The Maryland Insurance Administration issued a bulletin this week summarizing new insurance legislation from the Maryland General Assembly’s 2013 session that have been signed into law by Gov. Martin O’Malley. The following is a summary of Maryland’s new property/casualty insurance-related legislation that have been signed by the governor this year.
H.B. 342 (Chapter 270)/S.B. 446 (Chapter 269) – Homeowner’s or Renter’s Insurance and Private Passenger Motor Vehicle Insurance – Bundling Requirement – Prohibited (Effective date: Oct. 1, 2013)
• Prohibits an insurer from denying, refusing to renew, or canceling homeowner’s insurance or renter’s insurance coverage for an applicant or a policyholder solely because an applicant or policyholder does not carry private passenger motor vehicle insurance with the insurer or another insurer in the same holding company system.
• Prohibits an insurer from denying, refusing to renew, or canceling private passenger motor vehicle insurance coverage solely because the applicant or policyholder does not carry homeowner’s or renter’s insurance coverage with the insurer or another insurer in the same insurance holding company system.
• Does not prohibit an applicant or policyholder from bundling homeowner’s insurance or renter’s insurance and private passenger motor vehicle insurance policies if the applicant or policyholder desires to do so.
• Does not prohibit an insurer from offering discounts or other incentives to applicants or policyholders who choose to bundle homeowner’s insurance or renter’s insurance and private passenger motor vehicle insurance policies.
H.B. 392 (Chapter 111) – Motor Vehicle Liability Insurance – Personal Injury Protection Coverage – Prohibition on Premium Increase (Effective date: Oct. 1, 2013)
• Prohibits an insurer that issues a motor vehicle liability insurance policy that contains personal injury protection (PIP) coverage from increasing the premium of a policy due to a claim or payment under the PIP coverage. Prohibited premium increases include surcharge, retiering or other classification of a policy, and the removal or reduction or a discount.
• Requires an insurer to provide written notice of this prohibition at the time the policy is issued.
H.B. 695 (Chapter 383) – Homeowner’s Insurance – Anti-Concurrent Causation Clause – Notice and Study (Effective date: June 1, 2013)
• Requires an insurer that issues a policy of homeowner’s insurance in Maryland that contains an anti-concurrent causation clause (ACC) to provide a policyholder each year with a notice that: (1) is clear and specific; (2) describes the ACC clause; (3) informs the policyholder to read the policy for complete information on the exclusions; and (4) states that the insured should communicate with the insurer or the insurance producer for additional information regarding the scope of the exclusions.
• Requires the Maryland House Economic Matters Committee and the Senate Finance Committee to conduct a study on the handling by insurers and the National Flood Insurance Program of property insurance claims in cases where there are two or more factors that could affect or cause the loss.
H.B. 1132 (Chapter 74)/S.B. 749 (Chapter 73) – Maryland Automobile Insurance Fund – Operational Changes (Effective date: July 1, 2013)
• Decreases from 13 to 9 the number of members of the Maryland Automobile Insurance Fund (MAIF) Board of Trustees.
• Requires the governor to appoint all nine members of the MAIF Board with the advice and consent of the Maryland Senate. And requires each MAIF board member to be a resident of Maryland.
• Increases from four to five the number of years in a MAIF board member’s term. And places a cap of two full terms or a total of 10 years on the amount of time a MAIF board member may serve. Provides that the terms of the MAIF board members are staggered.
• Alters the manner in which the MAIF executive director is appointed.
• Requires the MAIF Board to employ attorneys to advise and represent MAIF in all legal matters and, where necessary, to sue or defend suits in the name of MAIF; therefore, MAIF is no longer represented by the Office of the Attorney General.
• Effective Oct. 1, 2013, removes generally MAIF employees from the state personnel management system. MAIF employees, however, remain state employees included in the state health and pension systems.
• Effective Oct. 1, 2013, requires the MAIF executive director to appoint and remove MAIF employees in accordance with the policies of the MAIF Board.
