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TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 2 TO CHAPTER 73, TITLE 38 SO AS TO ENACT THE "PROPERTY AND CASUALTY INSURANCE PERSONAL LINES MODERNIZATION ACT"; TO AMEND SECTION 38-73-910, RELATING TO CONDITIONS UNDER WHICH INSURANCE PREMIUMS MAY BE RAISED, SO AS TO DELETE FIRE, ALLIED LINES, AND HOMEOWNERS' INSURANCE FROM THIS REQUIREMENT, AND TO DELETE A PROVISION AUTHORIZING A PRIVATE INSURER TO UNDERWRITE CERTAIN ESSENTIAL PROPERTY INSURANCE AND TO FILE FOR RATE INCREASE UNDER CERTAIN CIRCUMSTANCES.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. A. Chapter 73, Title 38 of the 1976 Code is amended by adding:
Section 38-73-210. This article is known as the Property and Casualty Insurance Personal Lines Modernization Act and applies only to personal lines insurance.
Section 38-73-220. (A) Except as provided in subsection (B), overall average rate level increases or decreases, for all coverages combined, of seven percent above or below the insurer's rates then in effect may take effect without prior approval on a file and use basis with respect to rates for fire, allied lines, and homeowners insurance policies. The seven percent cap does not apply on an individual insured basis.
(B) Notwithstanding any other provisions of this article, for any policies governed by this section, filings that produce rate level changes within the limitation specified in subsection (A) become effective without prior approval. No more than two rate increases within the limitation specified in subsection (A) may be implemented during any twelve-month period and the second rate increase filing in the twelve-month period is subject to prior approval.
(C) A rate increase or decrease falling within the limitation in subsection (B) may become effective not less than thirty days after the date of the filing with the director. The filing is considered to meet the requirements of this article. If the director finds that this filing is not in compliance with this article, he shall issue a written order specifying in detail the provisions with which the insurer has not complied and state a reasonable period in which the filing is considered no longer effective. An order by the director pursuant to this section that is issued more than thirty days from the date on which the director received the rate filing is on a prospective basis only and does not affect any contract issued or made before the effective date of the order.
(D) Rate filings falling outside the limitation specified in subsection (B) are subject to the prior approval of the director. The director shall approve or disapprove these filings in accordance with the provisions of Sections 38-73-960 and 38-73-990.
Section 38-73-230. (A) A competitive market for a line of insurance is presumed to exist unless the director, after notice and hearing, determines that a reasonable degree of competition does not exist within a market and issues a ruling to that effect. The burden of proof in any hearing is placed on the party or parties advocating the position that competition does not exist. A ruling that a market is not competitive must identify the factors causing the market not to be competitive. This ruling expires one year after issued unless rescinded earlier by the director or unless the director renews the ruling after a hearing and a finding as to the continued lack of a reasonable degree of competition. A ruling that renews the finding that competition does not exist also must identify the factors that cause the market to continue not to be competitive.
(B) The following factors must be considered by the director for purposes of determining if a reasonable degree of competition does not exist in a particular line of insurance:
(1) the number of insurers or groups of affiliated insurers providing coverage in the market;
(2) measures of market concentration and changes of market concentration over time;
(3) ease of entry and the existence of financial or economic barriers that could prevent new firms from entering the market;
(4) the extent to which any insurer or group of affiliated insurers controls all or a portion of the market;
(5) whether the total number of companies writing the line of insurance in this State is sufficient to provide multiple options;
(6) the availability of insurance coverage to consumers in the markets; and
(7) the opportunities available to consumers in the market to acquire pricing and other consumer information.
(C) The director shall monitor the degree and continued existence of competition in this State on an on-going basis. The director may utilize existing relevant information, analytical systems, and other sources, or rely on a combination of them. Activities may be conducted internally within the insurance department, in cooperation with other state insurance departments, through outside contractors, or in any other appropriate manner.
Section 38-73-240. (A) Rates must not be excessive, inadequate, or unfairly discriminatory.
(1) 'Excessive' means a rate that is likely to produce a long-term profit that is unreasonably high for the insurance provided. A rate in a competitive market is not considered excessive.
(2) 'Inadequate' means a rate which is unreasonably low for the insurance provided and:
(i) the continued use of which endangers the solvency of the insurers using it; or
(ii) has the effect of substantially lessening competition or creating a monopoly in any market.
(3) 'Unfairly discriminatory' refers to rates that cannot be actuarially justified.
