WSR 98-13-092

PROPOSED RULES

INSURANCE COMMISSIONER'S OFFICE

[Filed June 16, 1998, 4:51 p.m.]



Original Notice.

Preproposal statement of inquiry was filed as WSR 98-05-102.

Title of Rule: Updating the regulatory scheme of Title 284 WAC.

Purpose: To increase the effectiveness and update the regulatory scheme of chapter 284-24 WAC.

Other Identifying Information: R 98-4.

Statutory Authority for Adoption: RCW 48.02.060, 48.19.080, 48.19.370.

Statute Being Implemented: RCW 48.19.020, 48.19.080, 48.19.370.

Summary: The chapter is revised to make the rules simpler to use. Language is updated, rules are reorganized to meet that goal. New sections are added to aid in facilitating the filing process and clarify consumer protection provisions.

Reasons Supporting Proposal: The rules should be easier to understand and use for both the Office of Insurance Commissioner staff and the regulated industry.

Name of Agency Personnel Responsible for Drafting: Jon Hedegard, Lacey, Washington, (360) 407-0728; Implementation and Enforcement: Lee Barclay, Olympia, Washington, (360) 586-3685.

Name of Proponent: Deborah Senn, Insurance Commissioner, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The chapter was selected for review in the commissioner's regulatory improvement process. Rules and regulations are amended to update language, simplify the compliance process. One existing rule is separated into two rules to make comprehension and use easier. New sections are added to clarify aspects of the filing process. New WAC 284-24-005 states the need for a transmittal form when filing, this will help the processing of the filing. New WAC 284-24-110 states that when the United States Postal Service changes a zip code boundary, that act alone will not change policyholder's rates. Any rate change must be brought through the filing process.

Proposal Changes the Following Existing Rules: Changes were made to update language, improve the clarity and organization, and to increase the efficiency of the regulatory scheme to the following rules: WAC 248-24-015, 248-24-060, 248-24-065, 248-24-070, 248-24-080, and 248-24-100.

A small business economic impact statement has been prepared under chapter 19.85 RCW.



Small Business Economic Impact Statement

Introduction: This report analyzes a proposal to update and modify chapter 284-24 WAC. These changes are proposed in an effort to make the rules more current, effective, and efficient. This evaluation is completed to demonstrate that the proposed changes improve the rules without imposing significant costs on insurers or insureds.

Background: The existing regulation, chapter 284-24 WAC, was adopted in 1982. The chapter is entitled "Rates." It addresses areas concerning property and casualty rates. Regulated subjects include the use of statistical plans and designation of statistical agents, filing requirements, modification and suspension of filing requirements, filings required for certain types of inland marine risks, and standards for schedule rating plans. Amendments were made to some of the sections of the chapter in 1985 and in 1990. Some sections have not been amended since initial adoption in 1982. Chapter 284-24 WAC was identified in the commissioner's regulatory improvement process as a regulation that needed to be updated. Some existing language and processes could be clarified.

The proposed amendments are mainly clarifications of existing sections. One section was divided into two sections for purposes of lucidity. Two new sections were created to address areas that caused some confusion for carriers. One, proposed WAC 284-24-005, addresses the use of transmittal forms with filings. The other proposed new section, WAC 284-24-110, addresses changes made in zip codes by the United States Postal Service and the use of those changed zip codes in rate making. Many insurers use groups of postal zip codes to define their rating territories when making and filing rates. The rating boundaries must be filed and reviewed by the commissioner. The Postal Service occasionally:

1) Changes zip codes;

2) Creates new zip codes by dividing an existing zip code in two; or

3) Creates a new zip code out of pieces of two or more existing zip codes.

This new section takes the common-sense point of view that rates cannot solely be changed by one of these acts of the Postal Service. When developing rates, insurers consider many factors including rate boundaries. A change in the Postal Service's zip codes should not automatically affect the rates of a policyholder. Insurers would be required to file any rate change. The change would be given the same consideration as any other rate change request. This does not prevent insurers from using zip codes to define rating territories. Nor does it prevent an insurer from using the change in the zip code in determining a rate. The process used to change an existing rate of a policyholder should be the filing process, not simply an act by the Postal Service. The insurer may refile the rating territory immediately with the commissioner. Insurers that would like to charge different rates for policyholders in affected areas would face the cost of refiling. Insurers could continue to charge existing rates until the next filing is made and would not incur any additional filing costs. The Postal Service does not regulate insurance or consider insurance issues in determining zip codes so its actions alone should not result in the use of different rates.

