This is the latest in a series of guest columns by professionals in organizations that have become associate members of AAIS. For information on becoming an AAIS Associate Member, contact Rick Maka, director of marketing, at rickm@AAISonline.com, or by calling 800-564-AAIS.
Clearly, 2009 has been an especially active year for those who monitor legislative and regulatory activity at the state and federal levels. Judging from the current climate, it appears this trend will continue as we look ahead to the coming year.
From January through September 2009, Wolters Kluwer Financial Services’ determined that more than 11,000 pieces of legislation with potential effects on the insurance industry had been introduced in Congress and the state legislatures.
This is more than an 80% increase over the same period in 2008, and approximate 60% more over the same period in 2007. While this activity was spread across different types of insurance, it is interesting to note that approximately 30% would affect all lines, while almost 20% specifically addressed property/casualty issues.
Consumer protection initiatives continued to play an important role in 2009, and P/C insurance was not exempt.
Earlier this year, legislation to restrict or prohibit the use of credit information in underwriting or rating was introduced in nearly half the states. While most of these bills failed to win final passage, two that did exemplify the types of consumer initiatives we have seen:
- Indiana HB 1246 prohibits insurers from including a late payment with a medical industry code in the credit information used for underwriting and rating. (This adds to an existing list of restrictions on the use of negative credit information.)
- Illinois HB 418 provides that an insurer must notify an applicant or insured if the carrier uses credit information to deny, cancel, or non-renew a policy of personal insurance. The consumer must also be given an opportunity to explain the reason for any negative credit information.
The Illinois bill also requires insurers that use credit information in underwriting or rating to re-underwrite and re-rate a personal insurance policy at annual renewal if requested by an insured or the insured’s agent. (The law lists specified circumstances when this is not required.)
Rate and form filing issues were also addressed in some states.
Connecticut’s personal lines flex-rating law was extended to July 1, 2011. Under the law, personal lines rates can take effect on the date they are filed, as long as they do not produce an increase or decrease greater than 6% in the state-wide aggregate for all coverages subject to the filing. This flex-rating provision, which combines rating flexibility and consumer protection, was originally scheduled to expire on July 1, 2009.
While Connecticut focused on personal lines rate flexibility, Michigan reversed a long-standing policy on the filing of homeowners and auto forms. Effective July 1, new or revised personal automobile forms were required to be filed for approval; the same mandate took effect Sept. 1 for homeowners.
This reinstitution of “prior approval” of personal auto and homeowners forms reversed, for those lines, a regulatory policy instituted in 1997 that exempted propriety forms from filing requirements. Forms filed by AAIS and ISO on behalf of their members continued to be subject to filing requirements after 1997, and are not affected by the latest change in policy.
Cancellation and non-renewal issues also played a prominent role in states this year. Maryland enacted four bills on this topic. Two of them are noteworthy:
HB 165 establishes permitted reasons for midterm cancellation of personal, homeowners, commercial, or motor vehicle liability insurance. An additional reason, “Conviction of Arson,” is now permitted for use by homeowners insurers.
HB 162 requires an insurer to notify a named insured of any increase in premium for commercial or workers’ compensation insurance not less than 45 days before the effective date of a policy renewal. The law provides that a reasonable estimate of the increased premium is acceptable.
Apart from these new requirements in Maryland, Minnesota is taking a “pre-emptive” position in establishing cancellation processes for new business.
Effective Jan. 1, 2010, Minnesota HF 1853 requires insurers to provide written notice to all homeowners indicating, in bold print, “THE INSURER MAY ELECT TO CANCEL COVERAGE AT ANY TIME DURING THE FIRST 60 DAYS FOLLOWING ISSUANCE OF THE COVERAGE FOR ANY REASON WHICH IS NOT SPECIFICALLY PROHIBITED BY STATUTE.”
However, the Minnesota law provides that the insurer or its agent can refer applicants to the insurer’s website, if the statement is posted there, as long as the applicant is notified that he or she can request a written copy of the notice.
Given the wide range of legislative and regulatory activity affecting the insurance industry in 2009, whether it is credit scoring, rating, underwriting, or claims, there appears to be no waning of interest in insurance regulation. And with 2010 just around the corner, the industry should continue to expect to see other states evaluating similar proposals next year.
The volume and breadth of activity requires diligence by insurers to monitor legislative and regulatory activity and implement processes to comply with new directives.
As senior compliance counsel for Wolters Kluwer Financial Services’ Insurance Compliance Solutions group, Kathy Donovan monitors regulatory activity and assists in content management for property/casualty and life/health compliance tools, incorporating regulatory requirements to help meet insurers’ needs. She is also the primary contributor to Wolters Kluwer Financial Services’ Compliance Corner, an online source for insurance regulatory trends.
Kathy holds a J.D. from Suffolk University Law School, an M.B.A. from Babson University, and a B.S. from Suffolk University. She has provided expert commentary on compliance issues for various publications, including Insurance Networking News, National Underwriter, Insurance Compliance Insight, and Claims.
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