Journal of the Senate
of the First Session of the 111th General Assembly
of the State of South Carolina
being the Regular Session Beginning Tuesday, January 10, 1995

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| Printed Page 2050, Apr. 26 | Printed Page 2070, Apr. 26 |
Printed Page 2060 . . . . . Wednesday, April 26, 1995
(E) Insurers of automobile insurance may charge a rate for physical damage insurance coverages different than from those provided for in Section 38-73-457 if the rates are filed with the department and approved by the director or his designee. Any applicant or existing policyholder, to be charged this different rate, must be denied the coverage pursuant to subsection (B) at the rate provided in Section 38-73-457. Notwithstanding Section 38-37-111, automobile physical damage coverages may be ceded to the facility. However, automobile physical damage coverages ceded to the facility by an insurer or servicing carrier shall be at the rate provided for in accordance with Section 38-77-540.

(F) A carrier may not cede collision coverage, comprehensive coverage, or fire, theft, and combined additional coverages with a deductible of less than two hundred fifty dollars. An insured or qualified applicant my select an additional deductible in appropriate increments up to one thousand dollars. However, the mandatory deductible does not apply to safety glass. In determining the premium rates to be charged on automobile insurance, it is unlawful to consider race, color, creed, religion, national origin, ancestry, location of residence, occupation, or economic status. Nothing in this section shall prohibit use of territorial plans and classifications approved by the director or his designee. If the Director of Insurance makes a finding that the insurer is participating in a pattern of discriminatory practices, the director may impose a fine on the insurer of up to two hundred thousand dollars."

SECTION 9. Section 38-77-30 of the 1976 Code is amended by adding:

"(15) `State uniform rate' means the final rate or premium charge for liability coverage which is to be established by adding the liability loss component developed under Section 38-73-780 to the expense component developed under Section 38-73-1420 and applying to the resulting total a modification factor of 1.10 for the two-year period beginning January 1, 1996; a modification factor of 1.125 for the two-year period beginning January 1, 1998; and a modification factor of 1.15 on or after January 1, 2000.

(16) `Facility physical damage rate' means the final rate or premium charge for physical damage coverage which is to be established by adding the physical damage loss component developed under Section 38-73-780 to the expense component developed under Section 38-73-1420."

SECTION 10. The title of Section 38-77-540 of the 1976 Code is amended to read:

"Duties of ceding insurer Facility rate plans."

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SECTION 11. Section 38-77-540 of the 1976 Code is amended to read:

"Section 38-77-540. The ceding insurer shall transfer or credit to the Facility on any policy of automobile insurance reinsured by the Facility the pure loss component of its rate or premium charge together with the profit and contingency component of the rate or premium charge as determined under its rating plan or system as filed with the Department. The ceding insurer shall retain as and for its ceding commission the allocated loss adjustment expense component as well as the underwriting and administrative expense components of the rate or premium charge under ceding insurer's rating plan or system as filed with the Department. However, no ceding insurer may include in the agents' commissions component of its underwriting expenses any amount greater than it has actually paid its agent as commission on the reinsured risk. The facility shall accept cessions on a policy of private passenger automobile insurance at the option of an insurer but only at the rate or premium charge as determined under the rating plans established by the governing board and approved by the director or his designee, subject, however, to Section 38-77-950 regarding reasonable utilization of the facility by member companies. The rate plans for the facility are subject to the director's or his designee's approval which may be granted only if the plan is consistent with and provides for the following:

(A) The rate or premium charge for drivers of private passenger automobiles shall be the state uniform rate as defined in this chapter.

(B) Beginning on January 1, 1997, the rate or premium charge for private passenger automobile physical damage coverages shall be the facility physical damage rate as defined in this chapter.

(C) The rate plans of the facility shall use the applicable risk and territorial classification plan promulgated by the director or his designee including merit rating plan surcharges and discounts as provided for in Section 38-73-760(e). The facility rate plans shall not include discounts approved for individual insurers under Section 38-73-735.

The facility shall publish a uniform rate and rules manual as required by this section. This manual shall include all applicable classifications, discounts, rating rules and procedures to be utilized in connection with facility business. This manual shall be subject to annual approval by the director or his designee. The director shall resolve all subsequently arising administrative issues by the departmental bulletin.

The facility shall develop and file with the department of insurance a uniform policy form to be used in connection with all business reinsured by the facility. This form shall be used for all facility business issued or

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renewed after January 1, 1997. An automobile insurer is not required to make a new offer of coverage on any automobile insurance policy which renews, extends, changes, supersedes or replaces and existing policy of automobile insurance reinsured by the South Carolina Reinsurance Facility after January 1, 1997.

