[27 Pa.B. 3796]
[Continued from previous Web Page] § 73.135. Licensed producers.
(a) Individual policy. All individual policies of credit life insurance, credit A and H insurance or credit involuntary or voluntary unemployment insurance shall be issued only through a producer licensed in this Commonwealth. A person performing in connection with an individual policy a conduct which would fall within the definition of a producer shall be licensed as a producer.
(b) Employes of creditor or insurer. If a group policy is issued to a creditor, bona fide employes of the creditor or insurer may issue certificates and perform functions related to the issuance of certificates and administration of the group policy without being licensed as producers.
(c) Receipt of compensation without licensing. If a group policy is issued to a creditor, the creditor may, without being licensed as a producer, receive compensation for the issuance of certificates and performance of functions related to the issuance of certificates, subject to the limitation on compensation as provided in § 73.134 (relating to compensation of producers or creditors).
(d) Licensed agent. A licensed agent of the insurer who is not employed by the group policyholder may assist the group policyholder with the enrollment of persons in the program and with the issuance of certificates, but may not receive a commission from the group policyholder.
§ 73.136. Filing of forms and rates.
(a) Approval of forms and rates. Individual policies, group policies, group certificates, notices of proposed insurance, applications for insurance, endorsements and riders delivered or issued for delivery in this Commonwealth and premium rates and formulas used in this Commonwealth shall be filed with the Commissioner for approval in accordance with section 7 of the act (40 P. S. § 1007.7).
(b) Identification of filing. Each filing of an individual or group policy or group certificate shall be accompanied by a filing letter describing the specific type of credit instruments with which the form will be used. If the coverage is equal to the net unpaid indebtedness, the filing letter shall describe the method used to determine how the interest is earned. If an approved form is to be used with a type of credit instrument other than that stated in the original filing letter, or the method for earning interest is other than that as stated in the original filing letter, a new filing letter describing the specific type of loan and the interest charge calculation shall be filed.
(c) Readability.
(1) Forms shall be written in understandable language, which is not confusing or misleading to a person of average intelligence. Forms shall contain a definition or explanation of terminology that would not be ordinarily understood by a person of average intelligence.
(2) Forms may not contain inconsistent or contradictory language or provisions.
(3) Policies and group certificates shall accurately and completely explain the coverage and conditions of coverage. Group certificates shall be consistent with the group policies and contain provisions applicable only to insured debtors.
(d) Combination forms. Insurers may provide life coverage, life coverage with TPD benefit, A and H coverage (any and all benefit plans), or unemployment coverage (any and all benefit plans) on either a single coverage or joint coverage basis within the same policy or certificate. Every individual policy or group certificate shall provide a means of identifying which debtor is insured under which coverage.
(e) Identity of insurer.
(1) Forms shall disclose the identity of the insurer.
(2) If more than one insurer provides credit insurance coverages, a multicompany insurance application, policy or group certificate may be used, as long as the form clearly discloses which insurer provides which coverage.
(f) Credit instrument application.
(1) If an insurer relies on the credit insurance election portion of a credit instrument as the application for insurance, the credit insurance election portion shall be filed with the Department for approval. Once approved, the identical credit insurance election portion of the form may be incorporated into other credit instruments without the necessity of refiling the credit insurance election form.
(2) If an insurer relies on the credit election portion of a credit instrument as the application for insurance, the credit insurance election portion shall be clearly differentiated in appearance from the rest of the credit instrument.
(g) Identification. No credit insurance rate book, rate chart, rate card, rate table, or refund table may be used or distributed in this Commonwealth, unless the premium payment, gross or net coverage basis and plan of benefits appear therein.
(h) Out-of-State coverage. If a group policy of credit insurance has been issued in another state, the insurer shall:
(1) File for approval the group certificate and notice of proposed insurance to be delivered or issued for delivery in this Commonwealth.
(2) Certify that the rates to be charged do not exceed the rates of the insurer on file with the Department.
(3) Identify the applicable rates on file with the Department. If no applicable rates are on file, file for approval the premium rates and formulas in accordance with § 73.106, § 73.109, § 73.112 and § 73.113.
