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in the automatic withdrawal amount and a means for objecting to the increased withdrawal prior to the funds being withdrawn.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section requires the insurer to provide notification to a person relating to an increase in the amount of funds to be withdrawn from the person’s account to pay premiums on insurance coverage.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Section 550.002(b-2) specifies that the insurer may increase the amount of funds to be withdrawn only if the insurer does not receive a valid objection to the automatic withdrawal increase on or before the fifth day before the date on which the increase is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

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Texas Commissioner’s Bulletin No. B-0011-08 has been issued to all P&C insurers and eligible surplus lines insurers. Insurers subject to rate and form regulation must submit policy language and rates regarding terrorism coverage. For surplus lines insurers, the bulletin is primarily advisory, reminding them that domestic acts of terrorism must now be covered. Also, insurers must provide a clear disclosure to policyholders of the existence of a cap of $100 million in aggregate industry insured losses before federal reimbursement is triggered under the program. The bulletin can be accessed at this link, or below:

To:ALL PROPERTY AND CASUALTY INSURERS AND ELIGIBLE SURPLUS LINES INSURERS

Re:Terrorism Risk Insurance Program Reauthorization Act of 2007

Purpose

The purpose of this bulletin is to advise insurers of certain provisions of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (the Reauthorization Act) that may require insurers to submit a filing in Texas of the policy language and the applicable rates as a result of the Reauthorization Act.

Background

There has been much uncertainty in the markets for commercial lines property and casualty insurance coverage in light of the substantial losses experienced by the industry on September 11, 2001. Soon after the tragic events, many reinsurers announced that they did not intend to provide coverage for acts of terrorism in future reinsurance contracts. This led to a concerted effort on behalf of all interested parties to seek a temporary federal backstop to calm market fears over future terrorist attacks and the ability of the insurance industry to allocate capital to provide coverage for these unpredictable and potentially catastrophic events. As a result, Congress enacted and the President signed into law in November 2002, the Terrorism Risk Insurance Act of 2002 (the Act). This federal law provides a federal backstop for defined acts of terrorism and imposes certain obligations on insurers. The Act was extended for a two-year period covering Program Years 2006 and 2007. The Act has now been extended for an additional seven years through December 31, 2014 with the enactment of the Reauthorization Act.

Several provisions of the initial Act have changed in the 2007 reauthorization. Those changes include:

• Revising the definition of a certified act of terrorism to eliminate the requirement that the individual(s) is acting on behalf of any foreign person or foreign interest.
• Extending the program through December 31, 2014.
• Requiring clear and conspicuous notice to policyholders of the existence of the $100 billion cap.
• Fixing the Insurer Deductible at 20% of an insurer’s direct earned premium, and the federal share of compensation at 85% of insured losses that exceed insurer deductibles.
• Fixing the program trigger at $100 million for all additional program years.
• Requiring the U.S. Treasury to promulgate regulations for determining pro-rata shares of insured losses under the program when insured losses exceed $100 billion.
• Requiring the Comptroller General to study the availability and affordability of insurance coverage for losses caused by terrorist attacks involving nuclear, biological, chemical, or radiological materials and issue a report not later than one year after the enactment of the Reauthorization Act.
• Requiring the Comptroller General to determine whether there are specific markets in the United States where there are unique capacity constraints on the amount of terrorism insurance available and issue a report not later than 180 days after the enactment of the Reauthorization Act
• Requiring the President’s Working Group on Financial Markets to continue an ongoing study of the long-term availability and affordability of terrorism risk insurance.
• Accelerating the timing of the mandatory recoupment of the federal share through policyholder surcharges.

Other terms of the Act, as amended by the Terrorism Risk Insurance Act of 2005, remain unchanged.

Definition of Act of Terrorism

One of the changes made to the Act with the enactment of the Reauthorization Act was a revision to the definition of an act of terrorism that eliminated the requirement that an individual or individuals that carry out an act of terrorism be acting on behalf of a foreign person or foreign interest. In short, this means that acts formerly referred to as “domestic” terrorism may now be certified as an act of terrorism under the Act.

Section 102(1) of the Act defines an act of terrorism for purposes of the Act. Please note that the unmodified reference to “the Secretary” refers to the Secretary of the Treasury. The revised Section 102(1)(A) states, “The term “act of terrorism” means any act that is certified by the Secretary, in concurrence with the Secretary of State, and the Attorney General of the United States-(i) to be an act of terrorism; (ii) to be a violent act or an act that is dangerous to-(I) human life: (II) property; or (III) infrastructure; (iii) to have resulted in damage within the United States, or outside the United States in the case of-(I) an air carrier or vessel described in paragraph (5)(B); or (II) the premises of a United States mission; and (iv) to have been committed by an individual or individuals, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.” Section 102(1)(B) states, “No act shall be certified by the Secretary as an act of terrorism if-(i) the act is committed as part of the course of a war declared by the Congress, except that this clause shall not apply with respect to any coverage for workers’ compensation; or (ii) property and casualty insurance losses resulting from the act, in the aggregate, do not exceed $5,000,000.” Section 102(1)(C) and (D) specify that the determinations are final and not subject to judicial review and that the Secretary of the Treasury cannot delegate the determination to anyone.

