RULES AND REGULATIONS
[31 PA. CODE CH. 117]
Anti-Arson Application
[28 Pa.B. 3756] The Insurance Department (Department) hereby deletes Chapter 117 (relating to anti-arson application) to read as set forth in Annex A. The Department adopted the deletion under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929, (71 P. S. §§ 66, 186, 411 and 412) and the Anti-Arson Application Law (act) (40 P. S. §§ 1615.1--1615.11). The regulation requires an insurance company issuing a commercial monoline fire policy insuring property located in this Commonwealth against the peril of fire to secure a completed anti-arson application and specifies the required content of the anti-arson application. The regulation further requires an insured to update the information contained in the application and requires the company to retain the application for 5 years.
Purpose
The purpose of this final rulemaking is to delete Chapter 117 to eliminate outdated regulations which do not serve any compelling public purpose. The regulation was promulgated in 1987 to implement the sections 1--11 of the act (40 P. S. 1615 §§ 1615.1--1615.11). Section 4 of the act (40 P. S. § 1615.4) mandates the use of the anti-arson application for commercial monoline fire policies, designated types of occupancies and designated geographic areas if, after public hearing, the Insurance Commissioner (Commissioner) designates the class as subject to an abnormally high number of claims resulting from arson. In 1986, the Commissioner designated the commercial monoline fire policy as particularly prone to arson and the Department promulgated the subject regulation to clarify the requirements relating to the anti-arson application. Publication of the promulgated regulation can be found at 17 Pa.B. 20 (January 3, 1987).
Following careful review, the Department hereby deletes the regulation for the following reasons. First, under the regulation, only companies issuing commercial monoline fire policies need to secure anti-arson application information. Commercial fire insurance is usually sold as a package along with liability and other business lines of insurance; it is generally not issued as a single or monoline policy. Therefore, the regulation has limited practical application. Second, subsequent to the adoptionof the regulation, no issues relating to arson affecting commercial monoline fire policies have been raised before the Commissioner. The lack of activity over a 10-year period indicates that the regulatory requirements in this area do not serve any compelling public interest. Third, because no method to accurately measure the effect of the anti-arson application requirement was ever implemented, the appropriateness and necessity of the requirement cannot be demonstrated at this time.
Under the act, the Commissioner retains authority to require anti-arson applications at a future time if the Commissioner finds that commercial monoline policies have become subject to an abnormally high number of claims resulting from arson.
Statutory Authority
The regulations are being deleted under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 and the act. The regulations were adopted under the authority of the act.
Comments
Notice of proposed rulemaking was published at 27 Pa.B. 1845 as a proposed rulemaking with a 30-day public comment period.
No comments were received from either the Legislative Standing Committees or the Independent Regulatory Review Commission (IRRC). Comments were received during the 30-day comment period from the Insurance Federation of Pennsylvania, Inc. (IFP) , Farmers' Mutual Insurance Company, the FAIR Plan and the Independent Insurance Agents of Pennsylvania (IIAP). Everett Cash Mutual Insurance Company responded after the 30-day comment period. The following is a summary of the comments and the Department's response in its final rulemaking.
IFP
During the 30-day public comment period, the IFP expressed support for the deletion of the regulation stating that the chapter was no longer needed in light of the market realities involving commercial monoline fire policies. The IFP maintains that commercial monoline policies are rarely issued and therefore the regulation is trying to address an arson problem that does not exist.
Farmers' Mutual Insurance Company
During the 30-day public comment period, Farmers' Mutual Insurance Company commented that it opposed deletion of the anti-arson application regulation. Farmers' Mutual Insurance Company states that: 1) for the majority of smaller carriers, commercial monoline policies comprise almost 50% of the total commercial policies; 2) the anti-arson application is an effective deterrent to potential acts of fraud; 3) companies developing their own supplemental applications will tend to de-standardize the application process, creating the potential for confusion or errors in the industry; and 4) potential methods to measure the effect of anti-arson applications could be developed by working with insurance companies to provide the statistics that were previously not obtainable.
The FAIR Plan
During the 30-day public comment period, the FAIR Plan stated that it opposed the deletion of the anti-arson application. The FAIR Plan states that as an insurer issuing commercial monoline fire policies throughout this Commonwealth, it routinely receives the application and finds a high degree of success in defending claims based partly upon material misrepresentations in the anti-arson applications. The FAIR Plan cites a statistical drop in arsons from 6.7% in 1991 to 1% in 1996. Although the FAIR Plan cannot exclusively attribute the drop in figures to the use of anti-arson applications, the FAIR Plan believes any tool helping to limit the costs or number of arsons should not be abandoned.
