H. B. 2001
(By Delegate Amores)
[Introduced February 9, 2005; referred to the
Committee on Banking and Insurance, then the Judiciary.]
A BILL to amend the code of West Virginia, 1931, as amended, by
adding thereto a new article, designated §33-49-1, §33-49-2,
§33-49-3, §33-49-4, §33-49-5, §33-49-6, §33-49-7, §33-49-8,
§33-49-9, §33-49-10, §33-49-11, §33-49-12, §33-49-13,
§33-49-14, §33-49-15, §33-49-16, §33-49-17, §33-49-18,
§33-49-19 and §33-49-20, all relating to establishing a use
and file rate regulatory system for personal lines of
insurance; establishing a no-file system for commercial lines
of insurance; setting forth a short title; declaring
legislative intent; providing definitions of certain terms;
allowing policies sold to large, sophisticated commercial
insurance providers to be exempt from rate and regulatory
requirements; providing for civil penalties for violators;
and, providing a hearing process for those cited with
Be it enacted by the Legislature of West Virginia:
the code of West Virginia, 1931, as amended, be amended
by adding thereto a new article, designated §33-49-1, §33-49-2,
§33-49-3, §33-49-4, §33-49-5, §33-49-6, §33-49-7, §33-49-8,
§33-49-9, §33-49-10, §33-49-11, §33-49-12, §33-49-13, §33-49-14,
§33-49-15, §33-49-16, §33-49-17, §33-49-18, §33-49-19 and
to read as follows:
ARTICLE 49. PROPERTY AND CASUALTY INSURANCE MODERNIZATION ACT.
§33-49-1. Short title.
The article shall be known as the Property and Casualty
Insurance Modernization Act.
§33-49-2. Declaration of legislative intent.
The Legislature finds and declares that a modernized and
competitive procedure needs to be employed in the insurance
industry to accomplish the following:
(a) To recognize and enhance the role well-informed consumers
play in the competitive marketplace;
(b) To promote price competition among insurers;
(c) To protect policyholders and the public against adverse
effects of excessive, inadequate, or unfairly discriminatory rates;
(d) To prohibit unlawful price fixing agreements by or among
(e) To authorize essential cooperative activities among
insurers in the rate-making process and to regulate the activities
to prohibit practices that tend to substantially lessen competition
or create monopolies; and
(f) To provide necessary regulatory authority in the absence
of a competitive marketplace.
The following words and phrases mean as follows:
(a) "Advisory organization" means any person or organization,
which has five unrelated members and which assists insurers as
authorized by section eleven of this article. It does not include
joint underwriting organizations, actuarial or legal consultants,
single insurers, any employees of an insurer, or insurers under
common control or management of their employees or managers.
(b) "Classification system" or "classification" means the
process of grouping risks with similar risk characteristics so that
differences in costs may be recognized.
(c) "Commercial risk" means any kind of risk, which is not a
(d) "Commissioner" means the commissioner of insurance.
(e) "Competitive market" means any market except those which
have been found to be noncompetitive under the provisions of
section five of this article.
(f) "Developed losses" means losses (including loss adjustment
expenses) adjusted, using standard actuarial techniques, to
eliminate the effect of differences between current payment or
reserve estimates and those which are anticipated to provide actual
ultimate loss (including loss adjustment expense) payments.
(g) "Expenses" means that portion of a rate attributable to
acquisition, field supervision, collection expenses, general
expenses, taxes, licenses and fees.
(h) "Experience rating" means a rating procedure utilizing
past insurance experience of the individual policyholder to
forecast future losses by measuring the policyholder's loss
experience against the loss experience of policyholders in the same
classification to produce a prospective premium credit, debit or
(i) "Joint underwriting" means an arrangement established to
provide insurance coverage for a risk, pursuant to which two or
more insurers contract with the insured for a price and policy
terms agreed upon between or among the insurers.
(j) "Large commercial policyholder" is a commercial
policyholder with the size, sophistication and insurance-buying
expertise to negotiate with insurers in a largely unregulated
environment and which meets at least two of the following criteria:
(1) Aggregate premium on commercial policies held by the insured,
including workers' compensation; (2) number of employees; (3)
annual net revenues or sales; (4) net worth; (5) annual budgeted
expenditures for not-for-profit organizations or a public body or
agencies; or (6) population for municipalities.
