[31 PA. CODE CHS. 71 AND 73]
Credit Life Insurance, Credit Accident and Health Insurance and Credit Unemployment Insurance
[27 Pa.B. 3796]
The Insurance Department (Department), Office of Rate and Policy Regulation, proposes to to delete Chapter 71 (relating to general provisions) and amend Chapter 73 (relating to credit life insurance and credit accident and health insurance) to read as set forth in Annex A. The proposed rulemaking provides a system of rate, contract and operating standards for the transaction of credit life, accident and health and unemployment insurance in this Commonwealth.
The proposed amendments to Chapter 73 are proposed under the authority established by sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412). The proposed additions to Chapter 72 are made under section 12 of the Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance (act) (40 P. S. § 1007.12). Additional authority is found under sections 641(b) and (b.1) of The Insurance Department Act of 1921 (40 P. S. § 281(b) and (b.1)).
The object of this proposed rulemaking is to interpret and implement the provisions of the act and section 641 of The Insurance Department Act of 1921, as the latter relates to credit insurance, both of which authorize the Department to promulgate regulations.
Credit life insurance and credit accident and health insurance are presently regulated under Chapters 71 and 73. As the nature and type of credit transactions and resulting credit insurance coverages have evolved, Chapters 71 and 73 have become outdated and incomplete. Numerous notices and directives have been developed by the Department in an effort to keep credit insurance regulations current and to provide direction to the credit insurance industry. The proposed rulemaking will incorporate and codify these notices and directives. In addition, section 641 of The Insurance Department Act of 1921 was amended in 1994 to provide for the regulation of credit unemployment insurance under the act. The proposed rulemaking would expand credit insurance regulations to now cover credit involuntary unemployment insurance and credit voluntary unemployment insurance.
The credit insurance industry has expressed a desire that the credit insurance premium rates provide for adequate expense and profit margins and that the prima facie premiums be periodically reviewed and updated, if necessary, based on claim experience. To ensure that prima facie rates continue to be based on current claim experience, the proposed rulemaking makes the Department responsible for periodically reviewing loss experience and insurer expenses, and making appropriate adjustments in prima facie rates and loss ratio standards.
In developing the proposed rulemaking, Department staff worked with an industry advisory group comprised of Pennsylvania credit insurers that write all types of credit insurance.
Explanation of Regulatory Requirements
The following is a description of the significant features of and changes contained in the proposed rulemaking.
§§ 73.104, 73.107 and 73.110 (relating to life insurance and life insurance with TPD benefit; A and H insurance benefits; and involuntary unemployment insurance benefits).
These sections provide for plans of credit life insurance, credit life insurance with TPD benefit, credit accident and health (A and H) insurance and credit involuntary unemployment insurance for which premium rates cannot exceed the prima facie premium rates which are set forth in the Pennsylvania Bulletin. Established features of these plans cover single or joint coverage, benefit amounts, coverage periods and definitions of insured occurrences. Insurers will be afforded the opportunity to offer alternative insurance plans provided the benefits of any plan comply with the credit insurance law and the premium rates do not exceed premium rates that are actuarially consistent with the prima facie premium rates.
One of the significant plan features establishes that the coverage period may now be shorter than the term of the indebtedness remaining when the coverage is elected.
§§ 73.105, 73.108 and 73.111 (relating to life insurance and life insurance with TPD benefit requirements; A and H insurance requirements; and involuntary and voluntary unemployment insurance requirements).
These sections establish benefit and contract requirements applicable to plans of credit life insurance, credit life insurance with TPD benefit, credit A and H insurance, and credit voluntary and involuntary unemployment insurance. These benefit and contract requirements concern compliance with applicable laws, joint debtor coverage, voiding or termination of coverage, reduction of excess coverage, single premium coverage, coordination of coverages, treatment of renewed or refinanced indebtedness, truncated coverage and coverage disclosures.
§§ 73.106, 73.109 and 73.113 (relating to life insurance rate standards; A and H insurance rate standards; and voluntary unemployment insurance rate standards).
