2013 Connecticut General Statutes
Title 38a - Insurance
Chapter 701 - Personal and Commercial Risk Insurance Rating Practices
Section 38a-686 - (Formerly Sec. 38-201v). Standards for the making and use of rates re personal risk insurance. Limitations on use of credit history and financial history measurement programs. Regulations.
The following standards, methods and criteria shall apply to the making and use of rates pertaining to personal risk insurance:
(a) Rates shall not be excessive, inadequate or unfairly discriminatory.
(1) A rate in a competitive market is not excessive. A rate in a noncompetitive market including a rate for insurance provided pursuant to sections 38a-328, 38a-329 and 38a-670 is excessive if it is unreasonably high for the insurance provided.
(2) No rate shall be held inadequate unless (A) it is unreasonably low for the insurance provided, and (B) continued use of it would endanger solvency of the insurer, or unless (C) such rate is unreasonably low for the insurance provided and the use of such rate by the insurer using same has, or, if continued will have, the effect of destroying competition or creating a monopoly.
(b) In determining whether rates comply with the excessiveness standard in a noncompetitive market under subdivision (1) of subsection (a) of this section, the inadequacy standard under subdivision (2) of subsection (a) of this section and the requirement that rates not be unfairly discriminatory, the following criteria shall apply:
(1) Consideration may be given, to the extent possible, to past and prospective loss experience within and outside this state, to conflagration and catastrophe hazards, to a reasonable margin for underwriting profit and contingencies, to past and prospective expenses both country-wide and those specially applicable to this state, to investment income earned or realized by insurers both from their unearned premium and loss reserve funds, and to all other factors, including judgment factors, deemed relevant within and outside this state and in the case of fire insurance rates, consideration may be given to the experience of the fire insurance business during the most recent five-year period for which such experience is available. Consideration may be given in the making and use of rates to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers.
(2) (A) The systems of expense provisions included in the rates for use by an insurer or group of insurers may differ from those of other insurers or groups of insurers to reflect the operating methods of any such insurer or group with respect to any kind of insurance, or with respect to any subdivision or combination thereof.
(B) (i) With respect to private passenger nonfleet automobile insurance, an insurer shall not allocate as flat dollar amounts to base rates: (I) Producer commissions; (II) premium taxes; (III) underwriting profits; or (IV) contingencies.
(ii) With respect to private passenger nonfleet automobile insurance, an insurer shall allocate as flat dollar amounts to base rates: (I) At least ninety per cent of general expenses, including administration and overhead costs; (II) at least ninety per cent of other acquisition costs for marketing and agent field offices, which may be allocated over the expected life of such insurer’s policies; and (III) miscellaneous taxes, licenses and fees.
(iii) Each insurer shall allocate such flat dollar amounts set forth in subparagraph (B)(ii) of this subdivision after any classification factors set forth in subdivisions (3) to (5), inclusive, of this subsection have been applied to base rates.
(3) Risks may be grouped by classifications for the establishment of rates and minimum premiums, provided that with respect to private passenger nonfleet automobile insurance, any change in territorial classifications shall be subject to prior approval by the Insurance Commissioner, and provided no surcharge on any motor vehicle liability or physical damage insurance premium shall be assigned for (A) any accident involving only property damage of one thousand dollars or less, (B) the first accident involving only property damage of more than one thousand dollars which would otherwise result in a surcharge to the policy of the insured, within the experience period set forth in the insurer’s safe driver classification plan, (C) any violation of section 14-219 unless such violation results in the suspension or revocation of the operator’s license under section 14-111b, (D) less than three violations of section 14-218a within any one-year period, (E) any accident caused by an operator other than the named insured, a relative residing in the named insured’s household, or a person who customarily operates the insured vehicle, (F) the first or second accident within the current experience period in relation to which the insured was not convicted of a moving traffic violation and was not at fault, or (G) any motor vehicle infraction. Subparagraph (G) of this subdivision shall not be applicable to any plan established pursuant to section 38a-329. Classification rates may be modified to produce rates for individual risks in accordance with rating plans that provide for recognition of variations in hazards or expense provisions or both. Such rating plans may include application of the judgment of the insurer and may measure any differences among risks that can be demonstrated to have a probable effect upon losses or expenses.
(4) Each rating plan for private passenger nonfleet automobile insurance that includes territorial classifications shall assign a weight of seventy-five per cent to individual territorial loss cost indication and twenty-five per cent to the state-wide average loss cost indication.
(5) Each rating plan shall establish appropriate eligibility criteria for determining significant risks that are to qualify under the plan. Rating plans that comply with the provisions of this subdivision shall be deemed to produce rates that are not unfairly discriminatory.
