FAQs: Omnibus Coastal Property Insurance Reform Act of 2007
- The new law gives the Director power to act in the event of an emergency. What emergency powers does the Director have to act in case of an emergency?
Upon a declaration of emergency by the Governor, the Director may issue and extend an emergency regulation. The emergency regulation may be issued to all insurance companies. However, it must facilitate recovery from the emergency and protect the interest of the public. (Section 38-3-410)
- Is there any help for the consumer during a declared emergency?
Yes, the Director has the authority to promulgate emergency regulations to address grace periods for payment of premiums, postpone cancellations and non-renewals and suspend the performance of other duties by the insured. (Section 38-3-430)
- Emergency regulations may apply to any line that falls under Title 38. Does the Department anticipate that surplus lines writers would be included in reporting requirements?
Yes.
Section 5: Non-refundable Premium Tax Credits Available to Insurers
Section 38-7-200
- There has been a lot reported in the newspapers lately about tax credits. What are the premium tax credits I have been reading so much about?
The new law provides a premium tax credit for licensed insurers who write full property and casualty coverage to specifically include wind and hail coverage in areas eligible for coverage through the "Wind Pool." The purpose of this section is to encourage insurers to write more business in the coastal areas of the state. (Section 38-7-200)
- Will renewal business be eligible for premium tax credits?
No, renewal business will not be eligible for the credit. It was the intent of the General Assembly that the tax credits apply to new business. The Department is in the process of drafting guidelines for this program. Insurers will be required to report on a quarterly basis the premium and number of new policies written in the territory covered by the Wind Pool. Revised premium tax reporting forms and instructions for licensed insurers are also being drafted. The revised forms and general guidelines for applying for the tax credit will be available on or after October 1, 2007 via Bulletin.
Section 6: Premium Discounts and Credit
- How can a consumer find out if he qualifies for a discount or credit for doing work on his home?
All insurers, when issuing or renewing a policy, must notify the policyholder of the availability and range of premium discounts, credits, rate differentials or reduction in deductibles if the property owner has engaged in "mitigation techniques" to reduce loss. (Section 38-75-755).
- Bulletin 2007-05 indicates that a notice form for disclosure of premium taxes and credits will be developed by the Department. Is a form being developed only with regard to the commercial policy notice or for both the commercial and personal lines notices?
Both commercial and personal lines.
- Will insurers also be permitted to develop their own forms? If not, or if the Department's notice is used, will the form have to be filed?
Yes, insurers will be permitted to develop their own forms. Those forms must be filed with the Department.
- Bulletin 2007-05 notes that the requirements apply to "all policies issued or renewed after December 31, 2007." Compliance by December 31 may be very difficult, especially as some commercial renewals may be mailed up to 90 days in advance. Will companies be considered in compliance where the notice is made available on policies issued or renewals processed after December 31, 2007? If not, does the notice have to be part of the renewal, or can it be provided as a separate mailing?
No. The form must be submitted immediately to the Department for review. Attached to the Department's Bulletin issued on June 11, 2007, is a copy of that form.
Section 7: Annual Public Hearings
Section 38-3-110
- This past year the Director met with coastal property owners to listen to their concerns about the availability of property insurance. In the future, will residents of the coastal areas have the opportunity to meet with the Director or others concerning the South Carolina Wind and Hail Underwriting Association and the availability of property insurance?
Yes, the new law requires the Director to have at least one hearing with coastal property owners to discuss pertinent issues regarding the Wind Pool Association and will afford the public an opportunity to offer input on these and other issues. These meetings will be scheduled for December 2007/January 2008.
Section 8: Rate Filings
Section 38-73-260(2)
- Will the Department review the rates of fire, allied lines and homeowner companies which exclude wind and hail coverages to ensure that discounts are commensurate with that insurer's previously filed surcharge?
Yes, on all rate filings made on or after June 1, 2007. Additionally, an exhibit is attached to Bulletin Number 2007-05 which describes the appropriate credit calculations.
- Will insurers be permitted to vary rates in any given territory in excess of 7% and fall within the flex-band provisions? How will "excessive, inadequate, or unfairly discriminatory" be determined by territory?
Insurers will be permitted to vary rates in any given territory in excess of 7% that fall within the flex-band provisions. This provision only adds the language that the distribution to policyholders will be considered, as well as territory. The adequacy of the rate, at all levels, will be determined based on the data and actuarial justification provided. All rates charged for coverage in the state must not be excessive, inadequate or unfairly discriminatory.
