Current through August, 2024
Section 1 Purpose
and Authority
The purpose of this regulation is to protect the interests of
debtors and the public in this state by providing a system of rate, policy
form, and operating standards for the transaction of credit life and credit
accident and health insurance. This rule interprets and implements Title 8,
Vermont Statutes Annotated, including but not limited to Sections 3801 through
3825 (as applicable) and Sections 4101 through 4115, and is issued pursuant to
powers granted the Commissioner by 8 V.S.A., Sections 75,
4108(b)
and
4113.
Section 2 Definitions
As used in this regulation:
(1) Credit accident and health insurance
means insurance as defined in Section
4103 of Title 8,
Vermont Statutes Annotated.
(2)
Credit Insurance means both credit life insurance and credit accident and
health insurance.
(3) Non
contributory credit insurance means both credit life and credit accident and
health insurance where the debtor does not directly pay for the
insurance.
(4) Credit life
insurance means insurance as defined in Sections
4103 and
3805 of Title 8,
Vermont Statutes Annotated.
(5) Net
written premium means gross written premium minus refunds on termination as
defined in Section 8 herein.
(6)
Indebtedness means the total amount payable by a debtor to a creditor in
connection with a loan or other transaction.
(7) Total amount payable means the total
outstanding amount owed by the debtor at the time of the death insured against,
excluding any unearned interest or finance charges.
Section 3 Rights and Treatment of Debtors
(1) Multiple Plans of Insurance. If a
creditor makes available to the debtors more than one plan of credit life
insurance or more than one plan of credit accident and health insurance, which
are applicable to the credit transaction, all debtors must be informed of such
plans.
(2) Substitution. When a
creditor requires credit life insurance, credit accident and health insurance
or both, as additional security for an indebtedness, the debtor shall be given
the option of furnishing the required amount of insurance through existing
policies of insurance owned or controlled by the debtor or of procuring and
furnishing the required coverage through any insurer authorized to transact
insurance business in this state, If this subsection is applicable, the debtor
shall be informed by the creditor of the right to provide alternative coverage
before the transaction is completed.
(3) Evidence of Coverage.
(a) All credit insurance shall be evidenced
by an individual policy, or, in the case of group insurance, by a certificate
of insurance. The individual policy or certificate of insurance shall be
delivered to the debtor in accord with Section
4107
of Title 8, Vermont Statutes Annotated.
(b) Each individual policy or certificate of
insurance shall set forth such information as is required by Section 4107 of
the Credit Insurance Law and any other appropriate sections of the Vermont
Statutes.
(4) Claims
Processing. All credit insurance claims shall be processed in accord with
Chapters 109 and 129 of Title 8, Vermont Statutes Annotated and with Regulation
No. 79-2 as amended.
(5)
Termination of group credit insurance policy.
(a) If a debtor is covered by a group credit
insurance policy providing for the payment of single premiums to the insurer,
then provision shall be made by the insurer that in the event of termination of
the policy for any reason, insurance coverage with respect to any debtor
insured under such policy shall be continued for the entire period for which
the single premium has been paid unless the indebtedness is
discharged.
(b) If a debtor is
covered by a group credit insurance policy providing for the payment of
premiums to the insurer on a monthly outstanding balance basis, then the policy
shall provide that, in the event of termination of such policy for whatever
reason, termination notice thereof shall be given to the insured debtor by the
insurer of by the creditor at least thirty (30) days prior to the effective
date of termination except where replacement of the coverage by the same or
another insurer in the same or greater amount takes place without lapse of
coverage. The notice required in this paragraph shall be given by the insurer
or, at the option of the insurer by the creditor.
(6) Renewal or Refinancing of Indebtedness.
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 such termination prior to scheduled maturity, a
refund shall be paid or credited to the debtor as provided in Section 8. In any
renewal or refinancing of the indebtedness, the effective date of the coverage
as respects any policy provision shall be deemed to be the first date on which
the debtor became insured under the policy covering the indebtedness which was
renewed or refinanced, at least to the extent of the amount and term of the
indebtedness outstanding at the time of renewal and refinancing of the
debt.
(7) Maximum Aggregate
Provisions. A provision in a policy or certificate that sets a maximum limit on
total payments must apply only to that policy or certificate. The maximum limit
on the life of one debtor covered under a group credit life insurance policy
shall be $ 40,000. n1
n1 Changed from $ 25,000 per Act No. 249 of 1990 (House Bill
253).
(8) Voluntary
Prepayment of Indebtedness. If a debtor prepays the indebtedness other than as
a result of death or through a lump sum disability payment:
(a) Any credit life insurance covering such
indebtedness shall be terminated and an appropriate refund of the credit life
insurance premium shall be paid to the debtor in accordance with Section 8; or
paid to the creditor to be credited the debtors account; and
(b) Any credit accident and health insurance
covering such indebtedness shall be terminated and an appropriate refund of the
credit accident and health insurance premium shall be paid to the debtor in
accordance with Section 8, or paid to the creditor to be credited to the
debtors account. If a claim under such coverage is in progress at the time of
prepayment, the amount of refund may be determined as if the prepayment did not
occur until the payment of benefits terminates. No refund need be paid during
any period of disability for which credit accident and health benefits are
payable. A refund shall be computed as if prepayment occurred at the end of the
disability period.
