Colorado § 10-4-403 - Standards for rates - competition - procedure - requirement for independent actuarial opinions regarding 1991 legislation.

§ 10-4-403. Standards for rates - competition - procedure - requirement for independent actuarial opinions regarding 1991 legislation.

(1) Rates shall not be excessive, inadequate, or unfairly discriminatory. The following rate standards shall apply:

(a) Rates are excessive if they are likely to produce a long run profit that is unreasonably high for the insurance provided or if expenses are unreasonably high in relation to services rendered.

(b) Concerning inadequacy, rates are not inadequate unless clearly insufficient to sustain projected losses and expenses, or the use of such rates, if continued, will tend to create a monopoly in the market.

(c) Concerning unfair discrimination, unfair discrimination exists if, after allowing for practical limitations, price differentials fail to reflect equitably the differences in expected losses and expenses. A rate is not unfairly discriminatory solely if different premiums result for policyholders with like loss exposures but different expenses, or like expenses but different loss exposures, so long as the rate reflects the differences with reasonable accuracy. Additionally, the provisions of section 10-3-1104 (1)(f) shall apply.

(2) (a) In determining whether rates comply with the excessiveness standard, the inadequacy standard, and the unfair discrimination standard, the following criteria shall apply:

(I) Concerning basic factors in rates, due consideration shall be given to past and prospective loss and expense experience, to catastrophe hazards and contingencies, to events or trends, 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;

(II) Concerning 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 expenses experience;

(III) Concerning profits, the rate shall contain provisions for contingencies and an allowance permitting a reasonable profit. In determining the reasonableness of profit, consideration should be given to all investment income attributable to premiums and the reserves associated with those premiums.

(b) In setting rates, insurers shall consider past and prospective loss experience and catastrophic hazards, if any, solely within the state of Colorado. However, if there is insufficient experience within Colorado upon which a rate can be based, the insurer may consider experiences within any other state or states which have a similar cost of claim and frequency of claim experience as the state of Colorado; and, if insufficient experience is available, the insurer may use a countrywide experience. The insurer, in its rate filing or in its records, shall expressly state and describe what rate experience it is using, and for Colorado business other than workers' compensation insurance, the insurer shall specify the state or states from which experiences were drawn and the considerations used in setting the rates. In considering experience outside the state of Colorado, as much weight as possible shall be given to the Colorado experience. The rates shall allow a reasonable margin for profit, as allowed in subparagraph (III) of paragraph (a) of this subsection (2), and contingencies.

(2.1) (a) In setting rates for medical malpractice insurance, rates shall not be excessive or inadequate, as defined in this section, nor shall they be unfairly discriminatory. No rate shall be held to be excessive unless such rate is unreasonably high for the insurance provided and a reasonable degree of competition does not exist in the area with respect to the classification to which such rate is applicable. No rate shall be held to be inadequate unless such rate is unreasonably low for the insurance provided and the continued use of such rate endangers the solvency of the insurer using the same, or unless such rate is unreasonably low for the insurance provided and the use of rate by the insurer using the same has, or if continued will have, the effect of destroying competition or creating a monopoly.

(b) In setting rates, medical malpractice insurers shall consider past and prospective loss experience and catastrophic hazards, if any, solely within the state of Colorado. However, if there is insufficient experience within Colorado upon which a rate can be based, the insurer may consider experiences within any other state or states which have a similar cost of claim and frequency of claim experience as the state of Colorado; and, if insufficient experience is available, the insurer may use a nationwide experience. The insurer, in its rate filing or in its records, shall expressly state and describe what rate experience it is using, specifying the state or states from which experiences were drawn and the considerations used in setting the rates. In considering experience outside the state of Colorado, as much weight as possible shall be given to the Colorado experience. The rates shall allow a reasonable margin for profit and contingencies, including dividends, savings, or unearned premium deposits allowed or returned by insurers to their policyholders, members, or subscribers. In determining profits, the insurer shall consider investment income from unearned premium reserves and reserves for incurred losses and incurred but not reported losses.

(c) Medical malpractice insurers shall specify in their rate filings and shall consider and support the evaluation with an analysis and opinion of a qualified property and casualty actuary, and the commissioner as a result of such filing or upon his own motion may also consider, the impact of the following on medical malpractice rates:

(I) Tort reform legislation;

(II) Risk management activities;

(III) Underwriting standards and practices;

(IV) Any other activity designed to reduce rates or rate increases or the cost of administration and determination of claims.

