SUBCHAPTER FF. CREDIT LIFE AND ACCIDENT AND HEALTH INSURANCE

28 TAC §§3.5601-3.5603, 3.5605-3.5610, 3.5701, 3.5702, 3.5801, and 3.6011

The Commissioner of Insurance adopts amendments to §§3.5601-3.5603, 3.5605-3.5610, 3.5701, 3.5702, 3.5801, and 3.6011, concerning credit life and accident and health insurance. These amended sections are adopted without changes to their proposed text as published in the December 6, 2002 issue of the Texas Register (27 TexReg 11465) and will not be republished. The December 6, 2002 proposal also included amendments to §§ 3.5103, 3.5105 and 3.5106. However, those amendments are not included in this adoption.

The amendments have several purposes. First, they are necessary to implement Texas Insurance Code Art. 3.53, as amended by Acts 2001, 77th Legislature in House Bill (HB) 2159. HB 2159 requires that the commissioner set the presumptive premium rate by rule, rather than through a contested case proceeding. It also allows insurers to set their rates in an amount that deviates from the presumptive premium rate without seeking written approval of the commissioner, as long as the deviated rate is no more than 30% above nor more than 30% below the presumptive premium rate.

Second, the amendments introduce more flexibility into the department´s process for annual calls for statistical data and experience reports regarding credit life and accident and health insurance.

Finally, the amendments update language in the rules regarding where filings are to be delivered within the department, and the correct name of the department.

Sections 3.5601 and 3.5801 are amended to replace references to the State Board of Insurance with references to the commissioner and the department, respectively, to reflect the current structure of the agency.

Sections 3.5601 through 3.5603 and §§ 3.5605 through 3.5610 primarily will implement Texas Insurance Code Art. 3.53, as amended by Acts 2001, 77th Legislature in HB 2159. The amendment to §3.5601 includes changes to rate setting that HB 2159 effected. The amendment notes that two types of rate deviation are allowed. Deviations that are no more than 30% above nor more than 30% below the presumptive premium rate are designated in amended §3.5601(1) as "automatic deviations," because they are effective immediately upon filing with the department. An insurer's request for deviations that are more than 30% above or more than 30% below the presumptive premium rate are designated in amended §3.5601(2) as "approved deviations" or "approved deviated rates" These rates are not effective until the commissioner has issued written approval for them. However, if the commissioner has not taken action to approve or disapprove the request before the 60th day after the insurer filed the rate for approval, the rate is considered approved and the insurer may use the rate.

Section 3.5601(3) identifies the grounds that the commissioner may rely upon to deny a request for an approved deviated rate. The commissioner can disapprove a request for an approved deviated rate if the requested rate is not actuarially justified. HB 2159 enacted this standard at Insurance Code Art. 3.53, §8(A)(6). All rates must still meet the standards of Art. 3.53, §8(A)(3), which were in place before the passage of HB 2159. However, HB 2159 provided more guidance about how to determine if a proposed rate is excessive or inadequate, which is found at Art. 3.53, §8(A)(7).The amendment restates this standard so that the rule contains a complete statement of possible grounds for disapproval of a request for an approved deviated rate.

The grounds for disapproval identified in amended §3.5601(3) must be considered in tandem with the loss ratio standard found currently in §3.5202. The department will review the latter section in the next proceeding to set a presumptive premium rate. The department will also consider at that time giving more specific guidance by rule on how to identify whether a reasonable degree of competition exists with regard to a classification to which a proposed rate applies, and how to identify whether a proposed rate will, or is likely to, substantially impair competition.

Section 3.5601(4) recognizes that an approved deviation will take effect if it is not disapproved by the commissioner before the 60th day after the rate is filed by the insurer.

Sections 3.5602, 3.5606, 3.5607, 3.5608 and 3.5610 add the word "approved," where appropriate, to reflect that these sections address requests for those rate deviations that must be submitted for the commissioner's written approval before they can become effective. The amendment to §3.5602 also includes updated language to reflect that requests for such approval are now filed with the Filings Intake Division of the department. The amendment also deletes a specific reference to a form number and substitutes the language that these requests are to be submitted in the manner prescribed on the form provided by the department. Amendments conforming to this procedure are also found in the amended definition of "earned premium" in §3.5603 and amended §3.5610. An unnecessary word was removed from §3.5603(5).

