WSR 06-12-076

PROPOSED RULES

OFFICE OF THE

INSURANCE COMMISSIONER

[ Insurance Commissioner Matter No. R 2006-01 -- Filed June 6, 2006, 10:21 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 06-07-096.

Title of Rule and Other Identifying Information: Implementation of underwriting laws in 2SHB 2292, Health care liability reform.

Hearing Location(s): Insurance Commissioner's Office, Room TR 120, 5000 Capitol Boulevard, Tumwater, WA 98504-0255, on July 19, 2006, at 9:00 a.m.

Date of Intended Adoption: August 1, 2006.

Submit Written Comments to: Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0258, e-mail Kacys@oic.wa.gov, fax (360) 586-3109, by July 18, 2006.

Assistance for Persons with Disabilities: Contact Lorie Villaflores by July 17, 2006, TTY (360) 586-0241 or (360) 725-7087.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: Sections 211, 212 and 213, chapter 8, Laws of 2006, change the underwriting standards that medical malpractice insurers must use. Subsection (3) of section 211, Laws of 2006, requires the commissioner to adopt rules that define the components of a risk profile that are subject to the law.

These rules:

1. Add definitions for clarity;

2. Explain what types of information insurers must provide when they notify their insured of the characteristics that adversely affect their insurability; and

3. Explain the use of substantive underwriting factors in medical malpractice insurance underwriting.

Reasons Supporting Proposal: Subsection (3) of section 211, Laws of 2006, requires the commissioner to adopt rules that define the components of a risk profile that are subject to the law. Medical malpractice insurers need rules to assist them when they take underwriting actions that are subject to this law.

Statutory Authority for Adoption: RCW 48.02.060, sections 211, 212 and 213, chapter 8, Laws of 2006.

Statute Being Implemented: Sections 211, 212 and 213, chapter 8, Laws of 2006.

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: Lisa Smego, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7134; Implementation: Beth Berendt, P.O. Box 40255, Olympia, WA 98504-0257 [98504-0255], (360) 725-7117; and Enforcement: Carol Sureau, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7050.

No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement is not required because this rule does not impose more than minor costs on businesses in the industry.

A cost-benefit analysis is not required under RCW 34.05.328. These rules are interpretive as defined in RCW 34.05.328.

June 6, 2006

Mike Kreidler

Insurance Commissioner

OTS-8893.2

Chapter 284-20A WAC

RULES THAT APPLY TO INSURERS THAT UNDERWRITE MEDICAL MALPRACTICE INSURANCE


NEW SECTION
WAC 284-20A-010   Purpose.   This chapter describes the underwriting restrictions that apply to medical malpractice insurers under sections 211, 212 and 213, chapter 8, Laws of 2006.

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NEW SECTION
WAC 284-20A-020   Definitions that apply to sections 211, 212 and 213, chapter 8, Laws of 2006 and this chapter.   The definitions in section 211(1), chapter 8, Laws of 2006 apply to this chapter. In addition, the definitions in this section apply throughout the chapter:

(1) "Classification plan" means a plan to formulate different premiums for the same coverage based on group characteristics.

(2) "Medical malpractice" has the same meaning as in section 201(9), chapter 8, Laws of 2006.

(3) "Premium" has the same meaning as in RCW 48.18.170.

(4) "Provider" includes both a facility and provider as defined in section 201 (6) and (7), chapter 8, Laws of 2006.

(5) "Rate" means the cost of insurance per exposure unit.

(6) "Rating rule" means a factor, formula, rule or procedure used to calculate premium. Rating rules include, but are not limited to:

(a) Experience rating plans;

(b) Rating factors or tiers;

(c) Surcharge or discount rules; and

(d) Schedule rating plans.

(7) "Risk profile" means characteristics of a provider that increase or decrease the potential for future medical malpractice claims that may fall in the scope of coverage of a medical malpractice insurance policy.

(8) "Significant risk factor" means a material element of the insured's risk profile that either contributed to or resulted in an adverse underwriting action by a medical malpractice insurer.

(9) "Substantive underwriting factor" means a factor that is very important to an underwriting decision. Examples of a substantive underwriting factor include, but are not limited to:

(a) Criminal acts, including sexual misconduct;

(b) Change in financial condition;

(c) Change in operations, such as turnover of management or professional staff;

(d) Providing information necessary to underwrite the policy;

(e) Complying with loss control or loss prevention recommendations;

(f) History of claims;

(g) Investigations or disciplinary action by the department of health;

(h) Performing procedures within the scope of an individual's license and/or training;

(i) Substance abuse;

(j) Proper facilities and adequate maintenance of equipment; or

(k) Adequate training program for staff.

(10) "Underwriting process" means any series of actions that produce an underwriting decision that affects a provider.

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NEW SECTION
WAC 284-20A-030   Information a medical malpractice insurer must provide if the insurer takes an underwriting action adverse to an insured.   (1) Insurers develop classification and rating plans that group, for rating purposes, risks that have similar insuring, risk and exposure factors. RCW 48.18.480 permits fair discrimination between dissimilar risks. If a provider has characteristics that increase the potential for future medical malpractice claims, the insurer must explain those significant risk factors to the provider.

(2) The insurer must explain each significant risk factor in clear and simple language. The explanation must provide enough detail so that the provider has enough information to understand why each risk factor adversely affects their:

(a) Eligibility for insurance; or

(b) Ability to buy insurance at the lowest premium or rate.

(3) Insurers do not have to provide notice if:

(a) The provider asks for product options that increase premium or reduce coverage, such as:

(i) Deductible or retention changes;

(ii) Increased coverage limits; or

(iii) Coverage options.

(b) The provider changes their business in a way that increases exposure, such as adding staff or types of services performed; or

(c) The classification plan includes rating rules that result in automatic premium increases, such as step-rating increase.

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NEW SECTION
WAC 284-20A-040   Use of "substantive underwriting factors" when underwriting new or existing medical malpractice insurance policies.   (1) The definition of "underwriting" in section 211 (1)(e), chapter 8, Laws of 2006 is broad, and includes selecting, rejecting and pricing a risk. Underwriting occurs when a provider first applies for insurance and when the insurer evaluates the provider for renewal purposes.

(2) Insurers are prohibited from considering the factors listed in section 211(2), chapter 8, Laws of 2006 during any underwriting process unless the insurer can demonstrate that other substantive underwriting factors were also considered. Upon request by the commissioner, an insurer must demonstrate that a completed underwriting process complies with section 211(2), chapter 8, Laws of 2006. Insurers must retain documentation of each underwriting process for three years.

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NEW SECTION
WAC 284-20A-060   What constitutes a medical malpractice insurance policy for the purposes of RCW 48.18.290 (1)(b) and 48.18.2901 (1)(a)(ii)?   A medical malpractice insurance policy means an insurance policy written with the principal intent to provide medical malpractice insurance. For the purposes of this section, a policy does include medical malpractice insurance written as ancillary coverage to a general liability or package policy if the principal exposure insured is not medical malpractice.

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Washington State Code Reviser's Office