Section 9: Rating Plans for Essential Property Insurance
- What are some of the factors that insurers may consider in calculating discounts or credits or surcharges and debits on your policy?
South Carolina law provides that the following are eligible for discounts or credits: use of storm shutters, use of roof tie downs, construction standards, building codes, distance from water, elevation, flood insurance, policy deductibles and other factors requested by the insurer or by order of the Director of Insurance. (Section 38-73-1095).
Section 10: Wind and Hail Insurance
Section 38-75-740
- How much prior notice does a company have to give to the agent and insured when non-renewing a property and casualty insurance policy?
Sixty days for policies expiring between November 1 and May 31 and 90 days for policies expiring between June 1 and October 31. The notice provisions apply to all new insurance contracts after June 11, 2007. Policies that were in existence prior to the enactment of the law will follow the notice provisions in that contract. New and renewed policies after June 11, 2007 must contain the 90-day notice provision.
- The new law references CBRA zones. What is a CBRA zone?
A CBRA zone (pronounced COBRA zone) is an area designated by Congress that prohibits all federal expenditures, including flood insurance, for residential and commercial development in such zones.
- What are the Wind Pool's maximum limits of insurance?
For dwellings, mobile homes, and condo unit owners' risks, the maximum limits are $1,300,000. For commercial risks, the maximum limits are $2.5 million. Maximum limits refer to the maximum coverage available for a given location, including building, contents, and indirect loss coverage. Please refer to the Wind Pool's Manual for information on restrictions.
- Does the Wind Pool automatically renew policies?
No. Each year, the broker must request that the policy be rewritten and submit the full payment of premiums. The Association does distribute pre-printed applications for those rewrites.
- What are the new Building Code Standards for coverage with the SC Wind and Hail Pool?
Building Code adopted by the Building Codes Council as referenced in SC Code Section 6-9-50, or the approved building code in existence at the time of construction or the standards promulgated under the National Manufactured Housing Construction Standards and Safety Act.
- What areas are within the Wind Pool territory?
Territory contained within the Wind Pool area includes:
• all areas in Beaufort County and Colleton County which are east of the west bank of the intracoastal waterway;
• the following areas in Georgetown County: all areas between the Harrell Siau Bridge and the Georgetown-Horry County border which are east of a line paralleling, and Cedar Island, North Island, and South Island;
• all areas in Horry County east of U.S. Highway No. 17 or By Pass 17, whichever is farther to the west;
• the following areas in Charleston County: Edisto Island, Edingsville Beach, Kiawah Island, Botany Bay Island, Folly Island, Seabrook Island, Morris Island, and all areas north of the City of Charleston which are east of the west bank of the intracoastal waterway and the following areas: the portion of James Island which is east of the west bank of the James Island Creek;
• the portion of John’s Island which is east of a line paralleling Exchange Road which becomes Plow Ground Road to Hoopstick Island Road to Church Creek; and
• the portion of Wadmalaw Island which is east of a line paralleling Roseville Road to west of Cherry Point Road to Maybank Highway to Brigger Hill Road.
- What is the role of the South Carolina Wind and Hail Underwriting Association?
The role of the Wind Pool is to provide wind and hail coverages for residential and commercial property applicants who are unable to secure these coverages in the coastal area.
- Are rates in the Wind Pool generally higher than in the admitted market?
Yes, as a residual market mechanism, the Wind Pool is not intended to offer rates competitive with the admitted market. Rates for policies issued by the association must be adequate and established at a level that permits the association to operate as a self sustaining mechanism. The Wind Pool insures those wind and hail risks that the admitted or surplus lines market refuses to write due to their high risk nature.
- What is a residual market?
A residual market is a mechanism or process designed to be a "market of last resort." In other words, it is designed to insure risks that are otherwise not insurable in the admitted or standard market.
- What is an admitted or standard market?
An "admitted" or "standard market" consists of insurers who are licensed by the Department of Insurance. Admitted insurers are backed by the South Carolina Guaranty Fund in case the admitted or standard market insurer becomes financially unable to pay its debts.
- What is a surplus lines insurer?
"Surplus or excess lines insurers" are not licensed by the Department of Insurance, but are approved to write insurance for consumers who cannot acquire insurance in the "admitted" or "standard market." "Surplus lines" insurers are not backed by the South Carolina Guaranty Fund as the admitted or standard market.
