Chapter 345. Rules Governing Rate Stabilization in Property and Casualty Insurance
14VAC5-345-10. Purpose and applicability.
A. The purpose of this chapter is to establish rules for the implementation of the provisions of § 38.2-1906 F of the Code of Virginia that allows an insurer to file with the commission rate or supplementary rate information to limit rate increases or rate decreases on (i) its renewal policies; (ii) policies acquired by an insurer from another insurer pursuant to a written agreement of acquisition, merger, or sale that transfers all or part of the other insurer's book of business; or (iii) policies acquired by an agent book of transfer. This practice shall be known as a rate stabilization plan or capping.
B. This chapter shall apply to the classes of insurance defined in §§ 38.2-110 through 38.2-118, 38.2-120, 38.2-121, 38.2-122, 38.2-124 through 38.2-128, and 38.2-130 through 38.2-133 of the Code of Virginia and all insurers subject to the scope of Chapter 19 (§ 38.2-1900 et seq.) of Title 38.2 of the Code of Virginia as identified in § 38.2-1902 of the Code of Virginia. This chapter does not apply to workers' compensation and employers' liability insurance.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 32, Issue 25, eff. September 1, 2016.
14VAC5-345-20. Definitions.
The following words or terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
"Commission" means the State Corporation Commission.
"Rate" means any rate of premium, policy fee, membership fee, or any other charge made by an insurer for or in connection with a contract or policy of insurance. The term "rate" shall not include a membership fee paid to become a member of an organization or association, one of the benefits of which is the purchasing of insurance coverage.
"Rate stabilization plan" or "capping" means a way to control or cap the impact of premium changes to renewals due to the insurer's (i) revision of its own rating plan; (ii) introduction of a new rating plan that replaces an existing rating plan; (iii) acquisition from another insurer pursuant to a written agreement of acquisition, merger, or sale that transfers all or part of the other insurer's book of business; or (iv) acquisition by an agent book of transfer.
"Rate stabilization rule" means the rating methodology filed by an insurer to describe the application of a rate stabilization plan.
"Renewal" means the continuation of an insurer's current policies; policies acquired by an insurer from another insurer pursuant to a written agreement of acquisition, merger, or sale that transfers all or part of the other insurer's book of business; or policies transferred by an agent or agency pursuant to an agent book of transfer.
"Supplementary rate information" includes any manual or plan of rates, experience rating plan, statistical plan, classification, rating schedule, minimum premium, or minimum premium rule, policy fee, rating rule, rate-related underwriting rule, and any other information not otherwise inconsistent with the purposes of Chapter 19 (§ 38.2-1900 et seq.) of Title 38.2 of the Code of Virginia, this chapter, or as required by the commission.
"Tier" means mutually exclusive pricing levels within the same insurer that are based on an indivisible group of risk characteristics.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 32, Issue 25, eff. September 1, 2016; Errata, 33:1 VA.R. 30 September 5, 2016.
14VAC5-345-30. General standards.
A. An insurer may utilize rate capping to stabilize insurance rates charged to (i) its renewal policies; (ii) policies acquired from another insurer pursuant to a written agreement of acquisition, merger, or sale that transfers all or part of the other insurer's book of business; or (iii) policies acquired by an agent book of transfer.
B. A rate stabilization plan shall be unambiguous and applied uniformly and fairly to all renewal policies affected by such plan.
C. A rate stabilization plan may cap increases in premium only or increases and decreases in premium, but not decreases only. Caps on increases and decreases are not required to be equivalent.
D. A rate stabilization plan is expected to result in individual policy premiums converging with the insurer's uncapped rates. A rate stabilization plan shall achieve this result within five years unless the insurer initially requests a shorter period or justifies a longer period in the rate stabilization plan filing.
