TITLE 28. INSURANCE

PART 1. TEXAS DEPARTMENT OF INSURANCE

CHAPTER 1. GENERAL ADMINISTRATION

SUBCHAPTER C. ASSESSMENT OF MAINTENANCE TAXES AND FEES

28 TAC §1.414

The Texas Department of Insurance proposes amendments to 28 TAC §1.414, concerning the 2020 assessment of maintenance taxes and fees imposed by the Insurance Code. The proposed amendments are necessary to adjust the rates of assessment for maintenance taxes and fees for 2020 on the basis of gross premium receipts for calendar year 2019. The proposed amendments also delete 28 TAC §1.414(c)(3) regarding maintenance tax rates on nonprofit legal services corporations, because of the repeal of the tax by Senate Bill 1623, 86th Legislature, Regular Session (2019).

EXPLANATION. Section 1.414 includes rates of assessment to be applied to life, accident, and health insurance; motor vehicle insurance; casualty insurance and fidelity, guaranty, and surety bonds; fire insurance and allied lines, including inland marine; workers' compensation insurance; workers' compensation self-insured groups; title insurance; health maintenance organizations (HMOs); third party administrators; and workers' compensation certified self-insurers.

The department proposes an amendment to the section heading to reflect the year for which the proposed assessment of maintenance taxes and fees is applicable. The department also proposes amendments in subsections (a) - (f) and (h) to reflect the appropriate year for accurate application of the section.

The department proposes amendments in subsections (a)(1) - (9), (b), (c)(1) - (2), (d), and (e) to update rates to reflect the methodology the department developed for 2020. The department also proposes to delete subsection (c)(3), because of the repeal of the tax by Senate Bill 1623, 86th Legislature, Regular Session (2019).

The following paragraphs provide an explanation of the methodology used to determine proposed rates of assessment for maintenance taxes and fees for 2020:

In general, the department's 2020 revenue need (the amount that must be funded by maintenance taxes or fees; examination overhead assessments; the department's self-directed budget account, as established under Insurance Code §401.252; and premium finance examination assessments) is determined by calculating the department's total cost need, and subtracting from that number funds resulting from fee revenue and funds remaining from fiscal year 2019.

To determine total cost need, the department combined costs from the following: (i) appropriations set out in Chapter 1353 (House Bill 1), Acts of the 86th Legislature, Regular Session, (2019) (the General Appropriations Act), which come from two funds, the General Revenue Dedicated - Texas Department of Insurance Operating Account No. 0036 (Account No. 0036) and the General Revenue Fund - Insurance Companies Maintenance Tax and Insurance Department Fees; (ii) funds allowed by Insurance Code Chapter 401, Subchapters D and F, as approved by the Commissioner for the self-directed budget account in the Treasury Safekeeping Trust Company to be used exclusively to pay examination costs associated with salary, travel, or other personnel expenses and administrative support costs; (iii) an estimate of other costs statutorily required to be paid from those two funds and the self-directed budget account, such as fringe benefits and statewide allocated costs; and (iv) an estimate of the cash amount necessary to finance both funds and the self-directed budget account from the end of the 2020 fiscal year until the next assessment collection period in 2021. From these combined costs, the department subtracted costs allocated to the Division of Workers' Compensation (DWC) and the Workers' Compensation Research and Evaluation Group.

The department determined how to allocate the remaining cost need to be attributed to each funding source using the following method:

For each section within the department that provides services directly to the public or the insurance industry, the department allocated the costs for providing those direct services on a percentage basis to each funding source, such as the maintenance tax or fee line, the premium finance assessment, the self-directed budget account, the examination assessment, or another funding source. The department applied these percentages to each section's annual budget to determine the total direct cost to each funding source. The department calculated the percentage for each funding source by dividing the total directly allocated to each funding source by the total direct cost. The department used this percentage to allocate administrative support costs to each funding source. Examples of administrative support costs include services provided by human resources, accounting, budget, the Commissioner's administration, and information technology. The department calculated the total direct costs and administrative support costs for each funding source.

The General Appropriations Act includes appropriations to state agencies other than the department that must be funded by Account No. 0036 and the General Revenue Fund - Insurance Companies Maintenance Tax and Insurance Department Fees. The department added these costs to the sum of the direct costs and the administrative support costs for the appropriate funding source, when possible. For instance, the department allocates an appropriation to the Texas Department of Transportation for the crash information records system to the motor vehicle maintenance tax. The department included costs for other agencies that cannot be directly allocated to a funding source to the administrative support costs. For instance, the department included an appropriation to the Texas Facilities Commission for building support costs in administrative support costs.

The department calculated the total revenue need after completing the allocation of costs to each funding source. To complete the calculation of revenue need, the department removed costs, revenues received, and fund balance related to the self-directed budget account. Based on remaining balances, the department reduced the total cost need by subtracting the estimated ending fund balance for fiscal year 2019 (August 31, 2019) and estimated fee revenue collections for fiscal year 2020. The resulting balance is the estimated revenue need that must be supported during the 2020 fiscal year by the following funding sources: the maintenance taxes or fees, exam overhead assessments, and premium finance assessments.

The department determined the revenue need for each maintenance tax or fee line by dividing the total cost need for each maintenance tax line by the total of the revenue needs for all maintenance taxes. The department multiplied the calculated percentage for each line by the total revenue need for maintenance taxes. The resulting amount is the revenue need for each maintenance tax line. The department adjusted the revenue need by subtracting the estimated amount of fee and reimbursement revenue collected for each maintenance tax or fee line from the total of the revenue need for each maintenance tax or fee line. The department further adjusted the resulting revenue need as described below.

The cost allocated to the life, accident, and health maintenance tax exceeds the amount of revenue that can be collected at the maximum rate set by statute. The department allocated the difference between the amount estimated to be collected at the maximum rate and the costs allocated to the life, accident, and health maintenance tax to the other maintenance tax or fee lines. The department allocated the life, accident, and health shortfall based on each of the remaining maintenance tax or fee lines a proportionate share of the total costs for maintenance taxes or fees. The department used the adjusted revenue need as the basis for calculating the maintenance tax rates.

For each line of insurance, the department divided the adjusted revenue need by the estimated premium volume or assessment base to determine the rate of assessment for each maintenance tax or fee.

The following paragraphs provide an explanation of the methodology to develop the proposed rates for DWC and the Office of Injured Employee Counsel (OIEC):

To determine the revenue need, the department considered the following factors applicable to costs for DWC and OIEC: (i) the appropriations in the General Appropriations Act for fiscal year 2020 from Account No. 0036; (ii) estimated other costs statutorily required to be paid from Account No. 0036, such as fringe benefits; and (iii) an estimated cash amount to finance Account No. 0036 costs from the end of the 2020 fiscal year until the next assessment collection period in 2021. The department added these three factors to determine the total revenue need.

The department reduced the total revenue need by subtracting the estimated fund balance at August 31, 2019, and the DWC fee and reimbursement revenue estimate to be collected and deposited to Account No. 0036 in fiscal year 2020. The resulting balance is the estimated revenue need from maintenance taxes. The department calculated the maintenance tax rate by dividing the estimated revenue need by the combined estimated workers' compensation premium volume and the certified self-insurers' liabilities plus the amount of expense incurred for administration of self-insurance.

The following paragraphs provide an explanation of the methodology the department used to develop the proposed rates for the Workers' Compensation Research and Evaluation Group.

To determine the revenue need, the department considered the following factors that are applicable to the Workers' Compensation Research and Evaluation Group: (i) the appropriations in the General Appropriations Act for fiscal year 2020 from Account No. 0036 and from the General Revenue Fund - Insurance Companies Maintenance Tax and Insurance Department Fees; (ii) estimated other costs statutorily required to be paid from this funding source, such as fringe benefits; and (iii) an estimated cash amount to finance costs from this funding source from the end of the 2020 fiscal year until the next assessment collection period in 2021. The department added these three factors to determine the total revenue need.

The department reduced the total revenue need by subtracting the estimated fund balance at August 31, 2019. The resulting balance is the estimated revenue need from maintenance taxes. The department calculated the maintenance tax rate by dividing the estimated revenue need by the estimated assessment base.

Insurance Code §964.068 provides that a captive insurance company is subject to maintenance tax under Subtitle C, Title 3, on the correctly reported gross premiums from writing insurance on risks located in Texas as applicable to the individual lines of business written. The rates proposed in this rule will be applied to captive insurance companies based on the individual lines of business written, unless the Commissioner postpones or waives the tax for a period not to exceed two years for any foreign or alien captive insurance company redomesticating to Texas under Insurance Code §964.071(c).

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Robert Palm, program specialist in Financial Services, has determined that for each year of the first five years the proposal will be in effect, the expected fiscal impact on state government is an estimated income of $145,633,583 to the state's general revenue fund.

There will be no fiscal implications for local government as a result of enforcing or administering the proposed section, because local governments are not involved in enforcing or complying with the proposed amendments, and there will be no effect on local employment or local economy.

PUBLIC BENEFIT AND COST NOTE. Mr. Palm also determined that for each year of the first five years the amended section is in effect, the public benefit expected as a result of enforcing the section will be the collection of maintenance tax and fee assessments that accurately reflect the department's needs and correctly allocate the cost among the entities regulated by the department.

The cost in 2020 to an insurer that received premiums in 2019 will be: for motor vehicle insurance, .044 of 1 percent of those gross premiums; for casualty insurance and fidelity, guaranty, and surety bonds, .053 of 1 percent of those gross premiums; for fire insurance and allied lines, including inland marine, .274 of 1 percent of those gross premiums; for workers' compensation insurance, .067 of 1 percent of those gross premiums; and for title insurance, .068 of 1 percent of those gross premiums.

An insurer that receives premiums for workers' compensation insurance in 2019 will also pay 2 percent of that premium for the operation of DWC and OIEC and .034 of 1 percent of that premium to fund the Workers' Compensation Research and Evaluation Group's activities. A workers' compensation self-insurance group will pay 2 percent of its 2019 gross premium for the group's retention under Labor Code §407A.301 and 2 percent of 1 percent of its 2019 gross premium for the group's retention under Labor Code §407A.302.

The cost in 2020 for an insurer that received premiums in 2019 for life, health, and accident insurance, will be .040 of 1 percent of those gross premiums. In 2020, an HMO will pay $.28 per enrollee if it is a single service HMO or a limited service HMO, and $.84 per enrollee if it is a multiservice HMO. In 2020, a third party administrator will pay .009 of 1 percent of its correctly reported gross amount of administrative or service fees received in 2019.

In 2020, to fund the Workers' Compensation Research and Evaluation Group's activities, a workers' compensation certified self-insurer will pay .034 of 1 percent of the tax base calculated under Labor Code §407.103(b), and a workers' compensation self-insurance group will pay .067 of 1 percent of the tax base calculated under Labor Code §407A.301(c).

Finally, in 2020, a workers' compensation certified self-insurer will pay 2 percent of the tax base calculated under Labor Code §407.103(b).

Except for workers' compensation certified self-insurers, there are two components of costs for entities required to comply with the proposal: the cost to gather the information, calculate the assessment, and complete the required forms; and the cost of the maintenance tax or fee. Typically, a person familiar with the accounting records of the company and accounting practices in general will perform the activities necessary to comply with the section. These persons are similarly compensated between $26 and $44 an hour.

The actual time necessary to complete the form will vary depending on the number of lines of insurance written by the company. For a company that writes only one line of business subject to the tax, the department estimates it will take two hours to complete the form. If a company writes all the lines subject to the tax, the department estimates it will take six hours to complete the form. In the case of a certified self-insurer, DWC will calculate the maintenance tax and bill the certified self-insurer. The requirement to pay the maintenance tax or fee is the result of the legislative enactment of the statutes that impose the maintenance tax or fee and is not a result of the adoption or enforcement of this proposal.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. The department has determined the proposal may have an adverse economic effect on approximately 118 insurance companies and HMOs and approximately 540 third party administrators that are small or micro businesses required to comply with the proposed rules. Adverse economic impact may result from the costs of the maintenance taxes and fees. The cost of compliance will not vary between large businesses and small or micro businesses, and the department's cost analysis and resulting estimated costs in the public benefit and cost note portion of this proposal is equally applicable to small or micro businesses.

The total cost of compliance to large businesses and small or micro businesses does not depend on the size of the business. For insurers in the following lines of insurance, the cost of compliance depends on the amount of gross premiums in 2019: motor vehicle insurance; casualty insurance and fidelity, guaranty, and surety bonds; fire insurance and allied lines, including inland marine; workers' compensation insurance; title insurance; and life, health, and accident insurance. For annuity and endowment contracts, the cost of compliance depends on the amount of gross considerations in 2019. For HMOs, the cost of compliance depends on the number of enrollees in 2019. For third party administrators, the cost of compliance depends on the amount of correctly reported gross administrative or service fees in 2019. For workers' compensation certified self-insurers and workers' compensation certified self-insurance groups, the cost of compliance depends on the tax base calculated under Labor Code §407.103(b).

In accordance with Government Code §2006.002(c-1), the department considered other regulatory methods to accomplish the objectives of the proposal that will also minimize any adverse impact on small and micro businesses.

The primary objective of the proposal is to provide the rates of assessment for maintenance taxes and fees for 2020 to be applied to life, accident, and health insurance; motor vehicle insurance; casualty insurance and fidelity, guaranty and surety bonds; fire insurance and allied lines, including inland marine; workers' compensation insurance; workers' compensation self-insured groups; title insurance; HMOs; third party administrators; and workers' compensation certified self-insurers.

The other regulatory methods considered by the department to accomplish the objectives of the proposal and to minimize any adverse impact on small and micro businesses include: (i) not adopting the proposed rule, (ii) adopting different tax rates for small and micro businesses, and (iii) exempting small and micro businesses from the tax requirements.

Not adopting the proposed rule. Under Insurance Code §251.003, if the Commissioner does not advise the Comptroller of the applicable maintenance tax assessment rates, the Comptroller must assess taxes based on the previous year's assessment. Using the previous year's rates and the estimated assessment bases for 2019, the department estimates revenue collections would exceed amounts needed by approximately $5.6 million. If no rule is adopted, the Comptroller would collect too much revenue to fund the department's costs. The department has rejected this option.

Adopting different taxes for small and micro businesses. The current methodology is already the most equitable methodology the department can develop. The department applies an assessment methodology that contemplates a smaller assessment for small or micro businesses because the assessment is determined based on number of enrollees, gross premiums, or gross amount of administrative or service fees. The department anticipates that a small or micro business that would be most susceptible to economic harm would be one that has fewer enrollees, lower gross premiums, or a lower gross amount of administrative or service fees. However, based on the proposed rule, a small or micro business would pay a smaller assessment, and would reduce its risk of economic harm. The department has rejected this option.

Exemption of small and micro businesses from the tax requirements. As noted above, the current methodology is already the most equitable methodology the department can develop. The tax methodology currently used contemplates a small business paying lower maintenance taxes because assessments are based on number of enrollees, gross premiums, or gross amount of administrative or service fees. A small or micro business that has fewer enrollees, has lower gross premiums, or receives fewer gross administrative or service fees would be assessed lower taxes. If the assessment were completely eliminated for small or micro businesses, the department would need to completely revise its calculations to shift costs to other insurers and entities, which would result in a less balanced methodology. The department has rejected this option.

The department, after considering the purpose of the authorizing statutes, does not believe it is legal or feasible to waive or modify the requirements of the proposal for small and micro businesses.

The department has determined that the proposal will not have an adverse economic effect on rural communities, because maintenance taxes and fees are not collected from rural communities. As a result, and in accordance with Government Code §2006.002(c), it is not necessary for the department to address rural communities in its regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. The department has determined that the proposed amendments do impose a possible cost on regulated persons. However, no additional rule amendments or repeals are required under Government Code §2001.0045 because the proposed amendments are necessary to implement legislation. Insurance Code §§201.001(a)(1), (b), and (c); 201.052(a), (d), and (e); 251.001; 252.001 - 252.003; 253.001 - 253.003; 254.001 - 254.003; 255.001 - 255.003; 257.001 - 257.003; 258.002 - 258.004; 259.002 - 259.004; 271.002 - 271.006; and 36.001; and Labor Code §§403.002, 403.003, 403.005, 405.003(a) - (c), 407.103, 407.104(b), 407A.301, and 407A.302 direct the department to annually impose maintenance taxes and fees on each authorized insurer and the proposed amendments are necessary to comply with this requirement.

GOVERNMENT GROWTH IMPACT STATEMENT. During the first five years that the proposed rule would be in effect, the proposed rule or its implementation:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will require decreases in fees paid to the agency;

- will not create a new regulation;

- will not expand, limit, or repeal existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. The department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action, and so does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. Submit any written comments on the proposal no later than 5:00 p.m. Central time on December 9, 2019. Send your comments to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. To request a public hearing on the proposal, submit a request before the end of the comment period, and separate from any comments, to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. The request for public hearing must be separate from any comments and received by the department no later than 5:00 p.m. Central time on (date). If the department holds a public hearing, the department will consider written and oral comments presented at the hearing.

STATUTORY AUTHORITY. The amendments are proposed under Insurance Code §§201.001(a)(1), (b), and (c); 201.052(a), (d), and (e); 251.001; 252.001 - 252.003; 253.001 - 253.003; 254.001 - 254.003; 255.001 - 255.003; 257.001 - 257.003; 258.002 - 258.004; 259.002 - 259.004; 271.002 - 271.006; 964.068; and 36.001; and Labor Code §§403.002, 403.003, 403.005, 405.003(a) - (c), 407.103, 407.104(b), 407A.301, and 407A.302.

Insurance Code §201.001(a)(1) states that the Texas Department of Insurance operating account is an account in the general revenue fund, and that the account includes taxes and fees received by the Commissioner or Comptroller that are required by the Insurance Code to be deposited to the credit of the account. Section 201.001(b) provides that the Commissioner administer money in the Texas Department of Insurance operating account and may spend money from the account in accordance with state law, rules adopted by the Commissioner, and the General Appropriations Act. Section 201.001(c) states that money deposited to the credit of the Texas Department of Insurance operating account may be used for any purpose for which money in the account is authorized to be used by law.

