AZ Circular Letter 1998-09: Senate Bill 1024; Loss Cost Filings

STATE OF ARIZ ONA DEPARTMENT OF INSURANCE JANE DEE H ULL 29 10 NORTH 44th STREET, SUITE 210 JOH N A. GREENE Gove rnor PH OENIX, ARIZ O NA 85018-7256 Dire ctor of Insurance Circular Letter 1998-9 TO: All Rate Service Organizations, Property & Casualty Insurers, Insurance Trade Associations, And Other Interested Parties FROM: John A. Greene Director of Insurance DATE: August 28, 1998 RE: Senate Bill 1024; Loss Cost Filings Senate Bill 1024, effective August 21, 1998, amended the Arizona Revised Statutes, Title 20, Chapter 2, Article 4.1 (Article 4.1). Article 4.1 applies to the rates of all property and casualty lines of insurance except workers' compensation and related employers' liability, title, and mortgage guaranty. The purpose of this circular letter is to describe the most significant amendments to Article 4.1. However, this description is not intended to be exhaustive. Enclosed is a copy of the new law, and we strongly encourage those impacted to review the amendments carefully. The most significant changes made to Article 4.1 are: 1. A rate service organization may file "prospective loss costs" instead of final rates on behalf of its member insurers. A.R.S. § 20-385(A). 2. If a rate service organization files prospective loss costs, each member insurer shall file, on a form approved by the Director, the "loss cost adjustment" and "loss cost modification factors" applicable to the prospective loss costs. A.R.S. § 20- 385(A). The form approved by the Director is attached and represents no substantive changes from that which has previously been used by insurers and rate service organizations to make such filings in Arizona. A.R.S. § 20-385(A). 3. An insurer is not required to file with the Director the insurer's final rate pages that combine the prospective loss costs separately filed by the rate service organization with the loss cost adjustment and the loss cost modification factors filed by the insurer. A.R.S. § 20-385(C) and (D). A.R.S. § 20-387(B) provides that an insurer may discharge its obligations pursuant to A.R.S. § 20-385 by giving notice to the Director that the insurer uses rates and supplementary rate information prepared by a designated rate service organization. The insurer's rates and supplementary rate information are those filed by the rate service organization, including any amendments to the rate as filed, subject to the modifications filed by the insurer. A.R.S. § 20-385 still requires every authorized insurer and every rate service organization which has been designated by any insurer for the filing of rates pursuant to A.R.S. § 20- 387(B) to file with the Director all rates and supplementary rate information and all changes and amendments to those rates within 30 days after the rates become effective. Therefore, if an insurer's designated rate service organization files prospective loss costs the insurer must initially file its corresponding loss cost adjustment and loss cost modification factors within 30 days after the prospective loss costs become effective. Insurers may request to have their loss cost adjustments remain on file and reference all subsequent rate service organization prospective loss cost filings. Upon receipt of subsequent rate service organization prospective loss costs filings, the insurers' rates shall be a combination of the prospective loss costs and the adjustments contained in the insurers' reference filing on file with the Director and will be effective on the effective date of the prospective loss costs. No further filings need to be made by the insurer if the insurer has requested its loss cost adjustments to remain on file. Insurers are reminded that notwithstanding these changes final rates are prohibited from being excessive, inadequate or unfairly discriminatory, and insurers are required to adhere to rates based on their current filings. A.R.S. §§ 20-383 and 20-385. Should you have questions relative to this circular letter, please direct them to Dean Ehler, Supervisor, Property and Casualty Section, Rates and Regulations Division at (602) 912- 8461.