The Commissioner of Insurance, by Commissioner's Order No. 02-0063, has adopted amendments to the Texas Automobile Rules and Rating Manual (the Manual). These amendments add a new Rule 82 and new Endorsement 505 in order to establish a rule that provides for an optional mile-based rating plan that insurers may use with the Texas Personal Auto Policy. This action implements new Insurance Code Article 5.01-4, enacted by the 77 th Legislature in HB 45.
The Commissioner adopted a new Manual Rule 82 that will allow an insurer the option to use a mile-based rating plan for the Texas Personal Auto Policy. The policy form used under the mile-based rating plan will be the same as the form used for other policies, except it will be amended by the Mile-Based Rating Plan Endorsement (Endorsement 505), which was also adopted. New Rule 82, as provided in Insurance Code Article 5.01-4, specifies that each insurer that offers the mile-based rating plan shall annually file with the Department for approval a schedule of the rates to be used for that plan.
As specified in Insurance Code Article 5.01-4, Section 5(b)(3), the rule and the endorsement provide for the insurer to audit the mileage of a covered auto at any time by checking the odometer or using some other method to determine whether coverage is in effect. A policy issued through the mile-based rating plan must comply with Manual Rule 6, Policy Term and Renewal Certificate, except coverage will terminate on the expiration date shown in the Declarations or upon a "covered auto" or autos exceeding specified mileage, whichever comes first. If the specified mileage is exceeded prior to the policy's expiration date, coverage for that auto terminates, but the policy will remain in effect until the expiration date of the policy. Coverage will continue until the expiration date in the Declarations for covered autos that have not exceeded their specified mileage. The insured may purchase additional mileage, during the current policy period, for an auto in exchange for additional premium. For any unused mileage that may exist on the termination date of the policy, the insurer, according to its rating plan, may give the insured a refund of unearned premium or a credit to be applied to the renewal policy. The order specifies that Insurance Code Article 21.49-2B applies to policies written under the mile-based rating plan.
New Manual Rule 82 provides that no other rating rule in the Manual shall apply to a mile-based rating plan. The following Manual rules are applicable to a mile-based rating plan: Rule 6 (Policy Term and Renewal Certificate), Rule 12 (Continuation of Coverage - Cancelled or Terminated Policy), Rule 13 (Cancellations), Rule 14 (Installments for Premium Payments), Rule 15 (Automobile Theft Prevention Authority Pass-Through Fee), Rule 71 (Definitions), Rule 72 (Personal Auto Policy and Coverage - Eligibility).
Insurance Code Article 5.01-4, which became effective September 1, 2001 requires the Commissioner to "adopt rules as necessary or appropriate to govern the use of a mile-based rating plan." Article 5.01-4, which expires September 1, 2005, applies only to a policy that becomes effective on or after January 1, 2002.
Although the statute provides that an insurer's rates under the mile-based rating plan are exempt from Insurance Code Article 5.101, the Commissioner has the authority to approve such rates under Article 5.01-4, or to reject them if the filed rates are found to be excessive in comparison to rates charged for similar coverage under the current rating plan used by the insurer. Such rejection cannot be later than the 60 th day after the rates are filed. Prior to any rejection, the insurer must be given notice and an opportunity for a hearing.
The amendments were adopted to become effective February 16, 2002, which is 15 days after publication of the Commissioner's action in the Texas Register.
Marilyn Hamilton
Associate Commissioner
Property & Casualty Program