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| [ House Amendment 001 ] |
90_HB0298
215 ILCS 5/472.1 from Ch. 73, par. 1065.18-1
215 ILCS 5/475.1a new
215 ILCS 5/482.1a new
215 ILCS 5/483.2 from Ch. 73, par. 1065.18-20
215 ILCS 5/484.2 from Ch. 73, par. 1065.18-24
215 ILCS 5/475.1 rep.
215 ILCS 5/484.1 rep.
Amends the Illinois Insurance Code in relation to
property and casualty insurance premium rates. Authorizes the
Department to review and approve or disapprove premium rates.
Requires prior Department approval with respect to an
increase or decrease of 5% or more. Specifies financial
information to be reported to the Department. Effective
January 1, 1998.
LRB9000329JScwA
LRB9000329JScwA
1 AN ACT in relation to the regulation of insurance rates,
2 amending a named Act.
3 Be it enacted by the People of the State of Illinois,
4 represented in the General Assembly:
5 Section 5. The Illinois Insurance Code is amended by
6 changing Sections 472.1, 483.2, and 484.2 and adding Sections
7 475.1a and 480.1a as follows:
8 (215 ILCS 5/472.1) (from Ch. 73, par. 1065.18-1)
9 Sec. 472.1. Purpose of Article. The purpose of this
10 Article is to promote the public welfare by regulating
11 insurance rates as herein provided to the end that they shall
12 not be excessive, inadequate or unfairly discriminatory, to
13 authorize the existence and operation of qualified rating
14 organizations and advisory organizations and require that
15 specified rating services of such rating organizations be
16 generally available to all admitted companies, and to
17 authorize cooperation between companies in rate making and
18 other related matters. It is the express intent of this
19 Article to permit and encourage competition between companies
20 on a sound financial basis to the fullest extent possible and
21 to establish a mechanism to ensure the provision of adequate
22 insurance at reasonable rates to the citizens of this State
23 nothing in this Article is intended to give the Director
24 power to fix and determine a rate level by classification or
25 otherwise.
26 This Article shall be effective and apply to the matters
27 provided for herein on and after the effective date of this
28 amendatory Act of 1997 only until August 1, 1971, unless the
29 General Assembly extends the term of or removes this
30 restriction on the period during which this Article is to be
31 applicable.
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1 (Source: P.A. 76-943.)
2 (215 ILCS 5/475.1a new)
3 Sec. 475.1a. Classes of rates.
4 (a) The rates for all classes of insurance to which the
5 provisions of this Article are applicable shall not be
6 excessive, inadequate or unfairly discriminatory.
7 (b) As to all classes of insurance:
8 (1) Insurers or rating organizations shall establish and
9 use rates, rating schedules, or rating manuals to allow the
10 insurer a reasonable rate of return on classes of insurance
11 written in this State. A copy of rates, rating schedules,
12 rating manuals, and premium credits or discount schedules,
13 and changes thereto, shall be filed with the Department as
14 soon as possible following their effective date, but no later
15 than 30 days after that date. A copy of rates, rating
16 schedules, rating manuals, and premium credits or discount
17 schedules, and changes thereto, that provide for an increase
18 or decrease of 5% or more, shall be filed with and approved
19 by the Department prior to their effective date.
20 (2) Upon receiving a rate filing, the Department shall
21 review the rate filing to determine if a rate is excessive,
22 inadequate, or unfairly discriminatory. In making that
23 determination, the Department shall, in accordance with
24 generally accepted and reasonable actuarial techniques,
25 consider all of the following factors:
26 (A) Past loss experience within and without this
27 State.
28 (B) Past expenses both allocated and unallocated.
29 (C) The degree of competition among insurers for
30 the risk insured.
31 (D) Investment income reasonably expected by the
32 insurer, consistent with the insurer's investment
33 practices, from investable premiums anticipated in the
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1 filing, plus any other expected income from currently
2 invested assets representing the amount expected on
3 unearned premium reserves and loss reserves. The
4 Department may promulgate rules utilizing reasonable
5 techniques of actuarial science and economics to specify
6 the manner in which insurers shall calculate investment
7 income attributable to the classes of insurance written
8 in this State and the manner in which that investment
9 income shall be used in the calculation of insurance
10 rates.
