779.1. The purpose of this article is to promote the public welfare
by regulating credit life insurance and credit disability insurance.
Nothing in this article is intended to prohibit or discourage
reasonable competition.
779.2. All life insurance and all disability insurance sold in
connection with loans or other credit transactions shall be subject
to the provisions of this article, except (a) such insurance sold in
connection with a loan or other credit transaction of more than 10
years duration, and (b) such insurance where its issuance is an
isolated transaction on the part of the insurer not related to an
agreement or a plan or regular course of conduct for insuring debtors
of the creditor. Nothing in this article shall be construed to
relieve any person from compliance with any other applicable law of
this state, including, but not limited to, Article 6.5 (commencing
with Section 790), nor shall anything in this article be construed so
as to alter, amend, or otherwise affect existing case law.
For the purpose of this article:
(1) "Credit life insurance" means insurance on the life of a
debtor pursuant to or in connection with a specific loan or other
credit transaction, exclusive of any such insurance procured at no
expense to the debtor. Insurance shall be deemed procured at no
expense to the debtor unless the cost of the credit transaction to
the debtor varies depending on whether or not the insurance is
procured.
(2) "Credit disability insurance" means insurance on a debtor to
provide indemnity for payments becoming due on a specific loan or
other credit transaction while the debtor is disabled as defined in
the policy, exclusive of any insurance procured at no expense to the
debtor. Insurance shall be deemed to have been procured at no expense
to the debtor unless the cost of the credit transaction to the
debtor varies depending on whether or not the insurance is procured.
(3) "Creditor" means the lender of money or vendor or lessor of
goods, services, property, rights or privileges, for which payment is
arranged through a credit transaction or any successor to the right,
title or interest of any such lender, vendor or lessor, and an
affiliate, associate or subsidiary of any of them or any director,
officer or employee of any of them or any other person in any way
associated with any of them.
(4) "Debtor" means a borrower of money or a purchaser or lessee of
goods, services, property, rights or privileges for which payment is
arranged through a credit transaction.
(5) "Indebtedness" means the total amount payable by a debtor to a
creditor in connection with a loan or other credit transaction.
779.3. Credit life insurance and credit disability insurance shall
be issued only in the following forms:
(a) Individual policies of life insurance issued to debtors on the
term plan;
(b) Individual policies of disability insurance issued to debtors
on a term plan or disability benefit provisions in individual
policies of credit life insurance;
(c) Group policies of life insurance issued to creditors providing
insurance upon the lives of debtors on the term plan;
(d) Group policies of disability insurance issued to creditors on
a term plan insuring debtors or disability benefit provisions in
group credit life insurance policies to provide such coverage.
779.4. (a) The amount of credit life insurance and credit
disability insurance shall not exceed, but, except as provided in
subdivision (b), may be less than, the following:
(1) Credit Life Insurance. The initial amount of credit life
insurance shall at no time exceed the unpaid amount financed plus
earned interest. Where an indebtedness is repayable in substantially
equal installments, the amount of insurance shall at no time exceed
the greater of the scheduled or the actual unpaid amount financed
plus earned interest. In the case of revolving loan or revolving
charge accounts the insurance shall not at any time exceed the unpaid
amount financed plus earned interest.
Notwithstanding the provisions of the above paragraph, the amount
of insurance on agricultural or horticultural loan commitments may be
equal to the amount of the loan commitment.
(2) Credit Disability Insurance. The total amount of periodic
indemnity payable by credit disability insurance in the event of
disability, as defined in the policy, shall not exceed the aggregate
of the periodic scheduled unpaid installments of indebtedness, and
the amount of each periodic indemnity shall not exceed the original
indebtedness divided by the number of periodic installments.
(b) The amount of credit life and credit disability insurance may
be less than the amounts specified in subdivision (a) except as
provided by subdivision (a) of Section 18291, subdivision (e) of
Section 22458.1, or subdivision (e) of Section 24458.1 of the
Financial Code, or by any other provision of law specifically
prohibiting credit life or credit disability insurance in some lesser
amount.
779.5. The term of any credit life insurance or credit disability
insurance shall, subject to acceptance by the insurer, commence on
the date when the debtor becomes obligated to the creditor or the
date the debtor applies for such insurance, whichever is later,
except that, where a group policy provides coverage with respect to
existing obligations, the insurance on a debtor with respect to such
indebtedness shall commence on the effective date of the policy.
Where evidence of insurability is required and such evidence is
furnished more than thirty (30) days after the date when the debtor
becomes obligated to the creditor, the term of the insurance may
commence on the date on which the insurance company determines the
evidence to be satisfactory, and in such event there shall be an
appropriate refund or adjustment of any charge to the debtor for
insurance. The term of such insurance shall not extend more than 15
days beyond the scheduled maturity date of the indebtedness except
when extended without additional cost to the debtor. If the
indebtedness is discharged due to renewal or refinancing prior to the
scheduled maturity date, the insurance in force shall be terminated
before any new insurance may be issued in connection with the renewed
or refinanced indebtedness. In all cases of termination prior to
scheduled maturity, a refund shall be paid or credited as provided in
Section 779.14.
779.6. Notwithstanding the provisions of Section 10203.5, all
credit life insurance and credit disability insurance subject to this
article shall be evidenced by an individual policy, or in the case
of group insurance by a certificate of insurance, which individual
policy or group certificate of insurance shall be delivered to the
debtor.
Each individual policy or group certificate of credit life
insurance or of credit disability insurance or any combination
thereof shall, in addition to other requirements of law, set forth
the name and home office address of the insurer, the identity by name
or otherwise of the person or persons insured the premium or amount
of payment, if any, by the debtor separately for credit life
insurance and credit disability insurance, a description of the
coverage including the amount and term thereof, and any exceptions,
limitations or restrictions, and shall state that the benefits shall
be paid to the creditor holding the indebtedness to reduce or
extinguish the unpaid indebtedness and, wherever the amount of
insurance may exceed the unpaid indebtedness, that any such excess
shall be payable to a beneficiary, other than the creditor, named by
the debtor or to his estate. Said individual policy or group
certificate of insurance shall be delivered to the insured debtor at
the time the insurance commences except as hereinafter provided.
Notwithstanding the provisions of the above paragraph, a
certificate issued under a group policy in cases where the debtor
obligates himself to pay the insurance premium or payment
periodically with the debt payments on the decreasing amount of the
insurance or where the indebtedness is a revolving loan or revolving
charge account the rate of insurance premium or payment per unit of
coverage may be set forth in lieu of "the premium or amount of
payment, if any, by the debtor".
779.7. If a creditor requires a debtor to make any payment for
credit life insurance or credit disability insurance, and an
individual policy or group certificate of insurance is not delivered
to the debtor at the time the insurance commences, a copy of the
application for such policy or a notice of proposed insurance, signed
by the debtor and setting forth the name and home office address of
the insurer, the name or names of the debtor, the premium or amount
of payment by the debtor separately for credit life insurance and
credit disability insurance, the amount, term and a brief description
of the coverage provided, shall be delivered to the debtor at the
time such indebtedness is incurred, or at the time the debtor applies
for such insurance, whichever is later. The copy of the application
for, or notice of proposed insurance shall refer exclusively to
insurance coverage, and shall be separate and apart from the loan,
sale or other credit statement of account, instrument or agreement,
unless the information required by this subsection is prominently set
forth therein. Upon acceptance of the insurance by the insurer and
within thirty (30) days of the date upon which (1) the indebtedness
is incurred, (2) the application for such insurance is received by
the insurer, or (3) the insurer determines the evidence of
insurability, if required, to be satisfactory, the insurer shall
cause the individual policy or group certificate of insurance to be
delivered to the debtor. Said application or notice of proposed
insurance shall state that upon acceptance by the insurer, the
insurance shall become effective either as of the date the
indebtedness is incurred or the date of application for such
insurance, whichever is applicable; provided that where evidence of
insurability is required and such evidence is furnished more than
thirty (30) days after either the date when the debtor becomes
obligated to the creditor or the date the debtor applies for such
insurance, which ever is applicable, the term of the insurance shall
commence on the date on which the insurance company determines the
evidence to be satisfactory, and in such event there shall be an
appropriate refund or adjustment of any charge to the debtor for
insurance. A debtor shall not be deemed to be required to make any
payment for credit life insurance or credit disability insurance
unless the cost of the credit transaction to the debtor varies
depending upon whether or not such insurance is procured.
779.8. All policies, certificates of insurance, notices of proposed
insurance, applications for insurance, endorsements and riders
delivered or issued for delivery in this state and the schedules of
premium rates pertaining thereto shall be filed with the
commissioner.
779.9. The commissioner shall within 30 days after the filing of
any such policies, certificates of insurance, notices of proposed
insurance, applications for insurance, endorsements and riders,
disapprove any such form if the benefits provided therein are not
reasonable in relation to the premium charge, or if it contains
provisions which are unjust, unfair, inequitable, misleading,
deceptive or encourage misrepresentation of the coverage, or are
contrary to any provision of the Insurance Code or of any rule or
regulation promulgated thereunder.
779.10. The provisions of Sections 10290 and 10291 relating to the
filing, approval and disapproval of disability policy forms shall be
applicable to forms, whether of life or disability insurance,
required by this article to be filed with or approved by the
commissioner.
779.11. The provisions of subdivisions (f) and (g) of Section
10291.5 shall be applicable to the withdrawal of the approval of
forms, whether of life or disability insurance, required by this
article to be filed with or approved by the commissioner.
779.12. Any order or final determination of the commissioner under
the provisions of Sections 779.8 to 779.11, both inclusive, shall be
subject to judicial review.