The Act, as amended, contains in Section 103(1)(B) a program trigger of $100 million in aggregate industry insured losses resulting from a certified act of terrorism before federal reimbursement is triggered.

Submission of Rates and Policy Form Language

Insurers subject to policy form and rate regulation must submit the policy language and rates that they intend to use in Texas. The policy should define acts of terrorism in ways that are consistent with the Act, as amended and state law. The definitions, terms and conditions should be complete and accurately describe the coverage that will be provided in the policy. Insurers may conclude that current filings are in compliance with the Act, as amended and state law, in which case no filing is necessary. However, if policy forms make a distinction between acts of a foreign person or foreign interest and a domestic person or domestic interest, it is likely that a filing is necessary. Proposed rate changes filed in Texas should reflect any reduction in ultimate exposure provided by the Federal program. Supporting documentation for such filings must be sufficient for the Texas Department of Insurance (the Department) to determine if the rates are excessive, inadequate or unfairly discriminatory.

The Department has approved/accepted various filings relating to certified acts of terrorism for the Insurance Services Office, Inc. (ISO) and the American Association of Insurance Services (AAIS). A list of the Advisory Organization Approved/Accepted filings can be found on the Department’s website at https://www.tdi.texas.gov/commercial/pccpadvs1.html. Please contact ISO or AAIS for details.

All filings should be made in accordance with the requirements contained in the Department’s Property & Casualty Filings Made Easy Manual. This manual can be found on the Department’s website at http://www.tdi.texas.gov/company/rspceasy.html.

Disclosures

Another change introduced in the Reauthorization Act is a new disclosure requirement for any policy issued after the enactment of the Act. Specifically, in addition to other disclosure requirements previously contained in the Act, insurers must now also provide clear and conspicuous disclosure to the policyholder of the existence of the $100 billion cap under Section 103(e)(2), at the time of offer, purchase and renewal of the policy. The disclosures should comply with the requirements of the Act, as amended, and should be consistent with the policy language and rates filed by the insurer. Insurers must continue to separately state the amount of the estimated portion of the premium being charged a policyholder for acts of terrorism, as defined in the Act. Disclosure notices are not required to be filed with the Department.

Effect on Workers’ Compensation Insurance Coverage

Even with the passage of the Reauthorization Act, workers’ compensation coverage continues to be treated slightly different than the other property and casualty insurance lines. Section102(1)(B)(i) continues to provide that the Federal program will share the risk of loss for workers’ compensation for acts of war in addition to acts of terrorism. This treatment occurs because of the statutory scheme of workers’ compensation, which does not provide an exclusion for losses resulting from an act of war or an exclusion for losses resulting from acts of terrorism. There is no provision in the Reauthorization Act that would preempt the compulsory coverage aspects of Texas workers’ compensation insurance policies. In other respects, however, workers’ compensation coverage is treated under the Reauthorization Act as any other covered line of insurance.

The notice requirements of the new Section 103(b)(3) and the mandatory availability requirements of Section 103(c) still apply to workers’ compensation policies. Workers’ compensation insurers must continue to separately state the amount of the estimated portion of the premium being charged a policyholder for acts of terrorism, as defined in the Reauthorization Act. Since the Texas workers’ compensation law does not have any exclusion for terrorism or war, neither insurers nor policyholders may create an exclusion.

All filings should be made in accordance with the requirements contained in the Department’s Property & Casualty Filings Made Easy Manual. This manual can be found on the Department’s website at https://www.tdi.texas.gov/pubs/pc/rspceasy.html .

Contact Information

Questions regarding workers’ compensation should be addressed to Nancy Moore, Deputy Commissioner, Workers’ Compensation Division, MC 105-2A, Texas Department of Insurance, P.O. Box 149104, Austin, TX 78714-9104, (512) 322-3486, Nancy.Moore@tdi.state.tx.us. Questions regarding surplus lines should be addressed to Kathy Wilcox, Registration Officer, Company Licensing and Registration Division, MC 305-2C, Texas Department of Insurance, P.O. Box 149104, Austin, TX 78714-9104, (512) 322-3535, Kathy.Wilcox@tdi.state.tx.us, and other questions regarding this bulletin should be addressed to Mark Worman, Manager, Commercial Property/Casualty Section, MC 104-PC, Texas Department of Insurance, P. O. Box 149104, Austin, TX 78714-9104, (512) 305-7544, Mark.Worman@tdi.state.tx.us.

The Department may supplement this bulletin as necessary.

Sincerely,
Mike Geeslin
Commissioner of Insurance

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