Bulletin 2003-6: Prospective Loss Cost Filing Procedures for Property/Casualty Insurance and Loss Cost Reference Filing Adoption Forms

OREGON INSURANCE DIVISION BULLETIN INS 2003-6
DATE: November 5, 2003
TO: All Property and Casualty Insurers
SUBJECT: Prospective Loss Cost Filing Procedures for Property/Casualty Insurance (other than Workers Compensation) and Loss Cost Reference Filing Adoption Forms The Oregon Insurance Division requires rating organizations and participating companies to operate under a prospective loss cost system in Oregon as adopted by the National Association of Insurance Commissioners. This bulletin specifies the framework under which rating organizations and participating insurers in rating organizations operate in a loss cost system. Rating organizations will develop and file advisory prospective loss costs and supporting actuarial and statistical data. Each insurer must individually determine and file the rates it will use as a result of its own independent decision-making process. The rating organizations will continue to develop and file rules, relativities and supplementary rating information on behalf of their participating insurers. Rating organization filings of prospective loss costs and insurer filings must follow the filing requirement on the Rates and Forms Web site (http://www.oregoninsurance.org/docs/serff/pc_rating.htm) and complete the required transmittal form, checklist of standards, and certificate of compliance. The filings are made under one of the following:

• ORS 737.205 - “file and use” - all lines and classes except those described in the next
  paragraph.

• ORS 737.207 and OAR 836-042-0501 to 836-042-0520 - “flex rating” - commercial liability
  insurance rate filings are implemented under “file and use” procedures, unless the change is an increase or decrease of more than 15% in which case they must be filed for approval.
  SECTION I: Rules/Loss Costs
  A. Rating Organization Action
  Department of Consumer and Business Services
  Insurance Division
  350 Winter St. NE, Room 440
  PO Box 14480
  Salem, OR 97301-0405
  (503) 947-7980
  FAX (503) 378-4351
  TTY (503) 947-7280 www.oregoninsurance.org
  Theodore R. Kulongoski, Governor

• Rating organizations are to develop and file with the Insurance Division a “Reference Filing”
  containing advisory prospective loss costs and supporting actuarial and statistical data. Prospective loss costs are that portion of a rate that does not include provisions for expenses (other than loss adjustment expenses) or profit, and are based on historical aggregate losses and loss adjustment expenses adjusted through development to their ultimate value and projected through trending to a future point in time.

• “Reference Filings” will contain the advisory prospective loss costs and the underlying loss
  data and other supporting actuarial information for any calculations or assumptions underlying those loss costs.

• After a Reference Filing has been filed with the Insurance Division (and approved when
  necessary), the rating organization will provide its participating insurers with a copy of the Reference Filing.

• The rating organization may print and distribute manuals of prospective loss costs, as well as
  rules and other supplementary rating information described in Section II A. B. Insurer Action

• Each insurer must individually determine the final rates it will file and the effective date of
  any rate changes. This will be the result of the independent company decision-making process unique to each insurer.

• If a participating insurer in the rating organization decides to use the prospective loss costs in
  the “Reference Filing” in support of its own filing, the insurer should make a filing under ORS 737.205 or ORS 737.207 following the requirements on the Web site using the Reference Filing Adoption Form (form 440-3613) and Summary of Supporting Information (form 440-3614). The insurer’s rates are the combination of the prospective loss costs and the loss cost adjustments contained in the Reference Filing Adoption Form.

• The insurer may request to have its loss cost adjustments remain on file and reference all
  subsequent prospective loss costs Reference Filings. Upon receipt of subsequent rating organization loss cost Reference Filings, the insurer’s rates are the combination of the prospective loss costs and the loss cost adjustments contained in the Reference Filing Adoption Form on file with the Insurance Division, and will apply to policies written on or after the effective date of the prospective loss costs. The insurer need not file anything further with the Insurance Division.

• If an insurer that has filed to have its loss cost adjustments remain on file with the Insurance
  Division intends to delay, modify, or not adopt a particular rating organization loss cost Reference Filing, the insurer must make an appropriate filing with the Insurance Division.

• The insurer’s filed loss cost adjustments will remain in effect until the insurer withdraws
  them or files a new Reference Filing Adoption Form.

• To the extent that an insurer’s final rates are determined solely by applying its loss cost
  adjustments, as presented in the Reference Filing Adoption Form, to the prospective loss costs contained in a rating organization’s Reference Filing and printed in the rating organization’s rating manual, the insurer need not develop or file its final rate pages with the Insurance Division. If an insurer chooses to print and distribute final rate pages for its own use, based solely upon the application of its filed loss cost adjustments to a rating organization’s prospective loss costs, the insurer need not file those pages with the Insurance

Division. If the rating organization does not print the loss costs in its rating manual, the insurer must submit its rates to the Insurance Division.

• C. Insurer Action When a Subsequent Rating Organization Reference Filing Is Filed:
  If… Then…

1. The insurer decides to use the 1. The insurer does NOT file anything with
   revision of the prospective loss the Insurance Division. Rates are the costs and effective date as filed combination of the prospective loss costs and the on-file loss cost adjustments and become effective on the effective date of the loss costs.
2. The insurer decides to use the 2. The insurer must notify the Insurance
   prospective loss costs as filed Division of its effective date before the BUT with a different effective date effective date of the loss costs.
3. The insurer decides to use the 3. The insurer must file a revised
   revision of the prospective loss Reference Filing Adoption Form (form 440- costs, but wishes to change its 3614) to file under ORS 737.205 or loss cost adjustments ORS 737.207.
4. The insurer decides NOT to 4. The insurer must notify the Insurance
   revise its rates using the prospective Division before the effective date of the loss costs loss costs.
   SECTION II: Rules, Relativities and Supplementary Rating Information
   A. Rating Organization Action

• The rating organization will file under “file and use” or for approval, as applicable, with the
  Insurance Division filings containing a revision of rules, relativities and supplementary rating information. This includes policy-writing rules, rating plans, classification codes and descriptions, territory codes and descriptions and rules which include factors or relativities such as increased limits factors, classification relativities or similar factors.
• These filings are made by the rating organization on behalf of those insurers that have
  authorized the rating organization to file rules, relativities and supplementary rating information on their behalf.
• Rating organizations may print and distribute manuals of rules, relativities and
  supplementary rating information.
  B. Insurer Action
• If an insurer has authorized rating organizations to file on its behalf, and a new filing of rules,
  relativities and supplementary rating information is filed, and

If… Then…

1. The insurer decides to use the revisions 1. The insurer does NOT file anything
   and effective date as filed with the Insurance Division.
2. The insurer decides to use the revisions 2. The insurer must notify the Insurance
   as filed BUT with a different effective Division of its effective date before the date rating organization’s effective date.
3. The insurer decides not to use the 3. The insurer must notify the Insurance
   revision Division before the rating organization’s effective date.
4. The insurer decides to use the revision 4. The insurer must file the modification
   with modification with the Insurance Division under ORS
   737.205 or ORS 737.207 specifying the
   basis for the modification.
   If you have questions regarding the submission of loss cost filings, please contact the property/casualty actuary at 503-947-7211. This bulletin is dated the 5th day of November 2003, at Salem, Oregon. (Signed)___ Joel Ario, Insurance Administrator