(9)
Involuntary Prepayment of Indebtedness. If an indebtedness is prepaid by the
proceeds of a credit life insurance policy covering the debtor or by a lump sum
payment of a disability claim under a credit insurance policy covering the
debtor, then it shall be the responsibility of the insurer to see that the
following are paid to the insured debtor if living or the beneficiary, other
than the creditor, named by the debtor or to the debtor's estate:
(a) In the case of prepayment by the proceeds
of a credit life insurance policy, or by the proceeds of a lump sum total and
permanent disability benefit under credit life coverage, an appropriate refund
of the credit accident and health insurance premium in accordance with Section
8;
(b) In the case of prepayment by
a lump sum disability claim, an appropriate refund of the credit life insurance
premium in accordance with Section 8.
(c) In either case, the amount of the
benefits in excess of the amount required to repay the indebtedness after
crediting any unearned interest, finance or insurance charges.
(10) Amounts to be Insured:
(a) Credit life insurance may provide
benefits for which premiums are computed not exceeding.
(i) the total amount payable, as defined in
Section
2(6),
plus two monthly payments.
(ii) If
the type of loan instrument or business practice of a lender renders the amount
of credit life insurance not appropriate for a class of loans or a lender,
then, the insurer may file with the Commissioner an alternate plan providing
the appropriate level of credit life insurance benefits in accord with the
requirements of Title 8, Section 4108. The insurer shall demonstrate that the
provision of the policy and certificate are fair, just and equitable.
(b) Credit accident and health
insurance may provide benefits not exceeding the amount permitted by
8 V.S.A., Section
4105(b).
(11) Ineligible Debtors:
(a) An insurer shall not restrict a debtor's
eligibility for credit insurance or cancel coverage because of age, employment
status or health condition unless an application containing specific questions
relating to those restrictions is filled out and signed by the
debtor.
(b) If a debtor, who is
eligible for coverage under Group Credit Life Insurance for a closed end loan
has correctly stated his or her age, employment status or health condition on
an application, the insurer may make adjustments to premiums or benefits or
both or may cancel the insurance. Notice of such adjustments or cancellation
must be mailed by the insurer to the creditor and the debtor at his last known
address within seventy-five (75) days of the effective date of coverage. The
insurer may comply with the provisions of this Section by requiring the
creditor to provide or mail the notices to the debtor. Any adjustments of
premiums or benefits shall be effective from the effective date of
coverage.
(c) Notwithstanding
subsection (11)(b) of this Section, an insurer shall not cancel coverage or
deny a claim under a policy of group credit life insurance solely because of
the non-fraudulent misstatement of age by a debtor. The group life insurance
policy may contain a provision specifying an equitable adjustment of premiums
or benefits or both to be made in the event the age has been misstated, such
provision to contain a clear statement of the method of adjustment to be
used.
(d) Any methods to adjust
premiums or benefits must be filed with the Commissioner in accordance with
8 V.S.A., Section
4108.
(e) The Commissioner may waive any of the
provisions of this Section as they apply to insurers selling non-contributory
credit insurance, if the insurer can demonstrate that it is not necessary for
the protection of the public.
Section 4 Policy Forms and Related Material
(1) Permissible Forms. Credit life and credit
accident and health insurance shall be issued only in the forms described in
Sections
4104,
4107,
and
4108
of Title 8, Vermont Statutes Annotated.
(2) Filing Requirements. All policy forms,
certificates of insurance, notices of proposed insurance, applications for
insurance, endorsements and riders to be delivered or issued for delivery in
this state and the schedules of premium rates pertaining thereto shall be filed
with the Commissioner as required by Section
4108
of Title 8, Vermont Statutes Annotated.
Section 5 Determination of Reasonableness of
Benefits in Relation to Premium Charge
(1)
General Standard. Under Title 8, Vermont Statutes Annotated, benefits provided
by credit insurance policies must be reasonable in relation to the premium
charged. This requirement is satisfied if the premium rate charged develops or
may be reasonably expected to develop a loss ratio of not less than 60% for
credit life insurance and not less than 70% for credit accident and health
insurance.
(2) Nonstandard
Coverage. If any insurer files for approval of any form providing coverage more
restrictive than that described in Sections
6 and 7,
the insurer shall demonstrate to the satisfaction of the Commissioner that the
premium rates to be charged for such restricted coverage will develop or may be
reasonably expected to develop a loss ratio not less than that contemplated for
standard coverage at the premium rates described in these sections.
(3) Coverage Without Separate Charge. If no
specific charge is made to the debtor for credit insurance the standards of
Section
5 are not
required to be used but any premium rates resulting from such standards as are
used which exceed the premium rate standards set out in Sections
6 and 7
must be filed with the Commissioner. For purposes of this Subsection, it will
be considered that the debtor is charged a specific amount for insurance if an
identifiable charge for insurance is disclosed in the credit or other
instrument furnished the debtor which sets out the financial elements of the
credit transactions, or if there is a differential in finance, interest,
service or other similar charge made to debtors who are in like circumstances,
except for their insured or noninsured status.
Section 6 Credit Life Insurance Rates
(1) Premium Rate. Credit life insurance
premium rates for the insured portion of an indebtedness repayable in equal
monthly installments.
(a) $ 0.55 per month
per $ 1,000 of outstanding insured indebtedness if premiums are payable on a
monthly outstanding balance basis.