(k) "Loss adjustment expense" means the expenses incurred by
the insurer in the course of settling claims.
(l) "Market" is the statewide interaction between buyers and
sellers in the procurement of a line of insurance coverage pursuant
to the provisions of this article.
(m) "Noncompetitive market" means a market, which is subject
to a ruling, pursuant to section five of this article, that a
reasonable degree of competition does not exist; for the purposes
of this article, residual markets and pools are noncompetitive
(n) "Personal risk" means homeowners, tenants, nonfleet
private passenger automobiles, mobile homes and other property and
casualty insurance for person, family or household needs. This
includes any property and casualty insurance that is otherwise
intended for noncommercial coverage.
(o) "Pool" means an arrangement pursuant to which two or more
insurers participate in the sharing of risks on a predetermined
basis. A pool may operate as an association, syndicate or in any
other generally recognized manner.
(p) "Prospective loss cost" means that portion of a rate that
does not include provisions for expenses (other than loss
adjustment expenses) or profit, and are based on historical
aggregate losses and loss adjustment expenses adjusted through
development to their ultimate value and projected through trending
to a future point in time.
(q) "Rate" means that cost of insurance per exposure unit
whether expressed as a single number or as a prospective loss cost
with an adjustment to account for the treatment of expenses, profit
and individual insurer variation in loss experience, prior to any
application of individual risk variations based on loss or expense
considerations and does not include minimum premiums.
(r) "Residual market mechanism" means an arrangement, either
voluntary or mandated by law, involving participation by insurers
in the equitable apportionment of risks among insurers for
insurance which may be afforded applicants who are unable to obtain
insurance through ordinary methods.
(s) "Special assessments" means guaranty fund assessments,
Special Indemnity Fund assessments, Vocational Rehabilitation Fund
assessments and other similar assessments. Special assessments
shall not be considered as either expenses or losses.
(t) "Supplementary rate information" means any manual or plan
of rates, classification, rating schedule, minimum premium, policy
fee, rating rule and any other similar information needed to
determine an applicable rate in effect or to be in effect.
(u) "Supporting information" means: (1) The experience and
judgment of the filer and the experience or data of other insurers
or organizations relied upon by the filer; (2) the interpretation
of any statistical data relied upon by the filer; (3) a description
of methods used in making the rates; and (4) other similar
information relied upon by the filer.
(v) "Trending" means any procedure for projecting losses to
the average date of loss or premiums or exposures to the average
date of writing, for the period during which the policies are to be
This article applies to all kinds of insurance written on
risks in this state by any insurer authorized to do business in
this state except life insurance, annuities, accident and health
insurance, ocean marine insurance, aircraft liability and aircraft
hull insurance, reinsurance, surplus lines and workers'
§33-49-5. Competitive market.
(a) A competitive market for a line of insurance is presumed
to exist unless the commissioner, after notice and hearing,
determines that a reasonable degree of competition does not exist
within a market and issues a ruling to that effect. The burden of
proof in any hearing shall be placed on the party or parties
advocating the position that competition does not exist. Any
ruling that a market is not competitive shall identify the factors
causing the market not to be competitive. The ruling expires one
year after issue unless rescinded earlier by the commissioner or
unless the commissioner renews the ruling after a hearing and a
finding as to the continued lack of a reasonable degree of
competition. Any ruling that renews the finding that competition
does not exist shall also identify the factors that cause the
market to continue not to be competitive.
(b) The following factors shall be considered by the
commissioner for purposes of determining if a reasonable degree of
competition does not exist in a particular line of insurance: (1)
The number of insurers or groups of affiliated insurers providing
coverage in the market; (2) measures of market concentration and
changes of market concentration over time; (3) ease of entry and
the existence of financial or economic barriers that could prevent
new firms from entering the market; (4) the extent to which any
insurer or group of affiliated insurers controls all or a portion
of the market; (5) the extent to which any insurer or group of
affiliated insurers controls all or a portion of the market; (6)
whether the total number of companies writing the line of insurance
in this state is sufficient to provide multiple options; (7) the
availability of insurance coverage to consumers in the markets; and
(8) the opportunities available to consumers in the market to
acquire pricing and other consumer information.