The proposed changes should clarify existing requirements and insurers should find it easier to comply with the processes. The existing regulatory scheme will be strengthened, clarified, and streamlined.

Federal and Other State Law: This rule does not conflict with any other federal or state law.

Industry Codes: These proposed rules will apply to rate filings, modification and suspension of filing requirements, and the use of statistical plans and statistical agents for property and casualty insurance sold in the state of Washington. The proposed rules would affect Fire, Marine, and Casualty insurers (industry code 6331) and Surety Insurers (industry code 6351).

Probable Costs: The proposed rules may impose negligible additional direct costs, if any, on the regulated industry. The proposed amendments update the rules and improve the efficiency and clarity of the regulation of rates in chapter 284-24 WAC. The proposed new sections also seek to clarify existing requirements and make processes easier to understand. Proposed WAC 284-24-005 requires the use of a transmittal form with a filing. These forms are currently filed by all of the regulated companies. This section clarifies the need for filing these forms. Proposed WAC 284-24-110 clarifies the policy that if the United States Postal Service changes a zip code designation, an insurer cannot use that change to alter rates without filing the proposed rate change with the commissioner. If an insurer would like to file for a rate change, this rule does nothing to prohibit that change. Any rate change would be subject to the exact same requirements and scrutiny as any other proposed rate change. There could be some issues with computer programming for some large insurers.

The commissioner recognizes that there is the potential for costs associated with the time required to read and comprehend the new and amended rules. These costs would be insignificant in relation to the benefits associated with the new rules.

Probable Benefits: The proposed rules will be more current and easier to use for the regulated industry. Simple changes to update the rules, alphabetize lists, and change archaic language will make the rules easier to understand and apply by members of the regulated industry. This should result in savings of time and money by members of the regulated community. Consumers will have greater protection under proposed WAC 284-24-110 which will prevent rate changes based solely on actions by the United States Postal Service. Rate changes would have to be filed with the commissioner and subjected to the same review as any other rate change. Currently, some insurers have to file extremely detailed maps or written descriptions to illustrate their rate territory boundaries. The zip code rule will eliminate this need, making the filing process easier for affected insurers who want to take advantage of this opportunity. This will also make the filing process easier and allow for more productive use of the Office of Insurance Commissioner staff time.

Small Business Impact: The proposed rules do not impose a disproportionately higher economic burden on small business within the four-digit classifications. The proposed rules amend existing rules and should make them easier for all regulated businesses to understand and utilize. It is possible that small businesses will have an easier time complying than larger businesses.

Mitigation: Mitigation to reduce the economic impact of the proposed rules on small business was not necessary because there are no cost impacts on small businesses. The proposed amendments could be considered a form of mitigation because they provide rules that are more accessible and current than the existing regulation without imposing costs on the regulated industry.

Industry Involvement: Many of the substantive issues and concepts have been discussed with members of the regulated industry and the majority of the companies agree with the principles of the rule. Businesses that will be affected by the proposed rules were invited to provide input to the commissioner's staff throughout the rule-writing process. A Preproposal Statement of Inquiry (CR-101) was filed for the rule on February 18, 1998. The CR-101 was sent to property/casualty insurers and was posted on the commissioner's website. Notification that the commissioner would be reviewing this area in the regulatory improvement process was also posted on the commissioner's website.

Conclusion: The proposed amendments increase the potential benefits of current rules without increasing the costs of compliance or levying any direct costs on the regulated industry. The proposed new rule that specifically requires a transmittal form should have little impact in practice. The proposed new rule that delineates the need to refile rates if an insurer desires to change rates due to a change in the zip codes of an area by the United States Postal Service should not result in significant costs and provides a necessary and valuable consumer protection.



A copy of the statement may be obtained by writing to Kacy Brandeberry, P.O. Box 40256, Olympia, WA 98504-0256, phone (360) 407-0729, FAX (360) 407-0186, Internet KacyB@oic.wa.gov.

RCW 34.05.328 applies to this rule adoption.

Hearing Location: Conference Room downstairs, RoweSix, Building 4, 4224 6th Avenue S.E., Lacey, WA, on July 28, 1998, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Lorie Villaflores by July 27, 1998, TDD (360) 407-0409.

