Bill Text: NC H1053 | 2011-2012 | Regular Session | Amended
Bill Title: Improve Property Insurance Rate Making
Spectrum: Slight Partisan Bill (Republican 4-2)
Status: (Introduced - Dead) 2012-05-23 - Ref To Com On Insurance [H1053 Detail]
Download: North_Carolina-2011-H1053-Amended.html
GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2011
H 1
HOUSE BILL 1053*
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Short Title: Improve Property Insurance Rate Making. |
(Public) |
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Sponsors: |
Representative Dockham (Primary Sponsor). For a complete list of Sponsors, see Bill Information on the NCGA Web Site. |
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Referred to: |
Insurance. |
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May 23, 2012
A BILL TO BE ENTITLED
AN ACT to improve the rate-making process and the affordability of property insurance for low-income homeowners by requiring that more than one catastrophe model be used to estimate potential losses for purposes of a rate filing; and by requiring that the rate bureau create a rating plan for a property insurance policy that excludes coverage for the perils of windstorm and hail; and by requiring the department of insurance to accept public comment on all property insurance rate filings; and by providing for a prehearing conference for the Commissioner of insurance to scrutinize catastrophe modeling when such modeling is the basis for any factor in a rate filing for which the Commissioner has issued a notice of hearing; and by providing the Commissioner with the power to specify the appropriate rate level or levels upon a finding that a rate filing does not comply with applicable law; and by requiring that, when the cost of reinsurance is included as a factor in a proposed rate, certain supporting information be provided and that the filing include only the reinsurance cost specific to property insurance losses in North carolina; and by requiring that the Rate Bureau and the Deparment of Insurance study the fairness and efficacy of the current Property Insurance geographic rate territories, as recommended by the Legislative research commission Committee on property insurance rate Making.
The General Assembly of North Carolina enacts:
SECTION 1. G.S. 58‑36‑10 reads as rewritten:
"§ 58‑36‑10. Method of rate making; factors considered.
The following standards shall apply to the making and use of rates:
(1) Rates or loss costs shall not be excessive, inadequate or unfairly discriminatory.
(2) Due consideration shall be given to actual loss and expense experience within this State for the most recent three‑year period for which that information is available; to prospective loss and expense experience within this State; to the hazards of conflagration and catastrophe; to a reasonable margin for underwriting profit and to contingencies; to dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members, or subscribers; to investment income earned or realized by insurers from their unearned premium, loss, and loss expense reserve funds generated from business within this State; to past and prospective expenses specially applicable to this State; and to all other relevant factors within this State: Provided, however, that countrywide expense and loss experience and other countrywide data may be considered only where credible North Carolina experience or data is not available.
(3) In the case of property insurance rates under this Article, consideration may be given to the experience of property insurance business during the most recent five‑year period for which that experience is available. In the case of property insurance rates under this Article, consideration shall be given to the insurance public protection classifications of fire districts established by the Commissioner. The Commissioner shall establish and modify from time to time insurance public protection districts for all rural areas of the State and for cities with populations of 100,000 or fewer, according to the most recent annual population estimates certified by the State Budget Officer. In establishing and modifying these districts, the Commissioner shall use standards at least equivalent to those used by the Insurance Services Office, Inc., or any successor organization. The standards developed by the Commissioner are subject to Article 2A of Chapter 150B of the General Statutes. The insurance public protection classifications established by the Commissioner issued pursuant to the provisions of this Article shall be subject to appeal as provided in G.S. 58‑2‑75, et seq. The exceptions stated in G.S. 58‑2‑75(a) do not apply. If the Rate Bureau presents any modeled losses with a property insurance rate filing, the Bureau shall present data from more than one catastrophe model."
SECTION 2. Article 36 of Chapter 58 of the General Statutes is amended by adding a new section to read:
"§ 58‑36‑42. Development of policy form or endorsement for residential property insurance that does not include coverage for perils of windstorm or hail.
