Commercial Insurance Deregulation Act of 1982
This Act was enacted to protect policyholders and the public against the adverse effects of excessive, inadequate, or unfairly discriminatory rates.
The Three Purposes of the Act:
Encourage Competition
Encourage independent action by price competition among insurers
Prevent Monopoly
Prevent practices that tend to bring about monopoly or destroy competition
Efficient Practices
Encourage the most efficient and economic rating and marketing practices
Key Point
All commercial policies issued in New Jersey must be issued in accordance with the provisions of this Act.
Filing Requirements
Rates & Rate Amendments
30 Days
AFTER they become effective
All authorized insurers and rating organizations must file rates and amendments with the Commissioner.
Policy Forms
30 Days
BEFORE they become effective
Policy forms must be filed with the Commissioner before they can be used.
Memory Trick: Rates vs. Forms
Rates = After (like paying a bill after you get it)
Forms = Before (like filling out paperwork before starting something)
Example: Filing Timeline
ABC Insurance wants to use a new commercial policy form starting July 1st. They must file it with the Commissioner by June 1st (30 days before). If they also want to change their rates on July 1st, they have until July 31st to file those rate changes (30 days after).
Public Access
All filings become public information and are open to public inspection at any time. Anyone can request copies by paying a reasonable fee.
Rate Standards
Rates Cannot Be:
Excessive
Too high - gouging consumers
Inadequate
Too low - insurer can't pay claims
Unfairly Discriminatory
Different rates without actuarial basis
Factors to Consider When Setting Rates:
Example: Rate Factors in Action
XYZ Insurance is setting rates for commercial property insurance in coastal NJ. They must consider: their past hurricane claims (loss experience), the risk of future hurricanes (catastrophe risk), what competing insurers charge, their operating expenses, and enough profit margin to stay in business - but not so much that rates are "excessive."
Insurer Rate Options
Option 1: Set Own Rates
Insurers can develop and set their own rates and supplementary rate information independently.
Option 2: Use Rating Organization
Insurers can use rates provided by a rating organization (like ISO), and may modify them based on their own expense and loss experience.
Commissioner's Powers
Review Authority
- • Can order rates for a particular line of business be submitted for review and approval
- • Can order policy forms for a particular line be submitted for approval before becoming effective
Violation Process
- 1 Commissioner suspects a violation
- 2 Provides notice of hearing to the suspected party
- 3 After hearing, if violation found: can suspend/revoke license
Penalties for Willful Violations
Minimum Penalty
$25
per violation
Maximum Penalty
$500
per violation
Plus potential license suspension or revocation!
Medical Malpractice Liability Insurance - Special Rules
The Commissioner establishes a designated range of annual rate changes specifically for medical malpractice liability insurance.
Minimum Range
5%
Maximum Range
15%
Filing Window
30 Days
One Rate Change Rule: Insurers and rating organizations may only file one rate change within the designated range in a 12-month period without explicit approval of the Commissioner.
Exceeding the Range: Rate changes that exceed the designated range (more than 15%) must be approved by the Commissioner.
Example: Medical Malpractice Rate Changes
Dr. Smith's malpractice insurer wants to raise rates. If they want to increase by 10% (within the 5-15% range), they can do so once per year without approval. But if they want to increase by 20%, they need the Commissioner's explicit approval first.
Special Risks - Exempt from Filing Requirements
The filing of rates statutes do NOT apply to special risks. These are handled differently due to their unique nature.
What Qualifies as a Special Risk?
Commercial Lines Risks That Are:
- • Unusual in nature
- • A high loss hazard
- • Difficult to place or rate
- • Excess or umbrella coverage
- • Eligible for export
Premium Threshold:
$10,000+
Minimum annual premium
(Other than medical malpractice liability insurance risks)
Also Considered Special Risks:
Inland Marine Insurance
Fidelity Bonds
Surety Bonds
Forgery Bonds
How to Meet the $10,000 Minimum:
- • Single policy with premium over $10,000
- • Multiple policies by the same insurer or group totaling over $10,000
- • Single policy covering multiple risks generating annual premium over $10,000
Record Keeping Requirements for Special Risks
Insurers must maintain detailed records for special risks:
The Commissioner determines the level of detail required and can examine these records as frequently as deemed necessary.
Quick Reference: Commercial Deregulation Act
30 Days
Rates: AFTER effective
30 Days
Forms: BEFORE effective
5-15%
Med Mal rate range
$10,000
Special risk threshold
$25-$500
Penalty per violation
1982
Year Act enacted
12 Months
Med Mal: 1 change/year
Public
All filings are public