Texas Register, Volume 20, Number 7, Pages 405-522, January 27, 1995 Page: 452
405-522 p. ; 28 cm.View a full description of this periodical.
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bor provisions is vague. Another commenter
questioned what claims system tracks con-
sumer negligence.
DEPARTMENT'S RESPONSE: The Depart-
ment disagrees. "Negligence" is a well-
defined term in insurance law. The term "con-
sumer" is defined in the rule to include both
applicants and existing insureds. Thus, the
term "consumer negligence" refers to negli-
gence by the consumer and is not vague.
This safe harbor provision may be used
whether or not a claim tracking system is
used.
COMMENT: A commenter argued that the
term "substantially at fault" used in the safe
harbor provisions is vague.
DEPARTMENT'S RESPONSE: The Depart-
ment disagrees that the term is vague. How-
ever, the Department changed subsection
(d)(1)(B) from "was substantially at fault" to
"can reasonably be considered to have been
at fault." This new standard is the same as
that used in Rule 5.7016, for which there has
been no complaint that the term is vague. In
fact, insurers and agent associations agreed
on the language of that rule and the Depart-
ment assumes the language is easily under-
stood. Moreover, the Department has
received no complaints regarding any ambi-
guity regarding that term in that rule.
COMMENT: A commenter argued that the
term "specific and objective measures" is un-
clear.
DEPARTMENT'S RESPONSE: The Depart-
ment disagrees. The term is used in the safe
harbor, "the physical condition of the property
to be insured, provided the underwriting
guideline has specific and objective mea-
sures to evaluate the risk." While the Depart-
ment recognizes that underwriting based
upon the physical condition of the property to
be insured is a relevant factor for the insurer
to consider, the Department is concerned that
such a guideline applied inconsistently and
subjectively would be an unfair underwriting
guideline. The term "specific and objective
measures" simply adds the requirement that
any underwriting guideline related to the
physical condition of the property to be in-
sured be crafted in such a way that different
agents or underwriters would apply that
guideline the same way under the same cir-
cumstances.
The relevance and clarity of the term "specific
and objective measures" is demonstrated
with the following quote from the section
"Function of Guidelines" from one Texas in-
surer's underwriting guidelines manual:
"Exposures that are identical in every respect
should elicit the same underwriting response.
The Underwriting Guidelines help to ensure
that selection decisions are made on a uni-
form and consistent basis throughout all geo-
graphic regions.
Because some individual risks have their own
unique set of hazards and exposures, the
insights aid lessons of the more mature Un-
derwriters can be made available to those
less familiar with the particulars. The Under-
writing Guidelines provide an accumulation of
these pertinent observations from the compa-
ny's past experience.Many underwriting situations occur repeti-
tively. By setting out the problems of a partic-
ular case which have been identified and
solved, the Underwriting Guidelines present
the solution to all identical situations recurring
in the future."
COMMENT: A commenter argued that the
term "significant risk of loss" used in the safe
harbor provisions is vague.
DEPARTMENT'S RESPONSE: The Depart-
ment disagrees. However, the term was de-
leted from the rule, so the comment is no
longer relevant.
COMMENT: Commenters argued that the
safe harbor provision wherein companies
may request that underwriting guidelines be
added to the safe harbor list would violate
Article 1.24D.
DEPARTMENT'S RESPONSE: The provision
for filing a request to add an additional under-
writing guideline to the list of safe harbor
guidelines was amended to provide that once
one person files the request, any person us-
ing the request obtains the safe harbor pro-
tections. The provision was also changed to
provide that the name of an insurer who files
such a request will not be released publicly,
unless the insurer consents in writing to the
identification, and to provide for a public list-
ing of the underwriting guidelines under con-
sideration. These changes fully address the
concerns of the commenter.
COMMENT: Commenters argued that the
rule would prohibit a company from giving
preferential underwriting treatment to a long
time member who has a history and relation-
ship with the company.