With respect to residential property insurance under its jurisdiction, the Bureau shall develop an optional policy form or endorsement to be filed with the Commissioner for approval that provides residential property insurance coverage without coverage for the perils of windstorm or hail. Insurers that sell such policies shall comply with the provisions of G.S. 58‑44‑60 and through such compliance shall be deemed to have given notice to all insured and persons claiming benefits under such policies that such policies do not include coverage for the perils of windstorm or hail."
SECTION 3. G.S. 58‑44‑60 reads as rewritten:
"§ 58‑44‑60.
Notice to property insurance policyholder about flood, earthquake, mudslide,
mudflow, and landslide, and windstorm or hail insurance coverage.
(a) Every insurer that sells residential or commercial
property insurance policies that do not provide coverage for the perils of
flood, earthquake, mudslide, mudflow, or landslide landslide, or
windstorm or hail shall, upon the issuance and renewal of each policy,
identify to the policyholder which of these perils are not covered under the
policy. The insurer shall print the following warning, citing which peril is
not covered, in Times New Roman 16‑point font or other equivalent font
and include it in the policy on a separate page immediately before the
declarations page:
"WARNING: THIS PROPERTY INSURANCE POLICY DOES NOT
PROTECT YOU AGAINST LOSSES FROM [FLOODS], [EARTHQUAKES], [MUDSLIDES],
[MUDFLOWS], [LANDSLIDES]. [LANDSLIDES], [WINDSTORM OR HAIL]. YOU
SHOULD CONTACT YOUR INSURANCE COMPANY OR AGENT TO DISCUSS YOUR OPTIONS FOR
OBTAINING COVERAGE FOR THESE LOSSES. THIS IS NOT A COMPLETE LISTING OF ALL OF
THE CAUSES OF LOSSES NOT COVERED UNDER YOUR POLICY. YOU SHOULD READ YOUR ENTIRE
POLICY TO UNDERSTAND WHAT IS COVERED AND WHAT IS NOT COVERED."
(b) As used in this section, "insurer" includes an entity that sells property insurance under Articles 21, 45, or 46 of this Chapter."
SECTION 4. G.S. 58‑36.20 reads as rewritten:
"§ 58‑36‑20. Disapproval; hearing, order; adjustment of premium, review of filing.
(a) At any time within 50 days after the date of
any filing, the Commissioner may give written notice to the Bureau specifying
in what respect and to what extent the Commissioner contends the filing fails
to comply with the requirements of this Article and fixing a date for hearing
not less than 30 days from the date of mailing of such notice. With
respect to any property insurance rate filing, except as provided in G.S. 58‑36‑25,
or any Workers' Compensation loss cost filing, a filing made by the Bureau
under G.S. 58‑36‑15 is not effective until approved by the
Commissioner or unless 50 days have elapsed since the making of a proper filing
under that subsection and the Commissioner has not called for a hearing on the
filing. If the Commissioner calls for a hearing, the Commissioner must give
written notice to the Bureau, specify in the notice in what respect the filing
fails to comply with this Article, and fix a date for the hearing that is not
less than 30 days from the date the notice is mailed. Once begun, hearings
must proceed without undue delay. At the hearing the burden of proving that the
proposed rates or loss costs are not excessive, inadequate, or unfairly
discriminatory is on the Bureau. At the hearing the factors specified in G.S. 58‑36‑10
shall be considered. If the Commissioner after hearing finds that the filing
does not comply with the provisions of this Article, he may issue his order
determining wherein and to what extent such filing is deemed to be improper and
fixing a date thereafter, within a reasonable time, after which the filing
shall no longer be effective. Any order issued after a hearing shall be issued
within 45 days after the completion of the hearing. If no order is issued
within 45 days after the completion of the hearing, the filing shall be deemed
to be approved.
(b) In the event that no notice of hearing
shall be issued within 50 days from the date of any such filing, the filing
shall be deemed to be approved. If the Commissioner disapproves such filing
pursuant to subsection (a) as not being in compliance with G.S. 58‑36‑10,
he may order an adjustment of the premium to be made with the policyholder
either by collection of an additional premium or by refund, if the amount
exceeds five dollars ($5.00). The Commissioner may thereafter review any filing
in the manner provided; but if so reviewed, no adjustment of any premium on any
policy then in force may be ordered.
