Q. What is the purpose of the standard rate index?
A. Article 5.13-2 §13 provides for an exemption to County Mutuals who write only non-standard auto. The standard rate index is used to define non-standard auto. Non-standard is defined as rates that are 30 percent or more above the standard rate index.
Q. My county mutual writes some standard business and does not qualify for the exemption. Does it have to cancel/non-renew this business?
A. No, a county mutual insurance company that does not qualify for the exemption does not have to cancel or non-renew any of its customers. The county mutual under this circumstance must make the appropriate rate filing as outlined in the next question and answer.
Q. What do I need to file if my county mutual writes some standard business and does not qualify for the exemption?
A. A county mutual that does not qualify for the exemption and that does not have a personal automobile insurance market share of 3.5% or greater must make an informational rate filing in accordance with the reduced filing requirements specified in the Filings Made Easy rule. All other county mutual insurance companies must make a rate filing in accordance with Article 5.13-2. Look for the Filings Made Easy rule in the very near future.
Q. My county mutual writes some standard business. Does it have to increase all of its rates into the non-standard range in order to qualify for the exemption? Also, what happens if a review of my rate needs indicates that some rates should drop below the 30 percent threshold?
A. To qualify for the exemption all of your rates must be 30 percent or more above the standard rate index. However, you may not arbitrarily increase your rates in order to qualify, since the statute specifically states that the rates for county mutuals qualifying for the exemption are subject to the rating standards established by Article 5.13-2 (rates may not be excessive, inadequate, unreasonable, or unfairly discriminatory for the risks to which they apply). If certain rates are less than 30 percent above the standard rate index and an increase to at least 30 percent above the index cannot be actuarially justified, the county mutual must not write any new business on or after December 1, 2004 using those rates or renew any affected policy that is otherwise eligible for cancellation/non-renewal if they seek to qualify or continue to qualify for the exemption. A county mutual that writes some standard business and that does not qualify for the exemption is subject to filing requirements described in the previous question and answer.
Q. Can I roll off my standard business to another company and qualify for the exemption?
A. Yes. To qualify as a "non-standard" carrier, you may not write any new business or renew any policy that is otherwise eligible for cancellation/non-renewal at standard rates. However, you are effectively granted a grace period to properly non-renew any standard business. (See the paragraph beginning, "An exception is made…"). Essentially, rates utilized for mid-term renewals may be excused from consideration when classifying a company as a standard or non-standard auto carrier so long as the rate remains the same for the duration of a one year policy term.
Q. If I non-renew my standard business or move it to another company, will I have to file a withdrawal plan?
A. Withdrawal plans are regulated under Chapter 827 of the Texas Insurance Code. Please review the statute first. If you still have further questions, you may contact Jeff Hunt 512-305-7293 concerning your company's specific situation.
Q. What requirements do I have to meet to be eligible for the exemption granted in Art. 5.13-2 §13?
A. Two criteria must both be met. 1) The total market share for your company including all affiliated companies or group must have a market share of less than 3.5% for personal auto. Market share is based off of the most recent calendar year of annual statement data that is available for personal auto (statutory page 14 lines 19.1, 19.2 and 21.1). 2) All policies written must be for "non-standard" auto. "Non-standard" auto is defined as having rates that are 30 percent or more above the standard rate index.
Q. What are the benefits of the exemption granted under Article 5.13-2 §13?
A. There are two benefits. 1) An exemption from participation in TAIPA. 2) Reduced filing requirements may be granted. Look for the "Filings Made Easy" rule to be issued later this summer for more details.
Q. If I qualify for the exemption, are my rates exempt from regulation?
A. No. Though the exemption does call for reduced filing requirements and rates filed on an informational basis, your rates are still regulated under Articles 1.02, 5.13-2 and 912.201. In general, rates must be just, fair, reasonable, adequate, not confiscatory and not excessive for the risks to which they apply, and not unfairly discriminatory.
Q. If I qualify for the exemption and reduced filing requirements, do I still have to file support for my use of credit scoring and territorial deviations beyond 15%?
A. Yes. Support for use of credit scoring is required under TAC § 5.9941 in regards to Article 21.49-2U. Support for territorial rate deviations beyond 15% is required under TAC §5.9960 in regards to Article 5.171. The reduced filing requirements provided by this exemption only applies to rate filings under Article 5.13-2. It does not exempt insurers from filing requirements due to other statutory provisions.
Q. How will my rates be judged against the 30% threshold?
A. As most County Mutuals are aware, the rate structure varies widely between the current benchmark structure and company rate structures. As such, each set of rates will have to be reviewed independently. The following are some general rules of thumb: -To the extent that a company's discount/surcharge structure is similar in size and scope to that provided in the benchmark system, base rates will be compared. -To the extent that companies use various discounts/surcharges to effectively tier their business, each tier will be independently reviewed against the 30% threshold. -To the extent that a company's rating system is more detailed than the benchmark, each rate will be compared. The statute is specific in that rates should be at least 30% above the rate index. For example, if a company uses a more refined territory system, the rates for each benchmark territory will be compared to each rate utilized by the company that comprise the same geographic area. To qualify as non-standard, each rate must be at least 30% above the rate index. -In general, rates for each coverage will be reviewed independently as this is the most expedient method of comparison.
Q. Will the policy fee or other fees charged by a county mutual insurer be considered in determining whether a county mutual's rates are at least 30 percent above the standard rate index?
A. No, these will not be considered in determining whether a county mutual's rates are at least 30 percent above the standard rate index. The statute clearly provides that to qualify for the exemption rates must be 30 percent or more above the standard rate index (§13(e) of Article 5.13-2).
Q. Will a county mutual company that has traditionally operated through managing general agents (MGA), with rating plans that differ from MGA to MGA still be allowed to use such multiple rating plans?
A. Yes. County mutuals that have historically used multiple rating plans can continue to use them, provided that each of the plans comply with the rating standards of Senate Bill 14, 78th Legislature, Regular Session, and the Insurance Code, in other respects. In particular, the continuing use of multiple rating plans by a county mutual will not, in and of itself, be the basis for rejecting any rate filing. This applies whether or not the county mutual qualifies as a nonstandard automobile writer under Article 5.13-2, § 13.