(4) File the group policy with the Department for information purposes only.
§ 73.137. Compensating balances or special deposits.
(a) Definition. Compensating balances or special deposit accounts shall include the following:
(1) The deposit of premiums or money to the account of the insurer or an affiliate of the insurer when the account is either noninterest bearing or bearing interest at a rate less than the current market rate. The rate of interest will be considered less than usual if a higher rate of interest could be earned by combining the account with one or more other accounts, unless there is a business reason unrelated to the credit insurance program for maintaining separate accounts.
(2) The remittance of premiums to the insurer after the expiration of the grace period, except as provided in § 73.132(b) (relating to collection of premiums), on a regular basis thereby resulting in an arrearage period which is constant.
(3) The retention of premiums by a producer to whom the financial institution remits premiums beyond a reasonable period of time needed for the producer to remit premiums to an insurer, if the delay is a continuing practice in the premium paying process.
(4) Any other practice which unduly delays receipt of premiums by the insurer on a regular basis, or which involves the use of the financial resources of an insurer for the benefit of a financial institution.
(b) Illegal inducement. The use of compensating balances or special deposit accounts in connection with a credit insurance program violates section 635 of The Insurance Department Act of 1921 (40 P. S. § 271), section 346 of The Insurance Company Law of 1921 (40 P. S. § 471) and section 5(a)(4) of the Unfair Insurance Practices Act (40 P. S.§ 1171.5(a)(4))
(c) Premium basis. The prohibition on compensating balances and special deposits applies regardless of whether premiums are due the insurer on the single premium basis or on the monthly outstanding balance premium basis.
(d) Nonapplicability. This section does not prevent an insurer from making deposits in a financial institution which deposits are not related to a credit insurance program.
§ 73.138. Financial statement reserves.
The following reserves for credit insurance policies shall be maintained by insurers doing credit life insurance or credit A and H insurance business in this Commonwealth.
(1) The reserves for credit life insurance may not be less than the reserves as computed using the Commissioners 1980 Extended Term Mortality Table, using mortality rates applicable to male lives for insurance issued prior to or on or after ____(Editor's Note: The blank refers to the effective date of adoption of this proposal) with interest at the rate specified in section 301(c) of the Insurance Department Act of 1921 (40 P. S. § 71).
(2) The reserves for single premium credit A and H insurance or TPD benefits may not be less than the mean of the amounts of unearned premium calculated from gross premiums in force on the following bases:
(i) The pro rata basis.
(ii) Rule of 78 basis.
(3) The reserves for monthly premium credit A and H insurance and TPD benefits may not be less than the amount of unearned premium calculated from gross premiums in force on the pro rata basis.
(4) The claim reserves for credit A and H insurance shall be calculated using a generally accepted actuarial method or other reasonable method acceptable to the Commissioner.
§ 73.139. Credit insurance on open end loans.
(a) General requirements. Credit insurance may be provided in connection with open end loans. This insurance is provided on the outstanding balance of the indebtedness, subject to any maximum dollar amount of coverage or limited benefit period specified in the group certificate or individual policy. If no indebtedness exists, the insurance amount shall be zero and shall remain so until an advance or charge occurs under the plan. This section supersedes other provisions of this chapter as they relate to credit insurance on open end loans, to the extent that they are inconsistent.
(b) Identification. A credit insurance program designed for use with open end loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Symbols. The symbols used in this section shall have the following meaning:
(1) i = actual monthly interest rate (APR/12).
(2) i' = (i + .0025).
(3) n = log(z/(z-i))/log(1+i) rounded up to an integer.
(4) NFC = gross/net conversion rate for an open end loan with the monthly benefit equal to a minimum monthly payment that is based on a percentage of the current month's balance.
(5) z = minimum monthly payment expressed as a decimal fraction.
(d) Life benefit. The credit life insurance benefit shall be equal to the lesser of:
(1) The amount of the outstanding balance of the indebtedness at the time of death.
(2) The maximum dollar amount of coverage specified in the group certificate or individual policy.