These sections establish prima facie premium rate standards for credit life insurance, credit life insurance with TPD benefit, credit A and H insurance and credit involuntary unemployment insurance; they further set forth formulas and principles used to calculate prima facie rates. The premium rates charged for standard credit insurance benefit plans are not permitted to exceed the prima facie premium rates unless higher rates are approved by the Department or unless the premium rates charged for other than standard plans do not exceed premium rates that are actuarially consistent with the prima facie rates.
Significantly, standards are now provided for the Department to review, at least once every 3 years, the credit insurance loss experience, and if indicated, propose revised prima facie rates and, if applicable, revised loss ratio standards.
In addition, standards are now provided for the Department to review, at least once every 9 years, the expenses and profit of insurers writing credit insurance in this Commonwealth, and if indicated, revise the prima facie premium rates and the loss ratio standards.
§ 73.113 (Voluntary unemployment rate standards).
Standards are provided for the development and filing of voluntary unemployment rates and for the future adoption of prima facie rates. The Department will review insurer expenses and propose appropriate amendments to the voluntary unemployment loss ratio standard, when appropriate.
§ 73.119 (relating to combination coverage rate).
This section provides for a premium discount of 5%, when credit insurance coverages are sold as packages and not independently of each other.
§ 73.120 (relating to composite term premium rate).
This significant new section provides for the use of composite term premium rates upon a demonstration that the expected collected total premium will not exceed the total premium collected if term specific rates are used. Further, composite term premium rates cannot exceed any term specific rates by more than 5% within the composite term period.
§ 73.121 (relating to maximum rates).
This section allows an insurer to use a rate lower than that filed with the Department.
§ 73.122 (relating to deviated rates).
Under this significant new section, insurers are not required to file for the approval of premium rates that are lower than the prima facie premium rates. Insurers are permitted to file for approval for use of premium rates that are higher than the prima facie rates if an insurer shows that its expected loss ratio at the higher rate will not be less than the loss ratio standards set forth in this rulemaking. Approved deviated rates may be applied to an insurer's accounts in the following ways: (1) uniformly to all of the insurer's accounts; (2) on an equitable basis to one or more accounts for which the actual prima facie loss ratio was higher than the applicable loss ratio standards; or (3) on an equitable basis in accordance with an account rating procedure filed by the insurer with the Department.
§ 73.123 (relating to loss ratio standards).
This section establishes loss ratios for each of the credit insurance coverages. The loss ratio standards used in calculating prima facie premium rates for credit life insurance and credit life insurance with total and permanent disability benefit have been reduced from 60% to 55%. The accident and health loss ratio standards were determined to be appropriate and remain the same.
§ 73.124 (relating to duration of deviation).
This section provides that an approved deviated rate may not remain in effect for more than 3 years and that insurers may file for a new rate during the 3-year period.
§ 73.133 (relating to claims and examination procedures).
This section requires that insurers be responsible for claims and maintenance of adequate claim files. Under the rulemaking, insurers will be required to make annual examinations of creditors' credit insurance business and to maintain records of individual debtors' credit insurance coverage.
§ 73.134 (relating to compensation of producers and creditors).
This section regulates the compensation that may be paid to creditors and producers involved with credit insurance transactions and defines compensation.
Of significant note, when an insurer charges less than the prima facie premium rates, the maximum allowable compensation must be based on the prima facie premium rates; not on the rate actually charged. Accordingly, since compensation will not be affected by the premium rates charged by the insurer, creditors and producers may be more likely to select, for their debtors, insurers offering lower credit insurance rates.
§ 73.138 (relating to financial statement reserves).
This section establishes reserve requirements for insurers doing credit life insurance or credit A and H insurance business in this Commonwealth.
Significantly, with respect to credit life insurance, the proposed rulemaking will establish the 1980 Commissioners Extended Term Mortality Table as the minimum mortality reserve standards, in lieu of the currently utilized 1958 Commissioners Extended Term Mortality Table. This change in the standard mortality table reduces the reserve requirement. The reserve standards for life insurance policies, with the exception of credit insurance, have already been based on 1980 Tables for several years.