779.12a. If a group policy of credit life insurance or credit
disability insurance (1) has been delivered in this State before
September 18, 1959, or (2) has been or is delivered in another state
before or after such date, the insurer shall be required to file only
the group certificate and notice of proposed insurance delivered or
issued for delivery in this State as specified in Sections 779.6 and
779.7 of this article, and such forms shall be approved by the
commissioner if, (a) they conform with the requirements specified in
said Sections 779.6 and 779.7; (b) they are accompanied by a
certification in a form satisfactory to the commissioner that the
substance of such forms are in substantial conformity with the master
policy; and (c) the schedules of premium rates applicable to the
insurance evidenced by any such certificate or notice are not in
excess of the insurer's schedules of premium rates filed with the
commissioner; provided, however, the premium rate in effect on
existing group policies may be continued until the first policy
anniversary date following October 1, 1963.
779.13. Any insurer may revise its schedules of premium rates from
time to time, and shall file such revised schedules with the
commissioner. No insurer shall issue any credit life insurance policy
or credit disability insurance policy for which the premium rate
exceeds that determined by the schedules of such insurer as then on
file with the commissioner.
779.14. (a) Each individual policy, group certificate, or notice of
proposed insurance shall provide that in the event of termination of
the insurance prior to the scheduled maturity date of the
indebtedness, any refund of an amount paid by the debtor for
insurance shall be paid promptly to the person entitled thereto or
credited to the next payment or payments due on the indebtedness.
However, the commissioner shall prescribe a minimum refund and no
refund that would be less than that minimum need be made. The formula
to be used in computing that refund shall be filed with and approved
by the commissioner.
(b) An individual policy or group certificate of credit life
insurance or of credit disability insurance or a combination thereof,
or a notice of proposed insurance, shall allow an insured to rescind
the insurance within 30 days of receipt of the policy or certificate
or notice of proposed insurance issued pursuant to Section 779.7 and
to receive a full refund, or credit if financed, of any premium that
has been paid. The right to rescind shall be disclosed on the face
of the individual policy, group certificate, or notice of proposed
insurance in at least 14-point type and shall include the disclosure
of the department's toll-free telephone number and other disclosures
set forth in Section 510.
(c) No statement, disclosure, or notice made in accordance with
Section 779.14 or 779.35 shall be construed to cause the policy
forms, certificates of insurance, or notices of proposed insurance,
by themselves, to be considered as nonstandard forms as described in
Article 6.9 (commencing with Section 2249) of Subchapter 2 of Chapter
5 of Title 10 of the California Code of Regulations.
(d) This section applies to all policies issued or delivered in
this state on or after January 1, 1999. All policies subject to this
section that are in effect on January 1, 1999, shall be construed to
be in compliance with this section, and any provision in any policy
which is in conflict with this section shall be of no force or
effect.
779.15. If a creditor requires a debtor to make any payment for
credit life insurance or credit disability insurance and an
individual policy or group certificate of insurance is not issued,
the creditor shall immediately give written notice to such debtor and
shall promptly make an appropriate credit to the next payments due
on the account.
779.16. The amount charged to a debtor for any credit life or
credit disability insurance shall not exceed the premium rates filed
with the commissioner for the coverage provided or the premiums
charged by the insurer, as computed at the time the charge to the
debtor is determined, whichever is less.
779.17. Nothing in this act shall be construed to authorize any
charge now prohibited under any statute or rule governing credit
transactions, irrespective of whether the same is contained in this
code or made pursuant thereto.
779.18. All policies of credit life insurance and credit disability
insurance shall be delivered or issued for delivery in this State
only by an admitted insurer, and shall be issued only through holders
of certificates, licenses or authorizations issued by the
commissioner. This article is hereby specifically made applicable to
reciprocal or interinsurance exchanges and fraternal benefit
societies.
779.19. All claims shall be promptly reported to the insurer or its
designated claim representative, and the insurer shall maintain
adequate claim files. All claims shall be settled as soon as possible
and in accordance with the terms of the insurance contract.
All claims shall be paid either by draft drawn upon the insurer,
by check of the insurer, or, with consent of the insured, by an
electronic funds transfer to the order of the claimant to whom
payment of the claim is due pursuant to the policy provisions, or
upon direction of such claimant to one specified.
No plan or arrangement shall be used whereby any person, firm or
corporation other than the insurer or its designated claim
representative shall be authorized to settle or adjust claims. The
creditor shall not be designated as claim representative for the
insurer in adjusting claims; provided, that a group policyholder may,
by arrangement with the group insurer, draw drafts or checks in
payment of claims due to the group policyholder subject to audit and
review by the insurer.
779.20. When credit life insurance or credit disability insurance
is required as additional security for any indebtedness, the debtor
shall, upon request to the creditor, have the option of furnishing
the required amount of insurance through existing policies of
insurance owned or controlled by him or of procuring and furnishing
the required coverage through any insurer authorized to transact an
insurance business within this State. This section shall not prevent
the creditor from exercising his right to approve or disapprove of
the insurer furnishing the credit insurance.
779.21. The commissioner may adopt, pursuant to Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code, reasonable rules and regulations necessary to
carry out this article.
779.22. The commissioner, in his discretion, may revoke or suspend
the license or certificate of authority of any person guilty of a
violation of any provisions of this article or any rules and
regulations adopted pursuant thereto. In addition to any other
penalty provided by law, any person who violates an order of the
commissioner after it has become final, and while such order is in
effect, shall, upon proof thereof to the satisfaction of the court,
forfeit and pay to the State of California a sum not to exceed two
hundred fifty dollars ($250) which may be recovered in a civil
action, except that if such violation is found to be willful, the
amount of such penalty shall be a sum not to exceed one thousand
dollars ($1,000).
779.23. Whenever the commissioner finds that there has been a
violation by an insurer of this article or any rules or regulations
issued pursuant thereto, he shall proceed as provided in Section 701.
Whenever the commissioner finds that there has been such a violation
by any licensee other than an insurer, he shall proceed as provided
in Chapter 5 of Part 1 of Division 3 of Title 2 of the Government
Code.
779.24. Any party affected by an order of the commissioner shall be
entitled to judicial review in accordance with the provisions of
Section 12940.
779.25. If any provision of this article, or the application of
such provision to any person or circumstances, shall be held invalid,
the remainder of the article, and the application of such provision
to any person or circumstances other than those as to which it is
held invalid, shall not be affected thereby.
779.26. Credit life insurance and credit disability insurance
within the scope of this article, where the form of policy including
the premium rates pertaining thereto have been filed with the
commissioner and not disapproved by him or the premiums charged have
been in accordance with those provided by any law of this state or
regulation of the commissioner promulgated thereunder, are not
subject to the provisions of Section 10214 or Section 10270.65 of the
Insurance Code.
779.27. In accordance with this article and the regulations adopted
pursuant to Section 779.21, the commissioner shall, after notice and
public hearing, promulgate regulations setting forth standard forms
of credit life and disability insurance policies, certificates of
insurance, notices of proposed insurance, applications for insurance,
endorsements, and riders. The use of such forms shall be mandatory,
except that commissioner may approve the use of nonstandard forms
which are in accord with this article and the regulations adopted
pursuant to Section 779.21.
779.28. For purposes of establishing the fact of disability in
credit disability insurance, chiropractors' certifications of
disability when made within the scope of their license shall be
accepted by insurers as equally valid as physicians and surgeons'
certifications of disability when made within the scope of their
license.
779.30. (a) An individual policy or group certificate may exclude
from credit disability insurance coverage only those preexisting
illnesses, diseases, or physical conditions for which the debtor
actually received medical advice, consultation, or treatment both
within six months before and six months after the effective date of
the debtor's coverage and which result in disability commencing
within two years of the effective date. This provision shall not
preclude the exclusion of other preexisting diseases or physical
conditions by name or specific description.
(b) An individual policy or group certificate may exclude from
credit life insurance coverage only those preexisting illnesses,
diseases, or physical conditions for which the debtor actually
received medical advice, consultation, or treatment both within six
months before and six months after the effective date of the debtor's
coverage and that result in death within six months after the
effective date.
(c) Preexisting condition provisions on revolving accounts for
credit disability insurance shall be subject to the limitations of
subdivision (a), and for credit life insurance shall be subject to
the limitations of subdivision (b).
(d) In the case of revolving accounts, any preexisting condition
provision may be applied separately to each charge or advance, in
which case the time periods in the applicable subdivision shall be
measured from the date of each separate charge or advance.
If any preexisting condition provision is applied to a subsequent
charge or advance on a revolving account the consumer shall be given
the following notice at least annually:
"NOTICE: THIS INSURANCE MAY NOT COVER AN ADVANCE OR CHARGE UNDER
YOUR CREDIT LINE IF YOUR DISABILITY OR DEATH RESULTS FROM A CONDITION
FOR WHICH YOU HAVE SEEN A DOCTOR OR CHIROPRACTOR IN THE SIX MONTHS
BEFORE THE ADVANCE OR CHARGE."
(e) The notice required by subdivision (d) may be printed on a
periodic billing statement or given separately.
(f) Subdivision (d) does not apply to a credit card as defined in
Section 1747.02 of the Civil Code.
779.31. The debtor shall have the right to terminate credit life
insurance or credit disability insurance at any time for any reason
upon notice to the creditor. A refund shall be paid or credited as
provided in Section 779.14 or by the regulation of the commissioner.
If the premium refund is paid to the creditor, the creditor shall
credit the debtor's account with the refund and any interest or
finance charge adjustment as provided in the credit agreement.
