CHAPTER 5, SUBCHAPTER L, ARTICLE 5.96
ADOPTION OF AN AMENDMENT TO THE TEXAS AUTOMOBILE RULES AND RATING MANUAL TO ADD "SECTION L. RATING TIER CLASSIFICATIONS" TO RULE 74 OF THE MANUAL
The Commissioner of Insurance at a public hearing held November 6, 2003, at 9:30 a.m. under Docket No. 2576 in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street, Austin, Texas received comments and heard testimony regarding an amendment proposed by Staff to the Texas Automobile Rules and Rating Manual (the Manual) which would add Section L to Rule 74 of the Manual.
The Commissioner adopts the proposal as noticed in the October 10, 2003 issue of the Texas Register (28 TexReg.8965) with clarification changes to Rule 74.L.3.c. The department has clarified both the meaning and the basis of the term "Objective and mutually exclusive" as follows: "Criteria for assignment to rating tier classifications must be objective and mutually exclusive. "Objective and mutually exclusive" means that rules for rating tier classification assignment must be clearly and unambiguously stated so that an applicant can qualify for only one such rating tier classification and the criteria must not result in a rate, or be applied in a manner that would violate Article 21.21 and/or other provisions of the Insurance Code."
The addition of Section L will allow for a further refinement to the rating classifications currently provided in the Manual and will allow insurance groups to utilize underwriting guidelines within the same company. Currently, insurance groups utilize underwriting guidelines to assign insureds among multiple companies based on risk characteristics not recognized as classifications in the Manual. The addition of Section L to the Manual will create equity among insurers that offer insurance to insureds with different risk characteristics in a single company.
The Commissioner of Insurance has jurisdiction over this matter pursuant to the Insurance Code, Articles 5.10, 5.96, 5.98, and 5.101.
The amendments as adopted by the Commissioner of Insurance are on file in the Chief Clerk´s Office of the Texas Department of Insurance under Reference No. A-1003-20-I and are incorporated by reference into Commissioner´s Order No. 03-1145.
IT IS THEREFORE THE ORDER of the Commissioner of Insurance that amendments to the Texas Automobile Rules and Rating Manual set forth in Exhibit A attached to this Order and incorporated into this Order by reference, be adopted and applicable to be effective on the 15 th day after publication of the notification of the Commissioner´s action in the Texas Register.
L. Rating Tier Classifications
1. This rule shall be applicable to personal automobile coverage.
2. This rule does not apply to autos that are:
a. subject to experience or composite rating; or
b. assigned through the Texas Automobile Insurance Plan Association.
3. An insurer may use rating tier classifications for the reflection of risk characteristics not otherwise recognized as a classification in the manual subject to the following:
a. Rules for assignment to each rating tier classification must be filed with the department as part of a company´s rate filing.
b. Rules for assignment must be defined uniformly across all coverages.
c. Criteria for assignment to rating tier classifications must be objective and mutually exclusive. "Objective and mutually exclusive" means that rules for rating tier classification assignment must be clearly and unambiguously stated so that an applicant can qualify for only one rating tier classification and the criteria must not result in a rate, or be applied in a manner that would violate Article 21.21 and/or other provisions of the Insurance Code.
d. Tiering must be based on sound actuarial principles.
4. The applicable rating tier classification must be shown on the declarations page of the policy.
5. The methods used for rating tier classifications must not result in unfair discrimination.
6. Rating tier classification rates are subject to the flexible rating program of the Texas Insurance Code Article 5.101.