Insurance Code §201.052(a) requires the department to reimburse the appropriate portion of the general revenue fund for the amount of expenses incurred by the Comptroller in administering taxes imposed under the Insurance Code or another insurance law of Texas. Section 201.052(d) provides that in setting maintenance taxes for each fiscal year, the Commissioner ensure that the amount of taxes imposed is sufficient to fully reimburse the appropriate portion of the general revenue fund for the amount of expenses incurred by the Comptroller in administering taxes imposed under the Insurance Code or another insurance law of Texas. Section 201.052(e) provides that if the amount of maintenance taxes collected is not sufficient to reimburse the appropriate portion of the general revenue fund for the amount of expenses incurred by the Comptroller, other money in the Texas Department of Insurance operating account be used to reimburse the appropriate portion of the general revenue fund.

Insurance Code §251.001 directs the Commissioner to annually determine the rate of assessment of each maintenance tax imposed under Insurance Code Title 3, Subtitle C.

Insurance Code §252.001 imposes a maintenance tax on each authorized insurer with gross premiums subject to taxation under Insurance Code §252.003. Insurance Code §252.001 also specifies that the tax required by Insurance Code Chapter 252 is in addition to other taxes imposed that are not in conflict with Insurance Code Chapter 252.

Insurance Code §252.002 provides that the rate of assessment set by the Commissioner may not exceed 1.25 percent of the gross premiums subject to taxation under Insurance Code §252.003. Section 252.002(b) provides that the Commissioner annually adjust the rate of assessment of the maintenance tax so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner determines is necessary to pay the expenses during the succeeding year of regulating all classes of insurance specified under: Insurance Code Chapters 1807, 2001 - 2006, 2171, 6001, 6002, and 6003; Chapter 5, Subchapter C; Chapter 544, Subchapter H; Chapter 1806, Subchapter D; and §403.002; Government Code §§417.007, 417.008, and 417.009; and Occupations Code Chapter 2154.

Insurance Code §252.003 specifies that an insurer must pay maintenance taxes under Insurance Code Chapter 252 on the correctly reported gross premiums from writing insurance in Texas against loss or damage by: bombardment; civil war or commotion; cyclone; earthquake; excess or deficiency of moisture; explosion as defined by Insurance Code §2002.006(b); fire; flood; frost and freeze; hail, including loss by hail on farm crops; insurrection; invasion; lightning; military or usurped power; an order of a civil authority made to prevent the spread of a conflagration, epidemic, or catastrophe; rain; riot; the rising of the waters of the ocean or its tributaries; smoke or smudge; strike or lockout; tornado; vandalism or malicious mischief; volcanic eruption; water or other fluid or substance resulting from the breakage or leakage of sprinklers, pumps, or other apparatus erected for extinguishing fires, water pipes, or other conduits or containers; weather or climatic conditions; windstorm; an event covered under a home warranty insurance policy; or an event covered under an inland marine insurance policy.

Insurance Code §253.001 imposes a maintenance tax on each authorized insurer with gross premiums subject to taxation under Insurance Code §253.003. Section 253.001 also provides that the tax required by Insurance Code Chapter 253 is in addition to other taxes imposed that are not in conflict with Insurance Code Chapter 253.

Insurance Code §253.002 provides that the rate of assessment set by the Commissioner may not exceed 0.4 percent of the gross premiums subject to taxation under Insurance Code §253.003. Section 253.002(b) provides that the Commissioner annually adjust the rate of assessment of the maintenance tax so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner determines is necessary to pay the expenses during the succeeding year of regulating all classes of insurance specified under Insurance Code §253.003.

Insurance Code §253.003 specifies that an insurer must pay maintenance taxes under Insurance Code Chapter 253 on the correctly reported gross premiums from writing a class of insurance specified under Insurance Code Chapters 2008, 2251, and 2252; Chapter 5, Subchapter B; Chapter 1806, Subchapter C; Chapter 2301, Subchapter A; and Title 10, Subtitle B.

Insurance Code §254.001 imposes a maintenance tax on each authorized insurer with gross premiums subject to taxation under Insurance Code §254.003. Section 254.001 also provides that the tax required by Insurance Code Chapter 254 is in addition to other taxes imposed that are not in conflict with Insurance Code Chapter 254.

Insurance Code §254.002 provides that the rate of assessment set by the Commissioner may not exceed 0.2 percent of the gross premiums subject to taxation under Insurance Code §254.003. Section 254.002 also provides that the Commissioner annually adjust the rate of assessment of the maintenance tax so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner determines is necessary to pay the expenses during the succeeding year of regulating motor vehicle insurance.

Insurance Code §254.003 specifies that an insurer must pay maintenance taxes under Insurance Code Chapter 254 on the correctly reported gross premiums from writing motor vehicle insurance in Texas, including personal and commercial automobile insurance.

Insurance Code §255.001 imposes a maintenance tax on each authorized insurer with gross premiums subject to taxation under Insurance Code §255.003, including a stock insurance company, mutual insurance company, reciprocal or interinsurance exchange, and Lloyd's plan. Section 255.001 also provides that the tax required by Insurance Code Chapter 255 is in addition to other taxes imposed that are not in conflict with Insurance Code Chapter 255.

Insurance Code §255.002 provides that the rate of assessment set by the Commissioner may not exceed 0.6 percent of the gross premiums subject to taxation under Insurance Code §255.003. Section 255.002(b) provides that the Commissioner annually adjust the rate of assessment of the maintenance tax so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner determines is necessary to pay the expenses during the succeeding year of regulating workers' compensation insurance.

Insurance Code §255.003 specifies that an insurer must pay maintenance taxes under Insurance Code Chapter 255 on the correctly reported gross premiums from writing workers' compensation insurance in Texas, including the modified annual premium of a policyholder that purchases an optional deductible plan under Insurance Code Chapter 2053, Subchapter E. The section also provides that the rate of assessment be applied to the modified annual premium before application of a deductible premium credit.

Insurance Code §257.001(a) imposes a maintenance tax on each authorized insurer, including a group hospital service corporation, managed care organization, local mutual aid association, statewide mutual assessment company, stipulated premium company, and stock or mutual insurance company, that collects from residents of this state gross premiums or gross considerations subject to taxation under Insurance Code §257.003. Section 257.001(a) also provides that the tax required by Chapter 257 is in addition to other taxes imposed that are not in conflict with Insurance Code Chapter 257.

Insurance Code §257.002 provides that the rate of assessment set by the Commissioner may not exceed 0.04 percent of the gross premiums subject to taxation under Insurance Code §257.003. Section 257.002(b) provides that the Commissioner annually adjust the rate of assessment of the maintenance tax so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner determines is necessary to pay the expenses during the succeeding year of regulating life, health, and accident insurers.

Insurance Code §257.003 specifies that an insurer must pay maintenance taxes under Insurance Code Chapter 257 on the correctly reported gross premiums collected from writing life, health, and accident insurance in Texas, as well as gross considerations collected from writing annuity or endowment contracts in Texas. The section also provides that gross premiums on which an assessment is based under Insurance Code Chapter 257 may not include premiums received from the United States for insurance contracted for by the United States in accordance with or in furtherance of Title XVIII of the Social Security Act (42 U.S.C. §§1395c et seq.) and its subsequent amendments; or premiums paid on group health, accident, and life policies in which the group covered by the policy consists of a single nonprofit trust established to provide coverage primarily for employees of a municipality, county, or hospital district in this state; or a county or municipal hospital, without regard to whether the employees are employees of the county or municipality or of an entity operating the hospital on behalf of the county or municipality.

Insurance Code §258.002 imposes a per capita maintenance tax on each authorized HMO with gross revenues subject to taxation under Insurance Code §258.004. Section 258.002 also provides that the tax required by Insurance Code Chapter 258 is in addition to other taxes that are not in conflict with Insurance Code Chapter 258.

Insurance Code §258.003 provides that the rate of assessment set by the Commissioner on HMOs may not exceed $2 per enrollee. Section 258.003 also provides that the Commissioner annually adjust the rate of assessment of the per capita maintenance tax so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner determines is necessary to pay the expenses during the succeeding year of regulating HMOs. Section 258.003 also provides that rate of assessment may differ between basic health care plans, limited health care service plans, and single health care service plans and must equitably reflect any differences in regulatory resources attributable to each type of plan.

Insurance Code §258.004 provides that an HMO must pay per capita maintenance taxes under Insurance Code Chapter 258 on the correctly reported gross revenues collected from issuing health maintenance certificates or contracts in Texas. Section 258.004 also provides that the amount of maintenance tax assessed may not be computed based on enrollees who, as individual certificate holders or their dependents, are covered by a master group policy paid for by revenues received from the United States for insurance contracted for by the United States in accord with or in furtherance of Title XVIII of the Social Security Act (42 U.S.C. §§1395c et seq.) and its subsequent amendments; revenues paid on group health, accident, and life certificates or contracts in which the group covered by the certificate or contract consists of a single nonprofit trust established to provide coverage primarily for employees of a municipality, county, or hospital district in this state; or a county or municipal hospital, without regard to whether the employees are employees of the county or municipality or of an entity operating the hospital on behalf of the county or municipality.

Insurance Code §259.002 imposes a maintenance tax on each authorized third party administrator with administrative or service fees subject to taxation under Insurance Code §259.004. Section 259.002 also provides that the tax required by Insurance Code Chapter 259 is in addition to other taxes imposed that are not in conflict with the chapter.

Insurance Code §259.003 provides that the rate of assessment set by the Commissioner may not exceed 1 percent of the administrative or service fees subject to taxation under Insurance Code §259.004. Section 259.003(b) provides that the Commissioner annually adjust the rate of assessment of the maintenance tax so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner determines is necessary to pay the expenses of regulating third party administrators.

Insurance Code §259.004 requires a third party administrator to pay maintenance taxes under Chapter 259 on the administrator's correctly reported administrative or service fees.

Insurance Code §271.002 imposes a maintenance fee on all premiums subject to assessment under Insurance Code §271.006. Section 271.002 also specifies that the maintenance fee is not a tax and must be reported and paid separately from premium and retaliatory taxes.

Insurance Code §271.003 specifies that the maintenance fee is included in the division of premiums and may not be separately charged to a title insurance agent.

Insurance Code §271.004 provides that the Commissioner annually determine the rate of assessment of the title insurance maintenance fee. Section 271.004(b) provides that in determining the rate of assessment, the Commissioner consider the requirement to reimburse the appropriate portion of the general revenue fund under Insurance Code §201.052.

Insurance Code §271.005 provides that the rate of assessment set by the Commissioner may not exceed 1 percent of the gross premiums subject to assessment under Insurance Code §271.006. Section 271.005(b) provides that the Commissioner annually adjust the rate of assessment of the maintenance fee so that the fee imposed that year, together with any unexpended funds produced by the fee, produces the amount the Commissioner determines is necessary to pay the expenses during the succeeding year of regulating title insurance.

Insurance Code §271.006 requires an insurer to pay maintenance fees under Chapter 271 on the correctly reported gross premiums from writing title insurance in Texas.

Insurance Code §964.068 provides that a captive insurance company is subject to maintenance tax under Insurance Code, Title 3, Subtitle C, on the correctly reported gross premiums from writing insurance on risks located in this state as applicable to the individual lines of business written by the captive insurance company.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

Labor Code §403.002 imposes an annual maintenance tax on each insurance carrier to pay the costs of administering the Texas Workers' Compensation Act and to support the prosecution of workers' compensation insurance fraud in Texas. Labor Code §403.002 also provides that the assessment may not exceed an amount equal to 2 percent of the correctly reported gross workers' compensation insurance premiums, including the modified annual premium of a policyholder that purchases an optional deductible plan under Insurance Code Article 5.55C, which was recodified as Insurance Code §2053.202 by House Bill 2017, 79th Legislature, Regular Session (2005). Labor Code §403.002 also provides that the rate of assessment be applied to the modified annual premium before application of a deductible premium credit. Additionally, Labor Code §403.002 states that a workers' compensation insurance company is taxed at the rate established under Labor Code §403.003, and that the tax be collected in the manner provided for collection of other taxes on gross premiums from a workers' compensation insurance company as provided in Insurance Code Chapter 255. Finally, Labor Code §403.002 states that each certified self-insurer must pay a fee and maintenance taxes as provided by Labor Code Chapter 407, Subchapter F.

Labor Code §403.003 requires the Commissioner of Insurance to set and certify to the Comptroller the rate of maintenance tax assessment, taking into account: (i) any expenditure projected as necessary for DWC and OIEC to administer the Texas Workers' Compensation Act during the fiscal year for which the rate of assessment is set and reimburse the general revenue fund as provided by Insurance Code §201.052; (ii) projected employee benefits paid from general revenues; (iii) a surplus or deficit produced by the tax in the preceding year; (iv) revenue recovered from other sources, including reappropriated receipts, grants, payments, fees, and gifts recovered under the Texas Workers' Compensation Act; and (v) expenditures projected as necessary to support the prosecution of workers' compensation insurance fraud. Labor Code §403.003 also provides that in setting the rate of assessment, the Commissioner of Insurance may not consider revenue or expenditures related to the State Office of Risk Management, the workers' compensation research functions of the department under Labor Code Chapter 405, or any other revenue or expenditure excluded from consideration by law.

Labor Code §403.005 provides that the Commissioner of Insurance must annually adjust the rate of assessment of the maintenance tax imposed under §403.003 so that the tax imposed that year, together with any unexpended funds produced by the tax, produces the amount the Commissioner of Insurance determines is necessary to pay the expenses of administering the Texas Workers' Compensation Act. Labor Code §405.003(a) - (c) establishes a maintenance tax on insurance carriers and self-insurance groups to fund the Workers' Compensation Research and Evaluation Group, it provides for the department to set the rate of the maintenance tax based on the expenditures authorized and the receipts anticipated in legislative appropriations, and it provides that the tax is in addition to all other taxes imposed on insurance carriers for workers' compensation purposes.

Labor Code §407.103 imposes a maintenance tax on each workers' compensation certified self-insurer for the administration of the DWC and OIEC and to support the prosecution of workers' compensation insurance fraud in Texas. Labor Code §407.103 also provides that not more than 2 percent of the total tax base of all certified self-insurers, as computed under subsection (b) of the section, may be assessed for the maintenance tax established under Labor Code §407.103. Labor Code §407.103 also provides that to determine the tax base of a certified self-insurer for purposes of Labor Code Chapter 407, the department multiply the amount of the certified self-insurer's liabilities for workers' compensation claims incurred in the previous year, including claims incurred but not reported, plus the amount of expense incurred by the certified self-insurer in the previous year for administration of self-insurance, including legal costs, by 1.02. Labor Code §407.103 also provides that the tax liability of a certified self-insurer under the section is the tax base computed under subsection (b) of the section multiplied by the rate assessed workers' compensation insurance companies under Labor Code §403.002 and §403.003. Finally, Labor Code §407.103 provides that in setting the rate of maintenance tax assessment for insurance companies, the Commissioner of Insurance may not consider revenue or expenditures related to the operation of the self-insurer program under Labor Code Chapter 407.

Labor Code §407.104(b) provides that the department compute the fee and taxes of a certified self-insurer and notify the certified self-insurer of the amounts due. Section 407.104(b) also provides that a certified self-insurer must remit the taxes and fees to DWC.

Labor Code §407A.301 imposes a self-insurance group maintenance tax on each workers' compensation self-insurance group based on gross premium for the group's retention. Labor Code §407A.301 provides that the self-insurance group maintenance tax is to pay for the administration of DWC, the prosecution of workers' compensation insurance fraud in Texas, the research functions of the department under Labor Code Chapter 405, and the administration of OIEC under Labor Code Chapter 404. Labor Code §407A.301 also provides that the tax liability of a group under subsection (a)(1) and (2) of the section is based on gross premium for the group's retention multiplied by the rate assessed insurance carriers under Labor Code §403.002 and §403.003. Labor Code §407A.301 also provides that the tax liability of a group under subsection (a)(3) of the section is based on gross premium for the group's retention multiplied by the rate assessed insurance carriers under Labor Code §405.003. Additionally, Labor Code §407A.301 provides that the tax under the section does not apply to premium collected by the group for excess insurance. Finally, Labor Code §407A.301(e) provides that the tax under the section be collected by the Comptroller as provided by Insurance Code Chapter 255 and Insurance Code §201.051.

Labor Code §407A.302 requires each workers' compensation self-insurance group to pay the maintenance tax imposed under Insurance Code Chapter 255, for the administrative costs incurred by the department in implementing Labor Code Chapter 407A. Labor Code §407A.302 provides that the tax liability of a workers' compensation self-insurance group under the section is based on gross premium for the group's retention and does not include premium collected by the group for excess insurance. Labor Code §407A.302 also provides that the maintenance tax assessed under the section is subject to Insurance Code Chapter 255, and that it be collected by the Comptroller in the manner provided by Insurance Code Chapter 255.

CROSS-REFERENCE TO STATUTE. Amendments in this proposal to §1.414 affect Insurance Code §§201.001(a)(1), (b), and (c); 201.052(a), (d), and (e); 251.001, 252.001 - 252.003; 253.001 - 253.003; 254.001 - 254.003; 255.001 - 255.003; 257.001 - 257.003; 258.002 - 258.004; 259.002 - 259.004;; and 271.002 - 271.006; and Labor Code §§403.002, 403.003, 403.005, 405.003(a) - (c), 407.103, 407.104(b), 407A.301, and 407A.302.

§1.414.Assessment of Maintenance Taxes and Fees, 2020 [2019].