Submit Written Comments to: Kacy Brandeberry, P.O. Box 40256, Olympia, WA 98504-0256, Internet e-mail KacyB@oic.wa.gov, FAX (360) 407-0186 by July 27, 1998.

Date of Intended Adoption: August 15, 1998.

June 15, 1998

Greg J. Scully

Chief Deputy Commissioner

OTS-2158.4

NEW SECTION



WAC 284-24-005  Transmittal form required. Each rate filing submitted by an insurer shall be submitted with the filing transmittal form prescribed by and available from the commissioner. The insurer shall complete the form in its entirety before it submits the filing.



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AMENDATORY SECTION (Amending Order R 90-5, filed 6/14/90, effective 7/15/90)



WAC 284-24-015  Statistical plans and designation of statistical agents. ((Pursuant to)) Under the provisions of RCW 48.19.370, the insurance commissioner has adopted the following statistical plans for the recording and reporting of loss and expense experience, and ((hereby)) designates the particular organizations, or their successors, as statistical agents to assist the commissioner in the gathering and compilation of experience for the classes of business stated.

(1) The statistical plans of the Insurance Services Office, Inc. with respect to the following kinds of insurance:

(a) ((Fire and allied lines,

(b) Automobile physical damage,

(c) Automobile liability,

(d) General liability,

(e) Burglary,

(f) Glass,

(g) Boiler and machinery,

(h) Inland marine,

(i) Homeowners, comprehensive dwelling and dwelling policy program,

(j) Commercial multiperil,

(k) Businessowners, and

(l) Professional liability.)) Aircraft hull,

(b) Aircraft liability,

(c) Boiler and machinery,

(d) Burglary and theft,

(e) Businessowners,

(f) Commercial automobile liability,

(g) Commercial automobile no-fault,

(h) Commercial automobile physical damage,

(i) Commercial earthquake,

(j) Commercial fire and allied lines,

(k) Commercial inland marine,

(l) Commercial multiperil,

(m) Dwelling fire and allied lines,

(n) Farm, farmowners, and ranchowners,

(o) Fidelity and forgery,

(p) General liability,

(q) Glass,

(r) Homeowners, tenants, and condominiums,

(s) Mobile homes,

(t) Personal automobile liability,

(u) Personal automobile no-fault,

(v) Personal automobile physical damage,

(w) Personal earthquake,

(x) Personal inland marine,

(y) Personal liability,

(z) Personal theft and residence glass, and

(aa) Professional liability, including medical professional liability.

(2) The statistical plans of the National Association of Independent Insurers with respect to:

(a) Burglary,

(b) Businessowners,

(c) Crop hail,

(d) Farmowners,

(e) Fidelity and surety,

(f) Fire and allied lines,

(g) General liability,

(h) Glass,

(i) Inland marine,

(j) Malpractice and professional liability,

(k) Personal lines (homeowners and dwelling fire),

(l) Commercial multiperil,

(m) Automobile liability, and

(n) Automobile physical damage.

(3) The statistical plans of the American Association of Insurance Services with respect to:

(a) Homeowners,

(b) Farmowners,

(c) Mobile homeowners,

(d) Inland marine,

(e) Farm fire,

(f) Dwelling fire,

(g) Commercial fire,

(h) General liability,

(i) Burglary,

(j) Glass,

(k) Commercial multiperil,

(l) Manufacturers output, ((and))

(m) Businessowners,

(n) Automobile,

(o) Boatowners, and

(p) Artisans.

(4) The statistical plan of the Surety Association of America with respect to fidelity, surety and forgery.

(5) The statistical plan of the National Crop Insurance Services with respect to hail insurance on growing crops and windstorm (when accompanied by hail) insurance on growing crops.

(6) The statistical plan of the Factory Mutual Service Bureau with respect to property insurance.

(7) The statistical plan of the Mill and Elevator Rating Bureau with respect to property insurance.

(8) The statistical plan of ((the)) American Nuclear ((Insurance Rating Bureau)) Insurers with respect to nuclear physical damage insurance.

(9) The statistical plans of National Independent Statistical Service with respect to the following kinds of insurance:

(a) Automobile liability,

(b) Automobile physical damage,

(c) Boiler and machinery,

(d) Burglary,

(e) Businessowners,

(f) Commercial multiperil,

(g) Farmowners,

(h) Fidelity and surety,

(i) Fire and allied lines,

(j) General liability,

(k) Glass,

(l) Homeowner, mobile home, and dwelling policies,

(m) Inland marine, and

(n) Malpractice and professional liability.

