whose property is insurable property but who, after diligent
efforts, is unable to obtain property insurance through the
voluntary market, as evidenced by one declination from an insurer
authorized to engage in the business of, and writing, property
insurance providing tornado and wildfire coverage in this state.
(b) A property and casualty agent must submit an application
for initial insurance coverage on behalf of the applicant on forms
prescribed by the association. The association shall develop a
simplified renewal process that allows for the acceptance of an
application for renewal coverage, and payment of premiums, from a
property and casualty agent or a person insured under this chapter.
An application for initial or renewal coverage must comply with the
requirements of the plan of operation.
Sec. 2214.253. ISSUANCE OF COVERAGE; TERM; RENEWAL. (a) If
the association determines that the property for which an
application for initial insurance coverage is made is insurable
property, the association, on payment of the premium, shall direct
the issuance of an insurance policy as provided by the plan of
operation.
(b) A policy issued under this section is for a one-year
term.
(c) A policy may be renewed annually on application for
renewal as long as the property continues to be insurable property.
(d) The commissioner, after receiving a recommendation from
the board of directors, shall approve a commission structure for
payment of an agent who submits an application for coverage to the
association on behalf of a person who has an insurable interest in
insurable property. The commission structure adopted by the
commissioner must be fair and reasonable, taking into consideration
the amount of work performed by an agent in submitting an
application to the association and the prevailing commission
structure in the private insurance market.
Sec. 2214.254. CANCELLATION OF CERTAIN COVERAGE. (a) An
agent or insured may request cancellation of the insurance coverage
by:
(1) returning the policy, with proof that the insured
was notified of the return; or
(2) requesting the association to cancel the insurance
coverage by a notice mailed to the insured and to any others shown
in the policy as having an insurable interest in the property.
(b) On completion of cancellation under Subsection (a), the
association shall refund the unearned premium, less any minimum
retained premium set forth in the plan of operation, to the person,
firm, or corporation to whom the unpaid balance is due.
(c) If an insured requests cancellation of the insurance
coverage, the association shall refund the unearned premium, less
any minimum retained premium set forth in the plan of operation,
payable to the insured and the holder of an unpaid balance. The
property and casualty agent who received a commission as the result
of the issuance of an association policy providing the canceled
coverage shall refund the agent's commission on any unearned
premium in the same manner.
Sec. 2214.255. POLICY PROVISIONS. A tornado and wildfire
insurance policy issued by the association must comply with the
requirements of the plan of operation.
Sec. 2214.256. INSPECTION REQUIREMENT. (a) To be
considered insurable property eligible for insurance coverage from
the association, a structure must be inspected or approved by the
department for compliance with the plan of operation.
(b) The department shall issue a certificate of compliance
for each structure that qualifies for coverage. The certificate is
evidence of insurability of the structure by the association. The
decision whether to issue a certificate of compliance for a
structure is wholly within the discretion of the department.
(c) The department may enter into agreements and contracts
as necessary to implement this section.
(d) The department may charge reasonable fees to cover the
cost of implementing this section.
SUBCHAPTER G. RATES
Sec. 2214.301. ASSOCIATION FILINGS. (a) The association
must file with the department each manual of classifications,
rules, rates, including condition charges, and each rating plan,
and each modification of those items that the association proposes
to use.
(b) A filing under this section must indicate the character
and the extent of the coverage contemplated and must be accompanied
by the policy and endorsement forms proposed to be used. The forms
may be designed specifically for use by the association without
regard to other forms filed with, approved by, or prescribed by the
department for use in this state.
(c) As soon as reasonably possible after the filing has been
made, the commissioner in writing shall approve or disapprove the
filing. A filing is considered approved unless disapproved on or
before the 30th day after the date of the filing. If the
commissioner disapproves a filing, the commissioner shall state in
writing the reasons for the disapproval and the criteria the
association is required to meet to obtain approval.
(d) The department shall value the loss and loss adjustment
expense data to be used for a filing not earlier than March 31 of the
year before the year in which the filing is to be made.
Sec. 2214.302. MANUAL RATE FILINGS: ANNUAL FILING. (a) Not
later than August 15 of each year, the association shall file with
the department a proposed manual rate for all types and classes of
risks written by the association.
