SECTIONS 11730-11742 - California Statutes

INSURANCE CODE

SECTION 11730-11742

11730. The following definitions govern the construction and
meaning of the terms used in this article:
(a) "Classification system" or "classification" means a plan,
system, or arrangement for recognizing differences in exposure to
hazards among industries, occupations, or operations of insurance
policyholders.
(b) "Expenses" means that portion of any rate attributable to
acquisition, field supervision, collection expenses, general
expenses, taxes, licenses, and fees.
(c) "Experience rating" means a rating procedure utilizing past
insurance experience of the individual policyholder to forecast
future losses by measuring the policyholder's loss experience against
the loss experience of policyholders in the same classification to
produce a prospective premium credit, debit, or unity modification.
(d) "Loss trending" means any procedure for projecting developed
losses to the average date of loss for the period during which the
policies are to be effective.
(e) "Market" means the interaction between buyers and sellers of
workers' compensation insurance within this state pursuant to the
provisions of this article.
(f) "Pure premium rate" means that portion of the rate which
represents the loss cost per unit of exposure, including loss
adjustment expense.
(g) "Rate" means the cost of insurance per exposure base unit,
prior to any application of individual risk variations based on loss
or expenses considerations and does not include minimum premiums.
(h) "Rating organization" means an entity licensed by the
commissioner pursuant to Section 11751.1.
(i) "Statistical plan" means the plan, system, or arrangement used
in collecting data.
(j) "Supplementary rate information" means any manual or plan of
rates, classification system, rating schedule, minimum premium,
policy fee, rating rule, rating plan, and any other similar
information needed to determine the applicable premium for an
insured.
(k) "Supporting information" means the experience and judgment of
the filer and the experience or data of other insurers or
organizations relied on by the filer, the interpretation of any
statistical data relied on by the filer, descriptions of methods used
in making the rates, and any other similar information required to
be filed by the commissioner.

11731. This article applies to workers' compensation insurance and
employers' liability insurance written in connection therewith.

11732. Rates shall be adequate to cover an insurer's losses and
expenses. Rates shall not tend to create a monopoly in the market.
For the purpose of this section, the rates of any individual insurer,
other than the State Compensation Insurance Fund, are presumed to
create a monopoly in the market if the insurer has a market share,
based on a percentage of statewide workers' compensation premium,
equivalent to 20 percent or more of the premium written by all
insurers other than the State Compensation Insurance Fund.

11732.5. Rates shall not be unfairly discriminatory. Rates are
unfairly discriminatory if, after allowing for practical limitations,
price differentials fail to reflect equitably the difference in
expected losses and expenses. A rate of an insurer shall not be
deemed unfairly discriminatory because different premiums result for
policyholders with like loss exposures but different expenses, or
like expenses but different loss exposures, as long as the rate
reflects the differences with reasonable accuracy.

11733. In determining whether rates comply with Section 11732, the
following criteria shall apply:
(a) Due consideration may be given to past and prospective loss
and expenses experience within this state, to catastrophe hazards and
contingencies, to events or trends within this state, to loadings
for leveling premium rates over time or for dividends or savings to
be allowed or returned by insurers to their policyholders, members or
subscribers, and to all other relevant factors, including judgment.
(b) The expense provisions included in the rates to be used by an
insurer shall reflect the operating methods of the insurer and, so
far as is credible, its own actual and anticipated expense
experience.
(c) The rates may contain a provision for contingencies and an
allowance permitting a reasonable profit. In determining the
reasonableness of profit, consideration shall be given to all
investment income attributable to premiums and the reserves
associated with those premiums.