11 (E) The reasonableness of the judgment reflected in
12 the filing.
13 (F) Dividends, savings, or unabsorbed premium
14 deposits allowed or returned to Illinois policyholders,
15 members, or subscribers.
16 (G) The adequacy of loss reserves.
17 (H) The cost of reinsurance.
18 (I) Trend factors, including trends in actual
19 losses per insured unit for the insurer making the
20 filing.
21 (J) Conflagration and catastrophe hazards, if
22 applicable.
23 (K) A reasonable margin for profit and
24 contingencies.
25 (L) Other relevant factors that impact upon the
26 frequency or severity of claims or upon expenses.
27 (3) In the case of fire insurance rates, consideration
28 shall be given to the experience of the fire insurance
29 business during a period of not less than the most recent
30 5-year period for which experience data is available.
31 (4) In addition to the rate standards provided in item
32 (2), a rate may be found by the Department to be excessive,
33 inadequate, or unfairly discriminatory based upon any of the
34 following standards:
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1 (A) Rates shall be deemed excessive if they are
2 likely to produce a profit from Illinois business that is
3 unreasonably high in relation to the risk involved in the
4 class of business or if expenses are unreasonably high in
5 relation to services rendered.
6 (B) Rates shall be deemed excessive if, among other
7 things, the rate structure established by a stock
8 insurance company provides for replenishment of surpluses
9 from premiums, when the replenishment is attributable to
10 investment losses.
11 (C) Rates shall be deemed inadequate if they are
12 clearly insufficient, together with the investment income
13 attributable to them, to sustain projected losses and
14 expenses in the class of business to which they apply.
15 (D) One rate shall be deemed unfairly
16 discriminatory in relation to another in the same class
17 if it fails to clearly and equitably reflect the
18 difference in expected losses and expenses.
19 (E) A rate shall be deemed inadequate as to the
20 premium charged to a risk or group of risks if discounts
21 or credits are allowed that exceed a reasonable
22 reflection of expense savings and reasonably expected
23 loss experience from the risk or group of risks.
24 (F) A rate shall be deemed unfairly discriminatory
25 as to a risk or group of risks if the application of
26 premium discounts or credits among those risks does not
27 bear a reasonable relationship to the expected loss and
28 expense experience among the various risks.
29 (5) In reviewing a rate filing the Department may
30 require the insurer to provide at the insurer's expense all
31 information necessary to evaluate the condition of the
32 company and the reasonableness of the failure according to
33 the criteria enumerated in this Section.
34 (6) The Department may at any time review a rate, rating
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1 schedule, rating manual, or rate change, the pertinent
2 records of the insurer, and market conditions. If the
3 Department finds on a preliminary basis that a rate may be
4 excessive, inadequate, or unfairly discriminatory, the
5 Department shall initiate proceedings to disapprove the rate
6 and shall so notify the insurer. If a proposed rate
7 represents an increase or decrease of 5% or more, the
8 Department shall initiate proceeding to approve or disapprove
9 the rate and shall notify the insurer. Upon being notified,
10 the insurer or rating organization shall, within 60 days,
11 file with the Department all information that, in the belief
12 of the insurer or organization, proves the reasonableness,
13 adequacy, and fairness of the rate or rate change. In these
14 instances and in any administrative proceeding relating to
15 the legality of the rate, the insurer or rating organization
16 shall carry the burden of proof by a preponderance of the
17 evidence to show that the rate is not excessive, inadequate,
18 or unfairly discriminatory. After the Department notifies an
19 insurer that a rate may be excessive, inadequate, or unfairly
20 discriminatory, unless the Department withdraws the
21 notification, the insurer shall not alter the rate except to
22 conform with the Department's notice until the earlier of 120
23 days after the date the notification was provided or 180 days
24 after the date of the implementation of the rate. The
25 Department may disapprove without the 60-day notification any
26 rate increase filed by an insurer within the prohibited time
27 period or during the time that the legality of the increased
28 rate is being contested.
