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1999 SESSION

980487146
HOUSE BILL NO. 721
Offered January 23, 1998
A BILL to amend and reenact §§ 38.2-233, 38.2-1921, 38.2-3717, 38.2-3718, 38.2-3719, 38.2-3720, 38.2-3725, 38.2-3726, 38.2-3727, 38.2-3728, 38.2-3730, 38.2-3734, 38.2-3735, and 38.2-3737 of the Code of Virginia, relating to credit insurance.
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Patrons-- Cantor, Robinson, Callahan, Deeds, Murphy and Tata
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Referred to Committee on Corporations, Insurance and Banking
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Be it enacted by the General Assembly of Virginia:

1. That §§ 38.2-233, 38.2-1921, 38.2-3717, 38.2-3718, 38.2-3719, 38.2-3720, 38.2-3725, 38.2-3726, 38.2-3727, 38.2-3728, 38.2-3730, 38.2-3734, 38.2-3735, and 38.2-3737 of the Code of Virginia are amended and reenacted as follows:

§ 38.2-233. Credit involuntary unemployment insurance; disclosure and readability.

A. If a creditor makes available to the debtors more than one plan of credit involuntary unemployment insurance as defined in § 38.2-122.1, all debtors must be informed of all such plans for which they are eligible.

B. When elective credit involuntary unemployment insurance is offered, the borrower shall be given written disclosure shall be informed that purchase of credit involuntary unemployment insurance is not required and is not a factor in granting credit. The disclosure shall also include notice that the borrower has the right to use alternative coverage or to buy insurance elsewhere.

C. If the debtor is given a contract which includes a single premium payment to be charged for elective credit involuntary unemployment insurance, the debtor shall be given:

1. A contract which does not include the elective credit involuntary unemployment insurance premium; or

2. A disclosure form which shall clearly disclose the difference in premiums charged for a contract with credit involuntary unemployment insurance and one without credit involuntary unemployment insurance. This disclosure shall include the difference between the amount financed, the monthly payment and the charge for insurance. The form shall be signed and dated by the debtor and the agent soliciting the application or the creditor's representative soliciting the enrollment request. A copy of this disclosure shall be given to the debtor and a copy shall be made a part of the creditor's loan file.

DC. If credit involuntary unemployment insurance is required as security for any indebtedness, the debtor shall have the option of (i) furnishing the required amount of insurance through existing policies of insurance owned or controlled by him or (ii) procuring and furnishing the required coverage through any insurer authorized to transact insurance in this Commonwealth. The creditor shall inform the debtor of this option in writing and shall obtain the debtor's signature acknowledging that he understands this option.

ED. The disclosure requirements set forth in subsections A, B, C and D shall be separately disclosed in another form or forms approved by the Commission. Notwithstanding the provisions of § 38.2-1921, when credit involuntary unemployment insurance is offered with credit life insurance or credit accident and sickness insurance, the disclosure requirements set forth in subsections A, B, C and D of § 38.2-233 A and B of this section and the disclosure requirements set forth in subsections A, B, C and D A and B of § 38.2-3735 may be disclosed together in a form which shall be approved by the Commission.

FE. The Commission shall not approve any form providing credit involuntary unemployment insurance unless the policy or certificate is written in nontechnical, readily understandable language, using words of common everyday usage:

1. Each insurer is required to test the readability of its policies or certificates by use of the Flesch Readability Formula, as set forth in Rudolf Flesch, The Art of Readable Writing (1949, as revised 1974);

2. A total readability score of forty or more on the Flesch score is required; and

3. All policies or certificates within the scope of this section shall be filed with the Commission, accompanied by a certificate setting forth the Flesch score and certifying compliance with the guidelines set forth in this section.

GF. A credit involuntary unemployment insurance policy or certificate which provides truncated or critical period coverage, or any other type of similar coverage that does not provide benefits or coverage for the entire term or amount of the indebtedness, shall be subject to the following requirements:

1. The credit involuntary unemployment insurance policy or certificate shall include a statement printed on the face of the policy or first page of the certificate which clearly describes the limited nature of the insurance. The statement shall be printed in capital letters and in bold twelve-point or larger type; and

2. The credit involuntary unemployment insurance policy or certificate shall not include any benefits or coverage other than truncated or critical period coverage or any other type of similar coverage that does not provide benefits or coverage for the entire term or amount of the indebtedness.

HG. A portion of the premium charged for credit involuntary unemployment insurance may be allowed by the insurer to the creditor for providing and furnishing such insurance, and no such allowance shall be deemed a rebate of premium or as interest charges or consideration or an amount in excess of permitted charges in connection with the loan or other credit transaction.

IH. All of the acts necessary to provide and service credit involuntary unemployment insurance may be performed within the same place of business in which is transacted the business giving rise to where the debtor entered into the loan or other credit transaction.