(c) For workers' compensation insurance and
employers' liability insurance written in connection therewith, the period
between the date of any filing and the date the Commissioner may give written
notice as described in subsection (a) of this section and the period between
the date of any filing and the deadline for giving notice of hearing as
described in subsection (b) of this section shall be 60 days.
(d) All property insurance rate filings shall be open to the public except as provided in this Article where necessary to maintain the confidentiality of certain testimony. At least 30 days before a notice of hearing issues, the Department shall accept comments from the public regarding a property insurance rate filing. The comments may be provided to the Department by e-mail, mail, or in person at a time and place set by the Department. All public comments shall be shared with the Rate Bureau in a timely manner. Only comments from the public that are made a part of the Notice of Hearing may be considered by the Commissioner or the Commissioner's designated hearing officer during the hearing.
(e) With respect to any property insurance rate filing, except as provided in G.S. 58‑36‑30, where a catastrophe model is used in the calculation for any factor in the filing and where the Commissioner has called for a hearing, the hearing process shall proceed as follows:
(1) No earlier than 30 days after a Notice of Hearing is issued, the Commissioner shall schedule a prehearing that may be attended only by the parties to the case and any experts who will present testimony regarding the catastrophe model or models used in the filing. The prehearing shall be called solely for the purpose of providing the Department and its expert witnesses with the opportunity to see and review all materials and documents pertinent to the catastrophe model or models used in the property rate filing. Because the materials and documents subject to discovery may be confidential in nature, the prehearing shall be closed to the public. The Commissioner shall preside over the prehearing and shall resolve any disputes that arise between the parties. A proper record shall be kept at the prehearing, and said record shall be treated as confidential unless a ruling from a court of competent jurisdiction determines that the record of the conference shall be available to the public. Discovery not related to the catastrophe model shall be conducted pursuant to normal hearing procedures.
(2) At the prehearing, the Rate Bureau and its experts shall present any relevant data, materials, computations, spreadsheets, or documents regarding the catastrophe model or models that were excluded from the filing. Copies of all materials presented at the prehearing shall be provided to the Department and its experts for further analysis. Any materials provided at the prehearing to the Department and its experts that are marked as confidential shall be treated as confidential unless a ruling from a court of competent jurisdiction determines that the materials shall be available to the public. Based upon the materials presented both in the filing and at the prehearing, the Department and its experts may request additional data, materials, computations, spreadsheets, or documents, or may make specific inquiries that require a written explanation in order to further understand the available materials.
(3) There shall be no limit on the number of discovery materials requested regarding the catastrophe model. However, the Commissioner may make a determination at the prehearing whether the requested materials are relevant, reasonable, and not unduly burdensome.
(4) The Commissioner shall set a date by which all discovery materials regarding the catastrophe model shall be delivered to the Department. All materials marked by the Rate Bureau as "confidential" shall be individually numbered by the Rate Bureau so that they may be referred to by number, if necessary, by the Commissioner in subsequent documents or orders. The Rate Bureau shall provide an index of the confidential documents marked confidential in order that the documents may be easily identified and referenced in subsequent pleadings, testimony, and orders. All materials marked by the Rate Bureau as "confidential" shall be treated by the Department and its experts as confidential unless a ruling from a court of competent jurisdiction determines that the materials shall be available to the public. Once the requested discovery materials have been delivered to the Department as required, the Commissioner may schedule additional prehearings to address additional discovery materials that may be requested by the Department. Once all of the Department's discovery requests related to the catastrophe model or models have been finalized, the Commissioner shall schedule a final prehearing conference to ensure that there are no other discovery issues pending and that both parties are ready to proceed to hearing. All prehearings shall also be closed to the public in the event that potentially confidential materials may be discussed. Any data from catastrophe models that is not disclosed at the prehearing at least 30 days prior to the submission of prefiled testimony of Department witnesses shall be inadmissible at the hearing on the filing.