- How often should the Wind Pool's rate structure and loss experience be reviewed by the Department?
The Director or his designee shall review the plan of operation annually. The Director or his designee shall review the rate structure and loss experience semi annually in accordance with Section 38-75-400.
- Who is responsible for expanding the Wind Pool's territory?
According to South Carolina Code Section 38-75-460, the Director of Insurance is responsible for expanding the Wind Poor territory. Any expansion requires approval by the legislature.
Section 11: South Carolina Comprehensive Hurricane Damage Mitigation Program
- What is the Hurricane Loss Mitigation Program?
The Hurricane Loss Mitigation Program is established to provide advice and assistance to consumers on ways that can reduce the possibility of loss from catastrophic events, like hurricanes, tornados, and flooding. Examples include: using shutters at all openings, securing loose roof shingles, sealing openings, cracks and holes, strengthening soffits, and surveying the surroundings or perimeters to reduce the potential of losses from flying debris and equipment.
- What are the qualifications for receiving a grant?
To be eligible for a grant, a residential property must:
• be the primary legal residence of the property owner;
• be a dwelling with an insured value of three hundred thousand dollars or less; and
• have undergone an acceptable wind certification and hurricane mitigation inspection.
- Are grants matched dollar for dollar?
The program is in the process of securing funding. Depending upon the availability of funding, the program will try to match funds. Non-matching grants are also available.
- What type of building project qualifies for grants?
Grants may be used for the following improvements:
• roof deck attachment;
• secondary water barrier;
• roof covering;
• brace gable ends;
• reinforce roof to wall connections;
• opening protection;
• exterior doors, including garage doors;
• tie downs;
• problems associated with weakened trusses, studs, and other structural components;
• inspection and repair or replacement of manufactured home piers, anchors, and tie down straps; and
• any other mitigation techniques approved by the advisory committee.
Section 12: Modeling Organization Reports
- Modeling Organizations must submit supplemental reports to the Department specifying changes to the model. What data must be submitted?
The report must include a side-by-side comparison of the changes made in the current model, as compared to the previous model, including an impact assessment of each change.
- Is there a formal review process?
Yes. Historically, the Department has used a panel of experts to review models submitted for approval. The Department will reassemble a panel of experts to review each submission to determine if the model is acceptable for use in South Carolina.
- Will the Department approve models that are submitted?
The statute does not permit the Department to approve models. It provides that the Department "may accept" a model for use in the rate-making process.
- Does the submission have to be a filing?
No.
- Who does the report get submitted to at the Department?
Modelers must submit the report to the Rates and Forms Area.
- How long does the Department's review take?
We project it could take three months, but this is contingent on the analysis completed by experts.
MODELING ORGANIZATIONS MUST SUBMIT A REPORT SPECIFYING A LIST OF THE VARIABLES THAT ARE SUBJECT TO INSURER INPUT
- What data must be submitted?
The report must include a list of all variables that can be adjusted or modified by the user. It is especially important that factors used to adjust the model for South Carolina exposures be clearly defined.
- What format is to be used?
The report should be a list formatted in Microsoft Excel or Microsoft Word.
- Does the submission have to be a filing?
No.
Section 13: Cat Model Filing Fees
- Will the Department charge a filing fee to insurers and modelers?
Yes. Section 38-75-1140 authorizes the Department to recover the costs associated with the review and evaluation of catastrophe models.
- How much is the fee for the modeling organization?
The amount of the fee will be based on the Department's costs. We expect to have a fee schedule completed within the next few weeks and posted on the Department's website.
- What data will be required in review of hurricane models?
The Department is in the process of developing a Bulletin addressing this question.
- Will requests be limited to that data?
Generally, modelers will submit this data. Insurers will need to submit data only if they have made changes to the model.
- Who will be responsible for evaluating hurricane models?
A panel of experts, including but not limited to a meteorologist, an engineer, and an actuary will evaluate the hurricane models.
- What is the timeframe for review of these models?
Approximately three months.
- Is the fee retained if the Department does not support the model?
Yes, the fee only is used to defray the costs of retaining actuaries and other experts to evaluate the models.
Section 14: Cancellation, Renewal, Non-renewal Laws
Sections 38-75-730 and 38-75-740
- What lines of business do the 60 and 90 day requirements apply?
