BP BHEAD INT H

AN ACT Relating to insurance contracts; and amending RCW 48.18.110.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. RCW 48.18.110 and 1985 c 264 s 9 are each amended to read as follows:

(1) The commissioner shall disapprove any such form of policy, application, rider, or endorsement, or withdraw any previous approval thereof, only:

(a) If it is in any respect in violation of or does not comply with this code or any applicable order or regulation of the commissioner issued pursuant to the code; or

(b) If it does not comply with any controlling filing theretofore made and approved; or

(c) If it contains or incorporates by reference any inconsistent, ambiguous or misleading clauses, or exceptions and conditions which unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the contract; or

(d) If it has any title, heading, or other indication of its provisions which is misleading; or

(e) If purchase of insurance thereunder is being solicited by deceptive advertising.

(2) In addition to the grounds for disapproval of any such form as provided in subsection (1) of this section, the commissioner may disapprove any form of disability insurance policy if the benefits provided therein are unreasonable in relation to the premium charged. However, benefits provided by particular individual disability insurance policy forms are reasonable in relation to the premium charged if the insurer has filed a loss ratio guarantee with the commissioner, and benefits will continue to be reasonable in relation to the premium so long as the insurer complies with the terms of the loss ratio guarantee. This loss ratio guarantee shall be in writing, shall be signed by an officer of the insurer, and shall contain at least the following:

(a) A recitation of the anticipated lifetime and durational loss ratios standards contained in the original actuarial memorandum filed with the policy form when it was originally approved;

(b) A guarantee that the actuarial Washington loss ratio for the experience period in which the new rates take effect, and for each experience period thereafter until new rates are filed, shall meet or exceed the loss ratio standards referred to in (a) of this subsection. If the annual earned premium volume in Washington under the particular policy form is less than one million dollars and therefore not actuarially credible, the loss ratio guarantee must be based on the loss ratio for the policy form in all states, but excluding any state with respect to which all of the following conditions are met:

(i) The state has in effect a statute, rule, or regulation that would permit the insurer to use rates on the policy form upon the filing of a loss ratio guarantee and that provides minimum standards for actuarial credibility;

(ii) The insurer has filed a loss ratio guarantee on the policy form in the state that meets the requirements of the state and that covers the experience period in question; and

(iii) The minimum standards for actuarial credibility in the state for the policy form have been met for the experience period in question.

If the aggregate earned premium for all included states is less than one million dollars, the experience period shall be extended until the end of the calendar year in which one million dollars of earned premium is attained;

(c) A guarantee that the actual Washington, or national if applicable, loss ratio results for the experience period at issue will be independently audited at the insurer's expense. This audit shall be completed in the second quarter of the year following the end of the experience period and the audited results shall be reported to the commissioner not later than June 30th, following the end of the applicable experience period;

(d) A guarantee that affected Washington policyholders shall be issued a proportional refund, based on premium earned, of the amount necessary to bring the actual loss ratio up to the loss ratio standards referred to in (a) of this subsection. If nation-wide loss ratios are used, the total amount refunded in Washington will equal the dollar amount necessary to achieve the loss ratio standards multiplied by the total premium earned in Washington on the policy form and divided by the total premium earned in all states on the policy form. The refund must be made to all Washington policyholders who are insured under the applicable policy form as of the last date of the experience period and whose refund would equal ten dollars or more. The refund shall include interest, at the then current accident and health reserve interest rate established by the national association of insurance commissioners, from the end of the experience period until the date of payment. Payment shall be made during the third quarter of the year following the experience period for which a refund is determined to be due; and

(e) A guarantee that refunds of less than ten dollars will be aggregated by the insurer and paid to the commissioner.

(3) As used in this section, the term "loss ratio" means the ratio of incurred claims to earned premiums by number of years of policy duration, for all combined durations.

(4) As used in this section, the term "experience period" means for any given rate filing for which a loss ratio guarantee is made, the period beginning on the first day of the calendar year during which the rates first take effect and ending on the last day of the calendar year during which the insurer earns one million dollars in premium on the form in question in Washington, or nationally, if the annual premium earned on the form in Washington is less than one million dollars. Successive experience periods shall be similarly determined beginning on the first day following the end of the preceding experience period.