CHAPTER 120. LOSS COSTS ADJUSTMENT FILINGS
STATEMENT OF POLICY
120.1. Workers compensation loss costs and loss costs adjustment filings.
120.3. Rates/loss costs.
120.4. Insurer action.
120.5. Supplementary rate information: rating organization action.
The provisions of this Chapter 120 adopted August 27, 1993, effective August 28, 1993, 23 Pa.B. 4113, unless otherwise noted.
§ 120.1. Workers compensation loss costs and loss costs adjustment filings.
(a) Under the conditions of the act, rating organizations will no longer develop or file final rates, but instead will develop and file for approval prospective loss costs and supporting actuarial and statistical data. Each insurer shall individually determine and file the rates it will use as a result of its own independent company decision making process. Rating organizations will continue to develop and file rules, relativities and supplementary rating information as identified in this chapter on behalf of their members, subscribers or service purchasers. Rating organization filings should be limited to loss costs and should not contain provisions for expenses.
(b) After the initial required filing specified in the act, a participating insurer of a rating organization is authorized to continue to use the rates and deviations filed and approved for its use until disapproved, or until the insurer makes its own filing to change its rates, either by making an independent filing or by filing a nonadoption letter of the rating organization filing. Nonresponse by a company to the Department to a rating organization filing will be considered adoption of that filing.
§ 120.2. Definitions.
The following terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
ActThe Workers Compensation Act (
CommissionerThe Insurance Commissioner of the Department.
DepartmentThe Insurance Department of the Commonwealth.
Developed lossesLosses adjusted, using standard actuarial techniques, to recognize the effect of differences between current payment or reserve estimates, or both, and those estimated to be needed to provide actual ultimate loss.
ExpensesThe portion of a rate attributable to acquisition, field supervision, collection expenses, general expenses, taxes, licenses, fees, loss adjustment expenses, other operating expenses and assessments.
Loss trendingA procedure for projecting developed losses to the average date of loss for the period during which the policies are to be effective.
Profit and contingencyThe amounts that when considered with net investment and other income, provide an appropriate total after-tax return.
Prospective loss costsThat portion of a rate that does not include provisions for expenses or profit and are based on historical aggregate losses adjusted through development to their ultimate value and projected through trending to a future point in time.
RateThe rate of premium, policy and membership fee, or other charge made by an insurer for or in connection with a contract or policy of insurance of the kind to which the act applies.
Supplementary rating informationThe term includes a manual or plan of rates, classification system, rating schedule, minimum premium policy fee, rating rule, rate-related underwriting rule, experience rating plan, statistical plan and other information needed to determine the applicable rate in effect or to be in effect.
§ 120.3. Rates/loss costs.
(a) Rating organizations will no longer develop or file advisory final rates that contain provisions for expenses and profit, including investment income or consideration of the time value of money, or both. Instead, for workers compensation insurance, rating organizations will develop and file for approval with the Commissioner in accordance with Article VII of the act (
) a reference filing containing advisory prospective loss costs and supporting actuarial and statistical data, including a discussion of those considerations enumerated in the Statement of Principles of the Casualty Actuarial Society regarding property and casualty loss reserving.
(b) Loss costs filings will contain the advisory prospective loss costs and the underlying loss data and other supporting actuarial information for calculations or assumptions underlying those loss costs. It is anticipated that loss based assessments will be included in prospective loss costs.
(c) After a loss costs filing has been filed with the Department and approved, the rating organization will provide its participating insurers with a copy of the approved reference filing.
(d) The rating organization may print and distribute manuals of prospective loss costs as well as rules and other supplementary rating information described in section 2 A of the Calculation of Company Loss Cost Multiplier Form which appears in Appendix A.
(e) With the initial prospective loss costs reference filing, rating organizations will no longer develop or file minimum premiums, minimum premium formulas, loss constants, premium discounts or expense constants.
§ 120.4. Insurer action.
(a) Each insurer shall individually determine the final rates it will file for approval, for filings submitted before December 1, 1994, and the effective date of rate changes. Individual insurer loss costs adjustment filings are not subject to approval after December 1, 1994, unless they are found in violation of sections 704 and 711 of the act (
). This will be the result of the independent company decision making process of each insurer. For the initial loss costs adjustment filing, the Commissioner . . . shall publish an aggregate factor reflecting the experience of stock insurance companies and including the effect of applicable premium discount programs, for loss adjustment, or claim management expenses, other operating expenses, assessments, taxes and profit or contingency allowances which all insurers may use in the foregoing initial filings. Any insurer filing which uses an aggregate factor not in excess of the appropriate foregoing factor shall be deemed approved upon filing for purposes of this section. (See section 24(5) of the act of July 2, 1993 (P. L.
, No. 44).) An insurer shall submit its filing for the Commissioners aggregate factor in writing to the Department in duplicate with a stamped, self-addressed return envelope. The Department will acknowledge receipt of the filing, and send a copy of the acknowledgment to the company. If an insurers loss costs adjustment filing is disapproved, under section 705(b) of the act (
), it . . . may not make or issue a contract or policy of insurance of the kind to which this article applies, except in accordance with the filings which are in effect for the insurer as provided in this article. This provision would require an insurer to use the rates approved as of December 1992 until its initial loss costs adjustment filing is approved.
(b) If an insurer that is a member, subscriber or service purchaser of a rating organization decides to use the prospective loss costs in the approved reference filing in support of its own initial filing, the insurer should make a filing for approval using the reference filing adoption form. The insurers rates are the combination of the prospective loss costs and the loss costs adjustments contained in the reference filing adoption form, which should be completed even if adopting the aggregate factor. After the approval of an initial filing, the insurer shall notify the Department if it chooses not to use an approved rating organization loss costs filing.
