PRINTER'S NO. 2913
No. 2295 Session of 1992
INTRODUCED BY FREIND, FARGO, VROON, RAYMOND, STURLA, NOYE,
FAIRCHILD, KENNEY, NAHILL, TRELLO, MERRY, HERMAN, OLASZ,
GALLEN, SAURMAN, ANGSTADT, E. Z. TAYLOR, S. H. SMITH, McHUGH,
LEH, GANNON, BOYES, GLADECK, SERAFINI, DEMPSEY, NICKOL,
LaGROTTA, MELIO AND THOMAS, JANUARY 7, 1992
REFERRED TO COMMITTEE ON INSURANCE, JANUARY 7, 1992
AN ACT
1 Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
2 act relating to insurance; amending, revising, and
3 consolidating the law providing for the incorporation of
4 insurance companies, and the regulation, supervision, and
5 protection of home and foreign insurance companies, Lloyds
6 associations, reciprocal and inter-insurance exchanges, and
7 fire insurance rating bureaus, and the regulation and
8 supervision of insurance carried by such companies,
9 associations, and exchanges, including insurance carried by
10 the State Workmen's Insurance Fund; providing penalties; and
11 repealing existing laws," providing for the filing of loss
12 ratio guarantees.
13 The General Assembly finds and declares as follows:
14 (1) There is a shortage in this Commonwealth of
15 affordable major medical insurance for individuals and their
16 dependents not covered by group insurance plans.
17 (2) There is a proper and necessary role for the
18 Insurance Department to continue, under its current
19 authorization, in the regulation of individual health
20 insurance rates and in the monitoring of the solvency of
21 health insurance companies doing business in this
1 Commonwealth.
2 (3) In order for a competitive market for affordable
3 individual health insurance to exist in this Commonwealth, it
4 is necessary that rates be regulated according to predictable
5 and clear objective standards.
6 (4) It is the intent of the General Assembly to
7 encourage an increase in supply and competition in this
8 Commonwealth's individual health insurance market by
9 establishing more predictable standards for rate regulation.
10 The General Assembly of the Commonwealth of Pennsylvania
11 hereby enacts as follows:
12 Section 1. Section 616 of the act of May 17, 1921 (P.L.682,
13 No.284), known as The Insurance Company Law of 1921, amended May
14 26, 1937 (P.L.885, No.229) and repealed in part April 28, 1978
15 (P.L.202, No.53), is amended to read:
16 Section 616. Copies of Policies to Be Filed With and
17 Approved by the Insurance Commissioner.--(a) No policy of
18 insurance against loss from sickness, or loss or damage from
19 bodily injury or death of the insured by accident, shall be
20 issued or delivered by any insurance company, association or
21 exchange issuing such policies, to any person in this
22 Commonwealth until a copy of the form thereof, and of the
23 classification of risks and the premium rates pertaining
24 thereto, have been filed with and formally approved by the
25 Insurance Commissioner. If the Insurance Commissioner shall
26 notify in writing the company, corporation, association, or
27 other insurer which has filed such form that it does not comply
28 with the requirements of law, specifying the reason for his
29 opinion, it shall be unlawful for any such insurer to issue any
30 policy in such form.
19920H2295B2913 - 2 -
1 (b) Revisions of premium rates on individual accident and
2 health insurance policy forms which provide for reimbursement on
3 an expense-incurred basis shall not be disapproved by the
4 Insurance Commissioner if the rates are filed pursuant to a loss
5 ratio guarantee that meets the requirements of this section.
6 Rates shall continue to be approved if the insurer complies with
7 the terms of the loss ratio guarantee. Premium rates shall be
8 deemed approved upon filing with the Insurance Commissioner if
9 the filing is accompanied by a loss ratio guarantee. This loss
10 ratio guarantee shall be in writing, signed by an officer of the
11 insurer, and shall contain at least the following:
12 (1) A recitation of the anticipated lifetime and durational
13 target loss ratios contained in the original actuarial
14 memorandum filed with the policy form when it was originally
15 approved.
16 (2) A guarantee that the actual loss ratios of this
17 Commonwealth for the experience period in which the new rates
18 take effect, and for each experience period thereafter until new
19 rates are filed, shall meet or exceed the loss ratios under
20 paragraph (1). If the annual earned premium volume in this
21 Commonwealth under the particular policy form is less than one
22 million dollars ($1,000,000.00) and therefore not actuarially
23 credible, the loss ratio guarantee shall be based on the loss
24 ratio for the policy form in all states, but excluding any state
25 with respect to which all of the following conditions are met:
26 (i) the state has in effect a statute or regulation which
27 would permit the insurer to use rates on the policy form upon
28 the filing of a loss ratio guarantee and which provides minimum
29 standards for actuarial credibility;
30 (ii) the insurer has filed a loss ratio guarantee on the
19920H2295B2913 - 3 -
1 policy form in the state which meets the requirements of the
2 state and which covers the experience period in question; and
3 (iii) the minimum standards for actuarial credibility in the
4 state for the policy form have been met for the experience
5 period in question.
6 If the aggregate earned premium for all included states is less
7 than one million dollars ($1,000,000.00), the experience period
8 shall be extended until the end of the calendar year in which
9 one million dollars ($1,000,000.00) of earned premium is
10 attained.
11 (3) A guarantee that the actual loss ratio results of this
12 Commonwealth, or multistate results, if applicable, for the
13 experience period at issue shall be independently audited at the
14 insurer's expense. This audit shall be completed in the second
15 quarter of the year following the end of the experience period
16 and the audited results shall be reported to the Insurance
17 Commissioner no later than June 30 following the end of the
18 experience period.
19 (4) A guarantee that affected policyholders in this
20 Commonwealth shall be issued a proportional refund, based on
21 premium earned, of the amount necessary to bring the actual loss
22 ratio up to the anticipated loss ratio under paragraph (1). If
23 multistate loss ratios are used, then the total amount refunded
24 in this Commonwealth shall equal the dollar amount necessary to
25 achieve the loss ratio standards multiplied by the total premium
26 earned on the policy form in this Commonwealth and divided by
27 the total premium earned in all included states on the policy
28 form. The refund shall be made to all policyholders in this
29 Commonwealth who are insured under the applicable policy form as
30 of the last day of the experience period and whose refund would
19920H2295B2913 - 4 -
1 equal ten dollars ($10.00) or more. The refund shall include
2 interest, at the then-current accident and health reserve
3 interest rate established by the National Association of
4 Insurance Commissioners, from the end of the experience period
5 until the date of payment. Payment shall be made during the
6 third quarter of the year following the experience period for
7 which a refund is determined to be due.
8 (5) A guarantee that refunds of less than ten dollars
9 ($10.00) shall be aggregated by the insurer and paid to the
10 Insurance Department.
11 (6) "Loss ratio" shall mean the ratio of incurred claims to
12 earned premium by number of years of policy duration, for all
13 combined durations.
14 (7) "Experience period" shall mean the period for which a
15 loss ratio guarantee is calculated, ordinarily a calendar year.
16 Section 2. This act shall apply only to revisions of premium
17 rates which have been approved by the Insurance Commissioner on
18 or after the effective date of this act.
19 Section 3. This act shall take effect immediately.
J9L40BIL/19920H2295B2913 - 5 -