(e) TPD benefit. The TPD benefit shall be equal to the lesser of:
(1) The amount of the outstanding balance of the indebtedness at the commencement of the total and permanent disability plus the amount any monthly interest accruing on the net unpaid indebtedness from the date TPD commences until the date the TPD benefit is paid.
(2) The maximum dollar amount of coverage specified in the group certificate or individual policy.
(f) A and H and involuntary unemployment benefit. The minimum monthly insurance benefit for A and H insurance and involuntary unemployment insurance shall be equal to the lesser of:
(1) The minimum loan payment for the month in which disability or unemployment commences, excluding indebtedness incurred after the disability or unemployment commences and repayments made during the month in which disability or unemployment commences. The minimum loan payment shall be based on a percentage of the current month's balance.
(2) The maximum monthly dollar amount of coverage specified in the group certificate or individual policy.
(g) A and H and involuntary unemployment premium rates. If the A and H and involuntary unemployment premium rates are based on the net outstanding balance, the premium rates shall be determined as follows:
(1) If the benefit amount is equal to the minimum monthly loan payment and the benefit is paid until the indebtedness existing at the time of disability or involuntary unemployment, including accrued interest, is repaid, the following adjustment shall be made:
(i) For open end loans where the minimum monthly payment is based on a percentage of the current month's balance, the monthly outstanding balance prima facie rates published in the Pennsylvania Bulletin shall be converted from rates to be applied to gross monthly outstanding balance, to rates to be applied to the net monthly outstanding balance. The following formula may be used:
NFC = (n/an i\') (Opn)
(ii) Each creditor shall have its A and H and involuntary unemployment rate based on the creditor's minimum repayment schedule and current annual percentage rate. The insurer shall review the minimum monthly installment and annual percentage rate of each creditor at least annually. If there is a change in the minimum repayment percentage or the annual percentage rate, and the resulting premium rate is greater than the current premium rate, the insurer may adjust the rate. If the resulting rate is lower than the current premium rate, the insurer shall adjust the rate where the change results in a rate reduction of greater than 5%.
(iii) Either the actual interest rate used in calculating the loan or interest rate intervals may be used when converting the gross premium prima facie rates published in the Pennsylvania Bulletin in accordance with subparagraphs (i) and (ii). When interest intervals are used, the monthly interest rate ''i'' shall be set equal to the midpoint of the range. The interest rate intervals shall be set so as to include all interest rates that produce the same loan duration for a specified payback percentage. The insurer shall include with the premium rate filing, required by § 73.136, a complete description of the method and formulas used to determine the interest rate intervals.
(2) For a benefit plan that is different than the plan described in paragraph (1), the insurer shall include with the premium rate filing, a description of the method and formulas used to determine the coverage period and benefit period, and a description of the method and formulas used to adjust the gross outstanding balance rates for a full coverage period and a full benefit period to net outstanding balance rates for the appropriate coverage period and benefit period. The insurer shall include the actuarial justification of the method.
(h) Furnishing of forms. Forms required to be furnished to a debtor as evidence of coverage need be furnished only once for each open end loan and may remain in force until terminated.
(i) Assumption of coverage. If an existing group policy providing insurance coverage in connection with open end loans is assumed by another insurer, the assuming insurer shall issue a replacement certificate to each existing certificate holder.
(j) Premium refund. Refund of premiums is not required in the event of termination of the coverage, except with respect to the termination of credit A and H, credit involuntary unemployment, or credit voluntary unemployment insurance as provided in § 73.127(a)(2) (relating to refunds).
§ 73.140. Credit insurance on closed end variable interest loans.
(a) General requirements. Credit insurance may be provided in connection with closed end variable interest loans. This section supersedes other provisions of this chapter as they relate to credit insurance on closed end variable interest loans to the extent that they are inconsistent.