11734. (a) Every workers' compensation insurer shall adhere to a
uniform experience rating plan filed with the commissioner by a
rating organization designated by the commissioner and subject to his
or her disapproval.
(b) The commissioner shall designate a rating organization to
assist him or her in gathering, compiling, and reporting relevant
statistical information, and to develop a classification system. An
insurer may develop its own classification system upon which a rate
may be made or adopt the classification system developed by the
designated rating organization; provided, however, that any
classification system developed by an insurer must be filed with the
commissioner 30 days prior to its use. The commissioner shall
disapprove a classification system filed by an insurer pursuant to
this section if the insurer fails to demonstrate that the data
thereby produced can be reported consistent with the uniform
statistical plan or the classification system developed by the rating
organization. Every workers' compensation insurer shall record and
report its workers' compensation experience to the designated rating
organization as set forth in the uniform statistical plan approved by
the commissioner.
(c) The designated rating organization shall develop and file
manual rules, subject to the approval of the commissioner, reasonably
related to the recording and reporting of data pursuant to the
uniform statistical plan, uniform experience rating plan, and any
classification systems that may be in effect. Every workers'
compensation insurer shall adhere to the approved manual rules and
experience rating plan in writing and reporting its business. No
insurer shall agree with any other insurer or with a rating
organization to adhere to manual rules that are not reasonably
related to the recording and reporting of data pursuant to the
uniform statistical plan or classification system developed by the
rating organization.
(d) The designated rating organization shall also develop and file
with the commissioner a weekly premium per employee for each
classification used or proposed for use by that organization. The
weekly premium shall be developed by applying the proposed rate for
each classification to the state average weekly wage. For the purpose
of this section, "state average weekly wage" means the average
weekly wage paid by employers to employees covered by unemployment
insurance as reported by the United States Department of Labor for
California for the 12 months ending March 31 of the calendar year
preceding the year in which the injury occurred.

11735. (a) Every insurer shall file with the commissioner all rates
and supplementary rate information that are to be used in this
state. The rates and supplementary rate information shall be filed
not later than 30 days prior to the effective date. Upon application
by the filer, the commissioner may authorize an earlier effective
date. To the extent possible, rates and supplementary rate
information shall be based upon supporting information derived from
the experience or data of the insurer, rating organization, advisory
organization, or other insurers. For the purposes of this
subdivision, "rating organization" shall have the same meaning as set
forth in subdivision (b) of Section 11750.1, and "advisory
organization" shall have the same meaning as set forth in subdivision
(e) of that section.
(b) Rates filed pursuant to this section shall be filed in the
form and manner prescribed by the commissioner. All rates,
supplementary rate information, and any supporting information for
rates filed under this article, as soon as filed, shall be open to
public inspection at any reasonable time. Copies may be obtained by
any person upon request and the payment of a reasonable charge.
(c) Upon the written application of the insurer and insured,
stating its reasons therefor, filed with the commissioner, a rate in
excess of that provided by a filing otherwise applicable may be used
on any specific risk.
(d) Notwithstanding Section 679.70, no rating organization may
issue, nor may any insurer use, any classification system or rate, as
applied or used, that violates Section 679.71 or 679.72 or that
violates the Unruh Civil Rights Act.
(e) Notwithstanding Sections 11657 to 11660, inclusive,
supplementary rate information filed with the commissioner for
purposes of offering deductibles to policyholders for all or part of
benefits payable under the policy shall be deemed complete if the
filing contains all of the following:
(1) A copy of the deductible endorsement that is to be attached to
the policy to effectuate deductible coverage.
(2) Endorsement language that protects the rights of injured
workers and ensures that benefits are paid by the insurer without
regard to any deductible. The endorsement shall specify that the
nonpayment of deductible amounts by the policyholder shall not
relieve the insurer from the payment of compensation for injuries
sustained by the employee during the period of time the endorsed
policy was in effect. The endorsement shall provide that deductible
policies for workers' compensation insurance coverage shall not be
terminated retroactively for the nonpayment of deductible amounts.
(3) The endorsement shall provide that notwithstanding the
deductible, the insurer shall pay all of the obligations of the
employer for workers' compensation benefits for injuries occurring
during the policy period. Payment by the insurer of any amounts
within the deductible shall be treated as an advancement of funds by
the insurer to the employer and shall create a legal obligation for
reimbursements, and may be secured by appropriate security.
(4) The endorsement shall specify whether loss adjustment expenses
are to be treated as advancements within the deductible to be
reimbursed by the employer.
(5) An explanation of premium reductions reflecting the type and
level of the deductible shall be clearly set forth for the
policyholder.
(6) The filing shall provide that premium reductions for
deductibles are determined before application of any experience
modification, premium surcharge, or premium discount, and the premium
reductions reflect the type and level of deductible consistent with
accepted actuarial standards.
(7) The filing shall provide that the nonpayment of deductible
amounts by the insured employer to its insurer, or the failure to
comply with any security-related terms of the policy, shall be
treated under the policy in the same manner as the payment or
nonpayment of the premium pursuant to paragraph (1) of subdivision
(b) of Section 676.8.
(f) The insurer shall report and record losses subject to the
deductible as losses for purposes of ratemaking and application of an
experience rating plan on the same basis as losses under policies
providing first dollar coverage.