JI. Subsections A, B, C, D, E and K shall not apply to credit involuntary unemployment insurance that will insure open end monthly outstanding balance credit transactions if the following criteria are met If credit involuntary unemployment insurance is offered or applied for on an open-ended credit transaction by mail, telephone or in a take one brochure, the enrollment request need not be filed for approval pursuant to subsections A and B of § 38.2-3725 and subsections D and E of this section, need not comply with this section and need not contain minimum type size provided:

1. Credit involuntary unemployment insurance that will insure the open end monthly outstanding balance credit transaction is offered to the debtor after the loan or credit transaction it will insure has been approved by the creditor and has been effective at least seven days;The enrollment request contains:

a. A statement that insurance is optional, voluntary or not required; and

b. No questions relating to insurability other than the debtor's age and active employment status;

2. The solicitation for the insurance is by mail or telephone. The person making the solicitation shall not condition the future use or continuation of the open end credit upon the purchase of credit involuntary unemployment insurance;The following items are disclosed:

a. The name and address of the insurers; and

b. A description of the coverage offered including the amount of the coverage, the premium rate for the insurance offered and any exceptions, limitations or restrictions;

3. The creditor makes available only one plan of credit involuntary unemployment insurance to the debtor; Offers are stated in the enrollment requests or separately, provided that the enrollment requests make reference to the offers, when the offers are separate;

4. The debtor is provided written confirmation of the insurance coverage within thirty sixty days of the effective date of such coverage. The effective date of such coverage shall begin on the date the solicitation is accepted; and

5. The individual policy or certificate has printed on it a notice stating that if, during a period of at least thirty days from the date the policy or certificate is delivered to the policy owner or certificate holder, the policy or certificate is surrendered to the insurer or its agent with a written request for cancellation, the policy or certificate shall be void from the beginning and the insurer shall refund any premium paid for the policy or certificate. This statement shall be prominently located on the face page of the policy or certificate, and shall be printed in capital letters and in bold face twelve-point or larger type.

K. Subsections A, B, C, D, E and J shall not apply to open end credit transactions by mail, telephone or brochure solicitations that are not excluded from the requirements of subsections A, B, C, D and E by subsection J where the insurer is offering only one plan of credit involuntary unemployment insurance and the following criteria are met:

1. The following disclosures shall be included in solicitations, whether as part of the application or enrollment request or separately:

a. The name and address of the insurer(s) and creditor; and

b. A description of the coverage offered, including the amount of coverage, the premium rate for each plan of insurance offered, and a description of any exceptions, limitations or restrictions applicable to such coverage.

2. The application or enrollment requests shall comply as follows:

a. Notwithstanding requirements set forth elsewhere, the application and enrollment request shall be printed in a type size of not less than eight-point type, one-point leaded;

b. The application or enrollment request shall contain a prominent statement that the insurance offered is optional, voluntary or not required;

c. The application or enrollment request shall contain no questions relating to insurability other than the debtor's age or date of birth and active employment status; and

d. If the disclosures required by subdivision 1 of this subsection are not included in the application or enrollment request, the application and enrollment request shall make reference to such disclosures with sufficient information to assist the reader in locating such disclosures within separate solicitation material.

3. Each insurer proposing to utilize an application or enrollment request in such transactions shall file such form for approval by the Commission. If the insurer anticipates utilizing such application or enrollment form in more than one solicitation, the insurer shall submit, as part of its filing of such form, a certification signed by an officer of the insurer, stating that any such subsequent use of the application or enrollment form will utilize the same form number and will not vary in substance from the wording and format in which the form is submitted for approval. Upon approval of such application or enrollment form by the Commission, the insurer shall be permitted to utilize such form in various solicitation materials provided that the application or enrollment form, when incorporated into such solicitation materials, has the same form number and wording substantially identical to that contained on the approved application or enrollment form. Notwithstanding the provisions of § 38.2-1921, when credit involuntary unemployment insurance is offered with credit life insurance or credit accident and sickness insurance, insurers may file one common form which shall be approved by the Commission and shall incorporate the requirements of subsection K of § 38.2-233 and subsection F of § 38.2-3737, according to the requirements stated in this paragraph and in subdivision F 3 of § 38.2-3737.

§ 38.2-1921. Combination policies.

The Commission may approve for use in this Commonwealth policies or forms for writing at divisible or indivisible rates and premiums any combination of the classes of insurance set forth in subsection A of § 38.2-1902, except insurance on or with respect to operating properties of railroads. The rates and premiums for combination policies, whether divisible or indivisible, shall be subject to this chapter except as provided in § 38.2-3719.

§ 38.2-3717. Scope.

All life insurance and all accident and sickness insurance issued or sold in connection with loans or other credit transactions shall be subject to the provisions of this chapter except:

1. Such insurance issued in connection with a loan or other credit transaction of more than ten years duration;

2. Such insurance written in connection with a credit transaction that is:

a. Secured by a first mortgage or deed of trust; and

b. Made to finance the purchase of real property or the construction of a dwelling thereon, or to refinance a prior credit transaction made for such a purpose;

3. Where the issuance of such insurance is an isolated transaction on the part of the insurer not related to an agreement or a plan for insuring debtors of the creditor.

Policy forms filed with the Commissioner pursuant to § 38.2-3725 and the premium rates approved for use with credit transactions of ten years or less may be used for credit transactions of more than ten years' duration or when secured by a first mortgage or deed of trust.

§ 38.2-3718. Definitions.

For the purposes of this chapter:

"Commission" means the State Corporation Commission.

"Credit personal property insurance" means insurance covering direct or indirect damage or loss, by fire or other named perils, including those of extended coverage, to the personal property of the borrower all or part of which is the security for the loan, which insurance shall be for an amount and term not to exceed the amount and term of the loan.

"Creditor" means the lender of money or vendor or lessor of goods, services, or property, rights or privileges, for which payment is arranged through a credit transaction, or any successor to the right, title or interest of any such lender, vendor, or lessor and an affiliate, associate or subsidiary of any of them or any other person in any way associated with them.