(b) Identification. A credit insurance program designed for use with closed end variable interest loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Disclosure. If premiums are payable on a single premium basis and life insurance coverage is provided, the individual policy or group certificate shall contain a disclosure that the insurance benefit may end prior to the maturity date of the loan. If premiums are payable on a single premium basis and A and H, involuntary unemployment or voluntary unemployment insurance coverage is provided, the individual policy or group certificate shall contain a disclosure that the insurance benefits may not be sufficient to pay the entire amount of the periodic loan payment or may end prior to the maturity date of the loan. The disclosure shall appear in prominent type on the first page of the individual policy or group certificate.
(d) Benefit amount. Subject to policy limitations, if premiums are payable on a single premium basis, the monthly A and H insurance benefit and the involuntary unemployment insurance benefit shall equal the amount of the original monthly installment payment. Subject to policy limitations, if premiums are payable on a monthly outstanding balance basis, the monthly A and H and involuntary unemployment insurance benefits shall equal the amount of the monthly installment payment amount on the day disability or unemployment began.
(e) Coverage term. If premiums are payable on a single premium basis, the term of the insurance shall extend until the original scheduled maturity date of the indebtedness, unless coverage terminates earlier in accordance with the policy or certificate provisions. If the term of the insurance extends to the original scheduled maturity date of the indebtedness, it may be extended for an additional 2 months to cover delinquencies or extensions due to increased interest rates. If premiums are payable on a monthly outstanding balance basis, the term of the insurance shall extend until the loan is repaid, unless coverage terminates earlier in accordance with the policy or certificate provisions.
(f) Refund. A refund of any unearned premiums shall be made as provided in § 73.127 (relating to refunds) if the indebtedness is prepaid prior to the original scheduled maturity date of the indebtedness as a result of a decline in interest rates. The refund shall be based on the term and interest rate applicable at the inception of the loan and the actual elapsed term.
(g) Premium determination. If premiums are payable on a single premium basis, the premium shall be based on the expected amount and term of coverage, in consideration of the amount financed, the expected loan term and the interest rate applicable to the loan at the time the insurance is elected.
§ 73.141. Credit insurance on lease transactions.
(a) General requirements. Credit insurance may be provided in connection with lease transactions. This section supersedes other provisions of this chapter as they relate to credit insurance on lease transactions, to the extent that they are inconsistent.
(b) Identification. A credit insurance program designed for use with lease transactions shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Lease filing. Insurers shall file a lease form and lease worksheet for each total monthly lease payment calculation method. An insurer, which has received approval of filed insurance forms, premiums and refund calculations for use with a particular monthly lease payment calculation method, may use the approved forms, premiums and refund calculations with any lease form providing for the same method. Approved insurance forms may be used with a different total monthly lease payment calculation method if the insurer files the lease form and receives approval of premium and refund calculations. The premium and refund calculations shall be consistent with the manner in which the newly filed total monthly lease payment is calculated.
(d) Lease payment methodology. Insurers shall include with the premium rate filing the methodology for calculating the actual monthly lease payment, including such factors as taxes, depreciation, interest, insurance premiums and service fees.
(e) Coverage basis. The decreasing credit life insurance benefit or credit life insurance with TPD benefit shall equal the decreasing term lease insurance amount, as defined in § 73.103 (relating to definitions). If the residual amount of a lease transaction is insured, the insurance shall be provided on a level term basis.
(f) Benefit amount. The monthly A and H insurance benefit and the involuntary unemployment insurance benefit shall equal the amount of each monthly lease payment. No credit A and H or involuntary unemployment insurance may be provided on the residual amount.
(g) Payment to beneficiary. If the credit life or TPD proceeds are applied to continue lease payments, the difference between the sum of the remaining payments plus the amount of level insurance, if applicable, and the sum of the present value of the remaining payments plus the present value of the residual payment, if applicable, shall be paid to the named beneficiary or the estate of the debtor regardless of whether the benefit is paid to the creditor as a lump sum or in installments. The present value shall be calculated using an interest rate not less than 5%.
(h) Single premium calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, the single premium shall equal the sum of:
(1) The single premium for decreasing insurance with an amount of initial insured indebtedness equal to the initial amount of decreasing lease insurance, as defined in § 73.103, and with a number of equal monthly installments equal to the number of months in the lease term, less the number of monthly installments paid at the beginning of the lease.
