WSR 99-19-174

PROPOSED RULES

INSURANCE COMMISSIONER'S OFFICE


[ Insurance Commissioner Matter No. R 99-5-- Filed September 22, 1999, 11:18 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 99-12-105.

Title of Rule: Deregulation of commercial property casualty lines of insurance.

Purpose: This proposed regulation suspends filing requirements of certain large commercial property casualty insurance policies.

Statutory Authority for Adoption: RCW 48.020.060 [48.02.060], 48.19.080.

Statute Being Implemented: RCW 48.19.080.

Summary: This proposed regulation suspends filing requirements of certain large commercial property casualty insurance policies.

Reasons Supporting Proposal: It will enable insurers to choose not to file the rates of certain policies. This will provide some administrative time and cost savings.

Name of Agency Personnel Responsible for Drafting: Lee Barclay, P.O. Box 40255, Olympia, WA, (360) 586-3685; Implementation and Enforcement: Bethany Weidner, P.O. Box 40255, Olympia, WA, (360) 664-8137.

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 rule will give insurers the option to file or not to file rates on certain commercial policies that have an estimated annual collected premium over $25,000. The purchasers of large commercial property casualty policies are sophisticated buyers. These purchasers have the ability to negotiate as equals over the rates of their policies and to adequately safeguard their interests. Since less protection is needed for these purchasers, the filing requirements are not necessary. Suspending the filing of rates for these policies will save insurers some time and expense. These savings may be passed along to the purchasers.

The CR-101 contemplated deregulation of forms for large commercial policies. However, RCW 48.18.103 contains form filing requirements that the commissioner cannot suspend. Thus, the proposed rules will focus on the deregulation of rates for large commercial property casualty policies and do not address the deregulation of forms for those policies. This subject is addressed in more depth in the Small Business Economic Impact Statement.

Proposal does not change existing rules.

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

Small Business Economic Impact Statement

Background: This subject was suggested in the commissioner's regulatory improvement process as a regulatory scheme that should be revisited. The deregulation of commercial rates and forms has been discussed extensively by members of the NAIC and by the legislatures of several states over the past several years. The specifics of exactly how this should be accomplished while retaining adequate consumer protections have varied from proposal to proposal. The underlying theory of this rule making is that purchasers of large commercial property casualty policies are sophisticated buyers. These purchasers have the ability to negotiate as equals over the rates of their policies and to adequately safeguard their interests. Since less protection is needed for these purchasers, the filing requirements are not necessary. Suspending the filing of rates for these policies will save insurers some time and expense. These savings may be passed along to the purchasers.

In June of 1999, the commissioner issued a CR-101 announcing her intent to begin the rule-making process in this area. The CR-101 indicated a variety of topics and possible directions. One area that was mentioned in the CR-101 but is not a part of the proposed rules was the deregulation of forms. RCW 48.18.100 enables the commissioner to exempt forms from the filing requirements of "this section." Thus, the commissioner can exempt documents from the requirements of RCW 48.18.100. However, RCW 48.18.103 also contains filing requirements. In 1997, when the legislature passed the bill that created the new section of RCW 48.18.103, the intent of the bill was to allow "policies to be issued more expeditiously and provide a more competitive market for forms." (RCW 48.18.103) While it is extremely unlikely that the legislature intended to preclude the commissioner's ability to exempt any or all forms from those filing requirements, that is one of the effects of that legislation. Thus, the proposed rules will focus on the deregulation of rates for large commercial property casualty policies and do not address the deregulation of forms for those policies.

Is the Rule Required by Federal Law or Federal Regulation? This rule is not required by federal law or regulation.

What Industry is Affected by the Proposed Rule? The industry code that would be affected by the proposed rules is Fire, Marine, and Casualty Insurance, SIC #6331.