§ 73.140 (relating to credit insurance on closed end variable interest loans).
This section establishes special requirements for credit insurance designed for open end loans. These requirements concern benefit amount, premium rate calculation, assumption of coverage and premium refunds.
A significant change is found in subsection (g)(2) which provides for alternative A and H and involuntary unemployment plans, and specifies the information that must be filed with the Department for alternative plan premium rate approval. Currently, the Department considers for approval only A and H and involuntary unemployment plans with a monthly benefit amount equal to the minimum loan payment.
The Department anticipates that there will be a substantial reduction in Department staff time which is presently devoted to the regulation of credit insurance due to the amendments of the rate adjustment procedure in the proposed rulemaking. Insurers will no longer be required to file annually for rate adjustments for each of their creditor accounts. Last year alone, for example, rate adjustment filings numbered 8,000. Under the proposed rulemaking, the only rate filings that the Department will review are those that insurers choose to file for upward deviations. As part of the proposed change in the rate adjustment procedures, Department personnel will no longer need to review experience reports for each creditor account. The proposed rulemaking will result in an estimated annual savings of $50,000.
As a result of the proposed rulemaking, the Department anticipates that a greater number of insurers will be inclined to enter the marketplace in this Commonwealth due to the elimination of compliance with the previously imposed burdensome rate adjustment system. A greater number of insurers should result in increased competition and resulting lower credit insurance rates and improved benefits.
Creditors' compensation will not be affected by the premium rates charged by the insurer. Therefore, creditors may be more likely to select, for their debtors, insurers offering lower credit insurance rates.
Implementation of this proposed rulemaking will not impose additional costs on political subdivisions. However, because insurers and creditors may need to employ fewer individuals to administer their credit insurance programs, there could be a slight increase in unemployment and a slight decrease in the income tax base for certain subdivisions. If a greater number of insurers and creditors offer credit insurance coverage, those effects could be offset.
The proposed rulemaking is anticipated to have a positive fiscal impact on insurers. Once implemented, it will be less costly under the proposed rulemaking for insurers to perform the administrative functions necessary to provide credit insurance coverage in this Commonwealth. There will be a substantial reduction in the number of deviation filings that insurers will need to prepare. It is estimated that the total cost savings will be $300,000.
The proposed rulemaking should have the effect of opening a new market for insurers who have not previously participated in the credit insurance market in this Commonwealth due primarily to the administrative difficulties connected with the Department's current credit insurance regulations.
The proposed rulemaking will have a fiscal impact on creditors in that they will have to implement in their premium calculation systems a substantially fewer number of rate changes. It is estimated that the total cost savings will be $100,000.
This proposed rulemaking will apply to life insurance companies and casualty insurance companies marketing credit life, accident and health, and unemployment insurance in this Commonwealth.
The adoption of this rulemaking will reduce the amount of paperwork that insurers will have to maintain and file with the Department. Insurers will no longer need to submit to the Department annual rate adjustment filings for their accounts, or to notify the Department when changes of insurers occur. Insurers will be able to use an NAIC experience report, thereby reducing the need to prepare special reports for Pennsylvania. Additionally, the reduction in insurers' filings with the Department will result in the Department experiencing a substantial reduction in the paperwork that it will have to process and maintain.
The proposed rulemaking will become effective 90 days after final adoption and publication in the Pennsylvania Bulletin as final rulemaking. No sunset date assigned.
Questions or comments concerning the proposed rulemaking should be addressed to Sally Engle, Director, Life Bureau, Insurance Department, 1311 Strawberry Square, Harrisburg, PA 17120, (717)783-2100, within 30 days of the publication of this proposed rulemaking in the Pennsylvania Bulletin.
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on July 23, 1997, the Department submitted a copy of the proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Committee on Insurance and the Senate Committee on Banking and Insurance. In addition to submitting the proposed rulemaking, the Department has provided IRRC and the Committees with a copy of a detailed regulatory analysis form prepared by the Department in compliance with Executive Order 1996-1. A copy of this material is available to the public upon request.
