| (a) Personal property insurance, other than insurance covering motor vehicles, written on a loan subject to Texas Finance Code, Chapter 342, should provide a procedure for determining and adjusting the value of insured items in the event of a loss. If a licensee does not utilize a formula submitted to and approved by the commissioner for adjusting the value of the items insured and if a loss occurs, the value initially stated is presumed to be the actual replacement cost of each insured item throughout the life of the policy. (b) Personal property insurance may be written in an amount that is less than the value of the loan collateral at rates not fixed or approved by the Texas Department of Insurance. Personal property insurance may not be written unless it provides for payment of a sum not less than the claims ratio multiplied by the amount of the loss. The claims ratio is calculated by dividing the amount of insurance by the total value of the secured collateral covered by the insurance policy, rounded to the fourth digit to the right of the decimal point. For example, the terms of a transaction are as follows: the original total of payments in an installment loan is $3,000; the term is 2 1/2 years with monthly installment payments of $100; property insurance is purchased to insure three items of collateral for up to $3,000: a piano worth $2,500, a computer worth $1,500, and a television worth $500; and the piano is then stolen and reported to the insurer by the borrower. The claims ratio is calculated by dividing the value of the insurance written, $3,000, by the total value of the collateral covered by the policy, $4,500. Applying the claims ratio of 2/3 or .6667 to the amount of the loss, $2,500, leads to the conclusion that no less than $1,666.75 should be paid under the applicable property insurance policy. A licensee may only write a policy of property insurance that would provide for a payment of not less than $1,666.75 under the facts provided in this example. |