(a) The department assesses the following rates for maintenance taxes and fees on gross premiums of insurers for calendar year 2019 [2018] for the lines of insurance specified in paragraphs (1) - (9) of this subsection:

(1) for motor vehicle insurance, under Insurance Code §254.002, the rate is .044 [.049] of 1 percent;

(2) for casualty insurance and fidelity, guaranty, and surety bonds, under Insurance Code §253.002, the rate is .053 of 1 percent;

(3) for fire insurance and allied lines, including inland marine, under Insurance Code §252.002, the rate is .274 [.303] of 1 percent;

(4) for workers' compensation insurance, under Insurance Code §255.002, the rate is .067 [.069] of 1 percent;

(5) for workers' compensation insurance, under Labor Code §403.003, the rate is 2.0 percent;

(6) for workers' compensation insurance, under Labor Code §405.003, the rate is .034 of 1 percent;

(7) for workers' compensation insurance, under Labor Code §407A.301, the rate is 2.0 percent;

(8) for workers' compensation insurance, under Labor Code §407A.302, the rate is .067 [.069] of 1 percent; and

(9) for title insurance, under Insurance Code §271.004, the rate is .068 [.078] of 1 percent.

(b) The rate for the maintenance tax to be assessed on gross premiums for calendar year 2019 [2018] for life, health, and accident insurance and the gross considerations for annuity and endowment contracts, under Insurance Code §257.002, is .040 of 1 percent.

(c) The department assesses rates for maintenance taxes for calendar year 2019 [2018] for the following entities as follows:

(1) under Insurance Code §258.003, the rate is $.28 [$.24] per enrollee for single service health maintenance organizations, $.84 [$.72] per enrollee for multiservice health maintenance organizations, and $.28 [$.24] per enrollee for limited service health maintenance organizations; and

(2) under Insurance Code §259.003, the rate is .009 [.008] of 1 percent of the correctly reported gross amount of administrative or service fees for third party administrators. [; and]

[(3) under Insurance Code §260.002, the rate is .010 of 1 percent of the correctly reported gross revenues for nonprofit legal services corporations issuing prepaid legal services contracts.]

(d) Under Labor Code §405.003, each certified self-insurer must pay a maintenance tax for the Workers' Compensation Research and Evaluation Group in calendar year 2020 [2019 ] at a rate of .034 of 1 percent of the tax base calculated under Labor Code §407.103(b) which must be billed to the certified self-insurer by the Division of Workers' Compensation.

(e) Under Labor Code §405.003 and §407A.301, each workers' compensation self-insurance group must pay a maintenance tax for the Workers' Compensation Research and Evaluation Group in calendar year 2020 [2019] at a rate of .034 of 1 percent of the tax base calculated under Labor Code §407.103(b).

(f) Under Labor Code §407.103 and §407.104, each certified self-insurer must pay a self-insurer maintenance tax in calendar year 2020 [2019] at a rate of 2.0 percent of the tax base calculated under Labor Code §407.103(b) which must be billed to the certified self-insurer by the Division of Workers' Compensation.

(g) The enactment of Senate Bill 14, 78th Legislature, Regular Session (2003), relating to certain insurance rates, forms, and practices, did not affect the calculation of the maintenance tax rates or the assessment of the taxes.

(h) The taxes assessed under subsections (a), (b), (c), and (e) of this section will be payable and due to the Comptroller of Public Accounts on March 1, 2020 [2019].

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 28, 2019.

TRD-201903988

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


CHAPTER 3. LIFE, ACCIDENT, AND HEALTH INSURANCE AND ANNUITIES

SUBCHAPTER W. MISCELLANEOUS RULES FOR GROUP AND INDIVIDUAL ACCIDENT AND HEALTH INSURANCE

28 TAC §3.3602

The Texas Department of Insurance proposes new 28 TAC §3.3602, relating to requirements for short-term limited-duration coverage. Section 3.3602 implements Senate Bill 1852, 86th Legislature, Regular Session (2019). The proposed section also provides consumer protections related to renewability and provides consumers notice of the protections they have when purchasing such products.

EXPLANATION. Proposed new §3.3602 is necessary to implement SB 1852. Insurance Code §1509.002(a) requires the Commissioner, by rule, to prescribe a disclosure form to be provided with a short-term limited-duration insurance policy and application. Insurance Code §1509.002(c) also requires an insurer issuing a short-term limited-duration insurance policy to adopt procedures in accordance with the rule to obtain a signed form from the insured acknowledging that the insured received the disclosure form. Section 1509.002(c) requires the rule to allow for electronic acknowledgment.

Section 3.3602(a). Proposed new §3.3602(a) describes the purpose of the proposed new section, which is to define short-term limited-duration insurance and requirements for short-term limited-duration coverage. Proposed new §3.3602(a) also provides that the proposed new section applies to any individual or group accident and health insurance policy or certificate issued under Insurance Code Chapter 1201 or 1251.

Section 3.3602(b). Proposed new §3.3602(b) provides that, for purposes of 28 TAC Chapters 3, 21, and 26, short-term limited-duration insurance has the meaning given in Insurance Code §1509.001. Insurance Code §1509.001 states that, in Chapter 1509, "short-term limited-duration insurance" has the meaning assigned by 26 C.F.R. §54.9801-2. Title 26 C.F.R. §54.9801-2 defines "short-term, limited-duration'' insurance to mean "health insurance coverage provided pursuant to a contract with an issuer that: [h]as an expiration date specified in the contract that is less than 12 months after the original effective date of the contract and, taking into account renewals or extensions, has a duration of no longer than 36 months in total," and displays a specified notice along with any additional information required by state law.

Section 3.3602(c). Proposed new §3.3602(c) provides that a policy or certificate must provide benefits consistent with the minimum standards for the type of coverage offered. Proposed new §3.3602(c) is included to clarify that the rules in the subchapter are not inclusive of all requirements that apply to short-term limited-duration plans. For example, many requirements in Title 8 of the Insurance Code (concerning Health Insurance and Other Health Coverages) apply, including general provisions in Chapters 1201 and 1251, and mandated benefit requirements under Title 8, Subtitle E.

Section 3.3602(d). Proposed new §3.3602(d) provides the requirements for individual and group short-term limited-duration coverage.

Proposed new §3.3602(d)(1) provides that short-term limited-duration coverage may not be marketed as guaranteed renewable. Proposed new §3.3602(d)(1) is included because, by definition, under Insurance Code §1509.001, short-term limited-duration insurance cannot be renewed for a total duration that exceeds 36 months. Since the term "guaranteed renewable" implies a continuous right to renew, use of the term with short-term limited-duration insurance would be misleading.

Proposed new §3.3602(d)(2) provides that short-term limited-duration coverage must be marketed either as nonrenewable, or as renewable at the option of the policyholder or enrollee, if the enrollee contributes to the premium. Proposed new §3.3602(d)(2) allows issuers to choose whether to issue short-term limited-duration plans that are either nonrenewable or renewable and to ensure that plans are marketed consistent with the terms of the policy. To avoid misleading prospective enrollees, if an issuer opts to permit renewability it must do so at the option of the policyholder. In a group policy in which the enrollee contributes to the premium, the enrollee controls the renewal option.

Proposed new §3.3602(d)(3) provides that short-term limited-duration coverage must clearly state the duration of the initial term and the total maximum duration, including renewal options. Proposed new §3.3602(d)(3) helps ensure that prospective enrollees are fully informed regarding how long they can keep the coverage.

Proposed new §3.3602(d)(4) provides that short-term limited-duration coverage may not be modified after the date of issue, except by signed acceptance of the enrollee. Proposed new §3.3602(d)(4) ensures that the enrollee is informed and accepts the changes in coverage. Proposed new §3.3602(d)(4) also ensures that an issuer does not circumvent the policy terms of renewability by unilaterally modifying the coverage.

Proposed new §3.3602(d)(5) provides requirements for renewable, short-term limited-duration coverage. Proposed new §3.3602(d)(5)(A) provides that a short-term limited-duration individual policy or group certificate must include a statement that the enrollee has a right to continue the coverage in force by timely payment of premiums for the number of terms listed. Proposed new §3.3602(d)(5)(A) provides for the enrollee to be informed about the enrollee's right to continue coverage when timely premium payments are made.

Proposed new §3.3602(d)(5)(B) provides that a short-term limited-duration individual policy or group certificate must include a statement that the issuer will not increase premium rates or make changes in provisions in the policy or certificate on renewal based on individual health status. Proposed new §3.3602(d)(5)(B) ensures that coverage that is marketed as renewable at the option of the enrollee does not require additional underwriting or change the terms of coverage at renewal.

Proposed new §3.3602(d)(5)(C) provides that, if applicable, a short-term limited-duration individual policy or group certificate must include a statement that the issuer retains the right, at the time of policy renewal, to make changes to premium rates by class. Proposed new §3.3602(d)(5)(C) is included to make clear that a renewable policy is not subject to individual rating adjustments at renewal. The statement would not be required when an issuer chooses to offer a fixed premium for the life of the policy.

Proposed new §3.3602(d)(5)(D) provides that, if a short-term limited-duration individual policy or group certificate is renewable, it must include a statement that the issuer, at the time of renewal, may not deny renewal based on individual health status. Proposed new §3.3602(d)(5)(D) helps ensure that coverage that is marketed as renewable at the option of the enrollee provides contractual terms that are consistent with that marketing.

Section 3.3602(e). Proposed new §3.3602(e) provides that an issuer offering short-term limited-duration insurance must include a written disclosure form that is consistent with the form in proposed Figure: 28 TAC §3.3602(e) and the requirements of this proposed section. Proposed new §3.3602(e) is necessary because Insurance Code §1509.002(a) requires the Commissioner by rule to prescribe a disclosure form to be provided with a short-term limited-duration insurance policy and application.

In addition to the elements specifically required by Insurance Code §1509.002(b), the proposed disclosure form includes a statement that the plan is exempt from the federal Affordable Care Act and may not cover all necessary care. This information informs prospective enrollees about possible benefit limitations.

Along with information about renewability, the proposed form states that "[t]he amount of your premium payment might change after you renew your plan, but the amount can't go up because of a change in your health. A change in your health can't affect your benefits or your right to renew." These statements are included for consistency with proposed new §3.3602(d)(2) and (5).

Along with the open enrollment information, the proposed form includes an explanation that prospective enrollees can sign up for a plan not covered by the ACA at any time, but that they can be denied for health reasons when they sign up for a new plan. This information is provided to inform prospective enrollees about underwriting that may occur during the initial application for short-term limited-duration coverage.

The proposed form also references Healthcare.gov. This information provides prospective enrollees with a resource to research open enrollment information, including eligibility information about qualifying life events for enrollment at other times.

Following information on the plan's deductible, the proposed form includes information on whether the plan uses a provider network. This information helps to ensure prospective enrollees understand the nature of coverage and whether limits apply based on their choice of provider.

The proposed form uses a chart to describe covered services and any limits that apply to those services. This information is necessary because Insurance Code §1509.002(b)(7)(A)-(H) and (8) require that the disclosure form state whether certain health care services are covered, specifically: prescription drug coverage, mental health services, substance abuse treatment, maternity care, hospitalization, surgery, emergency health care, preventive health care, and any other information the Commissioner determines is important for a purchaser of a short-term limited-duration policy.

Within the chart of covered services, the proposed form expands categories required under Insurance Code §1509.002(b)(7)(B), (C), (D), (E), and (F) in order to separate coverage for facility fees and physician fees. In describing maternity care coverage, the form also separates prenatal visits from physician services at delivery. The form expands on emergency health care to identify coverage for urgent care and ambulance services. The form adds primary care and specialist care office visits. Finally, the form includes the text of the federally-required notice.

Issuers are permitted, but not required, to include cost-sharing information in the benefits chart. This flexibility allows an issuer to incorporate key plan summary information within the disclosure document, rather than producing and delivering a separate document that may be repetitive.

The form also includes the text of the federally required notice. This is included because Insurance Code §1509.001 defines short-term limited-duration insurance based on the federal definition, at 45 C.F.R. Section 54.9801-2. The federal regulation defining "short-term, limited-duration insurance" includes the requirement to provide a specific notice.

Section 3.3602(f). Proposed new §3.3602(f) provides the disclosure form requirements. Proposed new §3.3602(f) is necessary because Insurance Code §1509.002(b) provides the information that the disclosure form must include.

Proposed new §3.3602(f) provides that in creating the disclosure form, issuers must follow all instructions in the proposed subsection. Proposed new §3.3602(f) ensures that issuers produce the disclosure form correctly and accurately.

Proposed new §3.3602(f)(1) provides that a disclosure form must be produced for each plan option that the issuer makes available and reflect the specific terms of the plan. Proposed new §3.3602(f)(1) is included because the nature of the information required by Insurance Code §1509.002(b) varies across plan offerings. For example, the plan's duration, renewal options, benefits, deductible, coverage maximum, and coverage for preexisting conditions can vary across different issuers and plans offered by an individual issuer. In order to accurately educate the prospective enrollee regarding the plan or plans available, a single disclosure form should not be used to reflect multiple plan options.

Proposed new §3.3602(f)(2) provides that the disclosure form must accurately represent the short-term limited-duration coverage. Proposed new §3.3602(f)(2) is provided to fully inform the prospective enrollee about the coverage offered.

Proposed new §3.3602(f)(3) provides that if the disclosure form in proposed new Figure 28 TAC §3.3602(e) does not accurately represent the plan being offered, the issuer may modify the form as necessary. When filing the form with the department, the issuer must clearly identify any changes made and explain the reason for modifying the form. Proposed new §3.3602(f)(3) provides flexibility to ensure the disclosure form does not provide inaccurate information. In reviewing filed disclosures, the department will ensure that the changes made accurately represent the terms of the plan.

Proposed new §3.3602(f)(4) provides that the chart under disclosure form paragraph (9) may be supplemented to include cost-sharing information for each benefit. Proposed new §3.3602(f)(4) provides flexibility for issuers that wish to use the disclosure form as a primary plan summary document, rather than creating a separate document that may duplicate much of the information in the form.

Proposed new §3.3602(f)(5) provides that the disclosure form in Figure: 28 TAC §3.3602(e) may be combined with the outline of coverage required under Insurance Code §1201.107 and §3.3093(4) of this title if certain requirements are met. Proposed new §3.3602(f)(5) provides flexibility for issuers in the individual market, which are required to provide an outline of coverage document that includes much of the same information that is contained in the disclosure form. The ability to combine the documents eliminates what would otherwise be duplicative disclosure requirements and enables a more streamlined approach.

Section 3.3602(g). Proposed new §3.3602(g)(1) provides that the disclosure form must be filed with the department for review before use, consistent with filing procedures in 28 TAC Chapter 3, Subchapter A.

Proposed new §3.3602(g)(2) requires that a disclosure form must be provided in writing to a prospective enrollee before the individual completes an application or makes an initial premium payment, application fee, or other fee; and at the time the policy or certificate is issued. This makes clear that the disclosure should be available in writing before, and not after, a prospective enrollee submits an application. Proposed new §3.3602(g)(2) is necessary because Insurance Code §1509.00(2)(a) requires a disclosure form to be provided with a short-term limited-duration policy and application.

Proposed new §3.3602(g)(3) provides that the disclosure form must be signed by the enrollee to acknowledge receipt at the time of application. An electronic signature is acceptable if the issuer's procedures comply with Insurance Code Chapter 35.

Proposed new §3.3602(g)(1) through (3) are necessary because Insurance Code §1509.002(c) provides that an issuer issuing a short-term limited-duration insurance policy to adopt procedures in accordance with the rule to obtain a signed form from the enrollee acknowledging that the enrollee received the disclosure form. Insurance Code §1509.002(c) also provides that the rule must allow for electronic acknowledgment.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Rachel Bowden, manager of the Life and Health Lines Office, has determined that during each year of the first five years the proposed new section is in effect, there will not be a fiscal impact on state and local governments as a result of enforcing or administering the section, other than that imposed by the statute. This determination was made because the proposed new section does not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with the proposed new section.

Ms. Bowden anticipates no measurable effect on local employment or the local economy as a result of this proposal.

PUBLIC BENEFIT AND COST NOTE. For each year of the first five years the proposed new section is in effect, Ms. Bowden expects that administering the proposed section will have the public benefit of ensuring that the department's rules conform to Insurance Code Chapter 1509. The proposed section also provides consumer protections related to renewability. Finally, the proposed section gives prospective enrollees adequate notices of their protections concerning short-term limited-duration insurance.

Ms. Bowden expects that the proposed new section will impose an economic cost on persons required to comply with the new section. The cost of compliance results from disclosure and acknowledgment requirements under Insurance Code §1509.002(a) and (c). It is not clear how much of an economic cost the rule will impose on persons required to comply with the new section. Before January 1, 2020, issuers in Texas will not be permitted to sell short-term health insurance products that could last, including any renewals, beyond a year. Under Insurance Code Chapter 1509, issuers will be able to modify their products to be renewed up to a total of three years. Although this results in a benefit to issuers, they will also incur a new cost by following signed disclosure requirements prescribed by the department.

Issuers could face some administrative computer programming costs associated with drafting the content of the disclosure information and integrating it into their electronic systems, distributing it with policies and applications, and obtaining and retaining enrollee signatures. Issuers might also have to modify their marketing materials. Although the department will not impose a filing fee, a fee of up to $13.50 will apply when the disclosure form is filed with the department through the System for Electronic Rate and Form Filings (SERFF).

Issuers' staff costs may vary depending on the skill level required, the number of staff required, and the geographic location where the work is done. The 2018 median hourly wages for workers in Texas are reported by the Texas Wages and Employment Projections database and developed and maintained by the Labor Market and Career Information Development Department of the Texas Workforce Commission. The department used this information to estimate labor costs. This information can be found at www.texaswages.com/WDAWages.

Issuers may calculate the total cost of labor for each category by multiplying the number of estimated hours for each component by the median hourly wage for each category of labor. The median hourly wage for a computer programmer is $40.86. The median hourly wage for an administrative assistant is $16.47.

