Report - 2025 01 29 A32584 D276639 Bill Report 5141 Sbr Bft Ta 25

Summary

A Senate Bill Report on SB 5141, prepared for the Senate Committee on Business, Financial Services & Trade and dated as of January 23, 2025. The bill concerns rate manual filings by experience-rated group disability income insurers with the insurance commissioner and is sponsored by Senators Cortes, Dhingra, Hasegawa, Liias, Nobles and Salomon. The background describes disability income insurance, group rate filings with the Office of the Insurance Commissioner, a March 2023 technical assistance advisory on single case filings, and the ratemaking concept of credibility. The bill would require experience-rated insurers to include all applicable rating factors and credibility formulas in the rate manual in enough detail for the commissioner's office to replicate premium rates. The three-page report also summarizes supporting public testimony.

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                            SENATE BILL REPORT
                                  SB 5141

                                      As of January 23, 2025

Title: An act relating to requiring that experience-rated group disability income insurers include
     all applicable rating factors and credibility formulas in rate manual filings with the
     insurance commissioner.

Brief Description: Requiring that experience-rated group disability income insurers include all
     applicable rating factors and credibility formulas in rate manual filings with the insurance
     commissioner.

Sponsors: Senators Cortes, Dhingra, Hasegawa, Liias, Nobles and Salomon.

Brief History:
     Committee Activity: Business, Financial Services & Trade: 1/23/25.


                                     Brief Summary of Bill
           • Specifies rate filing requirements for experience-rated group disability
             income insurers.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: John Kim (786-7453)

     Background: Disability Income Insurance. Disability income (DI) insurance provides
     income to individuals who cannot work because of an illness or injury. Group DI
     insurance, including short- and long-term coverage, is tied to employment and is offered as
     a benefit by some employers.

     Group Disability Income Insurance Rate Filings. Before using rates charged for DI
     insurance premiums, insurers must make rate filings with the Office of the Insurance
     Commissioner (OIC), which reviews filed rates to ensure they are not excessive,
     inadequate, or unfairly discriminatory. A rate filing for a particular insurance product



     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

Senate Bill Report                              -1-                                             SB 5141
     includes a manual of classification, manual of rules and rates, and any modifications.

     A group DI insurer may make a rate filing covering rates for multiple groups through a rate
     manual filing. In a rate manual filing, rates are developed through a standard rating
     methodology without using a group’s partial or entire disability claim experience. The rate
     manual must account for all rules and formulas the company uses to calculate the premium
     charged. If a group’s rate is developed from the rate manual, OIC must be able, when given
     the demographics of the group, to replicate the group’s rate from the rate manual.

     In a March 2023 technical assistance advisory, OIC reiterated that if a group’s rate cannot
     be replicated exactly using the rate manual, it cannot be filed through a rate manual filing.
      If a DI insurer develops premium rates for a single group based on the group's disability
     claim experience, it may not file one rate that applies to all experience-rated groups, as the
     insurer is relying on each group's unique claim experience to develop its rates.

     OIC advised that an experience-rated insurer must instead submit an additional filing unique
     to each particular group called a single case or an employer group filing. OIC stated its
     expectation that single case filings should focus on the justifications for the experience
     rating; would be not more than a few pages each; should incorporate the approved rate
     manual and other filing aspects by reference only; and must include an actuarial
     certification.

     Credibility. In ratemaking, credibility measures how much predictive weight should be
     given to the group's own claims experience versus the weight given to other data in
     determining future claims. A fully credible group is one where the data sample size is large
     enough that based on a selected confidence interval, its subject experience is assigned full
     predictive value. A partially credible group requires blending its subject experience with
     information from one or more sets of related experience in order to improve the estimate of
     expected values.

     Summary of Bill: Experience-rated group DI insurers must include in their rate filings
     their experience rating formulas including all applicable rating factors and credibility
     formulas as part of the rate manual. Such filings must be detailed enough to confirm that a
     group is fully or partially credible and to allow OIC to replicate the premium rates for the
     experience-rated group if given the experience and demographics of the group.

     Appropriation: None.

     Fiscal Note: Available.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: Ninety days after adjournment of session in which bill is passed.



Senate Bill Report                             -2-                                         SB 5141
     Staff Summary of Public Testimony: PRO: The bill streamlines the regulatory approval
     process by allowing experience-rated insurers to file with the OIC once a year rather than
     multiple times on a case-by-case basis. It will reduce insurers' administrative expenses and
     help keep premiums affordable. Insurers would still be required to give the OIC the level of
     detail it needs to make sure that rates are appropriate, but the process would be less
     burdensome. The bill allows insurers to quickly and competitively offer favorable rates to
     groups that have enough experience and credibility to make a judgment about their future
     risks.

     Persons Testifying: PRO: Senator Adrian Cortes, Prime Sponsor; Rory Paine-Donovan,
     Office of the Insurance Commissioner; Tyler Langford, Office of the Insurance
     Commissioner; John Mangan, American Council of Life Insurers.

     Persons Signed In To Testify But Not Testifying: No one.




Senate Bill Report                            -3-                                        SB 5141


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