Rate modification plans

Rate modification plans, justified according to the standards herein, are allowed by the insurance code. However, the commissioner has determined that the use of unjustified rate modification plans is not reasonable, is not objective, and is unfairly discriminatory. Therefore, the use of unjustified rate modification plans in rating of commercial property and casualty insurance risks located in North Dakota is prohibited. The following elements must be considered in determining whether or not a rate modification plan, or its use, is justified: 1. Rate modification plans must be used to acknowledge variance in risk characteristics and not merely to gain competitive advantage or for any other purpose. 2. Rate modification plans must be based only on rating characteristics not already reflected in the manual rates. The plans must clearly indicate the objective criteria to be used. 3. Individual underwriting files must contain the specific criteria and document the particular circumstances of the risk that support each debit or credit. This documentation must exist in the individually rated risk file to enable the commissioner to verify compliance with this chapter. Documentation may include, but is not limited to, inspection reports, photographs, agent observations and findings, insured's formal safety plans, premises evaluations, and narrative reports covering other aspects of the risk. Intentional or willful misclassification of a risk constitutes a modification without justification. 4. Any rate modification plan designed to be applied simultaneously to property, liability, or vehicle coverage must contain reasonable factors that give appropriate recognition to the distinct exposures involved in such coverages. 5. Once a company has filed a rate modification plan, its use is mandatory. The plan must be applied uniformly in a nondiscriminatory manner for all eligible classes of risk. 6. The application of any rate modification plan may not result in debits or credits that exceed twenty-five percent. Modifications generated by experience rating plans or based upon company expense experience are not subject to this limitation. 7. Once a rate modification plan has been applied to a risk and a credit or debit established, no change in the established credit or debit can be made without appropriate justification and documentation. 8. Any rate modification plan must provide that when a risk is rated below average (debited) an insured or applicant, upon request, will be advised by the insurer of the factors which resulted in the adverse rating so that the insured or applicant will be fairly apprised of any corrective action that might be appropriate with respect to the insurance risk.