Michigan Administrative Code › Department - Insurance and Financial Services › Insurance › Fire And Inland Marine Insurance Rates › Section R. 500.1307 - Unfairly discriminatory rates

Current through Vol. 24-12, July 15, 2024
Rule 7.
(1) For
				purposes of section 2603(1)(d) of the code, a rate for a coverage is unfairly
				discriminatory in relation to another rate for the same coverage if the
				differential between the rates is not reasonably justified by differences in
				mean anticipated losses or expenses, or both, or by differences in the
				uncertainty of loss for the individuals or risks to which the rates apply. A
				reasonable justification shall be supported by a reasonable classification
				system, by sound actuarial principles, and by actual and credible loss and
				expense statistics or, in the case of new coverages and classifications, by
				reasonably anticipated loss and expense experience.
(2) A rate is not unfairly discriminatory
				because it reflects differences in anticipated expenses for classifications of
				risks with similar anticipated losses or because it reflects differences in
				anticipated losses for classifications of risks with similar anticipated
				expenses.
(3) A reasonable
				classification system is a system designed to group individuals or risks with
				similar characteristics into rating classifications which are likely to
				identify significant differences in mean anticipated losses or expenses, or
				both, between the groups, as determined by sound actuarial principles and by
				actual and credible loss and expense statistics or, in the case of new
				coverages or classifications, by reasonably anticipated loss and expense
				experience.
(4) Sound actuarial
				principles shall include, but not be limited to, all of the following
				principles:
(a) That data used in developing
				classifications and rates are derived from the experience of a population or
				sample of risks that is sufficiently similar to the anticipated insured
				population so that the statistics thereby obtained can reasonably be expected
				to produce representative and reliable estimates of the anticipated loss and
				expense experience for the insured population and so that such statistics are
				calculated in a manner that is suitable to their intended use.
(b) That a reasonable predictive relationship
				can be demonstrated to exist between a characteristic used in defining a rating
				classification and anticipated losses, anticipated expenses, or the uncertainty
				of loss for the risks to which the classification applies.
(c) That if rates for individual rating cells
				are calculated by means of arithmetic combinations of relativities for the
				classifications defining those cells, the relativities are combined in a manner
				that equitably reflects the anticipated loss and expense experience for those
				rating cells.
(d) That sampling
				techniques used in developing classifications and in estimating loss and
				expense experience are suitable to their intended application.
(e) That with regard to private residential
				property insurance, rates for an insurance coverage provided are established in
				a manner that can reasonably be anticipated to produce loss ratios which are
				substantially uniform among the classifications, kinds, or types of individuals
				or risks to which the rates apply. Evaluation of loss ratios shall make
				appropriate adjustments for differences in deductibles and limits of liability
				among insureds, for expense provisions which are not allocated to premiums on a
				percentage-of-premium basis, and for differences in contingency factors among
				classifications and shall give due consideration to the credibility of
				experience for groupings of individuals or risks, to trends in past and
				prospective loss experience, and to historical patterns between projected and
				realized loss ratios. For purposes of this subrule, "substantially uniform"
				means the absence of significant variations among loss ratios.This subrule
				shall not be construed to prohibit the use of appropriate pure premium
				relativities to estimate or evaluate rate relativities.