Division 6.
Manual
28 TAC §5.4501
Division 8.
Rates
28 TAC §5.4700
The Texas Department of Insurance proposes amendments to §5.4501 concerning the adoption by reference of the rules manual (Manual) governing the writing of windstorm and hail insurance coverage by the Texas Windstorm Insurance Association (Association or TWIA) and to §5.4700, concerning rate reductions applicable to windstorm and hail insurance policies issued by the Association . Insurance Code Article 21.49, §8E requires the commissioner to determine the percentage of equitable across-the-board reductions in insurance rates for policies or coverages that are issued by the Association to cover new residential construction, excluding additions or repairs to existing structures, built to the standards of a new building code. Pursuant to §8E, the commissioner is to determine these percentage reductions by not later than the 180th day after the date a new building code is implemented, and if the percentage reductions have not been determined by the 180th day, §8E(d) requires a six percent across-the-board reduction. The proposed amendments are necessary to specify the percentage rate reductions required by §8E as a result of the adoption of a new building code, the 2000 International Residential Code as revised by the Texas Revisions to the International Residential Code (IRC), effective February 1, 2003. The 2000 International Building Code, as revised by the Texas Revisions to the International Building Code (IBC), effective February 1, 2003, is also included since some residential construction may be certified using this code (the IBC indicates that residential construction shall comply with the IRC). In addition, the proposed amendments are necessary to provide rate reductions for new residential construction, excluding additions or repairs to existing structures, that have been built to a higher standard of construction than that required by the new building code, and to provide rate reductions for residential structures constructed prior to February 1, 2003, which are retro-fitted with exterior opening protection that meets the windborne debris impact-resisting standards of the new building code as revised by the Texas Revisions. The proposed amendments conform §5.4700 to include the IRC and IBC, specify the proposed percentage rate reductions, and provide an effective date of July 31, 2003 . T he Association petitioned the department ( Ref. No. P-0403-10, file-stamped by the Chief Clerk on April 15, 2003 ), to consider the submission of its methodology for the TWIA rates and proposed discounts based on the IRC and to propose a change to the Manual page showing the premium discounts. The Association’s methodology is based on the department’s analysis used to calculate the credits for the 1998 TWIA Building Code for Windstorm Resistant Construction, effective September 1, 1998 , and review of the potential impact of the IRC. The estimation of savings in the calculation of indicated credits is based on damage ratios for structures and for contents under the IRC and the old building codes given various severities of storms (categories one through five on the Saffir-Simpson scale). The analyses are based on engineering studies performed by Texas A&M University, and are contained in the publication "Cost-effectiveness of the New Building Code for Windstorm Resistant Construction Along the Texas Coast, Final Report" by N. Stubbs, et al. The damage ratios, separately for structures and contents, are weighted by the anticipated distributions of storms by Saffir-Simpson category to obtain estimated overall damage ratios under the new and old codes. The TWIA’s proposed percentage reductions have been reviewed by the department’s actuarial staff and are incorporated into the proposed amendments to §5.4700. The department notes that staff’s final recommendations may vary and that the percentages adopted by the commissioner may vary from staff’s recommendations based on evidence presented at the hearing and any comments r eceived regarding this proposal.
The proposed amendments to the TWIA Manual, which governs the writing of new policy forms and endorsements by the Association, are necessary to show the premium discounts that conform to the proposed amendments to §5.4700. Section III, Subsection C, Item 3, Mandatory Building Code Credits, is proposed to be amended to show the dwelling and personal property discounts for the seaward, Inland I, and Inland II areas and the mandatory credits for exterior openings based on compliance with the IRC/IBC. The proposed amendment to §5.4501 adds a proposed effective date for the adoption by reference of the amended Manual.
A copy of the Association’s petition along with the proposed amendments to the Manual are available for review in the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street , Austin , Texas , 78714-9104 . To request a copy of the petition with the attachments, please contact Sylvia Gutierrez at 512-463-6327, and refer to Ref. No. P-0403-10.
