State of Washington Department of Insurance Proposes New Rules On Property and Casualty Insurance Rate Cap Rules, Transition Rating Rules, Rate Stability Formulas and other Rating Methods

The State of Washington Department of Insurance (“WDI”) has proposed new regulations relating to property and casualty insurance rate cap rules, transition rating rules, rate stability formulas and other rating methods.

These proposed Rules may:

• Specify situations in which they, the formulas and other rating methods would or would not result in rates that are unfairly discriminatory;
• Clarify the meaning of RCW 48.19.040, as applicable, to formulas and other rating methods and the rate manuals that they involve; and
• Establish processes and procedures that insurers must use when implementing rate cap rules, transition rating rules, rate stability formulas and other rating methods.

According to the WDI, with the use of advanced information technology and predictive modeling methods, property and casualty insurers are implementing increasingly sophisticated systems for calculating insurance premiums.

As a result, when new rating factors are inserted into premium formulas and then applied to an existing book of business, many policyholders may see significant premium changes.

To mitigate this effect, insurers often propose rating rules or formulas that reduce the magnitude of the premium changes for certain policyholders.

These rating rules or formulas, however, may result in different premiums being charged to similarly situated policyholders, which may be contrary to Rule RCW 48.18.480.

A regulation could specify the situations in which these rating rules or formulas would or would not result in rates that are unfairly discriminatory. Such a regulation could also clarify how the requirements of RCW 48.19.040 apply to these situations.

If this type of regulation were to be adopted, Washington Insurance Commissioner Mike Kreidler would have objective standards by which to evaluate and approve or disapprove insurers’ proposed rating rules or formulas, and consumers would be better protected from unfairly discriminatory rates

Comments on the proposed Rules are due on or before September 16, 2011.   The complete proposed Rule information is attached.

Should you have any questions, please contact Colodny Fass.