ORDERS:
ORDER AND DECISION
This matter comes before me pursuant to S.C. Code Ann. §§ 38-73-910, et seq. (Law. Co-op.
1976 & Supp. 1995) and S.C. Code Ann. §§ 1-23-310, et seq. (Law. Co-op. 1976 & Supp. 1995)
on Petitioner's request for a rate increase for allied lines property and casualty insurance.
STATEMENT OF CASE
On January 18, 1996, the South Carolina Wind and Hail Underwriting Association (hereinafter
"SCWHUA") filed an application with the Director of the South Carolina Department of
Insurance (the "Department") requesting approval of an overall rate increase of 9.8%. The
hearing was held before me on the above-referenced matter on April 11, 1996. Present at the
hearing were David A. Leadbitter, Underwriting Manager, James C. Gray, Jr., Attorney, and
Bruce MacKay, SCWHUA Actuarial Committee, representing SCWHUA; Martin Simons, Chief
Actuary, and T. Douglas Concannon, a Staff Attorney for the South Carolina Department of
Insurance; and Catherine E. Heigel, Esq., representing the South Carolina Department of
Consumer Affairs.
From testimony, exhibits and arguments presented at the hearing, I find and conclude as follows:
FINDINGS OF FACT
Having carefully considered all testimony, evidence and arguments presented at the hearing in this
matter, I find as to the requested revision:
1. SCWHUA, as the filer, produced the expert testimony of Bruce MacKay. He testified that the
requested revisions would produce rates that are not excessive, inadequate or unfairly
discriminatory.
2. Bruce MacKay testified that the elimination of the discount regarding the builders risk
coverage will not produce unfairly discriminatory rates, but will have the converse effect instead.
The customer's return to the standard rates will produce consistency across the board, and
therefore, the elimination of the discount on builders risk for owner buildings would avoid
inequities in the rate.
3. David A. Leadbitter, SCWHUA's underwriter, testified as to the builders risk coverage and the
elimination of discrimination with respect to builders risk. He also testified that owner builders
are primarily non-resident, and therefore, owner builders are unable to reduce loss by protective
measures during coastal catastrophes. Therefore, there is no rational basis for the disparity in
treatment of the owner and non-owner builders.
4. SCWHUA's witness also testified that the genesis of the discount lies in fire coverage, which
had a rational basis for discrimination between the customers. However, there is no rational basis
to discriminate between the classes of owners in a coastal catastrophe. Therefore, the
maintenance of the discount in the coastal catastrophe setting would itself be discriminatory.
5. South Carolina Department of Insurance, as the respondent, produced the expert testimony of
Marty Simons, Chief Actuary. He testified that following his review of SCWHUA's rate increase
request, that the filing will result in premium rates which are not excessive, inadequate, or unfairly
discriminatory and that the underwriting rules regarding builders risk were appropriate.
6. All three experts testified that the elimination of the risk credit has minimal or inconsequential
effect on the rates because elimination of the discount is not a rate increase, and therefore, is
incapable of producing excessive rates.
7. The Consumer Advocate has reviewed the filing and made no objections as to the overall rate
request, and has objected only to an underwriting rule relating to builders risk coverage.
8. The builders risk coverage discount is an underwriting rule.
9. The Consumer Advocate produced no evidence relating to the underwriting rule.
10. The Consumer Advocate contends that the expert testimony of Mr. Leadbitter should be
discounted because it has no probative value. The Consumer Advocate bases his contention on
the alleged fact that Mr. Leadbitter did not support his opinions with statistical and analytical
evidence.
11. Mr. Leadbitter sufficiently demonstrated the material facts of the rate-filing upon which he
relied to formulate his opinions.
12. The Consumer Advocate does not attack the sufficiency of the testimony of the two other
expert witnesses who also testified that the rate increase is not violative of the Insurance Act.
CONCLUSIONS OF LAW
The law governing the making of rates is well defined. Insurance rates are regulated under Title
38 of the South Carolina Code of Laws, 1976, as amended. The Administrative Law Judge's
powers are granted by the Administrative Procedure Act. S.C. Code Ann. §§ 1-23-310, et seq.
(Law. Co-op. 1976 & Supp. 1995). The Administrative Law Judge shall make findings of fact
and conclusions of law, which are to be separately stated in writing in a final decision or order.
S.C. Code Ann. § 1-23-350 (Law. Co-op. 1976). The findings of fact must be based exclusively
on the evidence and on matters officially noticed. S.C. Ann. § 1-23-320(I) (Law. Co-op. Supp.
1995).
The standards of the Administrative Law Judge's judicial review of the rate filing are set forth in
the Insurance Code by virtue of the law requiring that no rate may be excessive, inadequate, or
unfairly discriminatory. § 38-73-330(2) (Law. Coop. Supp. 1995). The filing, in turn, must meet
both the statutory standards and be supported by a preponderance of evidence.
Pursuant to the responsibilities charged to the Insurance Department, an independent investigation
was made of the proposed filing. All conclusions were based upon evidence, the testimony
adduced at the hearing and matters officially noted during the course of the hearing. I have
resolved all factual questions on the basis of the testimony in the record and on the basis of the
independent analysis of the rate filing formulated by the staff of the Insurance Department.
It is my opinion, having fully considered the preponderance of evidence on the record, that the
proposal of SCWHUA for a revision in rates would produce rates which would neither be
excessive, inadequate or unfairly discriminatory and would be in compliance with S. C. Code Ann.
§ 38-73-430. I also conclude that the elimination of the builders risk discount is an underwriting
rule and not a rate rule. Accordingly, I conclude that the elimination of this discount will not
affect the rate, and thus will not produce an excessive, inadequate or unfairly discriminatory rate.
All expert testimony toward this end was probative to my opinion as each expert demonstrated
the facts upon which he formulated his opinion.
I, THEREFORE, CONCLUDE that the proposed rates meet all statutory requirements and are,
therefore, approved and effective beginning July 1,1996.
___________________________
John D. Geathers
Administrative Law Judge
Columbia, South Carolina
May 6, 1996 |