779.32. (a) The term "compensation," for the purpose of this
article means any valuable consideration including, but not limited
to, all paid or credited commissions, contingent commissions, service
fees, fees, consulting fees paid or credited within or outside this
state in relation to business produced or to be produced or written
or to be written in this state, electronic data process equipment or
services, supplies (other than forms approved by the commissioner and
the usual claims and reporting forms and envelopes for transmitting
the claims and brochures, rate books, and rate charts), rental
equipment of any type, advertising, telephone provided by an insurer,
its agent, or any related person without charge of actual charge or
at a charge less than the usual cost, profit sharing plans,
experience rating refunds, experience rating credits, dividends,
expense allowances, stock plans or bonuses, and any other form of
credit, including moneys assumed, or expenditures in any form
whatsoever, direct or indirect, paid by or on behalf of the insurer,
or by any subsidiary or parent, or subsidiary of the parent of the
insurer, or by any other person to or on behalf of any group
policyholder, agent, general agent, or disability broker or withheld
by any group policyholder, agent, general agent, or disability
broker.
(b) The maximum amount of total compensation, as defined in
subdivision (a), payable by any insurer shall not exceed 35 percent
of the prima facie credit life insurance rates and 30 percent of the
prima facie disability insurance rates. Of the maximum total
compensation allowable, the creditor shall be limited to a
compensation rate of 27.5 percent of the prima facie credit life
insurance rates and 23.75 percent of the prima facie credit
disability insurance rates. The general agent's maximum total
compensation allowable shall be limited to 7.5 percent of the prima
facie credit life insurance rates and 6.25 percent of the prima facie
credit disability insurance rates. A creditor may not receive both
the creditor's and the general agent's compensation on its own
produced insurance. A general agent may also receive additional
primary compensation deducted from the maximum primary compensation
allowable to the creditor.
If the commissioner has reason to believe that compensation is in
fact or is contracted to be in excess of the maximum amount specified
in this section, the commissioner may conduct a hearing or
investigation, including the right to examine any contracts relating
to the direct or indirect payment of compensation, to determine
whether the insurer, general agent, or any other person is paying or
whether an agent, general agent, or broker is receiving any form of
compensation in excess of the applicable maximum amount of
compensation specified in this section.
(c) On and after January 1, 1988, no contract of credit life or
credit disability insurance shall be issued in this state unless, if
applicable, the maker first ascertains, using reasonable diligence,
that any nonadmitted reinsurer possesses capital and surplus of at
least one million dollars ($1,000,000).
(d) Nothing in this article shall be construed to authorize the
payment of any form of compensation to any creditor or to any person
otherwise prohibited from receiving that form of compensation. Nor
shall this article be construed to authorize the payment of
experience rating refunds prior to the anniversary date of the
policy. Those refunds shall be computed annually based on premiums
earned to that anniversary date.
779.33. The use of compensating balances or special deposit
accounts in connection, either directly or indirectly, with a credit
life insurance program or a credit disability insurance program of a
credit institution, whether on a group or an individual basis, is
prohibited.
Compensating balances or special deposit accounts include, but not
to the exclusion of other types of balances and accounts, the
following:
(1) The deposit of premiums to the account of the insurer in the
financial institution for which the insurer provides the credit
insurance program, when the account is either noninterest bearing or
at a rate of interest less than usual or is controlled by the
institution.
(2) Remitting premiums to the insurer after the expiration of the
grace period on a regular basis so that the arrearage period is
constant.
(3) The retention of premiums by an agent or broker to whom the
financial institution remits premiums for a period of time which is
not reasonably related to the time normally expected to be needed for
the agent or broker to remit the premium to the insurer, if that
delay is a continuing feature of the premium paying process.
(4) Any other practice which unduly delays receipt of premiums by
the insurer on a regular basis, or which is followed by an insurer
when the practice involves use of the financial resources of the
insurer for the benefit of the credit institution.
The foregoing criteria apply regardless of whether premiums are
due the insurer on the single premium in advance system or on the
monthly outstanding balance system. Nothing herein shall prevent the
insurer from making deposits in a financial institution which are not
related to a credit insurance program if it is in fact not related
to whether the insurer is the insurer which insures the credit
insurance program.
779.36. (a) The commissioner shall adopt regulations that become
effective no later than January 1, 2001, specifying prima facie rates
based upon presumptive loss ratios, with rates which would be
expected to result in a target loss ratio of 60 percent, or any other
loss ratio as may be dictated after applying the factors contained
in this subdivision, for each class of credit disability, credit
unemployment, credit property, and credit life insurance. The prima
facie rates shall be based upon loss experience filed with the
commissioner, aggregated by class.
If any rate established under the commissioner's ratemaking
authority produces actual loss ratios that are lower than the
presumptive loss ratio, prospective rates may be adjusted, but no
retroactive refunds shall be required. In order to provide insurers
an opportunity to earn a fair and reasonable rate of return, the
commissioner in the ratemaking process shall consider the following
factors: acquisition costs, including commissions and other forms of
compensation, expenses, profits, loss ratios, reserves, and other
reasonable actuarial considerations.
(b) The commissioner shall provide for rate deviations. Upward and
downward deviations shall be considered by the commissioner upon
initiation by the department, or at the insurer's request at the time
of review of annual experience reports filed by insurers, or as
provided by regulations pursuant to Section 779.21. Requested
deviation rates shall be deemed approved if not disapproved within
120 days after submission to the department for approval. Creditor
and agent compensation shall be based upon the prima facie rate, and
shall not be affected by a deviated rate pursuant to this
subdivision. This subdivision does not prohibit an insurer from
paying compensation that is less than the prima facie rate.
(c) The commissioner shall adopt regulations that become effective
no later than January 1, 2001, specifying prima facie rates based
upon presumptive loss ratios, with rates which would be expected to
result in a target loss ratio of 60 percent, or any other loss ratio
as may be dictated after applying the factors contained in this
subdivision, for each class of joint life insurance, joint disability
insurance, joint credit unemployment insurance, and joint credit
property insurance. Those rates shall be expressed as a multiple of
the prima facie rate for each class of insurance subject to
subdivision (a), and shall be based upon loss experience filed with
the commissioner, aggregated by class.
If any rate established under the commissioner's ratemaking
authority produces actual loss ratios that are lower than the
presumptive loss ratio, prospective rates may be adjusted, but no
retroactive refunds shall be required. In order to provide insurers
an opportunity to earn a fair and reasonable rate of return, the
commissioner in the ratemaking process shall consider the following
factors: acquisition costs, including commissions and other forms of
compensation, expenses, profits, loss ratios, reserves, and other
reasonable actuarial considerations.
(d) Loss ratios shall consist of the ratio of incurred losses to
earned premiums in a specified reporting period.
(e) The commissioner shall, on an annual basis, make actual annual
loss ratios under subdivisions (a) and (c) available to the public.
779.1. The purpose of this article is to promote the public welfare
by regulating credit life insurance and credit disability insurance.
Nothing in this article is intended to prohibit or discourage
reasonable competition.
779.2. All life insurance and all disability insurance sold in
connection with loans or other credit transactions shall be subject
to the provisions of this article, except (a) such insurance sold in
connection with a loan or other credit transaction of more than 10
years duration, and (b) such insurance where its issuance is an
isolated transaction on the part of the insurer not related to an
agreement or a plan or regular course of conduct for insuring debtors
of the creditor. Nothing in this article shall be construed to
relieve any person from compliance with any other applicable law of
this state, including, but not limited to, Article 6.5 (commencing
with Section 790), nor shall anything in this article be construed so
as to alter, amend, or otherwise affect existing case law.
For the purpose of this article:
(1) "Credit life insurance" means insurance on the life of a
debtor pursuant to or in connection with a specific loan or other
credit transaction, exclusive of any such insurance procured at no
expense to the debtor. Insurance shall be deemed procured at no
expense to the debtor unless the cost of the credit transaction to
the debtor varies depending on whether or not the insurance is
procured.
(2) "Credit disability insurance" means insurance on a debtor to
provide indemnity for payments becoming due on a specific loan or
other credit transaction while the debtor is disabled as defined in
the policy, exclusive of any insurance procured at no expense to the
debtor. Insurance shall be deemed to have been procured at no expense
to the debtor unless the cost of the credit transaction to the
debtor varies depending on whether or not the insurance is procured.
(3) "Creditor" means the lender of money or vendor or lessor of
goods, services, property, rights or privileges, for which payment is
arranged through a credit transaction or any successor to the right,
title or interest of any such lender, vendor or lessor, and an
affiliate, associate or subsidiary of any of them or any director,
officer or employee of any of them or any other person in any way
associated with any of them.
(4) "Debtor" means a borrower of money or a purchaser or lessee of
goods, services, property, rights or privileges for which payment is
arranged through a credit transaction.
(5) "Indebtedness" means the total amount payable by a debtor to a
creditor in connection with a loan or other credit transaction.
779.3. Credit life insurance and credit disability insurance shall
be issued only in the following forms:
(a) Individual policies of life insurance issued to debtors on the
term plan;
(b) Individual policies of disability insurance issued to debtors
on a term plan or disability benefit provisions in individual
policies of credit life insurance;
(c) Group policies of life insurance issued to creditors providing
insurance upon the lives of debtors on the term plan;
(d) Group policies of disability insurance issued to creditors on
a term plan insuring debtors or disability benefit provisions in
group credit life insurance policies to provide such coverage.
779.4. (a) The amount of credit life insurance and credit
disability insurance shall not exceed, but, except as provided in
subdivision (b), may be less than, the following:
(1) Credit Life Insurance. The initial amount of credit life
insurance shall at no time exceed the unpaid amount financed plus
earned interest. Where an indebtedness is repayable in substantially
equal installments, the amount of insurance shall at no time exceed
the greater of the scheduled or the actual unpaid amount financed
plus earned interest. In the case of revolving loan or revolving
charge accounts the insurance shall not at any time exceed the unpaid
amount financed plus earned interest.
Notwithstanding the provisions of the above paragraph, the amount
of insurance on agricultural or horticultural loan commitments may be
equal to the amount of the loan commitment.