• Repeals the authorization for the Office of Legislative Audits to conduct fiscal and compliance audits of MAIF. Instead, an audit committee, composed of members of the Board and the executive director, must require MAIF’s internal auditor to conduct fiscal compliance and fiscal audits of the accounts and transactions of MAIF each year. A fiscal compliance audit must (1) examine financial transactions and records and internal controls; (2) evaluate compliance with applicable laws and regulations; and (3) examine electronic data processing operations.
H.B. 1203 (Chapter 406) – Homeowner’s or Renter’s Insurance – Policy Exclusions for Specific Breeds or Mixed Breeds of Dogs – Notices (Effective date: Oct. 1, 2013)
• Requires an insurer that offers a homeowner’s or renter’s insurance policy in Maryland that excludes coverage for losses caused by specific breeds or specific mixed breeds of
dogs to provide written notice at the time of application or policy issuance and at each renewal.
• The written notice must state that the policy does not provide coverage for losses caused by specific breeds or specific mixed breeds of dogs and identify the specific breeds or specific mixed breeds of dogs for which the policy does not provide coverage.
H.B. 1330 (Chapter 676) – Workers’ Compensation – Insurance Coverage – Employer Compliance (Effective date: Oct. 1, 2013)
• Modifies the procedures for the Workers’ Compensation Commission (WCC) to enforce employer compliance with the requirements that employers secure workers’
compensation insurance for their employees.
• If the WCC finds that an employer is noncompliant, it must order the employer to: (1) obtain workers’ compensation insurance with any authorized insurer; (2) provide the WCC with proof of coverage; and (3) pay to the Uninsured Employers’ Fund a penalty of up to $10,000.
S.B. 65 (Chapter 16) – Workers’ Compensation – Claim Processing – Electronic Delivery of Decisions (Effective date: Oct. 1, 2013)
• Authorizes the WCC to send copies of its decisions and orders electronically if consented to by the party’s attorney of record or, if the party is unrepresented, by the party.
S.B. 682 (Chapter 525) – Portable Electronics Insurance – Compensation of Employees of Vendor, Disclosures to Customers, and Study (Effective date: Oct. 1, 2013)
• Prohibits a portable electronics vendor or an authorized representative of the vendor from using the sale of portable electronics insurance as the sole basis for an employee’s compensation.
• Requires the insurance commissioner to approve disclosures containing key terms and conditions of coverage under the policy rather than the major features of any exclusions, conditions, or other limitations of coverage.
• Requires the insurance commissioner to: (1) determine the types of limited lines insurance that are authorized to be offered in other states; (2) review the laws and practices of other states relating to the offering of limited lines insurance; (3) review the National Association of Insurance Commissioners’ guidelines and standards relating to the authorization of limited lines insurance; (4) determine the appropriate regulatory structure, including consumer protections, for the sale of a limited lines insurance policy; and (5) report any findings and recommendations to the Senate Finance Committee and the House Economic Matters Committee by Dec. 1, 2013.
• Requires the insurance commissioner to track complaints from customers regarding the sales practices of vendor employees at point of sale; determine whether and how vendor employees should be compensated for selling a portable electronics limited lines insurance policy; and report any findings and recommendations on or before Jan. 1, 2017.
S.B. 736 (Chapter 311) – Insurance – Fraudulent Insurance Acts – Compensation for Deductible (Effective date: Oct. 1, 2013)
• Prohibits a contractor who offers home repair or remodeling services for damages to a private residence caused by weather from directly or indirectly paying or otherwise
compensating an insured or offering or promising to pay or compensate an insured, with the intent to defraud an insurer, for any part of the insured’s deductible under the property or casualty insurance policy, if payment for the services will be made from the proceeds of the policy.
• Provides that a violation of the Act is a fraudulent insurance act subject to criminal and civil penalties.
S.B. 930 (Chapter 334) – Property and Casualty Insurance – Premium Payments – Acceptance on Installment Payment Basis and Premium Finance Agreements (Effective date: July 1, 2013)
MAIF Installment Payment Plan
• Authorizes MAIF to accept premiums on an installment payment basis on 12-month personal lines policies if specified requirements are met and the insurance commissioner approves.
