SECTION 5.3702. Designation of Underserved Areas for Residential Property Insurance for Purposes of the Insurance Code Article 5.13-2C

(a) Purpose. The purpose of this section is to:

(1) designate the areas determined by the Commissioner of Insurance to be underserved areas for purposes of residential property insurance pursuant to the Insurance Code Article 5.13-2C;

(2) identify the factors and methodology used in determining such underserved areas, and

(3) provide a procedure that requires insurers to certify their eligibility for the exemption provided by Article 5.13-2C.

(b) Definitions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise.

(1) Underserved area--An area determined and designated in this section as an underserved area by the Commissioner of Insurance for purposes of an exemption from rate filings and approval requirements for certain insurers pursuant to the Insurance Code Article 5.13-2C.

(2) Commissioner--Commissioner of Insurance.

(3) Department--Texas Department of Insurance.

(4) Market share--the number of residential property insurance policies that an individual insurer has in force expressed as a percentage of the total number of residential property insurance policies in force in a defined geographic area (i.e. state wide or in a specific ZIP Code).

(c) Underserved areas. The ZIP Codes in Figure 28 TAC §5.3702(c) are designated as underserved areas pursuant to the Insurance Code Article 5.13-2C, effective May 13, 2004:

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(d) Factors and methodology. In determining the areas designated as underserved, the Commissioner shall consider whether residential property insurance is not reasonably available to a substantial number of owners of insurable residential property in a specific geographic area and any other relevant factors as determined by the Commissioner. The determination of the areas to be designated as underserved is based on the factors and methodology outlined in this subsection.

(1) There is no single comprehensive measure of whether residential property insurance is or is not reasonably available or is or is not potentially reasonably available to a substantial number of owners of insurable property either on a statewide basis or in any particular area of the state. The Commissioner has identified characteristics of particular geographic areas which are likely to be associated with greater difficulty by consumers in obtaining residential property insurance.

(2) Geographic factors based on weather-related loss exposure and the resulting underwriting restrictions used by insurers writing residential property insurance in Texas that would limit the availability of residential property insurance coverages to a greater extent in some geographic areas than in others are as follows:

(A) Tier 1 and Tier 2 coastal counties. One type of weather-related loss exposure concerns the potential for catastrophic hurricanes and other types of windstorms in the First Tier Coastal Counties (Tier 1) and Second Tier Coastal Counties (Tier 2), as defined in Article 21.49 §3 (l) and (m), and the inability of residents to obtain windstorm and hail insurance through the voluntary market in these areas. The Commissioner has determined that the location of a ZIP Code in the geographic areas that comprise the Tier 1 and Tier 2 coastal counties is a factor to be used in determining whether an area is an underserved area for purposes of Article 5.13-2C. ZIP Codes located along the coast, Tiers 1 and 2, are assigned five points.

(B) Dallas and Tarrant Counties. A second geographic area that has historically been affected by weather-related loss exposure underwriting factors is Dallas and Tarrant counties. Due to the frequency and severity of hail storms and the ensuing claims in these counties, insurers have restricted their writing of residential property insurance and have limited the availability of certain property insurance coverages in these counties. Based on this lack of availability of residential property insurance to a substantial number of owners of insurable property in Dallas and Tarrant counties, the Commissioner has determined that the location of a ZIP Code in these counties be considered a factor in determining whether an area is underserved for purposes of Article 5.13-2C. ZIP Codes located in Dallas or Tarrant counties, are assigned five points.

(3) The specific demographic factors and the points assigned are as follows:

(A) ZIP Codes with median household incomes of $36,000 or less are assigned one point.

(B) ZIP Codes with median value of owner-occupied dwellings of $75,000 or less are assigned one point.

(C) ZIP Codes with a median year built of 1974 or earlier are assigned one point.

(D) ZIP Codes with percentages of insured households of less than 50% are assigned one point.

(4) Market share of a set of insurer groups is a factor that correlates with the availability of residential property insurance. The department examined data reported by insurers pursuant to the Texas Statistical Plan for Residential Risks and determined the insurer groups that account for at least 90% of the cumulative market share of residential property insurance policies written on a state wide basis. The department then analyzed data for each of the geographic ZIP Codes in Texas (excluding single point ZIP Codes) and calculated the cumulative market share written by the same insurer groups for each of the individual ZIP Codes. The cumulative market share for each individual ZIP Code was then compared to the state wide cumulative market share of 90%. If the cumulative market share for an individual ZIP Code is less than 90%, then this ZIP Code will receive one point.

(5) Based on the factors and points specified in paragraphs (2), (3), and (4) of this subsection, the number of points assigned were totaled by ZIP Code. Areas with five or more points were identified as underserved or potentially underserved and generally designated as underserved areas in subsection (c) of this section. To be underserved a ZIP Code can meet any one of the geographic based criteria or it must meet all four of the demographic based criteria and the market share criteria.

(e) Required certification of exemption to the Department.

(1) An insurer that may be entitled to the exemption from the insurance rate filing and approval requirements of Article 5.142 or Article 5.13-2 of the Insurance Code, pursuant to the provisions of Article 5.13-2C of the Insurance Code, shall file with the Department a Certification of Article 5.13-2C Exemption Compliance (EC-1) form at least ten days preceding the date an insurance rate filing would be otherwise required by the insurer under Article 5.142 or Article 5.13-2.

(2) The Certification of Article 5.13-2C Exemption Compliance (EC-1) form is provided by the Department for use by insurers seeking an exemption from rate filing and approval requirements pursuant to Article 5.13-2C. This form may be obtained from the Texas Department of Insurance website http:/www.tdi.state.tx.us or by requesting such form from the Property and Casualty Actuarial Division, Mail Code 105-5, P.O. Box 149104, Austin, TX 78714-9104. For purposes of this section, in lieu of submitting a form provided by the department, an insurer may submit to the department the insurer's own form if the form contains the same information that is required and contained in the form provided by the department. All Application for Article 5.13-2 Exemption forms must be submitted to the Texas Department of Insurance, Property and Casualty Intake Unit, Mail Code 104-3B, P.O. Box 149104, Austin, TX 78714-9104.

Source Note: The provisions of this §5.3702 adopted to be effective June 3, 2004, 29 TexReg 5398