(b) If premiums are payable on a single
premium basis, the following formula or such other formula approved by the
Commissioner that produces substantially equivalent premiums shall be used to
develop single premium rates from the outstanding balance rate:
[See graphic or tabular material in printed version]
SP = Single Premium per $ 100 of initial credit life
insurance coverage.
MP = $ .055, the prima facie maximum credit life insurance
premium rate for monthly outstanding balance coverage, or a different amount
calculated in accordance with Section 10.
It = The amount of insurance for month t including up to two
months for t delinquencies.
Ii = Initial amount of insurance.
dis = .0054, representing annual rate of discount for
interest and mortality of 6.48%.
n = The number of months in the term of the
debt.
(c) Joint coverage on
either of the basis in (a), or (b), of Subsection
1,
shall be one hundred and fifty percent of the specific rate for that type of
coverage.
(d) If the benefits
provided are other than those described in Subsection (1) above, rates for such
benefits shall be actuarially consistent with the rates provided in Paragraphs
(a), (b) and (c).
(2) The
premium rates in Subsection (1) shall apply to policies providing credit life
insurance to be issued with or without evidence of insurability, to be offered
to all debtors, and containing:
(a) No
exclusions other than suicide within six months of the incurred indebtedness;
and
(b) Either no age restrictions
or age restrictions making ineligible for coverage debtors 65 or over at the
time the indebtedness is incurred or debtors having attained age 66 or over on
the maturity date of the indebtedness. Ages 70 and 71 may be substituted for
ages 65 and 66; in which case the prima facie premium rates in this section may
be increased by 5%. Rates may be increased by 10% if there is no age
limit.
(c) A revolving credit
insurance policy may exclude from the classes eligible for insurance, classes
of debtors determined by age, and provide for the cessation of insurance or
reduction in the amount of insurance upon attainment of not less than age
65.
(d) No actively-at-work
condition requiring that the debtor be employed more than thirty (30) hours per
week.
(e) The policy and
certificate shall have prominently printed a notice of the effect that the
insured debtor has at least ten (10) days after his or her receipt of said
policy or certificate to write to the insurance company, in the case of a
policy, or to the creditor, in the case of a certificate, and request
cancellation of the policy or certificate and a full refund of premiums or
insurance charges paid.
Section 7 Credit Accident and Health
Insurance
(1) Premium Rate. Credit accident
and health insurance premium rates for the insured portion of an indebtedness
repayable in equal monthly installments, where the insured portion of the
indebtedness decreases uniformly by the amount of the monthly installment paid,
shall be as set forth in Paragraphs (a) and (b). Paragraphs (c), (d), and (e),
refer to premium rates for other types of benefits either alone or in
combination with the type of benefits applicable to (a) and (b).
(a) As set forth in Appendix I if premiums
are payable on a single- premium basis for the duration of the coverage;
or
(b) If premiums are paid on the
basis of a premium rate per month per thousand of outstanding insured
indebtedness, these premiums shall be computed according to the following
formula or according to a formula approved by the Commissioner which produces
rates actuarially equivalent to the single premium rates in Appendix I:
Opn = 20 x (1 + .0019n) x SPn / n + 1
Where SPn = Single Premium Rate per $ 100 of initial insured
indebtedness repayable in n equal monthly installments (Appendix I).
OPn = Monthly Outstanding Balance Premium Rate per $ 1,000. n
= Original repayment period, in months.
(c) The actuarial equivalent of Paragraphs
(a) and (b) shall be used if the coverage provided is a constant maximum
indemnity for a given period of time.
(d) If the benefits provided are other than
those described in Subsection (1) above, rates for such benefits shall be
actuarially consistent with rates provided on Paragraphs (a), (b) and
(c).
(e) The outstanding balance
rate for credit accident and health insurance, may be either a term specified
rate or may be a single composite term outstanding balance rate applicable to
all loans made under an open-end credit plan.
(2) The premium rates in Subsection (1) shall
apply to policies providing credit accident and health insurance to be issued
with or without evidence of insurability, to be offered to all eligible
debtors, and containing:
(a) No provision
excluding or denying a claim for disability resulting from pre-existing
conditions except for those conditions for which the insured debtor received
medical advice, diagnosis, or treatment within six months preceding the
effective date of the debtor's coverage and which caused loss within the six
months following the effective date of coverage.
(b) No other provision which excludes or
restricts liability in the event of disability caused in a specific manner
except that it may contain provisions excluding or restricting coverage in the
event of normal pregnancy and intentionally self-inflicted injuries.
(c) No Actively At Work Test may require that
the debtor be employed more than thirty (30) hours per week.
(d) No age restrictions or only age
restrictions making ineligible for coverage debtors 65 or over at the time the
indebtedness is incurred or debtors who will have attained age 66 or over on
the maturity date of the indebtedness. Ages 70 and 71 may be substituted for
ages 65 and 66, in which case the prima facie rate may be increased by 5%.
Rates may be increased 10% if there is no age limit.
(e) A daily benefit equal in amount to
one-thirtieth of the monthly benefit payable under the policy for the
indebtedness.
(f) A definition of
disability which provides that during the first 24 months of disability the
insured shall be unable to perform the duties of his occupation at the time the
disability occurred, and thereafter the duties of any occupation for which the
insured is reasonably fitted by education, training, or experience. This
paragraph shall not apply to lump sum disability coverage.