Administrative expenditures could also include postage and the cost of printing new disclosure forms or revising outlines of coverage forms that include the disclosure information. It is not feasible for the department to estimate the total increased printing, copying, mailing, and transmitting costs related to compliance with this proposal because there are many factors involved that are not quantifiable by the department. But according to the United States Postal Service business price calculator, available at www.dbcalc.usps.gov, the current cost to mail a machinable letter in a single standard business mail envelope with a weight of 3.5 ounces to a standard five-digit ZIP code in the United States is $1.15. The department estimates that a standard business envelope costs 1.6 cents. The department further estimates that printing or copying costs between six to eight cents per page. The department believes that mailing costs can be avoided by providing the disclosure information with the outline of coverage at the time of issuance or renewal.

The department estimates that preparing the disclosure form as a stand-alone document or changing the outline of coverage form to include the disclosure information will likely require a one-time cost for approximately two to 10 hours of administrative staff time. The cost will vary depending on whether an administrative assistant, a computer programmer, or a combination of both positions, perform these functions.

Additionally, issuers that choose to permit renewals will be required to allow renewal at the option of the enrollee, without increasing rates based on individual health status. This could be expected to minimally increase expected claims costs when compared to making renewal at the option of the issuer. However, the department is unaware of any issuers currently that do not give the renewal option to the enrollee. If this is correct, there will be no additional cost to those issuers.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. The department has determined that the proposed new section will not have an adverse economic effect or a disproportionate economic impact on rural communities. As a result, and in accordance with Government Code §2006.002(c), the department is not required to prepare a regulatory flexibility analysis to address them.

The department has determined that the proposed new section may have an adverse economic effect or a disproportionate economic impact on small or micro businesses. The cost analysis in the Public Benefit and Cost Note section of this proposal also applies to these small and micro businesses. The department estimates that the proposed new section may affect at least thirteen issuers that currently offer short-term limited-duration coverage, including an estimated one to three small or micro businesses. In 2018, only one of the affected issuers had less than $6 million in premium revenue, and only two issuers were independently owned. The primary objectives of this proposal are to require disclosures and protections related to short-term health insurance products. The department considered the following alternatives to minimize any adverse impact on small and micro businesses while accomplishing the proposal's objectives:

(1) The department considered not proposing the new section. This would not comply with Insurance Code §1509.002(a), which requires the Commissioner to adopt a disclosure form by a rule. Not requiring the filing of the disclosure would violate Insurance Code §31.002(3), which requires the department to ensure that the Insurance Code is executed. If the department permitted policies advertised as renewable to be renewed only at the discretion of the issuer, the department's rules would not comply with Insurance Code §31.002(4), which requires the department to protect and ensure the fair treatment of consumers.

(2) The department also considered exempting small or micro businesses from the requirements of the rule. This would also prevent compliance with Insurance Code §1509.002(a), which applies regardless of the size of the regulated entity, and this would result in some prospective enrollees not receiving the disclosure required by the proposed section.

(3) The department also considered imposing different requirements on small or micro businesses. The department considered a shorter disclosure form for small or micro businesses, but this would provide less consumer protection without any material reduction of costs, because it would still impose costs similar or equal to those for the proposed disclosure form. The disclosure will likely only need to be filed once because it can be filed with variable language, allowing the filed disclosure to be produced for use with many different policies. Regarding the requirements related to renewability under proposed §3.3602(d), the department considered providing a longer implementation period for small or micro businesses, but rejected this option because it does not appear that any issuer, including any small or micro business, is currently offering policies renewable only at the option of the issuer. Given that issuers currently allow renewability at the option of the enrollee, small and micro business issuers may not need any additional implementation time.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. The department has determined that this proposal does impose a possible cost on regulated persons. However, no rule repeal or rule amendments are required under Government Code §2001.0045 because the proposed 28 TAC §3.3602 is necessary to implement legislation, which meets the exception under Government Code §2001.0045(c)(9). Specifically, the proposed rule implements Insurance Code §1509.002(a) and (c), as added by SB 1852, 86th Legislature, 2019.

Insurance Code §1509.002(a) and (b) requires that the Commissioner adopt by rule a disclosure form that contains specific information, including any other information the Commissioner determines is important for a purchaser of a short-term limited-duration insurance policy. The department has attempted to minimize the cost by not charging a state filing fee for the disclosure form.

The department does not believe the renewability requirement imposes a cost on issuers because issuers are currently unable to permit renewal beyond 12 months. Those that currently offer renewal of three- or six-month policies appear to do so at the option of the enrollee, consistent with what is proposed here. The department notes that the section gives an issuer the option to allow renewal, but at the option of the policyholder, or enrollee, if the enrollee contributes to the premium. The section does not restrict an issuer's ability to fully underwrite before the initial issuance of the policy, or to increase rates at renewal on a class basis. Even if giving this option to the prospective enrollee were to cause a cost for issuers, this protection for policyholders is necessary to protect the health, safety, and welfare of the residents of this state under §2001.0045(c)(6), because prospective enrollees could be left without health insurance coverage for significant periods of time. For example, a prospective enrollee could purchase a short-term policy on June 1, 2020, relying on the fact that the coverage could be renewed to June 1, 2022, with the intent that they would change to major medical coverage during open enrollment in December of 2020 or 2021, if necessary. If a prospective enrollee becomes seriously ill on February 1, 2021, and the issuer has the option to deny renewal on June 1, 2021, the prospective enrollee could be without health insurance until January 1st, 2022, potentially resulting in significant harm to their health, safety, and welfare. The proposed section would give the prospective enrollee certainty in their planning. If the issuer offers a renewal option, the prospective enrollee will be able to take it if they need it.

GOVERNMENT GROWTH IMPACT STATEMENT. The department has determined that for each year of the first five years that the proposed new section is in effect the proposed rule:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will not require an increase or decrease in fees paid to the agency;

- will create a new regulation;

- will not limit an existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. The department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. The department will consider any written comments on the proposal that are received by the department no later than 5:00 p.m., Central time, on December 9, 2019. Send your comments to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

The Commissioner will also consider written and oral comments on the proposal in a public hearing under Docket No. 2817 at 10:00 a.m. Central time on November 15, 2019 in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street, Austin, Texas.

STATUTORY AUTHORITY. The department proposes §3.3602 under Insurance Code §§1201.006, 1201.101(a), 1201.108(b), 1202.051, 1251.008, 1509.002, and 36.001.

Insurance Code §1201.006 provides that the Commissioner may adopt reasonable rules as necessary to implement the purposes and provisions of Chapter 1201.

Insurance Code §1201.101(a) provides that the Commissioner adopt reasonable rules establishing specific standards for the content of an individual accident and health insurance policy and the manner of sale of an individual accident and health insurance policy, including disclosures required to be made in connection with the sale.

Insurance Code §1201.108(b) provides that the Commissioner prescribe the format and content of an outline of coverage required by §1201.107.

Insurance Code §1202.051(d) provides that the Commissioner adopt rules necessary to implement §1202.051 and to meet the minimum requirements of federal law, including regulations.

Insurance Code §1251.008 provides that the Commissioner may adopt rules necessary to administer Chapter 1251.

Insurance Code §1509.002 provides that the Commissioner by rule prescribe a disclosure form to be provided with a short-term limited-duration insurance policy and application, that the disclosure form prescribed by rule may include any other information the Commissioner determines is important for a purchaser of a short-term limited-duration insurance policy, and that the rule must allow for electronic acknowledgement.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the department under the Insurance Code and other laws of this state.

CROSS-REFERENCE TO STATUTE. Section 3.3602 implements Insurance Code Chapter 1509, enacted by SB 1852, 86th Legislature, Regular Session (2019).

§3.3602.Requirements for Short-Term Limited-Duration Coverage.

(a) The purpose of this section is to define short-term limited-duration insurance and address requirements for short-term limited-duration coverage. This section applies to any individual or group accident and health insurance policy or certificate issued under Insurance Code Chapters 1201 or 1251.

(b) For the purposes of Chapters 3, 21, and 26 of this title, "short-term limited-duration insurance" has the meaning given in Insurance Code §1509.001.

(c) An individual policy or group certificate of short-term limited-duration insurance must provide benefits consistent with the minimum standards for the type of coverage offered.

(d) Short-term limited-duration coverage, including individual policies and group certificates:

(1) may not be marketed as guaranteed renewable;

(2) must be marketed either as nonrenewable, or renewable at the option of the policyholder or enrollee, if the enrollee contributes to the premium;

(3) must clearly state the duration of the initial term and the total maximum duration including any renewal options;

(4) may not be modified after the date of issue, except by signed acceptance of the policyholder or the enrollee, if the enrollee contributes to the premium; and

(5) if coverage is renewable, a short-term limited-duration individual policy or group certificate must:

(A) include a statement that the enrollee has a right to continue the coverage in force by timely payment of premiums for the number of terms listed;

(B) include a statement that the issuer will not increase premium rates or make changes in provisions in the policy, or certificate, on renewal based on individual health status;

(C) if applicable, include a statement that the issuer retains the right, at the time of policy renewal, to make changes to premium rates by class; and

(D) include a statement that the issuer, at the time of renewal, may not deny renewal based on individual health status.

(e) An issuer offering short-term limited-duration insurance must include an accurate written disclosure form that is consistent with the form and instructions prescribed in Figure: 28 TAC §3.3602(e) and the requirements of this section.

Figure: 28 TAC §3.3602(e) (.pdf)

(f) In creating a disclosure form, issuers must follow all instructions provided in this subsection:

(1) The disclosure must be produced for each plan option that the issuer makes available and reflect the specific terms of the plan.

(2) The disclosure form must accurately represent the short-term limited-duration coverage being provided.

(3) If the disclosure form provided in Figure 28 TAC §3.3602(e) does not accurately represent the plan being offered, the issuer may modify the form as necessary. When filing the form with the department, the issuer must clearly identify any changes made and explain the reason for modifying the form.

(4) The chart under disclosure form paragraph (9) may be supplemented to include cost-sharing information for each benefit.

(5) The disclosure form provided in Figure 28 TAC §3.3602(e) (the disclosure form) may be combined with the outline of coverage required under §3.3093(4) of this title (the outline of coverage) only if the combined disclosure form and outline of coverage is assembled and combined in the following order:

(A) paragraph (1) of the outline of coverage;

(B) paragraph (2) of the outline of coverage is replaced with paragraphs (1) through (8) of the disclosure form;

(C) paragraph (3) of the outline of coverage is combined with paragraph (9) of the disclosure form, using as a minimum, the information contained in the chart in paragraph (9) of the disclosure form;

(D) paragraph (4) of the outline of coverage;

(E) paragraph (5) of the outline of coverage may be removed, as it is addressed in paragraph (3) of the disclosure form;

(F) paragraph (6) of the outline of coverage; and

(G) paragraphs (10) and (11) of the disclosure form.

(g) A disclosure form under this section must be:

(1) filed with the department for review before use, consistent with filing procedures in Subchapter A of this chapter;

(2) provided in writing to a prospective enrollee:

(A) before the individual completes an application or makes an initial premium payment, application fee, or other fee; and

(B) at the time the policy or certificate, is issued; and

(3) signed by the enrollee to acknowledge receipt at the time of application. An electronic signature is acceptable if the issuer's procedures comply with Insurance Code Chapter 35.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 28, 2019.

TRD-201904002

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


CHAPTER 5. PROPERTY AND CASUALTY INSURANCE

SUBCHAPTER O. STATISTICAL PLANS [TEXAS COMMERCIAL LINES STATISTICAL PLAN]

28 TAC §5.9502

The Texas Department of Insurance proposes new 28 TAC §5.9502, relating to the Texas Catastrophe Event Statistical Plan for Personal and Commercial Risks (statistical plan). The proposed rule is necessary to effectively implement Insurance Code Chapter 38, Subchapter E for statistical data collection in response to a catastrophe; standardize and streamline the catastrophe data reporting requirements to enhance efficiency and predictability for insurers and TDI; allow for better experience comparisons by TDI and the industry in general; ensure TDI has consistent, reliable information to evaluate the insurance market's health after a catastrophe; assist TDI in swiftly compiling complex data; allow for more timely analysis by TDI; and provide information about the impact of catastrophe events to policymakers.

The proposed rule adopts by reference a new statistical plan that will apply to reporting periods beginning on or after January 1, 2020. TDI also proposes changing the title of Subchapter O of 28 TAC Chapter 5 from "Texas Commercial Lines Statistical Plan" to "Statistical Plans."

EXPLANATION. Replacing numerous, distinct data calls with a single statistical plan for catastrophe data collection will ensure consistent, predictable, efficient data collection in the wake of a catastrophe. Implementing a single statistical plan for catastrophe data collection allows insurers to predict what data will be necessary and make business decisions about the most efficient way to report that data to avoid having to scramble during a catastrophe.

The statistical plan describes the information responding insurers will provide to TDI following a catastrophe event. The proposed rule largely adopts the elements of the TDI Catastrophe Data Call Guidelines issued in April 2019.

New 28 TAC §5.9502 is essential to ensure that insurers use the new statistical plan beginning January 1, 2020. Previously, TDI would determine the data elements for each specific catastrophe event, which made requirements less predictable for insurers and meant that insurers had to program their systems to report the data after the event occurred. This also meant that TDI received varying qualities of data that required significant staff resources and time to clean up and organize. A statistical plan will simplify the reporting process, making reporting easier for insurers and analysis easier for TDI, which will produce more timely responses by TDI to assess the insurance market's health.

Insurance Code §38.204 and §38.207 give the Commissioner authority to adopt such a statistical plan. Additionally, under Insurance Code §38.001, TDI may address a reasonable inquiry to any insurance company or other holder of an authorization, such as a surplus lines or farm mutual insurer, about the business condition or matters TDI considers necessary for the public good or for the proper discharge of TDI's duties.

The rule proposal adopts the statistical plan by reference. The statistical plan will be applicable January 1, 2020 and will be published on TDI's website at www.tdi.texas.gov.

Purpose. This information is important to TDI's ability to evaluate the financial condition of insurers after a catastrophe and to ensure consumers are protected. Standardized, high-quality, consistent data will result in better decision making and more efficient solutions to determine the insurance market's health after a catastrophe. This proposed rule will also decrease industry costs over time because it allows insurers to implement a predictable and streamlined catastrophe statistical plan and data reporting process.

Applicability and Notice to Insurers. This proposed rule will assist TDI in timely collecting vital data about the financial condition of insurers after a catastrophe. It will also simplify and standardized the catastrophe-data-reporting process for insurers.

Insurers, including surplus lines and farm mutual insurers, that write property or automobile insurance in Texas, will report data under §38.001 under the statistical plan. Whether an insurer is required to report data for a catastrophe in a given year depends on the amount of Texas direct written premiums the insurer reported in the prior calendar year. This is different from previous data calls that required all insurers to report. TDI will use premiums the insurer reported on its Annual Statement to determine whether the insurer is required to report. For an alien surplus lines insurer, TDI will use premiums provided by the Surplus Lines Stamping Office of Texas to make the determination. Insurers that are not licensed to write business in Texas or not eligible to do business in Texas on a surplus lines basis must not report data, even if the insurer has claims in Texas resulting from the catastrophe.

TDI will activate the statistical plan data reporting after a catastrophe in Texas. Insurers are not required to report data under the statistical plan until TDI has activated data reporting. TDI will activate reporting under Insurance Code §38.001 through a bulletin on TDI's website at www.tdi.texas.gov. The bulletin and statistical plan will provide instructions for responding insurers. These reports will be used to determine the financial impact of a catastrophe on insurers. A response made under §38.001 that is otherwise privileged or confidential by law remains privileged or confidential until introduced into evidence at an administrative hearing or in a court. Insurers should identify what documents are privileged or confidential in their responses.

Proposed Rule Provisions. Subsection 5.9502(a) provides information about the rule's purpose and applicability. This subsection identifies which insurers must report under the statistical plan. This subsection also specifies that insurers are required to report their premium and loss experience after each catastrophe. This subsection is necessary to clarify the proposed rule's purpose and applicability.

Subsection 5.9502(b) provides information about notice to insurers if reporting under the statistical plan is activated for a specific catastrophe event. TDI will post notice under §38.001 through a bulletin on its website at www.tdi.texas.gov. This subsection is essential to notify insurers about the statistical plan activation process.

Subsection 5.9502(c) states that a response under §5.9502 must comply with the statistical plan. This subsection is essential to ensure that all responses comply with the statistical plan.

Subsection 5.9502(d) clarifies that if the submitted reports are otherwise confidential by law, they will remain confidential as provided by Insurance Code §38.001(d). The rule specifies that insurers should identify what documents are privileged or confidential. This subsection is important to clarify that a response made under §38.001 that is otherwise privileged or confidential by law remains privileged or confidential until introduced into evidence at an administrative hearing or in a court.

Subsection 5.9502(e) adopts the statistical plan by reference. This subsection is essential to adopt the statistical plan for insurers.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Brian Ryder, senior actuary and team lead, Regulatory Policy Division, has determined that during each year of the first five years the proposed rule is in effect, there will be no measurable fiscal impact on state and local governments as a result of enforcing or administering the section, other than that imposed by the statute. This determination was made because the proposed rule does not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with the proposed rule. Mr. Ryder does not anticipate any measurable effect on local employment or the local economy as a result of this proposal.

PUBLIC BENEFIT AND COST NOTE. Standardized, high-quality, and consistent data will result in better decision making, more efficient solutions, and accurate identification of the insurance market's health after a catastrophe. This proposed rule will also decrease industry costs over time due to the implementation of a streamlined, standardized reporting process after a catastrophe.

The statistical plan is limited in scope but serves an important purpose. The information collected under it is essential to ensure that vulnerable consumers are protected and to provide TDI with the necessary data to evaluate market health, activity, and access.

Associated costs represent mostly upfront costs to the insurer. Once the internal procedures are revised, an insurer will have a process in place making future catastrophe data responses cost effective and efficient. Compared to the current one-time data call system, TDI anticipates that costs associated with catastrophe data reporting will decrease for insurers and TDI over time and will likely result in an overall reduction in costs.

