The Commissioner of Insurance adopts amendments to §5.3800, concerning the Voluntary Inspection Program fees charged for initial residential property inspections and follow-up inspections. The amendments are adopted with changes to the proposed text published in the August 18, 2006, issue of the Texas Register (31 TexReg 6463).

The Voluntary Inspection Program (VIP) was created in 1995 by the 74th Legislature to provide a mechanism for any person having an insurable interest in real or tangible personal property at a fixed location to procure an independent inspection of the condition of the property for purposes of purchasing residential property insurance. The amendments to §5.3800(e) are necessary to increase the fees that may be charged by inspectors in the program to individuals who request an inspection of their residential property and to provide for automatic annual increases in the fees based on the Consumer Price Index of the U.S. Department of Labor, Bureau of Labor Statistics. The former fees were established in 1996 when the Plan of Operation was first adopted and are now too low to attract enough inspectors to perform inspections for the VIP. Many inspectors are certified real estate inspectors, and based on an informal survey of various areas of the state, the Department determined that these inspectors generally charge approximately $150 to $400 for a real estate inspection. The Department has also determined that in many instances the VIP fee is added on to the real estate fee when an inspection is conducted for purposes of VIP certification of insurability. Despite this fact, an informal Department survey indicates that the current VIP fee of $50 does not provide enough financial incentive for qualified inspectors to participate. The informal Department survey of qualified inspectors also indicates that many more inspectors would be willing to conduct the inspections if the fee were set at $100 or more. Therefore, the Department is adopting a new fee structure, increasing fees from an amount not to exceed $50 to an amount not to exceed $100 for initial inspections, and from an amount not to exceed $25 to an amount not to exceed $50 for follow-up inspections. The new fee structure will be effective January 1, 2007. In order to ensure that inspection fees are competitive enough to ensure the continued availability of inspectors for homeowners who want to utilize the inspection program, the Department is also adopting a provision to provide for automatic annual increases in the fees by the same percentage of increase as the increase in the Consumer Price Index established by the U.S. Department of Labor, Bureau of Labor Statistics for the prior calendar year for all urban consumers for all items and for all regions combined, rounded to the nearest dollar. Under this adopted provision, the maximum amount that could be charged for the initial VIP inspections and follow-up inspections would be automatically increased annually in accordance with the Consumer Price Index beginning on January 1, 2008. For purposes of convenience and accuracy, also beginning January 1, 2008, persons interested in requesting inspections and in conducting inspections will be able to obtain the latest fee amounts, along with the method for computing the fees, at the Department's VIP website, www.TDI.state.tx.us/consumer/VIPcommish.html, as well as from the Department by U.S. Postal Service mail. Additionally, in order to ensure adequate financial incentive for inspectors to perform the inspections, the adopted provision will allow inspectors to charge the individual requesting the inspection for mileage for the most direct route to and from the residential property that is inspected; such fees are required to be the same as the federal standard mileage rate for business use established by the Internal Revenue Service. The mileage fees are adopted to be effective January 1, 2007, and if the Internal Revenue Service adjusts the mileage rate for business use, the VIP inspector mileage rate will change to remain equivalent. Beginning January 1, 2007, the latest mileage rate will be available at the Department's VIP website www.tdi.state.tx.us/consumer/VIPcommish.html and will also be available from the Department by U.S. Postal Service mail.

The adopted amendments to §5.3800(i)(1)(A)(iii), (iv), (v) and (j)(2)(C) are necessary to delete obsolete statutory citations and correct a typographical error. Insurance Code Article 21.07-4, which is referenced in §5.3800(i)(1)(A)(iii), was repealed in the non-substantive Insurance Code revision, Acts 2003, 78th Legislature, Chapter 1274, §26(a)(1), effective April 1, 2005. Article 21.07-4 was re-adopted as Chapter 4101 in the same non-substantive Insurance Code revision. Insurance Code Article 21.14, which is referenced in §§5.3800(i)(1)(A)(iv) and (v), was repealed in the non-substantive Insurance Code revision, Acts 2003, 78th Legislature, Chapter 1274, §26(a)(1), effective April 1, 2005. Article 21.14 was re-adopted as §§4051.001 - 4051.303 in the same non-substantive Insurance Code revision. Article 1.10E of the Insurance Code, which is referenced in §5.3800(j)(2)(C), was repealed in the non-substantive Insurance Code revision, Acts 1999, 76th Legislature, Ch. 101, §5, effective September 1, 1999. Article 1.10E was re-adopted as Chapter 84 in the same non-substantive Insurance Code revision. Therefore, all current references to the repealed articles are deleted, and the updated and correct references are substituted. The adopted amendment to §5.3800(j)(2)(C) is necessary to correct a typographical error, the change of the word of to the word or.