Section 3.5605 reflects the differing effective dates for the two types of deviations from the presumptive premium rate. Section 3.5609 clarifies that when a creditor charging a rate other than the presumptive rate changes insurers, the previous insurer must send notice to the commissioner, whether the rate is an automatic deviated rate or an approved deviated rate.

Sections 3.5701 and 3.5702 create more flexibility in the process of annual calls by the department for statistical data and experience reports from credit life and credit accident and health insurers.

Section 3.5701 points out that the forms are available from the department's Filings Intake Division and accessible at the department's internet web site.

Section 3.5702 deletes the instructions for the specific forms that are identified in §3.5702. Because the instructions accompany the forms and will continue to do so, there is no need to include them in the rule. The list of forms remains in the rule, because those same forms will continue to be used. However, the amendment removes the reference to revision dates. Subsection (a) directs the public to the department's Filings Intake Division and web site for copies of the forms. Subsection (c) provides for the electronic submission of experience data. Section 3.6011 directs the public to the correct sources for obtaining a copy of the Consumer Bill of Rights for Credit Life, Credit Disability and Involuntary Unemployment Insurance.

The agency received no comments during the comment period set forth in the published proposal.

The amendments are adopted under the Insurance Code Article 3.53 and §36.001. Article 3.53 provides the statutory basis for the regulation of credit life and credit accident and health insurance in Texas, including the setting of rates. Section 36.001 provides that the Commissioner of Insurance may adopt rules to execute the duties and functions of the Texas Department of Insurance as authorized by statute.

DIVISION 6. DEVIATION PROCEDURES

§3.5601. Deviation by Case Allowed. Two types of rate deviation are allowed. They are:

(1) Automatic Deviation. An insurer electing to deviate from the presumptive premium rate established by the commissioner shall file with the commissioner the insurer´s proposed rate for credit life and credit accident and health insurance. On filing the rate with the commissioner, the insurer may use the filed rate until the insurer elects to file a different rate. Except as provided in paragraph (2) of this section, an insurer may not use a rate that is more than 30% higher or 30% lower than the presumptive premium rate.

(2) Approved Deviation by Case. Notwithstanding the determination by the Commissioner of Insurance of presumptive premium rates which are reasonable in relation to the benefits of a policy providing the coverage to which the rates are applicable, an insurer who has experienced excessive loss ratios or who fails to develop the minimum loss ratio as defined in §3.5202 of this title (relating to Reasonable Relation of Benefits to Premiums), for a case consisting of a single account or combination of accounts, as "account" is hereinafter defined, will be permitted, at its own request, or may be required by the commissioner, to adjust the premium rate or premium rate schedule for such case in accordance with the deviation procedures set out in §§3.5601-3.5610 of this title (relating to Deviation Procedures).

(3) The commissioner may disapprove a request for an approved deviated rate on the grounds that the rate is not actuarially justified, or is unjust, unreasonable, excessive or inadequate. A rate is excessive if it is unreasonably high for the coverage provided and a reasonable degree of competition does not exist with respect to the classification to which the rate would be applicable. A rate is inadequate if the rate is insufficient to sustain projected losses and expenses, or the rate substantially impairs, or is likely to substantially impair, competition with respect to the sale of the product.

(4) The insurer may use the rate if the commissioner does not disapprove it before the 60th day after the date the insurer filed the rate.

§3.5602. Request for an Approved Deviated Premium Rate. A request for an approved deviated rate must be made in writing and shall include all of the information which is required under §§3.5601 to 3.5610 of this title (relating to Deviation Procedures). It must be accompanied by a list of the creditors whose experience is the basis for such request, and must be attested to by an officer of the insurer. The use of any approved rate deviation approved by the commissioner is limited to those creditors whose names appear on such list. No rate deviation may be used unless and until approved by the commissioner in writing. Any request for an approved deviated rate shall be submitted to the commissioner through the Filings Intake Division in the manner prescribed on the form provided by the department for that purpose. The form can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104,Austin, Texas 78714-9104.The form can also be obtained from the department's internet web site at www.tdi.state.tx.us

In order to provide the commissioner sufficient time for review, all requests for approved rate deviations must be submitted a minimum of 60 days prior to the proposed effective date of the approved deviated rate.