(6) With respect to personal risk insurance, an insurer shall not use an applicant’s or insured’s credit history as a factor in underwriting or rating except in accordance with this subdivision. For the purposes of this section, “credit history” means any credit-related information derived from or found in a credit report or credit scoring program or provided in an application for personal risk insurance, and “financial history measurement program” means a program that uses an applicant’s credit history to measure such applicant’s risk of loss.
(A) An insurer shall file with the commissioner any financial history measurement program it uses to underwrite or rate risks for personal risk insurance. Such filing shall (i) include a description of the program, (ii) identify the characteristics used in such program from which a measurement is derived, (iii) include the rules and procedures of such program, and (iv) include an explanation of the impact of credit information and items of public record on insurance rates over time. Such program shall not unfairly discriminate among applicants or produce rates that are excessive for the risk assumed. Any filing made pursuant to this subparagraph shall be considered a trade secret for the purposes of section 1-210.
(B) (i) An insurer that uses a financial history measurement program shall submit to the commissioner documentation that demonstrates the correlation between such program and the expected risk of loss, and how such program impacts consumers (I) in urban territories, versus consumers in nonurban territories, and (II) based on consumers’ ages. The commissioner may request the insurer to provide a financial history measurement for a set of test examples that reflect various characteristics.
(ii) An insurer that uses a financial history measurement program shall disclose to each applicant for personal risk insurance, in writing, by telephone, by electronic mail or orally, at the time of application that the applicant’s credit history may be used in the underwriting or rating of such applicant’s policy, and that the applicant has the right to request, in writing, that the insurer consider, during its underwriting or rating process or during a review requested by such applicant of a rate quote, an extraordinary life circumstance, as set forth in subparagraph (D) of this subdivision, if such applicant’s credit history has been adversely impacted by such extraordinary life circumstance and such extraordinary life circumstance occurred within three years before the date of the application. In addition, such insurer shall provide to each purchaser of such policy, not later than the date of issuance of such policy, a written disclosure that includes: (I) The name, address, telephone number and toll-free telephone number, if applicable, of the insurer; (II) detailed information about how the insurer uses credit information to underwrite or rate such policies; and (III) a summary of consumer protections regarding the use of credit, in a form determined by the commissioner. Such written disclosure shall be printed in reasonably conspicuous type and be provided by the insurer electronically, by mail or by hand delivery.
(C) (i) An insurer may use a financial history measurement program to underwrite or rate risks only (I) for new personal risk insurance policies, or (II) upon renewal, either at the request of an insured or if such use reduces the premium for the insured in accordance with the insurer’s filed rates and rules.
(ii) An insurer shall not use the following characteristics in a financial history measurement program: (I) The number of credit inquiries in an applicant’s or insured’s credit report or credit history; (II) the applicant’s or insured’s use of a particular type of credit card, debit card or charge card; (III) the applicant’s or insured’s total available line of credit; (IV) any disputed credit information while such dispute is under review by a credit reporting company, provided such information is identified in an applicant’s or insured’s credit report or credit history as being in dispute; (V) collection accounts identified with a medical industry code in the applicant’s or insured’s credit report or credit history; and (VI) the applicant’s or insured’s lack of credit history, unless the insurer treats the applicant or insured as if such applicant or insured had neutral credit information, as defined by the insurer.
(iii) A financial history measurement program shall give the same weight to an applicant’s or insured’s purchase or financing of a specific item regardless of the type of item purchased or financed.
(D) (i) Upon written request by an applicant, an insurer shall consider, during its underwriting or rating process or during a review requested by such applicant of a rate quote, an extraordinary life circumstance of such applicant if such extraordinary life circumstance occurred within three years before the date of application. If such insurer determines that such applicant’s credit history has been adversely impacted by such extraordinary life circumstance, such insurer shall grant a reasonable exception to such insurer’s rates, rating classifications or underwriting rules for such applicant. As used in this subparagraph, “extraordinary life circumstance” means (I) a catastrophic illness or injury, (II) divorce, (III) the death of a spouse, child or parent, (IV) the involuntary loss of employment for more than three consecutive months, (V) identity theft, (VI) total or other loss that makes a home uninhabitable, (VII) other circumstances as may be adopted in regulations by the commissioner, in accordance with chapter 54, or (VIII) any other circumstance an insurer may choose to recognize.
(ii) An insurer may require the applicant to provide reasonable, independently verifiable written documentation of the extraordinary life circumstance and the effect of such extraordinary life circumstance on such applicant’s credit report or credit history. Any such documentation shall be kept confidential by the insurer.
(iii) If the insurer grants an exception pursuant to subparagraph (D)(i) of this subdivision, the insurer shall (I) consider only credit information that is not affected by the extraordinary life circumstance, or (II) treat the applicant as if such applicant had neutral or better than neutral credit information, as defined by the insurer.
(iv) An insurer shall not be deemed to be out of compliance with any provision of the general statutes or regulations adopted thereunder concerning underwriting, rating or rate filing solely on the basis of the granting of an exception pursuant to this subparagraph.