(5) Once the discovery process for the catastrophe model has been completed, the hearing may proceed pursuant to statute. The Department witnesses shall file all prefiled testimony as required under G.S. 58‑36‑15(i). However, any prefiled testimony regarding the catastrophe model or models used in the filing shall be filed as a separate document and marked as "confidential." The prefiled testimony of the Department witnesses relating to the catastrophe models may contain references to data, testimony, or exhibits pertaining to confidential materials submitted by the Rate Bureau, and, therefore, shall be treated as confidential by the Department and its experts unless a ruling from a court of competent jurisdiction determines that the prefiled testimony shall be made available to the public. All references to confidential materials used by the Department witnesses shall utilize the individual identification numbers assigned by the Rate Bureau in the discovery materials.
(6) Prior to commencement of the hearing, the Commissioner shall determine the order of testimony to be heard at the hearing. However, any oral testimony taken at the hearing on direct, cross‑examination, or on rebuttal with regard to the catastrophe model will be closed to the public, if necessary, in order to preserve confidentiality. Transcripts from hearing proceedings closed to the public shall be treated as confidential by the Department, its experts, and by the court reporters unless a ruling from a court of competent jurisdiction determines that the prefiled testimony shall be made available to the public.
(7) At the conclusion of the hearing, the Commissioner, in the Commissioner's final order, shall make the Commissioner's determination as to whether the catastrophe model is valid for the purpose it was used in the filing, the weight to be applied to the modeled results, and the extent to which the results of the model should be modified, if at all.
(f) If the Commissioner finds that a filing complies with the provisions of this Article, either after the hearing or at any other time after the filing has been properly made, the Commissioner may issue an order approving the filing. If the Commissioner after the hearing finds that the filing does not comply with the provisions of this Article, the Commissioner may issue an order disapproving the filing, determining in what respect the filing is improper, and specifying the appropriate rate level or levels that may be used by the members of the Bureau instead of the rate level or levels proposed by the Bureau filing, unless there has not been data admitted into evidence in the hearing that is sufficiently credible for arriving at the appropriate rate level or levels. Any order issued after a hearing shall be issued within 45 days after the completion of the hearing. If no order is issued within 45 days after the completion of the hearing, the filing shall be deemed to be approved. The Commissioner may thereafter review any filing in the manner provided; but if so reviewed, no adjustment of any premium on any policy then in force may be ordered. The escrow provisions of G.S. 58‑36‑25(b) apply to an appeal of any order of the Commissioner under this subsection."
SECTION 5. G.S. 58‑36‑15 reads as rewritten:
"§ 58‑36‑15. Filing loss costs, rates, plans with Commissioner; public inspection of filings.
(a) The Bureau shall file with the Commissioner copies of the rates, loss costs, classification plans, rating plans and rating systems used by its members. Each rate or loss costs filing shall become effective on the date specified in the filing, but not earlier than 210 days from the date the filing is received by the Commissioner: Provided that (1) rate or loss costs filings for workers' compensation insurance and employers' liability insurance written in connection therewith shall not become effective earlier than 210 days from the date the filing is received by the Commissioner or on the date as provided in G.S. 58‑36‑100, whichever is earlier; and (2) any filing may become effective on a date earlier than that specified in this subsection upon agreement between the Commissioner and the Bureau.
(b) A filing shall be open to public inspection immediately upon submission to the Commissioner.
(c) The Bureau shall maintain reasonable records, of the type and kind reasonably adapted to its method of operation, of the experience of its members and of the data, statistics or information collected or used by it in connection with the rates, rating plans, rating systems, loss costs and other data as specified in G.S. 58‑36‑100, underwriting rules, policy or bond forms, surveys or inspections made or used by it.
(d) With respect to the filing of rates for nonfleet private passenger motor vehicle insurance, the Bureau shall, on or before February 1 of each year, or later with the approval of the Commissioner, file with the Commissioner the experience, data, statistics, and information referred to in subsection (c) of this section and any proposed adjustments in the rates for all member companies of the Bureau. The filing shall include, where deemed by the Commissioner to be necessary for proper review, the data specified in subsections (c), (e), (g) and (h) of this section. Any filing that does not contain the data required by this subsection may be returned to the Bureau and not be deemed a proper filing. Provided, however, that if the Commissioner concludes that a filing does not constitute a proper filing he shall promptly notify the Bureau in writing to that effect, which notification shall state in reasonable detail the basis of the Commissioner's conclusion. The Bureau shall then have a reasonable time to remedy the defects so specified. An otherwise defective filing thus remedied shall be deemed to be a proper and timely filing, except that all periods of time specified in this Article will run from the date the Commissioner receives additional or amended documents necessary to remedy all material defects in the original filing.