(c) The commissioner shall monitor the degree and continued
existence of competition in this state on an on-going basis. In
doing so, the commissioner may utilize existing relevant
information, analytical systems and other sources; or rely on some
combination thereof. Such activities may be conducted internally
within the insurance department, in cooperation with other state
insurance departments, through outside contractors and/or in any
other appropriate manner.
§33-49-6. Additional definitions; rating standards and methods.
(a) Rates shall not be excessive, inadequate or unfairly
discriminatory. For the purposes of this article, the following
terms mean as follows:
(1) "Excessive" means a rate that is likely to produce a
long-term profit that is unreasonably high for the insurance
provided. No rate in a competitive market shall be considered
(2) "Inadequate" means a rate which is unreasonably low for
the insurance provided; and:
(A) The continued use of which endangers the solvency of the
insurers using it; or
(B) Will have the effect of substantially lessening
competition or creating a monopoly in any market.
(3) "Unfairly discriminatory" refers to rates that produce
differences in premiums for policyholders with like loss exposures,
so long as the rate reflects the differences with reasonable
accuracy. A rate is not unfairly discriminatory if it averages
broadly among persons insured under a group, franchise or blanket
policy or a mass marketing plan.
(b) No rate in a competitive market is considered unfairly
discriminatory unless it violates the provisions of subsection (b)
of this section in that it classified risk, on the basis of race,
color, creed or national origin.
Risks may be classified in any way except that no risk may be
classified on the basis of race, color, creed or national origin.
(c) In determining whether rates in a noncompetitive market
are excessive, inadequate or unfairly discriminatory, consideration
may be given to the following elements:
(1) Basic rate factors. -- Due consideration shall be given to
past and prospective loss and expense experience within and outside
of this state, to catastrophe hazards and contingencies, to events
or trends within and outside of this state, to dividends or savings
to policyholders, members or subscribers and to all other factors
and judgments deemed relevant by the insurer.
(2) Classification. -- Risks may be grouped by classifications
for the establishment of rates and minimum premiums.
Classification rates may be modified for individual risks in
accordance with rating plans or schedules which establish standards
for measuring probable variations in hazards or expenses, or both.
(3) Expenses. -- The expense provision shall reflect the
operating methods of the insurer and its own past expense
experience and anticipated future expenses.
(4) Contingencies and profits. -- The rates shall contain a
provision for contingencies and a provision for a reasonable
underwriting profit, and reflect investment income directly
attributable to unearned premium and loss reserves.
Other relevant factors. -- Any other factors available at the
time of hearing.
§33-49-7. Rate regulation in a market determined to be
(a) If the commissioner determines that competition does not
exist in a market and issues a ruling to that effect pursuant to
section five of this article, the rates applicable to insurance
sold in that market shall be regulated in accordance with the
provisions of sections six through nine of this article applicable
to noncompetitive markets.
(b) Any rate filing in effect at the time the commissioner
determines that competition does not exist pursuant to section five
of this article, shall be deemed to be in compliance with the laws
of this state unless disapproved pursuant to the procedures and
rating standards contained in sections six through nine of this
article applicable to noncompetitive markets.
(c) Any insurer having a rate filing in effect at the time the
commissioner determines that competition does not exist pursuant to
section five of this article may be required to furnish supporting
information within thirty days of a written request by the
§33-49-8. Filing of rates, supplementary rate information and
(a) Filings in competitive markets. --
For personal lines,
every insurer shall file with the commissioner all rates and
supplementary rate information to be used in this state no later
than thirty days after the effective date: Provided,
rates and supplementary rate information need not be filed for
inland marine risks, which by general custom are not written
according to manual rules or rating plans. Rates in a competitive
market for commercial insurance need not be filed.
