Texas Credit Property Insurance
Statutes and Regulations

Although Texas has specific statutes for credit life, credit disability and credit involuntary unemployment insurance, Texas has no statute relating to credit property insurance. However, A lender may require or request credit property insurance, but must provide a statement to the debtor that he or she may use an existing policy or obtain a policy from an insurer of the debtor’s choice. The debtor has the option of furnishing the required or requested insurance through an existing policy or through a policy obtained from another agent or insurer.

Credit property insurance is identified as an inland marine coverage by regulation. Prior to January 1, 1999, credit property insurance was not regulated. In 1998, the Texas Commissioner of Insurance promulgated a new rule introducing the regulation of credit property insurance. However, certain types of insurance companies, such as reciprocal exchanges, remain exempt from credit property insurance regulation.

Premium Calculations and Rate Standards

The adopted rule includes several provisions. First, credit property insurance rates and forms associated with consumer credit transactions that are retail installment transaction must be approved prior to use by credit insurers and retailers. Coverage resulting from commercial credit transactions remains free from regulatory oversight.

Second, for closed-end transactions (typically, single-premium coverages associated with a fixed-term loan), the premium calculations for coverage may not be based on amounts paid for services, meals, entertainment, finance or service fees, loan interest, delivery charges, or other insurance premiums (e.g., credit life, credit disability, credit property, or credit involuntary unemployment insurance coverage). This limitation on premium calculations to covered interests is critical for ending the sale of phantom coverage to consumers. However, although the proposed rule extended this requirement to open-end transactions (typically, monthly outstanding balance coverages associated with revolving loan credit cards), the final rule does not eliminated this limitation for open-end transactions. The credit insurance industry and retailers argued that it was technically impossible to separate covered from non-covered items on the credit account and the proposed rule would force credit insurers to stop offering credit property insurance in Texas. Others argued that the availability of the product should not be predicated on unfair treatment of consumers.

Consumer Disclosures

The new rule provides for ground-breaking consumer disclosures, particularly for the open-end transactions not subject to the protections against phantom coverage. The following must be included in any offer to extend coverage for open-end transactions:

This coverage might duplicate existing coverage if you have a residential property insurance policy. It applies to any item of covered property on which you owe a debt. This coverage is primary, so it is the first source to be used in the event of a loss on property it covers. You may cancel this coverage at any time by calling the insurer at the toll-free telephone number provided to you, or by writing to the insurer. This coverage costs $(enter amount) per $100 of outstanding balance on your account. The premium charged for this coverage is based on your entire outstanding balance, but the coverage only applies to tangible personal property purchased on an open-end credit account. Services, meals or other consumables, entertainment, finance or service fees, loan interest, delivery charges, or other insurance premiums, which may be part of your outstanding balance, are not covered.

Required consumer disclosures also include written instructions on filing claims under the coverage with the issuance of a certificate of insurance. The instructions shall include the insurer's toll-free telephone number, as well as a list of essential elements for inclusion by the insured to perfect a claim. The policies or certificates provided to insureds must also include the same disclosures required for the offer to extend coverage.

Additional consumer disclosures include the following with not less than semi-annually with the consumer's account statements:

If you are paying a credit property insurance premium, that premium is based on the entire outstanding balance of this account. You may cancel this coverage at any time by calling the insurer at the toll-free telephone number it has provided to you, or by writing to the insurer. Any premium charged for credit property insurance coverage is based on your entire outstanding balance, but the coverage only applies to tangible personal property purchased on an open-end credit account. Services, meals or other consumables, entertainment, finance or service fees, loan interest, delivery charges, or other insurance premiums, which may be part of your outstanding balance, are not covered.

Finally, the new rule provides the following credit property insurance account information must be provided to consumers for open-end consumer transactions each billing cycle:

(-a-) the amount of the credit property insurance charge, shown separately from any total insurance charge;

(-b-) the amount of the insured's indebtedness to which the insurance charge rate was applied;

(-c-) the date the rate was applied; and

(-d-) the period covered by such monthly charge.

The new Texas credit property insurance regulation charts new territory in terms of consumer disclosure and credit property insurance account information, apparently to offset the removal of the premium calculation limitation to covered items for open-end transactions. While it is certain that the new Texas rule will be a major improvement simply because credit property insurance rates and forms will now be subject to review and approval, it is unclear whether more consumer disclosures will stop the abuses in the sale of credit property insurance. The effectiveness of consumer disclosures depends upon consumers actually having the opportunity to read and understand the disclosures and not being subject to unfair and deceptive sales practices. Some argue that credit property insurers and retailers can find a way around any type of consumer disclosure requirement and that, instead of helping the consumer, the consumer disclosure simply provides more of a legal shield for credit insurers and retailers who engage in unfair and deceptive practices.