(d1) With respect to property insurance rates, the Bureau shall file no later than May 1, 2010, a schedule of credits for policyholders based on the presence of mitigation and construction features and on the condition of buildings that it insures in the beach and coastal areas of the State. The Bureau shall develop rules applicable to the operation of the schedule and the mitigation program with approval by the Commissioner. The schedule shall not be unfairly discriminatory and shall be reviewed by the Bureau annually, with the results reported annually to the Commissioner.
(d2) The following supporting data, at a minimum, shall be included in any property insurance rate filing where a catastrophe model is used or where a factor for any costs of reinsurance is included in the rate calculations or where both a catastrophe model and a factor for costs of reinsurance are used.
(1) Any simulated loss from a catastrophe model should include the following:
a. An event identifier.
b. The simulation year.
c. The annual probability of occurrence for the event.
d. The gross amount of North Carolina damages before application of any deductible or other applicable policy provisions that impact the coverage, calculated with and without any applicable demand surge adjustments.
e. The net amount of North Carolina insured loss after application of any deductible or other applicable policy provisions that impact the coverage, calculated with and without any applicable demand surge adjustments.
f. The State and county of first and any subsequent landfalls.
g. The Saffir‑Simpson category at first and any subsequent landfalls.
h. The maximum sustained windspeed at first and any subsequent landfalls.
i. The North Carolina county of first entry, if applicable, whether first entry is from water or land.
j. The Saffir‑Simpson category at first entry into North Carolina, if applicable, whether first entry is from water or land.
k. The maximum sustained windspeed at first entry into North Carolina, if applicable, whether first entry is from water or land.
l. For storms with no landfall in North Carolina, the county of closest approach.
m. For storms with no landfall in North Carolina, the Saffir‑Simpson category at closest approach.
n. For storms with no landfall in North Carolina, the maximum sustained windspeed at closest approach.
o. Any other information required by rules promulgated by the Commissioner.
(2) Any factor for cost of reinsurance shall be based upon the aggregated property reinsurance costs of the member companies of the Bureau writing property insurance in North Carolina for the specific lines of insurance covered by the filing. The costs of reinsurance for the North Carolina Insurance Underwriting Association and North Carolina Joint Underwriting Association shall not be considered for any line of property coverage under the jurisdiction of the Bureau. For each of the member companies, the costs of reinsurance that are specific to North Carolina and the line of business for which the filing is being made must be allocated using an appropriate method that shall be stated along with the applicable provisions for the current reinsurance contract that covers the North Carolina line of business for which the filing is being made. Any filing must also take into account expected recoveries from the reinsurance. Use of a model to make the allocation to the appropriate line of business and state shall not be permissible. The Commissioner may promulgate rules setting forth the information needed to evaluate reinsurance costs as well as the method used to determine the cost of reinsurance allocated to North Carolina.
(e) The Commissioner may require the filing of supporting data including:
(1) The Bureau's interpretation of any statistical data relied upon;
(2) Descriptions of the methods employed in setting the rates;
(3) Analysis of the incurred losses submitted on an accident year or policy year basis into their component parts; to wit, paid losses, reserves for losses and loss expenses, and reserves for losses incurred but not reported;
(4) The total number and dollar amount of paid claims;
(5) The total number and dollar amount of case basis reserve claims;
(6) Earned and written premiums at current rates by rating territory;
(7) Earned premiums and incurred losses according to classification plan categories; and
(8) Income from investment of unearned premiums and loss and loss expense reserves generated by business within this State.
Provided, however, that with respect to business written prior to January 1, 1980, the Commissioner shall not require the filing of such supporting data which has not been required to be recorded under statistical plans approved by the Commissioner.