(b) Filings in noncompetitive markets. --
(1) Every insurer shall file with the commissioner all rates,
supplementary rate information and supporting information for
noncompetitive markets at least thirty days before the proposed
effective date. The commissioner may give written notice, within
thirty days of the receipt of the filing, that the commissioner
needs additional time, not to exceed thirty days from the date of
the notice to consider the filing. Upon written application of the
insurer, the commissioner may authorize rates to be effective
before the expiration of the waiting period or an extension
thereof. A filing shall be deemed to meet the requirements of this
article and to become effective unless disapproved pursuant to
section nine of this article by the commissioner before the
expiration of the waiting period or an extension thereof. Residual market mechanisms or advisory organizations may file residual
(2) The filing shall be deemed in compliance with the filing
provisions of this section unless the commissioner informs the
insurer within ten days after receipt of the filing as to what
supplementary rate information or supporting information is
required to complete the filing.
(c) Reference filings. --
An insurer may file its rates by
either filing its final rates or by filing a multiplier and, if
applicable, an expense constant adjustment to be applied to
prospective loss costs that have been filed by an advisory
organization on behalf of the insurer as permitted by section
eleven of this article.
(d) Filings open to inspection. --
All rates, supplementary
rate information and any supporting information filed under this
article shall be open to public inspection once they have been
filed except information marked confidential, trade secret or
proprietary by the insurer or filer. Copies may be obtained from
the commissioner upon request and upon payment of a reasonable fee.
(e) Consent to rate. --
Notwithstanding any other provisions
of this section, upon written application of the insured, stating
the reason therefore, a rate in excess of or below that otherwise
applicable may be used on any specific risk.
§33-49-9. Disapproval of rates.
(a) Bases for disapproval. --
(1) The commissioner shall disapprove a rate in a competitive
market only if the commissioner finds pursuant to subsection (b) of
this section that the rate is inadequate or unfairly
(2) The commissioner may disapprove a rate for use in a
noncompetitive market only if the commissioner finds that the rate
is excessive, inadequate or unfairly discriminatory under
subsection (a), section six of this article.
(b) Procedures for disapproval. --
(1) Prior to the expiration of the waiting period or an
extension thereof of a filing made pursuant to subsection (b),
section eight of this article, the commissioner may disapprove by
written order rates filed pursuant to subsection (b), section eight
of this article, without a hearing. The order shall specify in
what respects the filing fails to meet the requirements of this
article. Any insurer whose rates are disapproved under this
section shall be given a hearing upon written request within thirty
days of disapproval.
(2) If, at any time, the commissioner finds that a rate
applicable to insurance sold in a noncompetitive market does not
comply with the standards set forth in section six of this article,
the commissioner may, after a hearing held upon not less than
twenty days' written notice, issue an order disapproving the rate. The hearing notice shall be sent to every insurer and advisory
organization that adopted the rate and shall specify the matters to
be considered at the hearing. The disapproval order shall not
affect any contract or policy made or issued prior to the effective
date set forth in said order.
(3) If, at any time, the commissioner finds that a rate
applicable to insurance sold in a competitive market is inadequate
or unfairly discriminatory, the commissioner may issue an order
disapproving the rate. The order may not affect any contract or
policy made or issued prior to the effective date set forth in said
(c) Order of disapproval. --
If the commissioner disapproves
a rate pursuant to subsection (b) of this section, the commissioner
shall issue an order within thirty days of the close of the hearing
specifying in what respects such rate fails to meet the
requirements of this article. The order shall state an effective
date no sooner than thirty business days after the date of the
order when the use of such rate shall be discontinued. This order
shall not affect any policy made before the effective date of the
(d) Appeal of orders; establishment of reserves. --
order of disapproval is appealed pursuant to section twenty of this
article, the insurer may implement the disapproved rate upon
notification to the court, in which case any excess of the disapproved rate over a rate previously in effect shall be placed
in a reserve established by the insurer. The court shall have
control over the disbursement of funds from such reserve. Such
funds shall be distributed as determined by the court in its final
order except that de minimus refunds to policyholders shall not be
§33-49-10. Large commercial policyholder.