Section 38-75-710, the cancellation, renewal and non-renewal laws, applies to all property and casualty lines of insurance, except automobile insurance and any other type of property or casualty insurance where there is no specific statutory provisions of law governing cancellation, non-renewal, or renewal of policies. Both personal lines and commercial lines insurers must file all applicable forms immediately with the Department. To make this change, Personal Lines form filings require Prior Approval and Commercial Lines form filings must use a Use & File form. To expedite the approval of these filings, the Department has established the process set forth in Bulletin 2007-05.
- The bill provides that 38-75-1160(B)(3)(b) does not apply to "property having wheels." The "property having wheels" section relates only to motor vehicle insurance and not to other types of property insurance. Do the new nonrenewal notice provisions and the expanded appeal timeframe apply to mobile home policies?
Yes.
- What is the notice requirement for non-renewal of a policy written for one year or less?
A policy written for a term of one year or less may be non-renewed by the insurer at its expiration date by giving or mailing written notice of non-renewal to the insured and the agent of record, if any, not less than 60 days prior to the expiration date of the policy for any non-renewal that would be effective between November 1 and May 31 and not less than 90 days for any non-renewal that would be effective between June1 and October 31.
- What is the notice of cancellation requirement for a policy written for less than 120 days?
Any insurance policy which has been in effect for less than 120 days and is not a renewal of a previously existing policy must provide a thirty-day written notice of cancellation. However, if the reason for cancellation is non-payment of premium, then not less than ten days written notice must be furnished. The thirty-day notice requirement applies for material misrepresentation of fact which, if known to the company, would have caused the company not to issue the policy; substantial change in the risk assumed, except to the extent that the insurer should reasonably have foreseen the change or contemplated the risk in writing the policy; substantial breaches of contractual duties, conditions, or warranties; or loss of the insurer's reinsurance covering all or a significant portion of the particular policy insured; or where continuation of the policy would imperil the insurer's solvency.
Further, cancellation based on changes in climatic conditions must be based on statistical data relative to South Carolina that has been approved by the Department as a basis for substantial change in the risk assumed.
- Does the 60 and 90 day cancellation, renewal, non-renewal law apply to only coastal property risks?
No. The 60 and 90 day cancellation, renewal, non-renewal law applies statewide.
- When do the new laws pertaining to notification of cancellation, renewal or non-renewal go into effect?
The new laws went into effect on June 11, 2007.
- What are the obligations of an insurer in notifying a consumer of their right to an appeal of cancellation or non-renewal?
The insurer must inform you of your rights in writing within thirty days of the receipt of notice that the Director reviews the action of the insurer. The notice of cancellation or refusal to renew must contain the following statement in bold print to inform the insured of this right:
IMPORTANT NOTICE
Within thirty days of receiving this notice, you or your attorney may request in writing that the Director review this action to determine whether the insurer has complied with South Carolina laws in canceling or non-renewing your policy. If this insurer has failed to comply with the cancellation or nonrenewal laws, the Director may require that your policy be reinstated. However, the Director is prohibited from making underwriting judgments. If this insurer has complied with the cancellation or non-renewal laws, the Director does not have the authority to overturn this action.
Section 15: Notice Requirement
38-75-1160
- Regarding Section 15, Section 38-75-1160(A)(1)(d), IMPORTANT NOTICE: The notice of cancellation has an allowable timeframe that is changing from 15 to 30 days. Does every company, for every line, have to file a 2004 Form and Filing to make this change?
According to Section 38-75-710, cancellation, renewal and non-renewal laws apply to all property and casualty insurance, except automobile insurance and any other type of property or casualty insurance where there are no specific statutory provisions of law governing cancellation, non-renewal, or renewal of policies. Both personal lines and commercial lines insurers must file all applicable forms immediately with the Department. To make this change, Personal Lines form filings require Prior Approval and Commercial Lines form filings must use a Use & File form. To expedite the approval of these filings, the Department has established the process set forth below.
EXPEDITED FILING PROCESS - PERSONAL LINES COVERAGE
A copy of a filing transmittal form for processing expedited review of cancellation or non-renewal notice is attached as Exhibit B of Bulletin 2007-05. Insurers wishing to receive expedited treatment of its filing for approval must complete the EXPEDITED CANCELLATION AND NON-RENEWAL ENDORSEMENT FILING TRANSMITTAL FORM as directed. In addition, the insurer(s) submitting this filing must certify that the endorsement complies with the notice requirements of South Carolina law. The certification must be signed by an officer of the insurer. Certification is made by the officer signing the appropriate blank on the transmittal form.