Minor editorial changes to the text of the existing rule not included in the rule proposal are made in §5.3800(i)(1)(B)(v), (2)(A)(i), and (4)(C) to correct erroneous cross references. Also, in §5.3800(i)(4)(C), a verb is corrected from have to has.

In response to a written comment received from an interested party, the Department has changed some of the proposed language in the text of the rule as adopted. The change, however, does not introduce new subject matter or affect persons in addition to those subject to the proposal as published. One commenter stated that the Department should codify standards that include a requirement that any inspector charging mileage fees should disclose that fact to the consumer prior to the inspection. The agency agrees with the comment, and has modified the adoption order to contain this change as well as the necessary concomitant provision of the disclosure of the rate used for computing the mileage fee. The following sentence is added to Section 5.3800(e)(6) as adopted: Prior to undertaking an inspection, the inspector must inform the individual requesting the inspection that a mileage fee will be charged and the rate used for computing the mileage fee.

The adopted amendment to §5.3800(e)(2) increases the inspection fee for a homeowner procuring the initial independent inspection of the condition of property for purposes of purchasing residential property insurance to an amount not to exceed $100, effective January 1, 2007. Under the adopted amendments to §5.3800(e)(3), the inspector may charge a follow-up fee not to exceed $50 in the event repairs are made within 90 days of the initial inspection.

New §5.3800(e)(5) provides that the maximum fees that may be charged for an inspection and a follow-up inspection shall be automatically increased on an annual basis on January 1 of each year, beginning January 1, 2008, by the percentage annual increase in the Consumer Price Index established by the U.S. Department of Labor, Bureau of Labor Statistics. New §5.3800(e)(5) also provides that the current inspector fees will be made available at the Department's VIP website, www.tdi.state.tx.us/consumer/vipcommish.html, effective January 1, 2008, and will also be available by mail. Under new §5.3800(e)(6), the inspector is entitled to charge a reasonable fee for mileage for each trip to and from the residential property risk, taking the most direct route. New §5.3800(e)(6) also provides that the mileage fee is set by reference to the mileage rate for business use as established by the Internal Revenue Service and will change to remain equivalent to the federal standard mileage rate charged by the Internal Revenue Service. New §5.3800(e)(6) also requires that prior to undertaking an inspection, the inspector must inform the individual requesting the inspection that a mileage fee will be charged and the rate used for computing the mileage fee. Under §5.3800(e)(6), the current mileage rate will be available also on the VIP web site, effective January 1, 2007.

Comment: One commenter stated that the Department should codify standards that include a requirement that any inspector charging mileage fees should disclose that fact to the consumer prior to the inspection.

Agency Response: The agency agrees with the comment and has modified the text as adopted to contain this change.

NAMES OF THOSE COMMENTING FOR AND AGAINST THE PROPOSAL.

For with changes: Office of Public Insurance Counsel.

Against: None.

The amendments are adopted under the Insurance Code Articles 5.33B and 5.98 and §36.001. Article 5.33B authorizes the Commissioner to adopt a Plan of Operation for the Voluntary Inspection Program which shall include rules setting the fee which may be charged to the person requesting the inspection. Article 5.98 provides that the Commissioner may adopt reasonable rules to accomplish the purposes of Chapter 5 of the Insurance Code. Section 36.001 of the Insurance Code provides that the Commissioner of Insurance 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.