GENERAL ASSEMBLY OF NORTH CAROLINA
1995 SESSION

CHAPTER 505
SENATE BILL 973

AN ACT TO CREATE THE NORTH CAROLINA WORKERS' COMPENSATION LOSS COSTS RATING LAW.

The General Assembly of North Carolina enacts:

Sec. 1.  G.S. 58-36-1(3) reads as rewritten:
"(3)	The Bureau shall have the duty and responsibility of promulgating and proposing rates for insurance against loss to residential real property with not more than four housing units located in this State and any contents thereof or valuable interest therein and other insurance coverages written in connection with the sale of such property insurance; for insurance against theft of or physical damage to private passenger (nonfleet) motor vehicles; for liability insurance for such motor vehicles, automobile medical payments insurance, uninsured motorists coverage and other insurance coverages written in connection with the sale of such liability insurance; and, as provided in G.S. 58-36-100, for loss costs and residual market rate filings for workers' compensation and employers' liability insurance written in connection therewith. The provisions of this subdivision shall not apply to motor vehicles operated under certificates of authority from the Utilities Commission, the Interstate Commerce Commission, or their successor agencies, where insurance or other proof of financial responsibility is required by law or by regulations specifically applicable to such certificated vehicles. The Bureau shall have no jurisdiction over excess workers' compensation insurance for employers qualifying as self-insurers as provided in G.S. 97-93; nor shall the Bureau's jurisdiction include farm buildings, farm dwellings and their appurtenant structures, farm personal property or other coverages written in connection with farm real or personal property; travel or camper trailers designed to be pulled by private passenger motor vehicles, unless insured under policies covering nonfleet private passenger motor vehicles; residential real and personal property insured in multiple line insurance policies covering business activities as the primary insurable interest; and marine, general liability, burglary and theft, glass, and animal collision insurance, except when such coverages are written as an integral part of a multiple line insurance policy for which there is an indivisible premium."
Sec. 2.  G.S. 58-36-15 reads as rewritten:
"§ 58-36-15.  Filing loss costs, rates, plans with Commissioner; public inspection of filings.
(a)	The Bureau shall file with the Commissioner copies of the rates, loss costs, classification plans, rating plans and rating systems used by its members.  Each rate filing shall become effective on the date specified in the filing, but not earlier than 105 days from the date the filing is received by the Commissioner: Provided that (1) rate filings for workers' compensation insurance and employers' liability insurance written in connection therewith shall not become effective earlier than 120 days from the date the filing is received by the Commissioner or on the date as provided under G.S. 58-36-100, whichever is earlier; and (2) any filing may become effective on a date earlier than that specified in this subsection upon agreement between the Commissioner and the Bureau.
(b)	A filing shall be open to public inspection immediately upon submission to the Commissioner.
(c)	The Bureau shall maintain reasonable records, of the type and kind reasonably adapted to its method of operation, of the experience of its members and of the data, statistics or information collected or used by it in connection with the rates, rating plans, rating systems, loss costs and other data as specified in G.S. 58-36-100, underwriting rules, policy or bond forms, surveys or inspections made or used by it.
(d)	With respect to the filing of rates for nonfleet private passenger motor vehicle insurance, the Bureau shall, on or before February 1 of each year, or later with the approval of the Commissioner, file with the Commissioner the experience, data, statistics, and information referred to in subsection (c) of this section and any proposed adjustments in the rates for all member companies of the Bureau.  The filing shall include, where deemed by the Commissioner to be necessary for proper review, the data specified in subsections (c), (e), (g) and (h) of this section.  Any filing that does not contain the data required by this subsection may be returned to the Bureau and not be deemed a proper filing.  Provided, however, that if the Commissioner concludes that a filing does not constitute a proper filing he shall promptly notify the Bureau in writing to that effect, which notification shall state in reasonable detail the basis of the Commissioner's conclusion.  The Bureau shall then have a reasonable time to remedy the defects so specified.  An otherwise defective filing thus remedied shall be deemed to be a proper and timely filing, except that all periods of time specified in this Article will run from the date the Commissioner receives additional or amended documents necessary to remedy all material defects in the original filing.
