By: Oliverson H.B. No. 2547
A BILL TO BE ENTITLED
AN ACT
relating to the modernization of regulation of commercial property
and casualty insurance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2251.002, Insurance Code, is amended to
read as follows:
Section 2251.002. DEFINITIONS. In this chapter:
(1) "Commercial property insurance" means insurance
coverage against loss caused by or resulting from loss, damage, or
destruction of real or personal property provided through a
commercial property insurance policy. The term includes any
combination of:
(A) commercial fire or allied lines;
(B) commercial inland marine insurance;
(C) commercial crime coverage;
(D) boiler and machinery insurance other than explosion;
(E) glass insurance provided as part of other coverage; and
(F) as authorized by commissioner rule, insurance covering
other perils or providing other coverages or other lines of first
party property insurance.
(1-a) "Disallowed expenses" includes:
(A) administrative expenses, other than acquisition, loss
control, and safety engineering expenses, that exceed 110 percent
of the industry median for those expenses;
(B) lobbying expenses;
(C) advertising expenses, other than for advertising:
(i) directly related to the services or products provided by
the insurer; or
(ii) designed and directed at loss prevention;
(D) amounts paid by an insurer:
(i) as damages in an action brought against the insurer for
bad faith, fraud, or any matters other than payment under the
insurance contract; or
(ii) as fees, fines, penalties, or exemplary damages for a
civil or criminal violation of law;
(E) contributions to:
(i) social, religious, political, or fraternal
organizations; or
(ii) organizations engaged in legislative advocacy;
(F) except as authorized by commissioner rule, fees and
assessments paid to advisory organizations;
(G) any amount determined by the commissioner to be excess
premiums charged by the insurer; and
(H) any unreasonably incurred expenses, as determined by
the commissioner after notice and hearing.
(2) "Filer" means an insurer that files rates, prospective
loss costs, or supplementary rating information under this chapter.
(2-a) "Highly protected commercial property" is defined as
property that is judged to be subject to a much lower than normal
probability of loss by virtue of low hazard occupancy or property
type, superior construction, special fire protection equipment and
procedures, and management commitment to loss prevention.
(3) "Prospective loss cost" means that portion of a rate
that:
(A) does not include a provision for expenses or profit,
other than loss adjustment expenses; and
(B) is based on historical aggregate losses and loss
adjustment expenses projected by development to the ultimate value
of those losses and expenses and projected through trending to a
future point in time.
(4) "Rate" means the cost of insurance per exposure unit,
whether expressed as a single number or as a prospective loss cost,
adjusted to account for the treatment of expenses, profit, and
individual insurer variation in loss experience, before applying
individual risk variations based on loss or expense considerations.
(5) "Rating manual" means a publication or schedule that
lists rules, classifications, territory codes and descriptions,
rates, premiums, and other similar information used by an insurer
to determine the applicable premium charged an insured.
(6) "Residential property insurance" means insurance
coverage against loss to real or tangible personal property at a
fixed location that is provided through a homeowners insurance
policy, including a tenants insurance policy, a condominium owners
insurance policy, or a residential fire and allied lines insurance
policy.
(7) "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 insurer 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 such as experience, schedule, and
retrospective rating.
(8) "Supporting information" means:
(A) the experience and judgment of the filer and the
experience or information of other insurers or advisory
organizations on which the filer relied;
(B) the interpretation of any other information on which the
filer relied;
(C) a description of methods used in making a rate; and
(D) any other information the department receives from a
filer as a response to a request under Section 38.001.
SECTION 2. Section 2251.003, Insurance Code, is amended to
read as follows:
Sec. 2251.003. APPLICABILITY OF CERTAIN SUBCHAPTERS. (a)
This subchapter and Subchapters B, C, and D apply to:
(1) an insurer to which Article 5.13 applies, other than the
Texas Windstorm Insurance Association, the FAIR Plan Association,
and the Texas Automobile Insurance Plan Association; and
(2) except as provided by Subsection (c), a Lloyd's plan,
reciprocal or interinsurance exchange, and county mutual insurance
company with respect to the lines of insurance described by
Subsection (b).
