PROPOSED RULES
INSURANCE COMMISSIONER
Original Notice.
Preproposal statement of inquiry was filed as WSR 01-20-095.
Title of Rule: Continuation of a rate filing exemption for certain commercial property casualty products.
Purpose: The existing rules include a "sunset" provision and will expire unless amended.
Other Identifying Information: R 2001-09.
Statutory Authority for Adoption: RCW 48.02.060, 48.18.100, 48.19.080.
Statute Being Implemented: RCW 48.18.100, 48.19.080.
Summary: WAC 284-24-120 exempts certain commercial property casualty products from rate filing requirements. Subsection (7) includes a sunset clause that will cause the exemption to expire unless the rule is amended.
Reasons Supporting Proposal: The proposal will continue to allow property casualty insurers to choose not to file the rates of certain policies. This should provide some cost and time savings.
Name of Agency Personnel Responsible for Drafting: Lee Barclay, Olympia, (360) 586-3685; Implementation: Beth Berendt, Olympia, (360) 664-4627; and Enforcement: Carol Sureau, Lacey, (360) 407-0048.
Name of Proponent: Insurance Commissioner Mike Kreidler, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: The proposed rule extends the sunset date on an existing regulation for an additional two years. The existing rule allows insurers the option to file or not to file rates on certain commercial policies that have an estimated annual 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 and review 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.
During the proposed extension of the sunset, the commissioner intends to use the additional time to review the experience under WAC 284-24-120 since adoption. The commissioner will evaluate the rule and engage in discussions with agents, brokers, consumers, and insurers about possibly modifying the existing scheme of deregulation. The subject has been discussed extensively by the NAIC and other states and the commissioner will consider the recommendations of the "Speed to Market" and other appropriate NAIC working groups that address issues of commercial deregulation. The commissioner will review WAC 284-24-120 and other systems of commercial deregulation and determine what, if any, is the most appropriate for Washington.
Proposal Changes the Following Existing Rules: The proposal would amend WAC 284-24-120(7) and change "2001" to "2003."
A small business economic impact statement has been prepared under chapter 19.85 RCW.
The existing rule was developed in the OIC regulatory improvement process and adopted in 1999. The existing rule exempts rate filing requirements for policies that:
(1) Pertain to a business, nonprofit organization, or public entity;
(2) Involve 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
(3) Have an estimated annual collected premium of $25,000 or more.
The underlying theory of the existing rule is that purchasers of large commercial property casualty policies are sophisticated buyers. These purchasers have the ability 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 may save insurers some time and expense. These savings may be passed along to the purchasers.
The deregulation of commercial rates and forms continues to be discussed by the National Association of Insurance Commissioners. There is still debate in Washington state and nationally regarding the thresholds for deregulation. Exactly how deregulation can be best accomplished while retaining adequate consumer protections varies from proposal to proposal. Commissioner Kreidler intends to ascertain what regulation is the best fit for Washington. He believes that there is not enough experience with the existing rule to make such a determination. Commissioner Kreidler is proposing to continue the existing exemption until 2003. In that timeframe, the commissioner will continue to evaluate the existing rule, research the issue, and engage in discussions with agents, brokers, consumers, and insurers about modifying the commercial property casualty rate filing process.
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 directly affected by the proposed rule is Fire, Marine, and Casualty Insurance SIC #6331.
List the specific parts of the proposed [rule], which may impose a cost to business: No part of the proposed rule will impose costs upon business. The existing regulation rate allows an exemption from rate filing requirements for certain large commercial property casualty policies. The proposed rule continues a regulation intended to lessen time and expenses related to filing. The text of the proposed rule changes the date "2001" to "2003."
What will be the compliance costs for the industries affected? There should be no compliance costs for industry associated with the proposed rule. There are no new requirements upon insurers in the proposal. The proposed rule continues an exemption intended 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 rates file [rate files] 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? No. The proposed rule does not impose any economic burden on regulated entities, whether they are small insurers or not.
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 rule has no negative economic impacts. Thus, there are no impacts that could be mitigated. If insurers have products that meet the criteria of the rule, they will continue to have the option of being exempted from filing requirements.
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 proposed 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 are no negative cost impacts so there is no need or opportunity to mitigate. The proposed rules preclude a possible increase of costs.
Which mitigation techniques were considered for incorporation into the proposed rule but were rejected, and why? See above.
Briefly describe the reporting, record keeping, and other compliance requirements of the proposed rule: There are no new reporting or record-keeping requirements as a result of the proposed rule. 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.