(e)	The Commissioner may require the filing of supporting data including:
(1)	The Bureau's interpretation of any statistical data relied upon;
(2)	Descriptions of the methods employed in setting the rates;
(3)	Analysis of the incurred losses submitted on an accident year or policy year basis into their component parts; to wit, paid losses, reserves for losses and loss expenses, and reserves for losses incurred but not reported;
(4)	The total number and dollar amount of paid claims;
(5)	The total number and dollar amount of case basis reserve claims;
(6)	Earned and written premiums at current rates by rating territory;
(7)	Earned premiums and incurred losses according to classification plan categories; and
(8)	Income from investment of unearned premiums and loss and loss expense reserves generated by business within this State.
Provided, however, that with respect to business written prior to January 1, 1980, the Commissioner shall not require the filing of such supporting data which has not been required to be recorded under statistical plans approved by the Commissioner.
(f)	On or before September 1 of each calendar year the Bureau shall submit to the Commissioner the experience, data, statistics, and information referred to in subsection (c) of this section and required under G.S. 58-36-100 and a residual market rate or prospective loss costs review based on such data for workers' compensation insurance and employers' liability insurance written in connection therewith.  Any rate increase for such insurance that is implemented pursuant to this Article shall become effective solely to such insurance as is written having an inception date on or after the effective date of the rate increase.
(g)	The following information must be included in policy form, rule, and rate filings under this Article and under Article 37 of this Chapter:
(1)	A detailed list of the rates, rules, and policy forms filed, accompanied by a list of those superseded; and
(2)	A detailed description, properly referenced, of all changes in policy forms, rules, prospective loss costs, and rates, including the effect of each change.
(h)	Except to the extent the Commissioner determines that this subsection is inapplicable to filings made under G.S. 58-36-100 and except for filings made under G.S. 58-36-30, all policy form, rule, prospective loss costs, and rate filings under this Article and Article 37 of this Chapter that are based on statistical data must be accompanied by the following properly identified information:
(1)	North Carolina earned premiums at the actual and current rate level; losses and loss adjustment expenses, each on paid and incurred bases without trending or other modification for the experience period, including the loss ratio anticipated at the time the rates were promulgated for the experience period;
(2)	Credibility factor development and application;
(3)	Loss development factor derivation and application on both paid and incurred bases and in both numbers and dollars of claims;
(4)	Trending factor development and application;
(5)	Changes in premium base resulting from rating exposure trends;
(6)	Limiting factor development and application;
(7)	Overhead expense development and application of commission and brokerage, other acquisition expenses, general expenses, taxes, licenses, and fees;
(8)	Percent rate or prospective loss costs change;
(9)	Final proposed rates;
(10)	Investment earnings, consisting of investment income and realized plus unrealized capital gains, from loss, loss expense, and unearned premium reserves;
(11)	Identification of applicable statistical plans and programs and a certification of compliance with them;
(12)	Investment earnings on capital and surplus;
(13)	Level of capital and surplus needed to support premium writings without endangering the solvency of member companies; and
(14)	Such other information that may be required by any rule adopted by the Commissioner.
Provided, however, that no filing may be returned or disapproved on the grounds that such information has not been furnished if insurers have not been required to collect such information pursuant to statistical plans or programs or to report such information to the Bureau or to statistical agents, except where the Commissioner has given reasonable prior notice to the insurers to begin collecting and reporting such information, or except when the information is readily available to the insurers.