Experience filed by individual carriers is to be kept confidential by these statistical agents and only the consolidated experience will be available as public information.



[Statutory Authority: RCW 48.02.060, 48.19.080 and 48.19.370. 90-13-041 (Order R 90-5), 284-24-015, filed 6/14/90, effective 7/15/90. Statutory Authority: RCW 48.02.060. 82-06-036 (Order R 82-1), 284-24-015, filed 3/1/82.]



AMENDATORY SECTION (Amending WSR 94-20-059, filed 9/30/94, effective 10/31/94)



WAC 284-24-060  ((Modification)) Suspension of filing requirements. (((1) Pursuant to)) Under RCW 48.19.080, ((the commissioner rules and hereby orders that)) the rate filing requirements ((set forth)) in chapter 48.19 RCW are ((modified so that:

(a) No filings with respect to rates pertaining)) suspended with respect to surplus line coverages. Insurers do not need to file rates with respect to surplus line coverages placed in this state ((pursuant to)) under chapter 48.15 RCW ((need be made, hereby confirming the longstanding practice in this state; and

(b) Rating organizations may make reference filings of prospective loss costs. Such filings shall contain the statistical data and supporting information for all calculations and assumptions underlying the prospective loss costs, but need not provide the information required by RCW 48.19.040 (2)(b) and (c). Filings of prospective loss costs must be approved by the commissioner prior to use by any insurer as a reference document. A member or subscribing insurer must file a loss cost adjustment and obtain the commissioner's approval prior to use of rates based on prospective loss costs.

A member or subscribing insurer of a rating organization may use rates based on prospective loss costs filed by such an organization and approved by the commissioner as a reference document without complying with the requirements of RCW 48.19.040 if:

(i) The insurer has an approved loss cost adjustment on file with the commissioner and proposes no changes to it; and

(ii) The insurer will begin using the prospective loss costs on the date proposed by the rating organization and approved by the commissioner.

(2) For purposes of this section, the following definitions apply:

(a) "Rating organization" means an organization licensed pursuant to RCW 48.19.180.

(b) "Member or subscribing insurer" means an insurer that has granted filing authority to a rating organization pursuant to RCW 48.19.050.

(c) "Prospective loss cost" means that portion of a rate that provides only for losses and loss adjustment expense and does not include provisions for expenses (other than loss adjustment expenses) or profit, and is based on historical aggregate losses and loss adjustment expenses adjusted through development to their ultimate value and projected through trending to a future point in time.

(d) "Loss cost adjustment" means a factor by which prospective loss costs are multiplied to obtain final rates. It takes into account:

(i) Operating expenses;

(ii) Underwriting profit (or loss) and contingencies;

(iii) Investment income;

(iv) Dividends, savings, or unabsorbed premium deposits allowed or returned to policyholders, members, or subscribers;

(v) Variations in loss experience unique to the insurer making the filing;

(vi) The effect of the timing difference on the prospective loss costs in those instances in which an insurer elects to begin using prospective loss costs on a date other than that proposed by the rating organization and approved by the commissioner; and

(vii) Other relevant factors, if any.

(e) "Rate" means the cost of insurance per exposure unit, whether expressed as a single number or separately as prospective loss cost and loss cost adjustment, prior to any application of individual risk variations as permitted by WAC 284-24-100, and does not include minimum premiums or supplementary rating information.

(f) "Supplementary rating information" means any manual or plan of policy writing rules, rating rules, classification system, territory codes and descriptions, rating plans, and any other similar information needed to determine the applicable premium for an insured. It includes factors and relativities, such as increased limits factors, package modification factors, classification relativities, and deductible relativities)).



[Statutory Authority: RCW 48.02.060. 94-20-059, 284-24-060, filed 9/30/94, effective 10/31/94. Statutory Authority: RCW 48.02.060, 48.19.080 and 48.19.370. 90-13-041 (Order R 90-5), 284-24-060, filed 6/14/90, effective 7/15/90. Statutory Authority: RCW 48.02.060 (3)(e). 86-24-043 (Order R 86-7), 284-24-060, filed 11/26/86. Statutory Authority: RCW 48.02.060. 82-06-036 (Order R 82-1), 284-24-060, filed 3/1/82.]