The department will consider the adoption of the proposed amendments to §§5.4501 and 5.4700 in a public hearing under Docket Number 2551 , scheduled for 1:30 o’clock, p.m. on June 18, 2003, in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street, Austin, Texas.
Marilyn Hamilton, associate commissioner, Property and Casualty Program, has determined that for each year of the first five years the amended sections will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the rules. There will be no measurable effect on local employment or the local economy as a result of the proposal.
Ms. Hamilton has determined that for each year of the first five years the sections are in effect, the public benefit anticipated as a result of the proposed amendments will be the greater likelihood that coastal residents will build structures that are safer and less susceptible to damage from hurricanes. Because the proposed amendments provide for rate reductions on policies issued by the Association for new residential construction built to new building code standards or higher standards than required by the building code, or for certain retro-fitted residential structures built prior to February 1, 2003, coastal residents will have a financial incentive to build or retro-fit to these standards. These incentives will encourage coastal residents and coastal builders to build residential structures that are safer and less susceptible to wind damage from hurricanes and thereby not only reduce the cost of insurance but also mitigate property damage and loss of life. Mitigating damage to insured property built to these standards should also reduce the amount of insured losses of the Association in the event of a hurricane. The Association is the entity required to comply with the percentage rate reductions. The average number of new residential structures constructed in the designated catastrophe areas in accordance with the building code standards and certified by the department is approximately 6136 annually. Assuming an average value of $83,440 for a frame construction dwelling and $43,274 for the personal property located in the dwelling, the average premium for a windstorm and hail insurance policy issued by the Association is $606. If a new residential structure of average value is constructed to meet the new building code standards, the reduction in premium for the residential structure and its contents is estimated to be $158 per policy annually. Using the approximately 6136 new structures built annually in the catastrophe area, the total premium volume reduction to the Association resulting from the application of a rate reduction on premiums is estimated to be $969,488 annually after the first year the rule is in effect. This figure may vary depending on the actual values of the residences being constructed, the location of the structure, the actual construction elements of the structure, the number of new structures insured by the Association and the percentage rate reduction applicable to the area in which the structure is located. Any reduction in premium volume of the Association attributed to residential structures being retro-fitted with exterior opening protections would be in relation to the number of existing insured structures that qualify for a rate reduction. The Association will not incur costs in printing and distributing the revised page of the manual because the manual is printed and distributed by other information service companies which provide updates to subscribers at no additional charge. Government Code § 2006.001 defines "small business" and "micro-business" in pertinent part as a legal entity, including a corporation, partnership, or sole proprietorship that is formed for the purpose of making a profit. Since the Association was not formed for the purpose of making a profit, it does not meet the definition, and thus it is not necessary to include a small or micro-business analysis in this proposal.
To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on June 23, 2003 , to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104 , Austin , Texas 78714-9104 . An additional copy of the comment must be simultaneously submitted to Marilyn Hamilton, Associate Commissioner, Property and Casualty Program, MC 104-PC, Texas Department of Insurance, P. O. Box 149104 , Austin , Texas 78714-9104 .
The amended sections are proposed under the Insurance Code Article 21.49 and §36.001. Article 21.49, §8E requires the commissioner to determine the percentage of equitable across-the-board reductions in insurance rates for policies or coverages that are issued by the Association to cover new residential construction, excluding additions or repairs to existing structures, built to the standards of a new building code. Article 21.49 §8 authorizes the Commissioner of Insurance to approve, modify, or disapprove every manual of classification, rules, rates, rating plans, and every modification of any of the foregoing used by the Association. Article 21.49 §5A authorizes the Commissioner of Insurance to issue after notice and hearing, any orders which are considered necessary to carry out the purposes of Article 21.49 including, but not limited to, maximum rates, competitive rates, and policy forms.Section 36.001 provides that the Commissioner of Insurance may adopt rules to execute the duties and functions of the Texas Department of Insurance as authorized by statute.
