Procedural Updates

TO: ALL INSURERS AUTHORIZED OR ELIGIBLE TO ENGAGE IN THE BUSINESS OF INSURANCE IN THE STATE OF TEXAS, ALL AGENTS, ALL THIRD-PARTY ADMINISTRATORS, ALL TRADE ASSOCIATIONS, AND THE PUBLIC GENERALLY.

RE: ENACTMENT OF HB 3221 BY THE 81ST TEXAS LEGISLATURE RELATING TO AUTOMATIC WITHDRAWAL OF FUNDS FROM A PERSON’S ACCOUNT.

The purpose of this bulletin is to notify insurers of the requirements of House Bill 3221 (HB 3221 ), amending Section 550.002 of the Insurance Code relating to the required notification before automatic premium payments may be increased. The Department has received several inquiries relating to the implementation of HB 3221. Section 550.002, as amended, applies to insurers that collect insurance premiums through the automatic withdrawal of funds from their insureds’ specified accounts. Section 550.002 requires these insurers to provide notice to their insureds of an increase in the automatic withdrawal amount and a means for objecting to the increased withdrawal prior to the funds being withdrawn. Insurers should review their business practices to ensure that they are in compliance with the laws described in this bulletin.

Provisions of Amended §550.002

Section 550.002(b) applies to an insurer receiving automatic premium payments through withdrawal of funds from a person’s account. This section requires the insurer to provide notification to a person relating to an increase in the amount of funds to be withdrawn from the person’s account to pay premiums on insurance coverage. Section 550.002(b) is amended to specify that this notification must be provided by mailing a notice through the U.S. Postal Service.

Section 550.002(b-1) specifies the required contents of the notice and identifies the means by which a policyholder may object to an increase in the automatic withdrawal amount. This section provides that the notice must include the insurer’s toll-free telephone number, mailing address, and electronic mail address, if applicable, through which the person may object to the increase. This section further provides that an objection made by the policyholder through a telephone call, mail, or electronic mail constitutes a valid objection.

Section 550.002(b-2) specifies that the insurer may increase the amount of funds to be withdrawn only if the insurer does not receive a valid objection to the automatic withdrawal increase on or before the fifth day before the date on which the increase is scheduled to take effect.

Applicability

Section 550.002 applies to a person or entity engaged in the business of insurance in the State of Texas as described by Chapter 101, including a person or entity engaged in the business of surplus lines insurance in this state.

Section 550.002(b) applies to “an insurer receiving automatic premium payments through withdrawal of funds from a person’s account.” The term “account” is defined by §550.002(a)(1) as “a person’s account in a financial institution.” “Financial institution” is defined by §550.002(a)(2) as “a state or national bank, a state or federal savings and loan association or corporation, or a state or federal credit union.” Section 550.002(b) extends the definition of “account” to include an escrow account.

Section 550.002 applies to increases in the amount of funds to be automatically withdrawn from an account by an insurer to pay premiums. The notice requirement applies without consideration of the reason for the increase in the premium payment amount.

The notice requirement applies to any increase in the automatic withdrawal amount to pay premiums that occurred on or after June 19, 2009, subject to the exemptions outlined in §§550.002(c) and (d).

Timing

Section 550.002(b) requires the notice to be mailed “not later than the 30th day before the effective date of the increase in the premium payment amount.” Section 550.002(b-2) addresses receipt of a valid objection “on or before the fifth day before the date on which the increase is scheduled to take effect.” Insurers may vary in the timing of their automatic fund withdrawals. Therefore, for some persons, the effective date of the premium increase may be the date the coverage takes effect, while for others, it may be the date the funds are withdrawn. So, for example, the notice is required to be mailed not later than the 30th day before the earlier of the extraction date or the coverage effective date, whichever is applicable.

Mailing Requirement

Section 550.002(b) requires “mailing a notice through the United States Postal Service.” Pursuant to the Texas Business and Commerce Code §322.00B(b) relating to agreements to conduct business by electronic means, if a law other than Chapter 322 of the Texas Business and Commerce Code requires a record to be sent, communicated, or transmitted by a specified method, the record must be sent, communicated, or transmitted by the method specified in the other law. Texas Business and Commerce Code §322.008(d)(2) does allow a requirement under a law other than Chapter 322 of the Texas Business and Commerce Code to send, communicate, or transmit a record by first class mail to be varied by agreement to the extent permitted by the other law. However, §550.002 does not provide for variation of the notice requirement by agreement. Therefore, the notices must be mailed through the U.S. Postal Service, despite any agreements to transact business electronically.

Exemptions

Section 550.002(c)(1) exempts insurers from the notice requirement if the insurance contract or certificate, when issued, contains a schedule of increasing premiums; expressly specifies the exact amount of each premium; and specifies the period for which each premium is payable.

Pursuant to §550.002(c)(2), an insurer is not required to notify a person of an increase in a premium payment amount if the increase is the result of a change ordered by the insured. Moreover, §550.002(d) exempts increases in a premium payment that are less than $10 or 10 percent of the previous monthly amount from the notice requirement.

Objection Protocol

The protocol an insurer must follow to respond to an insured’s objection of the automatic withdrawal prevents amount is not specifically addressed in statute. An objection under §550.002 prevents the automatic withdrawal of the additional premium from the insured’s specified account, not the actual increase in premium. Therefore, if an insured objects to the increase in automatic withdrawal amount, the insurer may not increase the automatic withdrawal amount. The insurer may use other means to collect the additional premium due.

If you have any questions regarding this bulletin, contact Leslie Hurley, Manager, Personal Lines Division, Property & Casualty Program at (512) 322-2266 or Doug Danzeiser, Deputy Commissioner, Life, Health & Licensing Program at (512) 475-1964.

Marilyn Hamilton, Associate Commissioner
Property & Casualty Program MC 104-PC