(g) A revolving credit insurance policy may
exclude from the classes eligible for insurance classes of debtors determined
by age, and provide for the cessation of insurance or reduction in the amount
of insurance upon attainment of not less than age 65.
Section 8 Refund Formulas
(1) Refund formulas which any insurer desires
to use must be filed with the Commissioner for approval prior to use. The
following methods or such other methods approved by the Commissioner that
produce substantially equivalent results shall be used:
(a) Pro Rata Method. The pro rata unearned
gross premium method shall be used for level term credit life insurance, credit
accident and health insurance wherein the insured is covered for a constant
maximum indemnity which begins to decrease in even amounts per month, and for
credit insurance coverage wherein premiums are collected from the debtor on a
basis other than the single premium basis.
(b) Rule of Anticipation. For coverages other
than those listed in paragraph (a), the refund shall not be less than the
premium that would be charged for the remaining coverage for the remaining term
of the indebtedness. An insurer may file other methods if they yield
substantial similar results.
(2) In the event of termination, no charge
for credit insurance may be made for the first 15 days of a loan month; and a
full month may be charged for 16 days or more of a loan month.
(3) The requirements of the Credit Insurance
Law that refund formulas be filed with the Commissioner shall be considered
fulfilled if the refund formulas are set forth in the individual policy or
group certificate filed with the Commissioner.
(4) No refund of $ 1 or less need be
made.
Section 9
Experience Reports
(1) Each insurer doing
credit insurance business in this state shall annually by June 1 submit the
experience reports in Appendix II.
Section 10 Use of Rates Direct Business Only
(See Glossary of terms and definitions herein.)
(1) Minimum Loss Ratio Test.
(a) Loss Ratio Test. Benefits will be
considered reasonable in relation to the premium charged if the loss ratio
equals or exceeds the Minimum Loss Ratio Standard specified in Section
5.
(b) Scope of Test When Deviated Rates are in
Use. If an insurer has deviated rates approved under (3)(a) or (3)(b), the test
will exclude the experience of the accounts for which deviated rates are in
use. The reasonableness of rates for those accounts will be determined by
subsection (3).
(c) Frequency of
Test. The test will be made each year when submitting the experience reports
required by Section 10.
(2) Use of Prima Facie Rates.
An insurer that has filed rates which are equal to or lower
than prima facie rates may retain on file and use those rates without further
proof of their reasonableness while the experience of the insurer in this state
for the accounts to which they are applied continues to satisfy the Minimum
Loss Ratio Test specified in subsection (1).
(3) Use of Deviated Rates.
(a) Use of Rates Higher Than Prima Facie
Rates.
If the Minimum Loss Ratio Test produces a loss ratio that
exceeds the Minimum Loss Ratio Standard, the insurer may file for approval and
use rates that are higher than prima facie rates if it can be expected that the
use of such higher rates will continue to produce a loss ratio for the accounts
to which they are applied that will satisfy the Minimum Loss Ratio Test.
(b) Use of Rates Lower Than Prima
Facie Rates.
If the Minimum Loss Ratio Test produces a loss ratio that is
lower than the Minimum Loss Ratio Standard, the insurer shall either file
adjusted rates that can be expected to produce a loss ratio that will satisfy
the Minimum Loss Ratio Test or submit reasons acceptable to the Commissioner
why it should not be required to do so.
(c) Determination of Deviated Rates.
If deviated rates are to be filed under (a) or (b) above, the
insurer may file rates for approval that will be:
(i) Applied uniformly to all accounts of the
insurer.
(ii) Applied on an
equitable basis approved by the Commissioner to only one or more accounts of
the insurer for which the experience has been more favorable or less favorable
than expected, or
(iii) Applied
according to a case rating procedure on file with the Commissioner (an insurer
electing to file a case rating procedure may either file its own plan for the
approval of the Commissioner or may use the Standard Case Rating Procedure
specified herein by notice to him.)
The rate for each account which has been deviated must be
redetermined on the same basis thereafter or until the rate for the account is
no longer deviated.
(4) Use of Rates Determined by Standard Case
Rating Procedure.
An insurer, by written notice to the Commissioner of its
election to do so, may file and use premium rates determined by this Standard
Case Rating Procedure. If elected, the procedure will be used by the insurer to
rate all of its credit insurance in this State. Once elected, the procedure
will remain in effect for the insurer until a different procedure has been
filed with the Commissioner and approved by him.
(a) Determination of Case Rate.
An insurer may use a rate for an account not greater than the
case rate for that account as follows:
(i) Single Account Cases and Multiple Account
Cases. If the account is within the definition of a single account case or of a
multiple account case as filed by the insurer, the case rate for the account or
for each account comprising the multiple account case will be determined by the
formula set forth in (b) below.
(ii) Pooled Account Cases.
If the account is in a pooled account case, the case rate for
each account comprising the case will be the case rate for that pooled account
case as determined by the formula set forth in (b) below.
(iii) New Accounts Without Experience.
If a new account of an insurer has no experience in this
State, the case rate for the account will be the prima facie rate under
Sections
6 and
7.
(b) Calculation
of Case Rate.
(i) Symbols and Definitions.
PFR = Prima Facie Rate
ALR = Actual Loss Ratio for case at Prima Facie Rate
Basis.
ELR = Minimum Loss Ratio Required by Section
5.
Z = Credibility Factor for Case
CLR Credibility Adjusted Case Loss Ratio at Prima Facie
Basis.