For each year of the first five years the proposed rule is in effect, Mr. Ryder expects that administering the proposed rule will have the public benefit of ensuring that TDI's rules conform to Insurance Code §38.001, §38.204, and §38.207. This proposed rule will assist TDI in collecting vital data about the financial condition of insurers after a catastrophe to allow the proper discharge of TDI's duties under Insurance Code §31.002.

Mr. Ryder expects that the proposed rule will impose an economic cost on persons who must implement the statistical plan requirements and comply with the proposed rule.

Because TDI has issued catastrophe data calls in the past, insurers already have a foundation in place for responding, including staff, internal processes, and forms or applications. Thus, for insurers the potential additional costs arise from revising an insurer's internal processes to comply with the proposed new statistical plan. The extent to which those internal processes and documents will need to be revised will depend on each insurer's past and future business decisions, but the data to be collected under the statistical plan will be substantially the same whether TDI collects the data through one-time data calls or through this statistical plan. Any change in the process results mainly from implementing the new reporting procedure under the statistical plan. Importantly, however, adopting these reporting requirements as a statistical plan provides predictability to insurers with respect to which companies will be required to report and what information those companies must report. It also provides predictability to TDI in the form of standardized, organized data.

Insurers only need to implement the new statistical plan procedures once. And they will be able to use those revised procedures multiple times without change. This will result in lower costs over time for both TDI and the industry, higher quality data, and increased efficiency. In addition, TDI will receive consistent data over time allowing for accurate experience comparisons. This will lead to better decision making, improved responses to the market after a catastrophe, and improved internal procedures for TDI. This will also assist TDI in swiftly compiling complex data; allow for more timely analysis by TDI; and provide information about the impact of catastrophe events to policymakers.

It is not feasible for TDI to determine the actual cost of employees needed to comply with the proposed rule considering that each insurer occupies a different market share and will only provide data to the extent its business is affected by the identified catastrophe in the specified regions. Further, every insurer has unique internal processes, resources, and technical capabilities that are not feasible for TDI to evaluate. The method of compliance is a business decision, including the decision to employ staff or contract for some of these services.

Though costs to each insurer will depend heavily on the method of compliance the insurer chooses, TDI projects the following possible requirements. These estimates are conservative (high) so costs may be less than what is estimated here.

TDI estimates individual employee compensation for an administrative assistant at $17.61 an hour, computer operator at $22.04 an hour, and a computer and information systems manager at $68.53 an hour for one to twenty hours of work to revise an insurer's internal procedures. TDI also estimates individual employee compensation for an administrative assistant at $17.61 an hour and a computer operator at $22.04 an hour for one to twenty hours of work to gather and submit the data. These wages are based on the national median hourly wage for each classification as reported in the May 2018 National Industry-Specific Occupational Employment and Wage Estimates at: www.bls.gov/oes/current/oes436014.htm; www.bls.gov/oes/current/oes113021.htm; and www.bls.gov/oes/current/oes439011.htm.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. The primary objectives of this proposal are to gather essential data to determine the insurance market's health after a catastrophe and to implement a streamlined, standardized process to reduce costs over time and increase reporting efficiency.

To implement this rule, TDI has determined that the proposed rule may have an adverse economic effect or a disproportionate economic impact on one to 100 small or micro businesses. The cost analysis in the Public Benefit and Cost Note section of this proposal also applies to these small and micro businesses. The new statistical plan will only apply to insurers meeting a monetary threshold of at least $5 million in Texas written premium. Therefore, TDI estimates that the proposed rule will only affect a minimal number of small or micro businesses, if any. TDI considered the following alternatives to minimize any adverse impact on small and micro businesses while accomplishing the proposal's objectives:

(1) not proposing the proposed rule and instead collecting the needed data through one-time data calls;

(2) proposing a different requirement for small and micro businesses; and

(3) exempting small or micro businesses from the proposed requirement that could create the adverse impact.

TDI examined each of these alternatives and explains them below:

Not proposing the proposed rule. Not adopting the proposed rule would result in continuing the data-call approach. There would be no streamlined, anticipated process for collecting this important data for any insurer, regardless of size. This would mean no cost-savings result over time due to increased efficiency, and no statistical plan to ensure consistent data is collected that would allow an examination of experience comparisons over time. For these reasons, this option has been rejected.

Proposing a different requirement for small and micro businesses. Proposing a different requirement for small and micro businesses would not alleviate the adverse economic impact from compliance with this proposal because small and micro businesses would still be required to report data in response to a catastrophe data call issued by TDI. For these reasons, this option has been rejected.

Exempting small and micro businesses from the proposed requirement that could create the adverse impact. If small and micro businesses were exempted from the new proposed rule that would not alleviate the adverse economic impact from compliance with this proposal because small and micro businesses would still be required to report data in response to a catastrophe data request issued by TDI. In addition, there would be no streamlined, anticipated process for small and micro businesses for collecting this important data. This would mean no cost-savings result over time due to increased efficiency. For these reasons, this option has been rejected.

TDI has determined that the proposal will not have an adverse economic effect on rural communities because the statistical plan will only apply to insurers meeting a monetary threshold of at least $5 million in Texas written premium. As a result, and in accordance with Government Code §2006.002(c), it is not necessary for TDI to address rural communities in its regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. TDI has determined that this proposal does impose a cost on regulated persons. However, no additional rule amendments or repeals are required under Government Code §2001.0045 because the rule is being adopted in response to past natural disasters and anticipation of future natural disasters.

After issuing individual, separate data calls for past natural disasters, TDI determined that a new process was required to collect data concerning the financial health of the insurance market after a natural disaster--it needed a more efficient, standardized way to assess the financial health of the market. Because time is critical when responding to a catastrophe, spending extra time and resources drafting and issuing unique, incident-specific data calls, and sorting through variously formatted and delivered responses, inhibits TDI's ability to collect and analyze catastrophe statistical data efficiently. In addition, requiring insurers to respond to unique, incident-specific data calls diverts insurers' time and resources during a catastrophe. Therefore, this rule is being adopted in response to TDI's experience after past natural disasters and in response to future anticipated natural disasters.

GOVERNMENT GROWTH IMPACT STATEMENT. TDI has determined that for each year of the first five years that the proposed rule is in effect the proposed rule:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will not require an increase or decrease in fees paid to the agency;

- will create a new regulation to implement the new statistical plan;

- will not expand, limit, or repeal an existing regulation;

- will increase the number of individuals subject to the rule's applicability, as this is a new rule; and

- will positively affect the Texas economy as it will provide important, cost-effective information to TDI to assess the insurance market's health after a catastrophe.

TAKINGS IMPACT ASSESSMENT. TDI has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. TDI will consider any written comments on the proposal that are received by TDI no later than 5:00 p.m., central time, December 9, 2019. Send your comments to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

To request a public hearing on the proposal, submit a request before the end of the comment period, and separate from any comments, to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. The request for public hearing must be separate from any comments and received by the department no later than 5:00 p.m., central time, on December 9, 2019. If the department holds a public hearing, the department will consider written and oral comments presented at the hearing.

STATUTORY AUTHORITY. TDI proposes 28 TAC §5.9502 under Insurance Code §§38.001, 38.202, 38.204 - 38.207, and 36.001.

Insurance Code §38.001 authorizes TDI to address a reasonable inquiry to any insurance company or other holder of an authorization, such as a surplus lines or farm mutual insurer, relating to the business condition or any matter TDI considers necessary for the public good or for the proper discharge of TDI's duties. This section also specifies that a response made under this section that is otherwise privileged or confidential by law remains privileged or confidential until introduced into evidence at an administrative hearing or in a court.

Insurance Code §38.202 allows the Commissioner to designate a statistical agent to gather data for relevant regulatory purposes or as otherwise provided by the Insurance Code.

Insurance Code §38.204 requires a designated statistical agent to collect data from reporting insurers and authorizes the Commissioner to adopt a statistical plan adopted by the Commissioner.

Insurance Code §38.205 provides that insurers must provide all premium and loss cost data to the Commissioner or designated statistical agent.

Insurance Code §38.206 authorizes the statistical agent to collect from reporting insurers any fees necessary for the agent to recover the necessary and reasonable costs of collecting data from that reporting insurer.

Insurance Code §38.207 authorizes the Commissioner to adopt rules necessary to accomplish the purposes of Insurance Code Chapter 38, Subchapter E.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

CROSS-REFERENCE TO STATUTE. Section 5.9502 implements Insurance Code Chapter 38, Subchapter E, codified by SB 1467, 76th Legislature, Regular Session (1999).

§5.9502.Texas Catastrophe Event Statistical Plan for Personal and Commercial Risks.

(a) Purpose and applicability.

(1) The purpose of this section is to establish requirements for the reporting of catastrophe-related data by insurers under Insurance Code Chapter 38, Subchapter E and Insurance Code §38.001.

(2) This section applies to all reports required to be filed under the Texas Catastrophe Event Statistical Plan for Personal and Commercial Risks for reporting periods beginning on or after January 1, 2020. Insurers must report their claim and loss experience after each specified catastrophe event. Insurers are not required to report data under the statistical plan until TDI has activated the statistical plan for a specific event and requested information under Insurance Code §38.001 through a bulletin on TDI's website at www.tdi.texas.gov.

(b) Data reporting notice. TDI will notify insurers, including surplus lines and farm mutual insurers, of data reporting under the Texas Catastrophe Event Statistical Plan for Personal and Commercial Risks by posting a data request under Insurance Code §38.001 through a bulletin on TDI's website at www.tdi.texas.gov.

(c) Response requirements. A response must comply with the reporting requirements and instructions specified in the Texas Catastrophe Event Statistical Plan for Personal and Commercial Risks adopted by reference in subsection (e) of this section.

(d) Confidential information. Under Insurance Code §38.001(d), a response made under this section that is otherwise privileged or confidential by law remains privileged or confidential until introduced into evidence at an administrative hearing or in a court. Insurers should identify what documents are privileged or confidential in their responses.

(e) Adoption by reference. The Commissioner adopts by reference the Texas Catastrophe Event Statistical Plan for Personal and Commercial Risks. This document is published by TDI and is available on TDI's website at www.tdi.texas.gov.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 28, 2019.

TRD-201903992

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


CHAPTER 7. CORPORATE AND FINANCIAL REGULATION

SUBCHAPTER J. EXAMINATION EXPENSES AND ASSESSMENTS

28 TAC §7.1001

The Texas Department of Insurance proposes amendments to 28 TAC §7.1001, concerning assessments to cover the expenses of examining domestic and foreign insurance companies and self-insurance groups providing workers' compensation insurance. Under Insurance Code §843.156, the term "insurance company" as used in this proposal includes a health maintenance organization (HMO) as defined in Insurance Code §843.002.

EXPLANATION. The proposed amendments are necessary to establish the examination expenses to be levied against and collected from each domestic and foreign insurance company and each self-insurance group providing workers' compensation insurance examined during the 2020 calendar year. The proposed amendments are also necessary to establish the rates of assessment to be levied against and collected from each domestic insurer, based on admitted assets and gross premium receipts for the 2019 calendar year, and from each foreign insurer examined during the 2019 calendar year using the same methodology.

The department proposes an amendment to the section heading to reflect the year for which the proposed assessment will be applicable. The department also proposes amendments in subsections (b)(1) and (2), (c)(1), (c)(2)(A) and (B), (c)(3), and (d) to reflect the appropriate year for accurate application of the section.

The department proposes amendments in subsection (c)(2)(A) and (B) to update assessments to reflect the methodology the department has developed for 2020.

The following paragraphs provide an explanation of the methodology used to determine examination overhead assessments for 2020.

In general, the department's 2020 revenue need (the amount that must be funded by maintenance taxes or fees; examination overhead assessments; premium finance exam assessments; and funds in the self-directed budget account, as established under Insurance Code §401.252) is determined by calculating the department's total cost need, and subtracting from that number funds resulting from fee revenue and funds remaining from fiscal year 2019.

To determine total cost need, the department combined costs from the following: (i) appropriations set out in Chapter 1353 (House Bill 1), Acts of the 86th Legislature, Regular Session, (2019) (the General Appropriations Act), which come from two funds, the General Revenue Dedicated - Texas Department of Insurance Operating Account No. 0036 (Account No. 0036) and the General Revenue Fund - Insurance Companies Maintenance Tax and Insurance Department Fees; (ii) funds allowed by Insurance Code Subchapters D and F of Chapter 401 as approved by the Commissioner of Insurance for the self-directed budget account in the Treasury Safekeeping Trust Company to be used exclusively to pay examination costs associated with salary, travel, or other personnel expenses and administrative support costs; (iii) an estimate of other costs statutorily required to be paid from those two funds and the self-directed budget account, such as fringe benefits and statewide allocated costs; and (iv) an estimate of the cash amount necessary to finance both funds and the self-directed budget account from the end of the 2020 fiscal year until the next assessment collection period in 2020. From these combined costs, the department subtracted costs allocated to the Division of Workers' Compensation and the Workers' Compensation Research and Evaluation Group.

The department determined how to allocate the revenue need to be attributed to each funding source using the following method:

Each section within the department that provides services directly to the public or the insurance industry allocated the costs for providing those direct services on a percentage basis to each funding source, such as the maintenance tax or fee line, the premium finance assessment, the examination assessment, the self-directed budget account as limited by Insurance Code §401.252, or another funding source. The department applied these percentages to each section's annual budget to determine the total direct cost to each funding source. The department calculated a percentage for each funding source by dividing the total directly allocated to each funding source by the total of the direct cost. The department used this percentage to allocate administrative support costs to each funding source. Examples of administrative support costs include services provided by human resources, accounting, budget, the Commissioner's administration, and information technology. The department calculated the total of direct costs and administrative support costs for each funding source.

To complete the calculation of the revenue need, the department combined the costs allocated to the examination overhead assessment source and the self-directed budget account source. The department then subtracted the fiscal year 2020 estimated amount of examination direct billing revenue from the amount of the combined costs of the examination overhead assessment source and the self-directed budget account source. The resulting balance is the amount of the examination revenue need for the purpose of calculating the examination overhead assessment rates.

To calculate the assessment rates, the department allocated 50 percent of the revenue need to admitted assets and 50 percent to gross premium receipts. The department divided the revenue need for gross premium receipts by the total estimated gross premium receipts for calendar year 2019 to determine the proposed rate of assessment for gross premium receipts. The department divided the revenue need for admitted assets by the total estimated admitted assets for calendar year 2019 to determine the proposed rate of assessment for admitted assets.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Robert Palm, program specialist for Financial Services, has determined that for each year of the first five years the proposed amendments will be in effect, the expected fiscal impact on state government is estimated income of $9,481,212 to the Texas Department of Insurance Examination Self-Directed Account in the Texas Treasury Safekeeping Trust Company. There will be no fiscal implications for local government as a result of enforcing or administering the section, because local governments are not involved in enforcing or complying with the proposed amendments, and there will be no effect on local employment or the local economy.

PUBLIC BENEFIT AND COST NOTE. Mr. Palm also has determined that for each year of the first five years the proposed amendments are in effect, the public benefit expected as a result of enforcing the section will be adequate and reasonable assessment of rates to defray the state's expenses of domestic and foreign insurer examinations and administration of the laws related to these examinations during the 2020 calendar year. Mr. Palm has determined that the direct economic cost to entities required to comply with the proposed amendments will vary.

The examination expense will consist of the actual salary of the examiner directly attributable to the examination and the actual expenses of the examiner directly attributable to the examination, including transportation, lodging, meals, subsistence expenses, and parking fees. The actual salary of an examiner is to be determined by dividing the annual salary of the examiner by the total number of working days in a year, and a company or group is to be assessed the part of the annual salary attributable to each working day the examiner examines the company or group.

The amount of the assessment in 2020 for every domestic insurer and those foreign insurers examined in 2019 will be .00141 of 1 percent of the company's admitted assets as of December 31, 2019, excluding pension assets specified in subsection (c)(2)(A), and .00441 of 1 percent of the company's gross premium receipts for 2019, excluding pension related premiums specified in subsection (c)(2)(B), and premiums related to welfare benefits described in subsection (c)(6).

There are two components of costs for entities required to comply with the assessment requirements in the proposal: the cost to gather the information, calculate the assessment, and complete the required forms; and the cost of the assessment. Typically, a person familiar with the accounting records of the company and accounting practices in general will perform the activities necessary to comply with the section. The compensation is generally between $26 and $44 an hour. The department estimates that the required form can be completed in two hours. The requirement to pay the assessment necessary to cover the expenses of company examination is the result of legislative enactment and is not a result of the adoption or enforcement of this proposal. For those domestic and foreign companies with an overhead assessment of less than $25 as computed under §7.1001(c)(2)(A) and (B), a minimum overhead assessment of $25 will be assessed.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. As required by Government Code §2006.002(c), the department has determined that the proposal may have an adverse economic effect on approximately 44 domestic insurance companies that are small or micro businesses required to comply with the proposed rules. It is not possible to anticipate the number or size of foreign insurance companies that may be required to comply with the proposed rule, because of the limited number of examinations the department conducts on foreign insurance companies. The department has determined that none of the workers' compensation self-insurance groups that must comply with the proposed rule would qualify as a small or micro business.

Adverse economic impact may result from costs associated with examination fees and the amount of the required assessment resulting from this proposal. The cost of compliance will not vary between large businesses and small or micro businesses, and the department's cost analysis and resulting estimated costs in the public benefit or cost note portion of this proposal is equally applicable to small or micro businesses. The total cost of compliance to large businesses and small or micro businesses is not dependent on the size of the business, but rather is dependent on: for workers' compensation self-insurance groups, the length of time it takes to conduct an examination, the annual salary of the examiner, and expenses associated with the examination; and for domestic and foreign insurers, the length of time it takes to conduct an examination, expenses associated with the examination, and the admitted assets and gross premium receipts of the company.

