The Commissioner of Insurance, by Commissioner's Order No. 96-0841, Docket No. 2228, has adopted amendments to Rule 7 (Premium Calculation) and repealed Rule 8 (Factors and Multipliers) and Rule 9 (Rounding Rule) in the Texas Automobile Rules and Rating Manual (Manual). The amendments revise Rule 7, Premium Computation (rule title revised to "Premium Calculation"), and incorporate the provisions of Rules 8 and 9 into amended Rule 7.
The adopted Rule 7, specifies, through detailed narrative and example, the method of calculating automobile insurance premiums. In addition, this rule removes any confusion in the application of the premium calculation rules and adopts single rounding as the only correct procedure to calculate automobile insurance premiums. The Commissioner received written comments on the published proposal prior to the hearing and oral comments at the hearing on June 27,1996. Commenters requested modifications to the proposed amendments to clarify the intent of the application of the rule and to make compliance easier for some computer systems used by individual insurers.
As a result of these comments, the Commissioner adopted the proposed amendments to Rule 7 with the following non-substantive changes: (1) The title of Rule 7, Premium Computation, is changed to Premium Calculation for consistency with terminology in the text of the rule. (2) Proposed subsections A.1. and A.2. are redesignated as subsections A.1.a. and A.1.b., and are changed to clarify that for new policies, the premium tables and rates in effect on the policy inception date are to be used for the calculation of premiums, and for renewal policies, the premium tables and rates in effect on the policy renewal date are to be used for the calculation of premiums. (3) A new subsection A.1.c. is added to cross-reference Manual Rule 11, which pertains to interim premium adjustments or calculations. (4) Proposed subsection B of Rule 7 is redesignated A.2. and proposed subsection C of Rule 7 is redesignated A.3. with no change to the text of these two subsections. (5) Proposed subsection D is redesignated A.4., and is revised to clarify that the appropriate term factor to be applied to the resulting premium calculated in previous subsections is the pro rata term factor. In addition, the language on this requirement superseding any contrary provision in the Manual is deleted as unnecessary. (6) Proposed subsection E is redesignated A.5.; the word "computation" is changed to "calculation" for consistency in the text of the rule; and to clarify that the reference in this subsection to towing and labor costs is a reference to coverage, the word "coverage" is added. (7) Based on one commenter's concern regarding the sequence of applying factors in the calculation of premiums and the fact that the application of a term factor was required as the final step in the premium calculation, a new subsection B is added to Rule 7. Subsection B allows an insurer to vary the sequence for applying the term factor specified in new subsection A.4. as long as the result of each calculation specified in subsections A.2. through A.4. is rounded to three decimal places and the rounding required in subsection A.5. is the last step in the premium calculation. (8) New language is added under the example for calculating a premium to allow the sequence of calculation to vary except for the rounding required in subsection A.5. of the rule.
The amendments, shown in an attachment to this letter, were adopted to be applicable to policies issued on and after November 1, 1996, and insurers may optionally apply the amendments to policies issued from July 31, 1996 to November 1, 1996.
David P. Durden
Deputy Commissioner
Property and Casualty Insurance Lines
A copy of the attachment may be obtained by calling the Chief Clerk's office at 512-463-6326.