(a) A policy of insurance sold to a large commercial
policyholder is not subject to the requirements of this article.
The forms and endorsements for any policy sold to a large
commercial policyholder are not subject to filing and approval
requirements contained in this article.
(b) All policies issued pursuant to the provisions of this
section shall contain a conspicuous disclaimer printed in at least
ten-point, bold-faced type that states that the policy applied for
(including the rates, rating plans, resulting premiums, and the
policy forms) is not subject to the rate and form requirements of
this state and other provisions of the insurance law that apply to
other commercial products and may contain significant differences
from a policy that is subject to all provisions of the insurance
law. The notice shall set forth possible differences in policy
conditions, forms and endorsements, as compared to a policy that is
subject to all of the provisions of the insurance law. The format
and provisions of the notice shall be prescribed by the commissioner. The disclosure notice will also include a
policyholder's acknowledgment statement, to be signed and dated
prior to the effective date of the coverage, and shall remain on
file with the insurer.
(c) In procuring insurance, a large commercial policyholder
shall certify on a form approved by the department of insurance
that it meets the eligibility requirements set out in section ten
of this article and specify the requirements that the policyholder
has met. This certification is completed annually and remains on
file with the insurer.
(d) A surplus lines broker seeking to obtain or provide
insurance for a large commercial policyholder is authorized to
purchase insurance from any eligible unauthorized insurer.
§33-49-11. Records and reports; exchange of information.
(a) In those markets found to be noncompetitive pursuant to
the provisions of section five of this article, insurers and
advisory organizations shall file with the commissioner, and the
commissioner shall review, reasonable rules and plans for recording
and reporting of loss and expense experience. The commissioner may
designate one or more advisory organizations to assist in gathering
such experience and making compilations thereof. No insurer is
required to record or report its experience in a manner
inconsistent with its own rating system.
(b) The commissioner and every insurer and advisory organization may exchange rates and rate information and experience
data with insurance regulatory officials, insurers and advisory
organizations in this and other states and may consult with them
with respect to the collection of statistical data and the
application of rating systems.
§33-49-12. Joint underwriting, pool and residual market
(a) Acting in concert. --
Notwithstanding the provisions of
section thirteen of this article insurers participating in joint
underwriting, pools or residual market mechanisms may act in
cooperation with each other in the making of rates, rating systems,
supplementary rate information, policy or bond forms, underwriting
rules, surveys, inspections and investigations; in the furnishing
of loss and expense statistics or other information; and in
conducting research. Joint underwriting, pools and residual market
mechanisms are not to be considered to be advisory organizations.
(b) Regulation. --
(1) If, after notice and hearing, the commissioner finds that
any activity or practice of an insurer participating in a joint
underwriting or pooling mechanism is unfair, unreasonable, will
tend to substantially lessen competition in any market, or is
otherwise inconsistent with the provisions or purposes of this
article and all other applicable statutes, the commissioner may
issue a written order specifying in what respects such activity or practice is unfair, unreasonable, anticompetitive or otherwise
inconsistent with the provisions of this article and any other
applicable statute, and require the discontinuance of the activity
(2) Every pool shall file with the commissioner a copy of its
constitution, articles of incorporation, agreement or association
bylaws, rules governing activities, its members, the name and
address of a resident of this state upon whom notices, process and
orders of the commissioner may be served and any changes or
(3) Any residual market mechanism, plan or agreement to
implement a mechanism and any changes or amendments thereto, shall
be submitted in writing to the commissioner for approval, together
with the information as may be reasonably required. The
commissioner shall approve the agreements if they foster the use of
rates which meet the standards prescribed by this article and all
other applicable statutes and activities and practices not
inconsistent with the provisions of this article and all other
(4) The commissioners may review the operations of all
residual market mechanisms to determine compliance with the
provisions of this article and all other applicable statutes. If
after a notice of hearing, the commissioner finds that the
mechanisms are violating the provisions of this article and any other applicable statute, the commissioner may issue a written
order to the parties involved specifying in what respects the
operations violate the provisions of this article and any other
applicable statute. The commissioner may further order the
discontinuance or elimination of any operation.