(2) The single premium for level insurance with an amount of insurance equal to the amount of level lease insurance, as defined in § 73.103, and with a number of monthly installments equal to the number of months in the lease term.
(i) Single premium formula filing. Every insurer shall submit its formula for calculating the single premiums for the life, life with TPD, A and H, involuntary unemployment and voluntary unemployment insurance coverages consistent with the calculation of the monthly lease payment.
§ 73.142. Credit insurance on fixed residual loans.
(a) General requirements. Credit insurance may be provided in connection with motor vehicle fixed residual value financing. This section supersedes other provisions of this chapter as they relate to credit insurance on fixed residual loans, to the extent that they are inconsistent.
(b) Identification. A credit insurance program designed for use with fixed residual value financing shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Filing requirement. Every insurer shall file a fixed residual value financing loan form and the formula demonstrating the manner in which the actual installment payment will be calculated for each installment payment calculation method.
(d) Level life coverage. If the fixed residual value amount is insured, life insurance coverage shall be provided on a level term basis.
(e) A and H and involuntary unemployment coverage. The monthly A and H insurance benefit and the involuntary unemployment insurance benefit may not exceed the amount of each monthly installment payment. No credit A and H or involuntary unemployment insurance may be provided on the residual amount.
(f) Single premium gross calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, when the benefit is the gross unpaid indebtedness, the single premium shall equal the sum of the single premium for decreasing insurance with an amount of initial insured gross unpaid indebtedness equal to the sum of the schedule of installment payments and the single premium for level insurance with an amount of insurance equal to the fixed residual value.
(g) Single premium net calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, when the benefit is the net unpaid indebtedness, the single premium shall equal the sum of the single premium for decreasing insurance based on an initial amount financed minus an amount equal to the fixed residual value, and the single premium for level insurance with an amount of insurance equal to the fixed residual value.
(h) Payment to beneficiary. If the insurance benefit is the gross unpaid indebtedness, and if the life insurance or TPD proceeds are applied to continue the installment, the group policy and group certificate or individual policy providing the coverage shall provide that the difference between the sum of the remaining payments plus the amount of level insurance, if applicable, and the sum of the present value of the remaining payments plus the present value of the fixed residual value payment, if applicable, shall be paid to the named beneficiary or the estate of the debtor, regardless of whether the benefit is paid to the creditor as a lump sum or in installments. The present value shall be calculated using an interest rate of at least 5%.
§ 73.143. Credit insurance on balloon loans.
(a) General requirements. Credit insurance may be provided in connection with balloon loans. This section supersedes other provisions of this chapter as they relate to credit insurance on balloon loans, to the extent that they are inconsistent.
(b) Identification. A credit insurance program designed for use with balloon loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing for forms and rates).
(c) Disclosure. Every individual policy or group certificate shall contain a disclosure that neither the A and H nor the involuntary unemployment insurance benefit is provided on the balloon amount of the loan. The disclosure shall appear in prominent type on the first page of the individual policy or group certificate.
(d) Benefit amount.
(1) For credit life insurance or credit life insurance with TPD benefit, the balloon amount shall be included in determining the amount of gross unpaid indebtedness or net unpaid indebtedness.
(2) For credit A and H, involuntary unemployment, or voluntary unemployment insurance, no monthly benefit may be provided on the balloon amount.
(e) Life insurance single premium gross calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis when the benefit is the gross unpaid indebtedness, the single premium shall equal the sum of the single premium for the decreasing insurance with an amount of initial insured gross unpaid indebtedness equal to the actual amount of initial insured gross unpaid indebtedness minus the balloon amount and the single premium for level insurance with an amount of insurance equal to the balloon amount.
(f) Life insurance single premium net calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis when the benefit is the net unpaid indebtedness, the single premium shall equal the sum of the single premium for the decreasing insurance based on the initial amount financed minus the balloon amount and the single premium for level insurance with an amount of insurance equal to the balloon amount.
[Pa.B. Doc. No. 97-1210. Filed for public inspection August 1, 1997, 9:00 a.m.]
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