Division 6.
Manual
28 TAC §5.4501
Division 8.
Rates
28 TAC §5.4700
The Commissioner of Insurance adopts 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 . The sections are adopted without changes to the proposed text as published in the May 23, 2003, issue of the Texas Register (28 TexReg 4066) and will not be republished.
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 amendments to §5.4700 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 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. 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 proposed rate reductions based on the IRC and to propose a change to the page in the Manual indicating the rate reductions. 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 rate reductions is based on damage ratios for structures and for contents under the IRC and the previous 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 previous codes. The adopted amendments to the TWIA Manual, which governs the writing of new policy forms and endorsements by the Association, are necessary to reflect the rate reductions that conform to the amendments to §5.4700. The adopted amendment to §5.4501 is necessary to add an effective date for the adoption by reference of the amended Manual.
The adopted amendments to §5.4700 conform the section to include the IRC and IBC, specify the percentage rate reductions, and provide an effective date of July 31, 2003. Section III, Subsection C, Item 3, Mandatory Building Code Credits, in the Manual is amended to reflect the dwelling and personal property rate reductions for the seaward, Inland I, and Inland II areas and the mandatory credits for exterior openings based on compliance with the IRC/IBC . The adopted amendment to §5.4501 adds an effective date of July 31, 2003 , for the adoption by reference of the amended Manual.
Comment: One commenter stated the belief that Article 21.49, §8E, Insurance Code was intended only for the implementation of the TWIA Building Code for Windstorm Resistant Construction and not for new codes in general, but recognized that legally the wording of §8E was clear and is still part of the statute. The commenter stated the intention to initiate efforts to repeal §8E. This commenter also stated the belief that the current TWIA rates are inadequate particularly in view of reinsurance costs and increase in exposure.
Agency Response: The department disagrees. The unambiguous wording of Article 21.49, §8E, which refers to a "new building code" as defined in §3(o), is not limited to the TWIA Building Code for Windstorm Resistant Construction initially adopted by the commissioner in 1997. Additionally, the methodology presented by the Texas Windstorm Insurance Association supported the rate reductions as petitioned to the department, and the rationale of §8E is sound to the extent that rate reductions should encourage the building of 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 the IRC/IBC standards should also reduce the amount of insured losses of the Association in the event of a hurricane. The department would further note that it considers changing conditions regarding reinsurance and increase in exposure in reviewing rate filings.
NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTIONS .
For (Not opposed): Texas Windstorm Insurance Association.
The amended sections are adopted 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 any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.
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 , 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 .
Division 8. Rates
§5.4700. Rate Reduction.
(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 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 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 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 that meets the windborne debris impact-resisting 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.
(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 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 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 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 that meets the windborne debris impact-resisting 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 specified in this subsection.
(f) Certification Required to Qualify for Rate Reduction. 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 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.