(i)	The Bureau shall file with and at the time of any rate or prospective loss costs filing all testimony, exhibits, and other information on which the Bureau will rely at the hearing on the rate filing.  The Department shall file all testimony, exhibits, and other information on which the Department will rely at the hearing on the rate filing 20 days in advance of the convening date of the hearing.  Upon the issuance of a notice of hearing the Commissioner shall hold a meeting of the parties to provide for the scheduling of any additional testimony, including written testimony, exhibits or other information, in response to the notice of hearing and any potential rebuttal testimony, exhibits, or other information.  This subsection also applies to rate filings made by the North Carolina Motor Vehicle Reinsurance Facility under Article 37 of this Chapter."
Sec. 3.  Article 36 of Chapter 58 of the General Statutes is amended by adding a new section to read:
"§ 58-36-100.  Prospective loss costs filings and final rate filings for workers' compensation and employers' liability insurance.
(a)	Nothing in this section requires the Bureau or its member insurers to refile rates previously implemented before two years after the effective date of this section.  Any member insurer of the Bureau may continue to use all rates and deviations filed and approved for its use until disapproved, or the insurer makes its own filing to change its rates, either by making an independent filing or by filing a reference filing adoption form adopting the Bureau's prospective loss costs, or modification thereof.  Except as provided in subsection (m) of this section, with the initial prospective loss costs reference filing, the Bureau shall no longer develop or file any minimum premiums, minimum premium formulas, or expense constants.  If an insurer wishes to amend minimum premium formulas, it must file, for approval, the minimum premium rules, formulas, or amounts it proposes to use.
(b)	Definitions.  As used in this section, the following terms have the following meanings:
(1)	'Expenses'. – That portion of a rate attributable to acquisition, field supervision, collection expenses, general expenses, as determined by the insurer.
(2)	'Developed losses'. – Losses (including loss adjustment expenses) adjusted, using standard actuarial techniques, to eliminate the effect of differences between current payment or reserve estimates and those needed to provide actual ultimate loss (including loss adjustment expense) payments.
(3)	'Insurer'. – A member insurer or group.
(4)	'Loss trending'. – Any procedure for projecting developed losses to the average date of loss for the period during which the policies are to be effective.
(5)	'Multiplier'. – An insurer's determination of the expenses, other than loss expense and loss adjustment expense, associated with writing workers' compensation and employers' liability insurance, which shall be expressed as a single nonintegral number to be applied equally and uniformly to the prospective loss costs approved by the Commissioner in making rates for each classification of risks utilized by that insurer.
(6)	'Prospective loss costs'. – That portion of a rate that does not include provisions for expenses (other than loss adjustment expenses) or profit; and that are based on historical aggregate losses and loss adjustment expenses adjusted through development to their ultimate value and projected through trending to a future point in time.
(7)	'Rate'. – The cost of insurance per exposure unit, whether expressed as a single number or as a prospective loss cost with an adjustment to account for the treatment of expenses, profit, and variations in loss experience, prior to any application of individual risk variations based on loss or expense considerations, and does not include minimum premiums.
(8)	'Supplementary rating information'. – Includes any manual or plan of rates, classification, rating schedule, minimum premium, policy fee, rating rule, rate-related underwriting rule, experience rating plan, statistical plan and any other similar information needed to determine the applicable rate in effect or to be in effect.
(c)	Except as provided in subsection (m) of this section, for workers' compensation and employers' liability insurance written in connection with workers' compensation insurance, the Bureau shall no longer develop or file advisory final rates that contain provisions for expenses (other than loss adjustment expenses) and profit.  The Bureau shall instead develop and file for approval with the Commissioner, in accordance with this section, reference filings containing advisory prospective loss costs and the underlying loss data and other supporting statistical and actuarial information for any calculations or assumptions underlying these loss costs.  Loss-based assessments, any tax levied by the State or any political subdivision of the State,  licensing costs, and fees will be included in prospective loss costs.
(d)	After a reference filing has been filed with the Commissioner and approved, the Bureau shall provide its member insurers with a copy of the approved reference filing.  The Bureau may print and distribute manuals of prospective loss costs as well as rules and other supplementary rating information described in subsection (k) of this section.
