All companies writing homeowners' insurance
Kathleen Sebelius, Commissioner of Insurance
January 5, 1996
the last several years a significant debate about the need for
territorial rating for homeowners' insurance has occurred in Kansas,
culminating in a legislative charge to study this issue and report to
the 1996 Legislature whether territorial rating should be allowed in
Kansas and what my recommendations for solving these problems might be.
The task force appointed by the Governor and legislative leadership
concluded territorial rating should be allowed in Kansas, either by my
office or through legislative mandate. While that appears to be a
majority view, I believe there is also consensus inside and outside the
industry that territorial rating alone will not solve more fundamental
problems with availability and affordability of insurance in this
essential product. I have announced contemporaneously with this
Bulletin, steps this office will take to tackle those fundamental
problems. it is my hope those steps, together with balanced use of
territorial rating, will significantly improve availability and,
eventually, affordability in this market.
have concluded this office will allow territorial rating. However, I am
mindful that unrestricted use of territorial rating in this state will
work enormous hardship on many insureds in this state and that it is not
in the best interests of policyholders of this state to allow
unrestricted rating of homeowners' insurance by territory. Therefore,
effective immediately, territorial rating plans may be submitted to this
Department, within the following guidelines:
Department staff will monitor the effectiveness of territory rating during the first year or two of its operation to determine whether results promised by the insurance industry are achieved, i.e. that Kansas enjoys a marked increase in availability of insurers and capacity, with the attendant improvement in affordability in this market. Insurers are encouraged to explore any other rating methods or development of innovative homeowners' policies, in addition to territorial rating, they believe will help us all achieve the two goals of better availability and affordability in this line of insurance. Our collective success in achieving these goals will determine whether territorial rating, as initially implemented in this state, continues as a means of encouraging efficient and fair marketing of this insurance.
I encourage you to contact our Fire and Casualty Division in
advance of preparing your filing to discuss any questions you have, so
that we can promptly respond to any plan you file with us.
Notice to Policyholders
increase or decrease in this homeowner policy reflects the losses in
your area of the state. Kansas has joined 46 other states in allowing
insurance companies to divide the state into territories for the purpose
of pricing homeowners' policies based on losses in each territory. The
1995 Kansas Legislature convened a Task Force to study the effect wind
and hail losses are having on the cost of homeowners' policies and the
Task Force recommended that insurance companies be permitted to price
homeowners' policies by territories. Since January of 1996, insurance
companies are allowed to calculate homeowners'
premiums based on their loss experience in different
geographic regions of the state. If you have any questions about how
your premium was calculated or more specific reasons for the change in
Your premium, please contact your agent.
of Bulletin 1996
on the number of calls our staff is fielding, it is clear there is still
some confusion about what we meant by "revenue neutral" in our
territorial rating bulletin. Perhaps the best way of clarifying this
issue is to answer specific questions you have raised:
we do territorial rating we will be frozen at 1995 rates for three years.”
‑ It was never the intent of our bulletin to freeze companies at
existing rates. Companies filing territorial rating plans will be
permitted reasonable rate increases, within the limits specified in the
bulletin, and as their loss and expense data will justify.
cannot file an overall rate
increase at the same time as a territorial rating plan." ‑
It is true we will not permit two separate rate filings in the same
year. This has been the Department policy for years. However, we will
permit companies to file an adjustment to base rates for all
policyholders and, in that same filing, an overlay of territorial zone
factors that adjust those base rates in accordance with your loss data.
We expect the net effect of those steps to comply with the restrictions
spelled out in our bulletin, e.g. restrictions on increases and revenue
neutral requirements. The best analogy of what we expect and will
approve is a filing that follows the model you presently use in personal
lines automobile ratemaking. While the territorial rating filing will
differ, in that the Commissioner has placed restrictions on filings that
do not apply to auto, the methodology will be very similar.