If IRRC has objections to any portion of the proposed rulemaking, it will notify the Department within 30 days of the close of the public comment period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the regulations, by the Department, the General Assembly and the Governor of objections raised.
GREGORY S. MARTINO,
Acting Insurance Commissioner
Fiscal Note: 11-148. No fiscal impact; (8) recommends adoption.
TITLE 31. INSURANCE
PART III. CREDIT INSURANCE
CHAPTER 71. [GENERAL PROVISIONS] (Reserved)
(Editor's Note: As part of this proposal, the Department is proposing to delete §§ 71.1--71.4 which appears at 31 Pa. Code pages 71-1 and 71-2, serial pages (109875) to (109876).)
§§ 71.1--71.4. [Reserved].
CHAPTER 73. CREDIT LIFE INSURANCE [AND], CREDIT ACCIDENT AND HEALTH INSURANCE AND CREDIT UNEMPLOYMENT INSURANCE
(Editor's Note: As part of this proposal, the Department is proposing to delete §§ 73.1--73.5, 73.11--73.13, 73.21--73.29, 73.31--73.43, 73.51 and Appendices A--D which appear at 31 Pa. Code pages 195--214.9, serial pages (36522) to (36523), (45414) to (45419), (39715) to (39718), (96323) to (96326), (98339) to (98340), (96327) to (96330), (45422) to (45423), (39727) to (39738), (31968) to (31973), (19972) to (19973), (31974) to (31975), (39739) to (39750) and (109879).)
73.1--73.5. [Reserved]. 73.11--73.13. [Reserved]. 73.21--73.29. [Reserved]. 73.31--73.43. [Reserved]. 73.51. [Reserved]. 73.101. Purpose. 73.102. Applicability. 73.103. Definitions. 73.104. Life insurance and life insurance with TPD benefit. 73.105. Life insurance and life insurance with TPD benefit requirements. 73.106. Life insurance rate standards. 73.107. A and H insurance benefits. 73.108. A and H insurance requirements. 73.109. A and H insurance rate standards. 73.110. Involuntary unemployment insurance benefits. 73.111. Involuntary and voluntary unemployment insurance requirements. 73.112. Involuntary unemployment insurance rate standards. 73.113. Voluntary unemployment insurance rate standards. 73.114. Insurability requirements. 73.115. Benefit exclusions. 73.116. Age requirements 73.117. Employment eligibility requirements. 73.118. Initial eligibility requirements. 73.119. Combination coverage rate. 73.120. Composite term premium rate. 73.121. Maximum rates. 73.122. Deviated rates. 73.123. Loss ratio standards. 73.124. Duration of deviation. 73.125. Portability of rates. 73.126. Voluntary unemployment experience reports. 73.127. Refunds. 73.128. Terminations. 73.129. Dividends. 73.130. Election of coverage and disclosure requirements. 73.131. Choice of insurer. 73.132. Collection of premiums. 73.133. Claims and examination procedures 73.134 Compensation of producers and creditors. 73.135. Licensed producers. 73.136. Filing of forms and rates. 73.137. Compensating balances or special deposits. 73.138. Financial statement reserves. 73.139. Credit insurance on open end loans. 73.140. Credit insurance on closed end variable interest loans. 73.141. Credit insurance on lease transactions. 73.142. Credit insurance on fixed residual loans. 73.143. Credit insurance on balloon loans.
§ 73.101. Purpose.
The purpose of this chapter is to interpret and implement the act and section 641 of The Insurance Department Act of 1921 (40 P. S. § 281). This chapter is intended to protect the interests of debtors and the public in this Commonwealth by providing a system of rate, contract form and operating standards for the transaction of credit life, credit accident and health and credit unemployment insurance. This chapter is not intended to prohibit or discourage reasonable competition.
§ 73.102. Applicability.
This chapter applies to the following:
(1) An individual or group credit insurance policy.
