This appeal by several insurance companies and insurance trade associations (the Insurers) challenges the validity of two administrative rules adopted by the State Board of Insurance (the Board), under the authority conferred on it by Texas Insurance Code article 21.21, section 13(a). The first rule, Rule 1000, prohibits insurance companies from refusing to sell certain types of insurance to prospective purchasers because they have had an insurance policy canceled by another insurer, or because they have been insured by a county mutual or surplus lines insurance company. The second rule, Rule 1003, prohibits insurers from conditioning the sale of automobile insurance on the purchase of another policy or denying an application because the applicant owns only one car. The violation of these rules constitutes an unfair trade practice, 28 TEX.ADMIN.CODE § 21.1000(c), and subjects an insurer to sanctions. TEX.INS.CODE art. 21.21, § 7.

The Insurers challenge these rules on a variety of grounds permitted by article 21.21, § 13(f). They argue, among other things, that these rules were not adopted in substantial compliance with procedural requirements for agency rulemaking contained in the Administrative Procedure Act (APA), TEX.GOV'T CODE §§ 2001.001-.902, and are therefore invalid. The trial court held that the rules were valid, and the court of appeals affirmed. 888 S.W.2d 198. We agree with the Insurers, and therefore reverse the judgment of the court of appeals.

The Legislature has directed that when an administrative agency adopts a rule, it must at the same time state a reasoned justification for the rule. See TEX.GOV'T CODE § 2001.033. That is, the agency must explain how and why it reached the conclusions it did. The agency's order must present its justification "in a relatively clear, precise, and logical fashion." Railroad Comm'n v. Arco Oil Gas Co., 876 S.W.2d 473, 492 (Tex.App. — Austin 1994, writ denied). In addition to a reasoned justification, the order adopting the rule must include (1) a summary of the comments the agency received from interested parties; (2) a restatement of the factual basis for the rule; and (3) the reasons why the agency disagrees with the comments. TEX.GOV'T CODE § 2001.033; Arco, 876 S.W.2d at 491. Thus, section 2001.033 places an affirmative duty on an agency to summarize the evidence it considered, state a justification for its decision based on the evidence before it, and demonstrate that its justification is reasoned. Beal, Challenging the Factual Basis and Rationality of a Rule Under APTRA, 45 BAYLOR L.REV. 1, 11-12 (1993) (hereinafter Beal).

If an order does not substantially comply with these requirements, the rule is invalid. TEX.GOV'T CODE § 2001.035(a). An agency's order substantially complies with the reasoned justification requirement if it (1) accomplishes the legislative objectives underlying the requirement and (2) comes fairly within the character and scope of each of the statute's requirements in specific and unambiguous terms. Arco, 876 S.W.2d at 491; Methodist Hosps. v. Texas Indus. Accident Bd., 798 S.W.2d 651, 654 (Tex.App. — Austin 1990, writ dism'd w.o.j.).

Provisions like section 2001.033 are designed to compel an administrative agency to articulate its reasoning and, in the process, more thoroughly analyze its rules. See 1 KOCH, ADMINISTRATIVE LAW AND PRACTICE § 4.88 (1985); Bonfield, The Iowa Administrative Procedure Act, 60 IOWA L.REV. 731, 857 (1975) (discussing the agency disclosure requirements in the 1961 Revised Model State Administrative Procedure Act). Requiring an agency to demonstrate a rational connection between the facts before it and the agency's rules promotes public accountability and facilitates judicial review. It also fosters public participation in the rulemaking process, see TEX.GOV'T CODE § 2001.001, and allows interested parties to better formulate "specific, concrete challenges" to a rule. Beal at 22. See also 1 KOCH, ADMINISTRATIVE LAW AND PRACTICE § 4.88[1] (1995 Supp.); Schenkkan, When and How Should Texas Courts Review Agency Rules?, 47 BAYLOR L.REV. 989, (1995) (hereinafter Schenkkan).