(a) It does not refer to rates that produce differences in premiums for policyholders with like loss exposures, so long as the rate reflects such differences with reasonable accuracy. A rate is not unfairly discriminatory if it averages broadly among persons insured under a group, franchise, or blanket policy, or a mass marketing plan.
(b) A rate in a competitive market is not considered unfairly discriminatory unless it violates the provisions of subsection (B) in that it classifies risk, on the basis of race, color creed, or national origin.
Risks may be classified in any way except that no risk may be classified on the basis of race, color, creed, or national origin.
(B) In determining whether rates in a noncompetitive market are excessive, inadequate, or unfairly discriminatory, consideration may be given to the following elements:
(1) due consideration must be given to past and prospective loss and expense experience within and outside of this State, to catastrophe hazards and contingencies, to events or trends within and outside of this State, to dividends or savings to policyholders, members or subscribers, and to all other factors and judgments deemed relevant by the insurer;
(2) risks may be grouped by classifications for the establishment of rates and minimum premiums. Classification rates may be modified for individual risks in accordance with rating plans or schedules which establish standards for measuring probable variations in hazards or expenses, or both;
(3) the expense provision must reflect the operating methods of the insurer and its own past expense experience and anticipated future expenses;
(4) the rates must contain a provision for contingencies and a provision for a reasonable underwriting profit, and reflect investment income directly attributable to unearned premium and loss reserves; and
(5) any other factors available at the time of hearing.
Section 38-73-250. (A) If the director determines that competition does not exist in a market and issues a ruling to that effect pursuant to Section 38-73-230, the rates applicable to insurance sold in that market must be regulated in accordance with the provisions of Section 38-73-260 applicable to noncompetitive markets.
(B) A rate filing in effect at the time the director determines that competition does not exist pursuant to Section 38-73-230 must be considered to be in compliance with the laws of this State unless disapproved pursuant to the procedures and rating standards contained in Section 38-73-260 applicable to noncompetitive markets.
(C) An insurer having a rate filing in effect at the time the director determines that competition does not exist pursuant to Section 38-73-240 may be required to furnish supporting information within thirty days of a written request by the director.
Section 38-73-260. (A) In a competitive market, for personal lines, each insurer shall file with the director all rates and supplementary rate information to be used in this State no later than thirty days after the effective date. Rates and supplementary rate information does not need to be filed for inland marine risks, which by general custom are not written according to manual rules or rating plans. Rates in a competitive market for commercial insurance do not need to be filed.
(B) In a noncompetitive market for personal lines:
(1) each insurer shall file with the director all rates, supplementary rate information and supporting information for noncompetitive markets at least thirty days before the proposed effective date. The director may give written notice, within thirty days of the receipt of the filing, that additional time is needed, not to exceed thirty days from the date of the notice, to consider the filing. Upon written application of the insurer, the director may authorize rates to be effective before the expiration of the waiting period or an extension of it. A filing is considered to meet the requirements of this article and to become effective unless disapproved pursuant to this section by the director before the expiration of the waiting period or an extension of it. Residual market mechanisms or advisory organizations may file residual market rates.
(2) The filing is considered in compliance with the filing provisions of this section unless the director informs the insurer within ten days after receipt of the filing as to what supplementary rate information or supporting information is required to complete the filing.
(C) An insurer may file its rates by either filing its final rates or by filing a multiplier and, if applicable, an expense constant adjustment to be applied to prospective loss costs that have been filed by an advisory organization on behalf of the insurer as permitted by this chapter.
(D) All rates, supplementary rate information, and any supporting information filed pursuant to this article is open to public inspection once they have been filed except information marked confidential, trade secret, or proprietary by the insurer or filer. A copy may be obtained from the director upon request and upon payment of a reasonable fee.
(E) Notwithstanding any other provisions of this section, upon written application of the insured, stating the reason for it, a rate in excess of or below that otherwise applicable may be used on any specific risk.
Section 38-73-270. (A)(1) The director shall disapprove a rate in a competitive market only if the director finds pursuant to subsection (B) that the rate is inadequate pursuant to Section 38-73-240(A)(2) or unfairly discriminatory pursuant to Section 38-73-240(A)(3)(b).
(2) The director may disapprove a rate for use in a noncompetitive market only if the director finds pursuant to subsection (B) that the rate is excessive, inadequate, or unfairly discriminatory pursuant to Section 38-73-240(A).