(2) Certificates issued under a group credit insurance policy and applications or other forms used in connection with the policy or certificate.
(3) A premium rate charged for credit insurance.
(4) Practices followed in providing credit insurance.
§ 73.103. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
A and H--Accident and health insurance.
Account--The coverage for a single line of insurance offered to a single type of business by one creditor. The term includes coverage written on a group or individual policy.
Act--The Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance (40 P. S. §§ 1007.1--1007.15).
Agent--A person defined in section 601 of The Insurance Department Act of 1921 (40 P. S. § 231).
Amount financed--The amount on which interest charges are calculated.
Amount of level lease insurance--In connection with a lease transaction, the amount of death benefit equal to the residual payment, plus any applicable taxes on the residual payment.
Balloon amount--The excess of the final payment on a balloon loan over the amount of one periodic installment payment.
Balloon loan--A loan which provides for periodic installment payments of a stated amount during the term of the indebtedness and for a final payment at the end of the term of the indebtedness which is substantially more than the amount of one periodic installment payment and less than the initial net unpaid indebtedness.
Broker--A person defined in section 621 of The Insurance Department Act of 1921 (40 P. S. § 251).
Closed end loan--Indebtedness which is not an open end loan or a lease.
Commissioner--The Insurance Commissioner of the Commonwealth.
Composite term period--The installment periods for which composite term premium rates will be charged.
Composite term premium rate--Premium rates which do not vary based on the number of monthly installments and which meet the requirements of § 73.121 (relating to maximum rates).
Contributory insurance--Insurance for which the debtor is charged an identifiable charge.
Credit accident and health insurance--Insurance as defined in section 2(b)(2) of the act (40 P. S. § 1007.2(b)(2)).
Credit instrument--A loan or sales instrument or agreement.
Credit insurance--Insurance subject to the act and section 641 of The Insurance Department Act of 1921 (40 P. S. § 281).
Credit involuntary unemployment insurance--Credit unemployment insurance paid in the event of the debtor's unemployment due to no choice of the debtor.
Credit life insurance--Insurance as defined in section 2(b)(1) of the act.
Credit life insurance with TPD--Insurance on the life of a debtor paid under or in connection with a specific loan or other credit transaction in the event of the debtor's death or total and permanent disability.
Credit unemployment insurance--Insurance on a debtor to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is unemployed as defined in the group certificate or individual policy.
Credit voluntary unemployment insurance--Credit unemployment insurance paid in the event of the debtor's unemployment due to a choice made by the debtor.
Creditor--As defined in section 2(b)(3) of the act.
Debtor--As defined in section 2(b)(4) of the act.
Decreasing term lease insurance amount--The amount required to liquidate the lease obligation excluding the amount of any monthly lease payments paid at the beginning of a lease and excluding the residual value.
Department--The Insurance Department of the Commonwealth.
Electronic rate book--An electronic data system programmed and used solely for the calculation and computation of installment loans and calculation and computation of insurance amount, premium rates and refunds.
Fixed residual value financing--The manner of financing a motor vehicle purchase whereby a buyer, who is listed as the owner on the title of a motor vehicle, agrees to select and perform one of the following options, at the conclusion of a predetermined schedule of installment payments made in substantially equal periods and in substantially equal amounts:
(i) Satisfying the balance of the contractual amount owing.
(ii) Refinancing any balance owing on the terms previously agreed upon at the original execution of the installment sales contract.
(iii) Surrendering the motor vehicle as agreed upon at the original execution of the installment sale contract.
Full benefit period coverage--Insurance coverage which provides protection for a benefit period equal to the shorter of the duration of disability or unemployment minus any elimination period and the full term of coverage remaining when the disability or unemployment benefits first become payable.
Full term insurance coverage--Insurance coverage for a benefit period equal to the term of the indebtedness remaining at the time coverage is elected.
Grace period--The period during which a premium may be paid after the premium due date.
Identifiable charge--The amount a creditor charges a debtor specifically for credit insurance. A differential in finance, interest, service or similar charges made to debtors who are in like circumstances, except for their insured or noninsured status, is considered an identifiable charge.
