Order CO-02-1093 Establishing FAIR Plan

Subject Considered:

ESTABLISHMENT OF THE FAIR ACCESS TO INSURANCE REQUIREMENTS PLAN

General remarks and official action taken:

On this day came on for consideration by the Commissioner of Insurance the matter of the establishment of a Fair Access to Insurance Requirements (FAIR) Plan to deliver residential property insurance to citizens of the state in underserved areas.

The Commissioner has jurisdiction of this matter pursuant to the Insurance Code Article 21.49A. Article 21.49A, Section 1(a) gives the Commissioner the authority to establish a FAIR Plan for the purpose of delivering residential property insurance to citizens of this state in underserved areas, which have been designated by the Commissioner by rule. The following criteria must be met for the establishment of a FAIR Plan: (1) The Commissioner must determine that in all or any part of the state, residential property insurance is not reasonably available in the voluntary market to a substantial number of insurable risks; and (2) at least 50% of the applicants to the Market Assistance Program (MAP) have not been placed with an insurer in a previous 12-month period. Article 21.49A provides that all insurers licensed to write property and casualty insurance and writing residential property insurance in this state, including Lloyds, reciprocals, and interinsurance exchanges, shall participate in the FAIR Plan.

A public hearing to consider this matter was held under Docket No. 2536 on October 10, 2002, at 8:30 a.m. in Room 225 of the William P. Hobby, Jr. State Office Building Tower 2, 333 Guadalupe Street, Austin, Texas. Notice of this hearing was posted with the Secretary of State on October 2, 2002.

After careful consideration, the Commissioner has determined that a FAIR Plan should be established pursuant to Article 21.49A of the Insurance Code and that residential property insurance is not reasonably available in the voluntary market to a substantial number of insurable risks. On September 25, 2002, an insurer announced that it would not renew current homeowners insurance policies beginning November 12, 2002, and would no longer provide Texas consumers with homeowners insurance coverage. The insurer currently has approximately 700,000 residential property insurance policies, which represents about 20% of the homeowners market in force in Texas. The decision to nonrenew will affect each of these households and the Texas homeowners market. In addition, another insurer, which is the largest writer of homeowners insurance in Texas with over 30% of the market, has not been writing new homeowners insurance for over a year. Many other insurers have recently placed new restrictions on writing homeowners insurance. In the past year, there has been a 91% increase in the homeowners premiums written by surplus lines insurers.

On October 8, 2002, in Order No. 02-1052, the commissioner by rule determined and designated that all of the counties in Texas are underserved. Based on the evidence presented at the hearing, the Commissioner has determined that with respect to the first criteria for the implementation of a FAIR Plan, the two insurers that write over 50 percent of the homeowners insurance market in Texas as of November 12, 2002, will no longer be writing or will continue to not write new homeowners business in Texas. Therefore, the group of insurers who write less than 50% of the homeowners insurance market in Texas will be left to absorb an estimated 55,000 homeowners seeking policies each month from another insurer as a result of an insurer´s decision to leave the homeowners market in Texas and other insurers´ decisions to not write new homeowners insurance. The large increase in homeowners premiums written by surplus lines insurers is an indication that many consumers are currently having difficulty finding homeowners insurance or were unable to obtain homeowners insurance in the admitted market. Beginning November 12, 2002, consumers most likely will face even more difficulty in obtaining or will be unable to obtain homeowners insurance through the admitted homeowners insurance market, and residential property insurance will not be reasonably available in the voluntary market to a substantial number of insurable risks.

Based on a review of the performance data of the residential property MAP for the last fiscal year, September 1, 2001 to August 31, 2002, the Commissioner has determined that only 40% of the eligible applications referred to the insurers participating in the MAP resulted in the issuance of a residential property insurance policy. Forty percent of the eligible applications resulting in policies is below the 50% threshold set forth for the implementation of a FAIR Plan.

After careful consideration, the Commissioner has determined, based upon the evidence produced at the hearing in Docket No 2536, that residential property insurance is not reasonably available in the voluntary market to a substantial number of insurable risks in underserved areas as designated by rule by the Commissioner. The Commissioner has further determined that less than 50% of the eligible MAP applications referred to insurers participating in the MAP resulted in issuance of a residential property insurance policy. The Commissioner has determined that a FAIR Plan should be established.

IT IS THEREFORE THE ORDER of the Commissioner of Insurance that for the reasons specified herein, a FAIR Plan is established to deliver residential property insurance to citizens of the state in underserved areas.