(e)	Each insurer shall independently and individually determine the final rates it will file for approval and the effective date of any rate changes.  If an insurer decides to use the prospective loss costs in the approved reference filing in support of its own filing, the insurer shall make a filing for approval using the reference filing adoption form.  The insurer's rates shall be the combination of the prospective loss costs and the loss multiplier contained in the reference filing adoption form.  Insurers may file modifications of the prospective loss costs in the approved reference filing based on their own anticipated experience.  Supporting documentation is required for any upward or downward modifications of the prospective loss costs in the approved reference filing.  A filing made with the Commissioner by an insurer under this subsection is deemed to be approved, if not disapproved by the Commissioner in writing within 60 days after the filing is made.
(f)	The summary of supporting information form shall contain a reference to examples of how to apply an insurer's loss cost modification factor to the Bureau's prospective loss costs.  Insurers may vary expense loads by individual classification or grouping.  Insurers may use variable or fixed expense loads or a combination of these to establish their expense loadings.  Each filing that varies the expense load by class shall specify the expense factor applicable to each class and shall include information supporting the justification for the variation.  However, insurers shall file data in accordance with the uniform statistical plan approved by the Commissioner.  Insurers may offer premium discount plans.
(g)	An insurer may request to have its loss multiplier remain on file and reference all subsequent prospective loss costs reference filings.  Upon receipt of subsequent approved Bureau reference filings, the insurer's rates shall be the combination of the prospective loss costs and the loss multiplier contained in the reference filing adoption form on file with the Commissioner, and will be effective on or after the effective date of the prospective loss costs.  The insurer need not file anything further with the Commissioner.  If an insurer that has filed to have its loss multiplier remain on file with the Department intends to delay, modify, or not adopt a particular Bureau reference filing, the insurer must make an appropriate filing with the Commissioner.  The insurer's filed loss multiplier shall remain in effect until the insurer withdraws it or files and receives approval of a revised reference filing adoption form.
(h)	An insurer may file such other information that the insurer considers relevant and shall provide such other information as may be requested by the Commissioner.  When a filing is not accompanied by the information required under this section, the Commissioner shall inform the filer within 30 days after the initial filing that the filing is incomplete and describe what additional information is required.  A filing is complete when the required information is furnished or when the filer certifies to the Commissioner that the additional information required by the Commissioner is not maintained or cannot be provided.
(i)	To the extent that an insurer's final rates are determined solely by applying its loss multiplier, as presented in the reference filing adoption form, to the prospective loss costs contained in the Bureau's reference filing and printed in the Bureau's rating manual, the insurer need not develop or file its final rate pages with the Commissioner.  If an insurer chooses to print and distribute final rate pages for its own use, based solely upon the application of its filed loss costs, the insurer need not file those pages with the Commissioner.  If the Bureau does not print the loss costs in its manual, the insurer must submit its rates to the Commissioner.
(j)	For reference filings filed by the Bureau:
(1)	If the insurer has filed to have its loss multiplier remain on file, applicable to subsequent reference filings, and a new reference filing is filed and approved and if:
a.	The insurer decides to use the revision of the prospective loss costs and effective date as filed, then the insurer does not file anything with the Commissioner.  Rates are the combination of the prospective loss costs and the on-file loss multiplier and become effective on the effective date of the loss costs.
b.	The insurer decides to use the prospective loss costs as filed but with a different effective date, then the insurer must notify the Commissioner of its effective date before the effective date of the loss costs.
c.	The insurer decides to use the revision of the prospective loss costs, but wishes to change its loss multiplier, then the insurer must file for approval a revised reference filing adoption form before the effective date of the reference filing.
d.	The insurer decides not to revise its rates using the prospective loss costs, then the insurer must notify the Commissioner before the effective date of the loss costs.
