Insurance Rates for Voluntary Market Personal Risk Policies—"Flex-Rating" Under Public Act No. 06-104

STATE OF C O N N E C T I C U T INSURANCE DEPARTMENT Bulletin PC-61 July 18,2006 To: All Companies Licensed To Write Property And Casualty Insurance Re: Insurance Rates for Voluntary Market Personal Risk Policies- "Flex-Rating" Under Public Act No. 06-104 In accordance with Connecticut General Statutes Section 38a-8, this Bulletin is to provide guidance to insurers concerning the implementation of Public Act No. 06-104, Section 2 (herein referred to as "Flex-Rating") effective for rate filings submitted on and after July 1, 2006 and until July 1,2009. A rate filing made by an insurer under Public Act No. 06-104 with respect to voluntary market personal risk insurance on July 1,2006 and until July 1, 2009, may take effect the date it is filed with the Insurance Department (the "Department") provided the rate results in an overall statewide rate increase or decrease of not more than six per cent (6%) in the aggregate for all coverages that are subject to the filing. The 6% limit shall not apply on an individual insured basis. Flex-Rate filings may include changes in base rate:; andlor relativity factors. The Department does not consider changes to an insurer's rating plan (ii.e., changes in class definitions, territory definitions, rating rules or rating model variables) to fall under the Flex-Rating provisions of Public Act No. 06-104 unless the insurer is adopting a rating plan:, including all supplemental rate information, that is currently approved for use by other licensed insurers and/or advisory/rating organizations. Please note that the insurer must identify in its transmittal letter to the Department that the filing is being submitted under the Flex-Rating provisions and provide a statement that the filing meets the requirements established by Public Act No. 06-104. The filing should also clearly state the proposed effective date(s) for new and renewal business. All insurers filing a rate under the Flex-Rating provisions are to provide a separate exhibit indicating the overall aggregate rate impact by territory and towns in the territory. For homeowners rate filings, insurers must include territorial definitions. In addition, all homeowners rate filings must include rate impact by form (HO-3, HO-4 and HO-6). For private passenger nonfleet automobile filings, this exhibit should be included as a supplement to Appendix 3 of the Exhibits required under Department Bulletin PC-36 dated December 20, 2000. Not more than one Flex-Rate filing may be made by an insurer within any twelve-month period, unless such filing, when combined with one or more Flex-Rate and non Flex-Rate filings made by the insurer within the preceding twelve months, does not result in an overall statewide mutiplicative c:umulative increase or decrease of more than 6% in the aggregate for all coverages that are subject to the filing. Please note that the insurer must also identify in its transmittal letter to the Department all rate changes made during the twelve-month period which relate to the filing. Refer to question #2 below for further clarification. www.ct.gov/cid P. 0 . Box 8 16 Hartford, CT 06 142-08 16 An Equal Opportunity Employer FREQUENTLY ASK:ED QUESTIONS 1. What types of filings are subject to the Flex-Rating provision? All personal risk rate i'ilings, other than those written through residual market mechanisms, are subject to the Flex-Rating provision. 2. How often may an insurer submit a rate revision under the Flex-Rating provision? An insurer may submit multiple rate revisions under the Flex-Rating statute during a twelve-month period, provided the request complies with the requirements of Public Act No. 06-104. Filings submitted under the Flex-Rating provision must adhere to the following: for a single Fle:x-Rate filing made by the insurer within a 12-month period, the overall statewide increase or decrease cannot exceed 6%; & for a Flex-Rate filing made within a 12-month period, when combined with one or more Flex- Rate and non-Flex-Rate filings made by the insurer within the preceding 12 months, the overall multiplicative ~:umulative rate change must be within the Flex-Rating range of -6% to +6%. Under Public Act No. 06-104, a filing that does not meet the Flex-Rating requirements will be subject to Connecticut General Statutes sections 38a-389 and 38a-688 unless the filing is otherwise exempt from those sections. 1nsurei:s may file under the Flex-Rating provisions separately for each personal risk line of business an insurer is authorized to write in this state for which an existing rating plan is in effect. 3. How often may an insurer apply for a rate revision outside the Flex-Rating law? Rate revisions outside of the Flex-Rating law are not subject to the cumulative annual limitation and may be filed as often as an insurer finds necessary. 4. If an insurer submits a rate revision under the file and use provisions of the Connecticut General Statutes and the Regulations of Connecticut State Agencies, can it also submit a rate revision under the Flex-Rating provision during a 12-month period? Yes. An insurer may :file under both provisions during a 12-month period, provided the filing meets the Flex-Rating requirements of Public Act No. 06-104. Please refer to Question 2. above for further information. 5. Will a filing be considered under the Flex-Rating law if it includes changes to supplemental rate information inclluding changes in class definitions, territory definitions or changes in rating rules? It depends. Flex-Rate filings may include changes in base rates and/or relativity factors. The Department does not consider changes to an insurer's rating plan (i.e., changes in class definitions, territory definitions, rating rules or rating model variables ) to fall under the Flex-Rating provisions of Public Act No. 06-104 unless the insurer is adopting a rating plan, including all supplemental rate information, that is currently approved for use by other licensed insurers and/or advisorylrating organizations. Changes in rating plans, including all supplemental rate information, will be reviewed under the file and use provisions of the Connecticut General Statutes unless the insurer is adopting plans currently approved for use by other licensed insurers and/or advisorylrating organizations. 6. Will initial filings received after July 1, 2006 be eligible for review under the Flex-Rating provisions of Public Act No. 06-104? No. The Flex-Rating statute only applies to rate revisions of existing programs. 7. May an insurer file the first revision within 12 months after an initial filing under the Flex- Rating provision? Yes. The Flex-Rating provisions may be used provided the revision does not exceed an increase or decrease of 6% of the initial filing. 8. Are the filing requ.irements the same for filings submitted under the Flex-Rating law? Yes. Filings submitted under the Flex-Rating law must include all the required documents for a complete filing and must comply fully with all other applicable regulatory requirements. 9. Will the Department continue to conduct its statutorily mandated reviews for Flex-Rate filings submitted in accordance with the Public Act No. 06-104? Yes. The Department will continue to comprehensively review such filings. The Flex-Rating law provides that if the Commissioner determines that the filing is inadequate or unfairly discriminatory, she shall issue a written order specifying in detail the reasons why the filing is inadequate or unfairly discriminatory. The order will indicate a future date on which the filing shall no longer be effective. The following should be noted: An order by the Commissioner that is issued more than 30 days after the date the Commissioner received the rate filing is prospective only and does not affect any contract of insurance issued or made before the effective date of the order. A rate is not inadequate unless (i) the rate is unreasonably low for the insurance provided and continued use of the rate would endanger the solvency of the insurer; or (ii) it is unreasonably low for the insurance provided and its use has or, if continued, will have, the effect of destroying competition or creating a monopoly. 10. Are there any specific notice requirements at renewal time? Yes. Public Act No. 06-104 provides that no rate increase within the 6% Flex-Rating band may be implemented with respect to an individual existing policy in effect on the date of the filing, unless the increase is applied at the time of renewal of an existing policy period and the insurer provides advance notice of the increase 1:o the insured pursuant to Connecticut General Statutes Section 38a-323. / Susan F. Cogswell 0 Insurance Commissioner