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HB2174 - 572R - S Ver
Senate Engrossed
House Bill
insurance;
modeling organizations; predictive models
(now: insurance;
modeling and data organizations)
State of Arizona
House of Representatives
Fifty-seventh Legislature
Second Regular Session
2026
HOUSE BILL 2174
AN
ACT
amending sections
20-235,
20-341, 20-368, 20-370, 20-381, 20-387, 20-388,
20-390, 20-392, 20-393, 20-394, 20-396, 20-409
and 20-3604,
arizona revised statutes; RELATING to transaction of
insurance business.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 20-235, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-235.
Insurers; financial disclosure; requirements
A. The director may adopt rules which require each
insurer licensed to write property or casualty insurance in this state to
report its loss and expense experience, investment income, administrative
expenses and other data, as he may require, for classes of risks which he may
designate. Such reports shall be in addition to the annual statement
required by section 20-223.
B. The department may designate one or more rate
service organizations or
advisory organizations
modeling and data organizations
to gather and compile the
experience and data.
C. The director by order may require an insurer
authorized to transact insurance in this state to submit statistical and other
financial data including the information prescribed in subsection A of this
section in a form and content consistent with rules adopted pursuant to
subsection A, with any model guideline, regulation, rule or act adopted by the
national association of insurance commissioners or with the classification
basis used by the insurer. The director shall prescribe the time
period and form in which the data shall be submitted.
D. An insurer who fails to provide the information
required under subsection C of this section is subject to payment of a late fee
of not more than one hundred dollars for each day of
delinquency. The director shall notify an insurer of late fees that
it will incur as a result of noncompliance with this section at least ten days
prior to the date any such late fees become due.
END_STATUTE
Sec. 2. Section 20-341, Arizona Revised Statutes, is amended to read:
START_STATUTE
20-341.
Purpose of insurance rate regulation
A. The purpose of this article is to promote the
public welfare by regulating insurance rates to the end that they shall not be
excessive, inadequate or unfairly discriminatory, and to authorize and regulate
cooperative action among insurers in rate making and in other matters within
the scope of this article. Nothing in this article is intended to
prohibit or discourage reasonable competition, or to prohibit or encourage,
except to the extent necessary to accomplish the purpose stated in this
section, uniformity in insurance rates, rating systems, rating plans or
practices. This article shall be liberally interpreted to carry into
effect the provisions of this section.
B. Where the rules and regulations of a rating
bureau or
advisory organization
modeling
and data organization
conflict with the law, the rules and regulations
do not apply.
END_STATUTE
Sec. 3. Section 20-368, Arizona Revised Statutes, is amended to read:
START_STATUTE
20-368.
Modeling and data organizations
A. Every group, association or other organization of
insurers, whether located within or outside this state, which assists insurers
which make their own filings or rating organizations in rate making, by the
collection and furnishing of loss or expense statistics, or by the submission
of recommendations, but which does not make filings under this article, shall
be known as
an advisory organization
a
modeling and data organization
.
B. Every
advisory organization
modeling and data organization
shall file with the director:
1. A copy of its constitution, its articles of
agreement or association or its certificate of incorporation and a copy of its
bylaws, rules and regulations governing its activities.
2. A list of its
insurer
members
, if applicable
.
3. The name and address of a resident of this state
upon whom notices or orders of the director or process affecting the
advisory organization
modeling and data
organization
may be served.
4. An agreement that the director may
examine the advisory organization in accordance with the provisions of section
20-370.
C. If, after a hearing, the director finds that the
furnishing of such information or assistance involves any act or practice which
is unfair or unreasonable or otherwise inconsistent with the provisions of this
article, he may issue a written order specifying in what respects such act or
practice is unfair or unreasonable or otherwise inconsistent, and requiring the
discontinuance of such act or practice.
D. No insurer which makes its own filings nor any
rating organization shall support its filings by statistics or adopt rate
making recommendations furnished to it by
an advisory
organization
a
modeling and data organization
which has not complied with this
section or with an order of the director involving such statistics or
recommendations issued under subsection C of this section. If the director
finds the insurer or rating organization to be in violation of this subsection,
he may issue an order requiring the discontinuance of the violation.
E. This section does not preclude a
modeling and data organization from filing a model pursuant to section 20-390,
subsection C.
