No. 28486 (New Rule): R590-234. Single Risk Limitation

DAR File No.: 28486
Filed: 02/01/2006, 10:39
Received by: NL

 

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this new rule is to set forth procedures necessary to determine compliance with Section 31A-20-108 in cases where unlimited insurance policies are issued.

 

Summary of the rule or change:

The purpose of this new rule is to set forth procedures necessary to determine compliance with Section 31A-20-108, "Single risk limitations," to describe the entities the rule is to apply to, to define those terms unique to this rule, to set $2,000,000 as the maximum potential risk for purposes of determining compliance with the single risk limitation, and to set the enforcement date of this rule at 45 days after its effective date.

 

State statutory or constitutional authorization for this rule:

Sections 31A-2-201 and 31a-20-108

 

Anticipated cost or savings to:

the state budget:

This rule will not add to or reduce the amount of work being done by department personnel, nor does it change department fees or forfeiture amounts. The rule provides guidance to department financial examiners as to the application of the single risk limitation requirement.

 

local governments:

This rule will have no effect on local governments since it deals solely with the relationship between the insurance department and its licensees.

 

other persons:

This rule impacts financial examiners who determine an insurer's compliance with the Single Risk Limitation statute. At this point, there are no guidelines to determine compliance with this law in the case of an unlimited policy. Insurers who sell unlimited policies now have enough information to ensure they are in compliance. With this new information, insurers can determine if they are in compliance with the law or not and if not they can change their reinsurance agreements or take other necessary steps. The law requires insurers to adequately diversify their risk. The purpose of the law is to make sure insurers don't take on risks that would put their solvency in jeopardy.

 

Compliance costs for affected persons:

This rule impacts financial examiners who determine an insurer's compliance with the Single Risk Limitation statute. At this point, there are no guidelines to determine compliance with this law in the case of an unlimited policy. Insurers who sell unlimited policies now have enough information to ensure they are in compliance. With this new information, insurers can determine if they are in compliance with the law or not and if not they can change their reinsurance agreements or take other necessary steps. The law requires insurers to adequately diversify their risk. The purpose of the law is to make sure insurers don't take on risks that would put their solvency in jeopardy.

 

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule will have no fiscal impact on insurers. D. Kent Michie, Commissioner

 

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY UT 84114-1201

 

Direct questions regarding this rule to:

Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at [e-mail]

 

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

03/17/2006

 

Interested persons may attend a public hearing regarding this rule:

3/09/2006 at 9:00 AM, State Office Building (Behind Capitol), Room 3112, Salt Lake City, UT 84114

 

This rule may become effective on:

03/18/2006

 

Authorized by:

Jilene Whitby, Information Specialist

 

 

RULE TEXT

R590. Insurance, Administration.

R590-234. Single Risk Limitation.

R590-234-1. Authority.

This rule is promulgated by the insurance commissioner pursuant to Subsection 31A-2-201(3) and 31A-20-108(2)(b).

 

R590-234-2. Purpose and Scope.

(1) The purpose of this rule is to set forth procedures necessary to determine compliance with 31A-20-108, in cases where unlimited insurance policies are issued.

(2) This rule applies to all entities that write unlimited insurance policies, except title, workers' compensation, occupational disease, and employers' liability insurance policies.

 

R590-234-3. Definitions.

In addition to the definitions of Section 31A-1-301, the following definitions shall apply for the purpose of this rule:

(1) "Unlimited Insurance Policy" means an insurance policy that does not specify a maximum limit for benefits to be paid under the policy.

(2) "Single risk" includes all losses reasonably expected as a result of the same event.

(3) "Single Risk Limitation" is 10% of capital and surplus, as prescribed by 31A-20-108(2).

 

R590-234-4. Calculation of Single Risk Limitation for Unlimited Insurance Policies.

In cases where unlimited insurance policies are issued, the insurer shall use $2,000,000 as the maximum potential risk, for purposes of determining compliance with the single risk limitation.

 

R590-234-5. Enforcement Date.

The commissioner will begin enforcing the provisions of this rule 45 days from the rule's effective date.

 

R590-234-6. Severability.

If any provision of this rule or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of the rule and the application of the provision to other persons or circumstances may not be affected by it.

 

KEY: single risk limitation

Date of Enactment or Last Substantive Amendment: 2006

Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-20-108