§ 27-44-5. Rate standards.
(a) Requirements. Rates shall not be excessive, inadequate, or unfairly discriminatory.
(b) Excessiveness. A rate is excessive if it is likely to produce an underwriting profit that is unreasonably
high for the class of business or if expenses are unreasonably high in relation to
services rendered. Evidence that a reasonable degree of competition exists with respect
to the classification to which a rate is applicable shall be considered as material
evidence that a rate is not excessive.
(c) Inadequacy. A rate is not inadequate unless the rate is clearly insufficient to sustain projected
losses and expenses in the class of business to which it applies and the use of the
rate has or, if continued, will have the effect of substantially lessening competition
or the tendency to create monopoly in any market.
(d) Unfair discrimination. Unfair discrimination exists if, after allowing for practical limitations, price differentials
fail to reflect equitably the differences in expected losses and expenses. Rates are
not unfairly discriminatory because different premiums result for policyholders with
like loss exposures but different expense factors, or like expense factors but different
loss exposures, so long as the rates reflect the differences with reasonable accuracy.
A rate is not unfairly discriminatory if it is averaged broadly among persons insured
under a group, franchise, or blanket policy or a mass marketed plan. As used in this
subsection, a "mass marketed plan� means a method of selling property liability insurance
in which: (1) The insurance is offered to employees of particular employers or to
members of particular associations or organizations, or to persons grouped in other
ways, except groupings formed principally for the purpose of obtaining the insurance;
and (2) The employer, association, or other organization, if any, has agreed to, or
affiliated itself with, the sale of the insurance to its employees or members.
(e) Rating methods. In determining whether rates comply with the rating standards, the following criteria
shall apply:
(1) Basic factors in rates. Due consideration shall be given to past and prospective loss and expense experience
within and outside of this state, to catastrophic hazards and contingencies, to events
or trends within and outside of 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;
(2) Classification. Risks may be classified in any reasonable way for the establishment of rates except
that no risks may be grouped by classifications based in whole or in part on race,
color, creed, or national origin of the risk. Rates may be modified for individual
risks in accordance with rating plans or schedules that provide for recognition of
probable variations in hazards, expenses, or both;
(3) Expenses. 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 it is credible, its own actual
and anticipated expense experience;
(4) Profits. The rates may contain provision for contingencies and an allowance permitting a reasonable
profit. In determining the reasonableness of the profit allowance, consideration should
be given to all investment income attributable to premiums and the reserves associated
with those premiums.
(f) Premiums.
(1) No insurer subject to this chapter shall issue a policy of insurance with a premium
developed in a manner inconsistent with the provisions of this section.
(2) No insurer may make any adjustment to the full manual premium developed for any risk
without adequate justification for that adjustment. An adjustment will be presumed
to be adequately justified if:
(i) It is applied in a manner consistent with the insurance company's filed rates and
supplementary rate information; and
(ii) The insurance company's files contain adequate documentation of the facts supporting
the adjustment.
(3) A misclassification of a risk shall be considered an adjustment without adequate justification.
(4) Each insurance company shall maintain reasonable records of the information collected
or used by it in developing the premium charged for any risk so that the records will
be available to enable the director to verify compliance with this section.
(5) If the director, after a hearing, finds that an insurer has violated the provisions
of this subsection, he or she shall, in addition to any other penalties provided by
law, impose upon the insurer a civil penalty equal to the difference between the premiums
charged and those which would have been charged without the application of inadequately
justified adjustments. If a finding has been made, after a hearing, that the insurer
knowingly, or with such frequency as to indicate a general business practice, violated
the provisions of this subsection, the director may also suspend the insurance company's
authority to do business in the class in which the provisions of this subsection have
been violated.