(a) The commissioner shall establish a residual market plan to provide equitable apportionment of insurance that may be afforded to applicants who are in good faith entitled to, but who are unable to procure, such insurance through ordinary methods. The residual market plan shall include rules for classification of risks and rates.

Terms Used In Hawaii Revised Statutes 431:14-116.6

  • Equitable: Pertaining to civil suits in "equity" rather than in "law." In English legal history, the courts of "law" could order the payment of damages and could afford no other remedy. See damages. A separate court of "equity" could order someone to do something or to cease to do something. See, e.g., injunction. In American jurisprudence, the federal courts have both legal and equitable power, but the distinction is still an important one. For example, a trial by jury is normally available in "law" cases but not in "equity" cases. Source: U.S. Courts
  • Expenses: means that portion of a rate attributable to acquisition, field supervision, collection expenses, general expenses, taxes, licenses, and fees; provided that no tax credit received by any insurer under § 431:7-207 shall reduce the expenses of the insurer for purposes of determining the insurer's rate under this article for the first year of any insurer's rate which is approved pursuant to this article and for which the insurer submits before July 1, 1993, a filing pursuant to the applicable sections of this code to modify the rate in existence on June 30, 1992. See Hawaii Revised Statutes 431:14-101.5
  • Rate: means that cost of insurance per exposure unit whether expressed as a single number or as a prospective loss cost with an adjustment to account for the treatment of expenses, profit, and individual insurer variation in loss experience, prior to any application of individual risk variations based on loss or expense considerations, and does not include minimum premium. See Hawaii Revised Statutes 431:14-101.5
(b) Any insured placed with the plan shall be notified that insurance coverage is being afforded through the plan and not through the private market. Written notification shall be given to the insured within ten days of placement with the plan.
(c) To ensure that plan rates are made adequate to pay claims and expenses, insurers shall develop a means of obtaining loss and expense experience at least annually. Each insurer shall submit a report on loss and expense experience, when available, with the department in sufficient detail to make a determination of rate adequacy.
(d) The plan shall provide a formula allowing an insurer who voluntarily removes an insured risk from the residual market to be eligible for a take-out credit applicable against that insurer’s residual market assessment base levied by the plan. The terms and conditions of the take-out credit shall be as follows:

(1) An insurer shall receive a credit against its assessment base for the amount of the annual premium reflected in the insurer’s financial statements for the respective calendar year. This reported premium shall be stated on the same financial basis as the premiums that are reported for use in determining each insurer’s residual market assessment base and shall be subject to subsequent adjustments and audits;
(2) The credit applicable to the residual market assessment base shall be as follows:

(A) First year: $2 credit for every $1 of premium removed;
(B) Second year: $1 credit for every $1 of premium removed; and
(C) Third year: $1 credit for every $1 of premium removed;
(3) If the insurer keeps the insured risk out of the residual market for three years, that insurer shall receive credit for each of three years. If the insurer does not write the business for three years, the insurer shall receive credit only for the period of time that the insurer covered the risk in the voluntary market. Under no circumstances shall an insurer receive credit for risks returned to the residual market within one policy year;
(4) An insurer shall not return an insured taken from the residual market to the residual market after one year of coverage to subsequently reissue insurance to the insured to obtain the higher credit established for the first year of residual market removal in paragraph (2)(A);
(5) There shall be no maximum limit on credits received; provided that the credits shall not reduce the insurer’s assessment base below zero;
(6) The kind and amount of coverage to be offered to voluntary risks shall not be less than those afforded by the policy being replaced, unless the kinds and amounts are refused by the insureds;
(7) The commissioner may approve loss sensitive rating plans for larger companies that generate more than $150,000 in insurance premiums; and
(8) The commissioner may adjust or terminate the credit program depending on market conditions; provided that any adjustment or termination shall not affect any credit earned prior to the adjustment or termination.
(e) The commissioner may adopt rules in accordance with chapter 91 to effectuate the purposes of this section.
(f) As used in this section, unless the context otherwise requires:

“Plan” means the residual market plan.

“Residual market assessment base” means the basis for assessing insurers for losses from the residual market, as provided for in a residual market plan.

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