AN ACT Relating to insurance rates; amending RCW 48.19.010; adding a new chapter to Title 48 RCW; prescribing penalties; providing an effective date; and providing an expiration date.

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

NEW SECTION. Sec. 1. The purposes of this chapter are:

(1) To promote the public welfare by regulating insurance rates in order to prevent excessive, inadequate, or unfairly discriminatory rates;

(2) To encourage independent action by and reasonable price competition among insurers, which is the most effective way to produce rates that conform to the standards of subsection (1) of this section; and

(3) To regulate cooperative action among insurers in the rate-making process to prevent practices that may tend to create a monopoly or to lessen or destroy competition.

NEW SECTION. Sec. 2. The definitions set forth in this section apply throughout this chapter unless the context requires otherwise.

(1) "Supplementary rate information" includes a manual or plan of rates, classification, rating schedule, minimum premium, policy fee, rating rule, and any other similar information needed to determine the applicable rate.

(2) "Rate service organization" means a person or organization, other than a single insurer and those entities listed in subsection (4) of this section, who assists insurers by compiling and furnishing loss or expense statistics and recommending, making, or filing rates, forms, or supplementary rate information.

(3) "Advisory organization" means a person or organization, other than a single insurer and those entities listed in subsection (4) of this section, who assists insurers or rate service organizations in making rates by compiling and furnishing loss or expense statistics or other statistical information and data or by submitting recommendations regarding rates, forms, or supplementary rate information and who does not make rate filings under this chapter.

(4) The terms "rate service organization" and "advisory organization" do not include a joint underwriting association, an actuarial or legal consultant, an employee of an insurer, or insurers under common control or management or their employees or manager.

(5) "Inland marine insurance" includes insurance defined as inland marine insurance by statute or interpretation thereof, or, if not so defined by statute, by ruling of the insurance commissioner or by general custom of the business.

(6) "Subscriber" means any insurer who employs the services of a rate service organization for the purpose of making filings, regardless of whether the insurer is a member of the rate service organization.

This chapter does not govern or affect the membership relation between a rate service organization and insurers who are its members.

NEW SECTION. Sec. 3. (1) Except as otherwise expressly provided by subsection (2)(i) of this section, this chapter takes precedence over chapter 48.19 RCW.

(2) Except as otherwise expressly provided, the provisions of this chapter apply to all insurance upon subjects located, resident, or to be performed in this state except:

(a) Life insurance;

(b) Disability insurance;

(d) Insurance against loss of or damage to aircraft, or aircraft hulls, accessories, or equipment, or against liability arising out of the ownership, maintenance, or use of aircraft;

(e) Insurance of vessels or craft, their cargoes, marine builders' risks, marine protection and indemnity, and such other risks commonly insured under marine, as distinguished from inland marine, insurance contracts;

(f) Title insurance;

(g) Worker's compensation and employers' liability insurance written in connection with worker's compensation;

(h) Residual markets and credit property insurance, including vendor's single interest physical damage insurance if the buyer pays a separate charge for insurance; and

(i) Any line of insurance sold in this state which the commissioner, after hearing, finds to be in a market without substantial and direct competition both in rates and in availability in such line of insurance throughout this state. Upon such a finding by the commissioner, the line of insurance shall be regulated under chapter 48.19 RCW. In addition, any insurer that intends to withdraw from the market in this state for any line of insurance shall notify the commissioner not less than six months before withdrawal, and any changes in rates made during the six-month period before withdrawal shall be regulated under chapter 48.19 RCW.

NEW SECTION. Sec. 4. (1) Rates shall not be excessive, inadequate, or unfairly discriminatory, nor shall an insurer charge any rate which if continued would have or tend to have the effect of destroying competition or creating a monopoly.

(2) For the purposes of this chapter, no rate shall be considered excessive or unfairly discriminatory in a competitive market if a reasonable degree of price competition exists at the consumer level in the line of business to which the rate applies. A reasonable degree of price competition in a given line of business is presumed to exist if insurers are actively engaged in that line of business in this state, insurance is available from more than three insurers to place any risk, and there are rate differentials.

Rates are excessive in a noncompetitive market that is regulated under chapter 48.19 RCW if they are likely to produce a long range underwriting profit that is unreasonably high for the class of business or if expenses are unreasonably high in relation to the services rendered.

(3) Rates are inadequate if they are clearly insufficient to sustain projected losses and expenses in the class of business to which they apply.

