Utah Admin. Code R590-121-4 - Rate Modification Justification
(1) A rate modification plan, justified according to the standards herein, is permitted.
(2) The commissioner determined that using an unjustified rate modification plan is unreasonable, is not based on reasonable criteria, and is unfairly discriminatory.
(3) The use of an unjustified rate modification plan in the rating of commercial property and casualty insurance risks located in Utah is prohibited.
(4) The following elements shall be considered in determining whether a rate modification plan is justified:
(i) A rate modification plan must limit its application to maximum debits or credits of 25%.
(ii) A modification generated by loss experience or company expense experience is not subject to this limitation.
(b) A rate modification plan must be based only on rating characteristics not already reflected in the manual rates, and the plan must clearly indicate the objective criteria to be used.
(c) A rate modification plan designed to be applied simultaneously to property, liability, or vehicle coverage shall contain reasonable factors that give appropriate recognition to the distinct exposures involved in the coverages.
(d) A rate modification plan must provide that when a risk is rated above the manual rate (debited), an insured, applicant, or their agent or broker, upon request, will be advised by the insurer of the factors that 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.
(i) An insurer's filing of changes or revisions to a rate modification plan it previously filed may not result in the elimination of a debit or credit established under the prior plan for a risk currently insured by the insurer.
(ii) A change in an established debit or credit for a risk currently insured must be based on a change in the risk and not on a change in the provisions of a rate modification plan.
(i) Any initial and succeeding filing of a rate modification plan must be submitted according to established filing procedures and must include a complete copy of the plan, even if only minor changes are being made.
(ii) The filing must also include a letter or filing memorandum from the insurer that provides:
(A) a comparison of the proposed changes to any existing plan as currently filed;
(B) the reasons and justification for the proposed changes; and
(C) a statement of the estimated number of Utah insureds affected by the changes and the estimated Utah premium dollar impact of the changes.
(5) The following elements shall be considered in determining whether the application of a rate modification plan is justified:
(a) A rate modification plan must be used to acknowledge variance in risk characteristics and not merely to gain competitive advantage.
(i) Once a company has filed a rate modification plan, its use is mandatory.
(ii) The plan must be applied uniformly in a non-discriminatory manner for all eligible classes of risk even if the application of the plan results in a zero modification or no change in a previously applied modification.
(c) Once a rate modification plan has been applied to a risk and a debit or credit has been established, no changes in the established debit or credit can be made without appropriate justification and documentation.
(i) Individual underwriting files must contain the specific criteria and document the particular circumstances of the risk that supports each debit or credit.
(ii) This documentation must be present in the file to enable the commissioner to verify compliance with this rule, and may include:
(A) inspection reports;
(C) agent observations and findings;
(D) insured's formal safety plans;
(E) premises evaluations; and
(F) narrative reports covering other aspects of the risk.
(i) Individual underwriting files must contain documentation of the underwriter's evaluation of the risk under the rate modification plan and shall consist of the following:
(A) a worksheet that describes the risk characteristics of the filed plan and the range of debits or credits allowed for each risk characteristic;
(B) any debit, credit, or both, assigned to the risk characteristics by the underwriter and the sum of the debits and credits assigned;
(C) a description of the underwriter's evaluation process ;
(D) the date of the initial and any subsequent evaluation; and
(E) the signature of the individual conducting the evaluation.
(ii) A previous worksheet may be used when no change in the risk characteristics is indicated and a current date and signature are entered onto the worksheet.
(6) The commissioner determined that the misclassification of a risk is a modification without justification.
(7) Experience rating plans are calculated from at least the last three years' premium and loss data using premium and loss data that must be verifiable or justifiable.
(i) Upon request, an insurer shall submit data to the commissioner establishing the relationship of the aggregate premium actually charged to policyholders for each line of commercial insurance to the aggregate premium that would have been produced by the insurer's filed unmodified rates for that line of commercial insurance.
(ii) A rate service organization may file the data on behalf of the insurer.
(9) The commissioner may order an examination pursuant to Sections 31A-2-203, 31A-2-204, and 31A-2-205 to determine compliance with this rule.
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