Judicial review of administrative rulemaking is especially important because, although the executive and legislative branches may serve as political checks on the consequences of administrative rulemaking, the judiciary is assigned the task of policing the process of rulemaking. See Schenkkan at 1113. Given the vast power allocated to governmental agencies in the modern administrative state, and the broad discretion ordinarily afforded those agencies, judicial oversight of the rulemaking process represents an important check on government power that might otherwise exist without meaningful limits.

We now turn to the Board's orders for the two rules at issue. In adopting Rule 1000, the Board offered the following as a justification:

Insurers should, on an independent basis, determine whether to insure an applicant in accordance with their individual underwriting guidelines. The fact that another insurer has declined to write, canceled or nonrenewed a policy for an applicant, should not in whole or in part be the basis for an insurer declining to write the applicant. Such action is anti-competitive and results in the blacklisting of some consumers from the insurance market. This section will ensure that the possibility of unfair competition and unfair practices do not occur in the marketplace, and when it does, that there are appropriate remedies for the consumer.

18 Tex.Reg. 6329, 6330 (1993). The Board also stated that the rule "will result in greater fairness . . ., increased competition, and better informed consumers." Id.

As we have emphasized, the order must explain the agency's reasoning in adopting the rule. The Board fails to explain anywhere in the order, why consideration of a previous denial, along with other permissible factors, is unfair or anti-competitive. It merely concludes that consideration of a previous denial, "in whole or in part," will lead to "blacklisting." The Board states that an insurer should rely on its own underwriting criteria in determining whether to insure an applicant, but has not explained why an insurer's consideration of a previous denial of insurance, as one of perhaps several factors, is unacceptable.

Without an explanation by the Board of its reasoning, we cannot know, and just as importantly, the public cannot know, why the Board reached the conclusions that it did. For example, it is not apparent whether the Board believes or has evidence that a previous denial of insurance has so little correlation with the risk of insurability that consideration of this factor, even as part of the insurer's decisionmaking process, is patently unfair. Or, perhaps, the Board believes that insurers will place greater weight on a previous denial than other factors, and that consideration of the previous denial, even in part, unfairly prevents some applicants from obtaining insurance. In any event, the Legislature has mandated that the reasoning an agency actually relied on appear in the order. If courts allow agencies to adopt conclusory rules such as Rule 1000, the purposes of section 2001.033 — to provide meaningful public participation in the rulemaking procedure, to allow opponents of the rule to formulate specific challenges, and to ensure that the agency carefully considers and analyzes a rule before adopting it — will be eviscerated. We conclude therefore that the rule is invalid. See TEX.GOV'T CODE § 2001.035(a).

The Board's order adopting Rule 1003 is similarly deficient. In that order, the Board offers as a justification that:

Section 21.1003 will result in eliminating any practice of determining the company, coverage or price of personal automobile insurance on the basis of the number of vehicles to be insured on the policy. In addition, this section will also eliminate the practice of tying the sale of a personal automobile insurance policy to another policy, except in specific instances that such tie-in is allowed by the rule. This will result in greater fairness in the personal automobile insurance marketplace and greater availability and affordability of personal automobile insurance.

18 Tex.Reg. 6334, 6334 (1993). We hold that the Board has failed to explain why the prohibited practices are unfairly discriminatory or what effect these rules will have on consumers and the insurance market. The order makes no effort to explain why the "tying-in" of automobile coverage to an umbrella or excess coverage policy is acceptable, while linking coverage to other types of policies is an unfair practice. The order also fails to explain why conditioning the price of insurance on the number of vehicles to be insured should be prohibited, while giving a discount "as provided in a rate manual approved by the Texas Department of Insurance" is permissible. Nothing in the order sheds any light on the agency's rationale. Rather, the Board merely concludes that eliminating such practices will lead to "greater availability and affordability." Such conclusory statements, without an explanation of the agency's rationale, do not satisfy the reasoned justification requirement of the APA.

We do not suggest that the Board cannot provide reasoned justifications for both Rules 1000 and 1003. We merely hold that it has not yet done so. Because the Board has failed to meet the procedural requirements of section 2001.033 for Rules 1000 and 1003, we reverse the judgment of the court of appeals and render judgment that the Rules are invalid.