PROPOSED RULEMAKING
INSURANCE DEPARTMENT
[31 PA. CODE CH. 113]
Notices of Increase in Premium and Midterm Cancellation or Nonrenewal of Policies
[26 Pa.B. 4434] The Insurance Department (Department) proposes to amend Subchapter G (relating to increase in premium and midterm cancellation or nonrenewal of commercial property and casualty policies) to read as set forth in Annex A. These amendments are proposed under the authority of section 9 of the act of July 3, 1986 (P. L. 396, No. 86) (40 P. S. § 3409).
Purpose
Chapter 113 (relating to miscellaneous provisions) was initially promulgated to deal with problems posed by cancellations and nonrenewals of commercial property and casualty insurance policies. The authorizing statute, Act 86, was adopted in 1986 and was recently amended by Act 10 of 1995, which became effective August 12, 1995. Accordingly, the Department now seeks to modify Chapter 113 to be consistent with the revised statutory requirements. Specifically, Chapter 113 is being amended to reduce the 60-day notice of intent to increase premiums for commercial policies to a 30-day notice of premium increase, consistent with the statutory change. Further, Chapter 113 is being revised to eliminate the requirement that insurers provide written notice of estimated premiums to the insured at least 30 days prior to the renewal date, because the statute no longer mandates this requirement. Additional clarifying language has also been included consistent with the statutory changes.
Explanation of Regulatory Requirements
This proposal adds the definition of ''agent'' and ''insurer'' and deletes the definition of ''insured'' in § 113.81 (relating to definitions). Additional definitions are proposed to be included to clarify those affected by the regulations and the role of each entity. The definition of ''insured'' is proposed to be deleted because the current regulations include a definition of ''named insured.''
Section 113.82 (relating to notice of premium increase) proposes to incorporate the statutory mandates of Act 10 of 1995. Subsection (a) is proposed to be amended to require insurers to provide advance notice of any premium increase not less than 30 days before the renewal date. Previously, insurers were required to provide a 60-day notice of intent to increase premium. Subsections (b) and (c) are proposed to be revised to mirror more closely the language of Act 10. Act 10 requires that the notice be ''provided'' to the insured. It does not require that the notice be ''written'' or ''sent'' to the insured, as does the current regulation. Finally, subsection (d) proposes to place responsibility for documenting compliance on insurers while allowing insurers flexibility to satisfy the requirements of that subsection.
Section 113.83 (relating to notice of estimated premium increase) is proposed to be deleted in its entirety. Act 10 removed the statutory obligation to provide notice of estimated premium increase.
Section 113.86 (relating to notices of nonrenewal or cancellation and return of unearned premium forwarded by surplus lines agents) is proposed to be revised to delete a reference to return of unearned premium. Section 113.87 (relating to return of unearned premiums) currently addresses the issue of return of unearned premium. Additionally, § 113.86 is proposed to be revised to delete specific reference to surplus lines insurers. The proposed language would allow insurers, both admitted and nonadmitted, to delegate authority to agents for issuance of cancellation and nonrenewal notices.
Affected Parties
Commercial property and casualty insurers transacting business in this Commonwealth and surplus lines insurers who write insurance on commercial property and casualty risks in this Commonwealth will be directly affected by these amendments. Policyholders, as recipients of cancellation and nonrenewal notices, will be indirectly affected.
Fiscal Impact
State Government
The amendments will not have an impact on Department costs associated with monitoring industry compliance.
General Public
It is expected that savings to the insurance industry resulting from these amendments will be passed along to insurance consumers in the form of lower rates.
Political Subdivisions
These amendments will have no impact on costs to political subdivisions.
Private Sector
It is estimated that the industry will realize a $2.2 million savings per year resulting in the elimination of the estimated premium notice.
Paperwork
These amendments will impose no additional paperwork requirements on the Department and reduce the paperwork requirements imposed on the insurance industry.
Effectiveness/Sunshine Data
The proposed amendments will become effective upon final adoption and publication in the Pennsylvania Bulletin as final rulemaking. No sunset date has been assigned.
Contact Person
Questions or comments regarding the proposed rulemaking may be addressed in writing to Helfried G. LeBlanc, Deputy Insurance Commissioner for Consumer Services and Enforcement, 1321 Strawberry Square, Harrisburg, PA 17120, (717) 787-6174, within 30 days following publication of this notice in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), the Department submitted a copy of these proposed amendments on August 29, 1996, to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Committee on Insurance and the Senate Committee on Banking and Insurance. In addition to submitting these proposed amendments, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1982-2, ''Improving Government Regulations.'' A copy of this material is available to the public upon request.
If IRRC has objections to any portion of the proposed amendments, it will notify the Department within 30 days of the close of the public comment period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review prior to final publication of the regulations by the Department, the General Assembly and the Governor of objections raised.
LINDA S. KAISER,
Insurance CommissionerFiscal Note: 11-130. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART VII. PROPERTY, FIRE AND
CASUALTY INSURANCE
CHAPTER 113. MISCELLANEOUS PROVISIONS
Subchapter G. INCREASE IN PREMIUM AND MIDTERM CANCELLATION OR NONRENEWAL OF COMMERCIAL PROPERTY AND CASUALTY POLICIES § 113.81. Definitions.