"Credit transaction" means any transaction by the terms of which the repayment of money loaned or loan commitment made, or payment for goods, services or properties sold or leased is to be made at a future date or dates.

"Critical period coverage" means a death benefit or an accident and sickness insurance benefit in which the benefit is equal to a specified number of monthly payments or the remaining payments on the loan, whichever is less.

"Debtor" means a borrower of money or a purchaser or lessee of goods, services, property, rights or privileges for which payment is arranged through a credit transaction.

"Form" means any policy, contract, rider, endorsement, amendment, certificate, application, enrollment request, or notice of proposed insurance pertaining to credit life insurance or credit accident and sickness insurance. For the purpose of administering §§ 38.2-3726, 38.2-3727 and 38.2-3730, (i) the earned premiums and incurred claims of all credit accident and sickness insurance forms issued in this Commonwealth with the same waiting period will be combined to determine the loss ratio in this Commonwealth regardless of differences in the contractual terms of each form and, (ii) the earned premiums and incurred claims of all credit life insurance forms issued in this Commonwealth will be combined to determine the loss ratio in this Commonwealth regardless of differences in the contractual terms or coverage types.

"Indebtedness" means the total amount payable by a debtor to a creditor in connection with a loan or other credit transaction.

"Lump sum disability benefit" means a single payment equal to the outstanding balance of the loan on the original date of disability plus accrued interest payable to a debtor after total disability is established.

"Open-end credit" means credit extended under an agreement in which:

1. The creditor reasonably contemplates repeated transactions;

2. The creditor imposes a finance charge from time to time on an outstanding unpaid balance; and

3. The amount of credit that may be extended to the debtor during the term of the agreement (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

"Truncated coverage" means a credit life insurance benefit or a credit accident and sickness insurance benefit with a term of insurance coverage that is less than the term of the loan.

§ 38.2-3719. Forms of credit life insurance and credit accident and sickness insurance.

A. Credit life insurance and credit accident and sickness insurance shall be issued only in the following forms:

1. Individual policies of life insurance issued to debtors on the term plan;

2. Individual policies of accident and sickness insurance issued to debtors on a term plan or disability benefit provisions in individual policies of credit life insurance;

3. Group policies of life insurance issued to creditors providing insurance upon the lives of debtors on the term plan;

4. Group policies of accident and sickness insurance issued to creditors on a term plan insuring debtors or disability benefit provisions in group credit life insurance policies to provide such coverage.

B. A policy of group credit life insurance or group credit accident and sickness insurance may be issued to a creditor or its parent holding company or to a trustee, trustees or agent designated by two or more creditors, which creditor, holding company, affiliate, trustee, trustees or agent shall be deemed the policyholder, to insure debtors of the creditor or creditors, subject to the following requirements:

1. The debtors eligible for insurance under the policy shall be all of the debtors of the creditor or creditors, or all of any class or classes of the group. The policy may provide that the term "debtors" shall include (i) borrowers of money or purchasers of goods, services or property for which payment is arranged through a credit transaction; (ii) the debtors of one or more subsidiary corporations; and (iii) the debtors of one or more affiliated corporations, proprietors or partnerships if the business of the policyholder and of such affiliated corporations, proprietors or partnerships is under common control.

2. The premium for the policy shall be paid by the policyholder, either from the creditor's funds, or from charges collected from the insured debtors, or from both. Except as provided in subdivision 3 of this subsection, a policy on which no part of the premium is to be derived from the collection of such identifiable charges must insure all eligible debtors.

3. Credit life insurance and credit accident and sickness insurance must be offered to all eligible debtors of a creditor except those for whom evidence of individual insurability is not satisfactory to the insurer.

C. The individual and group coverages permitted by subsection A may be offered in combination with credit involuntary unemployment insurance, credit personal property insurance, or both, under separate and distinct policies or as a combined policy. Insurers issuing combined coverage in accordance with this section shall not be required to offer the separate and distinct forms comprising the combined coverages for separate purchase. The purchase of insurance coverages combined in accordance with this section shall be voluntary on the part of the debtor.

Insurance coverages combined in accordance with this section shall not be deemed to be in violation of § 38.2-132 nor § 38.2-1902.

Notwithstanding the provisions of § 38.2-122.1, credit involuntary unemployment insurance may be issued in combination with other coverages as provided in this section.

§ 38.2-3720. Amount of credit life insurance and credit accident and sickness insurance.

A. Credit life insurance.

1. Where an indebtedness is repayable in substantially equal installments, the amount of credit life insurance shall at no time exceed the actual amount of unpaid indebtedness.

2. Notwithstanding the provisions of subdivision A 1, insurance on agricultural credit transaction commitments not exceeding one year in duration may be written up to the amount of the loan commitment, on a nondecreasing or level-term plan.

3. Notwithstanding the provisions of subdivision A 1 of this subsection, or any other subsection, insurance on educational credit transaction commitments may be written for the amount of the loan commitment.

B. Credit accident and sickness insurance. -

1. The total amount of periodic indemnity payable by credit accident and sickness insurance in the event of disability, as defined in the policy, shall not exceed the aggregate of the periodic scheduled unpaid installments of the indebtedness; and the amount of each periodic indemnity payment shall not exceed the original indebtedness divided by the number of periodic installments, except in the case of open-end credit plans where the periodic indemnity may be based upon a percentage of the unpaid balance as of the date of disability, not to exceed six percent. The provisions of this subdivision do not preclude the payment of a lump sum benefit in the case of total and permanent disability equal to the equivalent of all future periodic indemnity payments.