The following article is affected by this proposal: Insurance Code Article 21.49
Division 6. Manual
§5.4501. Rules for the Texas Windstorm Insurance Association. The Texas Department of Insurance adopts by reference a rules manual for the Texas Windstorm Insurance Association as amended effective, June 15, 1999 . The Texas Department of Insurance adopts by reference amendments effective May 1, 2001 , October 15, 2002 , [ and ] May 1, 2003 , and July 31, 2003 , to the rules manual. Copies of the rules manual may be obtained by contacting the Automobile and Homeowners Division, Mail Code 104-1A, Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104 , Austin , Texas 78714-9104 .
For copies regarding the adoption by reference contact: ChiefClerk@tdi.texas.gov
Division 8. Rates
§5.4700. Rate Reduction [ Rollback and Rate Credits ].
(a) Purpose. The purpose of this section is:
(1) to specify, pursuant to Article 21.49, §8E of the Insurance Code, the percentage of rate reduction [ rollback ] which must be applied to windstorm and hail insurance policies issued by the Texas Windstorm Insurance Association for new residential construction, excluding additions or repairs to existing structures, that have been built to the standards of the Texas Windstorm Insurance Association Building Code for Windstorm Resistant Construction, which became effective on September 1, 1998 , or the 2000 International Residential Code/2000 International Building Code, as revised by the Texas Revisions, which became effective on February 1, 2003 ;
(2) to specify the percentage of rate reduction [ credit ] which must be applied to windstorm and hail insurance policies issued by the Texas Windstorm Insurance Association for new residential construction, excluding additions or repairs to existing structures, that have been built to a higher standard of construction than that required by the Texas Windstorm Insurance Association Building Code for Windstorm Resistant Construction, which became effective on September 1, 1998 , or the 2000 International Residential Code/2000 International Building Code, as revised by the Texas Revisions, which became effective on February 1, 2003 ; and
(3) to specify the percentage of rate reduction [ credit ] which must be applied to windstorm and hail insurance policies issued by the Texas Windstorm Insurance Association for residential structures constructed prior to September 1, 1998 , or February 1, 2003, as applicable , which have been retro-fitted with exterior opening protection [ protections ] that meets [ meet ] the windborne debris impact-resisting [ criteria ] standards of the Texas Windstorm Insurance Association Building Code for Windstorm Resistant Construction, which became effective on September 1, 1998 , or the 2000 International Residential Code/2000 International Building Code, as revised by the Texas Revisions, which became effective on February 1, 2003 , or equivalent criteria recognized by the Department pursuant to the procedures of the Texas Windstorm Insurance Association Building Code for Windstorm Resistant Construction, which became effective on September 1, 1998 , or the 2000 International Residential Code/2000 International Building Code, as revised by the Texas Revisions, which became effective on February 1, 2003 .
(b) Definitions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise.
(1) Article 21.49, §8E-- Section 8E of Article 21.49 of the Insurance Code as added by Acts 1997, 75th Legislature, chapter 1000, §3, effective September 1, 1997 .
(2) Association-- Texas Windstorm Insurance Association.
(3) TWIA Building Code--Texas Windstorm Insurance Association Building Code for Windstorm Resistant Construction, which became effective on September 1, 1998 .
(4) Department--Texas Department of Insurance
(5) Exterior openings--Openings in the exterior walls or roofs of residential structures, including, but not limited to, windows, doors, garage doors, and skylights.
(6) Inland I areas--Areas inland of the Intracoastal Canal and within approximately 25 miles of the Texas coastline and east of the boundary line specified in §5.4008(b)(2)(A) of this title, and certain areas in Harris County as specified in §5.4008(b)(2)(B) of this title[ , ] ( relating to Applicable Building Code Standards in Designated Catastrophe Areas for Structures Constructed, Repaired, or to Which Additions Are Made on and after September 1, 1998 ) .
(7) Inland II areas--Areas inland and west of the boundary line specified in §5.4008(b)(2)(A) of this title[ , relating to Applicable Building Code Standards in Designated Catastrophe Areas for Structures Constructed, Repaired, or to Which Additions Are Made on and after September 1, 1998 ].