(D) The ceding insurer shall transfer or credit to the facility on any policy of automobile insurance reinsured by the facility the pure loss component of the applicable uniform rate together with the profit and contingency component of such rate. The ceding insurer shall retain as and for its ceding commission its allocated loss adjustment expense component as well as its underwriting and administrative expense components of the applicable uniform rate as specified in the plan of operation of the South Carolina Reinsurance Facility. However, no ceding insurer may include in the agents' commissions component of its underwriting expenses any amount greater than it has actually paid its agent as commission on the reinsured risk.

(E) The governing board shall assign a specific location to each producer designated. The governing board shall determine producers whom the director or his designee the locations assigned by him to those producers whom the director or his designee has designated. Except through the acquisition of an existing designated agency as permitted in paragraph (F) of this section, designated producers may not open or maintain any other locations without the written authorization of the governing board; provided, however, that an applicant maintaining multiple offices on June 4, 1987, is entitled to maintain two locations as a designated agent which he owned and operated at that time and through which premiums in at least the amount of seventy-five thousand dollars were written. The governing board shall terminate the designation, and the director or his designee shall revoke all agent's licenses of any producer who does not comply with this requirement upon demand by the governing board. Upon termination, the producer's expirations on designated business become the property of the facility.

(F) The designation of a producer by the director or his designee of the governing board is transferable to the Reinsurance Facility for purposes of liquidation, or a spouse, child, parent, brother, or sister of the producer upon the designated producer's retirement, incapacity, or death. The duties of a designated producer may be performed by one or more qualified employees of the producer or the producer's corporate agency.

(G) A designated producer may have any direct or indirect connection or contract with any voluntary market outlet for the purpose of writing any type of automobile insurance in this State. Provided that the combined

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annual amount of net written premiums for private passenger automobile liability insurance coverages in all of the producers voluntary market outlets shall not exceed sixty-five percent of the designated producers total annual amount of net written premiums for private passenger automobile liability insurance coverages. In the event the calculated percentage exceeds sixty-five percent in eighteen months after notification during which time an appropriate reduction in voluntary market writings has not been accomplished the governing board shall terminate the designation of the producer.

(H) Subject to the approval of the governing board, the designation of a producer is transferable to an employee, or other individual having insurance industry experience and meeting the following qualifications. Approval shall be granted upon a finding that all the following qualifications exist:

(1) the transferee has not been terminated as an agent by any insurer because of any illegal breach of any agency agreement or other related, improper, or unethical conduct; and has not had his agent's license revoked or suspended due to any professional misconduct;

(2) the transferee has not been convicted of any crime of moral turpitude; and

(3) the books, records, and accounts of the insurance business of the agency have been audited at the expense of the applicant and found by the governing board to be indicative of a financial sound operation.

(I) No designated producer nor any employee of a designated producer or the producer's corporate agency, nor any partner or shareholder in any related insurance agency, related premium service company, or related other business, may have any direct or indirect connection with, or directly or indirectly through any artifice or device whatsoever hold an ownership interest or exercise management control over more than two agencies or designated agency locations. The governing board shall terminate the designation of any producer, and the director or his designee shall revoke all licenses of the producer and of any other insurance agent and premium service company knowingly involved in such connection. Upon termination, the producer's expirations or designated business become the property of the facility."

SECTION 12. Section 38-77-600 of the 1976 Code, as last amended by Act 181 of 1993, is further amended to read:

"Section 38-77-600. The rate or premium charged by insurers of private passenger automobile insurance must include a facility recoupment charge, which must be added to the appropriate base rate or objective standards rate prescribed in Sections 38-73-455 and 38-73-457. The

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operating losses of the facility for a twelve-month period must be recouped in the subsequent twelve-month period.

(1) Prior to Before December first of each year, the governing board of the facility shall calculate the recoupment amount, by coverage, by dividing the net facility operating loss, adjusted to reflect prudently incurred expenses, consistent with the provisions of Section 38-73-465, and the time value of money, by mandated coverage for the preceding facility accounting year, by the total number of earned car years in South Carolina, by coverage, for the same period of time. .386 multiplied by the recoupment is to be borne by risks having zero surcharge points under the Uniform Merit Plan promulgated by the department. The remainder of the recoupment (.614 multiplied by the recoupment) represents R in the formula, P(1)X + 2P(2)X + 3P(3)X + 4P(4)X + 5P(5)X + 6P(6)X + 7P(7)X + 8P(8)X + 9P(9)X + 10P(1)+I0X = R. In this formula to be utilized in determining the facility recoupment charge:

(a) P(1) is the percentage of risks which have one surcharge point under the Uniform Merit Rating Plan;

(b) P(2) is the percentage of risks which have two surcharge points under the Uniform Merit Rating Plan;

(c) P(3) is the percentage of risks which are subject to a surcharge of three points under the Uniform Merit Rating Plan;