(2)	If an insurer has not elected to have its loss multiplier remain on file, applicable to future prospective loss costs reference filings, and a new reference filing is filed and approved, and if:
a.	The insurer decides to use the prospective loss costs to revise its rates, then the insurer must file a reference filing adoption form for approval including its effective date.
b.	The insurer decides not to use the revisions, then the insurer does not file anything with the Commissioner.
(k)	The Bureau shall file with the Commissioner, for approval, filings containing a revision of rules and supplementary rating information.  This includes policy-writing rules, rating plans, classification codes and descriptions, and rules that include factors or relativities, such as employers' liability increased limits factors, classification relativities, or similar factors, but excludes minimum premiums.  The Bureau may print and distribute manuals of rules and supplementary rating information, excluding minimum premiums.
(l)	If a new filing of rules, relativities, and supplementary rating information is filed by the Bureau and approved and if:
(1)	The insurer decides to use the revisions and effective date as filed together with the loss multiplier on file with the Commissioner, then the insurer shall not file anything with the Commissioner.
(2)	The insurer decides to use the revisions as filed but with a different effective date, then the insurer must notify the Commissioner of its effective date before the approved Bureau filing's effective date.
(3)	The insurer decides not to use the revision, then the insurer must notify the Commissioner before the Bureau filing's effective date.
(4)	The insurer decides to use the revision with modifications, then the insurer must file the modification with the Commissioner, for approval, specifying the basis for the modification and the insurer's proposed effective date if different than the Bureau filing's effective date.
(m)	The Bureau shall file all of the following with the Commissioner:
(1)	Final workers' compensation rates and rating plans for the residual market.
(2)	The uniform classification plan and rules.
(3)	The uniform experience rating plan and rules.
(4)	A uniform policy form to be used by member insurers for voluntary and residual market business.
(5)	Advisory manual workers' compensation rates to be used for the sole purpose of computing the premium tax liability of self-insurers under G.S. 105-228.5.
(n)	The rates filed under subdivision (m)(1) of this section shall be set at levels to self-fund the residual market, provide adequate premiums to pay losses and expenses, establish appropriate reserves, and provide a reasonable margin for underwriting profit and contingencies.
(o)	Every insurer shall adhere to the uniform classification plan, experience rating plan, and policy form filed by the Bureau."
Sec. 4.  Effective September 1, 1997, G.S. 58-36-100(a), as enacted in Section 3 of this act, reads as rewritten:
"(a)	Nothing in this section requires the Bureau or its member insurers to refile rates previously implemented before two years after the effective date of this section.  Any member insurer of the Bureau may continue to use all rates and deviations filed and approved for its use until disapproved, or the insurer makes its own filing to change its rates, either by making an independent filing or by filing a reference filing adoption form adopting the Bureau's prospective loss costs, or modification thereof.  Except as provided in subsection (m) of this section, with the initial prospective loss costs reference filing, the Bureau shall no longer develop or file any minimum premiums, minimum premium formulas, or expense constants.  If an insurer wishes to amend minimum premium formulas, it must file the minimum premium rules, formulas, or amounts it proposes to use."
Sec. 5.  Effective September 1, 1997, G.S. 58-36-100(e), as enacted in Section 3 of this act, reads as rewritten:
"(e)	Each insurer shall independently and individually determine the final rates it will file and the effective date of any rate changes.  If an insurer decides to use the prospective loss costs in the approved reference filing in support of its own filing, the insurer shall make a filing using the reference filing adoption form.  The insurer's rates shall be the combination of the prospective loss costs and the loss multiplier contained in the reference filing adoption form.  Insurers may file modifications of the prospective loss costs in the approved reference filing based on their own anticipated experience.  Supporting documentation is required for any upward or downward modifications of the prospective loss costs in the approved reference filing.  "
Sec. 6.  Effective September 1, 1997, G.S. 58-36-100(g), as enacted in Section 3 of this act, reads as rewritten:
"(g)	An insurer may request to have its loss multiplier remain on file and reference all subsequent prospective loss costs reference filings.  Upon receipt of subsequent approved Bureau reference filings, the insurer's rates shall be the combination of the prospective loss costs and the loss multiplier contained in the reference filing adoption form on file with the Commissioner, and will be effective on or after the effective date of the prospective loss costs.  The insurer need not file anything further with the Commissioner.  If an insurer that has filed to have its loss multiplier remain on file with the Department intends to delay, modify, or not adopt a particular Bureau reference filing, the insurer must make an appropriate filing with the Commissioner.  The insurer's filed loss multiplier shall remain in effect until the insurer withdraws it or files a revised reference filing adoption form.  The provisions of G.S. 58-40-20, 58-40-30, 58-40-35, and 58-40-45 apply to filings made by insurers under this section."