(8) IRC--2000 International Residential Code, as revised by the
Texas Revisions, which became effective on February 1, 2003 .(9) IBC--2000 International Building Code, as revised by the Texas Revisions, which became effective on February 1, 2003 .
(c) Percentage Rate Reduction [ Rollback ] for New Residential Construction Built to TWIA Building Code or IRC/IBC Standards.
(1) Areas seaward of the Intracoastal Canal . The Association shall implement a rate reduction of 26% for dwelling coverage and 20% for personal property coverage for new residential construction built to the TWIA Building Code standards and 28% for dwelling coverage and 23% for personal property coverage for new residential construction built to the IRC/IBC standards for residential structures located in areas seaward of the Intracoastal Canal .
(2) Inland I areas. The Association shall implement a rate reduction of 24% for dwelling coverage and 19% for personal property coverage for new residential construction built to the TWIA Building Code standards and 26% for dwelling coverage and 21% for personal property coverage for new residential construction built to the IRC/IBC standards for residential structures located in the Inland I areas.
(3) Inland II areas. The Association shall implement a rate reduction of 26% for dwelling coverage and 20% for personal property coverage for new residential construction built to the IRC/IBC standards for residential structures located in the Inland II areas.
(d) Percentage Rate Reduction [ Credits ] for New Residential Construction Built to Higher Standards than Required by the TWIA Building Code or the IRC/IBC .
(1) Inland I areas. The Association shall implement a rate reduction of 29% for dwelling coverage and 23% for personal property coverage for new residential construction in the Inland I areas that meets the TWIA Building Code standards for a residential structure located in areas seaward of the Intracoastal Canal and 31% for dwelling coverage and 25% for personal property coverage for new residential construction in the Inland I areas that meets the IRC/IBC standards for a residential structure located in areas seaward of the Intracoastal Canal .
(2) Inland II areas.
(A) The Association shall implement a rate reduction of 27% for dwelling coverage and 21% for personal property coverage for new residential construction located in the Inland II area that meets the TWIA Building Code standards for a residential structure located in the Inland I areas and 28% for dwelling coverage and 23% for personal property coverage for new residential construction in the Inland II area that meets the IRC/IBC standards for a residential structure located in the Inland I areas .
(B) The Association shall implement a rate reduction of 32% for dwelling coverage and 25% for personal property coverage for new residential construction located in the Inland II areas that meets the TWIA Building Code standards for a residential structure located in the areas seaward of the Intracoastal Canal and 33% for dwelling coverage and 28% for personal property coverage for new residential construction in the Inland II areas that meets the IRC/IBC standards for a residential structure located in the areas seaward of the Intracoastal Canal .
(e) Percentage Rate Reduction [ Credits ] for Certain Retro-fitted Residential Structures. The Association shall implement a rate reduction of 10% for dwelling coverage and 10% for personal property coverage for residential structures in any of the designated catastrophe areas which were constructed prior to September 1, 1998, or February 1, 2003, as applicable, which have been retro-fitted with exterior opening protection [ protections ] that meets [ meet ] the windborne debris impact-resisting [ criteria ] standards of the TWIA Building Code or the IRC/IBC or equivalent criteria recognized by the Department pursuant to TWIA Building Code or IRC/IBC procedures. All exterior openings of the residential structure must be protected for the structure to be eligible for the rate reductions [ credits ] specified in this subsection.
(f) Certification Required to Qualify for Rate [ Rollback ] Reduction [ or Rate Credits ]. A residential structure must be certified by the Department as meeting the standards specified in the TWIA Building Code or the IRC/IBC to qualify for the rate reductions specified in this section.
(g) Effective Date. The rate reductions [ rollback and the rate credits ] specified in this section shall be applied to windstorm and hail insurance policies issued by the Association on and after February 28, 1999 , for the TWIA Building Code and on and after July 31, 2003 , for the IRC/IBC .