Opinion ID: 1264940
Heading Depth: 1
Heading Rank: 5

Heading: the rate-making procedure

Text: Since the Act of 1965, G.S. § 58-248 has required the Rate Office to submit to the Commissioner the data hereinabove referred to for bodily injury and property damage insurance on private passenger vehicles and a rate review based on such data. The data hereinabove referred to consists of all books, data, papers and records and any other data necessary to compile statistics for the purpose of determining the pure cost and expense loading of automobile bodily injury and property damage insurance in North Carolina  . (Our italics.) For rate-making purposes, the components of a casualty insurance premium are the `pure premium' and `expense loading'. The `pure premium' is the amount allocated for the settlement of casualty losses, including loss adjustment expenses. `Expense loading' is the amount allocated for operating expenses and for underwriting profit and contingencies. Virginia State AFL-CIO v. Commonwealth, 209 Va. 776, 167 S.E.2d 322 (1969). The increases proposed by the Rate Office in its 1969 Filing are based on an allocation of 68.6% of the premium dollar to Losses and Loss Adjustment Expenses and the remaining 31.4% to Expense Loading. The 31.4% is composed of the following items: Production cost, 16.8%, which is a composite of 10% for assigned risks and 20% for voluntary risks; general administration, 5.5%; taxes, licenses and fees, exclusive of federal income taxes, 3.1%; inspection and bureau fees, 1%; and underwriting profit and contingencies, 5%. A contingency contemplated in the allowance of 5% for underwriting profit and contingencies is federal income tax, approximately 50% of a company's net profit, if any. The 68.8% allocated to Losses and Loss Adjustment Expenses is based on 1966 and 1967 experience as reported by the Statistical Agents upon their analysis of the reports submitted to them by all licensed companies. It is noteworthy that this proportion was greated than that on which prior filings have been based, thus leaving a smaller total percentage for allocation to Expense Loading. It does not appear that the licensed companies, in their reports to the Statistical Agents or otherwise, supplied data as to their actual experience in North Carolina in 1966 and 1967 with reference to the items constituting Expense Loading. The Rate Office offered evidence that each of these allocations was reasonable and in line with allowances recognized as reasonable throughout the country. This evidence consisted of the opinion evidence of Mize, Holcombe and Hunter, and of statistics as to similar allowances approved elsewhere in the country. The record contains no statistical or other evidence as to the profits and losses in North Carolina in 1966 and 1967 of any or all of the companies licensed to write automobile liability insurance in this State. The evidence includes the tabulation by the Insurance Rating Board as of September 3, 1969, of the automobile liability insurance rates in effect in the twenty-five eastern States according to the latest information then obtainable. In this tabulation, North Carolina is twenty-third, the only lower rates being those of Delaware and of Georgia. Too, this tabulation indicates that the North Carolina rates are approximately 30% lower than the average of the rates in the twenty-five eastern States. The evidence does not disclose when, from whom or the circumstances under which the Insurance Rating Board obtained the information from which its tabulation was prepared.