= Z (ALR) + (1 - Z) (ELR)
E = Expense Loading in prima facie rate.
= (1 - ELR)PFR
(ii) New Case Rate.
NCR = New Case Rate = PFR(CLR) + E
(c) Minimum Changes.
If the new case rate does not differ by more than 5% from the
current case rate, the new case rate will be the current case rate.
(d) Case Rate Period.
A case rate will be in effect for a period of time not longer
than the experience period used to establish the case rate (i.e. 1 year, 2
years, 3 years). An insurer may file for a new case rate before the end of a
case rate period, but not more often than once during any 12 month
period.
(e) Change of
Insurers.
If a creditor changes insurers, the case rate established
under this Regulation in effect for his account on the date of the change will
continue to be in effect for the account with the succeeding insurer for the
remainder of the case rate period or until a new case rate for his account is
established if sooner.
(5) Filing of Rates.
When submitting the Experience Reports required by Section 9,
an insurer who has elected to file higher rates under (3)(a) above or who is
required to file reduced rates under (3)(b) above, shall also file a new
schedule of rates as determined by those subsections. If the Commissioner does
not disapprove the new schedule of rates within 30 days after receipt of
filing, or July 1, whichever is later, rates not higher than the new rates
shall be placed in effect on September 1 next following unless a different
effective date has been approved by the Commissioner. In no event, however, may
a rate increase be placed in effect earlier than the date rate decreases are
required to be placed in effect.
(6) Glossary of Terms and Definitions as Used
in this Section 11.
(a) Account means the
aggregate credit life insurance or credit accident and health insurance
coverage for a single plan of insurance and for a single class of business
written through a single creditor by the insurer whether coverage is written on
a group or individual policy basis. With the approval of the Commissioner, the
account may also mean the credit life insurance or the credit accident and
health insurance of two or more classes of business of a single
creditor.
(b) Case means either a
Single Account Case or a Multiple Account Case or a Pooled Account Case as
follows:
(i) Single Account Case, means an
account that is at least as credible as the minimum level of credibility
elected by the insurer for defining a single account case excluding all of
these accounts which have been included in multiple account cases. An insurer
may make this election by notice of the Commissioner, in writing, of the
minimum credibility factor it will use to define a Single Account Case. Once
notified, the minimum credibility factor will remain in effect for the insurer
until a different factor has been filed by the insurer and approved by the
Commissioner. If an insurer makes no written election, its minimum credibility
factor will be 100%.
(ii) Multiple
Account Case means, with the approval of the Commissioner, two or more accounts
of the same insurer having similar underwriting characteristics are combined by
the insurer for premium rating purposes, excluding all cases defined in (i)
above and which, when combined, are at least as credible as the minimum level
of credibility elected in (i) above.
(iii) Pooled Account Case means a combination
of all the insurer's accounts of the same plan of insurance and class of
business which combination has experience in this State, excluding all cases
defined in (i) and (ii) above.
(c) Plan of Insurance unless otherwise filed
and approved means
(i) credit life insurance
on a flat rated basis other than revolving accounts (i.e. including joint and
single life coverage, decreasing and level insurance, outstanding balance and
single premium),
(ii) credit life
insurance on a revolving account basis,
(iii) credit life insurance on an age-graded
basis,
(iv) credit accident and
health insurance other than on revolving accounts combining outstanding balance
and single premium but separately for each combination of waiting period and
retroactive or non-retroactive.
(v)
credit accident and health insurance on a revolving account basis separately
for each combination of waiting period and retroactive or
non-retroactive.
(d)
Class of business means a grouping of the classes of business referenced in
Section 9 having the same prima facie rate.
(e) Experience means earned premiums,
incurred claims incurred claim count, number of life years insured, and average
amount of insurance during the experience period.
(f) State Experience means the most recent
published claim rates or loss ratios based on the experience of all insurers in
this State for a plan of insurance and class of business. However, if this
State enters into agreements with other similar States, the use of the
appropriate multi-State experience will be substituted for the experience in
this State. If published experience is not available in this State or
multi-State region, the claim rates assumed in this State's prima facie rate
and the minimum loss ratio required by Section
5 will be
used.
(g) Experience Period means
the most recent period of time for which experience is reported, but not a
period longer than three full years.
(i) If a
case develops 100% credibility in less than three years, the experience period
for that case will be the number of full years needed to develop
credibility.
(ii) If a case
develops the minimum elected by the insurer in less than three years, the
experience period for that case, at the option of the insurer, will be the
number of full years needed to develop minimum credibility or three full
years.
(iii) New Accounts with
Experience.
If a new account of an insurer has experience in this State
with a prior insurer, the new insurer must use the most recent experience of
the account to the extent necessary to fill out an experience period.
(iv) Accounts with Multi-State
Experience.
If an account has experience in more than this State, an
insurer may use only the experience of the account in this State to rate the
case or with the approval of the Commissioner may use the multi-State
experience of the account for this purpose applied on an equitable
basis.
(h) Prima
Facie Rates means those rates shown in Sections
6 and
7.
(i) Earned premiums at rates in
use means actual earned premiums, that is, the premiums earned at the premium
rates actually charged and in force during the experience period in accordance
with the instructions and method of calculation in Appendix II.
(j) Earned premium at prima facie rate means
the actual earned premiums adjusted to the amount which would have been earned
had the premium rate during the experience period been equal to the current
prima facie rate in accordance with Appendix II. Reasonable methods of
approximations may be used.