§33-49-13. Assigned risk.
Agreements may be made among insurers with respect to the
equitable apportionment among them of insurance that may be
afforded applicants who are in good faith entitled to, but who are
unable to, procure the insurance through ordinary methods, and the
insurers may agree among themselves on the use of reasonable rate
modifications for such insurance, the agreements and rate
modifications to be subject to the approval of the commissioner.
(a) The commissioner may examine any insurer, pool, advisory
organization or residual market mechanism to ascertain compliance
with the provisions of this article.
(b) Every insurer, pool, advisory organization and residual
market mechanism shall maintain adequate records from which the
commissioner may determine compliance with the provisions of this
article. The records shall contain the experience, data,
statistics and other information collected or used and shall be
available to the commissioner for examination or inspection upon
(c) The reasonable cost of an examination made pursuant to
this section shall be paid for the examined party upon presentation
to it of a detailed account of the costs.
(d) The commissioner may accept the report of an examination
made by the insurance supervisory official of another state in lieu
of an examination under this section.
The commissioner may, after public notice and hearing, exempt
any line of insurance from any of the provisions of this article
for the purpose of relieving the line of insurance from filing.
§33-49-16. Consumer Information.
The commissioner shall utilize, develop or cause to be
developed a consumer information system which will provide and
disseminate price and other relevant information on a readily
available basis to purchasers of homeowners, private passenger,
nonfleet automobile, or property insurance for personal, family or
household needs. The commissioner may utilize, develop or cause to
be developed a consumer information system which will provide and
disseminate price and other relevant information on a readily
available basis to purchasers of insurance for commercial risks and
personal risks not otherwise specified herein. This activity may
be conducted internally within the insurance department, in
cooperation with other state insurance departments, through outside
contractors or in any other appropriate manner. To the extent considered necessary and appropriate by the commissioner, insurers,
advisory organizations, statistical agents and other persons or
organizations involved in conducting the business of insurance in
this state, to which this section applies, shall cooperate in the
development and utilization of a consumer information system.
Nothing in this article 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 or subscribers. A plan for the payment of dividends,
savings or unabsorbed premium deposits allowed or returned by
insurers to their policyholders, members or subscribers may not be
considered a rating plan or system.
(a) The commissioner may impose after notice and hearing a
civil penalty of five hundred dollars for each violation.
(b) Technical violations arising from systems or computer
errors of the same type shall be treated as a single violation. In
the event of an overcharge, if the insurer makes restitution
including payment of interest, no penalty may be imposed.
(c) The commissioner may suspend or revoke the license of any
insurer, advisory organization or statistical agent which fails to
comply with an order of the commissioner within the time prescribed
by the order.
(d) The commissioner may determine when a suspension of
license becomes effective and the period of the suspension, which
the commissioner may modify or rescind in any reasonable manner.
(e) No penalty may be imposed and no license may be suspended
or revoked except upon a written order of the commissioner stating
his or her findings, made after notice and hearing.
§33-49-19. Judicial review.
Any order, ruling, finding, decision or other act of the
commissioner made under the provisions of this article is subject
to judicial review in the circuit court of Kanawha County.
§33-49-20. Notice and hearing.
(a) Notice requirements. --
All notices rendered under the
provisions of this article shall be in writing and shall state
clearly the nature and purpose of the hearing. All relevant facts,
statutes and rules shall be specified so that a respondent is fully
informed of the scope of the hearing. If a hearing is required,
all notices shall designate a hearing date at least fourteen days
from the date of the notice, unless the minimum notice period is
waived by a respondent.
(b) Hearings. --
All hearings held under the provisions of
this article shall be conducted in accordance with article three,
chapter twenty-nine-a of this code.
NOTE: The purpose of this bill is to establish a use and file
rate regulatory system for personal lines of insurance while
establishing a no-file system for commercial lines of insurance.
The bill also allows policies sold to large, sophisticated
commercial insurance providers to be exempt from rate and
regulatory requirements. Finally, the bill provides for civil
penalties for violations as well as a hearing process for persons
cited with violations.
This article is new; therefore, strike-throughs and
underscoring have been omitted.