Sec. 7.  Effective September 1, 1997, G.S. 58-36-100(j), as enacted in Section 3 of this act, reads as rewritten:
"(j)	For reference filings filed by the Bureau:
(1)	If the insurer has filed to have its loss multiplier remain on file, applicable to subsequent reference filings, and a new reference filing is filed and approved and if:
a.	The insurer decides to use the revision of the prospective loss costs and effective date as filed, then the insurer does not file anything with the Commissioner.  Rates are the combination of the prospective loss costs and the on-file loss multiplier and become effective on the effective date of the loss costs.
b.	The insurer decides to use the prospective loss costs as filed but with a different effective date, then the insurer must notify the Commissioner of its effective date before the effective date of the loss costs.
c.	The insurer decides to use the revision of the prospective loss costs, but wishes to change its loss multiplier, then the insurer must file a revised reference filing adoption form before the effective date of the reference filing.
d.	The insurer decides not to revise its rates using the prospective loss costs, then the insurer must notify the Commissioner before the effective date of the loss costs.
(2)	If an insurer has not elected to have its loss multiplier remain on file, applicable to future prospective loss costs reference filings, and a new reference filing is filed and approved, and if:
a.	The insurer decides to use the prospective loss costs to revise its rates, then the insurer must file a reference filing adoption form including its effective date.
b.	The insurer decides not to use the revisions, then the insurer does not file anything with the Commissioner."
Sec. 8.  Effective September 1, 1997, G.S. 58-36-100(l), as enacted in Section 3 of this act, reads as rewritten:
"(l)	If a new filing of rules, relativities, and supplementary rating information is filed by the Bureau and approved and if:
(1)	The insurer decides to use the revisions and effective date as filed together with the loss multiplier on file with the Commissioner, then the insurer shall not file anything with the Commissioner.
(2)	The insurer decides to use the revisions as filed but with a different effective date, then the insurer must notify the Commissioner of its effective date before the approved Bureau filing's effective date.
(3)	The insurer decides not to use the revision, then the insurer must notify the Commissioner before the Bureau filing's effective date.
(4)	The insurer decides to use the revision with modifications, then the insurer must file the modification with the Commissioner, specifying the basis for the modification and the insurer's proposed effective date if different than the Bureau filing's effective date."
Sec. 9.  Notwithstanding G.S. 58-36-15(f), the Bureau may make its 1995 filing after September 1, 1995.
Sec. 10.  There is appropriated from the Department of Insurance Fund under G.S. 58-6-25 to the Department of Insurance the sum of two hundred thousand nine hundred thirty dollars ($200,930) for fiscal year 1995-96 and the sum of one hundred eighty-two thousand eighty-eight dollars ($182,088) for fiscal year 1996-97 to defray the Department's costs in reviewing filings under this act and otherwise implementing the provisions of this act.
Sec. 11.  Section 10 of this act is effective July 1, 1995.  The remainder of this act is effective upon ratification.
In the General Assembly read three times and ratified this the 28th day of July, 1995.

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Dennis A. Wicker
President of the Senate

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Harold J. Brubaker
Speaker of the House of Representatives