Section 117C: Determination of premium rates with respect to credit life insurance and credit accident and health insurance; filing; reports
Section 117C. (a) The following method of determination of premium rates with respect to credit life insurance and credit accident and health insurance is required only for such insurance written in connection with obligations, other than loans secured by first liens on real property, which are subject to section twelve G of chapter two hundred and fifty-five, section ten of chapter two hundred and fifty-five B, section fourteen A of chapter two hundred and fifty-five C, or subsection C of section twenty-six of chapter two hundred and fifty-five D, for which an identifiable charge is paid by insured persons.
(b) The following are the procedures for determining the maximum premium rates permitted to be charged any account:
A. Rate Review.
(1) Minimum loss ratio test: Benefits will be considered reasonable in relation to the premium charged if the loss ratio equals or exceeds or is reasonably expected to equal or exceed the minimum loss ratio standard specified below. The minimum loss ratio standard is:
(i) for credit life insurance, fifty per cent and
(ii) for credit accident and health insurance, fifty-five per cent.
In applying the minimum loss ratio test, the commissioner shall make appropriate adjustment to account for differences in loss ratios that may be expected on single premium credit life insurance plans resulting from changes in the benefit structure.
(2) When deviated rates are in use: If an insurer has deviated rates approved under clauses (1) and (2) of paragraph C, the reasonableness of rates for those accounts will be determined by paragraph C.
(3) Frequency of rate review:
(i) The rate review will be made each year for all classes of business except for motor vehicle dealers.
(ii) The rate review will be made every three years for the motor vehicle dealers class of business.
B. Use of Nominal Rates.
An insurer that has filed rates which are equal to or lower than the nominal rates may retain on file and use those rates without further proof of their reasonableness while the experience of the insurer in this commonwealth for the accounts to which they are applied continues to satisfy the minimum loss ratio test specified in paragraph A.
C. Use of deviated rates.
(1) Use of rates higher than nominal rates:
If the minimum loss ratio test produces a loss ratio that exceeds the minimum loss ratio standard, the insurer may file for approval and use rates that are higher than the nominal rates computed on a basis equivalent to that in clause (2) of paragraph D.
(2) Use of rates lower than nominal rates:
If the minimum loss ratio test produces a loss ratio that is lower than the minimum loss ratio standard, the insurer shall file adjusted rates that can be expected to produce a loss ratio that will satisfy the minimum loss ratio test or that are computed on a basis equivalent to that in clause (2) of paragraph D.
(3) Determination of deviated rates for all classes of business except for motor vehicle dealers:
If deviated rates are to be filed under clauses (1) or (2), the insurer may file rates for approval that will be:
(i) Applied uniformly to all accounts of the insurer;
(ii) Applied on an equitable basis approved by the commissioner to only one or more accounts of the insurer for which the experience has been more favorable or less favorable than expected; or
(iii) Applied according to a case rating procedure on file with the commissioner. An insurer electing to file a case rating procedure may either file its own plan for the approval of the commissioner or may use the standard case rating procedure specified herein by notice to him.
(4) Determination of deviated rates for the motor vehicle dealers class of business:
(i) The motor vehicle dealers class of business case rate for each plan of insurance shall be the nominal rates until the effective date of the appropriate deviated case rate for each plan of insurance as provided for in subclause (ii).
(ii) The commissioner shall on or before October first, nineteen hundred and eighty-nine, aggregate the combined experience of all insurers for the motor vehicle dealers class of business for the three preceding calendar years, compute the appropriate deviated case rate according to paragraph D, for each plan of insurance for said class of business for all said insurers combined, according to subclause (ii) of clause (1) of said paragraph D. The commissioner shall send by first class mail, mailed on the same day, written notice to all insurers of said appropriate deviated case rate for each plan of insurance that shall apply to said class of business from ninety days after the date of the mailing of said written notice, but not later than January first, nineteen hundred and ninety, until midnight December thirty-first, nineteen hundred and ninety-two.