Indebtedness--The total amount payable by a debtor to a creditor in connection with a loan or other credit transaction.
(i) Actual gross unpaid indebtedness. The scheduled gross unpaid indebtedness plus any past-due installment payments and minus any prepaid installment payments.
(ii) Actual net unpaid indebtedness. The amount necessary to liquidate the actual unpaid indebtedness in a single sum excluding unearned interest, but including any prepayment penalty.
(iii) Initial insured indebtedness.
(A) If coverage is provided on a gross indebtedness basis, the sum of the installment payments under the contract of indebtedness as of the date the indebtedness is incurred.
(B) If coverage is provided on a net indebtedness basis, the amount of the indebtedness excluding the unearned interest under the contract of indebtedness as of the date the indebtedness is incurred.
(iv) Scheduled gross unpaid indebtedness.The sum of the scheduled remaining installment payments under the contract of indebtedness, including unearned interest.
(v) Scheduled net unpaid indebtedness.The amount necessary to liquidate the scheduled unpaid indebtedness in a single sum excluding unearned interest but including any prepayment penalty.
Initial amount of decreasing lease insurance--The excess of the amount of death benefit payable in the event of death of the lessee during the first month of the lease, over the amount of level lease insurance, as defined in this section. The term does not include the amount of the monthly lease payment paid at the beginning of the lease.
Joint coverage--Credit insurance coverage on any two or more persons who are jointly liable for repayment of an indebtedness or fulfillment of a lease obligation.
Limited benefit period coverage--Insurance coverage which provides protection for a benefit period equal to the shorter of the duration of disability or unemployment minus any elimination period and a period less than the full term of coverage remaining when the disability or unemployment benefits first become payable.
Limited term insurance coverage--Insurance coverage for a benefit period less than the term of the indebtedness remaining at the time coverage is elected. Insurance coverage terminates at the insured debtor's attained age as set forth in the group certificate or individual policy or when the truncated coverage terminates.
Lockout--The discharge of employes by their employer due to a labor dispute, including discharge as a result of an employer's dislike of employes' activities as a union, or the temporary closing of the place of employment by an employer without formally discharging the employes in an effort to discourage union activities, gain acceptance of the employer's view or effect a labor compromise which is more favorable to the employer in comparison to the demands made by the employes.
Loss ratio--The incurred claims during the experience period divided by the actual earned premium during the experience period.
Open end loan--A credit plan which may be drawn upon by a debtor without renegotiating with the creditor.
Prima facie premium rates--The premium rates established by the Department and published in the Pennsylvania Bulletin. Prima facie premium rates shall be published in the Pennsylvania Bulletin by ____(Editor's Note: The blank refers to a date 30 days after the adoption of this proposal.) and thereafter as established by and referenced in §§ 73.106, 73.109 and 73.112 (relating to life insurance rate standards; accident and health insurance rate standards; and involuntary unemployment insurance rate standards).
Prominent type--Font or formatting techniques which differentiate selected text from other text. The term includes, for example, capital letters, contrasting color and underscoring.
Producer--An agent or broker.
Residual payment--The amount that shall be paid by the lessee at the end of the lease term if the lessee elects to purchase the property that is the subject of the lease.
Simple interest loan--A loan where interest accrues and is earned on a daily basis.
Single coverage--Credit insurance coverage on one person who is liable for repayment of an indebtedness or fulfillment of a lease obligation.
TPD--Total and permanent disability.
Term of insurance coverage--The period during which a group certificate or individual policy is effective.
Truncated coverage--Credit insurance coverage as defined in this section that meets the requirements specified in §§ 73.106(11), 73.109(10) and 73.112(10), and provides a term of insurance coverage for a period that is shorter than the full term of the indebtedness remaining at the time the insurance coverage is elected. The term does not include credit insurance coverage which terminates on attainment of a specific age.
Variable interest loan--A loan which has an interest rate that may change during the term of the loan which causes a change in either the amount of the installment payment or the term of the loan.
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