DEPARTMENT'S RESPONSE: To the extent
that the preferential treatment envisioned by
this commenter is justified by sound actuarial
principles, the rule would not prevent such a
guideline. Further, data to test such different
underwriting practices should be available to
the insurer. In addition, an underwriting
guideline which provides differential treatment
to insureds similar in all but the number of
years insured with a company may be sub-
mitted to the Commissioner for consideration
as an underwriting guideline which is inher-
ently fair and included in the safe harbor.
COMMENT: A commenter asked why no
prior guidelines have not been included in the
safe harbor provisions.
DEPARTMENT'S RESPONSE: The Depart-
ment does not believe that underwriting
guidelines based upon the fact that a con-
sumer had or did not have prior insurance is
inherently fair. Any company or interested
party can file a petition to add such an under-
writing guideline to the safe harbors and the
Department will help collect relevant data as
necessary. If a company can already demon-
strate that such a guideline is actuarially
sound, the company may use that guideline
under this rule.
COMMENT: A commenter argued that the
safe harbors are inconsistent regarding moral
hazards. The commenter questioned why
other moral hazards are not included. The
commenter questioned why there must be a
conviction for arson but not for insurance
fraud.DEPARTMENT'S RESPONSE: There is no
inconsistency in the safe harbors because the
rule does not prohibit underwriting guidelines
simply because they are not listed in the safe
harbor provisions. There may be additional
underwriting guidelines that are appropriate
safe harbors. The rule provides safe harbor
protections for any additional safe harbor pro-
visions that are petitioned to be added. Thus,
the commenter is free to use underwriting
guidelines based on other moral risks to the
extent such guidelines are actuarially sound
or the commenter may avail itself of the safe
harbor protection that permits it to file a peti-
tion to add these other underwriting guide-
lines to the safe harbor provisions. Regarding
the conviction for arson, the Department has
deleted the conviction requirement.
COMMENT: A commenter questioned
whether "hazard" in subsection (d)(2)(A)
encompasses moral hazards or risks or sim-
ply physical hazards.
DEPARTMENT'S RESPONSE: The tenn re-
fers only to physical hazards associated with
the physical condition of the property. The
subsection does not express or imply a refer-
ence to moral hazards.
COMMENT: A commenter asked why guide-
lines based upon Department rate classifica-
tions have not been included as safe harbors.
DEPARTMENT'S RESPONSE: Since De-
partment promulgated rate classifications
must, by law, be actuarially sound, there is no
need to include them in the safe harbors. The
fact that they are not listed in the safe harbor
provisions does not mean that the classifica-
tions cannot be used. Where the Department
has promulgated a rate differential between
two classes, then the discrimination between
the two classes is actuarially sound. The De-
partment is prohibited from promulgating rate
differentials that are not actuarially sound.
Thus, if the Department has promulgated a
rate differential between two classes (regard-
less of the amount of the differential), and the
underwriting guideline is not otherwise pro-
hibited, then an insurer who discriminates be-
tween those two identical classes in the
underwriting decision has done so based on
sound actuarial principles.
COMMENT: A commenter asked how the
safe harbor guideline for accidents in which
the consumer is "substantially at fault"
meshes with the Department's not-at-fault
rule, 5.7016. The commenter argues that
rule strongly implies that two or more not-at-
fault claims may be used as a basis for
nonrenewal.
DEPARTMENT'S RESPONSE: This safe
harbor was changed to use the same stan-
dard as used in the not-at-fault rule. Thus, the
two rules are consistent. The not-at-fault rule,
like this rule, is a rule of prohibition, not a rule
of authorization. The Department, therefore,
disagrees that the rule permits the use of any
underwriting guideline. Moreover, this rule
does not prevent the use of a guideline based
on two or more not-at-fault claims simply be-
cause it is not listed in the safe harbor provi-
sions. If such a guideline is actuarially sound,
it is not prohibited by this rule. Therefore,
there is no inconsistency between this rule
and the not-at-fault rule.20 TexReg 452 January 27, 1995 R
6
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Texas. Secretary of State. Texas Register, Volume 20, Number 7, Pages 405-522, January 27, 1995, periodical, January 27, 1995; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth176739/m1/48/: accessed May 21, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.