(f) On or before September 1 of each calendar year, or later with the approval of the Commissioner, the Bureau shall submit to the Commissioner the experience, data, statistics, and information referred to in subsection (c) of this section and required under G.S. 58‑36‑100 and a residual market rate or prospective loss costs review based on those data for workers' compensation insurance and employers' liability insurance written in connection therewith. Any rate or loss costs increase for that insurance that is implemented under this Article shall become effective solely to insurance with an inception date on or after the effective date of the rate or loss costs increase.
(g) The following information must be included in policy form, rule, and rate or loss costs filings under this Article and under Article 37 of this Chapter:
(1) A detailed list of the rates, loss costs, rules, and policy forms filed, accompanied by a list of those superseded; and
(2) A detailed description, properly referenced, of all changes in policy forms, rules, prospective loss costs, and rates, including the effect of each change.
(h) Except to the extent the Commissioner determines that this subsection is inapplicable to filings made under G.S. 58‑36‑100 and except for filings made under G.S. 58‑36‑30, all policy form, rule, prospective loss costs, and rate filings under this Article and Article 37 of this Chapter that are based on statistical data must be accompanied by the following properly identified information:
(1) North Carolina earned premiums at the actual and current rate level; losses and loss adjustment expenses, each on paid and incurred bases without trending or other modification for the experience period, including the loss ratio anticipated at the time the rates were promulgated for the experience period;
(2) Credibility factor development and application;
(3) Loss development factor derivation and application on both paid and incurred bases and in both numbers and dollars of claims;
(4) Trending factor development and application;
(5) Changes in premium base resulting from rating exposure trends;
(6) Limiting factor development and application;
(7) Overhead expense development and application of commission and brokerage, other acquisition expenses, general expenses, taxes, licenses, and fees;
(8) Percent rate or prospective loss costs change;
(9) Final proposed rates;
(10) Investment earnings, consisting of investment income and realized plus unrealized capital gains, from loss, loss expense, and unearned premium reserves;
(11) Identification of applicable statistical plans and programs and a certification of compliance with them;
(12) Investment earnings on capital and surplus;
(13) Level of capital and surplus needed to support premium writings without endangering the solvency of member companies; and
(14) Such other information that may be required by any rule adopted by the Commissioner.
Provided, however, that no filing may be returned or disapproved on the grounds that such information has not been furnished if insurers have not been required to collect such information pursuant to statistical plans or programs or to report such information to the Bureau or to statistical agents, except where the Commissioner has given reasonable prior notice to the insurers to begin collecting and reporting such information, or except when the information is readily available to the insurers.
(i) The Bureau shall file with and at the time of any rate or prospective loss costs filing all testimony, exhibits, and other information on which the Bureau will rely at the hearing on the rate filing. The Department shall file all testimony, exhibits, and other information on which the Department will rely at the hearing on the rate filing 20 days in advance of the convening date of the hearing. Upon the issuance of a notice of hearing the Commissioner shall hold a meeting of the parties to provide for the scheduling of any additional testimony, including written testimony, exhibits or other information, in response to the notice of hearing and any potential rebuttal testimony, exhibits, or other information. This subsection also applies to rate filings made by the North Carolina Motor Vehicle Reinsurance Facility under Article 37 of this Chapter."
SECTION 6. The North Carolina Rate Bureau, with the assistance of the Department of Insurance, shall study the current geographic territories established by the Bureau for rating purposes. The study shall address the following issues:
(1) Whether risks of the same class and essentially the same hazard are charged premiums that are commensurate with the risk of loss, actuarially correct, and not unfairly discriminatory.
(2) Whether geographic territories in the beach and coastal areas (as defined in G.S. 58‑45‑5) currently meet the standards and mandates set forth in G.S. 58‑36‑10(6).
(3) Whether current technology and statistical data sources make possible any practical and cost‑effective alternative to the geographic territory system for property insurance rate setting.
The Bureau shall submit a final report, including any recommendations for changes to the geographic territories or alternatives to the geographic territory rating system, to the 2013 General Assembly.
SECTION 7. Sections 2 and 3 of this act become effective December 1, 2012. Section 6 of this act is effective when it becomes law. The remainder of this act becomes effective July 1, 2012.