END_STATUTE
Sec. 4. Section 20-370, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-370.
Examinations of rating organizations
A. The director, as often as he deems it expedient,
may make or cause to be made an examination of each rating organization
licensed in this state
, each advisory organization referred to in
section 20-368
and each group, association or other organization
referred to in section 20-369.� The reasonable costs of such examination
shall be paid by the rating organization
, advisory organization
or group, association or other organization examined upon presentation to it of
a detailed account of the cost.
B. The officers, managers, agents and employees of
the rating organization
, advisory organization
or group,
association or other organization may be examined at any time under oath, and
shall exhibit all books, records, accounts, documents or agreements governing
its method of operation.
C. The director shall furnish two copies of the
examination report to the organization, group or association examined and shall
notify the organization, group or association that, within twenty days
thereafter, it may request a hearing on the report or on any facts or
recommendations in the report. Before filing the report for public
inspection, the director shall grant a hearing to the organization, group or
association examined.
D. The report of the examination, when filed for
public inspection, shall be admissible in evidence in any action or proceeding
brought by the director against the organization, group or association
examined, or its officers or agents, and shall be prima facie evidence of the
facts stated in the report.
E. The director may withhold the report of the
examination from public inspection for such time as the director deems proper.
F. In lieu of the examination, the director may
accept the report of an examination made by the insurance supervisory official
of another state, pursuant to the laws of such state.
END_STATUTE
Sec. 5. Section 20-381, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-381.
Definitions
In this article, unless the context otherwise requires:
1. "Advisory organization":
(a) Means any person other than a
single insurer who assists two or more insurers or rate service organizations
in the making of rates by compiling and furnishing loss or expense statistics
or other statistical information and data, or by the submission of
recommendations as to rates, forms or supplementary rate information.
(b) Does not include a joint
underwriting association, any actuarial or legal consultant, any employee of an
insurer or insurers under common control or management or their employees or
manager.
2.
1.
"Loss
cost adjustment":
(a) Means that portion of a rate filed by an insurer
with the director that includes the insurer�s general expenses, total product
expenses, taxes, licenses and fee expenses and underwriting profit and
contingencies.
(b) Does not include loss adjustment expenses or
prospective loss costs.
3.
2.
"Loss
cost modification factor" means that rating factor filed by an insurer
with the director for the purpose of modifying the rate service organization�s
prospective loss cost filing.
3. "Modeling and data
organization":
(
a
) Means any
person other than a single insurer who assists two or more insurers or rate
service organizations in the making of rates by compiling and furnishing loss
or expense statistics or other statistical information and data, or by the submission
of recommendations as to rates, forms or supplementary rate information.
(
b
) Does not
include a joint underwriting association, any actuarial or legal consultant,
any employee of an insurer or insurers under common control or management or
their employees or manager.
4. "Prospective loss costs" means the
historical aggregate losses and loss adjustment expenses filed by a rate
service organization with the director on which a portion of a rate is based,
adjusted through actuarial trending to a future point in time and developed to
their ultimate values.
5. "Rate":
(a) 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 before any application of individual risk
variations based on loss or expense considerations.
(b) Does not include the minimum premium.
6. "Rate service organization":
(a) Means any person other than a single insurer who
assists insurers by compiling and furnishing loss or expense statistics and
recommending, making or filing rates, forms or supplementary rate information.
(b) Does not include a joint underwriting
association, any actuarial or legal consultant, any employee of an insurer or
insurers under common control or management, or their employees or manager.
7. "Supplementary rate information":
(a) Means any manual or plan of rates, statistical
plan, classification, rating schedule, minimum premium, schedule of fees,
including membership fees charged by a reciprocal or mutual insurer, rating
rule, rate related underwriting rule and other information used by an insurer
in making rates.
(b) Does not include the final rate pages that
combine the prospective loss costs with the loss cost adjustments.
END_STATUTE
Sec. 6. Section 20-387, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-387.
Delegation of rate making and rate filing obligations
A. An insurer may establish rates and supplementary
rate information based on the factors in section 20-384 using, if
desired, the recommendations of
an advisory organization
a modeling and data organization
, or rates and supplementary
rate information prepared by a rate service organization, with average expense
factors determined by the rate service organization or with such modification
for its own expense and loss experience as the credibility of that experience
allows.