List the Specific Parts of the Proposed Rule, Based on the Underlying Statutory Authority (RCW Section), Which May Impose a Cost to Business: No part of the regulation will impose costs upon business. The proposed regulation rate allows for the exemption of rate filing requirements for certain large commercial property casualty policies. The only cost impacts should be a lessening of time and expense related to filing. If the insurer chooses to not file, it must maintain records to support the rating and premium determination of each policy issued in reliance on these rules. The records shall be retained by the insurer for a minimum of three years and made available at all reasonable times for the commissioner's examination. The retention of the records is to ensure that the commissioner will have the ability to check that the insurer complied with the relevant statutes. Insurers generally retain premium and rating records, so no additional costs are involved here.

What Will Be the Compliance Costs for the Industries Affected? There should be little compliance costs for industry. There are always some time and costs associated with reading and comprehending new rules but there are no new requirements upon insurers. The effect of the rules should be to lessen compliance costs. Certain existing filing requirements are exempted at the discretion of the insurer which should save insurers some time and money. The insurer need not file if the criteria of the rules are met. If the insurer chooses to continue to file, it can practice in exactly the same fashion as it currently does and there is no impact at all.

What Percentage of the Industries in the Four-digit Standard Industrial Classification Will Be Affected by the Rule? The proposed rule would affect 100% of the property casualty insurers that offer products that are subject to regulation by the Insurance Commissioner and if the product:

(a) Pertains to a business, nonprofit organization, or public entity;

(b) Involves the lines of property and casualty insurance defined in RCW 48.11.040, 48.11.050, 48.11.060, 48.11.070, and/or 48.11.080; and

(c) Has an estimated annual collected premium of $25,000 or more.

As noted in the section above, insurers that meet these and other criteria of the rules, do not need to file rates for these products.


Will the Rule Impose a Disproportionately Higher Economic Burden on Small Businesses Within the Four-digit Classification? No. The proposed rule will not impose any economic burden on insurers, whether they are small insurers or not. Removing the requirement to file certain rates should benefit all insurers who offer those products.

Can Mitigation Be Used to Reduce the Economic Impact of the Rule on Small Businesses and Still Meet the Stated Objective of the Statutes That Are the Basis of the Proposed Rule? No. The proposed rules have no negative economic impacts. Thus, there are no impacts that could be mitigated. If insurers have products that meet the criteria of the rule and desire to continue to do business as they currently practice, they may do so.

If any negative cost impacts are foreseen at some point during the rule making, the commissioner will work with all affected parties to mitigate those impacts.

What Steps Will the Commissioner Take to Reduce the Costs of the Rule on Small Businesses? There should be no costs to small insurers beyond the costs of reading and understanding the rule. The commissioner will distribute the rules to the affected parties and will provide any technical assistance necessary requested by insurers.

Which Mitigation Techniques Have Been Considered and Incorporated into the Proposed Rule? There will be no costs so there is no need or opportunity to mitigate. The rules should lead to a lessening of existing costs.

Which Mitigation Techniques Were Considered for Incorporation into the Proposed Rule but Were Rejected, and Why? See above.

Briefly Describe the Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule: There are no new reporting or record-keeping requirements as a result of this rule.

List the Kinds of Professional Services That a Small Business is Likely to Need in Order to Comply With the Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule: The rules exempt certain filing requirements. They do not impose any new reporting or record-keeping requirements. It is expected that no new professional services will be needed by smaller insurers. If an insurer chooses to not file in reliance on the rules, they shall maintain records supporting the rating and premium determination of each policy issued in reliance on this section. These records shall be retained by the insurer for a minimum of three years and made available at all reasonable times for the commissioner's examination. Certain records they customarily kept must still be kept and available for the inspection to enable the commissioner to investigate if an insurer is complying with statutory requirements.

Cost of Equipment: There is no anticipated additional cost of equipment.

Cost of Supplies: There is no anticipated additional cost of supplies.

Cost of Labor: The cost of labor should decrease for insurers who choose not to file since the filing requirements on the relevant policies are suspended.

Cost of Increased Administration: The rules should decrease the cost of administration. There may be some minimal costs associated with reading and comprehending the new rule. The commissioner may be able to offer technical assistance to insurers in this regard.