NEW SECTION



WAC 284-24-062  Modification of filing requirements--Loss cost filings. (1) Under RCW 48.19.080, the rate filing requirements in chapter 48.19 RCW are modified as follows:

(a) Rating organizations may make reference filings of prospective loss costs. The filings shall contain the statistical data and supporting information for all calculations and assumptions underlying the prospective loss costs, but do not need to provide the information required by RCW 48.19.040 (2)(b) and (c). Filings of prospective loss costs must be approved by the commissioner prior to use by any insurer as a reference document.

(b) To use rates based on loss costs, a member or subscribing insurer of a rating organization must make a loss cost adjustment filing, which is subject to the provisions of RCW 48.19.040 and/or RCW 48.19.043. The filing shall include the following forms, completed in their entirety, prescribed by and available from the commissioner:

(i) A Washington Reference Filing Adoption Form;

(ii) For each loss cost adjustment, a Washington Summary of Supporting Information Form; and

(iii) For each loss cost adjustment with which an expense constant is used, a Washington Expense Constant Supplement.

(c) A member or subscribing insurer of a rating organization may use rates based on prospective loss costs filed by the rating organization and approved by the commissioner as a reference document without complying with the requirements of RCW 48.19.040 and 48.19.043 if:

(i) The insurer has an approved loss cost adjustment on file with the commissioner and proposes no changes to it; and

(ii) The insurer will begin using the prospective loss costs on the date proposed by the rating organization and approved by the commissioner.

(d) Once they have been approved and have become effective, the latest prospective loss costs filed by a rating organization are considered to supersede all earlier loss cost filings by that rating organization. Insurers are not permitted to make loss cost adjustment filings using prospective loss costs that have been superseded.

(2) For purposes of this section, the following definitions apply:

(a) "Rating organization" means an organization licensed under RCW 48.19.180.

(b) "Member or subscribing insurer" means an insurer that has granted filing authority to a rating organization under RCW 48.19.050.

(c) "Prospective loss cost" means that portion of a rate that provides only for losses and loss adjustment expenses and does not include provisions for expenses (other than loss adjustment expenses) or profit, and is based on historical aggregate losses and loss adjustment expenses adjusted through development to their ultimate value and projected through trending to a future point in time.

(d) "Loss cost adjustment" means a factor by which prospective loss costs are multiplied to obtain final rates. It takes into account:

(i) Operating expenses;

(ii) Underwriting profit (or loss) and contingencies;

(iii) Investment income;

(iv) Dividends, savings, or unabsorbed premium deposits allowed or returned to policyholders, members, or subscribers;

(v) Variations in loss experience unique to the insurer making the filing; and

(vi) Other relevant factors, if any.

(e) "Rate" means the cost of insurance per exposure unit, whether expressed as a single number or separately as prospective loss cost and loss cost adjustment, prior to any application of individual risk variations as permitted by WAC 284-24-100, and does not include minimum premiums or supplementary rating information.

(f) "Supplementary rating information" means any manual or plan of policy writing rules, rating rules, classification system, territory codes and descriptions, rating plans, and any other similar information needed to determine the applicable premium for an insured. It includes factors and relativities, such as increased limits factors, package modification factors, classification relativities, and deductible relativities.



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AMENDATORY SECTION (Amending Order R 90-13, filed 12/17/90, effective 1/17/91)



WAC 284-24-065  Demonstration that rates satisfy the requirements of RCW 48.19.020. (1) RCW 48.19.020 requires that premium rates for insurance shall not be excessive, inadequate, or unfairly discriminatory. A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer. Such costs include claims, claim settlement expenses, operational and administrative expenses, and the cost of capital. When an insurer or rating organization files rates with the commissioner, it must demonstrate how it has accounted for each of these costs, so that the commissioner can determine whether the proposed rates satisfy the requirements of RCW 48.19.020.

