PA Introduces New Regulations for Surplus Lines and Policyholder Perks
In a significant move to refine insurance practices, Pennsylvania has introduced a series of regulatory changes impacting surplus line licensees and policyholder incentives. These modifications, which include the ability for licensees to levy service fees and enhance nonmonetary gifts to policyholders, mark a progressive step in the state’s insurance market dynamics.
Under the latest statute signed on July 8 by Governor Josh Shapiro, surplus lines licensees are now permitted to impose a service fee on carriers when facilitating policies within the non-admitted market. For individual policy agreements, these fees are capped at either $150 or 4% of the policy premium, whichever is higher. Each fee must accurately reflect the actual costs associated with underwriting, issuing, and processing the respective policy.
In addition, prior to the issuance of a policy, agents are required to disclose detailed information to policyholders. This includes the service fee amount, additional inspection fees, applicable premium taxes, and a comprehensive breakdown of charges for each service offered. Transparency extends to disclosing any compensation or ownership interests surplus line licensees might have in inspection-related companies, with an exception made for holdings in publicly traded stock portfolios.
The reform also introduces a provision allowing agents to recover inspection costs necessary for policy placement directly from policyholders. These costs must be genuine, non-retainable by the agent, and fully documented.
Changes don’t stop at service fees. Effective July 15, another regulation enables insurance carriers to offer nonmonetary gifts to policyholders valued up to $125 annually. This adjustment, a $25 increase from previous limits, accounts for inflation and aligns with suggestions from primary sponsors, Senators John DiSanto and Sharif Street. The gifts, which must be related to insurance coverage, aim at loss mitigation, risk assessment, or enhancing policyholder safety and health, exemplified by the provision of smoke detectors.
Furthermore, these inducements are not contingent upon the purchase or renewal of a policy, ensuring fair practice and consumer choice.
This regulatory update propels Pennsylvania closer to the standards set by the National Association of Insurance Commissioner’s model law, advocating for greater flexibility in noncash gifts and inducements. Insurance providers who believe they meet the criteria for these incentives can now pilot them, provided they notify the state insurance department ahead of implementation.
Despite efforts to obtain further commentary from the Pennsylvania Surplus Lines Association and the Pennsylvania Insurance Department, responses were not forthcoming at the time of reporting.