(2) Credit Disability Insurance. The total amount of periodic
indemnity payable by credit disability insurance in the event of
disability, as defined in the policy, shall not exceed the aggregate
of the periodic scheduled unpaid installments of indebtedness, and
the amount of each periodic indemnity shall not exceed the original
indebtedness divided by the number of periodic installments.
(b) The amount of credit life and credit disability insurance may
be less than the amounts specified in subdivision (a) except as
provided by subdivision (a) of Section 18291, subdivision (e) of
Section 22458.1, or subdivision (e) of Section 24458.1 of the
Financial Code, or by any other provision of law specifically
prohibiting credit life or credit disability insurance in some lesser
amount.
779.5. The term of any credit life insurance or credit disability
insurance shall, subject to acceptance by the insurer, commence on
the date when the debtor becomes obligated to the creditor or the
date the debtor applies for such insurance, whichever is later,
except that, where a group policy provides coverage with respect to
existing obligations, the insurance on a debtor with respect to such
indebtedness shall commence on the effective date of the policy.
Where evidence of insurability is required and such evidence is
furnished more than thirty (30) days after the date when the debtor
becomes obligated to the creditor, the term of the insurance may
commence on the date on which the insurance company determines the
evidence to be satisfactory, and in such event there shall be an
appropriate refund or adjustment of any charge to the debtor for
insurance. The term of such insurance shall not extend more than 15
days beyond the scheduled maturity date of the indebtedness except
when extended without additional cost to the debtor. If the
indebtedness is discharged due to renewal or refinancing prior to the
scheduled maturity date, the insurance in force shall be terminated
before any new insurance may be issued in connection with the renewed
or refinanced indebtedness. In all cases of termination prior to
scheduled maturity, a refund shall be paid or credited as provided in
Section 779.14.
779.6. Notwithstanding the provisions of Section 10203.5, all
credit life insurance and credit disability insurance subject to this
article shall be evidenced by an individual policy, or in the case
of group insurance by a certificate of insurance, which individual
policy or group certificate of insurance shall be delivered to the
debtor.
Each individual policy or group certificate of credit life
insurance or of credit disability insurance or any combination
thereof shall, in addition to other requirements of law, set forth
the name and home office address of the insurer, the identity by name
or otherwise of the person or persons insured the premium or amount
of payment, if any, by the debtor separately for credit life
insurance and credit disability insurance, a description of the
coverage including the amount and term thereof, and any exceptions,
limitations or restrictions, and shall state that the benefits shall
be paid to the creditor holding the indebtedness to reduce or
extinguish the unpaid indebtedness and, wherever the amount of
insurance may exceed the unpaid indebtedness, that any such excess
shall be payable to a beneficiary, other than the creditor, named by
the debtor or to his estate. Said individual policy or group
certificate of insurance shall be delivered to the insured debtor at
the time the insurance commences except as hereinafter provided.
Notwithstanding the provisions of the above paragraph, a
certificate issued under a group policy in cases where the debtor
obligates himself to pay the insurance premium or payment
periodically with the debt payments on the decreasing amount of the
insurance or where the indebtedness is a revolving loan or revolving
charge account the rate of insurance premium or payment per unit of
coverage may be set forth in lieu of "the premium or amount of
payment, if any, by the debtor".
779.7. If a creditor requires a debtor to make any payment for
credit life insurance or credit disability insurance, and an
individual policy or group certificate of insurance is not delivered
to the debtor at the time the insurance commences, a copy of the
application for such policy or a notice of proposed insurance, signed
by the debtor and setting forth the name and home office address of
the insurer, the name or names of the debtor, the premium or amount
of payment by the debtor separately for credit life insurance and
credit disability insurance, the amount, term and a brief description
of the coverage provided, shall be delivered to the debtor at the
time such indebtedness is incurred, or at the time the debtor applies
for such insurance, whichever is later. The copy of the application
for, or notice of proposed insurance shall refer exclusively to
insurance coverage, and shall be separate and apart from the loan,
sale or other credit statement of account, instrument or agreement,
unless the information required by this subsection is prominently set
forth therein. Upon acceptance of the insurance by the insurer and
within thirty (30) days of the date upon which (1) the indebtedness
is incurred, (2) the application for such insurance is received by
the insurer, or (3) the insurer determines the evidence of
insurability, if required, to be satisfactory, the insurer shall
cause the individual policy or group certificate of insurance to be
delivered to the debtor. Said application or notice of proposed
insurance shall state that upon acceptance by the insurer, the
insurance shall become effective either as of the date the
indebtedness is incurred or the date of application for such
insurance, whichever is applicable; provided that where evidence of
insurability is required and such evidence is furnished more than
thirty (30) days after either the date when the debtor becomes
obligated to the creditor or the date the debtor applies for such
insurance, which ever is applicable, the term of the insurance shall
commence on the date on which the insurance company determines the
evidence to be satisfactory, and in such event there shall be an
appropriate refund or adjustment of any charge to the debtor for
insurance. A debtor shall not be deemed to be required to make any
payment for credit life insurance or credit disability insurance
unless the cost of the credit transaction to the debtor varies
depending upon whether or not such insurance is procured.
779.8. All policies, certificates of insurance, notices of proposed
insurance, applications for insurance, endorsements and riders
delivered or issued for delivery in this state and the schedules of
premium rates pertaining thereto shall be filed with the
commissioner.
779.9. The commissioner shall within 30 days after the filing of
any such policies, certificates of insurance, notices of proposed
insurance, applications for insurance, endorsements and riders,
disapprove any such form if the benefits provided therein are not
reasonable in relation to the premium charge, or if it contains
provisions which are unjust, unfair, inequitable, misleading,
deceptive or encourage misrepresentation of the coverage, or are
contrary to any provision of the Insurance Code or of any rule or
regulation promulgated thereunder.
779.10. The provisions of Sections 10290 and 10291 relating to the
filing, approval and disapproval of disability policy forms shall be
applicable to forms, whether of life or disability insurance,
required by this article to be filed with or approved by the
commissioner.
779.11. The provisions of subdivisions (f) and (g) of Section
10291.5 shall be applicable to the withdrawal of the approval of
forms, whether of life or disability insurance, required by this
article to be filed with or approved by the commissioner.
779.12. Any order or final determination of the commissioner under
the provisions of Sections 779.8 to 779.11, both inclusive, shall be
subject to judicial review.
779.12a. If a group policy of credit life insurance or credit
disability insurance (1) has been delivered in this State before
September 18, 1959, or (2) has been or is delivered in another state
before or after such date, the insurer shall be required to file only
the group certificate and notice of proposed insurance delivered or
issued for delivery in this State as specified in Sections 779.6 and
779.7 of this article, and such forms shall be approved by the
commissioner if, (a) they conform with the requirements specified in
said Sections 779.6 and 779.7; (b) they are accompanied by a
certification in a form satisfactory to the commissioner that the
substance of such forms are in substantial conformity with the master
policy; and (c) the schedules of premium rates applicable to the
insurance evidenced by any such certificate or notice are not in
excess of the insurer's schedules of premium rates filed with the
commissioner; provided, however, the premium rate in effect on
existing group policies may be continued until the first policy
anniversary date following October 1, 1963.
779.13. Any insurer may revise its schedules of premium rates from
time to time, and shall file such revised schedules with the
commissioner. No insurer shall issue any credit life insurance policy
or credit disability insurance policy for which the premium rate
exceeds that determined by the schedules of such insurer as then on
file with the commissioner.
779.14. (a) Each individual policy, group certificate, or notice of
proposed insurance shall provide that in the event of termination of
the insurance prior to the scheduled maturity date of the
indebtedness, any refund of an amount paid by the debtor for
insurance shall be paid promptly to the person entitled thereto or
credited to the next payment or payments due on the indebtedness.
However, the commissioner shall prescribe a minimum refund and no
refund that would be less than that minimum need be made. The formula
to be used in computing that refund shall be filed with and approved
by the commissioner.
(b) An individual policy or group certificate of credit life
insurance or of credit disability insurance or a combination thereof,
or a notice of proposed insurance, shall allow an insured to rescind
the insurance within 30 days of receipt of the policy or certificate
or notice of proposed insurance issued pursuant to Section 779.7 and
to receive a full refund, or credit if financed, of any premium that
has been paid. The right to rescind shall be disclosed on the face
of the individual policy, group certificate, or notice of proposed
insurance in at least 14-point type and shall include the disclosure
of the department's toll-free telephone number and other disclosures
set forth in Section 510.
(c) No statement, disclosure, or notice made in accordance with
Section 779.14 or 779.35 shall be construed to cause the policy
forms, certificates of insurance, or notices of proposed insurance,
by themselves, to be considered as nonstandard forms as described in
Article 6.9 (commencing with Section 2249) of Subchapter 2 of Chapter
5 of Title 10 of the California Code of Regulations.
(d) This section applies to all policies issued or delivered in
this state on or after January 1, 1999. All policies subject to this
section that are in effect on January 1, 1999, shall be construed to
be in compliance with this section, and any provision in any policy
which is in conflict with this section shall be of no force or
effect.
779.15. If a creditor requires a debtor to make any payment for
credit life insurance or credit disability insurance and an
individual policy or group certificate of insurance is not issued,
the creditor shall immediately give written notice to such debtor and
shall promptly make an appropriate credit to the next payments due
on the account.
779.16. The amount charged to a debtor for any credit life or
credit disability insurance shall not exceed the premium rates filed
with the commissioner for the coverage provided or the premiums
charged by the insurer, as computed at the time the charge to the
debtor is determined, whichever is less.
779.17. Nothing in this act shall be construed to authorize any
charge now prohibited under any statute or rule governing credit
transactions, irrespective of whether the same is contained in this
code or made pursuant thereto.