(b) Except as provided by Subsection (d), this[This]
subchapter and Subchapters B, C, and D apply to all lines of the
following kinds of insurance written under an insurance policy or
contract issued by an insurer authorized to engage in the business
of insurance in this state:
(1) general liability insurance;
(2) residential and commercial property insurance,
including farm and ranch insurance and farm and ranch owners
insurance;
(3) personal and commercial casualty insurance, except as
provided by Section 2251.004;
(4) medical professional liability insurance;
(5) fidelity, guaranty, and surety bonds other than
criminal court appearance bonds;
(6) personal umbrella insurance;
(7) personal liability insurance;
(8) guaranteed auto protection (GAP) insurance;
(9) involuntary unemployment insurance;
(10) financial guaranty insurance;
(11) inland marine insurance;
(12) rain insurance;
(13) hail insurance on farm crops;
(14) personal and commercial automobile insurance;
(15) multi-peril insurance; and
(16) identity theft insurance issued under Chapter 706.
(c) Sections 2251.008, 2251.052, 2251.101, 2251.102,
2251.103, 2251.104, 2251.105, and 2251.107 do not apply to a
Lloyd's plan or a reciprocal or interinsurance exchange with
respect to commercial property insurance, inland marine insurance,
rain insurance, or hail insurance on farm crops.
(d) Except as provided by Subsection (e), Subchapter C does
not apply to all lines of the following kinds of insurance written
under a commercial insurance policy or contract issued by an
insurer authorized to engage in the business of insurance in this
state:
(1) surety bonds;
(2) fidelity bonds;
(3) commercial inland marine;
(4) boiler and machinery;
(5) environmental impairment or pollution liability;
(6) kidnap and ransom;
(7) political risk or expropriation;
(8) commercial excess liability or umbrella liability;
(9) directors' and officers' liability;
(10) fiduciary liability;
(11) employment practices liability;
(12) errors and omission and professional liability (other
than medical professional liability);
(13) media liability;
(14) product liability, product recall, or completed
operations;
(15) commercial cybersecurity, including first and third
party commercial lines coverage for losses arising out of or
relating to data privacy breaches, network security, computer
viruses, and similar exposures;
(16) highly protected commercial property;
(17) commercial flood insurance (other than National Flood
Insurance Program);
(18) any other commercial lines insurance coverage or risk
that the commissioner shall, by rule, exempt from rate filing
requirements under Subchapter C in order to promote enhanced
competition or to more effectively use the resources of the
department that might otherwise be used to review commercial lines
filings; and
(19) any combination of only the kinds of insurance in this
subsection.
(e) The commissioner may temporarily reinstate, for a
period of no longer than one year, the requirements for rate filings
under Subchapter C for a specific insurance coverage specified
under Subsection (d) if, after a hearing, the commissioner makes a
finding of fact that a reasonable degree of competition does not
exist for that specific type of insurance coverage. Such a finding
of fact by the commissioner must specify the relevant tests used to
determine whether a lack of a reasonable degree of competition
exists and the results thereof. In the absence of such specific
findings of fact by the commissioner, a competitive market is
presumed to exist.
(f) The commissioner may adopt reasonable and necessary
rules to implement this section.
(g) Section 2251.101 does not apply to rates for use with an
insured that has:
(1) total insured property values of $5 million or
more;
(2) total annual gross revenues of $10 million or
more; or
(3) a total premium of $25,000 or more for property
insurance, $25,000 or more for general liability insurance, or
$50,000 or more for multiperil insurance.
SECTION 3. Section 2251.003(d), Insurance Code, as added by
this Act, applies only to an insurance policy delivered, issued for
delivery, or renewed on or after September 1, 2021. A policy
delivered, issued for delivery, or renewed before September 1,
2021, is governed by the law as it existed immediately before the
effective date of this Act, and that law is continued in effect for
that purpose.