(k)
Incurred Claims means total claims paid during the experience period, adjusted
for the change in the claim reserve.
(l) Credibility Factor means the extent to
which the past experience of a case can be expected to recur in the future. For
the Standard Case Rating Procedure, the credibility factor may be either the
Number of Claims incurred or on the Average Number of Life Years for the case
during the experience period using the Credibility Table.
The insurer shall notify the Commissioner in advance which
method it will use to measure the credibility of all its cases in this State
and may not change its method without the prior approval of the Commissioner.
If Claim Count or Life Year data is not available, reasonable methods of
approximation approved by the Commissioner may be used until such data is
developed.
(m) Incurred
Claim Count means the number of claims incurred for the case during the
experience period. This means the total number of claims reported during the
experience period, whether paid or in the process of payment plus any incurred
but not reported (IBNR) at the end of the experience period less the number of
claims incurred but not reported at the beginning of the experience period. If
a debtor has been issued more than one certificate for the same plan of
insurance, only one claim is counted. If a debtor receives disability benefits,
only the initial claim payment for the period of disability is
counted.
(n) Average Number of Life
Years means the average number of group certificates or individual policies in
force during the Experience Period (without regard to multiple coverage) times
the number of years in the experience period, or some equivalent
calculation.
(o) Loss Ratio means,
for accounts in which premiums are on the monthly outstanding balance or level
premium basis, the ratio of incurred claims to earned premiums at the prima
facie rate. For accounts on the single premium basis, it means the ratio of
incurred claims to earned premiums at the prima facie rate, where such premiums
are augmented by an investment income factor that is actuarially consistent
with the interest discounts in Sections
6 and
7.
(p) Credibility Table for
Purposes of the Standard Case Rating Procedure means the following table:
|
CREDIBILITY TABLE |
|
Average Number of Life Years Credit Accident
and Health Plans Credit Retroactive and Non-Retroactive
Life |
Incurred Claim Count |
Credibility Factor |
|
|
7 day
|
14 day |
Waiting Periods 30 days |
|
|
|
1 |
1 |
1 |
1 |
1 |
.00 |
|
1,800 |
95 |
141 |
209 |
9 |
.25 |
|
2,400 |
126 |
188 |
279 |
12 |
.30 |
|
3,000 |
158 |
234 |
349 |
15 |
.35 |
|
3,600 |
189 |
281 |
419 |
18 |
.40 |
|
4,600 |
242 |
359 |
535 |
23 |
.45 |
|
5,600 |
295 |
438 |
651 |
28 |
.50 |
|
6,600 |
347 |
516 |
767 |
33 |
.55 |
|
7,600 |
400 |
594 |
884 |
38 |
.60 |
|
9,600 |
505 |
750 |
1,116 |
48 |
.65 |
|
11,600 |
611 |
906 |
1,349 |
53 |
.70 |
|
14,600 |
768 |
1,141 |
1,698 |
73 |
.75 |
|
17,600 |
926 |
1,375 |
2,047 |
83 |
.80 |
|
20,600 |
1,084 |
1,609 |
2,395 |
103 |
.85 |
|
25,600 |
1,347 |
2,000 |
2,977 |
128 |
.90 |
|
30,600 |
1,611 |
2,391 |
3,558 |
153 |
.95 |
|
40,000 |
2,106 |
3,125 |
4,651 |
200 |
1.00 |
The above integral numbers represent the lower end of the
bracket for each Z factor. The upper end is 1 less than the lower end for the
next higher Z factor.
Section 11 Supervision of Credit Insurance
Operations
(1) Each insurer transacting credit
insurance in this state shall be responsible to conduct a thorough periodic
review of creditors with respect to their credit insurance business with such
creditors to assure compliance with the insurance laws of this state and the
regulation promulgated by the Commissioner.
(2) Written records of such reviews shall be
maintained by the insurer for review by the Insurance Commissioner and retained
for a period of at least 5 years.
Section 12 Prohibited Transactions
The following practices, when engaged in by insurers in
connection with the sale or placement of credit insurance, or as an inducement
thereto, shall constitute unfair methods of competition and shall be subject to
the Unfair Trade Practices Act of this State.
(1) The offer or grant by an insurer to a
creditor of any special advantage or any service not set out in either the
group insurance contract or in the agent contract, other than the payment of
agents' commissions;
(2) Agreement
by an insurer to deposit with a bank or financial institution money or
securities of the insurer with the design or intent that the same shall affect
or take the place of a deposit or money or securities which otherwise would be
required of the creditor by such bank or financial institution as a
compensating balance or offsetting deposit for a loan or other advancement;
and
(3) [This provision has been
enjoined by the Vermont Supreme Court.]
Section 13 Disclosure and Readability
A. Disclosure. When a premium or identifiable
charge is payable by a debtor for credit insurance coverage offered by a
creditor, at the time such insurance is applied for, disclosures shall be made
to the principal debtor and copies given and retained, in accordance with State
and Federal law. The creditor shall also disclose the optional nature of the
coverage, premium or identifiable charge separately by type of coverage,
eligibility requirements, and policy limitations and exclusions. These
disclosures shall be made prominently above the space for the signature
indicating election to obtain such coverage. These disclosures may be made in
conjunction with either (a) the Federal Truth- In- Lending disclosure, or (b) a
Notice of Proposed Insurance, or insurance policy or certificate.