List the kinds of professional services that a small business is likely to need in order to comply with the reporting, record keeping, and other compliance requirements of the proposed rule: The proposed rule continues an existing exemption from certain rate filing requirements intended to lessen compliance costs. There are no new reporting or record-keeping requirements. No new professional services will be needed by smaller insurers.
Cost of equipment: There is no anticipated increase in the cost of equipment.
Cost of supplies: There is no anticipated increase in the cost of supplies.
Cost of labor: There is no anticipated increase in the cost of labor. If the rule were not adopted, costs for insurers may increase since the filing requirements on the relevant policies would no longer be exempted.
Cost of increased administration: There is no anticipated increase in the costs of administration. If the rule were not adopted, costs for insurers may increase since the filing requirements on the relevant policies would no longer be exempted.
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 associated costs of compliance. The proposed rule allows the existing exemption to continue. Compliance costs may increase if no rule making amended the existing rule. The filing exemption is unrelated to size of business and should not be disproportionate in effects.
Have insurers that will be affected been asked what the economic impact will be? Yes. The commissioner informed all interested parties of his intent to revisit this subject and began the rule-making process on October 3, 2001. He published the proposal in the Washington State Register and posted the proposal on the OIC website. He mailed the CR-101 to interested parties and affected insurers, including smaller insurers. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process. Members of the commissioners e-mail list received the CR-101 by use of that tool.
The commissioner discussed this subject with members of all segments of the regulated industry. Several comments were received prior to the filing and after the filing of the CR-101. The majority of comments advocated a repeal or extension of the sunset date. Other comments expressed support for more complete deregulation. Still others expressed support for allowing the sunset to occur. No comment indicated that there would be any regulatory costs associated with the continuation of the current exemption. The majority of comments indicated that there would be costs associated if the proposed rule were not adopted to extend the sunset.
How and when were affected small insurers advised of the proposed rule? The commissioner informed all interested parties of his intent to revisit this subject and began the rule-making process on October 3, 2001. He published the proposal in the Washington State Register and posted the proposal on the OIC website. He mailed the CR-101 to interested parties and affected insurers, including smaller insurers. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process. Members of the commissioners e-mail list received the CR-101 by use of that tool.
How did the commissioner involve small business in the development of the proposed rule? See above regarding notification. The commissioner discussed this subject with interested parties on many occasions. His belief in continuing that dialogue is one of the reasons he is choosing to delay the sunset and work together for the best possible result. During the extension, the commissioner will continue to involve agents, brokers, consumers, and insurers in discussions of this subject.
A copy of the statement may be obtained by writing to Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0255, phone (360) 664-3784, fax (360) 664-2782.
RCW 34.05.328 applies to this rule adoption. This is a significant legislative rule.
Hearing Location: JA Cherberg Hearing Room 4, 14th and Water, Olympia, Washington, on December 27, 2001, at 10:00.
Assistance for Persons with Disabilities: Contact Lori Villaflores by December 26, 2001, TDD (360) 407-0409.
Submit Written Comments to: Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0255, Internet e-mail KacyB@oic.wa.gov, fax (360) 664-2782, by December 26, 2001.
Date of Intended Adoption: December 28, 2001.
November 20, 2001
Mike Kreidler
Insurance Commissioner
OTS-5304.1
AMENDATORY SECTION(Amending Matter No. R 99-5, filed 11/15/99,
effective 12/16/99)
WAC 284-24-120
Suspension of rate filing
requirements -- Large commercial accounts.
(1) Under RCW 48.19.080, the rate filing requirements in chapter 48.19 RCW are
suspended with respect to large commercial property casualty
accounts.
(2) For purposes of this section, "large commercial property casualty account" means insurance coverage 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, excluding workers compensation insurance issued by the department of labor and industries and types of insurance listed in subsection (6) of this section.
(3) Before an insurer issues coverage 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 accounts 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 accounts 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, including medical malpractice insurance;
(b) Directors' and officers' liability insurance purchased by individuals;
(c) Motor vehicle service contract reimbursement insurance, as defined in RCW 48.96.010(4); and
(d) Master policies under which certificates of coverage are issued to individual consumers, households, businesses, or other organizations.
(7) If this subsection is not amended, the provisions of
this section shall expire on December 31, ((2001)) 2003.
[Statutory Authority: RCW 48.02.060 and 48.19.080. 99-23-068 (Matter No. R 99-5), 284-24-120, filed 11/15/99, effective 12/16/99.]