On Oct. 15, 2003, Director of Insurance, Charles Cohen, issued an order that establishes loss ratio standards and rate limits for credit property and credit unemployment insurance products offered to Arizona consumers.
Insurers must comply with the new requirements by Jan. 15, 2004. Newly established prima facie rates for credit property and credit unemployment will result in a reduction of approximately 75 percent in rates on new sales.
The new rate limits and loss ratio standards will save consumers at least $10 million annually in lower premiums.
The Department’s action is authorized by a new law resulting from 2002 legislation sought by the Department. Prior to the new law, rates for these kinds of insurance were established by the insurers themselves.
The order prescribes minimum loss ratios for credit property and credit unemployment insurance – that is, how much of each dollar in earned premium insurers should pay out in benefits. The rules require that for each dollar of premium, an insurer should pay out at least $0.50 in benefits. The order also prescribes prima facie rates that are legally presumed to comply with the loss ratio standards.
To establish the prima facie rates, the Department considered the
claims incurred and premiums earned in Arizona on credit property and credit unemployment insurance during a recent period, in light of the new target loss ratios. There are 8 insurance companies currently writing approximately $3 million of total credit property insurance premium in Arizona annually, and 17 insurers writing approximately $20 million per year in total credit unemployment premiums annually. Prior to the effect of these new prima facie rates, the insurers were only paying out approximately $1 million a year in claims.
In accordance with Department rules, the Department initiated an administrative proceeding to receive comment on the newly proposed rates.
At the July 24, 2003 hearing, the Center for Economic Justice supported the Department’s recommended rate limits.
“The prima facie rates established by this order are an important protection for purchasers of credit insurance. This kind of insurance is sold under conditions that do not always permit consumers to take advantage of competition among insurers. In fact, without regulation, the levels of sales commissions often drive the sale and the price of these insurance products. The prima facie rates ensure that a certain amount of the premium dollar is spent on benefits to the policyholder and that therefore the insurance is reasonably priced,” said Director Cohen.
Earlier this year, the Department amended the loss ratio standards and reduced the prima facie rates for credit life and credit disability insurance products. It was estimated that the new prima facie rates for credit life and credit disability insurance would save Arizonans over $19 million annually (see Jan. 2, 2003 Press Release at www.id.state.az.us/press/press03-01.pdf).
Topics Carriers Legislation Property Arizona
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