TDI Commissioner’s Bulletin B-0008-00 – Auto W/D Premium Payout

To: ALL INSURANCE COMPANIES AUTHORIZED OR ELIGIBLE TO WRITE PROPERTY & CASUALTY INSURANCE IN TEXAS

RE: Enactment of Legislation SB984 and HB2284 by the 76th Texas Legislature Notice to Insurers

The purpose of this bulletin is to notify insurers of the requirements of two bills enacted by the 76th Texas Legislature regarding the writing of property & casualty insurance. Insurers should review their business practices to ensure that they are in compliance with the laws described in this bulletin.

SB 984

Senate Bill 984 amends Subchapter E, Chapter 21, Texas Insurance Code by adding Article 21.49-2E. This article applies to any insurer admitted to do business and authorized to write property and casualty and liability insurance in this state.

Article 21.49-2E provides that an insurer´s written statement giving the reason or reasons for cancellation, declination, or nonrenewal of an insurance policy required by Articles 21.49-2, 21.49-2A, and 21.49-2B of the Texas Insurance Code shall fully explain a decision which adversely affects an applicant or policyholder by denying the applicant or policyholder coverage or continued coverage.

Article 21.49-2 applies to insurers issuing policies regulated pursuant to Chapter 5 of the Texas Insurance Code, other than policies subject to 21.49- 2A or 21.49-2B, or marine insurance policies other than inland marine. Upon request, the insurer must give to the policyholder or applicant for insurance the reason or reasons for declination, cancellation, or nonrenewal.

Article 21.49-2A applies to each insurance company or other entity admitted to do business and authorized to write liability insurance, including County Mutuals, Lloyds, and reciprocal or interinsurance exchanges, but excluding Farm Mutuals and County Mutuals writing exclusively industrial fire insurance as defined by Article 17.02. Liability insurance is defined as general liability, professional liability other than medical professional, commercial automobile liability, commercial multiperil coverage, and any other lines of insurance designated by the Texas Department of Insurance. Subsection (g) requires the insurer to state in a notice of cancellation or nonrenewal the reason for the cancellation or nonrenewal.

Article 21.49-2B applies to any licensed insurer writing property and casualty insurance in the state, including County Mutuals, Lloyds, reciprocal or interinsurance exchanges, and Farm Mutuals.

The article applies to personal automobile policies, other than policies written through TAIPA, homeowners or farm or ranch owners policies, standard fire policies insuring one-family dwellings, duplexes, or the contents of one-family dwellings, duplexes, or apartments, and policies providing property and casualty coverage to a governmental unit other than a fidelity, surety, or guaranty bond. The insurer must provide, at the request of an insured or applicant, a written statement of the reason for a cancellation or nonrenewal of or determination not to issue a policy.

The statute provides that the insurer’s written statement shall:

(1) state the precise incident, circumstance, or risk factor or factors applicable to the applicant or policyholder that violate the guideline or guidelines; and

(2) state the source of information the insurer relied on regarding the incident, circumstance, or risk factor or factors.

The Department believes that these provisions provide clear guidance as to the contents of the notice. To assist insurers in drafting such notices, the Department points out that the statute also provides that the written statement must fully explain a decision which adversely affects an applicant or policyholder by denying coverage or continued coverage; accordingly, it is the Department’s position that general statements do not comply with the intent of the statute and that insurers must clearly state the specific reason(s) the applicant or policyholder does not qualify for coverage or continued coverage. The Department will be reviewing insurers’ written statements periodically to ensure that the statements provide the information required by this statute.

This statute became effective September 1, 1999, and applies to a cancellation, declination, or nonrenewal of an insurance policy that occurs on or after January 1, 2000.

HB 2284

House Bill 2284 amends Subchapter E, Chapter 21, Texas Insurance Code by amending Article 21.57(b). This article applies to any person or entity transacting the business of insurance in this state, as defined in Article 1.14- 1 of the Texas Insurance Code, including surplus lines insurance.

Article 21.57(b) provides that any insurer receiving automatic premium payments through withdrawal of funds from a person´s account, including the withdrawal of funds from a person´s escrow account, for purposes of premium payments on any insurance coverage shall not increase those premium payments unless:

(1) The insurer, not later than the 30th day before the effective date of the increase in premium, notifies the person of the increase and provides such person a postage prepaid form that may be used to object to such increase; and

(2) neither the insurer nor financial institution receives written objection to the increase in premium at least five days before the date on which such increase takes effect.

This statute became effective September 1, 1999.

Please direct questions regarding this bulletin to Larry Dunbar, Manager, Homeowners Division, at (512) 322-2266.

David Durden
Associate Commissioner
Property & Casualty Program