SECTION 4. Section 2301.002, Insurance Code, is amended to
read as follows:
Sec. 2301.002. DEFINITIONS. In this subchapter:
(1) "Commercial property insurance" means insurance
coverage against loss caused by or resulting from loss, damage, or
destruction of real or personal property provided through a
commercial property insurance policy. The term includes any
combination of:
(A) commercial fire or allied lines;
(B) commercial inland marine insurance;
(C) commercial crime coverage;
(D) boiler and machinery insurance other than explosion;
(E) glass insurance provided as part of other coverage; and
(F) as authorized by commissioner rule, insurance covering
other perils or providing other coverages or other lines of first
party property insurance.
(1-a) "Form" means an insurance policy form or a printed
endorsement form.
(1-b) "Highly protected commercial property" is defined as
property that is judged to be subject to a much lower than normal
probability of loss by virtue of low hazard occupancy or property
type, superior construction, special fire protection equipment and
procedures, and management commitment to loss prevention.
(2) "Residential property insurance" means insurance
coverage against loss to real or tangible personal property at a
fixed location that is provided through a homeowners insurance
policy, including a tenants insurance policy, a condominium owners
insurance policy, or a residential fire and allied lines insurance
policy.
(3) "Supporting information" means any information required
by the department to be filed.
SECTION 5. Section 2301.003, Insurance Code, is amended to
read as follows:
Sec. 2301.003. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter applies to:
(1) an insurer to which Article 5.13 applies, other than the
Texas Windstorm Insurance Association, the FAIR Plan Association,
and the Texas Automobile Insurance Plan Association; and
(2) except as provided by Subsections (c) and (d), a Lloyd's
plan, reciprocal or interinsurance exchange, and county mutual
insurance company with respect to the lines of insurance described
by Subsection (b).
(b) Except as provided in Subsection (e), this[This]
subchapter applies to all lines of the following kinds of insurance
written under an insurance policy or contract issued by an insurer
authorized to engage in the business of insurance in this state:
(1) general liability insurance;
(2) residential and commercial property insurance,
including farm and ranch insurance and farm and ranch owners
insurance;
(3) personal and commercial casualty insurance, except as
provided by Section 2301.005;
(4) medical professional liability insurance;
(5) fidelity, guaranty, and surety bonds other than
criminal court appearance bonds;
(6) personal umbrella insurance;
(7) personal liability insurance;
(8) guaranteed auto protection (GAP) insurance;
(9) involuntary unemployment insurance;
(10) financial guaranty insurance;
(11) inland marine insurance;
(12) rain insurance;
(13) hail insurance on farm crops;
(14) personal and commercial automobile insurance;
(15) multi-peril insurance; and
(16) identity theft insurance issued under Chapter 706.
(c) Section 2301.009 does not apply to a Lloyd's plan or a
reciprocal or interinsurance exchange with respect to commercial
property insurance.
(d) This subchapter does not apply to a Lloyd's plan or
reciprocal or interinsurance exchange with respect to inland marine
insurance, rain insurance, or hail insurance on farm crops.
(e) Except as provided by Subsection (f), Sections
2301.006, 2301.007(a) and (b), and 2301.008 do not apply to all
lines of the following kinds of insurance written under a
commercial insurance policy or contract issued by an insurer
authorized to engage in the business of insurance in this state:
(1) surety bonds;
(2) fidelity bonds;
(3) commercial inland marine;
(4) boiler and machinery;
(5) environmental impairment or pollution liability;
(6) kidnap and ransom;
(7) political risk or expropriation;
(8) commercial excess liability or umbrella liability;
(9) directors' and officers' liability;
(10) fiduciary liability;
(11) employment practices liability;
(12) errors and omission and professional liability (other
than medical professional liability);
(13) media liability;
(14) product liability, product recall, or completed
operations;
(15) cybersecurity, including first and third party
commercial lines coverage for losses arising out of or relating to
data privacy breaches, network security, computer viruses, and
similar exposures;
(16) highly protected commercial property;
(17) commercial flood insurance (other than National Flood
Insurance Program);
(18) any other commercial lines insurance coverage or risk
that the commissioner shall, by rule, exempt from policy form
filing requirements under this subchapter in order to promote
enhanced competition or to more effectively use the resources of
the department that might otherwise be used to review commercial
lines filings; and
(19) any combination of only the kinds of insurance in this
subsection.