(d) P(4) is the percentage of risks which are subject to a surcharge of four points under the Uniform Merit Rating Plan;

(e) P(5) is the percentage of risks subject to a surcharge of five points under the Uniform Merit Rating Plan;

(f) P(6) is the percentage of risks subject to a surcharge of six points under the Uniform Merit Rating Plan;

(g) P(7) is the percentage of risks subject to a surcharge of seven points under the Uniform Merit Rating Plan;

(h) P(8) is the percentage of risks subject to a surcharge of eight points under the Uniform Merit Rating Plan;

(i) P(9) is the percentage of risks subject to a surcharge of nine points under the Uniform Merit Rating Plan;

(j) P(1)+I0 or more is the percentage of risks subject to a surcharge of ten or more points under the Uniform Merit Rating Plan;

(k) X is the dollar amount by coverage, to be charged all risks having one surcharge point under the Uniform Merit Rating Plan promulgated by the department. This dollar amount, by coverage, is the facility recoupment charge to be added to the base rate or objective standards rate prescribed in Sections 38-73-455 and 38-73-457 for all risks which have one surcharge point.

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(2) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which have one surcharge point under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of one.

(3) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which have two surcharge points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of two.

(4) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of three points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of three.

(5) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of four points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of four.

(6) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of five points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of five.

(7) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of six points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of six.

(8) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of seven points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of seven.

(9) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of eight points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of eight.

(10) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of nine points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of nine.

(11) The facility recoupment charge by coverage to be added to the base rate or objective standards rate for all risks which are subject to a surcharge of ten or more points under the Uniform Merit Rating Plan is calculated by multiplying X by a factor of ten.

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(12) In determining the number of surcharge points a risk has for the purposes of this section, no surcharge points assigned under the Uniform Merit Rating Plan because the principal operator of the automobile has not been licensed in any state for at least one year immediately preceding the writing of the risk or as a result of a failure of any motor vehicle equipment requirement may be considered.

(13) This section applies to all private passenger automobile insurance policies issued or renewed after June 30, 1989. However, insurers unable to comply with the provisions of this section and renewal provisions required by law may comply with this section at any time after June 30, 1989, but in no event later than October 1, 1989."

SECTION 13. Section 38-77-620 of the 1976 Code, as last amended by Act 148 of 1989, is further amended to read:

"Section 38-77-620. The facility recoupment charges approved or established pursuant to Section 38-77-610 must be added to the approved base rate and objective standards rate in effect for each automobile insurer. The combined rate or premium charge is effective on July first of each year and the recoupment charges must remain constant until July first of the following year. The base rate and objective standards rate may change in accordance with Section 38-73-457 and the other applicable requirements of this title pertaining to the approval of rates or premium charges. Facility recoupment charges must be considered in accordance with:

(1) Any recoupment charge paid by policyholders must be considered premium for the purpose of calculating premium taxes and commissions and is subject to normal policy cancellation procedures.

(2) Any net operating gains resulting from the operation of the facility must be retained by the facility, and the gains and any investment income derived from the gains must be used to offset future operating losses.

(3) The total funds recouped by all insurers less commission and premium tax expenses and time value of money considerations must be paid to the Reinsurance reinsurance facility in accordance with the plan of operation. The governing board shall redistribute the funds to the insurers based upon each insurer's share of the Reinsurance Facility reinsurance facility losses. Recoupment must be used solely for the purpose of recovering past facility operating deficits. The plan of operation must provide that the amount ultimately received by an individual company is not more than the company's share of the Reinsurance Facility reinsurance facility losses, plus the time value of money.

(4) In the making and approval of rates for small commercial automobile risks, as defined in Section 38-77-30, consideration must be

Printed Page 2067 . . . . . Wednesday, April 26, 1995
given to the net gains or losses incurred by insurers as a result of participation in the operating results and actual, prudently incurred expenses, respectively, of the facility."

SECTION 14. Section 38-77-910 of the 1976 Code, as amended by Act 181 of 1993, is further amended to read:

"Section 38-77-910. It is an act of unlawful discrimination for an automobile insurer to make any distinction between automobile insurance policyholders or applicants for automobile insurance with respect to coverage, rates, claims, or other services except as the distinctions are provided for in the rating plans for the classification of risks and territories promulgated by the department and the facility rate plans."