§3.5603. Definitions. The following words and terms, when used in §§3.5601 to 3.5610 of this title (relating to Deviation Procedures), shall have the following meanings, unless the context clearly indicates otherwise.

(1) Account--The aggregate credit life insurance or credit accident and health coverage for a single class of business written through a single creditor, or written through more than one creditor under common control or ownership, by the insurer, whether coverage is written on a group or individual policy basis.

(2) Average number of life years--The average of the number of group certificates or individual policies in force each month during the experience period (without regard to multiple coverage) times the number of years in the experience period.

(3) Case--Either a "single account case" or a "multiple account case" as follows.

(A) Single account case--An account that is at least 25% credible or, at the option of the insurer, any higher percentage as determined by the credibility table. An insurer exercising this option must notify the commissioner, in writing, of the credibility factor it will use to define a "single account case." Once the commissioner is so notified, the credibility factor will remain in effect for the insurer until a different election has been filed in writing by the insurer and approved by the commissioner.

(B) Multiple account case--A combination of all the insurer's accounts of the same class of business which combination has experience in this state, excluding all single account cases of the insurer defined in subparagraph (A) of this definition, or with the approval of the commissioner, "multiple account case" also means two or more accounts of the insurer having like underwriting characteristics which are combined by the insurer for premium rating purposes, excluding all "single account cases" as defined in subparagraph (A) of this definition and other "multiple account cases" defined previously.

(4) Class of business--A class of business as specified in the experience reporting forms for §3.5701 and §3.5702 of this title (relating to Experience Calls).

(5) Credibility factor--The degree to which the past experience of a case can be expected to occur in the future. The credibility factor is based either on the average number of life years or the incurred claim count during the experience period as shown in the credibility table following. The insurer shall notify the commissioner, in writing, which of the two methods it will use in measuring credibility. Once the commissioner is so notified, the method will remain in effect for the insurer until a change has been filed and approved by the commissioner.

TAC 28 §3.5603(5)

Credibility Table

AVERAGE NUMBER OF LIFE YEARS

(6) Earned premium--Premium earned during the experience period at the presumptive rate. If the rate for a case is not the presumptive rate, premium earned at the presumptive rate must be determined in accordance with the conversion method set forth in the form provided by the department for that purpose, and set out in an attachment by the insurer to its deviation request form. The form can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104 , Austin , Texas 78714-9104 . The form can also be obtained from the department 's internet web site at http://www.tdi.state.tx.us.

(7) Experience--The earned premiums and incurred claims for a single or multiple account case. Experience will be the most recent experience in this state for a class of business, and may include the experience of the case while with a prior insurer to the extent necessary to achieve credibility.

(8) Experience period--The period of time for which experience is reported, but not for a period longer than three years.

(9) Incurred claims--The total claims incurred during the experience period, as defined in §3.5204 of this title (relating to Claims Incurred).

(10) Incurred claim count--The number of claims incurred for the case during the experience period. This means the total number of claims reported during the experience period (whether paid or in the process of payment) plus any incurred but not reported at the end of the experience period less the number of claims incurred but not reported at the beginning of the experience period. If a debtor has been issued more than one certificate for the same plan of insurance, only one claim is counted. If a debtor receives disability benefits, only the initial claim payment for that period of disability is counted.

§3.5605. Effective Date of Deviated Rate. An automatic rate deviation shall be effective immediately upon filing with the commissioner. The effective date for any approved rate deviation shall be the earlier of the date of approval in writing by the commissioner , or the 60th day after the date the insurer filed its request for approval of an approved deviated rate.

§3.5606. Effective Period of Downward Deviated Case Rate. A downward approved deviated single account case rate as determined in §3.5609 of this title (relating to Notice of Change of Insurer on Deviated Presumptive Rates Required) remains with the case, regardless of any change of insurers, and shall continue for a period equal to the experience period on which it was based, not to exceed three years, subject however to the provisions of §3.5608 of this title (relating to Annual Review of Approved Deviated Rates).