(2) An insurer filing rates must demonstrate that it has accounted for the cost of capital by showing that its expected after-tax return on equity is consistent with its expected cost of capital. A rating organization filing rates must demonstrate that it has accounted for the cost of capital by showing that its members' or subscribers' expected after-tax return on equity is consistent with their expected cost of capital. An insurer or rating organization may establish the expected cost of capital by citing:

(a) Data pertaining to historical after-tax returns on equity for the property-casualty insurance industry as a whole; or

(b) Data pertaining to historical after-tax returns on equity for insurers writing coverages involving a similar level of risk; or

(c) Data pertaining to historical after-tax returns on equity for other industries involving a similar level of risk; or

(d) In the case of a stock insurer, data pertaining to the after-tax return on equity necessary to attract and retain investors; or

(e) In the case of a mutual or reciprocal insurer, data pertaining to the after-tax return on equity necessary to maintain policyholders' surplus adequate to support the insurer's business.

(3) For the purposes of this section, equity shall customarily be computed under generally accepted accounting principles. However, at the rate filer's option, insurers' statutory surplus as regards policyholders may be used instead. The equity assigned to the writing of a particular coverage in this state shall be determined by making a reasonable allocation of total equity by coverage and by state. Allocation of equity by coverage may involve a recognition of the differences in the level of risk by coverage.

(4) The expected after-tax return shall include:

(a) Expected underwriting profit or loss; and

(b) Expected investment income, including, but not limited to, investment income on assets corresponding to unearned premium reserves, loss and loss adjustment expense reserves, and statutory surplus as regards policyholders; and

(c) Other expected income, at the filer's option; and

(d) Expected federal income taxes arising from (a), (b), and (c) of this subsection, including, but not limited to, taxes due to the revenue offset, reserve discounting, and alternative minimum tax provisions of the Tax Reform Act of 1986.

(5) Due to the variability of expected realized and unrealized capital gains and taxes thereon, the commissioner will not require that these items be included in the expected after-tax return for ratemaking purposes.

(6) Expected after-tax return on equity shall be determined as the annualized rate of return arising from policies to be written in the period during which the filing is expected to be in effect. The calculations involved should follow from the methods used in preparing the filing.

(7) In lieu of allocating its equity as prescribed by subsection (3) of this section, an insurer may establish a target operating ratio applicable to all coverages. For the purposes of this section, "operating ratio" is the sum of after-tax underwriting profit (or loss) and after-tax investment income on assets corresponding to unearned premium reserves and loss and loss adjustment expense reserves, divided by premium. The insurer must show that its target operating ratio corresponds to an expected after-tax return on equity that is consistent with its cost of capital, in accordance with subsection (2) of this section. Although investment income on assets corresponding to policyholders' surplus is not included in the calculation of an operating ratio, this component of investment income must be considered in establishing the target operating ratio, because it must be included in the expected after-tax return on equity, in accordance with subsection (4) of this section.

(8) For liability insurance, if the increased limits factors include risk loads, the proportion of the expected premium (net of expenses) arising from the risk loads for all policy limits shall be included in the expected underwriting profit or loss.

(9) So that the commissioner may more easily determine whether rates satisfy the requirements of RCW 48.19.020:

(a) The use of the word "indicated" in a rate filing to describe a rate or rate change shall be limited to situations in which:

(i) The insurer or rating organization making the filing has taken into account all of the factors listed in RCW 48.19.030 (3)(a) through (f); and

(ii) The rate or rate change labeled "indicated" corresponds to an expected after-tax return on equity which is supported as required by subsection (2) of this section.

(b) A rate filing must contain an explanation of any material difference between an indicated rate or rate change and a proposed rate or rate change.

(10) Filings of supplementary rating information, as defined by WAC ((284-24-060)) 284-24-062 (2)(f), are exempt from the requirements of this section. However, if package modification factors are not supported by data showing the relationship between package and monoline loss experience and expenses, the requirements of this section apply to filings of package modification factors.

(((11) The requirements of this section shall apply to all rate filings received by the commissioner after April 30, 1991.))



[Statutory Authority: RCW 48.02.060 and 48.19.080. 91-01-073 (Order R 90-13), 284-24-065, filed 12/17/90, effective 1/17/91.]



AMENDATORY SECTION (Amending Order R 82-1, filed 3/1/82)



WAC 284-24-070  ((Suspension)) Modification of filing requirements--(("(A)" rating)) Refer-to-company rating. (1) ((Pursuant to)) Under RCW 48.19.080, the ((commissioner rules and hereby orders that the casualty)) insurance rate filing requirements ((set forth)) in chapter 48.19 RCW are ((suspended)) modified as to classes of policies for which the insurer has no rate, guide rate, range of rates or rating rule except as described in subsection (2) of this section. These classes may include:

(a) ((Covering risks in a)) A class((,)) in which risks are so different from each other that no ((single manual)) rate or range of rates could be representative of all((,));

(b) ((Covering risks of a classification)) A class that does not develop enough loss experience to warrant any ((creditability)) credibility for ratemaking purposes((, or)); and

(c) ((Covering risks that involve)) Policies involving a new product or coverage ((as to)) for which there is no appropriate analogy to similar exposures for ratemaking purposes.