• Requires that a MAIF installment plan:
o In the case of a 12- month policy with a total annual premium less than $3,000, require an insured’s initial premium payment to be at least 25% of the total annual premium, and offer no more than six installment payments on the 12-month policy;
o In the case of a 12- month policy with a total annual premium of $3000 or more, require an insured’s initial premium payment to be at least 20% of the total annual premium and offer no more than eight installment payments on the 12-month policy; and
o Adjust the amount of the total annual premium used to determine the initial premium payment on October 1 of each year using data from the U.S. Government Bureau of Labor Statistics Motor Vehicle Insurance Expenditure Category of the Consumer Price Index for all Urban Consumers.
• Allows MAIF to impose an administrative processing fee of up to $8 per installment payment.
• Prohibits MAIF from discriminating among insureds by charging different premiums based on the payment option selected by an insured.
• Prohibits MAIF from considering whether a fund producer placed an insured in an installment payment plan in determining commissions paid to the fund producer.
• Requires any written and electronic communications, including MAIF’s website, affecting the placement of coverage by MAIF or a fund producer to include a statement advising an applicant or an insured of the payment options available to the applicant or insured.
• Requires the executive director of MAIF, in consultation with the insurance commissioner and appropriate state agencies, to develop criteria for evaluating the effectiveness and impact of MAIF’s installment payment plan, considering the plan’s impact on: (1) the cost of automobile insurance for MAIF insureds; (2) the number of insured and uninsured motorists in Maryland; (3) the number of MAIF policies in force by geographic area; (4) the duration of MAIF policies in force; and (5) the frequency of payment methods used by MAIF insureds, including MAIF’s installment payment plan, premium finance agreements, and cash and credit card payments.
• Requires MAIF to prepare a report on the effectiveness and impact of the installment payment plan for the prior year and, on or before Oct. 1, 2015, submit the report to the insurance commissioner, who must submit a report on the effectiveness and impact of the installment payment plan to the Senate Finance Committee and the House Economic Matters Committee on or before Dec. 31, 2015.
• Adds notification requirements in a premium finance agreement, including a notification about the calculation of finance charges, and authorizes a premium finance company to include the monthly cost of a motor club service contract in the payments, but prohibits the premium finance company from earning finance charges on the amount of the motor club service contract.
• Requires finance charges under a premium finance agreement to be computed in an amount not exceeding the sum of 1.15% for each 30 days of the loan, computed in advance.
• Authorizes a premium finance company to use the actuarial method in calculating the amount of refund due an insured if the insurance contract is canceled or the insured prepays the loan in full at any time.
• Authorizes a premium finance company to earn the finance charge on the first day of each 30-day period.
• Imposes additional restrictions on the imposition of a finance charge in connection with a commercial automobile, fire, or liability insurance policy.
• Permits premium finance agreements for commercial insurance risks to include separate representations, warranties, or obligations of producers who sell, negotiate, or procure the insurance policy, the premiums for which are financed under the premium finance agreement.
• Prohibits a premium finance company from using the Rule of 78s to compute a finance charge.
• Authorizes premium finance companies to continue to charge finance charges for certain commercial insurance risks under specific circumstances if, after the policy is canceled and the premium is returned to the premium finance company, there remains an unpaid principal balance.
Cancellation Charges and Electronic Payment Fees
• Authorizes a premium finance agreement to impose a cancellation charge on or after the effective date stated in the notice of cancellation or on or after the cancellation effective date stated in the notice of intent to cancel.
• Increases the amount of a possible cancellation charge for private passenger automobile or personal fire or liability insurance by an additional dollar for each calendar year after 2014, increasing from $15 in calendar 2014 to $20 in calendar 2019 and for each subsequent year.
• Authorizes a premium finance company to charge an electronic payment fee if the insured elects to pay by electronic check.
Motor Club Service Contracts
• Includes motor club services in the definition of authorized add-on coverage sold in connection with a policy issued by MAIF.
• Prohibits a premium finance company from imposing a finance charge or any other charge on any payment for the purchase price of a motor club service contract.
