GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	1 

HOUSE BILL 425

Short Title:  Auto Ins. Rate-Making Reform/AB.	(Public)

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Sponsors: Representative Hensley.

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Referred to:  Insurance.

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March 9, 1995

A BILL TO BE ENTITLED
AN ACT TO REFORM THE LAWS GOVERNING THE APPROVAL OF RATES IN PRIVATE PASSENGER AUTOMOBILE AND HOMEOWNERS' INSURANCE, INCLUDING THE REMOVAL OF CONSIDERATION OF CONTINGENCIES IN RATE MAKING AND THE ESTABLISHMENT OF A REFUND OF EXCESS INCOME BY THE MOTOR VEHICLE REINSURANCE FACILITY.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 58-36-10(2) reads as rewritten:
"(2)	For workers' compensation insurance, due consideration shall be given to actual loss and expense experience within this State for the most recent three-year period for which the information is available; to prospective loss and expense experience within this State; to the hazards of conflagration and catastrophe; to a reasonable margin for underwriting profit and to contingencies; to dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members, or subscribers; to investment income earned or realized by insurers from their unearned premium, loss, and loss expense reserve funds generated from business within this State; to past and prospective expenses specially applicable to this State; and to all other relevant factors within this State: Provided, however, that countrywide expense and loss experience and other countrywide data may be considered only where credible North Carolina experience or data is not available.  For all other coverage under this Article, due consideration shall be given to actual loss and expense experience within this State for the most recent three-year period for which the information is available; to prospective loss and expense experience within this State; to the hazards of conflagration and catastrophe; to a reasonable margin, on a total return basis; for underwriting profit; to investment income earned or realized by insurers; to past and prospective expenses specially applicable to this State; and to all other relevant factors within this State: Provided, however, that countrywide expense and loss experience and other countrywide data may be considered only where credible North Carolina experience or data is not available."
Sec. 2.  G.S. 58-36-25(b) reads as rewritten:
"(b)	Whenever a Bureau rate is held to be unfairly discriminatory or excessive and no longer effective by order of the Commissioner issued under G.S. 58-36-20 or G.S. 58-36-70, the members of the Bureau, in accordance with rules adopted by the Commissioner, may continue to use the rate for the interim period pending judicial review of the order, provided each member shall place in escrow account the purportedly unfairly discriminatory or excessive portion of the premium collected during the interim period.  Upon a final determination by the Court, the Commissioner shall order the escrowed funds to be distributed appropriately, except that individual refunds that are five dollars ($5.00) or less shall not be required.  The court may also require that purportedly excess premiums resulting from an adjustment of premiums ordered pursuant to G.S. 58-36-20(b) or G.S. 58-36-70(d) be placed in the escrow account pending judicial review.  If refunds made to policyholders are ordered under this subsection, the amounts refunded shall bear interest at the rate determined under this subsection.  That rate shall be the average of the prime rates of the four largest banking institutions domiciled in this State, plus three percent (3%), as of the effective date of the filing, to be computed by the Commissioner."
Sec. 3.  G.S. 58-37-35(l) reads as rewritten:
"(l)	The classifications, rules, rates, rating plans and policy forms used on motor vehicle insurance policies reinsured by the Facility may be made by the Facility or by any licensed or statutory rating organization or bureau on its behalf and shall be filed with the Commissioner.  The Board of Governors shall establish a separate subclassification within the Facility for 'clean risks' as herein defined.  For the purpose of this Article, a 'clean risk' shall be any owner of a nonfleet private passenger motor vehicle as defined in G.S. 58-40-10, if the owner, principal operator, and each licensed operator in the owner's household have two years' driving experience as licensed drivers and if none of the persons has been assigned any Safe Driver Incentive Plan points under Article 36 of this Chapter during the three-year period immediately preceding either (i) the date of application for a motor vehicle insurance policy or (ii) the date of preparation of a renewal of a motor vehicle insurance policy.  