11736. An experience rating plan shall contain reasonable
eligibility standards, provide adequate incentives for loss
prevention, and shall provide for sufficient premium differentials so
as to encourage safety.

11736.5. (a) The commissioner shall establish, by regulation, those
forms of collateral or security that an insurer may designate to
secure the deductible amount of any policy of workers' compensation
insurance and the establishment of reserves and recognition of
receivables for insurers writing workers' compensation deductible
policies.
The commissioner, by order, exempt from the requirements of the
Administrative Procedure Act, shall establish those forms of security
or collateral that the insurer may designate to secure the
deductible amount of any policy of workers' compensation insurance
that provides for a deductible and the establishment of reserves and
recognition of receivables for insurers writing workers' compensation
deductible policies. This authority shall expire if regulations
required by subdivision (a) are not drafted and filed with the Office
of Administrative Law by December 31, 1995; if the regulations are
filed with the Office of Administrative Law by December 31, 1995,
this authority shall expire December 31, 1996, or upon filing of the
regulations with the Secretary of State, whichever is earlier.

11737. (a) The commissioner may disapprove a rate if the insurer
fails to comply with the filing requirements under Section 11735.
(b) The commissioner may disapprove rates if the commissioner
determines that premiums charged, in the aggregate, resulting from
the use of the rates or the rates as modified by any supplementary
rate information, would be inadequate to cover an insurer's losses
and expenses, unfairly discriminatory, or tend to create a monopoly
in the market pursuant to Section 11732, 11732.5, or 11733.
(c) The commissioner shall disapprove rates if the commissioner
determines that premiums charged, in the aggregate, resulting from
the use of the rates or the rates as modified by any supplementary
rate information would, if continued in use, tend to impair or
threaten the solvency of an insurer. In determining whether the
premium charged in the aggregate would, if continued in use, tend to
impair or threaten the solvency of the insurer, the commissioner
shall consider the insurer's experience in other states.
(d) If the commissioner intends to disapprove rates pursuant to
subdivision (a) or (b), the commissioner shall serve notice on the
insurer of the intent to disapprove and shall schedule a hearing to
commence within 60 days of the date of the notice.
(e) If the commissioner disapproves rates pursuant to subdivision
(c), the commissioner shall immediately serve notice on the insurer
of the disapproval. An insurer whose rates have been disapproved
pursuant to that subdivision may, within 20 days of the date of the
notice of disapproval, request a hearing, and the commissioner shall
hold a hearing within 60 days of the date of the notice of
disapproval.
(f) Every insurer or rating organization shall provide within this
state reasonable means whereby any person aggrieved by the
application of its filings may be heard by the insurer or rating
organization on written request to review the manner in which the
rating system has been applied in connection with the insurance
afforded or offered. If the insurer or rating organization fails to
grant or reject the request within 30 days, the applicant may proceed
in the same manner as if the application had been rejected. Any
party affected by the action of the insurer or rating organization on
the request may appeal, within 30 days after written notice of the
action, to the commissioner who, after a hearing held within 60 days
from the date on which the party requests the appeal, or longer upon
agreement of the parties and not less than 10 days' written notice to
the appellant and to the insurer or rating organization, may affirm,
modify, or reverse that action. If the commissioner has information
on the subject from which the appeal is taken and believes that a
reasonable basis for the appeal does not exist or that the appeal is
not made in good faith, the commissioner may deny the appeal without
a hearing. The denial shall be in writing, set forth the basis for
the denial, and be served on all parties.
(g) If the commissioner disapproves a rate, the commissioner shall
issue an order specifying in what respects the rate fails to meet
the requirements of this article and stating when, within a
reasonable period thereafter, that rate shall be discontinued for any
policy issued or renewed after a date specified in the order. The
order shall be issued within 20 days after the notice prescribed in
subdivision (e) is served. If a hearing is held pursuant to
subdivision (d) or (e), the order shall be issued, instead, within 30
days after the close of the hearing. The order may include a
provision for premium adjustment for the period after the effective
date of the order for policies in effect on that date.
(h) Whenever an insurer has no legally effective rates as a result
of the commissioner's disapproval of rates or other act, the
commissioner shall specify interim rates for the insurer that protect
the interests of all parties and may order that a specified portion
of the premiums be placed in an escrow account approved by the
commissioner. When new rates become legally effective, the
commissioner shall order the escrowed funds or any overcharge in the
interim rates to be distributed appropriately, except that refunds of
less than ten dollars ($10) per policyholder shall not be required.
However, if the commissioner has disapproved rates pursuant to
subdivision (c), the commissioner shall order the insurer in the
interim to use, at a minimum, the approved advisory pure premium
rates pursuant to subdivision (b) of Section 11750, as modified by
the uniform experience rating plan established pursuant to
subdivision (c) of Section 11734, without any deviations on account
of any supplementary rate information and reflecting the actual
expenses of the insurer, until the time that a final determination of
rates is adjudicated and ordered through a hearing.
(i) Notwithstanding any other provision of law, an insurer may
increase rates on policies with inception dates prior to January 1,
2003, in an amount no greater than the pure premium rate increase
approved by the commissioner reflecting the cost of the change in
benefit levels authorized by the act adding this subdivision.

