Section 2222.16 - Consideration of Relevant FactorsIn reviewing any specific policy the commissioner shall consider all factors as are relevant to a determination as to whether the benefits are unreasonable in relation to the premium charged therefor. Relevant factors and the weight to be given thereto depend upon the attributes of such particular policy, as determined by the commissioner in accordance with the provisions of this article. The following is a list of relevant factors which are generally applicable to policies subject to this statute:
(a) Policy experience generated over the period of the one preceding calendar year (ending with the beginning of the year of review) in addition to the year of review may be considered as relevant in case of any policy form. Experience generated over a still longer period (ending with the year of review) may be considered in case of any policy as to which there are substantial reasons to believe, insofar as loss experience is relevant to the issue to be determined, that the experience statistics for the shorter period do not give a fair indication of the actual loss experience of the policy under review. Experience over such extended periods can be considered only if relevant experience figures are made available to the commissioner.(b) Adjustment of experience statistics to conform to assumption of payment of premiums annually in advance. The adjustment will be that the annual premium shall be deemed to be an amount which is:(1) 96 percent of the sum of semiannual premiums;(2) 94 percent of the sum of quarterly premiums; or(3) 92 1/2 percent of the sum of monthly premiums. If the insurer desires consideration of the increase in handling expenses arising from fractional premium payments, the insurer must furnish for the experience period (i) the distribution of earned premiums according to mode of premium payment during the year, and (ii) adjusted experience statistics based upon conforming earned premiums related to premiums collected semiannually, quarterly, monthly, and upon a weekly and monthly debit basis to the earned premiums developed from the corresponding pro rata annual premium.
(c) Effect of any premium rate changes made during the experience period under review. In order that the commissioner may properly evaluate this factor, the insurer must furnish complete data thereon, including adjusted experience statistics in which earned premiums are adjusted to conform with the current rate basis.(d) The effect of any experience refunds or dividends paid to policyholders. Insurers desiring consideration of this factor should furnish particulars with respect to such amount accrued for the period of review together with adjusted experience statistics in which such refunds or dividends are considered as a reduction of premiums earned.(e) With respect to a policy not subject to the reserve requirements of Insurance Code Section 997(b), the loss ratio experienced and reasonably anticipated by policy year; and, where appropriate, the aggregate loss ratio excluding the first policy year. In order that the commissioner may properly evaluate these factors, the insurer must furnish in conjunction therewith data as to the persistency experienced and reasonably anticipated on the policy under review, together with a weighted average loss ratio computed over a reasonable period of time giving effect to these factors. Such weighted average should be based on the experience reasonably to be anticipated in the light of persistency actually experienced and other circumstances likely to affect future persistency. The insurer may also furnish other data relating to actuarial assumptions relevant to the experience to be expected on the policy.(f) With respect to a policy subject to the reserve requirements of Insurance Code Section 997(b), the insurer should submit for consideration an adjusted loss ratio for the experience period based on the formula given in the footnote to Schedule H in the Life and Accident and Health Annual Statement blank relating to the development of a supplemental loss ratio for individual noncancelable accident and health policies which takes into account the reserves held pursuant to Section 997. If such adjusted loss ratio, after giving effect to such other factors as may be relevant, does not establish the reasonableness of benefits to premiums, the insurer must furnish an analysis of the relation of actuarial net annual premium rates for the policy to the corresponding gross annual premium rates established by the insurer. Such net premiums may be determined on a basis consistent with the minimum valuation standards set forth in Section 997(b) or on an appropriate alternate basis permitted by Section 997 provided details of the actuarial assumptions used are furnished the commissioner. In order that the commissioner may properly evaluate this factor, the insurer may also be required to submit an actuarial analysis of the relation of the actual morbidity experience under the policy to the assumptions used in determining the net premium rates, with an estimate of the extent of the change in the net premium rates indicated by such actual experience, with due allowance for reserves held pursuant to Section 997.(g) Experience in any areas where different rate levels were in effect as compared with the countrywide experience on such policy of the insurer in any case in which it can be shown that such experience differs significantly from such countrywide experience.(h) The likelihood of fluctuation in experience under the policy because of infrequency of loss occurrence or catastrophic nature of hazard covered. Insurers requesting consideration of this factor should furnish appropriate data as requested.(i) Establishment of credibility of loss ratio experienced on policy under review, based upon available data to be furnished by the insurer for the experience period as to volume of premiums earned, average premium paid per person insured for one year's coverage, average amount of loss per claim incurred, and distribution of claims incurred by size of claim.(j) With respect to any policy under review the commissioner may on the commissioner's own initiative or at the request of the insurer consider experience and other factors on other policy forms to the extent they are relevant to determination of the reasonableness of benefits to premium; in particular, such aggregate or averages as may serve to show the reasonableness of benefits to premiums on a class of business as a whole of which the policy under review is a part.(k) When in connection with the consideration of any policy it is established that there is a trend upward or downward in the loss experience for the type of benefits provided therein, consideration may be given to the probable effect of such trend factor on the loss experience reasonably to be anticipated under such policy.Cal. Code Regs. Tit. 10, § 2222.16
1. Amendment of subsections (b)(2)-(3), repealer of subsection (b)(4) and new NOTE filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).
2. Change without regulatory effect amending subsection (j) filed 7-14-2021 pursuant to section 100, title 1, California Code of Regulations (Register 2021, No. 29). Filing deadline specified in Government Code section 11349.3(a) extended 60 calendar days pursuant to Executive Order N-40-20. Note: Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.
1. Amendment of subsections (b)(2)-(3), repealer of subsection (b)(4) and new Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a)(Register 2006, No. 52).
2. Change without regulatory effect amending subsection (j) filed 7-14-2021 pursuant to section 100, title 1, California Code of Regulations (Register 2021, No. 29). Filing deadline specified in Government Code section 11349.3(a) extended 60 calendar days pursuant to Executive Order N-40-20.