Prior Rate Approval for Medical Malpractice Insurance

You asked if Connecticut’s insurance commissioner would have the same authority and power as California’s with respect to prior rate approval for medical malpractice insurance if CGS § 38a-676 were amended as proposed.

Both California and Connecticut prohibit rates from being excessive, inadequate, or unfairly discriminatory. California requires prior rate approval for rates, including rates for medical malpractice insurance. By amending CGS § 38a-676 as proposed, rates for medical malpractice insurance in Connecticut would also be subject to prior approval. However, the bill (LCO No. 8201, copy enclosed) would not give Connecticut’s insurance commissioner the same procedures or timeline as in California. The approval timeline in California is longer than in Connecticut. Also, California permits the commissioner to hold a hearing on the rate application prior to his consideration of it, whereas Connecticut only permits a hearing on a disapproved filing.

Under California law, the commissioner must give public notice of all applications to change rates. Rates become effective 60 days from the date of public notice, unless a hearing is held on the application. A consumer or the commissioner may request a hearing. In any event, rates become effective 180 days after the commissioner receives the rate application unless the commissioner disapproves the filing after a hearing or special circumstances exist. Special circumstances include when a hearing begins during the 180-day period, the rate application is the subject of judicial proceedings, or the hearing is continued.

Under LCO No. 8201, medical malpractice insurance rates in Connecticut must be on file with the insurance commissioner for 30 days prior to taking effect. The commissioner may extend that period up to an additional 30 days if she provides written notification to the insurer or rating organization within the 30-day waiting period. Rates become effective after the expiration of the waiting period or extension, unless disapproved by the commissioner during that time. The insurer or rating organization can request a hearing on a disapproved rate filing.

The additional time automatically provided the California insurance commissioner and his ability to hold hearings prior to making a determination on the rates appears to place him in a better position than the Connecticut insurance commissioner to thoroughly consider the impact of the proposed rate change. With only 30 to 60 days maximum to approve or disapprove a rate filing and no optional or required public hearing, the Connecticut commissioner may not have sufficient time or information to make a sound decision.

The recent Program and Investigations Review Committee recommendation for prior rate approval is similar to California’s law with respect to public notice of a rate change application and the availability of a public hearing prior to making a determination on the application. The recommendation differs from California law in that it has a shorter timeframe for approval and prior approval would only be required if the insurance commissioner determines that the medical malpractice insurance market is not competitive or an insurance carrier requests a rate change of 15% or more.

The basic standards for the making and use of rates are similar in California and Connecticut. Both require that rates not be excessive, inadequate, or unfairly discriminatory (CIC § 1861. 05(a) and CGS § 38a-665(a)). However, Connecticut law permits the insurance commissioner to consider the degree of competition in the area for which the rate will apply when reviewing the proposed rate. Connecticut also requires that consideration be given, to the extent possible, to:

• past and prospective loss experience within and outside the state;

• conflagration and catastrophe hazards;

• a reasonable margin for profit and contingencies;

• past and prospective expenses country-wide and specific to this state;

• investment income earned or realized by the insurers from unearned premiums and loss reserves; and

• other factors considered relevant.

California law does not permit the insurance commissioner to take into account the degree of competition when considering if a rate is excessive, inadequate, or unfairly discriminatory. Nor does California law require the commissioner to consider the above-listed factors. It does, however, require the commissioner to consider whether the rate mathematically reflects the company’s investment income.

In California, the insurance commissioner must approve property and casualty insurance rates, including medical malpractice insurance rates, prior to their use (CIC § 1861. 01(c)). Insurers must file a complete rate application with the commissioner (CIC § 1861. 05(b)). The commissioner has 14 days to determine if the application is complete. If complete, he must then provide public notice of the application within 10 days of the determination (CIC § 1861. 05(c) and 10 CCR § 2648. 2).

The rate application is considered approved 60 days after public notice is made, unless:

• a consumer requests a hearing within 45 days of the public notice and the commissioner grants the request, or he denies the request and gives his reasons in writing;

• the commissioner decides to hold a hearing on his own motion; or

• the proposed rate is more than 15% of the current rate for commercial lines (7% for personal lines) and the commissioner receives a timely request for a hearing (CIC § 1861. 05(d)).

Regardless, a rate application is considered approved 180 days after the commissioner receives it unless the commissioner disapproves the application after a hearing, or special circumstances exist. Pursuant to CIC § 1861. 05(d), special circumstances include the following:

• a hearing is started during the 180-day period, in which case the filing takes effect at the end of the 180-day period or 60 days after the hearing, whichever is longer, unless disapproved prior to that date;

• the rate application is the subject of judicial proceedings, in which case the commissioner will have no less than 30 days after the proceedings to approve or disapprove the application; and

• the hearing is continued in accordance with California Government Code § 11524, in which case the filing takes effect at the end of the 180-day period or 100 days after the case is submitted for continuance, whichever is later, unless disapproved prior to that date.

Under LCO No. 8201, medical malpractice insurance rate filings are subject to prior approval by the insurance commissioner. The procedure to obtain approval is the same that the law currently requires for certain other liability policies (commercial risk insurance, workers’ compensation, and employers’ liability insurance) under CGS § 38a-676.

Rates must be on file with the insurance commissioner for a 30-day waiting period prior to taking effect. The commissioner may extend that period up to an additional 30 days if she provides written notification to the insurer or rating organization within the 30-day waiting period. Rates become effective after the expiration of the waiting period or extension, unless disapproved by the commissioner during that time. The insurer or rating organization can request a hearing on a denied rate filing.

The Program Review and Investigations Committee (PRI) issued findings and recommendations on December 18, 2003 regarding medical malpractice insurance rates. PRI recommends that the legislature require prior approval of medical malpractice insurance rates if the commissioner determines that the medical malpractice insurance market is not competitive or an insurance carrier requests a rate increase or decrease of 15% or more. The competitive market analysis would be completed by October 1 each year and applicable to all rate filings received on or after January 1 of the succeeding year.

If the commissioner determines that a noncompetitive market exists or an insurer requests a rate change of 15% or more, the commissioner would be required to make public notice of the rate filing within five days of receiving the filing. The commissioner would then accept public comment for 30 days from the date of public notice. In addition:

• a consumer may request a public hearing on the proposed rate change within 45 days of the date of public notice; or

• the commissioner may decide to hold a hearing on her own motion; or

• in the absence of a request for a public hearing, the commissioner may approve or disapprove a rate without a hearing within 60 days of receiving the filing, consistent with the rate standards in CGS § 38a-665 (excessive, inadequate, or unfairly discriminatory).

Further, PRI recommends that insurers be required to enclose a notice in every policy renewal or premium bill informing policyholders of the opportunity to request a hearing on rate change applications made during a noncompetitive market.

In a competitive market, the existing method of rate review for medical malpractice insurance under CGS §38a-676, as described above, would apply.


January 13, 2004		2004-R-0054
PRIOR RATE APPROVAL FOR MEDICAL MALPRACTICE INSURANCE

By: Janet Brierton, Associate Legislative Attorney