29 (7) If the Department finds that a rate or rate change
30 is excessive, inadequate, or unfairly discriminatory, the
31 Department shall issue an order of disapproval specifying
32 that a new rate or rate schedule be filed by the insurer
33 which responds to the findings of the Department. The
34 Department shall further order that premiums be adjusted
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1 reflecting the findings of the Department.
2 (215 ILCS 5/482.1a new)
3 Sec. 482.1a. Report of loss and expense data.
4 (a) The Department shall promulgate rules that require an
5 insurer licensed to write property or casualty insurance in
6 the State to record and report its loss and expense
7 experience and other data as may be necessary to determine
8 whether rates are fair and appropriate. The Department may
9 designate one or more rate service organizations or advisory
10 organizations to gather and compile such experience and data.
11 The Department shall require an insurer licensed to write
12 property or casualty insurance in this State to submit a
13 report, on a form furnished by the Department, showing its
14 direct writings in this State and the United States.
15 (b) The report required by subsection (a) of this
16 Section shall include, but not be limited to, the following
17 specific types of insurance written by the insurer:
18 (1) Political subdivision liability insurance reported
19 separately in the following categories:
20 (A) municipalities;
21 (B) school districts; and
22 (C) other political subdivisions.
23 (2) Public official liability insurance.
24 (3) Dram shop liability insurance.
25 (4) Day care center liability insurance.
26 (5) Labor, fraternal, or religious organization
27 liability insurance.
28 (6) Errors and omissions liability insurance.
29 (7) Officers and directors liability insurance reported
30 separately as follows:
31 (A) non-profit entities; and
32 (B) for-profit entities.
33 (8) Products liability insurance.
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1 (9) Medical malpractice insurance.
2 (10) Attorney malpractice insurance.
3 (11) Architects and engineers malpractice insurance.
4 (12) Motor vehicle insurance reported separately for
5 commercial and private passenger vehicles as follows:
6 (A) motor vehicle liability insurance first party
7 benefits;
8 (B) motor vehicle bodily injury liability
9 insurance;
10 (C) motor vehicle property liability insurance;
11 (D) uninsured motorist insurance; and
12 (E) underinsured motorist insurance.
13 (c) The report shall include all of the following data,
14 both specific to this State and also to the United States, by
15 the type of insurance for the previous year ending on the
16 31st day of December:
17 (1) Direct premiums written.
18 (2) Direct premiums earned.
19 (3) Net investment income, including net realized
20 capitol gains and losses, using appropriate estimates where
21 necessary.
22 (4) Incurred claims, developed as the sum of the
23 following (the report shall include data for each of the
24 following categories used to develop the sum of incurred
25 claims):
26 (A) dollar amount of claims closed with payment;
27 plus
28 (B) reserves for reported claims at the end of the
29 current year; minus
30 (C) reserves for reported claims at the end of the
31 previous year; plus
32 (D) reserves for incurred but not reported claims
33 at the end of the current year; minus
34 (E) reserves for incurred but not reported claims
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1 at the end of the previous year; plus
2 (F) loss adjustment expenses for claims closed;
3 plus
4 (G) reserves for Loss Adjustment Expense at the end
5 of the current year; minus
6 (H) reserves for Loss Adjustment Expense at the end
7 of the previous year.
8 (5) Actual incurred expenses allocated separately to
9 loss adjustment, commissions, other acquisition costs,
10 advertising, general office expenses, taxes, licenses and
11 fees, and all other expenses.
12 (6) Net underwriting gain or loss.
13 (7) Net operation gain or loss, including net investment
14 income.
15 (8) The number and dollar amount of claims closed with
16 payment, by year incurred and the amount reserved for them.
17 (9) The number of claims closed without payment and the
18 dollar amount reserved for those claims.
19 (10) Federal income tax recoverable.
20 (11) Any other information requested by the Department.
