RULES AND REGULATIONS
INSURANCE DEPARTMENT
[31 PA. CODE CH. 113]
Increase in Premium and Midterm Cancellation or Nonrenewal of Commercial Property and Casualty Policies
[28 Pa.B. 1518] The Insurance Department (Department) hereby amends Chapter 113, 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. This amendment under the authority of section 9 of the act of July 3, 1986 (P. L. 396, No. 86) (Act 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 through the act of June 13, 1995 (P. L. 60, No. 10) (Act 10), 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.
Comments
Notice of proposed rulemaking was published at 26 Pa.B. 4434 (September 14, 1996) with a 30-day public comment period.
On October 14, 1996, the Pennsylvania Association of Mutual Insurance Companies (PAMIC) responded with comments. Additionally, comments were received from the Insurance Federation of Pennsylvania (IFP) on October 15, 1996, and from the Independent Regulatory Review Commission (IRRC) on November 13, 1996.
PAMIC noted that in addition to modifying Chapter 113 to be consistent with Act 10, additional clarifying language regarding the definition of ''commercial property'' or casualty risks should be added. In that definition, PAMIC objected to the reference to Insurance Services Office (ISO) commercial lines manuals because other advisory organizations provide manuals and many insurers are not using ISO manuals. Any specific reference to one organization in a regulation would unfairly advantageously position that organization over others, and the reference would cause insurers to purchase manuals from multiple services and would serve to increase costs. The Department is currently revising each of its existing regulations, including Chapter 113, to ensure they are supported by statute, clearly written and necessary. It is the Department's intention to include any revision of the definition in a separate rulemaking. The Department intends to revise the definition through rulemaking as soon as possible.
PAMIC also noted concern regarding clarification of what constitutes ''documentation'' and ''other documentation'' in § 113.82(d)(1)--(4) (relating to notice of premium increases). Prior to the statutory change in Act 10, insurers mailed notices in advance of 60 days of renewal date. With the change, PAMIC felt it likely that insurers would satisfy the notice requirement by issuing actual renewals with premiums in advance of 30 days of renewal date. Some policies would be mailed to the policyholders while others may be mailed or hand delivered by agents. In response to that request for additional clarification, subsection (d)(4) was revised to provide specific documents such as renewal offers or other methods which are accepted and common within the industry that would reasonably demonstrate compliance.
The IFP's comments supported the Department's proposal as outlined at 26 Pa.B. 4434.
IRRC's comments restated PAMIC's concern with the definition of ''commercial property'' and ''casualty risk,'' and the references to ISO manuals. IRRC suggested the Department follow-up with its separate rulemaking to eliminate specific references. The Department agrees that such a definition will be consistent with existing industry standards and will specifically include tenant-occupied dwellings and farm risks, the two categories questioned by PAMIC.
Regarding notice of premium increase, § 113.82(d)(4), IRRC restated that the Department left this provision purposely vague to accommodate new, innovative or different ways that insurers may use to notify insureds. IRRC appreciated the Department wanting to have the flexibility of a general ''catch-all'' clause which would accommodate any method of notice which would not fit into one of the three ways of giving and documenting notice of premium increases. However, IRRC recommended the Department further amend § 113.82(d)(4) to give one or more examples, preceded by the word ''including.'' This approach would not compromise flexibility yet provide some further guidance to PAMIC's members and other companies. IRRC also suggested the Department incorporate a phrase such as ''consistent with acceptable industry practices or standards,'' to ensure that whatever method used to give notice would still be within the general framework of acceptable insurance industry practice. The Department has incorporated language into this rulemaking to address this issue.
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 are directly affected by the amendments. Policyholders, as recipients of cancellation and nonrenewal notices, are 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
The amendments 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 impose no additional paperwork requirements on the Department and reduce the paperwork requirements imposed on the insurance industry.
Effectiveness/Sunset Date
The amendments will become effective upon final publication in the Pennsylvania Bulletin as final rulemaking. No sunset date has been assigned.
Contact Person
The contact person is Helfried G. LeBlanc, Deputy Insurance Commissioner for Consumer Services and Enforcement, 1321 Strawberry Square, Harrisburg, PA 17120, (717) 787-6174.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on August 29, 1996, the Department submitted a copy of the proposed rulemaking, published at 26 Pa.B. 4434 to IRRC and to the Chairpersons of the House Committee on Insurance and the Senate Committee on Banking and Insurance for review and comment.
Under section 5(c) of the Regulatory Review Act, the Department also provided IRRC and the Committees with copies of the comments received, as well as other documentation. In preparing these final-form regulations, the Department has considered all comments received from IRRC, PAMIC, IFP, the Committees and the public.
Under section 5(c) of the Regulatory Review Act (71 P. S. § 745.5(c)), these final-form regulations were approved by the House and Senate Committees' on January 25, 1998. IRRC met on January 29, 1998 and approved the regulations in accordance with section 5(c) of the Regulatory Review Act.