(b) Before approving or disapproving a filing under this
section, the commissioner shall provide all interested persons a
reasonable opportunity to:
(1) review the filing;
(2) obtain copies of the filing on payment of any
legally required copying cost; and
(3) submit to the commissioner written comments or
information related to the filing.
(c) The commissioner shall approve or disapprove the filing
in writing not later than October 15 of the year in which the filing
was made. If the filing is not approved or disapproved on or before
that date, the filing is considered approved.
(d) If the commissioner disapproves a filing, the
commissioner shall state in writing the reasons for the disapproval
and the criteria the association is required to meet to obtain
approval.
Sec. 2214.303. MANUAL RATE FILINGS: AMENDED ANNUAL FILING.
(a) Not later than the 30th day after the date the association
receives the commissioner's written disapproval under Section
2214.302, the association may file with the commissioner an amended
annual filing that conforms to all criteria stated in that written
disapproval.
(b) Not later than the 30th day after the date an amended
filing made under Subsection (a) is received, the commissioner
shall approve or disapprove the amended filing. If the filing is
not disapproved on or before the 30th day after the date of receipt,
the filing is considered approved. If the commissioner disapproves
a filing, the commissioner shall state in writing the reasons for
the disapproval and the criteria the association is required to
meet to obtain approval.
(c) Before approving or disapproving an amended annual
filing under this section, the commissioner shall, in the manner
provided by Section 2214.302, provide all interested persons a
reasonable opportunity to:
(1) review the amended annual filing;
(2) obtain copies of the amended annual filing on
payment of any legally required copying cost; and
(3) submit to the commissioner written comments or
information related to the amended annual filing.
Sec. 2214.304. MANUAL RATE FILINGS: ADDITIONAL SUPPORTING
INFORMATION. (a) In conjunction with the review of a filing under
Section 2214.302:
(1) the commissioner may request the association to
provide additional supporting information relating to the filing;
and
(2) any interested person may file a written request
with the commissioner, during a period specified by the
commissioner by rule, for additional supporting information
relating to the filing.
(b) A request under this section must be reasonable and must
be directly related to the filing.
(c) The commissioner shall submit to the association all
requests for additional supporting information made under this
section for the commissioner's use and the use of any interested
person not later than the 21st day after the date of receipt of the
filing.
(d) Unless a different period is requested by the
association and approved by the commissioner, the association shall
provide the information to the commissioner not later than the
fifth day after the date the written request for additional
supporting information is delivered to the association.
Sec. 2214.305. GENERAL RATE REQUIREMENTS; RATE STANDARDS.
(a) Rates for coverage under this chapter must be made in
accordance with the plan of operation.
(b) Rates must be reasonable, adequate, not unfairly
discriminatory, and nonconfiscatory as to any class of insurer.
(c) For the establishment of rates and minimum premiums, the
risks may be grouped by classification.
(d) A commission paid to an agent for a tornado and wildfire
insurance policy issued by the association must comply with the
commission structure established in the plan of operation and be
reasonable, adequate, not unfairly discriminatory, and
nonconfiscatory.
(e) The association may establish rating territories and
may vary rates among the territories as provided by the plan of
operation.
Sec. 2214.306. RATE CLASSIFICATIONS. All premiums written
and losses paid under this chapter, as appropriate, must be
included in applicable classifications for general ratemaking
purposes.
SUBCHAPTER H. LIABILITY LIMITS
Sec. 2214.351. MAXIMUM LIABILITY LIMITS. The maximum
liability limits under a tornado and wildfire insurance policy
issued by the association under this chapter are established by the
plan of operation and may be adjusted by amendment to the plan of
operation.
SECTION 2. (a) The governor shall appoint the members of
the board of directors of the Texas Tornado and Wildfire Insurance
Association under Chapter 2214, Insurance Code, as added by this
Act, effective November 1, 2019. The initial directors shall draw
lots to achieve staggered terms, with three of the directors
serving two-year terms, three of the directors serving four-year
terms, and three of the directors serving six-year terms.
(b) The plan of operation adopted under Chapter 2214,
Insurance Code, as added by this Act, must provide that the Texas
Tornado and Wildfire Insurance Association issue insurance
policies under that chapter not later than January 1, 2020.
(c) The commissioner of insurance shall adopt rules
necessary to ensure that the Texas Tornado and Wildfire Insurance
Association issue insurance policies under Chapter 2214, Insurance
Code, as added by this Act, not later than January 1, 2020.
SECTION 3. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2019.