(c) Insurers may file modifications of the prospective loss costs in the approved reference filing based on their own anticipated experience. Supporting documentation will be required for modifications, upwards or downwards, of the prospective loss costs in the approved reference filing.
The summary of supporting information form, this refers to the forms in Appendix A, contains a reference to examples of how to apply a companys loss costs modification factor (this and other terms that are a part of Appendix A are defined in the context with which they are used on the forms) to the rating organizations prospective loss costs. Two examples follow:
Example 1: Loss costs modification factor: If your companys loss costs modification is -10%, a factor of .90 (1.000 - .100) should be used.
Example 2: Loss costs modification factor: If your companys loss costs modification is +15%, a factor of 1.15 (1.000 + .150) should be used.
(d) Insurers may vary expense loads by individual classification or grouping. Insurers may use variable or fixed expense loads or a combination of these to establish their expense loadings. The loss costs methodology shall be filed with the Department. Insurers are required to file data in accordance with the uniform statistical plan approved by the Commissioner. Insurers may offer premium discount plans that shall be filed with the Department. For the purpose of the initial filing, insurers may choose to adopt the premium discount plan approved and currently on file with the Department.
(e) At a minimum, the Department will require the following data to support the loss costs adjustment filing by insurers: an explanation of the derivation of expense loadings including documentation of data sources relied on to derive the actual loadings and documentation showing how the company arrived at its underwriting profit loading and how it reflected investment income in the derivation of the profit loading. In addition, an exhibit showing the companys estimated payout pattern including data and methodology that documents its derivation and an exhibit showing how the loss adjustment expense factor was derived using historical state specific and countrywide data will be required. Loss constants should be filed as a separate item under Other on the form.
(f) If an insurer wishes to use minimum premiums, it shall file with support, and obtain approval for, the minimum premium rules, formulas or amounts it proposes to use.
(g) The insurer may request to have its loss costs adjustments remain on file and refer to all subsequent loss costs reference filings. Under such a request, the insurers rates will be the combination of prospective loss costs, subsequently approved under the rating organizations reference filings, and the loss costs adjustments contained in the insurers reference filing adoption form on file with the Department. These rates will be effective on the effective dates of those prospective loss costs.
(1) If an insurer that has filed to have its loss costs adjustments remain on file with the Department intends to delay, modify or not adopt a particular rating organizations reference filing, the insurer shall make an appropriate filing with the Department.
(2) The insurers filed loss costs adjustments will remain in effect until the insurer withdraws them or files and receives approval of a revised reference filing adoption form.
(h) Insurers may file other information which the company deems relevant and shall provide other information requested by the Department.
(i) To the extent that an insurers final rates are determined solely by applying its loss costs adjustments, as presented in the reference filing adoption form, to the prospective loss costs contained in a rating organizations reference filing and printed in the rating organizations rating manual, the insurer need not develop or file its final rate pages with the Commissioner. If an insurer chooses to print and distribute final rate pages for its own use, based solely upon the application of its filed loss costs, the insurer need not file those pages with the Commissioner. If the rating organization does not print the loss costs in its manual, the insurer shall submit its rates to the Commissioner.
(j) For future reference filings filed by a rating organization:
(1) If the insurer has filed to have its loss costs adjustments remain on file, and have them applicable to subsequent reference filings, the following conditions apply:
(i) If the insurer decides to use the revision of the prospective loss costs and effective date as filed, the insurer does not file anything with the Department. Rates are the combination of the prospective loss costs and the on-file loss costs adjustments and become effective on the effective date of the loss costs.
(ii) If the insurer decides to use the prospective loss costs as filed but with a different effective date, the insurer shall notify the Department of its effective date before the effective date of the loss costs.
(iii) If the insurer decides to use the revision of the prospective loss costs, but wishes to change its loss cost adjustments, the insurer shall file for approval a revised reference filing adoption form before the effective date of the reference filing.
(iv) If the insurer decides not to revise its rates using the prospective loss costs, the insurer shall notify the Department before the effective date of the loss costs.
(2) If an insurer has not elected to have its loss costs adjustments remain on file, applicable to future prospective loss costs reference filings and a new reference filing is filed and approved, the following conditions apply:
(i) If the insurer decides to use the prospective loss costs to revise its rates, the insurer shall file a reference filing adoption form for approval including its effective date.
(ii) If the insurer decides not to use the revisions, the insurer does not file anything with the Department.
§ 120.5. Supplementary rate information: rating organization action.
(a) Rating organization filings. The rating organization files with the Department, for approval, filings containing a revision of rules and supplementary rating information. This includes policy-writing rules, rating plans, classification codes and descriptions and rules which include factors or relativities such as employers liability increased limits factors, classification relativities or similar factors but excludes minimum premiums. A rating organization filing should be limited to loss costs and not contain provisions for expenses.
(1) These filings are made by the rating organization on behalf of insurers that have authorized the rating organization to file rules, relativities and supplementary rating information on their behalf.
(2) Rating organizations may print and distribute manuals of rules and supplementary rating information excluding minimum premiums.
(b) Insurer action. If an insurer has authorized a rating organization to file on its behalf, and a new filing of rules, relativities and supplementary rating information is filed and approved, the following conditions apply:
(1) If the insurer decides to use the revisions and effective date as filed, the insurer does not file anything with the Department.
(2) If the insurer decides to use the revisions as filed but with a different effective date, the insurer shall notify the Department of its effective date before the approved rating organizations effective date.
(3) If the insurer decides not to use the revision, the insurer shall notify the Department before the rating organizations effective date.
(4) If the insurer decides to use the revision with modifications, the insurer shall file the modification with the Department, for approval, specifying the basis for the modification and the insurers proposed effective date filed by the rating organization.
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