(d) and (e) Repealed.

(2.5) Notwithstanding any provision of law to the contrary, any insurer licensed to sell motor vehicle insurance within the state of Colorado may offer a reduction in premiums if the claims experience subsequent to the enactment of section 42-4-237, C.R.S., so warrants.

(3) The systems of expense provisions included in the rates for use by any insurer or group of insurers may differ from those of other insurers or groups of insurers to reflect the requirements of the operating methods of any such insurer or group with respect to any subdivision or combination thereof for which subdivision or combination separate expense provisions are applicable.

(4) Risks may be grouped by classifications for the establishment of rates and minimum premiums. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions or both. Such standards may measure any difference among risks that can be demonstrated to have a probable effect upon losses or expenses.

(4.6) Repealed.

(5) Under the commissioner's power to review rates of all companies, if he determines, after a hearing and on the basis of findings of fact and conclusions, that, with respect to any territory or to any kind, subdivision, or class of insurance, competition is either insufficient to assure that rates will not be excessive, or so conducted as to be destructive of competition or detrimental to the solvency of insurers, he shall order that the rates for such insurance or territory shall be regulated as type I kinds of insurance as defined in section 10-4-401 (3)(a). Such order shall have a specified duration of not more than one year but may be renewed by the commissioner upon appropriate findings of fact, conclusions, and order.

(6) The commissioner shall require an independent actuarial opinion that the best estimate of the impact of the reforms to the workers' compensation system enacted in Senate Bill 91-218 during the first regular session of the fifty-eighth general assembly have been incorporated in any workers' compensation rate change filed with the commissioner until July 1, 1994.

(7) This section shall not apply to insurers providing coverage to exempt commercial policyholders, as defined pursuant to section 10-4-1402 and rules adopted by the commissioner pursuant to that section.

Source: L. 79: Entire part R&RE, p. 364, § 8, effective July 1. L. 86: (2) amended, p. 579, § 3, effective July 1. L. 87: (2.5) added, p. 1533, § 4, effective May 7. L. 88: (2.1) and (4.6) added, p. 623, § 2 effective July 1. L. 91: (1), (2), and (2.1) amended, p. 1196, § 3, effective April 11; (6) added, p. 1337, § 53, effective July 1. L. 93: (2.1)(e) added, p. 1920, § 3, effective July 1. L. 94: (2.5) amended, p. 2545, § 17, effective January 1, 1995. L. 99: (7) added, p. 386, § 2, effective January 15, 2000. L. 2000: (2.1)(d) and (4.6) repealed, p. 465, § 4, effective August 2. L. 2006: (2)(b) and (2.1)(b) amended, p. 1430, § 2, effective August 7.

Editor's note: (1) This section is similar to former §§ 10-4-303 and 10-4-402 as they existed prior to 1979.

(2) Subsection (2.1)(e)(II) provided for the repeal of subsection (2.1)(e), effective July 1, 1996. (See L. 93, p. 1920.)

Cross references: For the legislative declaration contained in the 2000 act repealing subsections (2.1)(d) and (4.6), see section 1 of chapter 135, Session Laws of Colorado 2000.

ANNOTATION

Insurance commissioner does not set rates, but rather he is to consider the present projections of future needs based on past experience, and then, based thereon, either approve or disapprove the rates submitted by the insurer. State Farm Mut. Auto. Ins. Co. v. Barnes, 41 Colo. App. 380, 585 P.2d 929 (1978) (decided under former § 10-4-403 as it existed prior to the 1979 repeal and reenactment of this article).

No regulation of agent's freedom to select coverages. This section was not intended to be a mechanism through which the commissioner could indirectly regulate an independent insurance agent's freedom to select individual coverages best suited to the needs of his clients and to the economies of his business. United States Fid. & Guar. Co. v. Barnes, 42 Colo. App. 49, 589 P.2d 76 (1978) (decided under former § 10-4-402 as it existed prior to the 1979 repeal and reenactment of this article).

That a filing approved by the commissioner applies only to new and renewal policies does not, of itself, make such filing unfairly discriminatory, as the filing merely prevented new rates from being retroactively imposed on existing insurance contracts. Although application of new rates only to new and renewal policies differentiates among policy holders based on their renewal date, the rates are not unfairly discriminatory. D & B Enters., Inc. v. Commissioner of Ins., 919 P.2d 935 (Colo. App. 1996).