WSR 12-07-092

PROPOSED RULES

OFFICE OF

INSURANCE COMMISSIONER

[ Insurance Commissioner Matter No. R 2011-17 -- Filed March 21, 2012, 10:48 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 11-16-071.

Title of Rule and Other Identifying Information: Property and casualty insurance rate capping rules, transition rating rules, rate stability formulas, and other rating methods.

Hearing Location(s): Insurance Commissioner's Office, TR 120, 5000 Capitol Boulevard, Tumwater, WA 98504-0255, on April 24, 2012, at 1:30 p.m.

Date of Intended Adoption: April 30, 2012.

Submit Written Comments to: Jim Tompkins, P.O. Box 40258, Olympia, WA 98504-0258, e-mail jimt@oic.wa.gov, fax (360) 586-3109, by April 23, 2012.

Assistance for Persons with Disabilities: Contact Lorrie [Lorie] Villaflores by April 23, 2012, TTY (360) 586-0241 or (360) 725-7087.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed rule will:

1. Specify situations in which these rating rules, formulas and other rating methods would or would not result in rates that are unfairly discriminatory;

2. Clarify the meaning of RCW 48.19.040 as it applies to these rating rules, formulas and other rating methods and the rate manuals which they involve; and

3. Establish processes and procedures that insurers must use when implementing rate capping rules, transition rating rules, rate stability formulas, and other rating methods.

Reasons Supporting Proposal: Using advanced information technology and predictive modeling methods, property and casualty insurers are implementing increasingly sophisticated systems for calculating insurance premiums. When new rating factors are inserted into premium formulas and then applied to an existing book of business, many policyholders may see significant premium changes. A similar situation occurs when a book of business is being moved from one insurer to another. To mitigate this effect, insurers often propose rating rules or formulas that reduce the magnitude of the premium changes for certain policyholders. These rating rules or formulas, however, may result in different premiums being charged to similarly situated policyholders, which may be contrary to RCW 48.18.480. The proposed rule specifies the situations in which these rating rules or formulas would or would not result in rates that are unfairly discriminatory. The propose[d] rule specifies [and] also clarifies how the requirements of RCW 48.19.040 apply to these situations. The proposed rule would provide the commissioner with objective standards by which to evaluate and approve or disapprove insurers' proposed rating rules or formulas, and consumers would be better protected from unfairly discriminatory rates.

Statutory Authority for Adoption: RCW 48.02.060, 48.15.040(4), and 48.15.090(2).

Statute Being Implemented: Chapter 31, Laws of 2011 (HB 1694).

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: Lee Barclay, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7115; Implementation and Enforcement: Beth Berendt, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7117.

No small business economic impact statement has been prepared under chapter 19.85 RCW. This proposed rule directly affects only issuers of personal lines of property and casualty insurance. None of the current domestic issuers of personal lines insurance meets the definition of a small business under the law. Therefore, no small business economic impact statement is required.

A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Jim Tompkins, P.O. Box 40258, Olympia, WA 98504-0258, phone (360) 725-7036, fax (360) 586-3109, e-mail jimt@oic.wa.gov.

March 21, 2012

Mike Kreidler

Insurance Commissioner

OTS-3530.5


NEW SECTION
WAC 284-24-130   Rate stability rules.   (1) This section prescribes standards that apply to insurers' rate stability rules, which are also sometimes called "transition rules" or "premium-capping rules." For the purposes of this section, a "rate stability rule" means a rating rule created by an insurer to limit premium changes experienced by policyholders due to the insurer's:

(a) Revision of its own rating plan;

(b) Acquisition or planned acquisition of a book of business from an unaffiliated insurer; or

(c) Moving or receiving business from an affiliated insurer.

(2) Insurers must file rate stability rules with the commissioner under RCW 48.19.040(1) and 48.19.043(2). If an insurer has a rate stability rule, it must be included in its filed manual of rates and rules.

(3) Subsections (4) through (13) of this section apply only to personal lines of property and casualty insurance and only to rate stability rules filed on or after the effective date of this section.

(4) Rate stability rules that do not satisfy the requirements of this section are considered to be unfairly discriminatory and in violation of RCW 48.19.020.

(5) Insurers must not use rate stability rules as:

(a) A means of extending the applicability of a previously filed rate stability rule; or

(b) A substitute for multiple filings of base rate changes or other rate changes that have similar premium effects on all policyholders. For example, if an insurer desires a twenty-one percent rate increase across the board, it cannot file a rate stability rule that has the effect of implementing two ten percent changes one year apart.

(6) In each rate filing that proposes a rate stability rule the insurer must describe the circumstances, under subsection (1) of this section, that make a rate stability rule necessary.

(7) Each rate stability rule must specify the class or classes of risks to which it applies. Only policyholders affected by one of the situations described in subsection (1) of this section may be subject to a rate stability rule.

(8) Each rate stability rule must apply only to that portion of the premium change that results from one of the situations described in subsection (1) of this section. A rate stability rule must not apply to premium changes resulting from changes in coverage, exposure, classification, normal variation in rating due to changes in policyholder characteristics over time, or subsequent rate changes by the insurer.

(9) Each rate stability rule must state the date or number of renewals after which the rule will no longer be in effect. A rate stability rule may not continue to affect premiums for new or renewal policies having effective dates that are more than three years after the effective date of the rate stability rule.

(10) A rate stability rule must affect only policyholders who would otherwise experience a premium change of more than ten percent for an annual policy, or five percent for a six-month policy, due to one of the situations described in subsection (1) of this section. The rate stability rule must not limit the policyholder's premium change to less than ten percent for an annual policy, or five percent for a six-month policy, at each renewal.

(11) In each rate filing after the implementation of a rate stability rule, the insurer must take into consideration, in an actuarially sound manner, the effect of the rate stability rule on the indicated rate level.

(12) At least twenty days before a rate stability rule first affects a policyholder's premium, the insurer must disclose in writing to the policyholder:

(a) The fact that a rate stability rule is being applied;

(b) The reason for applying a rate stability rule;

(c) How long the policyholder's premium will be affected by the rate stability rule;

(d) What the premium for the upcoming policy term will be; and

(e) What the premium for the upcoming policy term would be in the absence of the rate stability rule.

(13) When an insurer files a rate stability rule, it must include in its rate filing a sample copy of the disclosure notice it proposes to use to meet the requirements of subsection (12) of this section.

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Washington State Code Reviser's Office