779.18. All policies of credit life insurance and credit disability
insurance shall be delivered or issued for delivery in this State
only by an admitted insurer, and shall be issued only through holders
of certificates, licenses or authorizations issued by the
commissioner. This article is hereby specifically made applicable to
reciprocal or interinsurance exchanges and fraternal benefit
societies.
779.19. All claims shall be promptly reported to the insurer or its
designated claim representative, and the insurer shall maintain
adequate claim files. All claims shall be settled as soon as possible
and in accordance with the terms of the insurance contract.
All claims shall be paid either by draft drawn upon the insurer,
by check of the insurer, or, with consent of the insured, by an
electronic funds transfer to the order of the claimant to whom
payment of the claim is due pursuant to the policy provisions, or
upon direction of such claimant to one specified.
No plan or arrangement shall be used whereby any person, firm or
corporation other than the insurer or its designated claim
representative shall be authorized to settle or adjust claims. The
creditor shall not be designated as claim representative for the
insurer in adjusting claims; provided, that a group policyholder may,
by arrangement with the group insurer, draw drafts or checks in
payment of claims due to the group policyholder subject to audit and
review by the insurer.
779.20. When credit life insurance or credit disability insurance
is required as additional security for any indebtedness, the debtor
shall, upon request to the creditor, have the option of furnishing
the required amount of insurance through existing policies of
insurance owned or controlled by him or of procuring and furnishing
the required coverage through any insurer authorized to transact an
insurance business within this State. This section shall not prevent
the creditor from exercising his right to approve or disapprove of
the insurer furnishing the credit insurance.
779.21. The commissioner may adopt, pursuant to Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code, reasonable rules and regulations necessary to
carry out this article.
779.22. The commissioner, in his discretion, may revoke or suspend
the license or certificate of authority of any person guilty of a
violation of any provisions of this article or any rules and
regulations adopted pursuant thereto. In addition to any other
penalty provided by law, any person who violates an order of the
commissioner after it has become final, and while such order is in
effect, shall, upon proof thereof to the satisfaction of the court,
forfeit and pay to the State of California a sum not to exceed two
hundred fifty dollars ($250) which may be recovered in a civil
action, except that if such violation is found to be willful, the
amount of such penalty shall be a sum not to exceed one thousand
dollars ($1,000).
779.23. Whenever the commissioner finds that there has been a
violation by an insurer of this article or any rules or regulations
issued pursuant thereto, he shall proceed as provided in Section 701.
Whenever the commissioner finds that there has been such a violation
by any licensee other than an insurer, he shall proceed as provided
in Chapter 5 of Part 1 of Division 3 of Title 2 of the Government
Code.
779.24. Any party affected by an order of the commissioner shall be
entitled to judicial review in accordance with the provisions of
Section 12940.
779.25. If any provision of this article, or the application of
such provision to any person or circumstances, shall be held invalid,
the remainder of the article, and the application of such provision
to any person or circumstances other than those as to which it is
held invalid, shall not be affected thereby.
779.26. Credit life insurance and credit disability insurance
within the scope of this article, where the form of policy including
the premium rates pertaining thereto have been filed with the
commissioner and not disapproved by him or the premiums charged have
been in accordance with those provided by any law of this state or
regulation of the commissioner promulgated thereunder, are not
subject to the provisions of Section 10214 or Section 10270.65 of the
Insurance Code.
779.27. In accordance with this article and the regulations adopted
pursuant to Section 779.21, the commissioner shall, after notice and
public hearing, promulgate regulations setting forth standard forms
of credit life and disability insurance policies, certificates of
insurance, notices of proposed insurance, applications for insurance,
endorsements, and riders. The use of such forms shall be mandatory,
except that commissioner may approve the use of nonstandard forms
which are in accord with this article and the regulations adopted
pursuant to Section 779.21.
779.28. For purposes of establishing the fact of disability in
credit disability insurance, chiropractors' certifications of
disability when made within the scope of their license shall be
accepted by insurers as equally valid as physicians and surgeons'
certifications of disability when made within the scope of their
license.
779.30. (a) An individual policy or group certificate may exclude
from credit disability insurance coverage only those preexisting
illnesses, diseases, or physical conditions for which the debtor
actually received medical advice, consultation, or treatment both
within six months before and six months after the effective date of
the debtor's coverage and which result in disability commencing
within two years of the effective date. This provision shall not
preclude the exclusion of other preexisting diseases or physical
conditions by name or specific description.
(b) An individual policy or group certificate may exclude from
credit life insurance coverage only those preexisting illnesses,
diseases, or physical conditions for which the debtor actually
received medical advice, consultation, or treatment both within six
months before and six months after the effective date of the debtor's
coverage and that result in death within six months after the
effective date.
(c) Preexisting condition provisions on revolving accounts for
credit disability insurance shall be subject to the limitations of
subdivision (a), and for credit life insurance shall be subject to
the limitations of subdivision (b).
(d) In the case of revolving accounts, any preexisting condition
provision may be applied separately to each charge or advance, in
which case the time periods in the applicable subdivision shall be
measured from the date of each separate charge or advance.
If any preexisting condition provision is applied to a subsequent
charge or advance on a revolving account the consumer shall be given
the following notice at least annually:
"NOTICE: THIS INSURANCE MAY NOT COVER AN ADVANCE OR CHARGE UNDER
YOUR CREDIT LINE IF YOUR DISABILITY OR DEATH RESULTS FROM A CONDITION
FOR WHICH YOU HAVE SEEN A DOCTOR OR CHIROPRACTOR IN THE SIX MONTHS
BEFORE THE ADVANCE OR CHARGE."
(e) The notice required by subdivision (d) may be printed on a
periodic billing statement or given separately.
(f) Subdivision (d) does not apply to a credit card as defined in
Section 1747.02 of the Civil Code.
779.31. The debtor shall have the right to terminate credit life
insurance or credit disability insurance at any time for any reason
upon notice to the creditor. A refund shall be paid or credited as
provided in Section 779.14 or by the regulation of the commissioner.
If the premium refund is paid to the creditor, the creditor shall
credit the debtor's account with the refund and any interest or
finance charge adjustment as provided in the credit agreement.
779.32. (a) The term "compensation," for the purpose of this
article means any valuable consideration including, but not limited
to, all paid or credited commissions, contingent commissions, service
fees, fees, consulting fees paid or credited within or outside this
state in relation to business produced or to be produced or written
or to be written in this state, electronic data process equipment or
services, supplies (other than forms approved by the commissioner and
the usual claims and reporting forms and envelopes for transmitting
the claims and brochures, rate books, and rate charts), rental
equipment of any type, advertising, telephone provided by an insurer,
its agent, or any related person without charge of actual charge or
at a charge less than the usual cost, profit sharing plans,
experience rating refunds, experience rating credits, dividends,
expense allowances, stock plans or bonuses, and any other form of
credit, including moneys assumed, or expenditures in any form
whatsoever, direct or indirect, paid by or on behalf of the insurer,
or by any subsidiary or parent, or subsidiary of the parent of the
insurer, or by any other person to or on behalf of any group
policyholder, agent, general agent, or disability broker or withheld
by any group policyholder, agent, general agent, or disability
broker.
(b) The maximum amount of total compensation, as defined in
subdivision (a), payable by any insurer shall not exceed 35 percent
of the prima facie credit life insurance rates and 30 percent of the
prima facie disability insurance rates. Of the maximum total
compensation allowable, the creditor shall be limited to a
compensation rate of 27.5 percent of the prima facie credit life
insurance rates and 23.75 percent of the prima facie credit
disability insurance rates. The general agent's maximum total
compensation allowable shall be limited to 7.5 percent of the prima
facie credit life insurance rates and 6.25 percent of the prima facie
credit disability insurance rates. A creditor may not receive both
the creditor's and the general agent's compensation on its own
produced insurance. A general agent may also receive additional
primary compensation deducted from the maximum primary compensation
allowable to the creditor.
If the commissioner has reason to believe that compensation is in
fact or is contracted to be in excess of the maximum amount specified
in this section, the commissioner may conduct a hearing or
investigation, including the right to examine any contracts relating
to the direct or indirect payment of compensation, to determine
whether the insurer, general agent, or any other person is paying or
whether an agent, general agent, or broker is receiving any form of
compensation in excess of the applicable maximum amount of
compensation specified in this section.
(c) On and after January 1, 1988, no contract of credit life or
credit disability insurance shall be issued in this state unless, if
applicable, the maker first ascertains, using reasonable diligence,
that any nonadmitted reinsurer possesses capital and surplus of at
least one million dollars ($1,000,000).
(d) Nothing in this article shall be construed to authorize the
payment of any form of compensation to any creditor or to any person
otherwise prohibited from receiving that form of compensation. Nor
shall this article be construed to authorize the payment of
experience rating refunds prior to the anniversary date of the
policy. Those refunds shall be computed annually based on premiums
earned to that anniversary date.
779.33. The use of compensating balances or special deposit
accounts in connection, either directly or indirectly, with a credit
life insurance program or a credit disability insurance program of a
credit institution, whether on a group or an individual basis, is
prohibited.
Compensating balances or special deposit accounts include, but not
to the exclusion of other types of balances and accounts, the
following:
(1) The deposit of premiums to the account of the insurer in the
financial institution for which the insurer provides the credit
insurance program, when the account is either noninterest bearing or
at a rate of interest less than usual or is controlled by the
institution.
(2) Remitting premiums to the insurer after the expiration of the
grace period on a regular basis so that the arrearage period is
constant.
(3) The retention of premiums by an agent or broker to whom the
financial institution remits premiums for a period of time which is
not reasonably related to the time normally expected to be needed for
the agent or broker to remit the premium to the insurer, if that
delay is a continuing feature of the premium paying process.