(2) ((A rate filing for such classes of policies)) Every rating rule for such classes of policies shall be included in an appropriate rate manual and filed with the commissioner. Such a rating rule shall consist only of a notation((, in an appropriate rate manual,)) of the symbol "(a)" ((following the description of the risk, which symbol shall indicate that the risk cannot practicably be filed with the commissioner and that such risk)) or a statement that risks in the class shall be submitted to the insurer for rating.

(3) The insurer's rating of ((such)) a refer-to-company risk shall be based on a documented underwriting analysis of:

(a) Specific definable loss potential characteristics,

(b) Analogy to similar exposures, and

(c) Available loss frequency and severity data.

(4) Examples of appropriate (("(a)" rated)) refer-to-company risks include but are not limited to:

(a) Manufacturing and construction risks, such as:

(i) Ammunition manufacturing,

(ii) Dam construction,

(iii) Irrigation works operation, and

(iv) Logging railroad--operation and maintenance.

(b) Owners, landlord and tenants risks, such as:

(i) Amusement devices, designed for small children only, not otherwise classified (NOC),

(ii) Christmas tree lots--open air,

(iii) Bleachers or grandstands,

(iv) Dude ranches,

(v) Firing ranges--indoor,

(vi) Parks or playgrounds, and

(vii) Zoos.

(c) Product risks, such as:

(i) Aircraft or aircraft parts manufacturing,

(ii) Ball or roller bearing manufacturing,

(iii) Chemical manufacturing--household--NOC,

(iv) Discontinued operations--products,

(v) Electronic component manufacturing,

(vi) Firearms manufacturing--over .50 caliber

(vii) Instrument manufacturing--NOC,

(viii) Levee construction,

(ix) Machinery or machinery parts manufacturing,

(x) Pharmaceutical or surgical goods manufacturing,

(xi) Products--NOC,

(xii) Sign manufacturing--NOC,

(xiii) Tank manufacturing--metal--not pressurized,

(xiv) Textile coating or impregnating,

(xv) Tool manufacturing--hand type--powered,

(xvi) Valves manufacturing,

(xvii) Wheels manufacturing,

(xviii) Wire goods manufacturing--NOC, and

(xix) Wood products manufacturing--NOC.

(5) Insurers writing (("(a) rated)) risks((")) subject to this regulation shall maintain separate documentation, including loss experience, on each risk written and shall be prepared to provide such documentation to the insurance commissioner upon request.



[Statutory Authority: RCW 48.02.060. 82-06-036 (Order R 82-1), 284-24-070, filed 3/1/82.]



AMENDATORY SECTION (Amending Order R 86-7, filed 11/26/86)



WAC 284-24-080  Rate filings required for certain inland marine risks. RCW 48.19.030 and 48.19.070 recognize that certain inland marine risks are by general custom of the business not written according to manual rates or rating plans. The following inland marine classes of risks are, however, by general custom of the business written according to manual rates or rating plans, and, therefore, manual rates or rating plans applicable to the following ((such)) risks shall be filed with the commissioner ((and may be used only after approval except as otherwise permitted by WAC 284-24-060 (1)(b))):

(1) Accounts receivable and valuable papers and records,

(2) Agricultural machinery, farm equipment and livestock floaters,

(3) Bicycle floater,

(4) Cameras,

(5) Camera and musical instrument dealers,

(6) Equipment dealers,

(7) Hardware and implement dealers floater,

(8) Implement dealers stock floater,

(9) Fine arts (private collections),

(10) First class mail,

(11) Floor plan,

(12) Furriers' block,

(13) Furriers' customers,

(14) Garment contractors,

(15) Golfer's equipment floater,

(16) Musical instruments,

(17) Negative film floater,

(18) Neon signs,

(19) Personal articles floater,

(20) Personal effects,

(21) Personal furs or fur floater,

(22) Personal jewelry or jewelry floater,

(23) Personal property floater,

(24) Physicians' and surgeons' equipment floater,

(25) Registered mail,

(26) Silverware floater,

(27) Stamp and coin collection floater,

(28) Theatrical floater,

(29) Tourist baggage,

(30) Travel baggage (issued in combination with accident and sickness insurance),

(31) Wedding presents, and

(32) Boatowners' and/or boats ((under)) twenty-((seven)) six feet and under in length that are used for pleasure.



