INSURANCE COMMISSIONER

[Insurance Commissioner Matter R 2020-08—Filed October 6, 2020, 11:07 a.m.]

Preproposal statement of inquiry was filed as WSR 20-12-084.

Title of Rule and Other Identifying Information: Change of insurance, offset of expenses of group policyholder (SHB 1075).

Hearing Location(s): On November 17, 2020, at 10:00 a.m. Detailed information for attending the Zoom meeting posted on the office of the insurance commissioner (OIC) website here: https://www.insurance.wa.gov/change-insurance-offset-expenses-group-policyholder-r-2020-08. Due to the COVID-19 public health emergency, this hearing will be held via Zoom.

Date of Intended Adoption: November 18, 2020.

Submit Written Comments to: Scott Bird, P.O. Box 40260, Olympia, WA 98504-0260, email rulescoordinator@oic.wa.gov, fax 360-586-3109, by November 16, 2020.

Assistance for Persons with Disabilities: Contact Melanie Watness, phone 360-725-701[7013], fax 360-586-2023, TTY 360-586-0241, email MelanieW@oic.wa.gov, by November 16, 2020.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The commissioner proposes amending one current regulation and creating a new regulation to provide guidance on the limitations and use of implementation credits. The amended regulation is WAC 284-30-320 concerning definitions in trade practices and the new regulation is WAC 284-30-595 concerning unfair trade practices in the use of implementation credits. The anticipated effect of the proposed rules is to provide reference and guidance to insurers and implement the legislative amendments made to RCW 48.30.140 and 48.30.150 through passage of SHB 1075.

Reasons Supporting Proposal: The legislature passed SHB 1075 during the 2019 legislative session. The bill established that the insurance code's prohibition on offering rebates or inducements does not prohibit an insurer from issuing payment to offset documented expenses incurred by a group policy holder in changing coverage from one insurer to another or for implementing new insurance coverage. Based on this legislation, the OIC has developed rules to provide guidance for companies to use and apply implementation credits.

Statutory Authority for Adoption: RCW 48.02.060, 48.44.050, and 48.46.200.

Statute Being Implemented: SHB 1075 (chapter 253, Laws of 2019, effective date July 1, 2020).

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

Name of Proponent: Mike Kreidler, insurance commissioner, governmental.

Name of Agency Personnel Responsible for Drafting: Scott Bird, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7036; Implementation: Melanie Anderson, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7000; and Enforcement: Toni Hood, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7000.

A school district fiscal impact statement is not required under RCW 28A.305.135.

A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Bode Makinde, P.O. Box 40260, Olympia, WA 98504-0260, phone 360-725-7170, fax 360-586-3109, TTY 360-586-0241, email bodem@oic.wa.gov.

This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:

Is exempt under RCW 19.85.025(3) as the rules are adopting or incorporating by reference without material change federal statutes or regulations, Washington state statutes, rules of other Washington state agencies, shoreline master programs other than those programs governing shorelines of statewide significance, or, as referenced by Washington state law, national consensus codes that generally establish industry standards, if the material adopted or incorporated regulates the same subject matter and conduct as the adopting or incorporating rule; and rule content is explicitly and specifically dictated by statute.

Is exempt under RCW [no information supplied by agency].

Explanation of exemptions: The domestic insurers that are affected by this rule are large, interstate insurers and are not small businesses as defined in RCW 19.85.020(3).

The proposed rule does not impose more-than-minor costs on businesses. Following is a summary of the agency's analysis showing how costs were calculated.

Section 1 - Rule groups and their status relative to Regulatory Fairness Act analysis:

Rule Group	Content	WAC	SBEIS Exemption
Subsection (4) [(5)] "Documented expenses" means specific incurred expenses which are either paid by the group policyholder or paid on behalf of the group policyholder and for which documentation is obtained by the insurer. Such documented expenses include, but are not limited to, training, marketing, consumer awareness, information technology and computer programming and operations and administration.	add text	WAC 284-30-320	RCW 34.05.310 (4)(c) (Incorporation by reference). This is a required definition that is part of the new legislation and is necessary to define for implementing the new law.
Subsection (8) "Group policyholder" means an insured or policy owner under a group policy or a single contract which provides coverage to an entire group of fifty-one or more individuals.	add text	WAC 284-30-320	RCW 34.05.310 (4)(c) (Incorporation by reference). This is a required definition that is part of the new legislation and is necessary to define for implementing the new law.
Subsection (16) "Shall describe any such payment" means the specific expenses that are described in the group policyholder's contract or subsequent contract addendum with the insurer and which establish the limits of acceptable expenses under the contract.	add text	WAC 284-30-320	RCW 34.05.310 (4)(c) (Incorporation by reference). This definition is necessary to implement the new law.
Subsection (1) Under RCW 48.30.140 and [48.30].150, an insurer may issue payment to offset a documented expense that is incurred by a group policy holder while transferring from one policy to another policy provided that the insurer maintains evidence of the documented expense for three years from the date of the expense. An insurer will describe in the policy or in any such filing with the commissioner that the payment made to the group policy holder will not exceed the amount of the documented expenses.	add text	WAC 284-30-595	RCW 34.05.310 (4)(e) (Dictated by statute). This definition is necessary to implement the new law.
Subsection (a) The failure to maintain and document an expense incurred by a group policy holder constitutes an unfair trade practice and is a violation of this chapter.	add text	WAC 284-30-595	RCW 34.05.310 (4)(e) (Dictated by statute). This definition is necessary to implement the new law.
Subsection (b) Upon the commissioner's request, the insurer must provide proof of a documented expense in the form of paper or electronic copy.	add text	WAC 284-30-595	RCW 34.05.310 (4)(e) (Dictated by statute). This definition is necessary to implement the new law.

Section 2 - Cost of compliance/minor cost threshold: The domestic insurers that are affected by this rule are large, interstate insurers and are not small businesses as defined in RCW 19.85.020(3). The OIC applied a default cost of compliance ($100) when analyzing whether the rules would have a disproportionate impact on small businesses as defined in RCW 19.85.020(3). Below are calculations for minor cost thresholds across all impacted industries based on the best analogous NAICS types. For these reasons, the proposed rules do not impose more than minor costs on businesses as defined by RCW 19.85.020(2).

2017 Industry NAICS Code	NAICS Code Title	Minor Cost Estimate	Average Annual Employment	1% of Avg Annual Payroll	0.3% of Avg Annual Gross Business Income
524113	Direct Life Insurance Carriers	25599.65	2,787	$25,599.65 2018 Dataset pulled from USBLS	$3,520.62 2018 Dataset pulled from DOR
524114	Direct Health and Medical Insurance Carriers	228929.41	6,777	$88,030.57 2018 Dataset pulled from USBLS	$228,929.41 2018 Dataset pulled from DOR
524126	Direct Property and Casualty Insurance Carriers	33951.09	6,393	$33,951.09 2018 Dataset pulled from USBLS	$2,571.20 2018 Dataset pulled from DOR
524127	Direct Title Insurance Carriers	21078.9	2,646	$12,947.98 2018 Dataset pulled from USBLS	$21,078.90 2018 Dataset pulled from DOR
524128	Other Direct Insurance (except Life; Health; and Medical) Carriers	6357.56	118	$6,357.56 2018 Dataset pulled from ESD	$5,264.55 2018 Dataset pulled from DOR
524130	Reinsurance Carriers	8724.18	94	$8,724.18 2018 Dataset pulled from USBLS	$5,532.67 2018 Dataset pulled from DOR
524210	Insurance Agencies and Brokerages	4879.47	15,498	$4,879.47 2018 Dataset pulled from USBLS	$2,407.22 2018 Dataset pulled from DOR
524291	Claims Adjusting	4302.81	530	$4,302.81 2018 Dataset pulled from USBLS	$2,779.17 2018 Dataset pulled from DOR
524292	Third Party Administration of Insurance and Pension Funds	23596.65	3,108	$23,596.65 2018 Dataset pulled from ESD	$15,044.80 2018 Dataset pulled from DOR
524298	All Other Insurance Related Activities	10871.62	1,243	$10,871.62 2018 Dataset pulled from USBLS	$4,340.77 2018 Dataset pulled from DOR

(a) Reducing, modifying, or eliminating substantive regulatory requirements: There are no new substantive regulatory requirements as part of the new rule expect [except] for one three-year recordkeeping requirement of documented expenses.

(b) Simplifying, reducing, or eliminating recordkeeping and reporting requirements: There is one three-year recordkeeping requirement for documented expenses in the new rule.

(c) Reducing the frequency of inspections: There is an inspection requirement concerning documented expenses in the new rule.

Insurance Commissioner

AMENDATORY SECTION(Amending WSR 09-11-129, filed 5/20/09, effective 8/21/09)

WAC 284-30-320Definitions.