2. Notwithstanding the provision of subdivision 1, an insurer may provide lump sum disability payments to debtors if a sixty- or ninety-day retroactive accident and sickness insurance premium rate is utilized with open-end credit transactions.

C. Maximum aggregate provisions. - A provision in a credit life insurance or credit accident and sickness insurance policy or certificate issued thereunder that sets a maximum limit on total benefits payable thereunder shall apply only to that specific indebtedness for which such policy or certificate was issued.

D. The amount of credit life insurance on an indebtedness of any debtor shall not exceed $70,000 $225,000 with any one insurance company.

§ 38.2-3725. Policy forms to be filed with Commission; approval or disapproval by Commission.

A. No form shall be delivered or issued for delivery in this Commonwealth until a copy of each form has been filed with and approved by the Commission.

B. If a group policy of credit life or credit accident and sickness insurance is delivered in another state, the insurer shall be required to file the group certificate, application or enrollment request, and notice of proposed insurance delivered or issued for delivery in this state for approval. These forms shall comply with § 38.2-3724, with the exception of subsection D and § 38.2-3737. The premium rates mustshall comply with those established in this chapter or it must be demonstrated to the satisfaction of the Commission that the rates are actuarially equivalent to those required by §§ 38.2-3726 and 38.2-3727 if the coverage differs from that required in Virginia. In no case shall the premiums exceed those set by the Commission in §§ 38.2-3726 and 38.2-3727, as amended by § 38.2-3730.

C. The Commission shall disapprove or withdraw approval previously given to any form if the Commission determines that:

1. It does not comply with the laws of this Commonwealth;

2. It contains any provision or has any title, heading, backing or other indication of the contents of any or all of its provisions which encourage misrepresentation or are unjust, unfair, misleading, deceptive or contrary to the public policy of this Commonwealth; or

3. The premium rates or charges are not reasonable in relation to the benefits provided.

D. The benefits provided by any credit life insurance form shall be considered reasonable in relation to the premium charged provided that the rate does not exceed the current prima facie rate set by the Commission. The prima facie rate that shall be effective January 1, 1993, shall be that set forth in § 38.2-3726. Thereafter, effective January 1, 19951999, the Commission shall, on a triennial basis, set forth adjusted prima facie rates that will achieve a sixty percent loss ratio of sixty percent or such lower loss ratio recognizing all of the following factors: actual and expected loss experience, general and administrative expenses, loss settlement and adjustment expenses, reasonable creditor compensation, investment income, the manner in which premiums are charged, and other acquisition costs, reserves, taxes, regulatory license fees and fixed assessments, reasonable insurer profit and other relevant data consistent with generally accepted actuarial standards. The methodology used by the Commission in setting the prima facie rates shall be as set forth in § 38.2-3730. The prima facie rates shall be provided to insurers no later than September 1 prior to each triennium and shall be effective as to all forms issued on or after January 1 of the following triennium.

E. The benefits provided by any credit accident and sickness insurance form shall be considered reasonable in relation to the premium charged provided that the rate does not exceed the current prima facie rates set by the Commission. The Commission shall set forth adjusted prima facie rates that will achieve a fifty percent loss ratio as of January 1, 1993, and adjusted prima facie rates that will achieve a sixty percent loss ratio as of January 1, 1995of fifty percent or such lower loss ratio recognizing all of the following factors: actual and expected loss experience, general and administrative expenses, loss settlement and adjustment expenses, reasonable creditor compensation, investment income, the manner in which premiums are charged, and other acquisition costs, reserves, taxes, regulatory license fees and fund assessments, reasonable insurer profit and other relevant data consistent with generally accepted actuarial standards. Thereafter, the The Commission shall, on a triennial basis, set forth adjusted prima facie rates that will achieve a sixty percent loss ratio. The methodology used by the Commission in setting the prima facie rates shall be as set forth in § 38.2-3730. The prima facie rates shall be provided to insurers no later than September 1, 1992, for the rates to be effective January 1, 1993; September 1, 1994, for the rates to be effective January 1, 1995; and September 1 prior to each triennium thereafter, and shall be effective as to all forms issued on or after such January 1 of the following triennium.

F. If necessary to assure availability of credit insurance, the Commission may consider other factors in order to provide a fair return to insurers.

GF. The Commission shall, within thirty days after the filing of any form requiring approval, notify the insurer filing the form of the form's approval or disapproval. If a form is disapproved, the Commission shall also notify the insurer of its reasons for disapproval. The Commission may extend the period within which it shall indicate its approval or disapproval of a form by thirty days. Any form received but not approved or disapproved by the Commission shall be deemed approved at the expiration of the thirty days, or sixty days if the period is extended. No insurer shall use a form deemed approved under the provisions of this section until the insurer has filed with the Commission a written notice of its intent to use the form together with a copy of the form and the original transmittal letter thereof. The notice shall be filed in the offices of the Commission at least ten days prior to the insurer's use of the form.

HG. If the Commission proposes to withdraw approval previously given to any form, it shall notify the insurer in writing not less than thirty days prior to the proposed effective date of withdrawal and give its reasons for withdrawal. No insurer shall issue such forms or use them after the effective date of withdrawal, except as provided in subsection I of this section.

IH. Any insurer aggrieved by the disapproval or withdrawal of approval of any form may proceed as indicated in § 38.2-1926.

§ 38.2-3726. Credit life insurance rates.

