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Introduced Version House Bill 2001 History

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hb2001 intr
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 violations.

Be it enacted by the Legislature of West Virginia:

That 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 §33-47-20, all 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 insurers;

(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.

§33-49-3. Definitions.

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 personal risk.

(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 unity modification.

(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 markets.

(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 effective.

§33-49-4. Scope.

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' compensation insurance.

§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 excessive;

(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 noncompetitive.

(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 commissioner.
§33-49-8. Filing of rates, supplementary rate information and supporting information.

(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, That such 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 market rates.
(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 discriminatory.
(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 order.
(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 order.
(d) Appeal of orders; establishment of reserves. -- If an 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 required.
§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 activities.

(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 or practice.
(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 modifications thereof.
(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 applicable statutes.
(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.
§33-49-14. Examination.
(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 reasonable notice.
(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.
§33-49-15. Exemptions.
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.
§33-49-17. Dividend.
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.
§33-49-18. Penalties.
(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.
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