(4) Rates are not unfairly discriminatory in a noncompetitive market that is regulated under chapter 48.19 RCW if they equitably reflect with reasonable accuracy the differences in expected losses and expenses, produce different premiums for policyholders with like loss exposures but different expense factors or like expense factors but different loss exposures, and if they are averaged broadly among persons insured under a group, franchise, or blanket policy.

(5) The provisions of this section relating to rates that are excessive or unfairly discriminatory shall not supersede existing laws, including but not limited to, remedies available under chapter 19.86 and 48.30 RCW.

NEW SECTION. Sec. 5. A competitive market is presumed to exist unless the commissioner after notice and hearing determines that a reasonable degree of competition does not exist and issues a ruling to that effect. Such ruling shall expire one year after its issuance unless rescinded earlier by the commissioner. The commissioner shall consider the market share and other relevant structural factors set forth in section 4 of this act. If the commissioner determines that competition is absent, the commissioner shall order the line of insurance exempt from this chapter under section 3 (2) (i) of this act for a period of not more than one year. Any rate in effect at the time the commissioner determines that competition does not exist shall be deemed to comply with the laws of this state unless disapproved under the procedures and standards set forth in chapter 48.19 RCW.

NEW SECTION. Sec. 6. (1) Other than inland marine risks which generally are not written according to manual rates and rating plans, each authorized insurer or rate service organization designated by an insurer for the filing of rates under section 9(2) of this act shall file with the commissioner all rates and supplementary rate information and all changes and amendments thereto, for use in this state, on or before their effective date.

(2) Upon written consent of the insured stating the reasons therefor, a rate which exceeds that provided by an otherwise applicable filing may be used on a specific risk if the rate is filed with the commissioner under subsection (1) of this section.

NEW SECTION. Sec. 7. Each filing, including rates and supplementary rate information, under this chapter shall be open to public inspection at any reasonable time after filing. Copies may be obtained by any person upon request and payment of a reasonable charge.

NEW SECTION. Sec. 8. Upon written request of a policyholder or a prospective policyholder, an insurer or its agent or its broker shall disclose on a form developed by the commissioner its coverage and rates for private passenger automobile, residential fire, and homeowner insurance policies.

NEW SECTION. Sec. 9. (1) An insurer may establish rates and supplementary rate information using the recommendations of an advisory organization, if desired, or using rates and supplementary rate information prepared by a rate service organization, with average expense factors determined by the rate service organization or modified by the insurer to allow for its own expense and loss experience.

(2) An insurer may discharge its filing obligation under section 6 of this act by giving notice to the commissioner that it uses rates and supplementary rate information prepared by a designated rate service organization. The notice shall also inform the commissioner about any modifications which are made under subsection (1) of this section. The insurer's rates and supplementary rate information shall be the latest rates filed by the rate service organization and shall include any amendments which have been filed, subject, however, to the modifications filed by the insurer.

(3) Licensed rate service organizations, advisory organizations, and admitted insurers may exchange information and experience data with other rate service or advisory organizations or insurers in this or another state and may consult with them regarding rate-making.

NEW SECTION. Sec. 10. If the commissioner disapproves a rate, he or she shall issue an order within thirty days of the hearing specifying the manner in which the rate filings fail to meet the requirements of this chapter. The order shall state an effective date on which the use of such rates shall be discontinued which shall be as soon as practicable after entry of the order. The order shall not affect any policy made or issued before the effective date of the order.

NEW SECTION. Sec. 11. If an order of disapproval is appealed, the insurer may implement or continue to use the disapproved rate upon notification to the court. Any excess of the disapproved rate over a rate previously in effect shall be put in a reserve established by the insurer. The court shall have control over the disbursement of funds from such reserve. If the court upholds the commissioner's finding that the rate charged was excessive, the funds shall be distributed as determined by the court in its final order. De minimus refunds to policyholders shall not be required.

NEW SECTION. Sec. 12. (1) No rate service organization may provide any service relating to the rates of any insurance subject to this chapter, and no insurer may use the service of a rate service organization for these purposes, unless the organization has obtained a license from the commissioner.

(2) No rate service organization may refuse to supply any services for which it is licensed in this state to any insurer authorized to do business in this state that offers to pay the fair and usual compensation for the services.