A. The benefits provided by any credit life insurance form shall be deemed reasonable in relation to the premium charged or to be charged if the rates do not exceed the rates set forth below, except as such rates are modified pursuant to the requirements of § 38.2-3730:

1. $.7519 per month per $1,000 of outstanding insured indebtedness if premiums are payable on a monthly outstanding balance basis.

2. $.48 per $100 of initial indebtedness repayable in twelve equal monthly installments. If premiums are payable on a single premium basis and the amount of the insurance decreases in equal monthly amounts, the following formula shall be used to develop single premium rates from the outstanding balance rate: 

               (n+1)

    Sp = ------------------- Op

         20 (1 + .0363 n)

                 ------

                    24

where Sp is the single term premium per $100 of initial insured

indebtedness, n is the credit term in months, and Op is the monthly

outstanding balance rate per $1,000 of outstanding insured

indebtedness.

3. If premiums are payable on a single premium basis when the benefit provided is level term, the following formula shall be used to develop single premium rates from the outstanding balance rate: 

              n

   Sp = ---------------- Op

        10 (1 + .055 n)

                -----

                  24

where Sp is the single term premium per $100 of initial insured

indebtedness, n is the credit term in months, and Op is the monthly

outstanding balance rate per $1,000 of outstanding insured

indebtedness.

4. If the benefits provided are other than those described in the introduction to this subsection, premium rates for such benefits shall be actuarially consistent with the rates provided in the above subdivisions.

5. Joint coverage on any of the bases in this subsection shall not exceed 165 percent of the specific rate for that type of coverage.

B. The premium rates in subsection A shall apply to policies providing credit life insurance to be issued with or without evidence of insurability, to be offered to all debtors, and, except as set forth below, containing: (i) no exclusions other than suicide within six months of the incurred indebtedness; and (ii) age restrictions making ineligible for coverage debtors age seventy or over at the time the indebtedness is incurred or debtors having attained age seventy or over on the maturity date of the indebtedness.

1. Insurance written in connection with an open-end credit plan may provide for the cessation of insurance or a reduction in the amount of insurance upon attainment of an age not less than seventy.

2. On insurance written in connection with closed-end credit plans and open-end credit plans where the amount of insurance is based on or limited to the outstanding unpaid balance, no provision excluding or denying a claim for death resulting from a preexisting condition except for those conditions for which the insured debtor received medical diagnosis or treatment within six months preceding the effective date of coverage and which caused the death of the insured debtor within six months following the effective date of coverage. The effective date of coverage for each part of the insurance attributable to a different advance or charge to the plan account is the date on which the advance or charge is posted to the plan account.

3. At the option of the insurer and in lieu of a preexisting condition exclusion on insurance written in connection with open-end credit where the amount of insurance is based on or limited to the outstanding unpaid balance, a provision limiting the amount of insurance payable on death due to natural causes to the balance as it existed six months prior to the date of death if there have been one or more increases in the outstanding balance during such six-month period and if evidence of insurability has not been required in the six-month period prior to date of death.

§ 38.2-3727. Credit accident and sickness insurance rates.

A. The Commission shall, based on a morbidity study, promulgate seven-, fourteen- and thirty-, thirty-, sixty- and ninety-day retroactive and nonretroactive credit accident and sickness insurance premium rates which will reasonably be expected to produce the loss ratio as required by subsection E of § 38.2-3725. These prima facie rates will be published by the Commission no later than September 1, 19921998, and will be effective on or after January 1, 19931999. After this date, the premium charged in connection with any credit accident and sickness insurance policy or certificate issued in this Commonwealth may not exceed the then-published prima facie rate as set forth in this section and as may be adjusted pursuant to § 38.2-3730 38.2-3725.

The morbidity study shall be based on policies and certificates issued in this Commonwealth for the past three years, the premiums charged for those contracts and the experience produced by those contracts. The Commission may also take into consideration the reserves held on these contracts and the methods used to produce those reserves and any other information which the Commission in its discretion may consider necessary to produce a credible morbidity study.

B. The benefits provided by any credit accident and sickness insurance form shall be deemed reasonable in relation to the premium charged or to be charged if the rates do not exceed the rates initially published by the Commission pursuant to subsection A of this section, except as such rates are modified pursuant to the requirements of § 38.2-3730.

C. If premiums are paid on the basis of a premium rate per month per $1,000 of outstanding insured indebtedness, they shall be computed according to the following formula or according to a formula approved by the Commission which produces rates actuarially equivalent to the single premium rates: 



Opn =  20  Spn
       n+1




Where Spn = Single Premium Rate per $100 of initial insured indebtedness
repayable in n equal monthly installments.




Op = Monthly Outstanding Balance Premium Rate per $1,000.




n = Original repayment period, in months.




D. A credit accident and sickness insurance form may not be issued with a
waiting period, retroactive or nonretroactive, which differs from the waiting
periods set forth in this section.




ED. The premium rates in subsection B shall apply to policies providing credit
accident and sickness insurance to be issued with or without evidence of insurability, to be offered
to all eligible debtors, and containing:




1. No provision excluding or denying a claim for disability resulting from
preexisting conditions except for those conditions for which the insured debtor
received medical advice, diagnosis or treatment within six months preceding the
effective date of the debtor's coverage and which caused loss within the six
months following the effective date of coverage. The effective date of coverage
for each part of the insurance attributable to a different advance or charge to
an open-end credit account is the date on which the advance or charge is posted
to the plan account.