(4) Any other practice which unduly delays receipt of premiums by
the insurer on a regular basis, or which is followed by an insurer
when the practice involves use of the financial resources of the
insurer for the benefit of the credit institution.
The foregoing criteria apply regardless of whether premiums are
due the insurer on the single premium in advance system or on the
monthly outstanding balance system. Nothing herein shall prevent the
insurer from making deposits in a financial institution which are not
related to a credit insurance program if it is in fact not related
to whether the insurer is the insurer which insures the credit
insurance program.
779.36. (a) The commissioner shall adopt regulations that become
effective no later than January 1, 2001, specifying prima facie rates
based upon presumptive loss ratios, with rates which would be
expected to result in a target loss ratio of 60 percent, or any other
loss ratio as may be dictated after applying the factors contained
in this subdivision, for each class of credit disability, credit
unemployment, credit property, and credit life insurance. The prima
facie rates shall be based upon loss experience filed with the
commissioner, aggregated by class.
If any rate established under the commissioner's ratemaking
authority produces actual loss ratios that are lower than the
presumptive loss ratio, prospective rates may be adjusted, but no
retroactive refunds shall be required. In order to provide insurers
an opportunity to earn a fair and reasonable rate of return, the
commissioner in the ratemaking process shall consider the following
factors: acquisition costs, including commissions and other forms of
compensation, expenses, profits, loss ratios, reserves, and other
reasonable actuarial considerations.
(b) The commissioner shall provide for rate deviations. Upward and
downward deviations shall be considered by the commissioner upon
initiation by the department, or at the insurer's request at the time
of review of annual experience reports filed by insurers, or as
provided by regulations pursuant to Section 779.21. Requested
deviation rates shall be deemed approved if not disapproved within
120 days after submission to the department for approval. Creditor
and agent compensation shall be based upon the prima facie rate, and
shall not be affected by a deviated rate pursuant to this
subdivision. This subdivision does not prohibit an insurer from
paying compensation that is less than the prima facie rate.
(c) The commissioner shall adopt regulations that become effective
no later than January 1, 2001, specifying prima facie rates based
upon presumptive loss ratios, with rates which would be expected to
result in a target loss ratio of 60 percent, or any other loss ratio
as may be dictated after applying the factors contained in this
subdivision, for each class of joint life insurance, joint disability
insurance, joint credit unemployment insurance, and joint credit
property insurance. Those rates shall be expressed as a multiple of
the prima facie rate for each class of insurance subject to
subdivision (a), and shall be based upon loss experience filed with
the commissioner, aggregated by class.
If any rate established under the commissioner's ratemaking
authority produces actual loss ratios that are lower than the
presumptive loss ratio, prospective rates may be adjusted, but no
retroactive refunds shall be required. In order to provide insurers
an opportunity to earn a fair and reasonable rate of return, the
commissioner in the ratemaking process shall consider the following
factors: acquisition costs, including commissions and other forms of
compensation, expenses, profits, loss ratios, reserves, and other
reasonable actuarial considerations.
(d) Loss ratios shall consist of the ratio of incurred losses to
earned premiums in a specified reporting period.
(e) The commissioner shall, on an annual basis, make actual annual
loss ratios under subdivisions (a) and (c) available to the public.
779.1. The purpose of this article is to promote the public welfare
by regulating credit life insurance and credit disability insurance.
Nothing in this article is intended to prohibit or discourage
reasonable competition.
779.2. All life insurance and all disability insurance sold in
connection with loans or other credit transactions shall be subject
to the provisions of this article, except (a) such insurance sold in
connection with a loan or other credit transaction of more than 10
years duration, and (b) such insurance where its issuance is an
isolated transaction on the part of the insurer not related to an
agreement or a plan or regular course of conduct for insuring debtors
of the creditor. Nothing in this article shall be construed to
relieve any person from compliance with any other applicable law of
this state, including, but not limited to, Article 6.5 (commencing
with Section 790), nor shall anything in this article be construed so
as to alter, amend, or otherwise affect existing case law.
For the purpose of this article:
(1) "Credit life insurance" means insurance on the life of a
debtor pursuant to or in connection with a specific loan or other
credit transaction, exclusive of any such insurance procured at no
expense to the debtor. Insurance shall be deemed procured at no
expense to the debtor unless the cost of the credit transaction to
the debtor varies depending on whether or not the insurance is
procured.
(2) "Credit disability insurance" means insurance on a debtor to
provide indemnity for payments becoming due on a specific loan or
other credit transaction while the debtor is disabled as defined in
the policy, exclusive of any insurance procured at no expense to the
debtor. Insurance shall be deemed to have been procured at no expense
to the debtor unless the cost of the credit transaction to the
debtor varies depending on whether or not the insurance is procured.
(3) "Creditor" means the lender of money or vendor or lessor of
goods, services, property, rights or privileges, for which payment is
arranged through a credit transaction or any successor to the right,
title or interest of any such lender, vendor or lessor, and an
affiliate, associate or subsidiary of any of them or any director,
officer or employee of any of them or any other person in any way
associated with any of them.
(4) "Debtor" means a borrower of money or a purchaser or lessee of
goods, services, property, rights or privileges for which payment is
arranged through a credit transaction.
(5) "Indebtedness" means the total amount payable by a debtor to a
creditor in connection with a loan or other credit transaction.
779.3. Credit life insurance and credit disability insurance shall
be issued only in the following forms:
(a) Individual policies of life insurance issued to debtors on the
term plan;
(b) Individual policies of disability insurance issued to debtors
on a term plan or disability benefit provisions in individual
policies of credit life insurance;
(c) Group policies of life insurance issued to creditors providing
insurance upon the lives of debtors on the term plan;
(d) Group policies of disability insurance issued to creditors on
a term plan insuring debtors or disability benefit provisions in
group credit life insurance policies to provide such coverage.
779.4. (a) The amount of credit life insurance and credit
disability insurance shall not exceed, but, except as provided in
subdivision (b), may be less than, the following:
(1) Credit Life Insurance. The initial amount of credit life
insurance shall at no time exceed the unpaid amount financed plus
earned interest. Where an indebtedness is repayable in substantially
equal installments, the amount of insurance shall at no time exceed
the greater of the scheduled or the actual unpaid amount financed
plus earned interest. In the case of revolving loan or revolving
charge accounts the insurance shall not at any time exceed the unpaid
amount financed plus earned interest.
Notwithstanding the provisions of the above paragraph, the amount
of insurance on agricultural or horticultural loan commitments may be
equal to the amount of the loan commitment.
(2) Credit Disability Insurance. The total amount of periodic
indemnity payable by credit disability insurance in the event of
disability, as defined in the policy, shall not exceed the aggregate
of the periodic scheduled unpaid installments of indebtedness, and
the amount of each periodic indemnity shall not exceed the original
indebtedness divided by the number of periodic installments.
(b) The amount of credit life and credit disability insurance may
be less than the amounts specified in subdivision (a) except as
provided by subdivision (a) of Section 18291, subdivision (e) of
Section 22458.1, or subdivision (e) of Section 24458.1 of the
Financial Code, or by any other provision of law specifically
prohibiting credit life or credit disability insurance in some lesser
amount.
779.5. The term of any credit life insurance or credit disability
insurance shall, subject to acceptance by the insurer, commence on
the date when the debtor becomes obligated to the creditor or the
date the debtor applies for such insurance, whichever is later,
except that, where a group policy provides coverage with respect to
existing obligations, the insurance on a debtor with respect to such
indebtedness shall commence on the effective date of the policy.
Where evidence of insurability is required and such evidence is
furnished more than thirty (30) days after the date when the debtor
becomes obligated to the creditor, the term of the insurance may
commence on the date on which the insurance company determines the
evidence to be satisfactory, and in such event there shall be an
appropriate refund or adjustment of any charge to the debtor for
insurance. The term of such insurance shall not extend more than 15
days beyond the scheduled maturity date of the indebtedness except
when extended without additional cost to the debtor. If the
indebtedness is discharged due to renewal or refinancing prior to the
scheduled maturity date, the insurance in force shall be terminated
before any new insurance may be issued in connection with the renewed
or refinanced indebtedness. In all cases of termination prior to
scheduled maturity, a refund shall be paid or credited as provided in
Section 779.14.
779.6. Notwithstanding the provisions of Section 10203.5, all
credit life insurance and credit disability insurance subject to this
article shall be evidenced by an individual policy, or in the case
of group insurance by a certificate of insurance, which individual
policy or group certificate of insurance shall be delivered to the
debtor.
Each individual policy or group certificate of credit life
insurance or of credit disability insurance or any combination
thereof shall, in addition to other requirements of law, set forth
the name and home office address of the insurer, the identity by name
or otherwise of the person or persons insured the premium or amount
of payment, if any, by the debtor separately for credit life
insurance and credit disability insurance, a description of the
coverage including the amount and term thereof, and any exceptions,
limitations or restrictions, and shall state that the benefits shall
be paid to the creditor holding the indebtedness to reduce or
extinguish the unpaid indebtedness and, wherever the amount of
insurance may exceed the unpaid indebtedness, that any such excess
shall be payable to a beneficiary, other than the creditor, named by
the debtor or to his estate. Said individual policy or group
certificate of insurance shall be delivered to the insured debtor at
the time the insurance commences except as hereinafter provided.
Notwithstanding the provisions of the above paragraph, a
certificate issued under a group policy in cases where the debtor
obligates himself to pay the insurance premium or payment
periodically with the debt payments on the decreasing amount of the
insurance or where the indebtedness is a revolving loan or revolving
charge account the rate of insurance premium or payment per unit of
coverage may be set forth in lieu of "the premium or amount of
payment, if any, by the debtor".