(iii) The commissioner shall on or before October first, nineteen hundred and ninety-two, and each three years thereafter on or before October first, aggregate the combined experience of all insurers for the motor vehicle dealer class of business for the three preceding calendar years, compute the appropriate deviated case rate, according to said paragraph D, for each plan of insurance for said class of business for all said insurers combined according to subclause (ii) of clause (1) of said paragraph D and shall send by first class mail written notice to all insurers of said appropriate deviated case rate for each plan of insurance that shall apply to said class of business for the succeeding three calendar years beginning January first, nineteen hundred and ninety-three, and each three years thereafter on January first.
The rate for each account which has been deviated must be redetermined on the same basis thereafter or until the rate for the account is no longer deviated.
D. Use of rates determined by standard case rating procedure.
An insurer, by written notice to the commissioner of its election to do so, may file and use premium rates determined by this standard case rating procedure. If elected, the procedure will be used by the insurer to rate all of its credit insurance in this commonwealth. Once elected, the procedure will remain in effect for the insurer until a different procedure has been filed with the commissioner and approved by him.
(1) Determination of case rate:
An insurer may use a rate for an account not greater than the case rate for that account as follows:
(i) Single account cases and multiple account cases:
If the account is within the definition of a single account case or of a multiple account case as filed by the insurer, the case rate for the account or for each account comprising a multiple account case will be determined by the formula set forth in clause (2).
(ii) Pooled account cases:
If the account is in a pooled account case, the case rate for each account comprising the case will be the case rate for that pooled account case as determined by the formula set forth in said clause (2).
(iii) New accounts without experience:
If a new account of an insurer has no experience in this commonwealth, the case rate for the account will be the nominal rate shown in clause (14) of paragraph G unless a different case rate is approved for the account by the commissioner.
(2) Calculation of case rate:
(i) Symbols and Definitions
NR = Nominal Rate
ALR = Actual Loss Ratio for case at Nominal Rate Basis
ELR = Minimum Loss Ratio Standard of clause (1) of paragraph A.
Z = Credibility Factor for Case
CLR = Credibility Adjusted Case Loss Ratio at Nominal Rate Basis
= (Z |m~ ALR) |m+ ((1 |m- Z) |m~ ELR)
E = Expense Loading in nominal rate
= (1 |m- ELR) |m~ NR
NCR = New Case Rate
(ii) New Case Rate
For credit accident and health insurance where CLR is greater than ELR:
NCR = NR(1 |m+ 1.1 (CLR |m- ELR))
For all other credit accident and health insurance and for all credit life insurance:
NCR = (NR |m~ CLR) |m+ E
(3) Minimum changes:
If the new case rate does not differ by more than five per cent from the current case rate, the new case rate will be the current case rate.
(4) Case rate period:
A case rate will be in effect for a period of time not longer than the experience period used to establish the case rate, i.e. one year, two years or three years. An insurer may file for a new case rate before the end of a case rate period, but not more often than once during any twelve month period. A case rate for motor vehicle dealers will be in effect for a period of time not less than three years.
(5) Change of insurers:
If a creditor changes insurers, the case rate in effect for his account on the date of the change will continue to be in effect for the account with the succeeding insurer for the remainder of the case rate period or until a new case rate for his account is established if sooner.
E. Filing of Rates.
An insurer who has elected to file higher rates under clause (1) of paragraph C or who is required to file reduced rates under clause (2) of said paragraph C, or who has elected the standard case rating procedure, shall also file a new schedule of rates as determined by said clauses (1) and (2) of said paragraph C. If the commissioner does not disapprove the new schedule of rates within thirty days after receipt of the filing, rates not higher than the new rates shall be placed in effect not later than the first day of the fifth month next following the end of the experience period unless a different effective date has been approved by the commissioner. In no event, however, may a rate increase be placed in effect earlier than the date rate decreases are expected to be placed in effect. An insurer may at any time charge a rate lower than its filed rate without notice to the commissioner.