In accordance with Government Code §2006.002(c-1), the department has considered other regulatory methods to accomplish the objectives of the proposal that will also minimize any adverse impact on small and micro businesses.

The primary objective of the proposal is to propose a rule addressing examination fees and assessments for domestic and foreign insurance companies and workers' compensation self-insurance groups.

The other regulatory methods considered by the department to accomplish the objectives of the proposal and to minimize any adverse impact on small and micro businesses include: (i) not adopting the proposed rule, (ii) adopting a different assessment requirement for small and micro businesses, and (iii) exempting small or micro businesses from the assessment requirements.

Not adopting the proposed rule. Without adopting the proposed rule the department would be unable to collect the necessary funds to cover the examination functions of the department. The purpose of conducting examinations is to monitor the activities and solvency of insurance companies. Failure by the department to perform its examination functions could result in public harm if a company does not comply with the Insurance Code or becomes insolvent and this is not detected because of the lack of regular examinations. Not adopting the rule would also result in the department being out of compliance with Insurance Code §401.151(c) and §401.152(a-1), which direct the department to impose an annual assessment on domestic and foreign insurers in an amount sufficient to meet all other expenses and disbursements necessary to comply with the insurer examination laws of Texas. This option has been rejected.

Adopting a different assessment requirement for small and micro businesses. The proposed assessment is already based on the most equitable methodology the department can develop. The department applies an assessment methodology that results in a smaller assessment, down to a minimum assessment of $25, for domestic and foreign insurer small or micro businesses because the assessment is determined based on premium levels and admitted assets. The department anticipates that a domestic or foreign insurer that is a small or micro business most susceptible to economic harm would be one that writes fewer premiums and has fewer admitted assets. However, based on the proposed assessment requirements of the rule, that small or micro business would pay a smaller assessment, reducing its risk of economic harm. This option has been rejected.

Exempting small or micro businesses from the assessment requirements. As previously noted, the current methodology used to develop the proposed rule is already the most equitable that the department can develop. The department applies a methodology that contemplates a domestic or foreign insurer that is a small or micro business paying less of an assessment if it writes fewer premiums or has less admitted assets. However, if the assessment were completely eliminated for small or micro businesses, the department would need to completely revise its calculations to shift costs to other insurers and entities, which would result in a less balanced methodology. This option has been rejected.

The department, after considering the purpose of the authorizing statutes, does not believe it is legal or feasible to waive or modify the requirements of the proposal for small and micro businesses.

The department has determined that the proposal will not have an adverse economic effect on rural communities because examinations are not conducted on rural communities and rural communities do not pay assessments to cover examination expenses. As a result, and in accordance with Government Code §2006.002(c), it is not necessary for the department to address rural communities in its regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. The department has determined that the proposed amendments do impose a possible cost on regulated persons. However, no additional rule amendments or repeals are required under Government Code §2001.0045 because the proposed amendments are necessary to implement legislation. Insurance Code §§201.001(a)(1), (b), and (c); 401.151; 401.152; 401.155; 401.156; and 843.156(h); and Labor Code §407A.252(b), direct the department to levy assessments on domestic and foreign insurers to cover examination expenses and the proposed amendments are necessary to comply with this requirement.

GOVERNMENT GROWTH IMPACT STATEMENT. During the first five years that the proposed rule would be in effect, the proposed rule or its implementation:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will require increases in fees paid to the agency;

- will not create new regulation;

- will not expand, limit, or repeal existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. The department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action, and so does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. Submit any written comments on the proposal no later than 5:00 p.m. Central time on December 9, 2019, by mail to the Texas Department of Insurance, Office of the Chief Clerk, Mail Code 112-2A, P.O. Box 149104, Austin, Texas 78714-9104; or by email to chiefclerk@tdi.texas.gov. Separately, submit any request for a public hearing to the Texas Department of Insurance, Office of the Chief Clerk, Mail Code 112-2A, P.O. Box 149104, Austin, Texas 78714-9104, before the close of the public comment period. If the department holds a hearing, the department will consider written and oral comments presented at the hearing.

STATUTORY AUTHORITY. The amended section is proposed under Insurance Code §§201.001(a)(1), (b), and (c); 401.151; 401.152; 401.155, 401.156; 843.156(h); and 36.001; and Labor Code §407A.252(b).

Insurance Code §201.001(a)(1) states that the Texas Department of Insurance operating account is an account in the general revenue fund, and that the account includes taxes and fees received by the Commissioner or Comptroller that are required by the Insurance Code to be deposited to the credit of the account. Section 201.001(b) states that the Commissioner administers money in the Texas Department of Insurance operating account and may spend money from the account in accordance with state law, rules adopted by the Commissioner, and the General Appropriations Act. Section 201.001(c) states that money deposited to the credit of the Texas Department of Insurance operating account may be used for any purpose for which money in the account is authorized to be used by law.

Insurance Code §401.151 provides that a domestic insurer examined by the department or under the department's authority must pay the expenses of the examination in an amount the Commissioner certifies as just and reasonable. Insurance Code §401.151 also provides that the department collect an assessment at the time of the examination to cover all expenses attributable directly to that examination, including the salaries and expenses of department employees and expenses described by Insurance Code §803.007. Section 401.151 also requires that the department impose an annual assessment on domestic insurers in an amount sufficient to meet all other expenses and disbursements necessary to comply with the laws of Texas relating to the examination of insurers. Additionally, §401.151 states that in determining the amount of assessment, the department consider the insurer's annual premium receipts or admitted assets, or both, that are not attributable to 90 percent of pension plan contracts as defined by §818(a), Internal Revenue Code of 1986; or the total amount of the insurer's insurance in force.

Insurance Code §401.152 provides that an insurer not organized under the laws of Texas must reimburse the department for the salary and expenses of each examiner participating in an examination of the insurer and for other department expenses that are properly allocable to the department's participation in the examination. Section 401.152(a-1) requires that the department also impose an annual assessment on insurers not organized under the laws of this state subject to examination as described by the section in an amount sufficient to meet all other expenses and disbursements necessary to comply with the laws of this state relating to the examination of insurers, and the amount imposed must be computed in the same manner as the amount imposed under §401.151(c) for domestic insurers. Section 401.152 also requires an insurer to pay the expenses under the section directly to the department on presentation of an itemized written statement from the Commissioner. Additionally, §401.152 provides that the Commissioner determine the salary of an examiner participating in an examination of an insurer's books or records located in another state based on the salary rate recommended by the National Association of Insurance Commissioners or the examiner's regular salary rate.

Insurance Code §401.155 requires the department to impose additional assessments against insurers on a pro rata basis as necessary to cover all expenses and disbursements required by law and to comply with Insurance Code Chapter 401, Subchapter D, and §§401.103, 401.104, 401.105, and 401.106.

Insurance Code §401.156 requires the department to deposit any assessments or fees collected under Insurance Code Chapter 401, Subchapter D, relating to the examination of insurers and other regulated entities by the financial examinations division or actuarial division, as those terms are defined by Insurance Code §401.251, to the credit of an account with the Texas Treasury Safekeeping Trust Company to be used exclusively to pay examination costs as defined by Insurance Code §401.251, to reimburse the Texas Department of Insurance operating account for administrative support costs, and for premium tax credits for examination costs and examination overhead assessments. Additionally, §401.156 provides that revenue not related to the examination of insurers or other regulated entities by the financial examinations division or actuarial division be deposited to the credit of the Texas Department of Insurance operating account.

Insurance Code §843.156(h) provides that Insurance Code Chapter 401, Subchapter D, applies to an HMO, except to the extent that the Commissioner determines that the nature of the examination of an HMO renders the applicability of those provisions clearly inappropriate.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of Texas.

Labor Code §407A.252(b) provides that the Commissioner of Insurance may recover the expenses of an examination of a workers' compensation self-insurance group under Insurance Code Article 1.16, which was recodified as Insurance Code §§401.151, 401.152, 401.155, and 401.156 by House Bill 2017, 79th Legislature, Regular Session (2005), to the extent the maintenance tax under Labor Code §407A.302 does not cover those expenses.

CROSS-REFERENCE TO STATUTE. Amendments in this proposal to §7.1001 affect Insurance Code §§201.001(a)(1), (b), and (c); 401.151; 401.152; 401.155; 401.156; and 843.156(h); and Labor Code §407A.252(b).

§7.1001.Examination Assessments for Domestic and Foreign Insurance Companies and Self-Insurance Groups Providing Workers' Compensation Insurance, 2020 [2019].

(a) Under Insurance Code §843.156 and for purposes of this section, the term "insurance company" includes a health maintenance organization as defined in Insurance Code §843.002.

(b) An insurer not organized under the laws of Texas (foreign insurance company) must pay the costs of an examination as specified in this subsection.

(1) Under Insurance Code §401.152, a foreign insurance company must reimburse the department for the salary and examination expenses of each examiner participating in an examination of the insurance company allocable to an examination of the company. To determine the allocable salary for each examiner, the department divides the annual salary of each examiner by the total number of working days in a year. The department assesses the company the part of the annual salary attributable to each working day the examiner examines the company during 2020 [2019]. The expenses the department assesses are those actually incurred by the examiner to the extent permitted by law.

(2) Under Insurance Code §401.152(a-1), a foreign insurance company examined in 2019 [2018] entirely, or an exam beginning in 2019 [2018] and completed in 2020 [2019], must pay an annual assessment in an amount sufficient to meet all other expenses and disbursements necessary to comply with the laws of this state relating to the examination of insurers. The amount imposed must be computed in the same manner as the amount imposed for domestic insurers as applicable under subsection (c) of this section.

(3) A foreign insurance company must pay the reimbursements and payments required by this subsection to the department as specified in each itemized bill the department provides to the foreign insurance company.

(c) Under Insurance Code §401.151, §401.155, and Chapter 803, a domestic insurance company must pay examination expenses and rates of overhead assessment in accordance with this subsection.

(1) A domestic insurance company must pay the actual salaries and expenses of the examiners allocable to an examination of the company. The annual salary of each examiner is to be divided by the total number of working days in a year, and the company is to be assessed the part of the annual salary attributable to each working day the examiner examines the company during 2020 [2019]. The expenses assessed must be those actually incurred by the examiner to the extent permitted by law.

(2) Except as provided in paragraphs (3) and (4) of this subsection, the overhead assessment to cover administrative departmental expenses attributable to examination of companies is:

(A) .00141 [.00173] of 1 percent of the admitted assets of the company as of December 31, 2019 [2018], taking into consideration the annual admitted assets that are not attributable to 90 percent of pension plan contracts as defined in §818(a) of the Internal Revenue Code of 1986 (26 U.S.C. §818(a)); and

(B) .00441 [.00580] of 1 percent of the gross premium receipts of the company for the year 2019 [2018], taking into consideration the annual premium receipts that are not attributable to 90 percent of pension plan contracts as defined in §818(a) of the Internal Revenue Code of 1986 (26 U.S.C. §818(a)).

(3) Except as provided in paragraph (4) of this subsection, if a company was a domestic insurance company for less than a full year during calendar year 2019 [2018] because of a redomestication, the overhead assessment for the company is the overhead assessment required under paragraph (2)(A) and (B) of this subsection divided by 365 and multiplied by the number of days the company was a domestic insurance company during calendar year 2019 [2018].

(4) If the overhead assessment required under paragraph (2)(A) and (B) of this subsection or paragraph (3) of this subsection produces an overhead assessment of less than $25, a domestic insurance company must pay a minimum overhead assessment of $25.

(5) The department will base the overhead assessments on the assets and premium receipts reported in the annual statements.

(6) For the purpose of applying paragraph (2)(B) of this subsection, the term "gross premium receipts" does not include insurance premiums for insurance contracted for by a state or federal government entity to provide welfare benefits to designated welfare recipients or contracted for in accordance with or in furtherance of the Human Resources Code, Title 2, or the federal Social Security Act (42 U.S.C. §§301 et seq.).

(d) Under Labor Code §407A.252, a workers' compensation self-insurance group must pay the actual salaries and expenses of the examiners allocable to an examination of the group. To determine the allocable salary for each examiner, the department divides the annual salary of each examiner by the total number of working days in a year. The department assesses the group the part of the annual salary attributable to each working day the examiner examines the company during 2020 [2019]. The expenses the department assesses are those actually incurred by the examiner to the extent permitted by law.

(e) A domestic insurance company must pay the overhead assessment required under subsection (c) of this section to the Texas Department of Insurance as provided in the invoice [at the address provided on the invoice] not later than 30 days from the invoice date.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 28, 2019.

TRD-201903989

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


SUBCHAPTER P. ADMINISTRATORS

28 TAC §7.1603

The Texas Department of Insurance proposes to amend 28 TAC §7.1603, relating to the requirements for administrators. Amendments to §7.1603 implement Senate Bill 1200, 86th Legislature, Regular Session (2019), which amended Occupations Code §55.0041.

EXPLANATION. SB 1200 amended Occupations Code §55.0041 as it addresses authority of military spouses to engage in a business or occupation in this state. These amendments impact TDI's licensing rules, which necessitates revisions to 28 TAC §§7.1603, as well as revisions to sections in other chapters of Title 28 of the Texas Administrative Code addressed in separate rule proposals.

Section 7.1603(a). Section 7.1603(a) requires any person acting or holding himself or herself out as an administrator to obtain a certificate authority, as required by Insurance Code Chapter 4151, unless the person meets an exemption described in Insurance Code §§4151.002, 4151.0021, or 4151.004. Proposed amendments to §7.1603(a) clarify that certain military spouses can engage as administrators by applying for a temporary certificate of authority.

Section 7.1603(c). New §7.1603(c) establishes an eligibility requirement that military spouses must be licensed in a jurisdiction with substantially equivalent licensing requirement as those described in §7.1604 and in Insurance Code Chapter 4151. Proposed new §7.1603(c) provides that a military spouse licensed in a jurisdiction outside of Texas will only be authorized to engage as an administrator in Texas for the period during which the military service member to whom the military spouse is married is stationed at a military installation in Texas, but not to exceed three years from the date the spouse receives the confirmation described by §7.1603(d).

Section 7.1603(d). New §7.1603(d) details the criteria that must be met for a military spouse to engage as an administrator. This section will require the military spouse to submit an application notifying TDI of the military spouse's intent to practice in this state, submit to TDI proof of the spouse's residency in Texas, a copy of the spouse's military identification card, and evidence of good standing in the jurisdiction with substantially equivalent requirements. Proposed new §7.1603(d) will also require the military spouse to receive confirmation from TDI that indicates TDI has verified the spouse's license and that the spouse is authorized to engage in the business or occupation in accordance with this section.

Section 7.1603(e). New §7.1603(e) clarifies that no fees will be assessed in connection with the administrator license.

Section 7.1603(f). New §7.1603(f) clarifies that a military spouse engaged as an administrator under this authority is bound by all laws and rules applicable to the business and occupation in Texas.

The proposed new subsections and amendment also include nonsubstantive editorial and formatting changes to conform the section to the agency's current style and to improve the rule's clarity.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Chris Herrick, deputy commissioner of the Office of Customer Operations, has determined that during each year of the first five years the proposed new subsections and amendments are in effect, there will be no measurable fiscal impact on state and local governments as a result of enforcing or administering this section, other than that imposed by the statute. This determination was made because the proposed amendments do not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with the proposed amendments.

Mr. Herrick does not anticipate a measurable effect on local employment or the local economy as a result of this proposal.

PUBLIC BENEFIT AND COST NOTE. For each year of the first five years the proposed amendments are in effect, Mr. Herrick, expects that administering the proposed amendments will have the public benefits of ensuring that TDI's rules conform to Occupations Code §55.0041.

Mr. Herrick expects that the proposed amendments will not increase the cost of compliance with Occupations Code §55.0041 because they do not impose requirements beyond those in the statute. Occupations Code §55.0041 requires TDI to implement rules that execute the statute. Any costs that result from this implementation come from the statute itself. As a result, the cost associated with the rule do not result from the enforcement or administration of the proposed amendments.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. TDI has determined that the proposed amendments will not have an adverse economic effect or a disproportionate economic impact on small or micro businesses, or on rural communities. TDI does not anticipate a significant increase in applications that would qualify for this exemption. As a result, and in accordance with Government Code §2006.002(c), TDI is not required to prepare a regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. TDI has determined that this proposal does not impose a possible cost on regulated persons, and no additional rule amendments are required under Government Code §2001.0045 because the proposed §7.1603 is necessary to implement legislation. The proposed rule implements Occupations Code §55.0041, as added by SB 1200 86th Legislature, Regular Session (2019).

GOVERNMENT GROWTH IMPACT STATEMENT. TDI has determined that for each year of the first five years that the proposed amendments are in effect the proposed rule:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will not require an increase or decrease in fees paid to the agency;

- will not create a new regulation;

- will not expand, limit, or repeal an existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. TDI has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. TDI will consider any written comments on the proposal that are received by TDI no later than 5:00 p.m., central time, on December 9, 2019. Send your comments to ChiefClerk@tdi.texas.gov; or by mail to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. To request a public hearing on the proposal, submit a request before the end of the comment period, and separate from any comments, to ChiefClerk@tdi.texas.gov; or by mail to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. The request for public hearing must be separate from any comments and received by TDI no later than 5:00 p.m. Central time on December 9, 2019. If TDI holds a public hearing, TDI will consider written and oral comments presented at the hearing.

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §7.1603 under Occupations Code §55.0041 and Insurance Code §36.001.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule-making authority to applicable state agencies.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

CROSS-REFERENCE TO STATUTE. Section 7.1603 implements Occupations Code §55.0041, enacted by SB 1200, 86th Legislature, Regular Session, (2019).

§7.1603.Certificate of Authority Required.

(a) Unless a person meets an exemption under [the] Insurance Code §§4151.002, 4151.0021, or 4151.004, a person acting as or holding themselves [itself] out as an administrator must hold a certificate of authority under [the] Insurance Code Chapter 4151. A military spouse who meets the criteria described in subsection (c) of this section is eligible to apply for a temporary certificate of authority.