B. Readability. The Commissioner shall not
approve any form unless the policy or certificate is written in non-technical,
readily understandable language, using words of common everyday usage:
(1) each insurer is required to test the
readability of its policies or certificates by use of the Flesch Readability
Formula, as set forth in Rudolf Flesch, the Art of Readable Writing, (1949, as
revised 1974);
(2) a total
readability score of forty (40) or more on the Flesch scale is
required;
(3) all policies or
certificates within the scope of this Section shall be filed with the
Commissioner accompanied by the certification setting forth the Flesch score
and certifying compliance with the guidelines set forth in this
section.
Section
14 Severability
If any provision or clause of this Regulation or the
application thereof to any person or situation is held invalid such invalidity
shall not affect any other provision or application of the regulation which can
be given effect without the invalid provision or application, and to this end
the provisions of the regulation are declared severable.
Section 15 Effective Date
(1) This regulation shall take effect January
1, 1987 as to premium rates.
(2)
Approval of all forms not in compliance with this Regulation are hereby
withdrawn as of January 1, 1987. No such form may be issued after January 1,
1987 unless it has been submitted to and approved by the Commissioner
subsequent to December 1, 1986 or unless a rider approved subsequent to such
date has been attached bringing such form into compliance with this
Regulation.
(3) Any deviations
thought to be appropriate by an insurer as a result of promulgation of this
regulation shall be filed in accordance with the provisions of Section 10 no
later than January 15, 1987.
(4)
Certificates, notices of proposed insurance and premium rates in connection
with existing group policies shall conform to the requirements of this
regulation not later than December 31, 1987.
(5) Any group policy issued to replace an
existing group policy of credit insurance or an amendment of an existing group
policy of credit insurance shall be ignored for the purposes of determining the
anniversary date if such change is made after October 1, 1986.
Appendix I CREDIT ACCIDENT AND HEALTH PREMIUM RATES
(A) The following table contains prima facie
maximum credit accident and health program rates. The rates in this table are
single premium rates applicable to an indebtedness repayable in equal monthly
installments.
(B) Prima facie
maximum premium rates for terms of coverage not specified in Appendix I shall
be actuarially consistent with this table of rates.
|
SINGLE PREMIUM ACCIDENT AND HEALTH RATES PER $
100 |
|
INITIAL INSURED INDEBTEDNESS |
|
Non-Retroactive
Basis | |
Retroactive Basis |
|
Number of Monthly
Installments |
14-Day Elimination
Period |
30-Day Elimination
Period |
14-Day Waiting Period |
30-Day Waiting Period |
|
12 |
$ 1.44 |
$ .96 |
$ 2.01 |
$ 1.56 |
|
24 |
1.83 |
1.34 |
2.41 |
1.96 |
|
36 |
2.13 |
1.65 |
2.72 |
2.27 |
|
48 |
2.41 |
1.92 |
3.00 |
2.55 |
|
60 |
2.68 |
2.19 |
3.27 |
2.82 |
Appendix II FORM A INSTRUCTIONS
The purpose of this form is to provide state-wide experience
data under various classifications which will permit the review and regulation
of premium rates and loss ratios at both company and state level.
A. Class of Business means any of
the following:
1. Credit Unions;
2. Commercial and savings banks;
3. Finance companies;
4. Motor vehicle dealers;
5. Other sales finance;
6. Production credit associations; and bank
agricultural loans;
7. All
others.
B. Earned
Premiums
1. Actual earned premiums (Line 1f)
___ The total of all premiums earned at the premium rate(s) actually charged
and in force during the experience period.
2. Earned premiums at prima facie rate (Line
1g) ___. Actual earned premiums adjusted on Form B to the amount which would
have been earned had the premium rate during the experience period been equal
to the current prima facie rate. Note that if premiums infoce differ from the
current prima facie rate inforce, Line 1f will not equal Line 1g.
3. Earned premiums at prima facie rates,
adjusted for investment income (Form A, line 1, h) - Investment Income must be
imputed to gross premiums at rates specified in Sections
6 and 7 (if
written on a single-premium basis) by a generally-accepted actuarial procedure,
which procedure must be explained in detail.
C. Experience Period
1. The experience period will consist of a
maximum of three calendar years, except that in the first and second years
after implementation of this regulation, the experience period may, at the
insurers option, include only one or two year's experience, respectively.
Thereafter, three years experience will be required.
2. Data included in this report is to be the
direct business of the current insurer, only, without adjustment for
reinsurance assumed or ceded.
CREDIT LIFE OR DISABILITY INSURANCE EXPERIENCE REPORT STATE
OF VERMONT** CALENDAR YEAR OF 19 ___ FORM A
CLASSES OF BUSINESS: Check One;
|
[] (a) credit unions; |
[] (e) other sales finance; |
|
[] (b) commercial & savings |
[] (f) Production credit associations;
bank |
|
bank; |
agricultural |
|
loans; |
|
|
[] (c) finance companies; |
[] (g) all others. |
|
[] (d) motor vehicle dealers; |
|
|
Mode of Premium Payment:
|
|
|
[] Single Premium |
[] Outstanding Balance |
|
[] Revolving Account |
(Monthly Premium) |
Plan of Benefits:
|
[] Credit Life |
[] Decreasing |
[] Single Life |
[] Gross |
|
|
[] Level |
[] Joint Life |
[] Net |
|
[] Credit Disability ___ |
[] Retro |
[] Non-Retro |
|
Days, |
| |
1.