21 (d) For the first year only in which the insurer is
22 required to file this report, the data required by paragraphs
23 (1) through (7) of subsection (c) of this Section shall
24 include the previous calendar year and each of the preceding
25 4 calendar years.
26 (e) It is the duty of the Department to annually compile
27 and review all reports submitted by insurers pursuant to this
28 Section to determine the appropriateness of premium rates for
29 property and casualty insurance in this State. The
30 Department's findings and the filings shall be published,
31 provided to the General Assembly, and made available to any
32 interested insured or citizen. If the Department finds at
33 any time that any rate is no longer fair or appropriate, it
34 shall issue an order withdrawing its approval. The order
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1 shall specify reasons for withdrawal of approval and shall be
2 furnished to each affected insurer and rating organization,
3 and shall be effective in not less than 30 days from its
4 issuance unless an affected insurer meets the burden of
5 showing that such rate is in fact fair and appropriate.
6 (f) An insurance company shall file all of the
7 information required under this Section with the Department
8 as a prerequisite to obtaining permission to write coverage,
9 to continue to do business or to file for rate increases.
10 (g) An insurer that fails to comply with the terms of
11 this Section shall pay a civil penalty of a fine of $10,000
12 and thereafter a fine of $200 daily until the Section is
13 complied with.
14 (215 ILCS 5/483.2) (from Ch. 73, par. 1065.18-20)
15 Sec. 483.2. Examination of admitted companies; rate
16 overcharge refunds.
17 (1) The Director may, at any reasonable time, make or
18 cause to be made an examination of every admitted company
19 transacting any class of insurance to which the provisions of
20 this Article are applicable to ascertain whether such company
21 and every rate and rating system used by it for every such
22 class of insurance complies with the requirements and
23 standards of this Article applicable thereto. Such
24 examination shall not be a part of a periodic general
25 examination participated in by representatives of more than
26 one state.
27 (2) If, after examination of a company, the Director
28 finds that the company has used rates which exceed those
29 rates which have been filed with the Department of Insurance
30 under this Article and any applicable regulations, he may
31 require the company to refund those rate overcharges to the
32 policyholders.
33 A company found to have failed or refused be in violation
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1 of this Section for failure to refund any overcharges as
2 determined pursuant to Section 475.1a shall pay a penalty to
3 the Department of Insurance of $100 per day for each such
4 violation. A refusal to refund overcharges to any one
5 policyholder is a violation under this Article Section and
6 additional refusals shall be considered additional violations
7 under this Article Section.
8 Continued refusal by a company to refund policyholder
9 overcharges after an Order of the Director to so refund under
10 this Article Section may subject a company to suspension of
11 its Certificate of Authority until such time as it has shown
12 compliance with the Order of the Director and has refunded
13 the overcharges.
14 (Source: P.A. 77-1328.)
15 (215 ILCS 5/484.2) (from Ch. 73, par. 1065.18-24)
16 Sec. 484.2. Noncompliance of Rate, Rating Plan or
17 System;: notice by Director.
18 If after examination of a company, rating organization,
19 advisory organization, or group, association or other
20 organization of companies which engages in joint underwriting
21 or joint reinsurance, or upon the basis of other information,
22 or upon sufficient complaint as provided in Section 484.1 the
23 Director has good cause to believe that such company,
24 organization, group or association, or any rate, rating plan
25 or rating system made or used by any such company or rating
26 organization, does not comply with the requirements and
27 standards of this Article applicable to it, he shall, unless
28 he has good cause to believe such non-compliance is wilful,
29 give notice in writing to such company, organization, group
30 or association stating therein to the extent practicable, in
31 what manner such non-compliance is alleged to exist and
32 specifying therein a reasonable time, not less than 10 days
33 thereafter, in which such non-compliance may be corrected.
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1 (Source: P.A. 77-1328.)
2 (215 ILCS 5/475.1 rep.)
3 (215 ILCS 5/484.1 rep.)
4 Section 10. The Illinois Insurance Code is amended by
5 repealing Sections 475.1 and 484.1.
6 Section 99. Effective date. This Act takes effect
7 January 1, 1998.