(E) (i) If an insurer takes an adverse action that is due at least in part to the information contained in an applicant’s or insured’s credit report, such insurer shall disclose to such applicant or insured: (I) That such adverse action was based on the credit report of such insured or applicant; (II) that such applicant or insured is entitled to a free copy of such credit report and where such report can be obtained; (III) the types of extraordinary life circumstances set forth in subparagraph (D) of this subdivision; and (IV) the procedures for an applicant to inform the insurer of an extraordinary life circumstance and to submit any required documentation pursuant to subparagraph (D) of this subdivision.
(ii) For the purposes of this subdivision, an “adverse action” means (I) the denial of coverage to an applicant or insured or the offering of restricted coverage, (II) the offering of a higher rate, (III) the assignment of an applicant or insured to a higher rate tier or to a higher-priced company within an insurer group, or (IV) any other action that adversely impacts an applicant or insured due to the financial history measurement program.
(F) After an insurer’s financial history measurement program has been in effect for two years, the commissioner may require such insurer to submit a report to the commissioner on the use of such program in the state. Such report shall include information that demonstrates that such program results in rates that are supported by the data and that are not unfairly discriminatory, and an analysis of consumer complaints submitted in writing or by electronic mail to the insurer resulting from such insurer’s use of a financial history measurement program, such that is sufficient to identify the basis for the complaints and any subsequent insurer action.
(c) Notwithstanding the provisions of subsections (a) and (b) of this section, no rate shall include any adjustment designed to recover underwriting or operating losses incurred out-of-state.
(d) Not later than January 1, 2012, the commissioner shall adopt regulations, in accordance with the provisions of chapter 54, to implement the provisions of this section and the most current guidelines and bulletins issued by the Insurance Department and in effect that pertain to territorial classifications.
(P.A. 82-353, S. 5, 26; P.A. 84-165, S. 2; P.A. 85-45, S. 1; P.A. 86-254; P.A. 88-73, S. 4; P.A. 89-114, S. 2; 89-192, S. 2; 89-193, S. 2; P.A. 10-7, S. 1, 2; P.A. 11-19, S. 16.)
History: P.A. 82-353, S. 5, effective July 1, 1983; P.A. 84-165 amended Subsec. (b)(3) to increase minimum damage requirement for premium surcharges from $300 to $600; P.A. 85-45 amended Subsec. (b)(3) to prohibit any premium surcharge based on an accident caused by someone other than the named insured, a resident relative or a customary operator of the vehicle; P.A. 86-254 added Subsec. (b)(3)(E), prohibiting surcharge for “any motor vehicle infraction”, provided such prohibition shall not apply to plan established pursuant to Sec. 38-185l; P.A. 88-73 amended Subsec. (b)(3) to increase minimum property damage requirement for premium surcharges from $600 to $1,000; P.A. 89-114 added Subsec. (c) providing that no rate shall include any adjustment designed to recover underwriting or operating losses incurred out-of-state and redesignated former Subsec. (b)(5) as Subsec. (d); P.A. 89-192 added a new Subpara. in Subsec. (b)(3) providing that no surcharge may be assigned on an automobile insurance policy for the first or second accident within the current experience period in which the insured was not convicted of a moving traffic violation and was not at fault and relettered the remaining Subparas.; P.A. 89-193 added new Subpara. in Subsec. (b)(3) providing that no surcharge on an automobile insurance policy may be assigned for the first accident involving only property damage of more than $1,000 which would otherwise result in a surcharge to the policy of the insured, within a certain experience period and relettered the remaining Subparas.; Sec. 38-201v transferred to Sec. 38a-686 in 1991 (Revisor’s note: In 1995 in Subsec. (a)(1) the word “sections” was substituted editorially by the Revisors for the word “section” before the reference to “38a-328, 38a-329 and 38a-670” for consistency of statutory reference); P.A. 10-7 amended Subsec. (b) to redesignate existing Subdiv. (2) as Subdiv. (2)(A), add Subdiv. (2)(B) re flat dollar amount allocations to base rates for private passenger nonfleet automobile insurance, add new Subdiv. (4) re territorial classifications for private passenger nonfleet automobile insurance, redesignate existing Subdiv. (4) as Subdiv. (5) and make technical changes and amended Subsec. (d) to require commissioner to adopt regulations to implement provisions of section and department guidelines and bulletins pertaining to territorial classifications, effective January 1, 2011, and amended Subsec. (b) to add Subdiv. (6) re use of credit history as a factor in underwriting personal risk insurance, effective July 1, 2011; P.A. 11-19 made a technical change in Subsec. (b)(6)(D)(iii), effective July 1, 2011.
See Sec. 38a-665 re standards for the making and use of rates for commercial risk insurance.
Subpara. (1) cited. 36 CA 587.
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