§ 27-44-5 - Rate standards. - Rhode Island Statutes

SECTION 27-44-5

   § 27-44-5  Rate standards. – (a) Requirements. Rates shall not be excessive, inadequate, or unfairlydiscriminatory.

   (b) Excessiveness. A rate is excessive if it is likelyto produce an underwriting profit that is unreasonably high for the class ofbusiness or if expenses are unreasonably high in relation to services rendered.Evidence that a reasonable degree of competition exists with respect to theclassification to which a rate is applicable shall be considered as materialevidence that a rate is not excessive.

   (c) Inadequacy. A rate is not inadequate unless therate is clearly insufficient to sustain projected losses and expenses in theclass of business to which it applies and the use of the rate has or, ifcontinued, will have the effect of substantially lessening competition or thetendency to create monopoly in any market.

   (d) Unfair discrimination. Unfair discriminationexists if, after allowing for practical limitations, price differentials failto reflect equitably the differences in expected losses and expenses. Rates arenot unfairly discriminatory because different premiums result for policyholderswith like loss exposures but different expense factors, or like expense factorsbut different loss exposures, so long as the rates reflect the differences withreasonable accuracy. A rate is not unfairly discriminatory if it is averagedbroadly among persons insured under a group, franchise, or blanket policy or amass marketed plan. As used in this subsection, a "mass marketed plan" means amethod of selling property liability insurance in which: (1) the insurance isoffered to employees of particular employers or to members of particularassociations or organizations, or to persons grouped in other ways, exceptgroupings formed principally for the purpose of obtaining the insurance; and(2) the employer, association or other organization, if any, has agreed to, oraffiliated itself with, the sale of the insurance to its employees or members.

   (e) Rating methods. In determining whether ratescomply with the rating standards, the following criteria shall apply:

   (1) Basic factors in rates. Due consideration shall begiven to past and prospective loss and expense experience within and outside ofthis state, to catastrophic hazards and contingencies, to events or trendswithin and outside of this state, to loadings for leveling premium rates overtime or for dividends or savings to be allowed or returned by insurers to theirpolicyholders, members or subscribers, and to all other relevant factors,including judgment;

   (2) Classification. Risks may be classified in anyreasonable way for the establishment of rates except that no risks may begrouped by classifications based in whole or in part on race, color, creed, ornational origin of the risk. Rates may be modified for individual risks inaccordance with rating plans or schedules that provide for recognition ofprobable variations in hazards, expenses, or both;

   (3) Expenses. The expense provisions included in therates to be used by an insurer shall reflect the operating methods of theinsurer and, so far as it is credible, its own actual and anticipated expenseexperience;

   (4) Profits. The rates may contain provision forcontingencies and an allowance permitting a reasonable profit. In determiningthe reasonableness of the profit allowance, consideration should be given toall investment income attributable to premiums and the reserves associated withthose premiums.

   (f) Premiums. (1)  No insurer subject tothis chapter shall issue a policy of insurance with a premium developed in amanner inconsistent with the provisions of this section;

   (2) No insurer may make any adjustment to the full manualpremium developed for any risk without adequate justification for thatadjustment. An adjustment will be presumed to be adequately justified if:

   (i) It is applied in a manner consistent with the insurancecompany's filed rates and supplementary rate information; and

   (ii) The insurance company's files contain adequatedocumentation of the facts supporting the adjustment;

   (3) A misclassification of a risk shall be considered anadjustment without adequate justification;

   (4) Each insurance company shall maintain reasonable recordsof the information collected or used by it in developing the premium chargedfor any risk so that the records will be available to enable the director toverify compliance with this section;

   (5) If the director, after a hearing, finds that an insurerhas violated the provisions of this subsection, he or she shall, in addition toany other penalties provided by law, impose upon the insurer a civil penaltyequal to the difference between the premiums charged and those which would havebeen charged without the application of inadequately justified adjustments. Ifa finding has been made, after a hearing, that the insurer knowingly, or withsuch frequency as to indicate a general business practice, violated theprovisions of this subsection, the director may also suspend the insurancecompany's authority to do business in the class in which the provisions of thissubsection have been violated.