Filings may incorporate by reference any other material on file with the Commissioner.  Rates shall be neither excessive, inadequate nor unfairly discriminatory.  If the Commissioner finds, after a hearing, that a rate is either excessive, inadequate or unfairly discriminatory, the Commissioner shall issue an order specifying in what respect it is deficient and stating when, within a reasonable period thereafter, the rate shall be deemed no longer effective.  The order is subject to judicial review as set out in Article 2 of this Chapter.  Pending judicial review of the order, the filed classification plan and the filed rates may be used, charged and collected in the same manner as set out in G.S. 58-40-45 of this Chapter.  The order shall not affect any contract or policy made or issued prior to the expiration of the period set forth in the order.  All rates shall be on an actuarially sound basis and shall be calculated, insofar as is possible, to produce neither a profit nor a loss.  However, the rates made by or on behalf of the Facility with respect to 'clean risks', as defined above, shall not exceed the rates charged 'clean risks' who are not reinsured in the Facility.  The difference between the actual rate charged and the actuarially sound and self-supporting rates for 'clean risks' reinsured in the Facility may be recouped in similar manner as assessments pursuant to G.S. 58-37-40(f) or allocated pursuant to G.S. 58-37-75.  Rates shall not include any factor for underwriting profit on Facility business.  There shall be a strong presumption that the rates and premiums for the business of the Facility are neither unreasonable nor excessive."
Sec. 4.  G.S. 58-37-40(e) reads as rewritten:
"(e)	Upon approval of the Commissioner of the plan so submitted or promulgation of a plan deemed approved by the Commissioner, all insurance companies licensed to write motor vehicle insurance in this State or any component thereof as a prerequisite to further engaging in writing the insurance shall formally subscribe to and participate in the plan so approved.
The plan of operation shall provide for, among other matters, (i)	the establishment of necessary facilities; (ii) the management of the Facility; (iii) the preliminary assessment of all members for initial expenses necessary to commence operations; (iv) the assessment of members if necessary to defray losses and expenses; (v) the distribution of gains to defray losses incurred since September 1, 1977; (vi) the distribution of gains by credit or reduction of recoupment or allocation surcharges to policies subject to recoupment or allocation surcharges pursuant to this Article (the Facility may apportion the distribution of gains among the coverages eligible for cession pursuant to this Article); (vii) the recoupment or allocation of losses sustained by the Facility since September 1, 1977, pursuant to this Article, which losses may be recouped by equitable pro rata assessment of member companies; (viii) the standard amount (one hundred percent (100%) or any equitable lesser amount) of coverage afforded on eligible risks which a member company may cede to the Facility; and (ix) the procedure by which reinsurance shall be accepted by the Facility.  The plan shall further provide that:
(1)	Members of the Board of Governors shall receive reimbursement from the Facility for their actual and necessary expenses incurred on Facility business, en route to perform Facility business, and while returning from Facility business plus a per diem allowance of twenty-five dollars ($25.00) a day which may be waived.
(2)	In order to obtain a transfer of business to the Facility effective when the binder or policy or renewal thereof first becomes effective, the company must within 30 days of the binding or policy effective date notify the Facility of the identification of the insured, the coverage and limits afforded, classification data, and premium. The Facility shall accept risks at other times on receipt of necessary information, but acceptance shall not be retroactive.  The Facility shall accept renewal business after the member on underwriting review elects to again cede the business.
Any gains realized by the Facility that must be distributed under this subsection shall bear interest from the date the Board adopted the amount of recoupment or allocation that caused the gains.  That interest rate shall be the average of the prime rates of the four largest banking institutions domiciled in this State on the date the Board adopted the amount of recoupment or allocation."
Sec. 5.  If any section or provision of this act is declared unconstitutional or invalid by the courts, it does not affect the validity of the act as a whole or any part other than the part declared unconstitutional or invalid.
Sec. 6.  This act is effective upon ratification.