United States: Summary Of AICP-Western Chapter/California Department Of Insurance Education Day

The Association of Insurance Compliance Professionals ("AICP") Western Chapter hosted an education day with the California Department of Insurance ("Department") on Tuesday May 15, 2012.

Over seventy (70) attendees from the insurance industry attended the day which was hosted in part at the Department's offices in San Francisco. The speakers from the Department included:

• the Rate Regulation Branch Bureau Chiefs (Ken Allen, Mike Edwards, Rick Holbrook and Larry Lastofka)
• the Health Policy Approval Bureau Chief (Bruce Hinze)
• the Deputy Commissioner of the Rate Regulation Branch (Joel Laucher)
• the Rating and Underwriting Bureau Chief (Ken Hill), and
• an officer in the Field Claims Bureau (David Jay).

This update summarizes the various roundtables and speaker sessions covered throughout the event.

Rate Regulation Roundtable

The panel of speakers for the Rate Regulation Roundtable were the Rate Regulation Branch Bureau Chiefs - Ken Allen, Mike Edwards, Rick Holbrook and Larry Lastofka. The panel first addressed a question regarding Departmental efficiency and turn around times on rate filings. The Department indicated that turn around times on filings are improving (see averages below). This is due to the addition in the last 9 months of new staff, including actuaries and intake personnel. The panel noted that interveners tend to slow down the process significantly.

Form and Rules Filings

Rate Filings: Average Days to Approval 

The Department gave the following tips to expedite rate filings: (1) use the most recent rate filing template (they change at least annually); and (2) provide good "support" material with the filing, which includes (a) highlighting what has been changed from the previously approved form by providing a copy of the previously approved form, the form proposed for approval, and a redline comparison of the two; and (b) explain the rate impact of filing. The panel noted that even where there is no change in price, if there is a change in coverage there is still a rate impact. If the rate remains the same but the coverage increases there is an indirect rate decrease and, by contrast, if the coverage decreases there is an indirect rate increase.

The panel also discussed a number of "hot topics" including the following:

• Optional broadening or restricting of coverage requires a rate offset - can not provide the option without a rate impact. If you are providing different coverage there has to be different rates or it is unfairly discriminatory.
• Manuscript forms are allowed on specialty lines but can not include a "consent to rate" provision. Insurer must use rating methodology on file with the Department. The Department does not approve of risk-by-risk rating.
• "Me too" filings are generally permissible and approved without many issues where the company is new to a product line and has no experience of its own. However, there are exceptions when (1) the company is copying an older filing that would not be approved now, (2) the company writes differently (direct v. independent) and that would affect the rates, or (3) the company deviates in some way from the other filing without actuarial support for the deviation.
• The Department can, and does, revisit previously approved filings. The Department may refuse to approve something that was approved in a previous filing if it is against California code or regulation. Their motto is "administrative error does not change the law."

Policy Approval/Health Policy Approval Bureau

Bruce Hinze, the new Bureau Chief of the Health Policy Approval Bureau, explained that the Policy Approval Bureau has been divided into two - the Health Policy Approval Bureau (HPAB) and the Policy Approval Bureau (PAB). The HPAB will review health insurance (CIC § 106(b)) forms and the PAB will review life, disability, specified disease and hospital indemnity. The HPAB chief is Bruce Hinze and the PAB chief is Leslie Tick. The PAB has historically had a back log due to a shortage in staff and diversion of staff to specialty projects (e.g. the disability income settlement and implementation of the Affordable Care Act). The Department has now increased staff, adding six new attorneys to both the PAB and HPAB. The PAB now has thirteen total staff attorneys and the HPAB has twelve total staff attorneys. The Department hopes to see improvements in efficiency.

Mr. Hinze shared some tips to expedite filings with PAB/HPAB:

• Submit through SERFF
• Withdraw old filings. There are some filings that are "embarrassingly old" and staff attorneys will be contacting carriers to determine whether they are still interested in having the filing reviewed. Carriers can assist in the process by withdrawing old filings that have become stale.
• Redline changes completely. This include all changes made to a form, not just those changes made in response to objections from staff attorneys.
• For status updates email the staff attorney outside of SERFF. For substantive responses use SERFF.
• Respond promptly to disapproval letters. By statute if there is no response within 6 months the Department can, and plans to, deem the filing withdrawn. Response well in advance of 6 months is recommended.
• Follow the law. If you operate nationally do not file the form you use in other states without carefully revising for California specific requirements.

California Rate Regulation Update

Joel Laucher, the Deputy Commissioner of the Rate Regulation Branch, discussed potential changes the Department is considering to the prior approval of rate regulations, including the possibility of the Department hosting a follow up workshop to the one hosted last November. Specifically, Mr. Laucher stated he believes further discussions are warranted regarding what components of a rate filing are actually "approved" by the Department. The Department takes the position that their approval is only "of the final number," not necessarily how the company reached that number. In addition, insurers have expressed concern that portions of their filings, particularly with respect to underwriting guidelines, contain proprietary material that should be kept confidential. Mr. Laucher explained that pursuant to CIC § 1861.07 the Department does not have the authority to deem certain portions of rate filings unavailable to the general public. However, he indicated that the Department is will to discuss this issue further and to consider creating some space for protection of trade secrets and other proprietary material in rate filings. The Department is also considering whether the prior approval regulations should be revised to (a) provide a better definition of catastrophe adjustment (CCR § 2644.5), (b) provide a definition of "marketing system" for the purposes of determining an efficiency standard, and (c) reduce the number of trend period selections down to three rather than five. Mr. Laucher also explained the intervener process in California stating that the Department believes that interveners play an important role in making the process a more meaningful one.

Market Conduct

Ken Hill, the Rating and Underwriting Bureau Chief (FRUB), and Daivd Jay, an officer in the Field Claims Bureau, spoke about common findings in market conduct examinations and new laws effecting examinations. Mr. Hill first explained the examination process, stating that for FRUB examinations, from the time review beings to the adoption of the final examination report is on average 1 year and 4.5 months. On average FRUB examiners are on site for 74 days for every two lines examined. For data only examinations (a.k.a desk audits), the examination is on average 189 days. By contrast, David Jay explained that the length of claims examinations tend to vary widely by line of business, with workers' compensation, long term care and disability examinations tending to take the longest.

Mr. Hill and Mr. Jay explained the most common examination findings for various lines of business. For all lines the Department often finds a failure to comply with required mail times, such as CIC § 667.4 (homeowner cancellation) and CIC § 667.2 (cancellation of commercial policies). For life insurance, the most common finding is a failure to pay interest on claims paid later than 30 days, particularly where the beneficiary resides outside of the state. The Department takes the position that the California interest rule, CIC §10172,5(a), applies to all beneficiaries under a California issued contract, regardless of where the beneficiary resides.

With respect to private passenger auto, the Department often finds that companies fail to provide to the insured a copy of the estimate of repairs upon which the settlement is based. In commercial lines a common finding is failure to apply tiered pricing schemes consistently and, instead, picking and choosing at whim when to apply a "preferred" or "standard" rate. With respect to recently enacted laws that are creating examination findings, Mr. Hill cited to the new annuity sales suitability statute, CIC § 10509.914. For personal auto, the new at-fault rules, found at CIC § 2362.13, are creating issues, particularly at time of application where the insurer identifies that a prospective insured was involved in a prior accident but fails to properly document that the person was at fault prior to increasing their rate. Mr. Jay and Mr. Hill also discussed the new laws regarding retained asset accounts found at CIC §§10170 and 10509.930.

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