E. A rate stabilization rule may be amended within the original rate stabilization plan period.
F. A rate stabilization rule may be filed in conjunction with a routine rate filing or as a separate rule filing.
G. In each rate filing subsequent to the implementation of a rate stabilization plan, the insurer shall demonstrate that the actuarial indication does not redundantly measure rate need by demonstrating that premiums at current rate level underlying the actuarial indication are on an uncapped basis.
H. An insurer may file a rate level change or modify rating factors or other supplementary rate information while a rate stabilization plan is in effect. The insurer shall explain whether:
1. The existing rate stabilization plan will continue to apply for the filed duration; or
2. The rate stabilization plan will be amended.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 32, Issue 25, eff. September 1, 2016.
14VAC5-345-40. Filing requirements.
A. A rate stabilization rule shall be filed as supplementary rate information in accordance with the provisions of § 38.2-1906 of the Code of Virginia.
B. A rate stabilization rule shall detail the application of the rate stabilization plan. This rule shall be clear and shall specify:
1. The source of the renewals subject to the rate stabilization plan;
2. The process to be used for the rate stabilization, including an example to illustrate the process;
3. The amount of the rate increase or increase and decrease to be limited;
4. Whether the rate stabilization plan is designed to converge with uncapped rates in subsequent rate filings;
5. The effect, if any, of the rate stabilization rule on any midterm changes;
6. Any limitations on tier movement that will be utilized for rate stabilization;
7. The commencement date of the rate stabilization plan;
8. The duration of the rate stabilization plan; and
9. The expiration date of the rate stabilization plan.
C. The filing shall clearly identify that a rate stabilization plan is included.
D. The insurer shall file and certify to the commission using the Rate Stabilization Plan Certification (Form 345-A), the impact of the proposed capped rate changes over future renewal periods until the capping period ends. The filing should include projections of the effects of the caps on premiums, percentage changes, dollar changes, and the number of policies impacted for each future renewal period. In calculating the impact, the insurer may make the assumption that its current book of business is fully retained and renewed into the future until the rate stabilization period ends.
E. If a rate stabilization plan exceeds five years, an explanatory memorandum shall be filed demonstrating the need for such plan. The explanatory memorandum shall contain details to justify the period of time identified in which the uncapped rates for each policyholder will be achieved.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 32, Issue 25, eff. September 1, 2016.
14VAC5-345-50. Prohibited actions.
A. A rate stabilization rule shall not apply to any changes impacting an individual's premium other than insurer initiated rate increases or decreases.
B. A rate stabilization rule shall not apply to any decrease as a result of the application of the provisions of § 38.2-1904 D of the Code of Virginia.
C. A rate stabilization plan shall not be designed to generate more total revenue than would otherwise be generated in the absence of the plan, resulting in an undue benefit to the insurer.
D. A rate stabilization rule shall not apply to any decrease as a result of the application of the provisions of §§ 38.2-2126 (property) and 38.2-2234 (personal auto) of the Code of Virginia.
E. A rate stabilization plan shall not apply for an undefined or unlimited period of time.
F. No more than one rate stabilization plan shall apply to any one policy at any given time.
G. A rate stabilization plan shall not be used to control increases or decreases in rates or premiums based on predicted price elasticity of demand on individual policyholders.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 32, Issue 25, eff. September 1, 2016.
14VAC5-345-60. Certification.
A. In any filing proposing a rate stabilization plan, the insurer shall complete, certify, and include the Rate Stabilization Plan Certification (Form 345-A).
B. In any rate filing made subsequent to the implementation of a rate stabilization plan where historical premiums have been capped (whether increases or decreases), the insurer's actuary shall provide a signed statement certifying that the actuarial indication does not redundantly measure rate need.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 32, Issue 25, eff. September 1, 2016.
14VAC5-345-70. Severability.
If any provision of this chapter or its application to any person or circumstance is for any reason held to be invalid by a court, the remainder of this chapter and the application of the provisions to other persons or circumstances shall not be affected.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 32, Issue 25, eff. September 1, 2016.
Forms (14VAC5-345)
Rate Stabilization Plan Certification, Form 345-A, (eff. 9/2016)