[Statutory Authority: RCW 48.02.060 (3)(e). 86-24-043 (Order R 86-7), 284-24-080, filed 11/26/86. Statutory Authority: RCW 48.02.060. 82-06-036 (Order R 82-1), 284-24-080, filed 3/1/82.]



AMENDATORY SECTION (Amending Order R 90-5, filed 6/14/90, effective 7/15/90)



WAC 284-24-100  Standards for schedule rating plans((, noncomplying filings ineffective)). ((Pursuant to RCW 48.19.120, and to effectuate the provisions of RCW 48.19.030, the commissioner finds that existing schedule rating plans permit excessive credits or debits, commonly resulting in discrimination against insureds or inadequate premiums, and, for that reason, fail to meet the requirements of chapter 48.19 RCW. Therefore, no filing of a schedule rating plan shall be effective or accepted after January 1, 1986, unless it meets the following standards:))

(1) A schedule rating plan shall apply only to those classes of insurance (monoline or packaged) commonly known as commercial vehicle, commercial general casualty, commercial inland marine, commercial fidelity, surety, commercial crime, and commercial property.

(2) A schedule rating plan shall provide for no more than a twenty-five percent credit (reduction) or debit (charge)((, excluding any expense adjustment permitted by a lawfully filed and approved expense adjustment plan)). A schedule rating plan shall not be combined with other rating plans or rating rules in such a way that the schedule rating affects the premium by more than twenty-five percent.

(3) Any expense modification rule which does not prescribe specific credits or debits for particular situations is considered to be similar to schedule rating. In such a case, the combined effect of schedule and expense modifications shall not exceed twenty-five percent.

(4) If an expense modification plan prescribes specific credits for particular situations (such as various premium size ranges or commission levels), the credits or debits are not included in the twenty-five percent schedule rating maximum.

(5) A schedule rating plan must provide for an objective analysis by the insurer of the risk and be based on specific factual information supporting the rating. Items such as the following may be considered:

(a) Management capacity for loss control and risk improvement, including financial and operating performance.

(b) Condition and upkeep of premises and equipment.

(c) Location of risk and suitability of occupancy.

(d) Quality of fire and police protection.

(e) Employee training, selection, supervision, or similar elements.

(f) Type of equipment.

(g) Safety programming.

(h) Construction features and maintenance.

(i) Classification variances, including differences from average hazards.

(((4) A plan must provide that when)) (6) If a risk is rated below average (debited) under a schedule rating plan, an insured or applicant, upon timely request, will be advised by the insurer of the factors which resulted in the adverse rating so that the insured or applicant will be fairly apprised of any corrective action that might be appropriate with respect to the insurance risk.

(((5))) (7) A schedule rating plan shall be administered equitably and applied fairly to every eligible risk which an insurer elects to insure. Records supporting the development of individual risk modifications shall be retained by the insurer for a minimum of three years or until the conclusion of the next regular examination conducted by the insurance department of its domicile, whichever is later, and made available at all reasonable times for the commissioner's examination. ((Such)) The records must include copies of all documentation used in making each particular determination, even though a credit or debit may not result.



[Statutory Authority: RCW 48.02.060, 48.19.080 and 48.19.370. 90-13-041 (Order R 90-5), 284-24-100, filed 6/14/90, effective 7/15/90. Statutory Authority: RCW 48.02.060. 85-23-031 (Order R 85-4), 284-24-100, filed 11/14/85.]



NEW SECTION



WAC 284-24-110  Effect of changes to zip code boundaries. An insurer shall not change an insured's rates solely because the insured's zip code has been changed by the United States Postal Service. This section shall not be construed to prohibit insurers from using zip codes to define rating territories. However, the zip code boundaries in effect at the time an insurer makes a rate filing defining the territories shall determine the physical boundaries of these territories. These boundaries can be changed only by the insurer's subsequent rate filings.



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Legislature Code Reviser 

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Washington State Code Reviser's Office