Public Notice June 8, 2001
Public Notice: Reminder to Insurers of Certain Requirements Regarding Complete Rate Applications
TO: ALL INSURERS SUBJECT TO PROPOSITION 103
DATE: June 8, 2001
This Notice is to remind all insurers subject to the prior approval provisions of Proposition 103 that, under California law, they must file complete rate applications including all information necessary for the Insurance Commissioner to determine whether an applied-for rate complies with applicable law. This information must be included in each rate application regardless of the source of the information. According to the California Insurance Code:
Every insurer which desires to change any rate shall file a complete rate application with the commissioner. A complete rate application shall include all data referred to in Sections 1857.7, 1857.9, 1857.15, and 1864 and such other information as the commissioner may require. The applicant shall have the burden of proving that the requested rate change is justified and meets the requirements of this article. (California Insurance Code, Section 1861.05(b))
Title 10 of the California Code of Regulations specifically requires extensive documentation to support applied-for rates, and requires insurers to comply with the Department's rate application filing instructions:
In order to be complete, a rate application must include the following forms, exhibits, data and documentation, which are incorporated by reference: application for approval (form CA-RA1, 5-1-96 ed.), . . . Ratemaking Data (form CA-RA5, 5-1-96 ed.), . . .Insurer's Ratemaking Calculations (to be labled Exhibit 20), Rate Distribution (to be labeled Exhibit 21), Rate Classification Relativities (to be labeled Exhibit 22), . . . The application must also contain a summary and explanation of the purpose for the filing. The Filing Instructions (forms CA-IA1--CA-I8, 5-1-96, ed.) for these forms and exhibits are incorporated by reference. (Title 10, California Code of Regulations, Section 2648.4(a)).
The rate application filing instructions further require an applicant to fully explain the development of the calculations of the indicated rate change and proposed overall rate change. On page CA - 1A9, the instructions provide:
Exhibit 20-Insurer's Ratemaking Calculations
Provide a full explanation of the development of the insurer's calculations of the indicated rate change and proposed overall rate change. The components indicated in the CA-RA5 pages plus any additional relevant ratemaking data should reconcile with Exhibit 20, otherwise a full explanation must be provided.
Some insurers have filed rate applications that are based partially on data generated by, or contained in, databases or models, including databases or models obtained from third parties. Unfortunately, insurers have not always provided data from databases or models in their rate applications - even though the insurers used the data to develop the applied-for rates. For example, with respect to homeowners and dwelling fire programs, some insurers have filed rate applications that did not include data derived from databases or models even though the data was used to develop replacement cost methodologies and insurance to value factors.
Insurance Code Section 1861.05(b) provides that a rate applicant has the burden of proving that its requested rate is justified and complies with California law. To enable the Commissioner to determine whether a rate complies with the law, an applicant must provide all data used to calculate the rate, including data generated by or contained in databases or models as described above. The Commissioner cannot approve a rate application which does not contain all data necessary to determine whether the requested rate complies with the law. Therefore, applicants are reminded to make sure that their rate applications include all necessary information, including data generated by or contained in databases or models.
Any questions regarding this notice can be addressed to:
Rick Holbrook
California Department of Insurance
45 Fremont Street,
San Francisco, CA 94105
(415) 538-4328