SECTION 15. Section 38-77-940 of the 1976 Code, as last amended by Act 181 of 1993, is further amended to read:

"Section 38-77-940. No insurer of automobile insurance shall directly or indirectly by offer or promise of reward or imposition or threat of penalty or through any artifice or device whatsoever, confer any benefit upon any agent or impose any detriment upon any such agent for the purpose of avoiding any class or type of automobile insurance risk which the insurer considers it necessary to reinsure in the facility; nor shall any offer or promise of reward or imposition or threat of penalty in connection with any other line or type of insurance be so tied to automobile insurance as to have a tendency to induce the agent to avoid any such class or type of automobile insurance risk; nor shall any insurer of automobile insurance provide to agents, directly or indirectly, orally or in writing, any listing of classes or types of automobile insurance risks which it considers necessary to reinsure in the Facility; nor shall any insurer of automobile insurance terminate its insurance business with any one agent over the writing of certain classes or types of automobile insurance risks without also pulling out of the entire State or terminating its similar insurance business with all other agents in the State at the same time for a period of time of at least 365 days, except that if the insurer reinstates the agent within thirty days of the determination that the termination was unlawful, then this provision shall not apply; nor shall any insurer of automobile insurance do anything unfair, or unfairly fail to do anything, which has the effect of, or which results in, causing any ceded insurance business to have a detrimental effect on any incentive bonuses paid by the insurer to agents. Any act in violation of this section constitutes an act of unlawful discrimination and unfair competition which, if wilful, shall result in the suspension or revocation of the insurer's certificate of authority for not less than twelve months. Any agreement made in violation of this section shall be void.

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Nothing in this section may be considered to preclude or impair agreements between insurers and their agents or some of their agents to pay contingency commissions or a profit-sharing bonus based upon the quality of business; nor shall the insurers, in any manner, use that business placed in the facility when determining the quality bonus; nor may it be considered to preclude an agreement between any agent and an insurer of automobile insurance to exclude from any profit-sharing or contingency arrangement automobile insurance business coming unsolicited to the agent and written by him solely because of the mandate of coverage provided in this chapter.

No insurer of automobile insurance shall cancel its representation by an agent primarily because of the volume of automobile insurance placed with it by the agent on account of the statutory mandate of coverage nor because of the amount of the agent's automobile insurance business which the insurer has considered it necessary to reinsure in the facility."

SECTION 16. Section 38-77-950 of the 1976 Code, as last amended by Act 104 of 1993 and Act 181 of 1993, is further amended to read:

"Section 38-77-950. It is the intent of this chapter that the facility must not be excessively nor unreasonably utilized by automobile insurers for unfairly competitive purposes or for purposes of unfairly discriminating against certain classes or types of automobile insurance risks having the same or similar objective risk characteristics as other risks in the same class under the rating plan for the classification of risks promulgated by the department, nor for the purpose of discriminating against the risks or risks in certain rating territories. The director or his designee shall prohibit unreasonable or excessive utilization of the facility. A prima facie case of excessive or unreasonable utilization is established upon a showing that an automobile insurance insurer or a group of insurers under the same management has ceded or is about to cede more than thirty-five forty percent of total direct cedeable written premiums on South Carolina automobile insurance as reported in the most recently filed annual statement of the insurer or group total cedeable car-year exposures, including nonowner risk exposures, as stated in the most recent calendar year report of the South Carolina Reinsurance Facility. Effective January 1, 1997, this limitation shall be forty-five percent. Effective January 1, 1998, this limitation shall be fifty percent. Upon the written request of the policyholder, insurance companies doing business in this State shall give written notice to the policyholder informing him whether or not he and a driver under the policy is in the facility. Insurers shall give written notice to the policyholder of a risk ceded to the facility which does not qualify for the safe driver discount in Section 38-73-760(e).

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Total direct cedeable written premiums as used in this section do not include premiums attributable to risks ceded to the facility that do not qualify for the safe driver discount in Section 38-73-760(e) for twenty-four months following October 1, 1993 Total cedeable car-year exposures, including nonowner risk exposures as used in this section, do not include such exposures ceded to the facility which do not qualify for the safe driver discount in Section 38-73-760(e)."

SECTION 17. Notwithstanding any other provision of law, recoupment fees for private passenger automobile insurance for the twelve months ending June 30, 1996, shall not exceed the level charged during the twelve-month period ending June 30, 1995; and facility losses unrecouped due to this section shall be recouped evenly during the three-year period beginning July 1, 1996.

SECTION 18. This act takes effect upon approval by the Governor./

Amend title to conform.

Senator SALEEBY explained the amendment.

With Senator SALEEBY retaining the floor, Senator DRUMMOND asked unanimous consent to make a motion that the Senate stand in recess until 2:15 P.M.

Debate was interrupted by recess, Senator SALEEBY retaining the floor.

RECESS

At 1:52 P.M., on motion of Senator DRUMMOND, the Senate receded from business until 2:15 P.M.

AFTERNOON SESSION

The Senate reassembled at 2:15 P.M. and was called to order by the PRESIDENT.

Point of Quorum

Senator DRUMMOND made the point that a quorum was not present. It was ascertained that a quorum was not present.

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