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Notice to Companies Writing Private Passenger Auto Insurance in Pennsylvania; Notice No. 2003-07

[33 Pa.B. 4761]

Calculation of Limited Tort Differential

   In Section 19 of Act of 1990, Act of February 7, 1990, 75 Pa.C.S. § 1799.7, the Pennsylvania General Assembly recognized that insurers writing private automobile insurance in Pennsylvania would realize substantial savings in their overall loss costs if their insureds were given the option of electing limited tort coverage in their policies. Because this option reduces insurers' potential liability, auto insurers have indeed experienced significant reciprocal savings since Act 6 was passed. These savings, in turn, have resulted in lower insurance rates for many Pennsylvania policyholders, which was clearly the legislature's intent.

   Following the enactment of Act 6, the Insurance Department (''Department'') initially required a minimum differential of 13.3% between full tort and limited tort rates. In 1991, the Department then determined that a minimum 15.3% differential between the full tort and limited tort rates was appropriate to ensure that rates adequately reflected the reciprocal savings that insurers would realize as a result of the limited tort option. Now, with the availability of sufficient, credible data reflecting the actual historical loss experience that has resulted since the enactment of Act 6, the Department has determined that it is an appropriate and preferred actuarial methodology to apply the loss cost differential for full versus limited tort on a per-coverage basis so that insurer expenses, losses and income are allocated according to the coverages that generate the same under the provisions of Act 6. See 75 Pa.C.S. § 1799.7(g). That is, the premium rates charged for auto insurance coverage in Pennsylvania should be adjusted to reflect the differing impact that the reciprocal limited tort loss cost savings has on each form of affected coverage--specifically, bodily injury, first party benefits, and uninsured/underinsured motorist coverage.

   The Department has obtained and analyzed data indicating that selection of the limited tort option results in reduced loss costs of approximately 40% for bodily injury, first party benefits, and uninsured/underinsured motorist coverages over full tort selectors. Therefore, effective immediately, private passenger auto rate filings must apply the limited tort differential on a coverage-by-coverage basis and apply a minimum differential of 40% on bodily injury, first party benefits, and uninsured/underinsured motorist coverages unless an insurer is able to provide sufficient, credible data to demonstrate that a different limited tort differential is appropriate for those coverages.

   All private passenger auto insurers must submit new rate filings applying the limited tort differential on a coverage-by-coverage basis on or before December 1, 2003, to become effective for all policies issued or renewed after 60 days following approval of the filing by the Department or notification of receipt of the filing if made on a ''file and use'' basis. Insurers submitting rate filings that apply the standard 40% limited tort differential for the affected coverages and make no other changes to their existing, approved rates can do so on a ''file and use'' basis. Insurers submitting rate filings that do not apply the standard 40% differential for the affected coverages must provide sufficient, credible data to support their proposed differential and otherwise demonstrate to the Department's satisfaction that the filing appropriately applies the limited tort premium differential on a coverage-by-coverage basis.

   Because the failure to apply an appropriate limited tort differential may result in excessive, inadequate or unfairly discriminatory rates, any private passenger auto insurer that fails to submit a filing reflecting the appropriate limited tort differential by the required date may be subject to appropriate regulatory action by the Department, including the possible disapproval of any rates currently in effect.

Data Call

   Within the next few weeks the Department will be conducting a data call requiring all insurance companies writing private passenger automobile insurance in Pennsylvania to collect certain information and submit it to the Department within 90 days.

M. DIANE KOKEN,   
Insurance Commissioner

[Pa.B. Doc. No. 03-1869. Filed for public inspection September 19, 2003, 9:00 a.m.]



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