(3) Any person, whether domiciled within or outside this state, except as provided in this subsection, may make application to the commissioner for a license as a rate service organization for such kinds of insurance or subdivisions thereof, if for casualty or surety insurances, or for such subdivision, class of risks, or parts or combinations thereof, if for other insurances, as are specified in its application. An applicant shall file together with its application:

(a) A copy of its constitution, its articles of agreement or association, or its certificate of incorporation or trust agreement, and its bylaws, rules, and regulations governing the conduct of its business;

(b) A list of its members and a list of its subscribers;

(c) The name and address of a resident of this state upon whom notices or orders of the commissioner or process affecting such rate service organization may be served; and

(d) A statement of its qualifications as a rate service organization.

(4) Any organization proposing to act as a rate service organization for insurance under standard form fire policies shall be licensed only if the following conditions are met:

(a) The applicant and the operators of the rate service organization shall be domiciled in and shall actually reside in this state;

(b) The ownership of the rate service organization shall be vested in trustees under a trust agreement for all subscribers approved by the commissioner and the organization shall be conducted as a nonprofit public service institution; and

(c) The rate service organization shall not be connected with any insurer, except that an insurer may be a subscriber to its services.

(5) If the commissioner finds that the applicant for a license as a rate service organization is competent, trustworthy, and otherwise qualified to act as a rate service organization and that its constitution, articles of agreement or association, or certificate of incorporation or trust agreement, and its bylaws, rules, and regulations governing the conduct of its business conform to the requirements of law, the commissioner shall, upon payment of a twenty-five dollar license fee, issue a license specifying the kinds of insurance, or subdivisions, class of risk, or part or combination thereof, for which the applicant is authorized to act as a rate service organization. The commissioner shall not issue a license if the proposed activity would tend to create a monopoly or to lessen or to destroy price competition.

(6) The commissioner shall grant or deny in whole or in part every application within sixty days of its filing.

(7) A license issued under this section shall remain in effect until the licensee withdraws from the state or until the license is suspended or revoked.

(8) Every rate service organization shall promptly notify the commissioner of any change in:

(a) Its constitution, charter, articles of agreement or association, or certificate of incorporation or trust agreement, or its bylaws, rules, or regulations governing the conduct of its business;

(b) Its lists of members and subscribers; and

(c) The name and address of the resident of this state designated to receive notices or orders of the commissioner or process affecting the rate service organization.

(9) Any notice of change to a document filed under this section shall be filed promptly. Failure to file a notice of change may result in suspension of the license for the period of noncompliance. Willful or repeated failures to file the notice of change may result in revocation of the license.

(10) No provision of this chapter requires, or may be deemed to require, an insurer to subscribe with or otherwise affiliate with a rate service organization.

NEW SECTION. Sec. 13. (1) The commissioner may, after a hearing, suspend or revoke the license issued to a rate service organization if:

(a) The commissioner finds that the licensee no longer meets the qualifications for a license; or

(b) The rate service organization fails to comply with an order of the commissioner within the time specified in the order or an extension granted by the commissioner.

(2) The commissioner shall not suspend or revoke a license for failure to comply with an order until the time prescribed by this chapter for an appeal from such order to the superior court has expired, or if an appeal has been taken, until the order has been affirmed.

(3) The commissioner may determine when a suspension or revocation of license shall become effective. A suspension of license shall remain in effect for the period fixed by the commissioner, until the commissioner modifies or rescinds the suspension, or until the order, failure to comply with which constituted grounds for the suspension, is modified, rescinded, or reversed.

NEW SECTION. Sec. 14. (1) The reasonableness of any rule which applies to subscribers, or the refusal of any rate service organization or any advisory organization to admit an insurer as a subscriber, shall, at the request of a subscriber or an insurer, be reviewed by the commissioner at a hearing held upon notice to the rate service organization or the advisory organization and to the subscriber or insurer.

(2) If the commissioner finds that the rule is unreasonable in its application to subscribers, the commissioner shall order that the rule not apply to subscribers who are not members of the rate service organization or the advisory organization.

(3) If a rate service organization or an advisory organization fails to grant or reject an insurer's application for subscribership within thirty days of application, the insurer may request a review by the commissioner as if the application had been rejected. If the commissioner finds that the insurer has been refused admittance to the rate service organization or the advisory organization as a subscriber without justification, the commissioner shall order that the rate service or advisory organization admit the insurer as a subscriber. If the commissioner finds that the action of the rate service organization or the advisory organization was justified, the commissioner shall issue an order affirming the action.

(4) Notice of proposed changes in the rules of any rate service organization or advisory organization shall be given to each subscriber.

