Michigan Administrative Code › Department - Insurance and Financial Services › Insurance › Essential Insurance › Section R. 500.1505 - Unfairly discriminatory rates

Current through Vol. 24-12, July 15, 2024
Rule 5.
(1) For
				purposes of section 2109(1)(c) of the code, MCL 500.2109, 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 losses, expenses, or both, or by differences in the uncertainty of loss, for
				the individuals or risks to which the rates apply. A reasonable justification
				must be supported by a reasonable classification system; by sound actuarial
				principles when applicable; 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 expenses for individuals or risks with
				similar anticipated losses, or because it reflects differences in losses for
				individuals or risks with similar expenses.
(3) A reasonable classification system is a
				system designed to group individuals or risks with similar characteristics into
				rating classifications that 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 must include,
				but are not 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 obtained can reasonably be expected to
				produce representative and reliable estimates of the anticipated loss and
				expense experience for the insured population and 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 rating 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 passenger
				automobile insurance and private residential property insurance, rates for an
				insurance coverage provided are established in a manner that can reasonably be
				anticipated to produce loss ratios that are substantially uniform among the
				classifications, kinds, or types of individuals or risks to which the rates
				apply. Evaluation of loss ratios must make appropriate adjustments for
				differences in deductibles and limits of liability among insureds, for expense
				provisions that are not allocated to premiums on a percentage-of-premium basis,
				and for differences in contingency factors among classifications and must 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
				subdivision, "substantially uniform" means the absence of significant
				variations among loss ratios. This subdivision does not prohibit the use of
				appropriate pure premium relativities to estimate or evaluate rate
				relativities.