• Prohibits a premium finance company from canceling an insurance contract if any payment under the premium finance agreement is sufficient to pay the installment due under the agreement that is related to the insurance contract obligation but is not sufficient to cover the amount of the monthly payment for the motor club service contract.
• Requires an insurance producer, or an employee or agent of the insurance producer, who directly or indirectly has an ownership interest in a motor club to provide a disclosure to be signed by the insured informing the insured of any interest the insurance producer, employee, or agent has in the motor club.
Assignment of Rights and Obligations
• Authorizes a premium finance company for private passenger motor vehicle insurance and personal insurance to assign all rights and obligations under a premium finance agreement to another premium finance company registered with Maryland or pledge a premium finance agreement as collateral for a loan.
• Authorizes a premium finance company for commercial automobile, fire, or liability insurance to assign all rights and obligations under a premium finance agreement to another person if the premium finance agreement expressly confers the right to assign all rights and obligations under the premium finance agreement or pledge a premium finance agreement as collateral for a loan. If the premium finance company assigns rights and obligations, it must retain the obligation to service the premium finance agreement or assign the obligation to another finance company registered with Maryland.
• Requires a premium finance company who assigns obligations to service a premium finance agreement to provide the insured specified notice.
H.B. 431 (Chapter 115) – Insurance – Maryland Insurance Acquisitions Disclosure and Control Act – Revisions (Effective date: Jan. 1, 2014)
• Requires a person seeking to acquire control of a domestic insurer to file a pre-acquisition notification and statement regarding the acquisition with the insurance commissioner.
• Requires prior notice of a proposed divesture of control of a domestic insurer by a controlling person to be filed with the insurance commissioner.
• Requires a person seeking to acquire control of a domestic insurer to agree to provide the insurance commissioner with an annual enterprise risk report and any information necessary for the insurance commissioner to evaluate the insurer’s enterprise risk.
• Requires an insurer that is a member of an insurance holding company system to file statements that the insurer’s board of directors oversees corporate governance and
internal controls, and that the insurer’s officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures.
• Beginning in 2015, requires the ultimate controlling person of an insurer that is a member of a holding company system to file with the insurance commissioner an annual enterprise risk report identifying material risks within the holding company system that could pose enterprise risk to the insurer.
• Requires an insurer, upon request from the insurance commissioner, to provide financial statements of an insurance holding company system including all affiliates.
• Expands the insurance commissioner’s examination authority to include all entities within the insurance holding company system.
• Sets the amount of time before a disclaimer of affiliation with domestic insurers becomes effective at 60 days after the time of filing if not disallowed by the insurance commissioner.
• Authorizes the insurance commissioner to specify provisions by regulation that must be included in management agreements, service contracts, tax allocation agreements, or cost-sharing agreements.
• Increases and establishes fines and penalties for a violation of specified provisions of the Act.
• Authorizes the insurance commissioner to participate in supervisory colleges, which are meetings of state and international regulatory agencies supervising insurers and their affiliates, and requires insurers to be responsible for reimbursement of reasonable expenses for the commissioner’s participation.
• Requires prior notice to the insurance commissioner of amendments or modifications of existing affiliate agreements previously filed by an insurer.
• Requires notice to the insurance commissioner of termination of existing agreements or transactions previously filed by an insurer.
H.B. 537 (Chapter 377) – Insurance Producers – Continuing Education – Online Courses (Effective date: Oct. 1, 2013)
• Authorizes all insurance producers required to meet continuing education requirements for renewal of their licenses to obtain all or part of the required continuing education credits through correspondence or online courses approved by the insurance commissioner.
H.B. 724 (Chapter 385) – Insurance – Risk Based Capital Standards – Fraternal Benefit Societies and Life Insurers (Effective date: Oct. 1, 2013)
• Requires that a fraternal benefit society meet specified risk based capital requirements and be subject to both a company action level event and a mandatory control level event.
• Raises the minimum level of total adjusted capital that triggers a company action level event for a life insurer or fraternal benefit society.