2. No other provision which excludes or restricts liability in the event of
disability caused in a specific manner except that it may contain provisions
excluding or restricting coverage in the event of normal pregnancy and
intentionally self-inflicted injuries.




3. No actively-at-work requirement more restrictive than one requiring that the
debtor be actively at work at a full-time gainful occupation on the effective
date of coverage. "Full-time" means a regular work week of not less than thirty
hours. A debtor shall be deemed to be actively at work if absent from work due
solely to regular day off, holiday or paid vacation.




4. No age restrictions, or only age restrictions making ineligible for coverage
debtors sixty-five or over at the time the indebtedness is incurred or debtors
who will have attained age sixty-six or over on the maturity date of the
indebtedness.




5. A daily benefit equal in amount to one-thirtieth of the monthly benefit
payable under the policy for the indebtedness.




6. A definition of "disability" which provides that during the first twelve
months of disability the insured shall be unable to perform the duties of his
occupation at the time the disability occurred, and thereafter the duties of
any occupation for which the insured is reasonably fitted by education,
training or experience.




7. A provision written in connection with an open-end credit plan which may
provide for the cessation of insurance or reduction in the amount of insurance
upon attainment of an age not less than sixty-five.




FE. Joint coverage on any of the bases in this section shall not exceed 165
percent of the rates applicable to that type of coverage.




§ 38.2-3728. Use of rates.




A. Use of prima facie rates.  An insurer that files rates or has rates on file
that are not in excess of the prima facie rates set forth in § 38.2-3726 or
published as set forth in § 38.2-3727, to the extent adjusted pursuant to §
38.2-3730,  may use those rates without further proof of their reasonableness.




B. Use of rates higher than prima facie rates.  An insurer may file for
approval of and use rates that are higher than the prima facie rates set forth
in § 38.2-3726 or published as set forth in § 38.2-3727, to the extent adjusted
by § 38.2-3730.  In order to use these higher rates, it shall be demonstrated
to the satisfaction of the Commission that the use of such higher rates will result in a
ratio of claims incurred to premiums earned (assuming the use of such higher rates) that
is not less than the loss ratios as required by § 38.2-3725 D and E for those
accounts to which such higher rates apply and that such upward deviations will not
result on a statewide basis for that insurer of a ratio of claims incurred to
premiums earned of less than the expected loss ratio underlying the current
prima facie rate developed or adjusted pursuant to § 38.2-3730.  Deviations
effective for 1993 and 1994 1998 and 1999 for credit life insurance shall be
derived based upon a fifty percent loss ratio.




If rates higher than the prima facie rates provided for in §§ 38.2-3726 and
38.2-3727, to the extent adjusted pursuant to § 38.2-3730, are filed for
approval, the filing shall specify the account or accounts to which such rates
apply. Such rates may be applied on an equitable basis approved by the
Commission to only one or more accounts specified by the insurer for which the
experience has been less favorable than expected.




C. Approval period of deviated rates.




1. A deviated rate will be in effect for a period of time not longer than the
experience period used to establish such rate.  In no event will deviated rates
remain in effect after the effective date that new prima facie rates are
effective as set forth in § 38.2-3730 38.2-3725.




2. Notwithstanding subsection A of this section, the prima facie rates shall be
employed in the event that the account becomes insured by another insurer.




D. As used in this section:




1. "Experience" means "earned premiums" and "incurred claims" during the
experience period.




2. "Experience period" means the most recent period of time for which
experience is reported, but not for a period longer than three full years.




3. "Incurred Claimsclaims" means total claims paid during the experience
period, adjusted for the change in claim reserve.




§ 38.2-3730. Experience reports and adjustment of prima facie rates.




A. Each insurer doing insurance business in this Commonwealth shall annually
file with the Commission and the National Association of Insurance Commissioners a report
of credit life and credit accident and sickness written on a calendar year basis.  Such
report shall utilize the Credit Insurance Supplement-Annual Statement Blank as
then approved by the National Association of Insurance Commissioners. Such
filing shall be made in accordance with and no later than the due date in the
Instructions in the Annual Statement.




B. The Commission shall, on a triennial basis, publish notice and conduct a
hearing to determine the actual loss ratio for each form of insurance and adjust the
prima facie rates, as provided in §§ 38.2-3726 and 38.2-3727, by applying the
ratio of the actual loss ratio to the loss ratio standard set forth in §
38.2-3725 to the prima facie rates.  The Commission shall, after such hearing,
publish the adjusted actual statewide prima facie rates to be used by insurers
during the next triennium.  As set forth in this section, the following formula
shall be used to adjust the prima facie rates:





         Actual Loss Ratio



   PFR X -------------------



         Loss Ratio Standard






Where PFR is the prima facie rate as provided in §§ 38.2-3726 and 38.2-3727,
the Actual Loss Ratio is the ratio of the incurred claims to the earned premiums at prima
facie rates for all companies for the preceding three years as reported in the
Annual Statement Supplements and the Loss Ratio Standard is the loss ratio
provided in § 38.2-3725.




C. In the event that three years of experience is not available using prima
facie rates published by the Commission, the Commission may adjust prima facie rates
using the number of years of experience available at prima facie rates previously
published by the Commission.




§ 38.2-3734. Insurance agent license requirements.




A. Any person who, in this Commonwealth, on behalf of an insurer licensed in
this Commonwealth, solicits, negotiates, procures or effects individual or group policies
of credit life insurance or credit accident and sickness insurance, shall first apply for
and obtain a license from the Commission as either a life and health insurance
agent or as a credit life and health insurance agent as defined in § 38.2-1800
of this title, and shall be required to be appointed to represent such insurer in
this Commonwealth as set forth in § 38.2-1833.