779.7. If a creditor requires a debtor to make any payment for
credit life insurance or credit disability insurance, and an
individual policy or group certificate of insurance is not delivered
to the debtor at the time the insurance commences, a copy of the
application for such policy or a notice of proposed insurance, signed
by the debtor and setting forth the name and home office address of
the insurer, the name or names of the debtor, the premium or amount
of payment by the debtor separately for credit life insurance and
credit disability insurance, the amount, term and a brief description
of the coverage provided, shall be delivered to the debtor at the
time such indebtedness is incurred, or at the time the debtor applies
for such insurance, whichever is later. The copy of the application
for, or notice of proposed insurance shall refer exclusively to
insurance coverage, and shall be separate and apart from the loan,
sale or other credit statement of account, instrument or agreement,
unless the information required by this subsection is prominently set
forth therein. Upon acceptance of the insurance by the insurer and
within thirty (30) days of the date upon which (1) the indebtedness
is incurred, (2) the application for such insurance is received by
the insurer, or (3) the insurer determines the evidence of
insurability, if required, to be satisfactory, the insurer shall
cause the individual policy or group certificate of insurance to be
delivered to the debtor. Said application or notice of proposed
insurance shall state that upon acceptance by the insurer, the
insurance shall become effective either as of the date the
indebtedness is incurred or the date of application for such
insurance, whichever is applicable; provided that where evidence of
insurability is required and such evidence is furnished more than
thirty (30) days after either the date when the debtor becomes
obligated to the creditor or the date the debtor applies for such
insurance, which ever is applicable, the term of the insurance shall
commence on the date on which the insurance company determines the
evidence to be satisfactory, and in such event there shall be an
appropriate refund or adjustment of any charge to the debtor for
insurance. A debtor shall not be deemed to be required to make any
payment for credit life insurance or credit disability insurance
unless the cost of the credit transaction to the debtor varies
depending upon whether or not such insurance is procured.
779.8. All policies, certificates of insurance, notices of proposed
insurance, applications for insurance, endorsements and riders
delivered or issued for delivery in this state and the schedules of
premium rates pertaining thereto shall be filed with the
commissioner.
779.9. The commissioner shall within 30 days after the filing of
any such policies, certificates of insurance, notices of proposed
insurance, applications for insurance, endorsements and riders,
disapprove any such form if the benefits provided therein are not
reasonable in relation to the premium charge, or if it contains
provisions which are unjust, unfair, inequitable, misleading,
deceptive or encourage misrepresentation of the coverage, or are
contrary to any provision of the Insurance Code or of any rule or
regulation promulgated thereunder.
779.10. The provisions of Sections 10290 and 10291 relating to the
filing, approval and disapproval of disability policy forms shall be
applicable to forms, whether of life or disability insurance,
required by this article to be filed with or approved by the
commissioner.
779.11. The provisions of subdivisions (f) and (g) of Section
10291.5 shall be applicable to the withdrawal of the approval of
forms, whether of life or disability insurance, required by this
article to be filed with or approved by the commissioner.
779.12. Any order or final determination of the commissioner under
the provisions of Sections 779.8 to 779.11, both inclusive, shall be
subject to judicial review.
779.12a. If a group policy of credit life insurance or credit
disability insurance (1) has been delivered in this State before
September 18, 1959, or (2) has been or is delivered in another state
before or after such date, the insurer shall be required to file only
the group certificate and notice of proposed insurance delivered or
issued for delivery in this State as specified in Sections 779.6 and
779.7 of this article, and such forms shall be approved by the
commissioner if, (a) they conform with the requirements specified in
said Sections 779.6 and 779.7; (b) they are accompanied by a
certification in a form satisfactory to the commissioner that the
substance of such forms are in substantial conformity with the master
policy; and (c) the schedules of premium rates applicable to the
insurance evidenced by any such certificate or notice are not in
excess of the insurer's schedules of premium rates filed with the
commissioner; provided, however, the premium rate in effect on
existing group policies may be continued until the first policy
anniversary date following October 1, 1963.
779.13. Any insurer may revise its schedules of premium rates from
time to time, and shall file such revised schedules with the
commissioner. No insurer shall issue any credit life insurance policy
or credit disability insurance policy for which the premium rate
exceeds that determined by the schedules of such insurer as then on
file with the commissioner.
779.14. (a) Each individual policy, group certificate, or notice of
proposed insurance shall provide that in the event of termination of
the insurance prior to the scheduled maturity date of the
indebtedness, any refund of an amount paid by the debtor for
insurance shall be paid promptly to the person entitled thereto or
credited to the next payment or payments due on the indebtedness.
However, the commissioner shall prescribe a minimum refund and no
refund that would be less than that minimum need be made. The formula
to be used in computing that refund shall be filed with and approved
by the commissioner.
(b) An individual policy or group certificate of credit life
insurance or of credit disability insurance or a combination thereof,
or a notice of proposed insurance, shall allow an insured to rescind
the insurance within 30 days of receipt of the policy or certificate
or notice of proposed insurance issued pursuant to Section 779.7 and
to receive a full refund, or credit if financed, of any premium that
has been paid. The right to rescind shall be disclosed on the face
of the individual policy, group certificate, or notice of proposed
insurance in at least 14-point type and shall include the disclosure
of the department's toll-free telephone number and other disclosures
set forth in Section 510.
(c) No statement, disclosure, or notice made in accordance with
Section 779.14 or 779.35 shall be construed to cause the policy
forms, certificates of insurance, or notices of proposed insurance,
by themselves, to be considered as nonstandard forms as described in
Article 6.9 (commencing with Section 2249) of Subchapter 2 of Chapter
5 of Title 10 of the California Code of Regulations.
(d) This section applies to all policies issued or delivered in
this state on or after January 1, 1999. All policies subject to this
section that are in effect on January 1, 1999, shall be construed to
be in compliance with this section, and any provision in any policy
which is in conflict with this section shall be of no force or
effect.
779.15. If a creditor requires a debtor to make any payment for
credit life insurance or credit disability insurance and an
individual policy or group certificate of insurance is not issued,
the creditor shall immediately give written notice to such debtor and
shall promptly make an appropriate credit to the next payments due
on the account.
779.16. The amount charged to a debtor for any credit life or
credit disability insurance shall not exceed the premium rates filed
with the commissioner for the coverage provided or the premiums
charged by the insurer, as computed at the time the charge to the
debtor is determined, whichever is less.
779.17. Nothing in this act shall be construed to authorize any
charge now prohibited under any statute or rule governing credit
transactions, irrespective of whether the same is contained in this
code or made pursuant thereto.
779.18. All policies of credit life insurance and credit disability
insurance shall be delivered or issued for delivery in this State
only by an admitted insurer, and shall be issued only through holders
of certificates, licenses or authorizations issued by the
commissioner. This article is hereby specifically made applicable to
reciprocal or interinsurance exchanges and fraternal benefit
societies.
779.19. All claims shall be promptly reported to the insurer or its
designated claim representative, and the insurer shall maintain
adequate claim files. All claims shall be settled as soon as possible
and in accordance with the terms of the insurance contract.
All claims shall be paid either by draft drawn upon the insurer,
by check of the insurer, or, with consent of the insured, by an
electronic funds transfer to the order of the claimant to whom
payment of the claim is due pursuant to the policy provisions, or
upon direction of such claimant to one specified.
No plan or arrangement shall be used whereby any person, firm or
corporation other than the insurer or its designated claim
representative shall be authorized to settle or adjust claims. The
creditor shall not be designated as claim representative for the
insurer in adjusting claims; provided, that a group policyholder may,
by arrangement with the group insurer, draw drafts or checks in
payment of claims due to the group policyholder subject to audit and
review by the insurer.
779.20. When credit life insurance or credit disability insurance
is required as additional security for any indebtedness, the debtor
shall, upon request to the creditor, have the option of furnishing
the required amount of insurance through existing policies of
insurance owned or controlled by him or of procuring and furnishing
the required coverage through any insurer authorized to transact an
insurance business within this State. This section shall not prevent
the creditor from exercising his right to approve or disapprove of
the insurer furnishing the credit insurance.
779.21. The commissioner may adopt, pursuant to Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code, reasonable rules and regulations necessary to
carry out this article.
779.22. The commissioner, in his discretion, may revoke or suspend
the license or certificate of authority of any person guilty of a
violation of any provisions of this article or any rules and
regulations adopted pursuant thereto. In addition to any other
penalty provided by law, any person who violates an order of the
commissioner after it has become final, and while such order is in
effect, shall, upon proof thereof to the satisfaction of the court,
forfeit and pay to the State of California a sum not to exceed two
hundred fifty dollars ($250) which may be recovered in a civil
action, except that if such violation is found to be willful, the
amount of such penalty shall be a sum not to exceed one thousand
dollars ($1,000).
779.23. Whenever the commissioner finds that there has been a
violation by an insurer of this article or any rules or regulations
issued pursuant thereto, he shall proceed as provided in Section 701.
Whenever the commissioner finds that there has been such a violation
by any licensee other than an insurer, he shall proceed as provided
in Chapter 5 of Part 1 of Division 3 of Title 2 of the Government
Code.
779.24. Any party affected by an order of the commissioner shall be
entitled to judicial review in accordance with the provisions of
Section 12940.
779.25. If any provision of this article, or the application of
such provision to any person or circumstances, shall be held invalid,
the remainder of the article, and the application of such provision
to any person or circumstances other than those as to which it is
held invalid, shall not be affected thereby.
779.26. Credit life insurance and credit disability insurance
within the scope of this article, where the form of policy including
the premium rates pertaining thereto have been filed with the
commissioner and not disapproved by him or the premiums charged have
been in accordance with those provided by any law of this state or
regulation of the commissioner promulgated thereunder, are not
subject to the provisions of Section 10214 or Section 10270.65 of the
Insurance Code.