11738. A classification shall take no account of any physical
impairment of employees or the extent to which employees may have
persons dependent upon them for support.

11739. (a) An insurer shall not use any plan for the payment of
dividends to policyholders by reason of a participating provision in
a workers' compensation insurance policy which is unfairly
discriminatory.
(b) Every insurer issuing workers' compensation insurance policies
under the laws of this state shall file annually with the rating
organization designated by the commissioner information relating to
dividend payments made to its policyholders. Information filed shall
be in sufficient detail to permit the rating organization to prepare
for the commissioner's review and approval, a report showing in the
aggregate for all companies premiums earned, losses incurred, and
dividends paid the preceding calendar year under policies containing
a participating provision, separately by premium size and loss ratio
categories, as may reasonably be prescribed by the commissioner.
(c) Information submitted by individual companies pursuant to this
section shall be confidential and not subject to public disclosure
under any law of this state.

11740. Rates and supplementary rate information filed for use in
this state pursuant to this article and Article 3 (commencing with
Section 11750), as added and amended by Chapter 228 of the Statutes
of 1993, shall not be effective prior to the first normal anniversary
rating date of a policy on or after January 1, 1995. Rates, any
rating plan or plans, and policy forms issued or approved prior to
January 1, 1995, shall remain in effect only until the first normal
anniversary rating date on or after January 1, 1995, as determined by
a licensed rating organization pursuant to rules issued or approved
by the commissioner in effect on July 16, 1993. Prior to January 1,
1995, no policy may be issued or renewed for a term of less than one
year for the purpose of changing the normal anniversary date of the
policy or the preceding policy. No policy may be canceled, amended,
or rewritten for the purpose of avoiding this section.
Notwithstanding Section 7 of Chapter 228 of the Statutes of 1993,
this section shall become operative January 1, 1994.

11742. (a) The Legislature finds and declares that the insolvencies
of more than a dozen workers' compensation insurance carriers have
seriously constricted the market and led to a dangerous increase in
business at the State Compensation Insurance Fund. Yet more than 200
insurance companies are still licensed to offer workers' compensation
insurance in California. Unfortunately, many employers do not know
which carriers are offering coverage, and it is both difficult and
time consuming to try to get information on rates and coverages from
competing insurance companies. A central information source would
help employers find the required coverage at the best competitive
rate.
(b) On or before July 1, 2004, the commissioner shall establish
and maintain, on the Internet Web site maintained by the department,
an online rate comparison guide showing workers' compensation
insurance rates for the 50 insurance companies writing the highest
volume of business in this line during the two preceding years.
(c) The online comparison shall display rates for each class set
forth in the classification system adopted by the commissioner
pursuant to Section 11734, shall include the effective date of each
rate, and shall list the rates for each class from the lowest to the
highest rate.
(d) The rating organization designated by the commissioner as his
or her statistical agent pursuant to Section 11751.5 shall determine
the cost savings achieved in the 2003 workers' compensation reform
legislation. Each insurer shall certify, in the form and manner
determined by the commissioner, that its rates reflect those cost
savings. The certifications shall be made available to the public on
the Internet Web site maintained by the department.