IIAP
During the 30-day public comment period, the IIAP agreed with the Department, stating that after reviewing this regulation with numerous agencies associated with the trade association in this Commonwealth, the IIAP could see little justification for its retention in the voluntary market which has evolved into one where package coverages are offered, rather than monoline fire as a freestanding policy. However, two reservations were cited: 1) the FAIR Plan may have specific utility given the particular nature of its business; and 2) the value of the anti-arson application as a deterrent to arson cannot be shown, but neither can it be disproved.
Everett Cash Mutual Insurance Company
After the 30-day public comment period, Everett Cash Mutual Insurance Company stated that it opposed the deletion of the anti-arson application regulations due to Everett Cash Mutual Insurance Company's use of the application as an underwriting tool.
Response
In response to the comments, the Department encourages those companies who use an anti-arson application, as a useful underwriting tool, to continue to do so. Since many of the insurers are offering fire policies with other lines of business insurance, the Department has not seen evidence to support the Statewide requirement of an anti-arson applications for each company issuing fire policies. The Department maintains deletion of the anti-arson application regulation will in no way inhibit each company's ability to fully underwrite policies of insurance. Whether or not to use an anti-arson application in the preparation of underwriting materials can be left to the discretion of each company. Companies which do not require them will benefit from the deletion of paperwork that is not applicable to their business. Companies, who continue to use a format similar to the anti-arson application, can still use the information obtained on their application to formulate an underwriting decision.
Fiscal Impact
Property owned and insured by the Commonwealth or its political subdivisions is excluded from the purview of these regulations. Consequently, the Department has determined that the deletion will have no fiscal impact on the Commonwealth or local government entities.
The deletion of the regulations will remove costs placed upon insurance companies, insurance agents and brokers and applicants for commercial fire insurance due to the elimination of the requirement that companies collect and maintain information on the anti-arson application. The impact is nevertheless expected to be unremarkable because commercial monoline policies insuring against the peril of fire are seldom issued.
Persons Regulated
While the regulations apply to all insurance companies issuing policies of property insurance where coverage includes the peril of fire, only companies issuing commercial monoline fire policies need to secure anti-arson application information under the regulations.
Paperwork
The deletion of these regulations will not impose any additional paperwork requirements on the Department, insurance companies, insurance agents or brokers, the Commonwealth or the general public. To the extent that commercial monoline fire insurance policies are issued insuring property in the Commonwealth, the deletion of this regulation will reduce paperwork for insurance companies, agents and brokers and applicants.
Effective/Sunset Date
The Department plans to adopt the date of final publication in the Pennsylvania Bulletin as the effective date. Because the rulemaking deletes obsolete regulations, no sunset date has been assigned.
Contact Person
Questions or comments regarding the final rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, 1326 Strawberry Square, Harrisburg, PA 17120, (717) 787-4429.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on March 31, 1997, the Department submitted a copy of this rulemaking to IRRC and to the Chairpersons of the House Insurance Committee and the Senate Banking and Insurance Committee. In addition to the submitted final-form regulations, 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 1996-1, ''Regulatory Review and Promulgation.'' In compliance with section 5(c) of the Regulatory Review Act, the Department also provided IRRC and the Committees with copies of the comments received. A copy of that material is available to the public upon request.
These final-form regulations were deemed approved by the House and Senate Committees on June 21, 1998, in accordance with section 5.1(d) of the Regulatory Review Act (71 P. S. § 745.5a(d). IRRC met on July 9, 1998, and deemed approved the regulation in accordance with section 5.1(e) of the Regulatory Review Act.
Findings
The 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 for in this order is necessary and appropriate for the administration and enforcement of the authorizing statutes.
Order
The Commissioner, acting under the authorizing statutes, orders that:
(a) The regulations of the Department, 31 Pa. Code, are amended by deleting §§ 117.1--117.8 and Appendix A 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 final 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. 3558 (July 25, 1998).)
Fiscal Note: Fiscal Note 11-150 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 31. INSURANCE
PART VII. PROPERTY, FIRE AND CASUALTY INSURANCE
CHAPTER 117. (Reserved) §§ 117.1--117.8. (Reserved).
APPENDIX A. (Reserved)
[Pa.B. Doc. No. 98-1268. Filed for public inspection August 7, 1998, 9:00 a.m.]
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