NEW SECTION. Sec. 15. The subscribers of any rate service organization may at any time, individually or through committees representing various subscribers, consult with the rate service organization regarding matters subject to regulation under this chapter that affect the subscribers.

NEW SECTION. Sec. 16. Nothing in this chapter may be construed to prohibit or regulate the payment of dividends, savings, or unabsorbed premium deposits, allowed or returned by insurers to their policyholders, members of mutual insurance companies, or subscribers of reciprocal insurance companies. A plan for the payment of dividends, savings, or unabsorbed premium deposits, allowed or returned by insurers to their policyholders, members of mutual insurance companies, or subscribers of reciprocal insurance companies shall not be deemed a rating plan or system.

NEW SECTION. Sec. 17. Each rate service organization shall keep accurate and complete records of all work it performs and of its receipts and disbursements. The rate service organization and its records shall be examined by the commissioner at such times and in such manner as provided under chapter 48.03 RCW, except that the examination shall relate only to the activities conducted under this chapter.

NEW SECTION. Sec. 18. Each rate service organization and each insurer which makes its own rates shall, within a reasonable time after receiving a written request and payment of any reasonable charge, furnish to an insured affected by a rate made by the organization or insurer, or to the authorized representative of such insured, all pertinent information regarding such rate.

NEW SECTION. Sec. 19. Each rate service organization and each insurer which makes its own rates shall provide reasonable means for any person aggrieved by the application of the rating system to be heard, in person or by authorized representative, upon written request to review the manner in which the rating system was applied to the insurance afforded such person. If the rate service organization or insurer fails to grant or reject the request within thirty days, the applicant may proceed in the same manner as if the application had been rejected. Any party affected by the action of the rate service organization or insurer on such request may, within thirty days after written notice of such action, appeal to the commissioner, who, after a hearing held upon notice to the appellant and to the rate service organization or insurer, may affirm or reverse such action.

NEW SECTION. Sec. 20. Each advisory organization, before serving as such to any rate service organization or independent insurer doing business in this state, shall file with the commissioner:

(1) A copy of its constitution, its charter, its articles of agreement or association, or its certificate of incorporation or trust agreement, and a copy of its bylaws, rules, and regulations governing the conduct of its business;

(2) A list of its members and a list of its subscribers;

(3) The name and address of a resident of this state upon whom notices or orders of the commissioner or process issued at the commissioner's direction may be served; and

(4) An agreement that the commissioner may examine the advisory organization under RCW 48.03.010, except that the examination shall only relate to the activities conducted under this chapter.

NEW SECTION. Sec. 21. If, after a hearing, the commissioner finds that the furnishing of information or assistance by an advisory organization involves any act or practice which is unfair, unreasonable, or otherwise inconsistent with the provisions of this chapter, the commissioner may issue a written order specifying the manner in which the act or practice is unfair, unreasonable, or otherwise inconsistent, and requiring that the act or practice be discontinued.

NEW SECTION. Sec. 22. No insurer that makes its own filing nor any rate service organization may support its filings by statistics or adopt rate-making recommendations furnished by an advisory organization that has not complied with this chapter or with any order of the commissioner involving the statistics or recommendations issued under section 21 of this act. If the commissioner finds that the insurer or rate service organization is in violation of this section, the commissioner may issue an order requiring that the violation be discontinued.

NEW SECTION. Sec. 23. (1) The commissioner shall adopt reasonable rules and statistical plans, reasonably adapted to each of the rating systems on file with the commissioner, which may be modified at any time and which shall be followed by each insurer to record and report its loss and nation-wide expense experience. Such reporting enables the commissioner to have access to annual data regarding the experiences of all insurers in such form and detail as is needed to assist the commissioner in determining whether rating systems comply with the standards set forth in section 4 of this act. The rules and plans may also provide for the recording and reporting of expense experience items which are specially applicable to this state and are not susceptible of determination by a prorating of nation-wide expense experience.

(2) In adopting rules and plans under subsection (1) of this section, the commissioner shall give due consideration to the rating systems on file with the commissioner and, so that rules and plans may be as uniform as is practicable among the several states, to the rules and plans used in other states.

(3) No insurer may be required to record or report its loss experience on a classification basis which is inconsistent with the rating system it has filed with the commissioner.

