As state legislatures adjourned this spring, compliance professionals were busy analyzing and implementing regulatory changes. Once again, laws that regulate property and casualty policy termination practices have been a focal point in 2011. As always, legislative changes are the catalyst for review and possible compliance updates to underwriting guidelines, policy provisions, policyholder notices, and policy termination practices that may require producer/agent communication and/or training and updates to automated systems. In many cases, the clock is ticking once legislation is signed into law and insurers must make every minute count to implement comprehensive compliance changes on a timely basis.
Weather and Other Disasters
In the midst of review and implementation of new legislation, springtime also brought emergency regulatory restrictions on policy cancellation, nonrenewal and conditional renewal due to severe windstorm, flooding and earthquake destruction in many states. From Alabama to Massachusetts to West Virginia, implementation of emergency provisions designed to protect affected policyholders’ insurance coverage while they recover from natural disaster took priority.
Meanwhile, key provisions of policy termination laws were revised in many jurisdictions, with many needing quick attention for timely compliance. A sampling of changes follows:
Updates to Days’ Notice Requirements
Arizona SB 1567 amends the advance days’ notice requirements from 60 days to 45 days for notice of cancellation or nonrenewal for many commercial lines policies. Additionally, written notice of premium or coverage changes, including premium increase, change in deductible, reduction in limits, or substantial reduction in coverage, is now required to be mailed or delivered at least 30 days, instead of 60 days, prior to the effective date. SB 1567 was enacted into law on April 28, 2011, and effective July 20, 2011.
Florida SB 408, generally effective upon its May 17, 2011, enactment date, revises advance days’ notice requirements for termination of long-term residential property policies and nonrenewal requirements for certain sinkhole coverages among many other changes impacting property insurance and other lines of business.
In Tennessee, Uncodified SB 777 s 3 (2011) enacts an advance days’ notice requirement of 30 days applicable to personal risk conditional renewals effective January 1, 2012.
New Permitted and Prohibited Reasons
Florida HB 155, effective June 2, 2011, states that an insurer may not deny coverage, increase any premium, or otherwise discriminate against any insured or applicant for insurance on the basis of or upon reliance upon the lawful ownership or possession of a firearm or ammunition or the lawful use or storage of a firearm or ammunition.
Effective July 1, 2011, Rhode Island insurers may nonrenew a policy of personal automobile or homeowners insurance if the policyholder refuses to provide access to his or her personal credit history. Additionally, policyholders must be notified of the extraordinary life event exception if credit history is used as the basis of an adverse action.
Maryland Insurance Administration Bulletin 11-13 provides that, effective Oct. 1, 2011, an insurer may not cancel, refuse to underwrite or renew, or take any other adverse underwriting or rating action on a policy of homeowner’s insurance based solely on information about an individual’s status as a victim of a crime of violence.
If information obtained through a consumer credit report is the basis for an adverse action, Montana, like Rhode Island and other states, requires that the insurer notify the policyholder of the existence of several “extraordinary life circumstances” that may provide a valid exception to adverse action implementation. Overseas military service was added by Montana HB 29 to the extraordinary life circumstances permitted exceptions effective May 5, 2005.
Updated Policyholder Notice Delivery
In Maryland, SB 571 authorizes electronic delivery of policyholder notices of cancellation, nonrenewal and conditional renewal, effective October 1, 2011, with the consent of the policyholder. Compliant electronic delivery is considered the legal equivalent to delivery by first-class mail, certified mail, certificate of mail, or certificate of mailing, as required by applicable law.
More Portable Electronic Coverage Regulation
As previously posted, regulation of policies containing portable electronics coverage is an emerging legislative trend. Oklahoma, Maine, Nebraska, Nevada and Kansas are among several states that recently enacted regulation, including coverage termination requirements.
Certificate of Insurance Guidance
Finally, many states have enacted legislation clarifying that policy provisions override provisions included in a certificate of insurance. For instance, the Oklahoma Legislature enacted Senate Bill 778, effective November 1, 2011, which provides that a certificate holder has a legal right to notice of cancellation, nonrenewal, or material change, only if the person is named within the policy or an endorsement as an additional insured, and only if the policy or endorsement requires notice to be provided. The terms and conditions of the notice are governed by the policy of insurance and cannot be altered by a certificate of insurance – important information to convey to those producers authorized to issue certificates.
Compliance with legislative changes to termination practices impacts many company operational areas – underwriters, state filers, policyholder services, information specialists, producers and agents, basically everyone from management to the mail room.
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