§3.5607. Termination of Upward Deviated Case Rate. Said authorization shall continue for a period equal to the experience period on which it was based, not to exceed three years, subject however to the provisions of §3.5608 of this title (relating to Annual Review of Approved Deviated Rates). If a change of insurers occurs, an upward approved deviated single account case rate may be continued by the replacement carrier by giving written notification to the commissioner, within 30 days of the effective date of providing coverage to the account, of the new carrier's intent to continue the upward approved deviated single account case rate. The period of continuance shall not go beyond the expiration date originally granted to the previous insurer for that account. If a change of insurers occurs, an upward approved deviated multiple account case rate shall not be continued by the replacement insurer beyond the date the original carrier lost the account unless all of the accounts forming the multiple account pool are taken over. If all accounts are taken over, the requirements for continuation are the same as mentioned in the preceding paragraph for single account cases.

§3.5608. Annual Review of Approved Deviated Rates. All approved deviated rates shall be reviewed for each case in accordance with these §§3.5601 - 3.5610 of this title (relating to Deviation Procedures) each year for each case. At the time of such review of approved deviated rates, adjustments may be made in the rates if the commissioner finds that experience shows that an adjustment is appropriate.

§3.5609. Notice of Change of Insurer on Deviated Rates Required. When a creditor changes insurers, and that creditor is charging a rate other than the presumptive premium rate, the previous insurer shall within 60 days file written notice of the change with the commissioner.

§3.5610. Determination of Approved Deviated Case Rates.

(a) For cases which are not of credible size, or have no experience, no approved deviation shall be made in the presumptive rates under these deviation procedures; except that nothing herein shall be construed as preventing any insurer from filing its rate schedules as otherwise provided under the Insurance Code, Article 3.53.

(b) For purposes of this section: if the coverage for a single creditor which qualifies as a case has been in force with the insurer for less than the experience period:

( 1) the claim experience of the creditor while covered by any prior insurer shall be included to the extent necessary in determining the appropriate case ratios; and

(2) the experience considered in the determination of multiple state case rates shall be Texas experience for the case unless the insurer makes the one-time election to use only countrywide experience. The election to use only countrywide experience must be accompanied by a certification that the insurer uses the same countrywide basis in determining the case ratios in each state in which the case has experience. A grouping of states may be used subject to the same requirements consistency and certification.

(c) Schedule of new case rates. When submitting a Request for Deviated Rate pursuant to §3.5602 of this title (relating to Request for an Approved Deviated Premium Rate) the insurer shall also file a schedule of new case rates as determined by this section.

(d) Approved Deviation Request Form. As required by §3.5602 of this title any request for approved deviated rates shall be submitted to the commissioner through the Filings Intake Division in the manner prescribed on the form provided by the department for that purpose. The form can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104 , Austin , Texas 78714-9104 . The form can also be obtained from the department 's internet web site at http://www.tdi.state.tx.us.

DIVISION 7. EXPERIENCE CALL

§3.5701. Statistical Data and Annual Experience Calls.

(a) Insurers writing credit life insurance and accident and health insurance in Texas shall keep statistical data in such form and manner as necessary to enable the commissioner to determine if rates are reasonable in relation to the benefits afforded by the various policy contracts together with appropriate expenses. Each such insurer shall submit experience reports as shall be required by specific annual call of the commissioner upon reporting forms supplied by such call. Each insurer shall complete each of the forms in accordance with the instructions that the department provides with the forms. Additional copies of the forms can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104 , Austin , Texas 78714-9104 . The forms can also be obtained from the department 's internet web site at http://www.tdi.state.tx.us.

(b) The experience reports required by subsection (a) of this section shall not replace other annual reports of credit insurance experience and are separate and distinct from the NAIC annual statement and from the deviation request permitted by §3.5601 of this title (relating to Deviation by Case Allowed) and are not used in any manner to determine the financial condition of the company.

§3.5702. Instructions for Preparing Forms.

(a) Identification of Forms. These forms shall be used for submission of credit life and accident and health insurance annual experience call responses. They can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104 , Austin , Texas 78714-9104 . The forms can also be obtained from the department 's internet web site at http://www.tdi.state.tx.us.