B. An insurer may discharge its obligations pursuant
to section 20-385 by giving notice to the director that it uses rates and
supplementary rate information prepared by a designated rate service
organization, with such information about modifications of the rates as is
necessary to inform the director. The insurer's rates and
supplementary rate information are those filed by the rate service
organization, including any amendments to the rate as filed, subject to the
modifications filed by the insurer.
C. Licensed rate service organizations,
advisory organizations
modeling and data
organizations
and admitted insurers are authorized to exchange
information and experience data with rate service organizations,
advisory
organizations
modeling and data organizations
and
insurers in this and other states and may consult with them with respect to
rate making.
END_STATUTE
Sec. 7. Section 20-388, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-388.
Disapproval of rates
If the director finds that a rate is not in compliance with
section 20-383, the director shall issue an order specifying in what
respects it so fails and stating that, within thirty days after the order is
issued, the rate is no longer effective. The order does not affect any contract
or policy made or issued prior to the effective date of the order. The order
shall be served immediately pursuant to section 20-151. Any insurer, rate
service organization or
advisory organization
modeling and data organization
may request a hearing pursuant
to title 41, chapter 6, article 10, and the request for a hearing stays the
effectiveness of the order as provided in section 20-162.
END_STATUTE
Sec. 8. Section 20-390, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-390.
Modeling and data organizations; filing with director
A.
An advisory organization
a modeling and data organization
shall not conduct its
operations in this state until it files with the director:
1. A copy of its constitution, charter, articles of
organization, agreement, association or incorporation and a copy of its bylaws
and any other rules or regulations governing its activities.
2. A list of its
insurer
members and subscribers
, if applicable
.
3. The name and address of one or more residents of
this state upon whom notices, process affecting it or orders of the director
may be served.
B.
An advisory organization
a modeling and data organization
shall promptly file any
amendments to a document required to be filed pursuant to this section.
C. A MODELING
AND DATA ORGANIZATION
Shall FILE WITH THE DIRECTOR
MODELS TO BE USED BY INSURERS IN THIS STATE FOR MAKING RATES. THE
DIRECTOR MAY REQUIRE THE modeling and data organization to file SUPPORTING DATA
OR ANY ADDITIONAL INFORMATION RELATED TO THE CONTENT OF THE MODEL AND THE OUTPUTS
of the MODEL NECESSARY TO VERIFY THAT THE MODEL COMPLIES WITH THE REQUIREMENTS
OF THIS TITLE.
�
D. MODELS, ANY SUPPORTING DATA OR
ADDITIONAL INFORMATION requested BY THE DIRECTOR and model outputs filed by
modeling and data organizations pursuant to subsection c of this section are
CONFIDENTIAL AND NOT SUBJECT TO SUBPOENA or title 39, chapter 1.
C.
E.
It
is unlawful for
an advisory organization
a
modeling and data organization
to engage in any unfair or unreasonable
practice.
END_STATUTE
Sec. 9. Section 20-392, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-392.
Rate agreements among insurers prohibited
A. Except with respect to apportionment agreements
among insurers approved by the director pursuant to section 20-395, an
insurer shall not assume any obligation to any person, other than a
policyholder or other insurers which, with it, are under common control or
management or are members of a joint underwriting or joint reinsurance
organization, to use or adhere to certain rates or rules. No person
other than the director may impose any penalty or other adverse consequence for
failure of an insurer to adhere to certain rates or rules.
B. Members and subscribers of rate service
organizations or
advisory organizations
modeling and data organizations
may use the work products and services
of such organizations as their individual judgment may dictate. Such
use by two or more authorized insurers shall not be sufficient to support a
finding that an agreement to adhere exists and may be used only for the purpose
of supplementing direct evidence of such an agreement.
END_STATUTE
Sec. 10. Section 20-393, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-393.
Recording and reporting of experience
The director shall promulgate reasonable rules, including rules
providing statistical plans, for use by all insurers in the recording and
reporting of loss and expense experience, in order that the experience of such
insurers may be made available to the director. No insurer may be
required to record or report its experience on a classification basis
inconsistent with its own rating system. An insurer may report its
experience to any rate service organization or
advisory
organization
modeling and data organization
with
which it affiliates.