(4) The commissioner may designate one or more rate service organizations or other agencies to assist the commissioner in gathering data under this section and making compilations thereof. The compilations shall be made available, subject to reasonable rules adopted by the commissioner, to insurers and rate service organizations.

(5) Reasonable rules and plans may be adopted by the commissioner for any interchange of data needed for the application of rating plans.

NEW SECTION. Sec. 24. No person may willfully withhold information from, or knowingly give false or misleading information to, the commissioner, a statistical agency designated by the commissioner, a rate service organization, or an insurer, that will affect the rates or premiums chargeable under this chapter.

NEW SECTION. Sec. 25. (1) To ascertain whether lawful rates are being charged, the commissioner may permit the organization and operation of examining bureaus that examine policies, daily reports, binders, renewal certificates, endorsements, and other evidence of insurance or of the cancellation of insurance.

(2) A bureau may examine documents regarding such kinds of insurance as the issuing insurers voluntarily submit for examination.

(3) A bureau shall not operate unless licensed by the commissioner for the kinds of insurance it is permitted to examine. To qualify for a license a bureau shall:

(a) Be owned in trust for the benefit of all insurers regularly using its services, under a trust agreement approved by the commissioner;

(b) Make its services available without discrimination to all authorized insurers applying for such services, subject to reasonable rules, approved by the commissioner, for the obligations of the insurers using its services, the conduct of its affairs, and the correction of errors and omissions in documents it examines;

(c) Have no manager or other employee who is also an employee of an insurer, other than to the extent that bureaus and their employees are owned by insurers through trust agreements; and

(d) Pay to the commissioner a fee of ten dollars for the issuance of a license.

(4) A bureau license shall be of indefinite duration and shall remain in effect until revoked by the commissioner or terminated at the request of the bureau. The commissioner may revoke the license, after hearing, if the bureau:

(a) Is no longer qualified for a license;

(b) Fails to comply with a valid order of the commissioner; or

(5) Any person aggrieved by any rule, act, or omission of a bureau may appeal to the commissioner. The commissioner shall hold a hearing and issue an order upon the appeal.

(6) Each bureau operating in this state shall be subject to the supervision of the commissioner. The commissioner shall conduct examinations of bureaus as provided in chapter 48.03 RCW or this chapter.

(7) Each examining bureau shall keep adequate records of the outstanding errors and omissions found in the coverages it examines and of its receipts and disbursements and shall hold as confidential all information contained in documents submitted to it for examination.

(8) The commissioner shall not license an additional bureau for the examination of documents relating to any kind of insurance if those documents are being examined by an existing licensed bureau. Any examining bureau lawfully operating in this state immediately before the effective date of this act, shall have a prior right to apply for and secure a license under this section.

NEW SECTION. Sec. 26. Rates, supplementary rate information, and policy forms lawfully in use on the effective date of this act may be continued to be used unless subsequently disapproved after a hearing.

NEW SECTION. Sec. 27. The commissioner shall file a report to the legislature by January 31, 1988, evaluating the effect of this chapter upon insureds, insurers, the availability of insurance, insurance rates, market conduct examinations conducted by the commissioner, and any other aspect of this chapter which the commissioner deems significant.

Sec. 28. Section .19.01, chapter 79, Laws of 1947 and RCW 48.19.010 are each amended to read as follows:

(1) Except as is otherwise expressly provided, the provisions of this chapter apply to all insurances that are found by the commissioner under section 3 of this act to be in a market without substantial and direct competition both in rates and in availability in each line of insurance throughout this state, upon subjects located, resident, or to be performed in this state except:

(a) Life insurance;

(b) Disability insurance;

(d) Insurance against loss of or damage to aircraft, their hulls, accessories, and equipment, or against liability, other than workmen's compensation and employers' liability, arising out of the ownership, maintenance or use of aircraft;

(e) Insurance of vessels or craft, their cargoes, marine builders' risks, marine protection and indemnity; and such other risks commonly insured under marine, as distinguished from inland marine, insurance contracts as may be defined by ruling of the commissioner for the purposes of this provision;

(f) Title insurance.

(2) Except, that every insurer shall, as to disability insurance, before using file with the commissioner its manual of classification, manual of rules and rates, and any modifications thereof.

NEW SECTION. Sec. 29. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 30. Sections 1 through 27 of this act shall constitute a new chapter in Title 48 RCW.

NEW SECTION. Sec. 31. This act shall take effect on January 1, 1986.

NEW SECTION. Sec. 32. This act shall expire on January 1, 1990.