Actual Earned Premiums 19 ___ 19 ___ 19 ___ Total
a. Gross premiums written (before deduction
for Dividends and Experience Rating Credits ___
b. Refunds on terminations ___
c. Net (a-b) ___
d. Premium reserve, beginning of period ___
e. Premium reserve, end of period
___
f. Actual earned premiums
(c+d-e) ___
g. Earned premiums at
prima facie rate (Form B) ___
h.
Earned premiums at prima facie rate, adjusted for investment income (attach
explanation) ___
2.
Incurred Claims
a. Claims Paid ___
b. Unreported claims, beginning of period ___
c. Unreported claims, end of
period ___
d. Claim reserve,
beginning of period ___
e. Claim
reserve, end of period ___
f.
Incurred claims (a-b+c-d+e) ___
3. Loss Ratio
a. Actual Loss Ratio (2f-1f) ___
b. Loss ratio at prima facie rate (2f-1g) ___
c. Adjusted loss ratio (2f / 1h)
___
4. During this
reporting period, have you changed the method for calculating premium reserves,
unreported claims, claim reserves, or incurred claims? If yes, please explain:
5. What were the company's
exposures during the reporting period, expressed per $ 1,000 per month
separately for each class of business defined herein.
* Unreported claims are claims received by the insurer but
not yet processed.
** This report shall be completes for each Class, Mode, and
Benefit Plan.
FORM B INSTRUCTIONS
The purpose of this form is to convert actual earned premiums
(Form A, Line 1f) to the amount of premiums which would have been earned had
all business been written at the current prima facie rate.
Form B1 is applicable to Credit Life insurance and Form B2 is
applicable to Credit Disability insurance.
GENERAL
A. A Form B
(Life or Disability Section) must be completed for each Form A where prima
facie earned premium differs from actual earned premium. More than one Form B
may be required when more than one year's data is presented, due to changes in
prima facie rates or other factors.
B. Actual earned premiums are to be converted
to prima facie earned premiums by the use of a conversion factor which is the
ratio of the prima facie premium rate to the actual premium rate. This
conversion must be performed for each premium rate with premiums inforce during
the experience period.
C. The
overall totals presented on Form B (either life or disability) must agree to
the appropriate lines on the Form A to which they are attached.
D. Note that both Form B1 and Form B2 include
actual earned premium at prima facie rate on Line A. This data is for balancing
purposes only, and in no way indicates that Form B must be completed if actual
earned premium is equal to prima facie earned premium.
Form B1 - Credit Life Insurance A. Prima facie earned premium
(Col. 5) is the product of actual earned premium (Col. 1) times the conversion
factor (Col. 2 - Col. 3).B. See also General Note C.
Form B2 - Credit Disability Insurance
A. The conversion of actual earned premiums
to prima facie earned premiums is accomplished in basically the same manner as
described in Section
1A above. The
conversion factor to be utilized, however, is the average of three ratios taken
between prima facie and actual rates from 12, 24 and 36 month terms. The sum of
these ratios, divided by three, becomes the conversion factor.
B. Prima facie premium rates are to be
presented on Form B2, Appendix II, Line A, Col. 2-4. All ratios (Line b) are to
be calculated by dividing Line A by Line a.
C. This form should be reproduced as
necessary to present the required conversion for all premium rates inforce
during the experience period.
D.
See also General Note C.
Company ___
Signature ___
Title ___
CREDIT LIFE INSURANCE EXPERIENCE REPORT
STATE OF VERMONT
PRIMA FACIE EARNED PREMIUM
Class of Business ___ Calendar Year 19___
Premium Mode ___ Plan of Benefits ___
Credit Life Insurance
|
Actual Earned Premiums |
Prima Facie Rate |
Actual Premium Rate |
Prima Facie Earned Premium |
|
Col. 1 |
Col. 2 |
Col. 3 |
Col. 4 |
|
A. Earned Premiums at prima facie rate |
|
B. Earned premiums at other than prima facie
rates: | |
XXX |
XXX |
|
|
1. ___ |
|
2. ___ |
|
3. ___ |
|
4. ___ |
|
5. ___ |
|
6. ___ |
|
___ |
|
Totals | |
XXX |
XXX |
|
|
To Form A, | | |
To Form A, |
|
Line 1f | | |
Line 1g |
C. Explain any changes in calculation methods
made during this period.
CREDIT DISABILITY INSURANCE EXPERIENCE REPORT RECONCILIATION
TO STATE PAGE STATE OF VERMONT FOR THE CURRENT YEAR 19___ FORM C2
| |
Premiums |
Claims |
| |
Written |
Earned |
Paid |
Incurred |
| |
Line 1c |
Line 1f |
Line 2a |
Line 2f |
|
1. |
Credit Disability |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Page ___ of ___ |
|
Total Life |
2. Annual
Statement Page 46, Line 31 ___
3.
Explain any differences between "Total Disability" and Page 46, Line 31.
4. Explain any changes in
calculation methods made during this reporting period.
5. What were the company's exposures during
the reporting period, expressed per $ 1,000 per month separately for each class
of business defined herein?
Statutory Authority: 8
V.S.A. §§ 75,
4108,
4113