END_STATUTE
Sec. 11. Section 20-394, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-394.
Examination of rate service organizations and joint underwriting
and joint reinsurance organizations
The director, as often as considered necessary, may examine
each rate service organization
, each advisory organization
and each group, association or other organization filing
pursuant to section 20-391. The director shall examine only
those activities conducted pursuant to this article.� The director may examine
the officers, manager, agents and employees of such organizations at any time
under oath. The organization examined shall pay the reasonable costs of the
examination upon presentation to it of a detailed account of the costs. The
organization examined shall exhibit all books, records, accounts, documents or
agreements governing its method of operation. In lieu of the
examination the director may accept the report of an examination made by the
insurance supervisory official of another state, pursuant to the laws of such
state.
END_STATUTE
Sec. 12. Section 20-396, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-396.
Hearing and judicial review
Any insurer, rate service organization or
advisory
organization
modeling and data organization
to
which the director has issued an order or decision may request a hearing
pursuant to title 41, chapter 6, article 10 and, except as provided in section
41-1092.08, subsection H, seek judicial review pursuant to title 12,
chapter 7, article 6.
END_STATUTE
Sec. 13. Section 20-409, Arizona Revised
Statutes, is amended to read:
START_STATUTE
20-409.
Recognized surplus lines
A. If after a hearing the director finds that a
particular insurance coverage or type, class or kind of coverage is not readily
procurable from authorized insurers, the director may by order declare such
coverage or coverages to be recognized surplus lines until the director's
further order.
B. The order is subject to modification by the
director. The director shall modify any coverage if the director
determines that the coverage is no longer entitled to recognition as
surplus lines after a hearing held on the director's initiative or on the
request of any insurance producer, surplus lines broker, broker, insurer,
rating or
advisory organization
modeling
and data organization
, or other person.
END_STATUTE
Sec. 14. Section 20-3604, Arizona Revised Statutes, is amended to read:
START_STATUTE
20-3604.
Rules
A. The
director may adopt rules pursuant to title 41, chapter 6 to carry out this
article.
B. The rules may include regulation of reinsurance
arrangements relating to any of the following:
1. Life insurance policies with guaranteed nonlevel
gross premiums or guaranteed nonlevel benefits.
2. Universal life insurance policies with provisions
resulting in the ability of a policyholder to keep a policy in force over a
secondary guarantee period.
3. Variable annuities with guaranteed death or
living benefits.
4. Long-term care insurance policies.
5. Any other life and health insurance and annuity
products for which the national association of insurance commissioners adopts
model regulatory requirements with respect to credit for reinsurance.
C. Any rule adopted pursuant to subsection B,
paragraph 1 or 2 of this section may apply to any treaty that contains either
or both:
1. Policies issued on or after January 1, 2015.
2. Policies issued before January 1, 2015, if risk
pertaining to such pre-2015 policies is ceded in connection with the treaty, in
whole or in part, on or after January 1, 2015.
D. Any rule adopted pursuant to subsection B of this
section:
1. May require the ceding insurer, in calculating
the amounts or forms of security required to be held pursuant to rules adopted
by the department, to use the valuation manual adopted by the national
association of insurance commissioners under section 11B(1) of the national
association of insurance commissioners standard valuation law, including all
amendments adopted by the national association of insurance commissioners and
in effect on the date as of which the calculation is made, to the extent
applicable.
2. Does not apply to cessions to an assuming insurer
that
is licensed in at least twenty-six states or that is
licensed in at least ten states and licensed or accredited in a total of at
least thirty-five states and that
either:
(a) Meets the conditions prescribed in section 20-3602,
subsection H in this state.
(b) Is certified in this state.
(c) Maintains at least $250,000,000 in capital and
surplus as determined in accordance with the accounting practices and
procedures manual and amendments adopted by the national association of
insurance commissioners, excluding the impact of any allowed or prescribed
practices
, and that is either:
(
i
) Licensed in
at least twenty-six states.
(
ii
) Licensed
in at least ten states and licensed or accredited in a total of at least thirty-five
states
.
E. The authority to adopt rules pursuant to
subsection B of this section does not limit the department's general authority
to adopt rules pursuant to subsection A of this section.
END_STATUTE