§ 27-44-5. Rate standards.
(a) Requirements. Rates shall not be excessive, inadequate, or unfairly discriminatory.
(b) Excessiveness. A rate is excessive if it is likely to produce an underwriting profit that is unreasonably high for the class of business or if expenses are unreasonably high in relation to services rendered. Evidence that a reasonable degree of competition exists with respect to the classification to which a rate is applicable shall be considered as material evidence that a rate is not excessive.
(c) Inadequacy. A rate is not inadequate unless the rate is clearly insufficient to sustain projected losses and expenses in the class of business to which it applies and the use of the rate has or, if continued, will have the effect of substantially lessening competition or the tendency to create monopoly in any market.
(d) Unfair discrimination. Unfair discrimination exists if, after allowing for practical limitations, price differentials fail to reflect equitably the differences in expected losses and expenses. Rates are not unfairly discriminatory because different premiums result for policyholders with like loss exposures but different expense factors, or like expense factors but different loss exposures, so long as the rates reflect the differences with reasonable accuracy. A rate is not unfairly discriminatory if it is averaged broadly among persons insured under a group, franchise, or blanket policy or a mass marketed plan. As used in this subsection, a "mass marketed plan" means a method of selling property liability insurance in which: (1) the insurance is offered to employees of particular employers or to members of particular associations or organizations, or to persons grouped in other ways, except groupings formed principally for the purpose of obtaining the insurance; and (2) the employer, association or other organization, if any, has agreed to, or affiliated itself with, the sale of the insurance to its employees or members.
(e) Rating methods. In determining whether rates comply with the rating standards, the following criteria shall apply:
(1) Basic factors in rates. Due consideration shall be given to past and prospective loss and expense experience within and outside of this state, to catastrophic hazards and contingencies, to events or trends within and outside of this state, to loadings for leveling premium rates over time or for dividends or savings to be allowed or returned by insurers to their policyholders, members or subscribers, and to all other relevant factors, including judgment;
(2) Classification. Risks may be classified in any reasonable way for the establishment of rates except that no risks may be grouped by classifications based in whole or in part on race, color, creed, or national origin of the risk. Rates may be modified for individual risks in accordance with rating plans or schedules that provide for recognition of probable variations in hazards, expenses, or both;
(3) Expenses. The expense provisions included in the rates to be used by an insurer shall reflect the operating methods of the insurer and, so far as it is credible, its own actual and anticipated expense experience;
(4) Profits. The rates may contain provision for contingencies and an allowance permitting a reasonable profit. In determining the reasonableness of the profit allowance, consideration should be given to all investment income attributable to premiums and the reserves associated with those premiums.
(f) Premiums. (1) No insurer subject to this chapter shall issue a policy of insurance with a premium developed in a manner inconsistent with the provisions of this section;
(2) No insurer may make any adjustment to the full manual premium developed for any risk without adequate justification for that adjustment. An adjustment will be presumed to be adequately justified if:
(i) It is applied in a manner consistent with the insurance company's filed rates and supplementary rate information; and
(ii) The insurance company's files contain adequate documentation of the facts supporting the adjustment;
(3) A misclassification of a risk shall be considered an adjustment without adequate justification;
(4) Each insurance company shall maintain reasonable records of the information collected or used by it in developing the premium charged for any risk so that the records will be available to enable the director to verify compliance with this section;
(5) If the director, after a hearing, finds that an insurer has violated the provisions of this subsection, he or she shall, in addition to any other penalties provided by law, impose upon the insurer a civil penalty equal to the difference between the premiums charged and those which would have been charged without the application of inadequately justified adjustments. If a finding has been made, after a hearing, that the insurer knowingly, or with such frequency as to indicate a general business practice, violated the provisions of this subsection, the director may also suspend the insurance company's authority to do business in the class in which the provisions of this subsection have been violated.
(P.L. 1988, ch. 635, § 1.)