(f) The commissioner may temporarily reinstate, for a
period of no longer than one year, the requirements of sections
2301.006, 2301.007(a) and (b), and 2301.008 for a specific
insurance coverage specified under Subsection (e) if, after a
hearing, the commissioner makes a finding of fact that a reasonable
degree of competition does not exist for that specific type of
insurance coverage. Such a finding of fact by the commissioner must
specify the relevant tests used to determine whether a lack of a
reasonable degree of competition exists and the results thereof.
In the absence of such specific findings of fact by the
commissioner, a competitive market is presumed to exist.
(g) The commissioner may adopt reasonable and necessary
rules to implement this section.
SECTION 6. Section 981.004, Insurance Code, is amended to
read as follows:
Sec. 981.004. SURPLUS LINES INSURANCE AUTHORIZED. (a) An
eligible surplus lines insurer may provide surplus lines insurance
only if:
(1) the full amount of required insurance cannot be
obtained, after a diligent effort, from an insurer authorized to
write and actually writing that kind and class of insurance in this
state;
(2) the insurance is placed through a surplus lines
agent; and
(3) the insurer meets the eligibility requirements of
Subchapter B or B-1 as of the inception date and annual anniversary
date of each insurance contract, cover note, or other confirmation
of insurance.
(b) An eligible surplus lines insurer may provide surplus
lines insurance only in the amount that exceeds the amount of
insurance obtainable from authorized insurers.
(c) Subsection (a)(1) does not apply to insurance procured
for an exempt commercial purchaser if:
(1) the agent procuring or placing the insurance
discloses to the exempt commercial purchaser that:
(A) comparable insurance may be available from
the admitted market that is subject to more regulatory oversight
than the surplus lines market; and
(B) a policy purchased in the admitted market may
provide greater protection than the surplus lines insurance policy;
and
(2) after receiving the notice described by
Subdivision (1), the exempt commercial purchaser requests in
writing that the agent procure the insurance from or place the
insurance with an eligible surplus lines insurer.
(d) Subsection (a)(1) does not apply to insurance procured
for an industrial insured if:
(1) the agent procuring or placing the insurance
discloses to the industrial insured that:
(A) comparable insurance may be available from
the admitted market that is subject to more regulatory oversight
than the surplus lines market; and
(B) a policy purchased in the admitted market may
provide greater protection than the surplus lines insurance policy;
(2) the surplus lines company offering the coverage
has a financial strength rating of A- or better from the A. M. Best
Company; and
(3) after receiving the notice described by
Subdivision (1), the industrial insured requests in writing that
the agent procure the insurance from or place the insurance with an
eligible surplus lines insurer.
(e) Notwithstanding Subsection (a)(1), the availability of
windstorm and hail insurance from the Texas Windstorm Insurance
Association does not preclude an eligible surplus lines insurer
from providing windstorm and hail insurance under Subsection (a) or
limiting the amount of insurance that may be provided under
Subsection (b).
(f) Except with respect to any line of insurance and during
any period of time for which the commissioner has temporarily
reinstated the requirements for rate and form filings under Sec.
2251.003(e) and Sec. 2301.003(f), Subsection (a)(1) and Subsection
(b) do not apply to insurance procured in all lines of the kinds of
insurance described in Section 2251.003(d) and 2301.003(e) and
provided by an eligible surplus lines insurer.
SECTION 7. This Act takes effect September 1, 2021.