When used in this regulation, WAC 284-30-300 through 284-30-400:

(1) "Actual cash value" means the fair market value of the loss vehicle immediately prior to the loss.

(2) "Claimant" means, depending upon the circumstance, either a first party claimant, a third-party claimant, or both and includes a claimant's designated legal representative and a member of the claimant's immediate family designated by the claimant.

(3) "Comparable motor vehicle" means a vehicle that is the same make and model, of the same or newer model year, similar body style, with similar options and mileage as the loss vehicle and in similar overall condition, as established by current data. To achieve comparability, deductions or additions for options, mileage or condition may be made if they are itemized and appropriate in dollar amount.

(4) "Current data" means data within ninety days prior to or after the date of loss.

(5) "Documented expenses" means specific incurred expenses which are either paid by the group policyholder or paid on behalf of the group policyholder and for which documentation is obtained by the insurer. Such documented expenses include, but are not limited to, training, marketing, consumer awareness, information technology and computer programming and operations and administration. Such expenses must be specifically disbursed and actually incurred within the limits set forth in the policy or policy addendum.

(6) "File" means a record in any retrievable format, and unless otherwise specified, includes paper and electronic formats.

(((6)))(7) "First party claimant" means an individual, corporation, association, partnership or other legal entity asserting a right as a covered person to payment under an insurance policy or insurance contract arising out of the occurrence of the contingency or loss covered by a policy or contract.

(((7)))(8) "Group policyholder" means a policy owner under a group policy which provides coverage to an entire group of fifty-one or more individuals.

(9) "Insurance policy" or "insurance contract" mean any contract of insurance, indemnity, suretyship, or annuity issued, proposed for issuance, or intended for issuance by any insurer.

(((8)))(10) "Insurer" means any individual, corporation, association, partnership, reciprocal exchange, interinsurer, ((Lloyds insurer,)) fraternal mutual insurer, fraternal mutual life insurer, and any other legal entity engaged in the business of insurance, authorized or licensed to issue or who issues any insurance policy or insurance contract in this state. "Insurer" does not include health care service contractors, as defined in RCW 48.44.010, and health maintenance organizations, as defined in RCW 48.46.020.

(((9)))(11) "Investigation" means all activities of the insurer directly or indirectly related to the determination of liabilities under coverages afforded by an insurance policy or insurance contract.

(((10)))(12) "Loss vehicle" means the damaged motor vehicle or a motor vehicle that the insurer determines is a "total loss."

(((11)))(13) "Motor vehicle" means any vehicle subject to registration under chapter 46.16 RCW.

(((12)))(14) "Notification of claim" means any notification, whether in writing or other means acceptable under the terms of an insurance policy or insurance contract, to the insurer or its agent, by a claimant, which reasonably apprises the insurer of the facts pertinent to a claim.

(((13)))(15) "Principally garaged area" means the place where the loss vehicle is normally kept, consistent with the applicable policy of insurance.

(((14)))(16) "Shall describe any such payment" means the specific expenses that are described in the group policyholder's contract or subsequent contract addendum with the insurer and which establish the limits of acceptable expenses under the contract.

(17) "Third-party claimant" means any individual, corporation, association, partnership or other legal entity asserting a claim against any individual, corporation, association, partnership or other legal entity insured under an insurance policy or insurance contract of the insurer.

(((15)))(18) "Total loss" means that the insurer has determined that the cost of parts and labor, plus the salvage value, meets or exceeds, or is likely to meet or exceed, the "actual cash value" of the loss vehicle. Other factors may be considered in reaching the total loss determination, such as the existence of a biohazard or a death in the vehicle resulting from the loss.

(((16)))(19) "Written" or "in writing" means any retrievable method of recording an agreement or document, and, unless otherwise specified, includes paper and electronic formats.

WAC 284-30-595Unfair practices regarding documented expenses for implementation credits.

Under RCW 48.30.140 and 48.30.150, an insurer may issue payment to offset a documented expense that is incurred by a group policy holder while transferring from one policy to another policy provided that the insurer maintains evidence of the documented expense for three years from the date of the expense. An insurer will describe in the policy or in any such filing with the commissioner that the payment made to the group policy holder will not exceed the amount of the documented expenses.

(1) The failure to maintain and document an expense incurred by a group policy holder constitutes an unfair trade practice and is a violation of this chapter.

(2) Upon the commissioner's request, the insurer must provide proof of a documented expense in the form of paper or electronic copy.