FAQs: Mitigation Discounts
The following mitigation discounts questions and answers are in regard to Bulletin 2007-15 – Notice Forms - Mitigation Discounts and Credits and Bulletin 2007-16 – Implementation Requirements for Mitigation Discounts and Credits.
Q. Which territories must be provided with the discounts and credits in § 38-73-1095. The statute itself reads ''rating plans for essential property insurance in the coastal or in the seacoast area, shall include discounts and credits or surcharges and debits calculated upon the following factors:" However, DOI Bulletin 2007-15 states "The plain language of the statute indicates that rating plans for property coverage in the seacoast and coastal areas of the state must contain discounts and credits." Must discounts be provided in the coastal area (all coastal counties), or only the smaller seacoast area?
A. Discounts must be provided in the coastal area as well as the seacoast area. While the statute uses the word "or" it does not allow insurers a choice between the two areas, but rather mandates discounts and credits for property insurance on property located in the seacoast area (all areas in Horry, Georgetown, Berkeley, Charleston, Dorchester, Colleton, Beaufort, and Jasper Counties) as well as the coastal area (which is within the seacoast area).
Q. Proposed Rule R.69-66, Section 3. requires insurers to offer discounts, credits or rate differentials on policies “for residential or commercial property.” Section 38-75-1095(C) and Bulletin 2007-15 require changes to rating plans for “essential property insurance in the coastal and seacoast areas.” The Proposed Rule would appear to be broader than the statute and Bulletin. Therefore, we would appreciate clarification on the following:
Do the rating plan requirements outlined in Section 2. of the Proposed Rule apply only to policies in the coastal and seacoast areas as defined in Section 38-75-310? Do the Credits and Discounts for certain fixtures and construction techniques addressed in Section 3. of the Proposed Rule also apply only to policies in the coastal and seacoast areas? Is implementation beyond the coastal and seacoast areas optional?
A. The law mandates discounts and credits for property insurance on property located in the seacoast area (all areas in Horry, Georgetown, Berkeley, Charleston, Dorchester, Colleton, Beaufort, and Jasper Counties) as well as the coastal area (which is within the seacoast area).
It is anticipated that legislation will be introduced during the 2008 Legislative Session to extend mitigation credits and discounts to the entire state.
Q. Bulletin 2007-16 states that Section 38-75-755 "requires insurers to provide notice of available premium discounts for residential and commercial property insurance coverage." I do not see any limitation as to seacoast and coastal areas. I'm wondering if the two bulletins are related or if they are mutually exclusive.
A. Both Bulletins reference the mitigation credits/discounts. 38-73-1095 requires the discounts in the seacoast and coastal areas and 38-75-755 requires the notice. They are not mutually exclusive.
Q. Are Sections 2. and 3. of the Proposed Rule intended to require two separate rating programs?
A. No
Q. Are the rating plan requirements (and notice requirements of Section 38-75-755 and Bulletin 2007-16) required on policies where the insurer has excluded “windstorm” coverage as defined in the Proposed Rule?
A. No, however, an insurer can only exclude wind if the property is in the Wind Pool area and the credit for the exclusion must be commensurate with the surcharge/load for the wind peril.
Q. Are rating “discounts and credits or surcharges and debits” on the listed rating factors under Section 2. of the Proposed Rule intended to be applicable only to the windstorm portion of the premium?
A. Yes, when peril rated.
Q. Section 38-75-1095(C) provides that “rating plans for essential property insurance in the coastal area or seacoast area, shall include discounts and credits or surcharges and debits…” The Proposed Rule is entitled only “Premium Discounts for Property Insurance;” however, under Section 2., Applicability, the Rule re-states the language found in Statute. Is it the Department’s intent to allow justified surcharges or debits, as well as discounts or credits, based on specific rating factors outlined under Section 2. of the Proposed Rule?
A. Yes
Q. Do mitigation discounts and credits apply to commercial lines?
A. Yes
Q. Do the rating factors and rating plans need to be submitted for commercial lines?
A. No, Regulation 69-64 exempts commercial lines rates and rules from being filed; therefore they do not need to be submitted. However, a desk copy needs to be maintained and furnished to the Department upon request.
Q. What is essential property?
A. Code 38-75-310 (1) provides the definition of essential property insurance.
Q. The legislation states that the mitigation discounts apply only to Primary homes, not secondary homes. Since our company does not write owner occupied Dwelling Fire policies, we assume we would not have to file mitigation discounts for the Dwelling Fire form.
A. Code 38-75-310 (1) refers to essential property and (4) refers to insurable interest and does not limit property to the primary residences. Therefore, the mitigation discounts are required.
Q. Can you confirm that §§ 6-9 of the Coastal Property Act (new §§ 38-75-755, 38-73-260, and 38-73-1095(C)) will not apply to eligible surplus lines insurers?
A. It is the Department’s position that the mitigation discounts do not apply to Surplus Lines.
Q. In order to provide an appropriate transition period, an insurer may implement an approved rating plan over a period of years subject to the approval of the Department. An insurer electing to phase in its rating plan must provide an informational notice to the Department setting out its schedule for implementation of the phase-in rating plan.
How long is a 'period of years'?
A. By January 1, 2009, all factors/discounts must be incorporated into the rating plan and available to consumers.
Q. When is the informational filing (Phase-In Plan) due?
A. December 31, 2007
Q. In light of the January 1, 2008 effective date, how is this reconciled with the 'phase-in' of a rating plan over a period of years?
A. The phase-in plan will specify the deadlines and any company requiring the extra time will be required to make pro-rata premium refunds.
