Sec. 161.5. Flex-rating rules and standards

For those commercial risk, professional liability and public entity insurance markets subject to (and not exempt from) flex-rating, the following rules and standards shall govern:

(a) To determine whether a rate change falls within or beyond an applicable flex-band, the insurer should compare the resulting rate level (current rate level plus rate change) as of its proposed effective date with its pivot rate level, where the initial pivot rate level has been adjusted to reflect tort reform pursuant to section 161.2 of this Part.

(b) If the percentage difference between the resulting rate and that pivot rate is less than or equal to the applicable flex-band percentage, then the rate change may become effective on a file-and-use basis. However, if the percentage difference is greater than that band, then prior approval must be sought and received prior to implementation of any part of the proposed rate increase.

(c) In addition to overall rate level increases or decreases that may be made on a file-and-use basis within a flex-band, the rate (except for ‘a’ rated risks) may be adjusted for an individual insured in a particular market based upon appropriate changes in class (where such class or subclass does not itself constitute a nonexempt market subject to flex-rating) relativities and territorial relativities, increased limits factors, deductible relativity factors, or similar factors. (For example, the public school liability market, subject to a ±15-percent flex-band in terms of the overall rate level, consists of elementary, intermediate and high school subclasses in different territories. Given that these subclasses do not themselves constitute this nonexempt market, class and territorial adjustments may be made to reflect appropriate relativities, so long as total adjustments for both class and territory sum back to the overall rate level for public schools.)

(d) The rate for any individual insured in a particular market may not, without prior approval, be increased or decreased by more than plus (+) or minus (−) 20 percent beyond the overall rate level change, as a combined result of all rate adjustments permitted by subdivision (c) of this section, except that this limitation shall not apply to individual premium or rate changes resulting from the application of rating plans conforming to the rules and standards set forth in section 161.8 of this Part. (For example, the total upward or downward rate adjustment due to class and territorial relativities, when combined with adjustments for increased limits and deductibles, cannot without prior approval exceed 20 percent beyond the overall rate level change for any individual insured in the public school liability market or any other market, while none of these adjustments may be made in connection with an ‘a’ rated risk, such as a fireworks factory. Thus if an insurer files a rate revision of +10 percent for a market subject to a 15 percent flex-band and, in addition, wishes to revise its class or territorial relativities, the maximum permitted rate increase affecting any individual insured would be: (1.10 × 1.20) = +32%.)

(e) In the event that more than one flex-band would apply to a given type of risk for the same coverage, the narrowest or most specific applicable flex-band governs. If rating can be compartmentalized for different coverages for the same type of risk, then that risk may be subject to more than one flex-band. (For example, a day-care center is included in owners, landlords and tenants liability but, rather than the broader and more general ±15-percent flex-band, the narrower and more specific ±10-percent flex-band for child care liability governs. Commercial risk insurance policies issued to plumbers illustrate separately rated coverage components subject to different flex-bands of ±20 percent applicable to “completed operations liability” and ±15 percent applicable to “other manufacturers and contractors liability”.)

(f) A flex-band applies to coverages in the particular market for which there are manual rates. Any ‘a’ rated coverages in such market are exempt from flex-rating until renewal, when a ±30-percent flex-band becomes applicable to those ‘a’ rated coverages. (For example, municipal liability consists of multiple coverages, where some of these coverages are ‘a’ rated while there are manual rates for the rest.)

(g) Following a rate change which required and received prior approval, no further rate change in the same direction within an applicable flex-band can be made by the insurer with respect to that market for a 12-month period after the effective date of such approval. If, notwithstanding this limitation, an insurer determines that it requires such a further rate change, it may seek the superintendent's prior approval. The pivot rate adjusted pursuant to section 161.2 of this Part for tort reform savings will not be considered a prior-approved rate for purposes of this section. Rate changes in the direction opposite to the prior-approved rate change will be permitted on a file-and-use basis, within the applicable flex-band, with the approved rate serving as the new pivot rate level.

(h) Rate changes within an applicable flex-band may be implemented on a file-and-use basis by an insurer in regard to a particular market no more than three times during any 12-month period (other than pursuant to the section 161.2 tort reform refiling requirement), unless prior approval is sought and granted, subject to the provisions of section 3426 of the Insurance Law which, in general, permits premium increases during the 12-month required policy period for a commercial risk, professional liability and public entity insurance policy only commensurate with subsequent additional insured value pursuant to the policy or at the insured's request.

(i) In connection with commercial multiple peril insurance policies, component coverages must be rated separately and the statewide rate level change shall be based only on the premiums generated by the coverages within nonexempt markets subject to flex-rating, including the effect of any changes in the package modifiers used in the rating of the policy. (For example, if a filing proposed a 50-percent increase in the rates for the liability portion of commercial multiple peril policies, and the overall effect is only 10 percent because there were no changes [or decreases] in the rate levels of the other coverages within exempt markets, the rate change would exceed the applicable flex-band, and the entire filing would require prior approval. Similarly, if a filing proposed a 15-percent increase in the rates for the liability portion of commercial multiple peril policies, and a change in the package modifier from 0.70 to 0.90, the filing would exceed the 20-percent flex-band, and the filing would require prior approval.)

(j) Policyholders' dividends issued from earned surplus will not be considered rate decreases for purposes of this Part.

(k) Filings that consist solely of rule changes without pricing or rating impact shall not be considered rate filings for purposes of this Part.

(l) In the event that the rate change affecting one component of a rate filing exceeds its applicable flex-band, making that rate change subject to prior approval, the entire rate filing shall also become subject to prior approval.

(m) Pivot rate levels shall be subject to review and adjustment by the department in accordance with section 2344(f) of the Insurance Law. All commercial risk, professional liability and public entity insurance rate increases filed with the department between June 1, 1986 and the effective date of this Part [September 10, 1986] will be reviewed to assure that they are adequately supported and otherwise meet the standards of the Insurance Law. Commercial risk, professional liability and public entity insurance rate increases filed with the department during the period June 1, 1985 through May 31, 1986 will be reviewed on a selective basis, focusing upon those markets which received the sharpest increases and affect the largest number of insureds.

(n) In order to establish appropriate pivot rate levels, commercial risk, professional liability and public entity insurance rates will also be subject to review and adjustment by the department in connection with:

(1) rates for a new program sought to be implemented by an insurer or a rate service organization;

(2) rates filed by an insurer or a rate service organization which did not previously have rates in effect; and

(3) rates filed by a newly licensed insurer.

Such rates shall be deemed the pivot rate levels as if they had been in effect for the 12 months prior to their effective date.

(o) The rate level effect of an insurer's rate change will be subject to retrospective audit by the department of the insurer's actual exposures written at the revised rate. Misrepresentation of rate revision effects will subject the insurer, in the absence of adequate explanation, to administrative penalties as provided in the Insurance Law.

(p) The flex-band applicable to excess liability policy rates subject to flex-rating, whether upon issuance or renewal, shall be the specific flex-band applicable to the particular market pertaining to the underlying primary coverage. The flex-band applicable to high limits excess liability policy rates upon renewal shall be the ‘a’ rated flex-band.