(b) An administrator contractor and an administrator subcontractor must hold a certificate of authority under [the] Insurance Code Chapter 4151.

(c) A military spouse who is licensed as an administrator in a state with substantially equivalent requirements as those found in §7.1604 of this title (relating to Application for Certificate of Authority) and Insurance Code Chapter 4151 may engage as an administrator while the military service member to whom the military spouse is married is stationed at a military installation in this state for a period of three years from the date the spouse receives the confirmation described by subsection (d) of this section.

(d) A military spouse seeking to engage as an administrator must:

(1) submit an application notifying TDI of the military spouse's intent to engage as an administrator in Texas;

(2) submit to TDI proof of the spouse's residency in Texas and a copy of the spouse's military identification card; and

(3) show evidence of good standing from a jurisdiction with substantially equivalent requirements as those found in §7.1604 of this title and Insurance Code Chapter 4151.

(e) Notwithstanding §7.1604 of this title, a military spouse seeking to engage as an administrator will not be assessed any application fees under that section.

(f) A military spouse authorized to engage as an administrator must comply and adhere to all other laws and rules applicable to administrators.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903978

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6548


CHAPTER 15. SURPLUS LINES INSURANCE

SUBCHAPTER B. SURPLUS LINES AGENTS

28 TAC §15.101

The Texas Department of Insurance proposes to amend 28 TAC §15.101, relating to requirements for surplus lines agents. Amendments to §15.101 implement Senate Bill 1200, 86th Legislature, Regular Session (2019), which amended Occupations Code §55.0041.

EXPLANATION. SB 1200 amended Occupations Code §55.0041 as it addresses authority of military spouses to engage in a business or occupation in this state. These amendments impact TDI licensing rules, which necessitates revisions to 28 TAC §15.101, as well as revisions to sections in other chapters of Title 28 of the Texas Administrative Code addressed in separate rule proposals.

Section 15.101. Amending § 15.101 is necessary to implement SB 1200 and Occupations Code § 55.0041. Currently, §15.101 requires all applicants for a surplus lines agent license to file an application with TDI. TDI proposes to amend the section by adding new subsection (g), which allows for a quicker application process for military spouses who are licensed in a jurisdiction with substantially equivalent requirements to those in Texas.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Chris Herrick, deputy commissioner of the Office of Customer Operations has determined that during each year of the first five years the proposed amendments are in effect, there will be no measurable fiscal impact on state and local governments as a result of enforcing or administering the section, other than that imposed by the statute. This determination was made because the proposed amendments do not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with the proposed amendment.

Mr. Herrick does not anticipate a measurable effect on local employment or the local economy as a result of this proposal.

PUBLIC BENEFIT AND COST NOTE. For each year of the first five years the proposed amendments are in effect, Mr. Herrick, expects that administering the proposed amendments will have the public benefits of ensuring that TDI's rules conform to Occupations Code §55.0041.

Mr. Herrick expects that the proposed amendments will not increase the cost of compliance with Occupations Code §55.0041 because they do not impose requirements beyond those in the statute. Occupations Code §55.0041 requires TDI to implement rules that execute the statute. Any costs that result from this implementation result from the statute. The costs associated with the rule do not result from the enforcement or administration of the proposed amendments.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. TDI has determined that the proposed amendments will not have an adverse economic effect or a disproportionate economic impact on small or micro businesses, or on rural communities. TDI does not anticipate a significant increase in applications that would qualify for this exemption. As a result, and in accordance with Government Code §2006.002(c), TDI is not required to prepare a regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. TDI has determined that this proposal does not impose a possible cost on regulated persons, and no additional rule amendments are required under Government Code §2001.0045 because the proposed §15.101 is necessary to implement legislation. The proposed rule implements Occupations Code §55.0041, as added by SB 1200 Legislature, 86th Legislature (2019).

GOVERNMENT GROWTH IMPACT STATEMENT. TDI has determined that for each year of the first five years that the proposed amendments are in effect the proposed rule:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will not require an increase or decrease in fees paid to the agency;

- will not create a new regulation;

- will not expand, limit, or repeal an existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. TDI has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. TDI will consider any written comments on the proposal that are received by TDI no later than 5:00 p.m., central time, on December 9, 2019. TDI. Send your comments to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. To request a public hearing on the proposal, submit a request before the end of the comment period, and separate from any comments, to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. The request for public hearing must be separate from any comments and received by TDI no later than 5:00 p.m. Central time on December 9, 2019. If TDI holds a public hearing, TDI will consider written and oral comments presented at the hearing.

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §15.101 under Insurance Code §36.001 and Occupations Code §55.0041.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule making authority to applicable state agencies.

CROSS-REFERENCE TO STATUTE. Section 15.101 implements Occupations Code §55.0041, enacted by SB 1200, 86th Legislature, Regular Session (2019).

§15.101.Licensing of Surplus Lines Agents.

(a) Persons performing any of the following surplus lines insurance activities are required to have a surplus lines agent license:

(1) supervising unlicensed staff engaged in activities described in subsection (b) of this section, although unlicensed intermediary supervisors may supervise unlicensed staff engaging in these activities if the ultimate supervisor is licensed;

(2) negotiating, soliciting, effecting, procuring, or binding surplus lines insurance contracts for clients or offering advice, counsel, opinions, or explanations of surplus lines insurance products to agents or clients beyond the scope of underwriting policies or contracts, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent that then completes the surplus lines transaction; or

(3) receiving any direct commission or variance in compensation based on the volume of surplus lines premiums taken and received from, or as a result of, another person selling, soliciting, binding, effecting, or procuring surplus lines insurance policies, contracts, or coverages, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent that then completes the surplus lines transaction.

(b) The following activities, if supervised by a surplus lines agent, do not require a surplus lines agent license if the employee does not receive any direct commission from selling, soliciting, binding, effecting, or procuring insurance policies, contracts, or coverages, and the employee's compensation is not varied by the volume of premiums taken and received:

(1) full-time clerical and administrative services, including, but not limited to, the incidental taking of information from clients; receipt of premiums in the office of a licensed agent; or transmitting to clients, as directed by a licensed surplus lines agent, prepared marketing materials or other prepared information and materials including, without limitation, invoices and evidences of coverage;

(2) contacting clients to obtain or confirm information necessary to process an application for surplus lines insurance so long as the contact does not involve any activities for which a license would be required under subsection (a)(2) of this section;

(3) performing the task of underwriting any insurance policy, contract, or coverage, including and without limitation, pricing of the policy or contract; or

(4) contacting clients, insureds, agents, other persons, and insurers to gather and transmit information regarding claims and losses under the policy to the extent the contact does not require a licensed adjuster as set forth under Insurance Code Chapter 4101.

(c) This section must not be construed to prohibit distribution of agency profits to unlicensed persons, including shareholders, partners, and employees.

(d) Before TDI issues a surplus lines agent license, the applicant must submit the following:

(1) an appropriate, fully completed written application; and

(2) the fee specified by §19.801 and §19.802 of this title (relating to General Provisions and Amount of Fees, respectively).

(e) Texas-resident applicants, and nonresident applicants who do not hold a surplus lines license in their state of residence or whose state of residence does not license Texas residents on a reciprocal basis as determined by TDI, must meet all licensing requirements set forth in Insurance Code Chapter 981. Nonresident applicants under this section must also comply with Insurance Code §4056.051.

(f) Nonresident applicants who hold a surplus lines agent license in good standing in the agent's state of residence and meet the requirements of Insurance Code §4056.052 must meet all the licensing requirements of Insurance Code Chapter 981 to the extent that the requirements are not waived by the Commissioner under Insurance Code §4056.055.

(g) Military spouses who are licensed in a state with substantially equivalent requirements to those of this state are eligible for a license while the military service member to whom the military spouse is married is stationed at a military installation in this state. This license is effective for a period of three years from the date the spouse receives the confirmation described by paragraph (1) of this subsection.

(1) The military spouse must:

(A) submit an application notifying TDI of the military spouse's intent to operate under the license in Texas;

(B) submit to TDI proof of the military spouse's residency in Texas and a copy of the spouse's military identification card; and

(C) show evidence of good standing from the jurisdiction with substantially equivalent requirements to the requirements of this state.

(2) Notwithstanding subsection (d)(1) of this section and §19.801 and §19.802 of this title, A military spouse will not be assessed any application fees under those sections.

(h) [(g)] Notwithstanding any other subsection of this section, nonresident applicants are not required to obtain a general property and casualty agent license if they meet the requirements of Insurance Code §981.203(a-1).

(i) [(h)] Each surplus lines agent license issued to an agent will be valid for a term as established under Insurance Code §4003.001 and Chapter 19, Subchapter I of this title (relating to General Provisions Regarding Fees, Applications, and Renewals). The license may be renewed by submitting a renewal application and a nonrefundable license fee as specified by §19.801 and §19.802 of this title.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903985

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


CHAPTER 19. LICENSING AND REGULATION OF INSURANCE PROFESSIONALS

SUBCHAPTER I. GENERAL PROVISIONS REGARDING FEES, APPLICATIONS, AND RENEWALS

28 TAC §19.803

The Texas Department of Insurance proposes to amend 28 TAC §19.803, concerning licensing requirements for insurance professionals. Amendments to §19.803 implement Senate Bill 1200, 86th Legislature, Regular Session (2019), and Occupations Code §55.0041.

EXPLANATION. SB 1200 amended Occupations Code §55.0041 as it addresses authority of military spouses to engage in a business or occupation in this state. These amendments impact TDI licensing rules, which necessitates revisions to 28 TAC §19.803, as well as revisions to sections in other chapters of Title 28 of the Texas Administrative Code addressed in separate rule proposals.

Section 19.803. The proposed amendments to §19.803 add new subsection (g) to the section, which allows for a quicker application process for military spouses who are licensed in a jurisdiction with substantially equivalent requirements to those in Texas.

In addition, the proposal includes nonsubstantive editorial and formatting changes to conform the section to the agency's current style and to improve the rule's clarity.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Chris Herrick, deputy commissioner of the Office of Customer Operations has determined that during each year of the first five years the proposed amendments are in effect, there will be no measurable fiscal impact on state and local governments as a result of enforcing or administering the section, other than that imposed by the statute. This determination was made because the proposed amendments do not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with the proposed amendment.

Mr. Herrick does not anticipate a measurable effect on local employment or the local economy as a result of this proposal.

PUBLIC BENEFIT AND COST NOTE. For each year of the first five years the proposed amendments are in effect, Mr. Herrick, expects that administering the proposed amendments will have the public benefits of ensuring that TDI's rules conform to Occupations Code §55.0041.

Mr. Herrick expects that the proposed amendments will not increase the cost of compliance with Occupations Code §55.0041 because they do not impose requirements beyond those in the statute. Occupations Code §55.0041 requires TDI to implement rules that execute the statute. Any costs that result from this implementation result from the statute itself. The costs associated with the rule do not result from the enforcement or administration of the proposed amendments.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. TDI has determined that the proposed amendments will not have an adverse economic effect or a disproportionate economic impact on small or micro businesses, or on rural communities. TDI does not anticipate a significant increase in applications that would qualify for this exemption. As a result, and in accordance with Government Code §2006.002(c), TDI is not required to prepare a regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. TDI has determined that this proposal does not impose a possible cost on regulated persons, and no additional rule amendments are required under Government Code §2001.0045 because the proposed §19.803 is necessary to implement legislation. The proposed rule implements Occupations Code §55.0041, as added by SB 1200 Legislature, 86th Legislature, Regular Session (2019).

GOVERNMENT GROWTH IMPACT STATEMENT. TDI has determined that for each year of the first five years that the proposed amendment is in effect the proposed rule:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will not require an increase or decrease in fees paid to the agency;

- will not create a new regulation;

- will not expand, limit, or repeal an existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. TDI has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. TDI will consider any written comments on the proposal that are received by TDI no later than 5:00 p.m., central time, on December 9, 2019. Send your comments to ChiefClerk@tdi.texas.gov or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. To request a public hearing on the proposal, submit a request before the end of the comment period, and separate from any comments, to ChiefClerk@tdi.texas.gov or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. The request for public hearing must be separate from any comments and received by TDI no later than 5:00 p.m. Central time on December 9, 2019. If TDI holds a public hearing, TDI will consider written and oral comments presented at the hearing.

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §19.803 under Insurance Code §36.001 and Occupations Code §55.0041.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule making authority to applicable state agencies.

CROSS-REFERENCE TO STATUTE. Section 19.803 implements Occupations Code §55.0041, enacted by SB 1200, 86th Legislature, Regular Session (2019).

§19.803.Military Service Member, Military Veteran, and Military Spouse.

(a) Definitions. The definitions for terms defined in Occupations Code §55.001 are applicable to this section, including the terms "military service member," "military veteran," and "military spouse."

(b) Conflict. To the extent that provisions in this section conflict with provisions in any other section in this chapter, this section controls.

(c) License renewal extension and fee exemption. As specified in Occupations Code §55.003, a military service member who holds a license is entitled to two years of additional time to complete any requirements related to the renewal of the military service member's license as follows:

(1) A military service member who fails to renew a license in a timely manner because the individual was serving as a military service member must submit to TDI:

(A) the licensee's name, address, and license number;

(B) the licensee's military identification indicating that the individual is a military service member; and

(C) a statement requesting up to two years of additional time to complete the renewal, including continuing education.

(2) A military service member specified in paragraph (1) of this subsection is exempt from additional fees required under §19.810 of this title as required in Occupations Code §55.002.

(3) A military service member specified in paragraph (1) of this subsection is entitled to two additional years to complete the continuing education and submit a renewal as specified in Occupations Code §55.003.

(4) A military service member specified in paragraph (1) of this subsection must satisfy the continuing education requirement that has been extended before [prior to] satisfying the continuing education requirement for any other period.

(d) Alternative and nonresident reciprocal licensing. As specified in Occupations Code §55.009:

(1) a military service member or military veteran whose military service, training, or education substantially meets all of the requirements for the license; or

(2) a military service member or military veteran[, or military spouse] who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license is not required to pay any applicable application fee or examination fee that is paid to TDI. This exemption does not apply to license renewal application fees. To qualify for this exemption the applicant must submit as applicable:

(A) the required original license application, with a request for waiver of the application fee and examination fee paid to TDI;

(B) identification indicating that the applicant is a military service member; military veteran; or military dependent, if a military spouse;

(C) marriage certificate or documentation, if a military spouse and marriage is not otherwise documented in the documentation provided under paragraph (2) of this subsection; and

(D) documentation that the applicant's military service, training, or education substantially meets all [of] the requirements for the license.

(e) Alternative licensing requirements. For the purpose of Occupations Code §55.004, an applicant for a license who is a military service member or military veteran [or military spouse] may complete the following alternative procedures for licensing.

(1) Requirements for licensing by reciprocity. A nonresident license applicant may apply for a nonresident license subject to the qualifications and as provided in subsection (c) of this section.

(2) Requirements for an applicant whose Texas resident license has expired for more than one year. A license applicant whose Texas resident license has expired for more than one year but less than five years preceding the application date may request that TDI waive the examination requirement. An applicant requesting this waiver must submit to TDI:

(A) the required original license application;

(B) identification indicating that the applicant is a military service member; military veteran; or military dependent, if a military spouse;

(C) a marriage certificate or documentation, if a military spouse and marriage is not otherwise documented in the documentation provided under subparagraph (B) of this subsection;

(D) evidence that the applicant has completed all required continuing education for the periods the applicant was licensed, and paid all required fines, as required under §19.810 of this title; and

(E) a request for waiver demonstrating the applicant's credentials that justify waiver of the licensing examination.

(f) Service in a combat theater. A military service member serving in a combat theater, as provided for in Insurance Code §36.109, may apply to TDI for an exemption from or an extension of time for meeting the continuing education requirements or extending their license renewal. The licensee must request the exemption or extension before [prior to] the end of the reporting period for which it applies and must include:

(1) a copy of the order to active duty status, service in a combat theater, or other positive documentation of military service that will prevent the licensee from compliance;

(2) a clear request for either an extension or exemption, or both;

(3) the expected duration of the assignment; and

(4) any other information the licensee believes may assist TDI or that TDI requests, on a case by case basis.

(g) Military Spouses. Military spouses who are licensed in a state with substantially equivalent requirements to those of this state are eligible for a license while the military service member to whom the military spouse is married is stationed at a military installation in this state. This license is effective for a period of three years from the date the spouse receives the confirmation described by paragraph (1) of this subsection.

(1) The military spouse must:

(A) submit an application notifying TDI of the military spouse's intent to operate under the license in Texas;

(B) submit to TDI proof of the military spouse's residency in Texas and a copy of the spouse's military identification card; and

(C) show evidence of good standing from the jurisdiction with substantially equivalent requirements to the requirements of this state.

(2) Notwithstanding any other section in this title, a military spouse submitting an application under this section is not required to pay an application fee to TDI.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903984

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


CHAPTER 25. INSURANCE PREMIUM FINANCE

SUBCHAPTER B. LICENSING AND REGULATION

28 TAC §25.24

The Texas Department of Insurance proposes to amend 28 TAC §25.24, concerning requirements for premium finance companies. Amendments to §25.24 implement Senate Bill 1200, 86th Legislature, Regular Session (2019), which amended Occupations Code §55.0041.

EXPLANATION. SB 1200 amended Occupations Code §55.0041 as it addresses authority of military spouses to engage in a business or occupation in this state. These amendments impact TDI licensing rules, which necessitates revisions to 28 TAC §25.24, as well as revisions to sections in other chapters of Title 28 of the Texas Administrative Code addressed in separate rule proposals.

Section 25.24. Currently, §25.24(a) requires all applicants for an insurance premium finance company license to file an application with TDI. The amendment adds subsection (b) to this section, which allows a less stringent application process for military spouses who are licensed in a jurisdiction with substantially equivalent requirements to those in Texas.

