Appeal from the Order of the Pennsylvania Insurance Department in case of In Re: Consumers Life Insurance Company, Appeal from Disapproval of 1983 Credit Insurance Rates for Pooled Cases, Docket No. R84-1-5. Application for reconsideration filed and.
Dennis J. Bonetti, Peters & Wasilefski, for petitioner.
Beth C. Sheligo, Assistant Counsel, for respondent.
President Judge Crumlish, Jr. and Judges Rogers, Williams, Jr., Craig, MacPhail, Barry and Colins. Opinion by Judge Rogers.
The Consumers Life Insurance Company (petitioner) has filed a petition for review of an order of the Pennsylvania Insurance Department (department), the effect of which was to uphold the action of the insurance commissioner disapproving the petitioner's proposed schedule of premium rates for credit life insurance for the year 1984.*fn1 The petitioner's proposed rate schedule was disapproved as having been calculated contrary to the department's regulation at 31 Pa. Code § 73.23.
Section 7(a) of the Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance (Model Act), Act of September 2, 1961, P.L. 1232, as amended, 40 P.S. § 1007.7(a), provides that all proposed premium rates for credit life insurance must be submitted to the insurance commissioner for approval prior to use. Section 7(b) of the Model Act, 40 P.S. § 1007.7(b) requires the insurance commissioner, in deciding whether to approve or disapprove premium rates, to give consideration to the insurer's past and prospective loss experience and to allow a reasonable margin for underwriting profit. By Section 12 of the Model Act, 40 P.S.
§ 1007.12, the insurance commissioner is empowered to promulgate such rules and regulations as he finds necessary for the supervision of the Model Act.
A department regulation at 31 Pa. Code § 73.25 requires that each insurer, as part of its filing of a proposed schedule of premium rates, determine its actual case ratio, defined at 31 Pa. Code § 73.25 as the product of its actual ratio of claims incurred to premiums earned at prima facie rates over an experience period, multiplied by its Basic Loss Ratio.*fn2 When the insurer's actual case ratio, thus calculated, is within a range designated in the department's Credibility Table, its rates for the succeeding year will be those specified in the department's general rate standards. If, however, the insurer's actual case ratio is outside the range of the Credibility Table, additional calculations, not necessary here to describe, are performed to determine its deviation rate factor. When the insurer's deviation rate factor for its proposed rates is less than 5% higher or lower than its deviation rate factor based on the current approved rates, no change from the current approved rates will be allowed. If, however, the deviation rate factor for the proposed rates is more than 5% higher or lower than its deviation rate factor based on current approved rates, then the current approved rates will be adjusted up or down for the ensuing year.
In 1981 the petitioner experienced a large increase in the amount of credit life insurance claims filed. In June, 1982, the petitioner filed its schedule of premium rates proposed for 1983, using data only
from 1981, its then most recent experience year. It obtained a deviation rate factor of 81%. Because this rate factor was more than 5% above its deviation rate factor based on its 1982 approved rates, the department approved a 10% increase in premium rates for the year 1983. In 1982 the petitioner experienced a decrease in the amount of credit life insurance claims filed. In order to minimize the effect of this decrease on its 1984 premium rates, the petitioner used data of both its 1981 and 1982 experience years, and obtained a deviation rate factor of 77% which, if accepted, would have permitted its 1983 rates to remain in effect for 1984. The department, however, recalculated the petitioner's deviation rate factor using data only from the petitioner's 1982 experience year and arrived at a deviation factor of 74%. Because this deviation rate factor was more ...