The following words and terms, when used in this subchapter, have the following meanings unless the context clearly indicates otherwise:
* * * * * Agent--An individual, partnership or corporation, licensed by the Department, who contracts with an insurer to sell insurance on behalf of the insurer. With respect to policies of insurance covering commercial property and casualty risks issued by eligible surplus lines insurers, the term means a surplus lines licensee as defined in section 1602 of The Insurance Company Law of 1921 (40 P. S. § 991.1602).
* * * * * [Insured--The first insured named on the declaration page of the insurance policy.]
Insurer--An insurer authorized by the Department to transact business in this Commonwealth or designated as an eligible surplus lines insurer as defined in section 1602 of The Insurance Company Law of 1921.
* * * * * Policy of insurance--A policy, certificate or binder issued or delivered in this Commonwealth by [a licensed] an insurer or [surplus lines] agent covering commercial property or casualty risks. A policy with a policy period or term of less than 12 months or a policy period with no fixed expiration date is considered as written for successive policy periods of 12 months.
§ 113.82. Notice of [intent to increase] premium increase.
(a) [If insurers are going to increase an insured's renewal premium, insurers] Insurers shall [notify] provide the named insured [in writing] advance notice of [the intent 60 days or more] any increase in renewal premium not less than 30 days before the upcoming policy renewal date.
(b) [Insurers are responsible for providing written notice of intent to increase premiums to the insured.] An insurer may authorize its agents to [forward written] provide the notice of [intent to increase] premium increase to the named insured. The insurer [shall be] is responsible for the agent's failure to [forward, 60] provide 30 days or more in advance of policy renewal, a [written] notice of [intent to increase] premium increase.
(c) A [written] notice of [intent to increase] premium increase shall be [forwarded] provided tothe named insured [by the insurer] when a policy is issued [to an insured] by an insurer of a group of affiliated insurers that supersedes a policy issued by an insurer from the same group of affiliated insurers, [the superseding policy provides types and limits of coverage substantially equivalent to those contained in the policy being superseded] and the [insured's] premium will increase as a result of the superseding policy.
(d) Insurers are responsible for documenting that advance notice was provided to the named insured. Insurers may satisfy this requirement by doing one of the following:
(1) Maintaining a copy of the advance written notice provided to the named insured.
(2) Documenting its file to reflect the date and time advance notice was provided to the named insured.
(3) Providing documentation from its agent reflecting compliance with either paragraph (1) or (2).
(4) Providing other documentation as would reasonably demonstrate compliance. The documentation will be evaluated in the sole discretion of the Department.
§ 113.83. [Notice of estimated premium increase] (Reserved).
[(a) Insurers shall be responsible for providing written notice of the estimated premium to the insured, at least 30 days prior to the renewal date. An insurer may authorize its agents to forward written notice of the estimated renewal premium to the insured. The insurer shall be responsible for the agents' failure to forward, at least 30 days in advance of policy renewal, notice of the estimated renewal premium.
(b) Insurers may advise the insured of factors which contributed to the increase in premium. Insurers shall advise the insured of coverage, limits and amounts upon which the estimate of premium was based.
(c) A written notice of estimated premium increase shall be forwarded to the insured by the insurer for a policy issued to a named insured by an insurer of a group of affiliated insurers that supersedes a policy issued by an insurer from the same group of affiliated insurers where the superseding policy provides types and limits of coverage substantially equivalent to those contained in the policy being superseded, and the insurer was required to forward to the insured a notice of intent to increase premium.]
§ 113.85. Midterm cancellation for material failure to comply with policy terms, conditions or contractual duties.
An insurer may cancel in [mid-term] midterm a policy of insurance covering commercial property and casualty risks for material failure to comply with policy terms, conditions or contractual duties which require the insured to comply with safety standards and loss control recommendations, if the following [exist] apply:
(1) The [language of a] policy specifically provides that material failure [on the part of the insured] to comply with safety standards and loss control recommendations may constitute a basis for cancellation.
(2) The insurer has provided the named insured with written notice of the [insured's] failure to comply with safety standards and loss control recommendations.
(3) The insurer has provided the named insured with a reasonable opportunity to cure deficiencies with respect to safety standards and loss control recommendations.
(4) The [insured has failed to cure] deficiencies with respect to safety standards and loss control recommendations have not been cured.
§ 113.86. Notices of nonrenewal or cancellation [and return of unearned premium] forwarded by [surplus lines] agents.
(a) [A surplus lines] An insurer shall be deemed in compliance with the requirement that notices of midterm cancellation or nonrenewal [, and unearned premium] be forwarded by the insurance company directly to the named insured if [a surplus lines] an agent, who is authorized by [a surplus lines] an insurer to act on its behalf for purposes of providing notice of midterm cancellation or nonrenewal [and returning unearned premium,] forwards notices of midterm cancellation or nonrenewal to the named insured [and returns unearned premium to the insured]. The [surplus lines] insurer is responsible for the authorized [surplus lines] agent's failure to meet the requirements for providing notice of midterm cancellation or nonrenewal to the named insured[, and the requirements for return of unearned premium to the insured set forth in the act.]
§ 113.87. Return of unearned premiums.
An insurer is responsible for the return of unearned premium to the named insured within the time period required by the act. An insurer may authorize its agents to return unearned premium to the named insured. The insurer is responsible for the [agent's] agents' failure to return unearned premium to the named insured as required by the act.
[Pa.B. Doc. No. 96-1534. Filed for public inspection September 13, 1996, 9:00 a.m.]
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