Q. What are the filing requirements for a phase-in rating plan in lieu of the January 1, 2008 effective date?
A. The phase-in plan should include dates for the factor development, programming, testing, and implementation, not to exceed the timeframe set for January 1, 2009 for full implementation.
Q. In preparation for our mobile home program rate filing, which will include discounts and credits for certain rating factors to mitigate windstorm damage, we had the following questions: Do the discounts, credits or other rate differentials for any fixtures or construction techniques for residential or commercial property, under item A. of Section 3: Credits and Discounts of proposed regulation R69-66, also apply to mobile homes? We are aware that item D. of Section 3 states that discounts, credits or other rate differentials must be provided for mobile homes, but wanted to confirm that only the American Society of Civil Engineers Standard ANSI/ASCE 7-88 compliance items will apply to our mobile home program.
A. No, it states in section (D) that compliance with all appropriate tie-down requirements of SC laws is applicable.
Q. Section 4: Calculation Methodology of proposed regulation R69-66 states that the department will use available studies providing data and information on estimated loss reduction for wind resistant building features to evaluate the discounts offered by insures. Can and/or will the department make these studies available or provide the sources so insurers have examples of the type of support the department will require for insurers to support the discounts and credits?
A. The Department can not provide specific studies, however, reinsurance intermediaries, modeling organizations and others can provide guidelines.
Q. In reviewing South Carolina Bulletin 2007-16 which requires commercial property insurance policies to contain a notice that advises the policyholder that a reduction in premium may be available. There are no attachments with "Exhibit 1, 2, 3 or 4," however, there are worksheets attached, but there are only 3 different sheets. Please confirm whether or not these three samples are what is referenced in the Bulletin.
A. They are. The Department provided 3 examples of the forms for reference.
Q. Can you clarify the effective/ implementation dates?
A. The law applies to policies issued or renewed with an effective date after December 31, 2007.
Q. The law requires filings to be submitted “60 days in advance of the anticipated effective date.” Can you clarify how this corresponds with the additional time needed for compliance?
A. The 60 day period is the time allotted to the Department to review the filing. The law applies to policies issued or renewed with an effective date after December 31, 2007. The phase-in will allow companies the time to incorporate all of the changes. The plan must specify the deadlines for each phase. Any company requiring the extra time will be required to make pro-rata premium refunds. By January 1, 2009, all factors/discounts must be incorporated into the rating plan and available to consumers.
Q. Proposed Rule R.69-66, Section 3, Credits and Discounts, subsection B. and Bulletin 2007-15 indicate that an insurer may implement an approved rating plan over a period of years. Is subsection B., regarding a phased-in plan, intended to apply to both the rating plan requirements of Section 2. and/or the credits and discounts for meeting certain building code standards or construction techniques as outlined in Section 3?
A. These are the same. The rating plan will provide for debits/credits for the factors as specified by law.
Q. Is subsection B. intended to allow an insurer to phase in the rating plan over its entire book of business over a period of years; to phase in discount percentages; to phase in consideration for applicable fixtures and/or rating factors; or all of the above?
A. The law applies to policies issued or renewed with an effective date after December 31, 2007. The phase-in will allow companies the time to incorporate all of the changes. The plan must specify the deadlines for each phase. Any company requiring the extra time will be required to make pro-rata premium refunds. By January 1, 2009, all factors/discounts must be incorporated into the rating plan and available to consumers.
Q. How would a phased in plan affect the notice requirements of Section 38-75-755 and Bulletin 2007-16?
A. Section 38-75-755 "requires insurers to provide notice of available premium discounts for residential and commercial property insurance coverage." The law applies to policies issued or renewed with an effective date after December 31, 2007.
The Notice Requirements must be made specifying the availability, with proper mention to the discounts/credits under development.
Q. With respect to the building code or construction technique requirements enumerated in Section 3. of the Proposed Rule, it appears that it is the Department’s intent to only allow discounts or credits or other rating considerations beneficial to the policyholder for meeting certain building construction criteria, as opposed to allowing surcharges or debits for construction standards that do not meet minimum requirements. However, it is unclear what is intended by subsection C. of Section 3. We request that the Department provide further clarification on subsection C.
A. The intent of the statute is to promote mitigation measures.
Q. What will the South Carolina Department of Insurance accept as justification for the intended discounts? Are third-party studies and nationwide information acceptable for use in demonstrating premium reductions?
A. Yes.
Q. Section 4. of the Proposed Rule addresses the calculation methodology for reductions in rates or discounts, however Section 38-75-1095(C) also permits surcharges and debits. Will surcharge or debit plans be considered where an insurer can demonstrate a reasonable correlation between rating factor and loss?
A. Yes.
Q. Bulletin 2007-16 provides the sample notice forms to be sent to policyholders. The "Description of Mitigation Measures" chart makes it clear that insurers may preprint the premium discount range in the form. However, the "Wind and Hail Deductible Options" section on the second page of the form seems to require that insurers print the actual deductible amount for that specific insured. May companies revise the form to provide a range of deductibles? Doing so would allow companies to produce one form applicable to all policyholders, rather than to produce policy-specific forms.
A. Yes.
Q. Sample forms published on the Department’s website are marked as “draft.” Does the Department intend to make further changes to the sample documents?
A. No, these are examples.
Q. Bulletin 2007-16 provides implementation guidance on Section 38-75-755, but neither the Section nor the Bulletin indicate the specific lines of business or types of policies for which the notices are required. In the absence of specific guidance, the notice requirements could be interpreted to apply to all policies subject to Article 9, including policies where windstorm coverage has been excluded and tenants’ policies.
A. The statute states that the law applies to all residential and commercial property. It does not exclude property that excludes wind.