B.  Notwithstanding subsection A, employees of a creditor or insurer, or of
their respective affiliates or related entities, may enroll debtors under a group
policy of credit life, credit accident and sickness, credit unemployment or credit
property insurance without holding an agent's license provided that no
commission is paid to the employee.  Enrolling debtors means the process of
insuring debtors under a group policy which includes informing the debtor of
the availability of coverages, calculating the insurance charge, preparing and
delivering the certificate of insurance, answering questions regarding the
coverages and assisting the debtor in making an informed decision whether or
not credit insurance is to be elected as a part of a credit transaction.




§ 38.2-3735. Plans of insurance; readability.




A. If a creditor makes available to the debtors more than one plan of credit
life insurance or more than one plan of credit accident and sickness insurance,
all debtors must be informed of all such plans for which they are eligible.  In
the case of credit life insurance:




1. If; if a creditor offers a plan of insurance that insures the actual amount
of unpaid indebtedness, the creditor shall also offer to the debtor a plan of insurance that insures
only the actual amount of indebtedness less any unearned interest or finance
charges; and




2. In the event that a plan of insurance that insures the actual amount of
unpaid indebtedness is offered, the creditor shall provide to each debtor a
disclosure form which shall clearly disclose the difference in premiums charged
for a contract wherein the gross indebtedness is insured versus a contract
wherein only the net indebtedness is insured.  This disclosure shall include
the differences between the amount financed, the monthly payment and the total
charge for each type of insurance.  The form shall be signed and dated by the
debtor and the agent soliciting the application or the creditor's
representative soliciting the enrollment request.  A copy of this disclosure
shall be given to the debtor, and a copy shall be made a part of the creditor's
loan file.




B. When elective credit insurance is offered, the borrower must be given
written disclosure informed that purchase of credit insurance is not required
and is not a factor in granting credit.  The disclosure shall also include
notice that the borrower has the right to use alternative coverage or to buy
insurance elsewhere.




C. If the debtor is given a contract which includes a single premium payment to
be charged for elective credit insurance, the debtor must be given:




1. A contract which does not include the elective credit insurance premium; or




2. A disclosure form which shall clearly disclose the difference in premiums
charged for a contract with credit insurance and one without credit insurance.  This
disclosure shall include the difference between the amount financed, the monthly
payment and the charge for each kind of insurance.  The form shall be signed
and dated by the debtor and the agent soliciting the application or the
creditor's representative soliciting the enrollment request. A copy of this
disclosure shall be given to the debtor and a copy shall be made a part of the
creditor's loan file.  The offers provided for in subsection A are not required
if the debtor is provided information which discloses the cost difference for a contract
with credit insurance and one without credit insurance.




D. If credit life insurance or credit accident and sickness insurance is
required as security for any indebtedness, the debtor shall have the option of
(i) furnishing the required amount of insurance through existing policies of
insurance owned or controlled by him or (ii) procuring and furnishing the
required coverage through any insurer authorized to transact insurance in this
Commonwealth. The creditor shall inform the debtor of this option in writing
and shall obtain the debtor's signature acknowledging that he understands this
option.




E. Readability. - The Commission shall not approve any form unless the policy
or certificate is written in nontechnical, readily understandable language,
using words of common everyday usage:




1. Each insurer is required to test the readability of its policies or
certificates by use of the Flesch Readability Formula, as set forth in Rudolf
Flesch, The Art of Readable Writing (1949, as revised 1974);




2. A total readability score of forty or more on the Flesch score is required;
and




3. All policies or certificates within the scope of this section shall be filed
with the Commission, accompanied by a certificate setting forth the Flesch
score and certifying compliance with the guidelines set forth in this section.




§ 38.2-3737. Application.




A. No contract of insurance upon a debtor shall be made or effectuated unless
at the time of the contract, the debtor, being of lawful age and competent to
contract for insurance, applies for the insurance in writing on a form approved
by the Commission.




B. The application or enrollment request shall be required to contain the
following information if eligibility for coverage is determined by the answers to
questions regarding the applicant's health:




1. Contain the name and signature of the agent who solicited the application or
enrollment requestof the insurer, the name and age of the debtor, the premium,
rate or amount payable by the debtor separately for credit life insurance and credit
accident and sickness insurance, and the type of insurance coverage provided; 




2. Contain the name and address of the insurer and creditor; the name and age
of the debtor(s); the premium, rate or amount payable by the debtor separately
for credit life insurance and credit accident and sickness insurance; the type
of insurance coverage provided; the date of application; and separately, the
amount and term, including the effective and cancellation dates, of the
insurance and loan contracts; and




32. Include the disclosure offer requirements set forth in subsections A, and
B, C and D of § 38.2-3735 unless such requirements have been separately
disclosed in another form or forms approved by the Commission.




C. The application or enrollment request form shall be separate and apart from
the loan or credit transaction papers and will refer exclusively to insurance
coverage unless health questions are not asked to determine eligibility and the
applicant is enrolled under a group policy by an employee who does not receive a
commission.  The application or enrollment request may be included in the loan or
credit transaction papers in a form as provided for in the Federal Truth in
Lending Act and Regulation Z regarding disclosure of credit insurance charges.




D. No individual or group credit life insurance or credit accident and sickness
insurance application form shall contain a question of general good health
unless the application form contains appropriate specific questions concerning
the applicant's health history or medical treatment history.