To be complete, a form filing must include the following:
1. a completed, certified Form Filing Transmittal form for each insurer and line to which it is applicable;
2. one copy of each endorsement; and
3. a postage-paid, self-addressed envelope large enough to accommodate the return.
If the filing is for multiple companies, please provide a copy of the transmittal form for each company and an extra copy for return to the company (i.e., 7 companies = 8 copies). PLEASE DO NOT SUBMIT THESE FILINGS VIA THE SERFF SYSTEM. To expedite delivery to the appropriate area, mark the envelope submitted to the Department “OMNIBUS NOTICE.”
To address new policies or renewals that may fall within the next 60 days, the Department will deploy the resources necessary to complete the review of complete, properly submitted filings within 72 hours of receipt. The Department will accept filings via regular United States mail or overnight delivery.
COMMERCIAL FILINGS - USE AND FILE
Commercial insurance forms are not subject to prior approval under South Carolina law. See S.C. Code Ann. Regs. Section 69-64 (2005). Forms that comply with South Carolina law are Use & File. Companies should file a copy of the revised notice forms with the Department within 30 days of use. The law requires that an insurer provide a minimum 60 days' notice during non-hurricane months and 90 days' notice during hurricane season. Nothing in the law precludes an insurer from providing more notice than required by statute.
Section 16: South Carolina Coastal Captive Insurance Companies
- What is the effective date for the new captives' law?
June 11, 2007
- Will the new SC Captives Companies be members of the Wind Pool?
No.
- Will these companies need to file rates and forms?
Yes.
- What is a "South Carolina coastal captive insurance company?"
A coastal captive insurance company is a company, as defined by Section 38-90-10(8), to address the specific issues of affordability and availability regarding wind and storm surge coverage in South Carolina. By statute, a coastal captive insurance company may only provide coverage against the perils of wind and storm surge.
- Who can purchase insurance from a coastal captive insurance company?
While anyone in South Carolina can purchase insurance from a South Carolina coastal captive insurance company, the geographic areas of the state most prone to catastrophic losses from the perils of wind and storm surge are likely to be affected.
PURCHASE OF INSURANCE FROM CAPTIVE INSURANCE COMPANIES IS VIEWED BY THE DEPARTMENT AS A "SOPHISTICATED TRANSACTION BETWEEN TWO KNOWLEDGABLE PARTIES" AND SHOULD ONLY BE DONE BY PARTIES WHO UNDERSTAND AND CAN ACCEPT THE FINANCIAL RESPONSIBILITIES OF SUCH A PURCHASE.
- How is this different from regular insurance?
Most notably, a South Carolina coastal captive insurance company is not subject to all the laws and regulations required of a "regular" insurance company. Also, a South Carolina coastal captive insurance company is not afforded guaranty fund protection. Each application must provide the following notice:
NOTICE
"This policy is issued by a South Carolina coastal captive insurance company, which is not subject to all of the insurance laws and regulations of the State of South Carolina. State insurance insolvency guaranty funds are not available for a South Carolina coastal captive insurance company."
- Is this the only insurance I will need to buy?
No. According to statute, a coastal captive insurance company may only provide coverage against the perils of wind and storm surge. You will likely need to purchase insurance coverage against other perils (fire, theft, liability, etc.) and, depending on where you live, you may want to consider securing federal flood insurance coverage.
- Will my premiums be lower in a coastal captive insurance company?
Not necessarily. Premium rates for a South Carolina coastal captive insurance company must be actuarially sound. As a result, the premium you pay may be higher or lower.
- The terms of my mortgage require that I maintain insurance on my home. Does my homeowners' insurance qualify?
Not necessarily. You must check with your bank or mortgage holder to determine if they will accept "coastal captive insurance company coverage." Failure to maintain adequate and qualified insurance may result in the mortgage holder "force placing" insurance on your property.
- I live on the coast and have had trouble getting insurance I can afford or any insurance at all for that matter. Is this the best coverage for me?
Only you can decide if this is the right insurance coverage for you. Ask questions, like the ones above, of anyone organizing a coastal captive insurance company from which you are considering purchasing wind and storm surge coverage.
Questions regarding the Omnibus Bill must be forwarded in writing to Jim Byrd, Deputy Director for Market Services.