F. Reports of Experience:
(1) Each insurer writing said life insurance and accident and health insurance shall report to the commissioner its claims experience and loss ratio data on said insurance separately for the motor vehicle dealers class of business and for all classes of business combined on the credit insurance supplement forms as specified by the National Association of Insurance Commissioners for inclusion in the annual statement blanks filed pursuant to section twenty-five.
(2) The commissioner shall summarize said insurance claims experience and loss ratio data from said credit insurance supplement forms and submit such summary experience and loss ratio data to the clerk of the house of representatives who shall forward the same to the joint committee on insurance not later than the thirtieth day of September of each year.
(3) Each insurer writing said life insurance and accident and health insurance for the motor vehicle dealers class of business shall report to the commissioner its claims experience and loss ratio data on said insurance for motor vehicle dealers on said credit insurance supplement forms for the calendar years nineteen hundred and eighty-five, nineteen hundred and eighty-six, nineteen hundred and eighty-seven and nineteen hundred and eighty-eight, by a date and in a manner to be set by the commissioner, but not later than July first, nineteen hundred and eighty-nine.
For the purpose of the reporting in this paragraph, for nineteen hundred and eighty-five, nineteen hundred and eighty-six and nineteen hundred and eighty-seven, the term ''prima facie rate'' shall be construed to mean the statutory maximum rates in effect during those years, and for subsequent years shall be construed to mean the nominal rates set out in clause (14) of paragraph G.
G. As used in this section the following terms, unless the context clearly requires otherwise, shall have the following meanings:
(1) ''Account'', the aggregate credit life insurance or credit accident and health insurance coverage for a single plan of insurance and for single class of business written through a single creditor by the insurer. With the approval of the commissioner, the account may also mean the credit life insurance or the credit accident and health insurance of two or more plans of insurance or two or more classes of business of a single creditor.
(2) ''Average Number of Life Years'', the average number of group certificates in force during the experience period, without regard to multiple coverage, times the number of years in the experience period, or some equivalent calculation, which shall be made separately for credit life insurance and for credit accident and health insurance.
(3) ''Case'' a ''Single Account Case'', a ''Multiple Account Case'' or a ''Pooled Account Case'' as follows:
(i) ''Single Account Case'', an account that is at least as credible as the minimum level of credibility elected by the insurer for defining a single account case excluding all of these accounts which have been included in multiple account cases.
An insurer may make this election by notice to the commissioner, in writing, of the minimum credibility factor it will use to define a ''Single Account Case''. Once notified, the minimum credibility factor will remain in effect for the insurer until a different factor has been filed by the insurer and approved by the commissioner. If an insurer makes no written election, its minimum credibility factor will be one hundred per cent.
(ii) ''Multiple account case'', with the approval of the commissioner, two or more accounts of the same insurer having similar underwriting characteristics which are combined by the insurer for premium rating purposes, excluding all cases defined in (i) and which, when combined, are at least as credible as the minimum level of credibility elected in (i).
(iii) ''Pooled account case'', a combination of all the insurer's accounts of the same plan of insurance and class of business which combination has experience in this commonwealth, excluding all defined in (i) and (ii).
(4) ''Class of business'', a grouping of the classes of business listed below:
(i) credit unions;
(ii) commercial, cooperative & savings banks;
(iii) finance companies;
(iv) motor vehicle dealers;
(v) other sales finance;
(vi) production credit associations;
(vii) bank—agricultural loans;
(viii) all others
(5) ''Credibility factor'', the extent to which the past experience of a case can be expected to recur in the future. For the standard case rating procedure, the credibility factor may be based on either the number of claims incurred or on the ''average number of life years'' for the case during the experience period using the credibility table. The insurer shall notify the commissioner in advance which method it will use to measure the credibility of all its cases in this commonwealth and may not change its method without the prior approval of the commissioner. If ''claim count'' or ''life year'' data are not available, reasonable methods of approximation approved by the commissioner may be used until such data are developed.
(6) ''Credibility table'', for purposes of the standard case rating procedure means the following table:
The above integral numbers represent the lower end of the bracket for each ''Z'' factor. The upper is 1 less than the lower end for the next higher ''Z'' factor.
