California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 1.6 - Advisory Organizations, Manuals Approval
Article 1 - Submission and Approval Procedures, Fees
Section 2199.2.3 - Findings

(a) According to custom and usage in the insurance industry, a manual is a publication distributed by an insurer to its agents and policy issuance personnel for purposes of instructing them on how to assemble an insurance policy. Typically, such manuals include one or more types of material such as policy writing rules, rating plans, classification codes, and descriptions, territory codes and descriptions, rules that include factors and relativities, prospective cost information or rates.

(b) Advisory organization manuals made available to insurers in many other states include prospective loss costs.

(c) Insurance Code section 1855.5 authorizes advisory organizations to prepare, develop and file manuals, but prohibits advisory organizations from issuing any manual that contains final rates.

(d) Insurance Code section 1855.5 requires that the Commissioner approve only those advisory organization manuals that are found by the Commissioner to contemplate activities and practices that are not unfair, unreasonable or otherwise inconsistent with the provisions of the Insurance Code.

(e) Under Insurance Code section 1855.5 as well as California case law, the Commissioner has the authority to determine and regulate the competitive effect of the advisory organization manuals within the context of insurance practices that may be unfair, unreasonable or otherwise in violation of the insurance code.

(f) Where there is a large number of insurers, an unconcentrated market structure, shifting market shares, or a real potential for the entry and exit of insurers, the property/casualty insurance markets in the United States and California for any line of insurance is likely to be competitively structured and competitive.

(g) In other states, evidence of price differentials in the form of filed statewide rate levels of insurers that use advisory organization manuals in competitively structured insurance markets indicates that the availability of advisory organization manuals has not, to date, adversely affected competition.

(h) The law in other states, including the law regarding the applicability of antitrust law to the business of insurance, may or may not be the same as it is in California.

(i) The availability of advisory organization manuals usually provides economies of scale in the production of actuarial information and encourages the potential participation by small insurers as well as entry by insurers without prior experience or expertise in insurance markets. Because these economies of scale and potential participation promote competitive insurance markets, they should be encouraged, unless on balance they are found to have an anti-competitive effect.