TAC 28 §3.5702(a)

FORM--------------DESCRIPTION

CI-I-PR------------------Inventory Information Form PresumptiveRates

CI-I-DR------------------Inventory Information Form Deviated Rates

CI-ACT-CERT--------------Actuarial Reserve Certification Form

CI-VAL-AFF---------------Affidavit of Validity of Experience Data Form

CI-EX-L------------------Credit Life Insurance Experience Report Form

CI-EX-DIS----------------Credit Disability Insurance Experience Report Form

CI-EXP-L-----------------Credit Life General Expense Report Form

CI-EXP-DIS---------------Credit Disability General Expense Report Form

CI-EP-L------------------Earned Premiums Credit Life Insurance

CI-EP-DIS ---------------Earned Premium Credit Disability Insurance

CI-R-L ------------------Reconciliation to State Page Credit Life

CI-R-DIS ----------------Reconciliation to State Page Credit Disability

(b) Calculations and work papers. Copies of all calculations, work papers and other data used in preparing these forms are not to be mailed to the Texas Department of Insurance unless requested, but must be maintained at the home office of the company and be available for examination by the commissioner of insurance.

(c) Experience data submissions to be filed electronically. The experience data of each carrier must be submitted using the electronic media specified in the instructions that accompany the forms. The diskette or CD-ROM, if required, will be furnished by the Texas Department of Insurance. If the instructions specify another media or format, specific instructions for filing will be provided by the department . The experience data shall be submitted in the required electronic format, along with a hard copy of the information. Any carrier who cannot comply with the filing of their credit experience data in the required electronic format shall contact the Filings Intake Division of the Texas Department of Insurance immediately, after receiving the credit experience data call packet, to request an alternative method for filing of their experience data. The request for using an alternative method for the submission of experience data shall be forwarded to the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104, Austin, Texas 78714-9104.

DIVISION 8. ADDITIONAL COVERAGES

§3.5801. Proposal for Other Types of Coverage. If a company proposes to write any type of coverage other than those set forth in this subchapter, it may request the department to set a public hearing to determine if a public need exists for such coverage and to determine, through credible statistics, whether the rate proposed may be presumed to be reasonable in relation to the benefits offered, until such time that experience indicates a different rate.

DIVISION 10. RESPONSIBILITIES AND OBLIGATIONS OF INSURANCE COMPANIES AND THEIR AGENTS AND REPRESENTATIVES

§3.6011. Responsibility and Obligation of Insurers to Provide Copies of Consumer Bill of Rights for Credit Life, Credit Disability, and Involuntary Unemployment Insurance to Each Insured.

(a) All insurers writing credit life, credit disability, and involuntary unemployment insurance policies must provide with each new policy and certificate of credit life, credit disability, and involuntary unemployment insurance a copy of the Texas Department of Insurance Consumer Bill of Rights for Credit Life, Credit Disability, and Involuntary Unemployment Insurance. This form is filed with the Office of the Secretary of State, Texas Register Section. The form can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104, Austin,Texas 78714-9104. The form can also be obtained from the department 's internet web site at http://www.tdi.state.tx.us. The Consumer Bill of Rights for Credit Life, Credit Disability, and Involuntary Unemployment Insurance shall accompany each renewal notice for credit life, credit disability, and involuntary unemployment insurance unless the current version of the form has been previously provided to the insured by the insurer.

(b) Insurers may reproduce the Consumer Bill of Rights for Credit Life, Credit Disability, and Involuntary Unemployment Insurance for the distribution required by subsection (a) of this section. Alternatively, insurers may generate it on their own equipment. If the Consumer Bill of Rights for Credit Life, Credit Disability, and Involuntary Unemployment Insurance is generated by the insurers, it must appear in no less than 10-point type and be on separate pages with no other text on those pages.

(c) The Texas Department of Insurance has promulgated a Spanish language version of the Consumer Bill of Rights, which is filed with the Secretary of State's Office. The Spanish language version of the Consumer Bill of Rights must be provided to any consumer who requests it from the company. The form can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104, Austin,Texas 78714-9104. The form can also be obtained from the department 's internet web site at http://www.tdi.state.tx.us.

(d) Insurers may reproduce the Spanish language version of the Consumer Bill of Rights for the distribution required by subsection (c) of this section. Alternatively, insurers may generate the form on their own equipment. If the form is generated by the insurers, it must appear in no less than 10 point type and be on separate pages with no other text on those pages