Findings
The Insurance Commissioner finds that:
(1) Public notice of intention to adopt this rulemaking as amended by this order has been given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The adoption of this rulemaking in the manner provided in this order is necessary and appropriate for the administration and enforcement of the authorizing statutes.
Order
The Insurance Commissioner, acting under the authorizing statutes, orders that:
(a) The regulations of the Department, 31 Pa. Code Chapter 113, are amended by amending §§ 113.81, 113.82 and 113.85--113.87 and deleting § 113.83 to read as set forth in Annex A.
(b) The Commissioner shall submit this order and Annex A to the Office of General Counsel and Office of Attorney General for approval as to form and legality as required by law.
(c) The Commissioner shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) The regulations adopted by this order shall take effect upon publication in the Pennsylvania Bulletin.
M. DIANE KOKEN,
Insurance Commissioner(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 28 Pa.B. 859 (February 14, 1998).)
Fiscal Note: Fiscal Note 11-130 remains valid for the final adoption of the subject regulations.
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:
Act--The act of July 3, 1986 (P. L. 396, No. 86) (40 P. S. §§ 3401--3409).
Affiliated insurer--An insurer who, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with another insurer.
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).
Commercial property and casualty risk insurance-- Insurance within the scope of this chapter which is not personal risk insurance. The term includes insurance issued for commercial auto, farmowner's, business, profes-sional or other commercial risks, such as businessowner's and commercial multiperil policies, aviation, credit, mortgage guaranty, and worker's compensation risks, except title insurance, fidelity and surety bonds, ocean marine risks, and workers compensation insurance covering employes subject to the Jones Act (40 U.S.C.A. §§ 731, 733a, 734, 737, 741a, 742, 745, 747--749, 751, 752, 863--865, 868, 870--872, 874 and 891--893), and Federal employes.
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.
Named insured--The insureds named on the declaration page of the insurance policy.
Nonrenewal--The failure by an insurer to issue and deliver a policy superseding at the end of the policy period one previously issued and delivered by the same insurer or affiliated insurer, where the renewal policy provides types and limits of coverage substantially equivalent to those contained in the policy being superseded. The term also includes the failure to issue and deliver a certificate or notice extending the term of a policy beyond its policy period or term with types and limits of coverage substantially equivalent to those contained in the policy being extended. The term does not include coverage provided under a policy of insurance that is renewed by the insurer under a new policy form approved by the Department if an appropriate disclosure notice is forwarded to the first named insured.
Personal risk insurance--Property or casualty insurance issued for personal, family or household purposes. Examples of policies of insurance issued for personal, family or household purposes are:
(i) Policies used solely to provide homeowner's insurance, dwelling fire insurance on one to four family units if owner-occupied, or individual fire insurance on dwelling contents.
(ii) Policies principally used to provide primary insurance on private passenger automobiles which are individually owned and used for personal or family needs.
(iii) Policies of personal inland marine, personal theft, residence glass, personal liability insurance and personal excess.
(iv) Policies on pleasure watercraft which are used for personal, or family needs.
Policy of insurance--A policy, certificate or binder issued or delivered in this Commonwealth by an insurer or 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 premium increase.
(a) Insurers shall provide the named insured advance notice of any increase in renewal premium at least 30 days before the upcoming policy renewal date.
(b) An insurer may authorize its agents to provide the notice of premium increase to the named insured. The insurer is responsible for the agent's failure to provide a notice of premium increase 30 days or more in advance of policy renewal.
(c) A notice of premium increase shall be provided to the named insured when a policy is issued by an insurer of a group of affiliated insurers that supersedes a policy issued by an insurer from the same group of affiliated insurers, and the 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 such as renewal offers or other methods which are accepted and common within the industry as would reasonably demonstrate compliance. The documentation will be evaluated at the sole discretion of the Department.
§ 113.83. (Reserved).
§ 113.85. Midterm cancellation for material failure to comply with policy terms, conditions or contractual duties.
An insurer may cancel in 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 apply:
(1) The policy specifically provides that material failure 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 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 deficiencies with respect to safety standards and loss control recommendations have not been cured.
§ 113.86. Notices of nonrenewal or cancellation forwarded by agents.
An insurer shall be deemed in compliance with the requirement that notices of midterm cancellation or nonrenewal be forwarded by the insurance company directly to the named insured if an agent, who is authorized by an insurer to act on its behalf for purposes of providing notice of midterm cancellation or nonrenewal forwards notices of midterm cancellation or nonrenewal to the named insured. The insurer is responsible for the authorized agent's failure to meet the requirements for providing notice of midterm cancellation or nonrenewal to the named insured.
§ 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 failure to return unearned premium to the named insured as required by the act.
[Pa.B. Doc. No. 98-479. Filed for public inspection March 27, 1998, 9:00 a.m.]
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