Compare the Cost of Compliance for Small Business With the Cost of Compliance for the Largest Business in the Same Four-digit Classification, Using One or More of the Following: There should be no costs of compliance. The lessening of existing costs should be proportional for small insurers.

Have Businesses That Will be Affected Been Asked What the Economic Impact Will Be? All parties were informed of the commissioner's intent to revisit this subject and begin the rule-making process June 2, 1999. The proposal was published in the Washington State Register and was posted on the Insurance Commissioner's website. Interested parties and affected insurers, including smaller insurers, were mailed the CR-101. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process. Several comments were received. Generally, the comments were supportive of the idea of deregulation. No comment indicated that there would be any costs associated with the suspension of the filing requirements.

Many of the comments expressed support for more sweeping deregulation or complete deregulation. The commissioner does not believe that broader deregulation would be beneficial at this time. As noted in the "Background" section, there are limits to her authority to deregulate and this proposal is targeted at products purchased by sophisticated purchasers. Complete deregulation of all commercial lines removes protections for purchasers that may not be sophisticated enough to completely understand the ramifications of the transaction and may have little leverage in the insurance transaction. While some costs to the purchaser may fall, the loss of protections that benefit the purchasers makes complete deregulation inadvisable.

How did the Commissioner Involve Small Business in the Development of the Proposed Rule? See above.

How and When Were Affected Small Businesses Advised of the Proposed Rule? The CR-101 was filed on June 2, 1999. The CR-101 was published in the Washington State Register and was posted on the Insurance Commissioner's website. Interested parties and all property casualty insurers, including smaller insurers, were mailed the CR-101. It outlined various topics and directions that would be considered in the rule-making process. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process.

A copy of the statement may be obtained by writing to Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, fax (360) 664-2782, phone (360) 664-3784.

RCW 34.05.328 applies to this rule adoption.

Hearing Location: 14th and Water, Cherberg Building, Senate Hearing Room 1, Olympia, Washington, on October 27, 1999, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Lori Villaflores by October 26, 1999, TDD (360) 407-0409.

Submit Written Comments to: Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, e-mail KacyB@oic.wa.gov, fax (360) 664-2782, by October 26, 1999.

Date of Intended Adoption: November 10, 1999.

September 22, 1999

Bethany Weidner

Deputy Insurance Commissioner

OTS-3395.1


NEW SECTION
WAC 284-24-120
Suspension of rate filing requirements--Large commercial policies.

(1) Under RCW 48.19.080, the rate filing requirements in chapter 48.19 RCW are suspended with respect to large commercial property casualty policies.

(2) For purposes of this section, "large commercial property casualty policy" means an insurance policy that:

(a) Pertains to a business, nonprofit organization, or public entity;

(b) Involves the lines of property and casualty insurance defined in RCW 48.11.040, 48.11.050, 48.11.060, 48.11.070, and/or 48.11.080; and

(c) Has an estimated annual collected premium of $25,000 or more.

(3) Before an insurer issues a policy in reliance on this section, the insurer or its agent shall notify the insured in writing that the rates have not been and will not be filed for the commissioner's approval.

(4) Property rates used on large commercial property casualty policies will not be audited by the Washington Insurance Examining Bureau under WAC 284-20-006.

(5) The commissioner retains the right and ability to examine the rates used on large commercial property casualty policies to ascertain whether they meet the requirements of RCW 48.19.020 and other statutes. The insurer shall maintain records supporting the rating and premium determination of each policy issued in reliance on this section. These records shall be retained by the insurer for a minimum of three years and made available at all reasonable times for the commissioner's examination.

(6) Subsection (1) of this section does not apply to:

(a) Professional liability insurance policies, including medical malpractice insurance policies;

(b) Directors' and officers' liability insurance policies purchased by individuals;

(c) Motor vehicle service contract reimbursement insurance policies, as defined in RCW 48.96.010(4); and

(d) Master policies under which certificates of coverage are issued to individual consumers or households.

(7) If this subsection is not amended, the provisions of this section shall expire on December 31, 2001.

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Washington State Code Reviser's Office