In addition, the proposal includes nonsubstantive editorial and formatting changes to conform the section to the agency's current style and to improve the rule's clarity.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Chris Herrick, deputy commissioner of the Office of Customer Operations, has determined that during each year of the first five years the proposed amendments are in effect, there will be no measurable fiscal impact on state and local governments as a result of enforcing or administering the section, other than that imposed by the statute. This determination was made because the proposed amendments do not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with the proposed amendment.

Mr. Herrick does not anticipate a measurable effect on local employment or the local economy as a result of this proposal.

PUBLIC BENEFIT AND COST NOTE. For each year of the first five years the proposed amendments are in effect, Mr. Herrick expects that administering the proposed amendments will have the public benefit of ensuring that TDI's rules conform to Occupations Code §55.0041.

Mr. Herrick expects that the proposed amendments will not increase the cost of compliance with Occupations Code §55.0041 because they do not impose requirements beyond those in the statute. Occupations Code §55.0041 requires TDI to implement rules that execute statute. Any costs that result from this implementation are the result of the statute. The costs associated with the rule do not result from the enforcement or administration of the proposed amendments.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. TDI has determined that the proposed amendments will not have an adverse economic effect or a disproportionate economic impact on small or micro businesses or on rural communities. TDI does not anticipate a significant increase in applications that would qualify for this exemption. As a result, and in accordance with Government Code §2006.002(c), TDI is not required to prepare a regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. TDI has determined that this proposal does not impose a possible cost on regulated persons, and no additional rule amendments are required under Government Code §2001.0045 because the proposed amendment to §25.24 is necessary to implement legislation. The proposal implements Occupations Code §55.0041, as added by SB 1200 Legislature, 86th Legislature, Regular Session (2019).

GOVERNMENT GROWTH IMPACT STATEMENT. TDI has determined that for each year of the first five years that the proposed amendment is in effect the proposed rule:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will not require an increase or decrease in fees paid to the agency;

- will not create a new regulation;

- will not expand, limit, or repeal an existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. TDI has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. TDI will consider any written comments on the proposal that are received by TDI no later than 5:00 p.m., central time, on December 9, 2019. Send your comments to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. To request a public hearing on the proposal, submit a request before the end of the comment period, and separate from any comments, to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. The request for public hearing must be separate from any comments and received by TDI no later than 5:00 p.m. central time on December 9, 2019. If TDI holds a public hearing, TDI will consider written and oral comments presented at the hearing.

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §25.24 under Insurance Code §36.001 and Occupations Code §55.0041.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule making authority to applicable state agencies.

CROSS-REFERENCE TO STATUTE. Section 25.24 implements Occupations Code §55.0041, enacted by SB 1200, 86th Legislature, Regular Session (2019).

§25.24.License Application.

(a) An applicant for an insurance premium finance company license must [shall] file an application Form PF1 with TDI [the Department]. The application must [shall] include the following as applicable:

(1) List of Principals (Form PF2);

(2) Premium Finance Application Questionnaire (Form PF3);

(3) Biographical Affidavit (Form PF4) for each individual named on Form PF2;

(4) General statement of experience giving applicant's qualifications;

(5) List of Other States of Licensure (Form PF5);

(6) Appointment of Statutory Agent and Consent to Service (Form PF6);

(7) Sworn financial statement;

(8) Sample Business Operation forms;

(9) $400 Investigation Fee;

(10) Partnership agreement;

(11) Certified copy of Assumed Name Certificate as on file with the County Clerk or [Clerk(s) and/or] Secretary of State;

(12) Originally certified copy of Articles of Incorporation from the Office of the Secretary of State or equivalent office in another state;

(13) Certified copy of Bylaws;

(14) Certified copy of Minutes;

(15) Current Franchise Tax Certificate of Good Standing or letter of exemption issued by the Texas Comptroller of Public Accounts; and

(16) Certified copy of Certificate of Authority issued by the Texas Secretary of State (foreign corporations only).

(b) Except as provided by subsection (d) of this section, on [Upon] notification by TDI [the Department] of approval of the application, the applicant must [shall] submit a license fee as follows [as indicated in paragraphs (1) and (2) of this subsection]:

(1) Licenses issued January 1 through June 30--$200;

(2) Licenses issued July 1 through December 31--$100.

(c) Military spouses who are licensed in a state with substantially equivalent requirements to those of this state are eligible for a license while the military service member to whom the military spouse is married is stationed at a military installation in this state. This license is effective for a period of three years from the date the spouse receives confirmation from the Texas Department of Insurance of receipt of the items described by this subsection. The military spouse must:

(1) submit an application notifying TDI of the military spouse's intent to operate under the license in Texas;

(2) submit to TDI proof of the military spouse's residency in Texas and a copy of the spouse's military identification card; and

(3) show evidence of good standing from the jurisdiction with substantially equivalent requirements to the requirements of this state.

(d) A military spouse will not be assessed any application fees under this section.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903983

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


CHAPTER 34. STATE FIRE MARSHAL

The Texas Department of Insurance proposes to amend 28 TAC §§34.524, 34.631, 34.726, and 34.833, relating to licensing requirements for military spouses. Amendments to these sections implement Senate Bill 1200, 86th Legislature, Regular Session (2019), which amended Occupations Code §55.0041.

EXPLANATION. SB 1200 amended Occupations Code §55.0041 as it addresses authority of military spouses to engage in a business or occupation in this state. These amendments impact TDI's licensing rules, which necessitates revisions to 28 TAC §§34.524, 34.631, 34.726, and 34.833, as well as changes in other chapters of Title 28 of the Texas Administrative Code addressed in separate rule proposals.

Section 34.524. Currently, §34.524 allows for an exemption from licensure requirements and sets forth requirements for military service members, military veterans, or military spouses. Occupations Code §55.0041, as amended by SB 1200, clarifies that a military spouse may act under this provisional license for up to three years. New §34.524(e) addresses the new requirements for military spouses imposed by §55.0041.

Section 34.631. Currently, §34.631 allows for an exemption from licensure requirements for military service members, military veterans, or military spouses and sets forth requirements for a provisional license. Occupations Code §55.0041, as amended by SB 1200, clarifies that a military spouse may act under this provisional for license up to three years. New §34.631(e) addresses the requirements for military spouses imposed by §55.0041.

Section 34.726. Currently, §34.726 allows for an exemption from licensure requirements for military service members, military veterans, or military spouses and sets forth requirements for a provisional license. Occupations Code §55.0041, as amended by SB 1200, clarifies that a military spouse may only act under this provisional for license up to three years. New §34.726(e) addresses the requirements for military spouses imposed by §55.0041.

Section 34.833. Currently, §34.833 allows for an exemption from licensure requirements for military service members, military veterans, or military spouses and sets forth requirements for a provisional license. Occupations Code §55.0041, as amended by SB 1200, clarifies that a military spouse may only act under this provisional for license up to three years. New §34.833(a)(3) addresses the requirements for military spouses imposed by §55.0041.

In addition, the proposed amendments include nonsubstantive editorial and formatting changes to conform the sections to the agency's current style and to improve the rule's clarity.

FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Chris Herrick, deputy commissioner of the Office of Customer Operations has determined that during each year of the first five years the proposed amendments are in effect, there will be no measurable fiscal impact on state and local governments as a result of enforcing or administering the sections, other than that imposed by the statute. This determination was made because the proposed amendments do not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with the proposed amendments.

Mr. Herrick does not anticipate a measurable effect on local employment or the local economy as a result of this proposal.

PUBLIC BENEFIT AND COST NOTE. For each year of the first five years the proposed amendments are in effect, Mr. Herrick expects that administering the proposed amendments will have the public benefits of ensuring that TDI's rules conform to Occupations Code §55.0041.

Mr. Herrick expects that the proposed amendments will not increase the cost of compliance with §55.0041 because they do not impose requirements beyond those in the statute. Occupations Code §55.0041 requires TDI to implement rules that execute the statute. Any costs that result from this implementation come from the statute itself. As a result, the cost associated with the rule do not result from the enforcement or administration of the proposed amendments.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. TDI has determined that the proposed amendments will not have an adverse economic effect or a disproportionate economic impact on small or micro businesses, or on rural communities. TDI does not anticipate a significant increase in applications that would qualify for this exemption. As a result, and in accordance with Government Code §2006.002(c), TDI is not required to prepare a regulatory flexibility analysis.

EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. TDI has determined that this proposal does not impose a possible cost on regulated persons, and no additional rule amendments are required under Government Code §2001.0045 because the proposed amendments to §§34.524, 34.631, 34.726, and 34.833 are necessary to implement legislation. The proposed rule implements Occupations Code §55.0041, as added by SB 1200 Legislature, 86th Legislature, 2019.

GOVERNMENT GROWTH IMPACT STATEMENT. TDI has determined that for each year of the first five years that the proposed amendments are in effect the proposed rule:

- will not create or eliminate a government program;

- will not require the creation of new employee positions or the elimination of existing employee positions;

- will not require an increase or decrease in future legislative appropriations to the agency;

- will not require an increase or decrease in fees paid to the agency;

- will not create a new regulation;

- will not expand, limit, or repeal an existing regulation;

- will not increase or decrease the number of individuals subject to the rule's applicability; and

- will not positively or adversely affect the Texas economy.

TAKINGS IMPACT ASSESSMENT. TDI has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

REQUEST FOR PUBLIC COMMENT. TDI will consider any written comments on the proposal that are received by TDI no later than 5:00 p.m., Central time, on December 9, 2019. Send your comments to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. To request a public hearing on the proposal, submit a request before the end of the comment period, and separate from any comments, to ChiefClerk@tdi.texas.gov; or to the Office of the Chief Clerk, MC 112-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. The request for public hearing must be separate from any comments and received by TDI no later than 5:00 p.m. Central time on December 9, 2019. If TDI holds a public hearing, TDI will consider written and oral comments presented at the hearing.

SUBCHAPTER E. FIRE EXTINGUISHER RULES

28 TAC §34.524

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §34.524 under Insurance Code §36.001 and Occupations Code §55.0041.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule-making authority to applicable state agencies.

CROSS-REFERENCE TO STATUTE. Section 34.524 implements Occupations Code §55.0041, amended by SB 1200, 86th Legislature, Regular Session (2019).

§34.524.Military Service Members, Military Veterans, or Military Spouses.

(a) Waiver of licensed application and examination fees. TDI [The department] will waive the license application and examination fees for an applicant who is:

(1) a military service member or military veteran whose military service, training, or education substantially meets all [of ] the requirements for the license; or

(2) a military service member, military veteran, or military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state.

(b) Apprentice requirements. Verified military service, training, or education that is relevant to the occupation will be credited toward the apprenticeship requirements for the license.

(c) Extension of license renewal deadlines. A military service member who holds a license is entitled to two years' additional time to complete any continuing education requirements and any other requirements related to the renewal of the military service member's license.

(d) Alternative licensing. The state fire marshal, after reviewing the applicant's credentials, may waive any prerequisite to obtaining a license for a military service member or military veteran who[, military veteran, military veteran, or military spouse that]:

(1) holds a current license issued by another jurisdiction that has licensing requirements substantially equivalent to the requirements for the license in this state; or

(2) within the five years preceding the application date, held the license in this state.

(e) Alternative licensing for military spouses. A military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state is eligible for a license under this subsection for a period of three years. The military spouse must be married to a military service member that is stationed at a military installation in Texas. The three-year period begins from the date the spouse receives confirmation from TDI that the following elements have been fulfilled. In order for the military spouse to obtain a license under this subsection, the military spouse must:

(1) submit an application notifying TDI of the military spouse's intent to engage under the specific license in Texas;

(2) submit proof of the military spouse's residency in Texas and a copy of the military identification card; and

(3) submit evidence of good standing from the jurisdiction with substantially equivalent requirements to the requirements of this state.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903979

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


SUBCHAPTER F. FIRE ALARM RULES

28 TAC §34.631

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §34.631 under Insurance Code §36.001 and Occupations Code §55.0041.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule making authority to applicable state agencies.

CROSS-REFERENCE TO STATUTE. Section 34.631 implements Occupations Code §55.0041, amended by SB 1200, 86th Legislature, Regular Session (2019).

§34.631.Military Service Members, Military Veterans, or Military Spouses.

(a) Waiver of licensed application and examination fees. TDI [The department] will waive the license application and examination fees for an applicant who is:

(1) a military service member or military veteran whose military service, training, or education substantially meets all [of ] the requirements for the license; or

(2) a military service member, military veteran, or military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state.

(b) Apprentice requirements. Verified military service, training, or education that is relevant to the occupation will be credited toward the apprenticeship requirements for the license.

(c) Extension of license renewal deadlines. A military service member who holds a license is entitled to two years' additional time to complete any continuing education requirements and any other requirements related to the renewal of the military service member's license.

(d) Alternative licensing. The state fire marshal, after reviewing the applicant's credentials, may waive any prerequisite to obtaining a license for a military service member or military veteran who[, military veteran, or military spouse that]:

(1) holds a current license issued by another jurisdiction that has licensing requirements substantially equivalent to the requirements for the license in this state; or

(2) within the five years preceding the application date, held the license in this state.

(e) Alternative licensing for military spouses. A military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state is eligible for a license under this subsection for a period of three years. The military spouse must be married to a military service member that is stationed at a military installation in Texas. The three-year period begins from the date the spouse receives confirmation from TDI that the following elements have been fulfilled. In order for the military spouse to obtain a license under this subsection, the military spouse must:

(1) submit an application notifying TDI of the military spouse's intent to engage under the specific license in Texas;

(2) submit proof of the military spouse's residency in Texas and a copy of the military identification card; and

(3) submit evidence of good standing from the jurisdiction with substantially equivalent requirements to the requirements of this state.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903980

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


SUBCHAPTER G. FIRE SPRINKLER RULES

28 TAC §34.726

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §34.726 under Insurance Code §36.001 and Occupations Code §55.0041.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule making authority to applicable state agencies.

CROSS-REFERENCE TO STATUTE. Section 34.726implements Occupations Code §55.0041, amended by SB 1200, 86th Legislature, Regular Session (2019).

§34.726.Military Service Members, Military Veterans, or Military Spouses.

(a) Waiver of licensed application and examination fees. TDI [The department] will waive the license application and examination fees for an applicant who is:

(1) a military service member or military veteran whose military service, training, or education substantially meets all [of ] the requirements for the license; or

(2) a military service member, military veteran, or military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state.

(b) Apprentice requirements. Verified military service, training, or education that is relevant to the occupation will be credited toward the apprenticeship requirements for the license.

(c) Extension of license renewal deadlines. A military service member who holds a license is entitled to two years' additional time to complete any continuing education requirements and any other requirements related to the renewal of the military service member's license.

(d) Alternative licensing. The state fire marshal, after reviewing the applicant's credentials, may waive any prerequisite to obtaining a license for a military service member or military veteran who[, military veteran, or military spouse that]:

(1) holds a current license issued by another jurisdiction that has licensing requirements substantially equivalent to the requirements for the license in this state; or

(2) within the five years preceding the application date, held the license in this state.

(e) Alternative licensing for military spouses. A military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state is eligible for a license under this subsection for a period of three years. The military spouse must be married to a military service member that is stationed at a military installation in Texas. The three-year period begins from the date the spouse receives confirmation from TDI that the following elements have been fulfilled. In order for the military spouse to obtain a license under this subsection, the military spouse must:

(1) submit an application notifying TDI of the military spouse's intent to engage under the specific license in Texas;

(2) submit proof of the military spouse's residency in Texas and a copy of the military identification card; and

(3) submit evidence of good standing from the jurisdiction with substantially equivalent requirements to the requirements of this state.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903981

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584


SUBCHAPTER H. STORAGE AND SALE OF FIREWORKS

28 TAC §34.833

STATUTORY AUTHORITY. TDI proposes amendments to 28 TAC §34.833 under Insurance Code §36.001 and Occupations Code §55.0041.

Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.

Occupations Code §55.0041 addresses licensing of military spouses with out of state licenses. This section also grants rule making authority to applicable state agencies.

CROSS-REFERENCE TO STATUTE. Section 34.833 implements Occupations Code §55.0041, amended by SB 1200, 86th Legislature, Regular Session (2019).

§34.833.Military Service Members, Military Veterans, or Military Spouses.

(a) Waiver of licensed application and examination fees. TDI [The department] will waive the license application and examination fees for an applicant who is:

(1) a military service member or military veteran whose military service, training, or education substantially meets all [of ] the requirements for the license; or

(2) a military service member, military veteran, or military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state.

(b) Apprentice requirements. Verified military service, training, or education that is relevant to the occupation will be credited toward the apprenticeship requirements for the license.

(c) Extension of license renewal deadlines. A military service member who holds a license is entitled to two years' additional time to complete any continuing education requirements and any other requirements related to the renewal of the military service member's license.

(d) Alternative licensing. The state fire marshal, after reviewing the applicant's credentials, may waive any prerequisite to obtaining a license for a military service member or military veteran who[, military veteran, or military spouse that]:

(1) holds a current license issues by another jurisdiction that has licensing requirements substantially equivalent to the requirements for the license in this state; or

(2) within the five years preceding the application date, held the license in this state.

(e) Alternative licensing for military spouses. A military spouse who holds a current license issued by another jurisdiction that has licensing requirements that are substantially equivalent to the requirements for the license in this state is eligible for a license under this subsection for a period of three years. The military spouse must be married to a military service member that is stationed at a military installation in Texas. The three-year period begins from the date the spouse receives confirmation from TDI that the following elements have been fulfilled. In order for the military spouse to obtain a license under this subsection, the military spouse must:

(1) submit an application notifying TDI of the military spouse's intent to engage under the specific license in Texas;

(2) submit proof of the military spouse's residency in Texas and a copy of the military identification card; and

(3) submit evidence of good standing from the jurisdiction with substantially equivalent requirements to the requirements of this state.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2019.

TRD-201903982

James Person

General Counsel

Texas Department of Insurance

Earliest possible date of adoption: December 8, 2019

For further information, please call: (512) 676-6584