H.B. 1205 (Chapter 407) – Study of Captive Insurers (Effective date: June 1, 2013)
• Requires the Maryland Insurance Administration to examine methods to establish and properly regulate a captive insurer industry in Maryland. The study includes:
o The models of regulation of captive insurance industries in other states;
o The potential benefits of hosting a captive insurance industry in Maryland;
o The impact on Maryland and the domestic insurance industry; and
o The need for different or additional consumer protections and financial controls for customers of the captive insurers.
S.B. 777 (Chapter 321) – Insurance – Ceding Insurers and Reinsurance (Effective date: June 1, 2013)
• Alters the requirements for a licensed ceding insurer to receive credit for reinsurance in their financial statements and authorizes the insurance commissioner to certify reinsurers so that licensed ceding insurers may receive credit for reinsurance ceded to certified reinsurers.
• Requires new contractual provisions for the ceding insurer to obtain credit for reinsurance.
• Establishes the eligibility requirements to be considered for certification as a certified reinsurer.
• Establishes a method whereby an assuming insurer may be certified and rated by the insurance commissioner and allows insurers ceding to an assuming insurer that has been certified to be granted full credit for reinsurance while being permitted to obtain security according to a sliding scale, with the required collateral varying from 0 percent to 100 percent of ceded liabilities according to the certified reinsurer’s rating.
• Requires the insurance commissioner to publish a list of all certified reinsurers and their ratings.
• Requires a certified reinsurer to meet specified requirements relating to secured obligations. In order for a domestic ceding insurer to qualify for full financial statement credit, the certified reinsurer must maintain security in a form the insurance commissioner considers acceptable and consistent with specified requirements or in a specified multibeneficiary trust.
• Requires a certified reinsurer to report certain information to the insurance commissioner annually.
• Requires the certified reinsurer to bind itself, by the language of the trust and agreement with the regulatory agency with principal regulatory oversight of each trust account, to fund, on termination of the trust account, out of the remaining surplus of the trust, any deficiency of any other trust account.
• Establishes the eligibility requirements of a jurisdiction in which an assuming insurer may be domiciled to be considered a qualified jurisdiction and requires the insurance commissioner to maintain and publish a list of qualified jurisdictions. The bill prohibits the insurance commissioner from recognizing as a qualified jurisdiction a jurisdiction that the insurance commissioner determines does not adequately and promptly enforce final U.S. judgments and arbitration awards.
• Requires that the reduced collateral provisions for a certified reinsurer apply to reinsurance contracts entered into on or after the effective date of the certification, and
that any reinsurance contract entered into prior to the effective date of certification that subsequently is amended and any new reinsurance agreement covering risk for which collateral previously was provided, will qualify for reduced collateral only with respect to losses incurred and reserves reported from and after the effective date of the amendment or contract.
• Authorizes the insurance regulatory agency with principal regulatory oversight of the trust to reduce the required trusteed surplus at any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years. A reduction may be authorized only after a determination, based on an assessment of the risk, is made that the new required surplus level is adequate for the protection of U.S. ceding insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review and must consider all material risk factors. The minimum required trusteed surplus may not be reduced to an amount less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers covered by the trust.
• Requires notification if reinsurance recoverables from any single reinsurer or group of affiliated reinsurers exceed 50 percent of the insurer’s last reported surplus to policyholders or if the insurer has ceded to any single reinsurer or group of affiliated reinsurers more than 20 percent of the insurer’s gross written premium in the prior calendar year.
• Authorizes the insurance commissioner to suspend or revoke, after providing notice and an opportunity for a hearing to the reinsurer, a reinsurer’s accreditation or certification if the reinsurer ceases to meet the requirements for accreditation or certification.
Any revocation or suspension does not take effect until after the commissioner’s order on hearing unless (1) the reinsurer waives its right to a hearing; (2) the commissioner’s order is based on a regulatory action by the reinsurer’s domiciliary jurisdiction or primary certifying state suspending or revoking the reinsurer’s eligibility to transact insurance or reinsurance; (3) the reinsurer voluntarily surrenders its license or certification to transact insurance or reinsurance business in its domiciliary jurisdiction or primary certifying state; or (4) the commissioner finds that an emergency requires immediate action by the commissioner and a court of competent jurisdiction has not stayed the commissioner’s action.