779.27. In accordance with this article and the regulations adopted
pursuant to Section 779.21, the commissioner shall, after notice and
public hearing, promulgate regulations setting forth standard forms
of credit life and disability insurance policies, certificates of
insurance, notices of proposed insurance, applications for insurance,
endorsements, and riders. The use of such forms shall be mandatory,
except that commissioner may approve the use of nonstandard forms
which are in accord with this article and the regulations adopted
pursuant to Section 779.21.
779.28. For purposes of establishing the fact of disability in
credit disability insurance, chiropractors' certifications of
disability when made within the scope of their license shall be
accepted by insurers as equally valid as physicians and surgeons'
certifications of disability when made within the scope of their
license.
779.30. (a) An individual policy or group certificate may exclude
from credit disability insurance coverage only those preexisting
illnesses, diseases, or physical conditions for which the debtor
actually received medical advice, consultation, or treatment both
within six months before and six months after the effective date of
the debtor's coverage and which result in disability commencing
within two years of the effective date. This provision shall not
preclude the exclusion of other preexisting diseases or physical
conditions by name or specific description.
(b) An individual policy or group certificate may exclude from
credit life insurance coverage only those preexisting illnesses,
diseases, or physical conditions for which the debtor actually
received medical advice, consultation, or treatment both within six
months before and six months after the effective date of the debtor's
coverage and that result in death within six months after the
effective date.
(c) Preexisting condition provisions on revolving accounts for
credit disability insurance shall be subject to the limitations of
subdivision (a), and for credit life insurance shall be subject to
the limitations of subdivision (b).
(d) In the case of revolving accounts, any preexisting condition
provision may be applied separately to each charge or advance, in
which case the time periods in the applicable subdivision shall be
measured from the date of each separate charge or advance.
If any preexisting condition provision is applied to a subsequent
charge or advance on a revolving account the consumer shall be given
the following notice at least annually:
"NOTICE: THIS INSURANCE MAY NOT COVER AN ADVANCE OR CHARGE UNDER
YOUR CREDIT LINE IF YOUR DISABILITY OR DEATH RESULTS FROM A CONDITION
FOR WHICH YOU HAVE SEEN A DOCTOR OR CHIROPRACTOR IN THE SIX MONTHS
BEFORE THE ADVANCE OR CHARGE."
(e) The notice required by subdivision (d) may be printed on a
periodic billing statement or given separately.
(f) Subdivision (d) does not apply to a credit card as defined in
Section 1747.02 of the Civil Code.
779.31. The debtor shall have the right to terminate credit life
insurance or credit disability insurance at any time for any reason
upon notice to the creditor. A refund shall be paid or credited as
provided in Section 779.14 or by the regulation of the commissioner.
If the premium refund is paid to the creditor, the creditor shall
credit the debtor's account with the refund and any interest or
finance charge adjustment as provided in the credit agreement.
779.32. (a) The term "compensation," for the purpose of this
article means any valuable consideration including, but not limited
to, all paid or credited commissions, contingent commissions, service
fees, fees, consulting fees paid or credited within or outside this
state in relation to business produced or to be produced or written
or to be written in this state, electronic data process equipment or
services, supplies (other than forms approved by the commissioner and
the usual claims and reporting forms and envelopes for transmitting
the claims and brochures, rate books, and rate charts), rental
equipment of any type, advertising, telephone provided by an insurer,
its agent, or any related person without charge of actual charge or
at a charge less than the usual cost, profit sharing plans,
experience rating refunds, experience rating credits, dividends,
expense allowances, stock plans or bonuses, and any other form of
credit, including moneys assumed, or expenditures in any form
whatsoever, direct or indirect, paid by or on behalf of the insurer,
or by any subsidiary or parent, or subsidiary of the parent of the
insurer, or by any other person to or on behalf of any group
policyholder, agent, general agent, or disability broker or withheld
by any group policyholder, agent, general agent, or disability
broker.
(b) The maximum amount of total compensation, as defined in
subdivision (a), payable by any insurer shall not exceed 35 percent
of the prima facie credit life insurance rates and 30 percent of the
prima facie disability insurance rates. Of the maximum total
compensation allowable, the creditor shall be limited to a
compensation rate of 27.5 percent of the prima facie credit life
insurance rates and 23.75 percent of the prima facie credit
disability insurance rates. The general agent's maximum total
compensation allowable shall be limited to 7.5 percent of the prima
facie credit life insurance rates and 6.25 percent of the prima facie
credit disability insurance rates. A creditor may not receive both
the creditor's and the general agent's compensation on its own
produced insurance. A general agent may also receive additional
primary compensation deducted from the maximum primary compensation
allowable to the creditor.
If the commissioner has reason to believe that compensation is in
fact or is contracted to be in excess of the maximum amount specified
in this section, the commissioner may conduct a hearing or
investigation, including the right to examine any contracts relating
to the direct or indirect payment of compensation, to determine
whether the insurer, general agent, or any other person is paying or
whether an agent, general agent, or broker is receiving any form of
compensation in excess of the applicable maximum amount of
compensation specified in this section.
(c) On and after January 1, 1988, no contract of credit life or
credit disability insurance shall be issued in this state unless, if
applicable, the maker first ascertains, using reasonable diligence,
that any nonadmitted reinsurer possesses capital and surplus of at
least one million dollars ($1,000,000).
(d) Nothing in this article shall be construed to authorize the
payment of any form of compensation to any creditor or to any person
otherwise prohibited from receiving that form of compensation. Nor
shall this article be construed to authorize the payment of
experience rating refunds prior to the anniversary date of the
policy. Those refunds shall be computed annually based on premiums
earned to that anniversary date.
779.33. The use of compensating balances or special deposit
accounts in connection, either directly or indirectly, with a credit
life insurance program or a credit disability insurance program of a
credit institution, whether on a group or an individual basis, is
prohibited.
Compensating balances or special deposit accounts include, but not
to the exclusion of other types of balances and accounts, the
following:
(1) The deposit of premiums to the account of the insurer in the
financial institution for which the insurer provides the credit
insurance program, when the account is either noninterest bearing or
at a rate of interest less than usual or is controlled by the
institution.
(2) Remitting premiums to the insurer after the expiration of the
grace period on a regular basis so that the arrearage period is
constant.
(3) The retention of premiums by an agent or broker to whom the
financial institution remits premiums for a period of time which is
not reasonably related to the time normally expected to be needed for
the agent or broker to remit the premium to the insurer, if that
delay is a continuing feature of the premium paying process.
(4) Any other practice which unduly delays receipt of premiums by
the insurer on a regular basis, or which is followed by an insurer
when the practice involves use of the financial resources of the
insurer for the benefit of the credit institution.
The foregoing criteria apply regardless of whether premiums are
due the insurer on the single premium in advance system or on the
monthly outstanding balance system. Nothing herein shall prevent the
insurer from making deposits in a financial institution which are not
related to a credit insurance program if it is in fact not related
to whether the insurer is the insurer which insures the credit
insurance program.
779.36. (a) The commissioner shall adopt regulations that become
effective no later than January 1, 2001, specifying prima facie rates
based upon presumptive loss ratios, with rates which would be
expected to result in a target loss ratio of 60 percent, or any other
loss ratio as may be dictated after applying the factors contained
in this subdivision, for each class of credit disability, credit
unemployment, credit property, and credit life insurance. The prima
facie rates shall be based upon loss experience filed with the
commissioner, aggregated by class.
If any rate established under the commissioner's ratemaking
authority produces actual loss ratios that are lower than the
presumptive loss ratio, prospective rates may be adjusted, but no
retroactive refunds shall be required. In order to provide insurers
an opportunity to earn a fair and reasonable rate of return, the
commissioner in the ratemaking process shall consider the following
factors: acquisition costs, including commissions and other forms of
compensation, expenses, profits, loss ratios, reserves, and other
reasonable actuarial considerations.
(b) The commissioner shall provide for rate deviations. Upward and
downward deviations shall be considered by the commissioner upon
initiation by the department, or at the insurer's request at the time
of review of annual experience reports filed by insurers, or as
provided by regulations pursuant to Section 779.21. Requested
deviation rates shall be deemed approved if not disapproved within
120 days after submission to the department for approval. Creditor
and agent compensation shall be based upon the prima facie rate, and
shall not be affected by a deviated rate pursuant to this
subdivision. This subdivision does not prohibit an insurer from
paying compensation that is less than the prima facie rate.
(c) The commissioner shall adopt regulations that become effective
no later than January 1, 2001, specifying prima facie rates based
upon presumptive loss ratios, with rates which would be expected to
result in a target loss ratio of 60 percent, or any other loss ratio
as may be dictated after applying the factors contained in this
subdivision, for each class of joint life insurance, joint disability
insurance, joint credit unemployment insurance, and joint credit
property insurance. Those rates shall be expressed as a multiple of
the prima facie rate for each class of insurance subject to
subdivision (a), and shall be based upon loss experience filed with
the commissioner, aggregated by class.
If any rate established under the commissioner's ratemaking
authority produces actual loss ratios that are lower than the
presumptive loss ratio, prospective rates may be adjusted, but no
retroactive refunds shall be required. In order to provide insurers
an opportunity to earn a fair and reasonable rate of return, the
commissioner in the ratemaking process shall consider the following
factors: acquisition costs, including commissions and other forms of
compensation, expenses, profits, loss ratios, reserves, and other
reasonable actuarial considerations.
(d) Loss ratios shall consist of the ratio of incurred losses to
earned premiums in a specified reporting period.
(e) The commissioner shall, on an annual basis, make actual annual
loss ratios under subdivisions (a) and (c) available to the public.