(7) ''Earned premiums at rates in use'', actual earned premiums, that is, the premiums earned at the premium rates actually charged for coverage in force during the experience period.
(8) ''Earned premiums at the nominal rates'', the actual earned premiums adjusted to the amount which would have been earned had the premium rate charged for coverage in force during the experience period been equal to the nominal rate. Reasonable methods of approximation approved by the commissioner may be used.
(9) ''Experience'', earned premiums, incurred claims, incurred claim count, number of life years insured, and average amount of insurance during the experience period.
(10) ''Experience period'', the most recent period of time for which experience is reported, but not a period longer than three full years. Experience period for the motor vehicle dealer pooled account case means the most recent three calendar years for which experience is reported.
(i) If a case develops one hundred per cent credibility in less than three years, the experience period for that case will be the number of full years needed to develop one hundred per cent credibility.
(ii) If a case develops the minimum credibility elected by the insurer in less than three years, the experience period for that case, at the option of the insurer, will be the number of full years needed to develop minimum credibility or three full years.
(iii) New accounts with experience:
If a new account of an insurer has experience in this commonwealth with a prior insurer, the new insurer must use the most recent experience of the account with the prior insurer to the extent necessary to fill out an experience period.
(iv) Accounts with multi-state experience:
If an account has experience in more than this commonwealth, an insurer may use only the experience of the account in this commonwealth to rate the case or, with the approval of the commissioner, may use the multi-state experience of the account for this purpose applied on an equitable basis.
The provisions of subclause (i), (ii), (iii) and (iv) shall not apply to motor vehicle dealers.
(11) ''Incurred claims'', total claims paid during the experience period, adjusted for the change in the claim reserve.
(12) ''Incurred claim count'', the number of claims incurred for the case during the experience period. This means the total number of claims reported during the experience period, whether paid or in the process of payment, plus any incurred but not reported at the end of the experience period, less the number of claims incurred but not reported at the beginning of the experience period. If a debtor has been issued more than one certificate for the same plan of insurance, only one claim is counted. If a debtor receives disability benefits, only the initial claim payment for that period of disability is counted.
(13) ''Loss Ratio'', the ratio of incurred claims to earned premiums at the nominal rate.
(14) ''Nominal rates'', the premium rates shown below for credit life insurance and credit accident and health insurance.
(i) For credit life insurance the nominal rates per one thousand dollars of insurance in force per month shall be sixty-nine cents for single life insurance, and one hundred and sixty per cent of said single life insurance rate for joint life insurance.
(ii) For credit accident and health insurance, single premium rates for each one hundred dollars of initial insured indebtedness shall be seventy cents per annum for each of the first four years of the term of coverage, fifty cents per annum for each of the next three years of the term of coverage and twenty-five cents per annum for each year of the term of coverage thereafter. The initial insured indebtedness is the total of all monthly insurance benefits provided.
A monthly rate of one dollar and twenty cents for each one thousand dollars of remaining insured indebtedness each month, reduced by three cents for each year by which the initial scheduled duration of the insurance exceeds sixty months, shall be considered the equivalent of the above single premium rates. The ''remaining insured indebtedness each month'', as used in the preceding sentence, is the total of the monthly insurance benefits remaining.
For credit accident and health insurance in connection with interest bearing indebtedness, other than pre-computed indebtedness, a monthly premium rate of one dollar and fifty cents for each one thousand dollars of the remaining principal indebtedness, exclusive of finance charges, shall be considered the equivalent of the above single premium rates.
(15) ''Plan of insurance'' unless otherwise filed and approved means
(i) credit life insurance on a flat rated basis other than revolving accounts, e.g. including joint and single life coverage, decreasing and level insurance,
(ii) credit life insurance on a revolving account basis,
(iii) credit life insurance on an age-graded basis,
(iv) credit accident and health insurance other than on revolving accounts combining outstanding balance and single premium,
(v) credit accident and health insurance on a revolving account basis.