E. Neither this section nor subsection B of § 38.2-3735 shall apply to credit
life or credit accident and sickness insurance that will insure open-end monthly
outstanding balance credit transactions if the following criteria are met If
credit life insurance and credit accident and sickness insurance are offered or applied
for on an open-ended credit transaction by mail, telephone or in a take-one brochure the
enrollment request need not be filed for approval pursuant to § 38.2-3725, need
not comply with this section nor § 38.2-3735, and need not contain minimum type
size provided that:




1. The credit life insurance and credit accident and sickness insurance that
will insure the open-end monthly outstanding balance credit transaction are
offered to the debtor after the loan or credit transaction that it will insure
has been approved by the creditor and has been effective at least seven
days;The enrollment request contains:




a. A statement that insurance is optional, voluntary or not required; and




b. No questions relating to insurability other than the debtor's age and if
applicable active employment;




2. The solicitation for the insurance is by mail or telephone. The person
making the solicitation shall not condition the future use or continuation of
the open-end credit upon the purchase of credit life or credit accident and
sickness insurance;The following items are disclosed:




a. The name and address of the insurer; and




b. A description of the coverage offered including the amount of the coverage
the premium rate for the insurance offered and any exceptions, limitations or
restrictions;




3. The creditor makes available only one plan of credit life insurance and one
plan of credit accident and sickness insurance to the debtor Offers are stated
in the enrollment requests or separately, provided that the enrollment requests make
reference to the offers;




4. The debtor is provided written confirmation of the insurance coverage within
thirty days of the effective date of such coverage. The effective date of
coverage shall begin on the date the solicitation is accepted; and




5. The individual policy or certificate has printed on it a notice stating that
if, during a period of at least thirty days from the date that the policy or
certificate is delivered to the policyowner or certificate holder, the policy
or certificate is surrendered to the insurer or its agent with a written
request for cancellation, the policy or certificate shall be void from the
beginning and the insurer shall refund any premium paid for the policy or
certificate. This statement shall be prominently included on the face page of
the policy or certificate, and shall be printed in capital letters and in bold
12-point or larger type.




F. The following shall be applicable to open-end credit transactions by mail,
telephone, or brochure solicitations, that are not excluded from the requirements of
this section and of subsection B of § 38.2-3735 by subsection E, where the
insurer is offering only one plan of credit life insurance or one plan of credit
accident and sickness insurance:




1. Section 38.2-3735 shall not apply to such transactions, provided that the
following disclosures are included in such solicitations, whether as part of
the application or enrollment request or separately:




a. The name and address of the insurer(s) and creditor; and




b. A description of the coverage offered, including the amount of coverage, the
premium rate for each plan of insurance offered, and a description of any
exceptions, limitations, or restrictions applicable to such coverage.




2. Subsections B and D of this section shall not apply to such transactions,
provided that the application or enrollment request utilized as part of such
transaction:




a. Is printed in a type size of not less than eight-point type, one point
leaded, notwithstanding the requirements set forth in subdivision D 5 of §
38.2-3724 regarding minimum type size for policies and certificates;




b. Contains a prominent statement that the insurance offered is optional,
voluntary, or not required;




c. Contains no questions relating to insurability other than the debtor's age
or date of birth and, if applicable, active employment status; and




d. If the disclosures required by subdivision 1 of this subsection are not
included in the application or enrollment request, makes reference to such
disclosures with sufficient information so as to assist the reader in locating such
disclosures within the solicitation.




3. Each insurer proposing to utilize an application or enrollment request in
such transactions shall file such form for approval by the Commission. If the
insurer anticipates utilizing such application or enrollment form in more than one
solicitation, the insurer shall submit, as part of its filing of such form, a
certification signed by an officer of the insurer, stating that any such
subsequent use of the application or enrollment form will utilize the same form
number and will not vary in substance from the wording and format in which the
form is submitted for approval. Upon approval of such application or enrollment
form by the Commission, the insurer shall be permitted to utilize such form in
various solicitation materials, provided that the application or enrollment
form, when incorporated into such solicitation materials, has the same form
number and wording substantially identical to that contained on the approved
application or enrollment form.




G. Notwithstanding the provisions of subsection A, a contract of insurance may
be made or effectuated in connection with a credit transaction between a creditor
regulated pursuant to Chapter 4.01 (§ 6.1-225.1, et seq.) of Title 6.1 or 12
U.S.C. § 1751 et seq. and a debtor who is of lawful age, competent to contract
for the insurance and a member of the creditor if:




1. The credit transaction and the solicitation for such insurance is effected
by mail, telephone or other electronic means;




2. The purchase of credit insurance is not required by the creditor and is not
a factor in granting the credit;




3. The creditor or insurer, within three business days after the credit
transaction is effected, transmits to the debtor, either separately or with the
documents that pertain to the credit transaction, an application or enrollment
request form approved by the Commission which includes or to which is attached
a prominent notice that clearly advises the debtor that unless he mails the
completed and signed application or enrollment request to the creditor within
forty-five days following the date of the credit transaction, all such coverage
requested in connection with the credit transaction will be void from the
beginning; and




4. In the event the debtor does not transmit the completed and signed
application or enrollment request to the creditor within the time specified in
subdivision 3, the full amount of the premium charged for the insurance is
returned to or credited to the account of the debtor and written notice thereof
is sent to the debtor within fifteen days of the date the policy or certificate
is cancelled.