(B)(1) Before the expiration of the waiting period or an extension of it of a filing made pursuant to Section 38-73-260(B), the director may disapprove by written order rates filed pursuant to Section 38-73-260(B) without a hearing. The order must specify in what respects the filing fails to meet the requirements of this article. An insurer whose rates are disapproved pursuant to this section must be given a hearing upon written request made within thirty days of disapproval.
(2) If, at any time, the director finds that a rate applicable to insurance sold in a noncompetitive market does not comply with the standards provided in Section 38-73-240, the director may issue an order disapproving the rate. The disapproval order does not affect a contract or policy made or issued before the effective date provided in the order.
(3) If, at any time, the director finds that a rate applicable to insurance sold in a competitive market is inadequate or unfairly discriminatory, the director may issue an order disapproving the rate. The order does not affect a contract or policy made or issued before the effective date provided in the order.
(C) If the director disapproves a rate pursuant to subsection (B), the director shall issue an order specifying in what respects the rate fails to meet the requirements of this article. The order must state an effective date no sooner than thirty business days after the date of the order when the use of the rate must be discontinued. This order does not affect a policy made before the effective date of the order.
(D) If an order of disapproval is appealed, the insurer may implement the disapproved rate upon notification to the administrative law judge, in which case any excess of the disapproved rate over a rate previously in effect must be placed in a reserve established by the insurer. The administrative law judge has control over the disbursement of funds from the reserve. The funds must be distributed as determined by the administrative law judge in its final order.
Section 38-73-280. The director shall utilize, develop, or cause to be developed, a consumer information system which provides and disseminates price and other relevant information on a readily available basis to purchasers of homeowners, private passenger nonfleet automobile, or property insurance for personal, family, or household needs. The director may utilize, develop, or cause to be developed, a consumer information system which provides and disseminates price and other relevant information on a readily available basis to purchasers of insurance for commercial risks and personal risks not otherwise specified. The activity may be conducted internally within the insurance department, in cooperation with other state insurance departments, through outside contractors, or in any other appropriate manner. To the extent considered necessary and appropriate by the director, insurers, advisory organizations, statistical agents, and other persons or organizations involved in conducting the business of insurance in this State, pursuant to the provisions of this article, shall cooperate in the development and utilization of a consumer information system."
B. The provisions of Article 2, Chapter 73, Title 38 of the 1976 Code, added by Section 1A. of this act, are effective January 1, 2006, except that the provisions of Section 38-73-220 as contained in Article 2, Chapter 73, Title 38 are effective ninety days after approval by the Governor.
C. Section 38-73-220 of the 1976 Code is repealed January 1, 2006.
SECTION 2. A. Section 38-73-910(A) of the 1976 Code is amended to read:
"(A) No An increase in the premium rates may not be granted for workers' compensation, fire, allied lines, and homeowners' insurance, nor for any other line or type of insurance with respect to which the director or his designee has, by order, made a finding that (a) legal or other compulsion upon the part of the insured to purchase the insurance interferes with competition, or (b) under prevailing circumstances there does not exist substantial competition, unless notice is given in all newspapers of general, statewide circulation at least thirty days in advance of the insurer's proposed effective date of the increase in premium rates. The notice shall must state the amount of increase, the type and line of coverage, and the proposed effective date and shall must allow any insured or affected party to request within fifteen days a public hearing upon the propriety of the rate increase request before the Administrative Law Judge Division. A copy of the notice must be sent to the consumer advocate.
However, the requirements of public notices and public hearings in this section do not apply to applications for rate increases when the applicant insurer had earned premiums in this State in the previous calendar year of less than two million dollars for the line or type of insurance for which the rate increase is sought or, if the rate increase is sought by a rating organization, the earned premiums in this State for all members and subscribers of the organization for whom an increase is sought were less than two million dollars for the previous calendar year for the line or type of insurance for which the rate increase is sought. The two million dollars must be increased by a factor equal to the increase in the consumer price index, all items, every three years.
However, a private insurer licensed to underwrite essential property insurance as defined by Section 38-75-310(1), notwithstanding any limitations included within this title, may file and use, pursuant to the provisions of Section 38-73-1095, any rates which result in insurance premium rates of ninety percent, or less, of the insurance premium rates then approved for the South Carolina Wind and Hail Underwriting Association for use within the coastal area of South Carolina as defined by Section 38-75-310(5)."
B. This section is effective ninety days after approval by the Governor.
C. Section 38-73-910 of the 1976 Code is repealed January 1, 2006.
SECTION 3. If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this act, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective.
SECTION 4. Except as otherwise specified, this act takes effect upon approval by the Governor.
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