Property insurers in Mississippi have until October 1, 2015 to respond to the Mississippi Insurance Department’s (MID) first call for homeowners’ insurance policy data that will be used to satisfy the requirements of the new Mississippi Property Insurance Clarity Act.
The Clarity Act, which was passed this session by Mississippi lawmakers and signed last month by Governor Phil Bryant, requires insurers operating in the state of Mississippi to submit rate info and other pricing details by policyholder zip code so the MID can perform a geographic comparison and market analysis of premiums and losses.
“I wouldn’t call this a game changer by any stretch of the imagination – it’s just a tool to understand a little bit more about how policies are being written by private insurers versus the state run pool in certain geographical areas,” said Mississippi Representative Scott DeLano, who authored House Bill 739, now known as the Clarity Act.
DeLano says the goal of the new law is to see how Mississippi homeowners are being charged depending on where they live. Ultimately, he says they hope to improve rates for coastal homeowners so they can move out of the state windpool program and back into the regular insurance market, which would in turn provide more business to insurers in the state. He says lawmakers lso would like the insurance industry to help policymakers understand some of the marketplace dynamics.
“By giving data by geographical area we can look at this longitudinally and see what gains we are making in getting private insurers to come in and write in these higher risk areas,” he said.
However, not everyone agrees the goals of this legislation will be met.
“Rates are decided by actuarial determinations and losses, which take storms into account. They aren’t going to find that coastal residents are paying more than they should be,” said Joe Woods, VP of State Government Relations for the Property Casualty Insurers Association of America’s Southern Southwest Region.
Woods acknowledged that he hadn’t considered if the Act would indeed reduce the number of homeowners in the state-run windpool program. Still, he doesn’t believe it will result in a significant cost-savings to Mississippi homeowners and instead the industry will now have additional costs from gathering the data going back to 2005 through 2014, as the Act requires.
“Their pitch has been that the coast is paying too much and this [law] will provide clarity. The industry doesn’t mind supplying the data, but when they go to the zip code level like this – no one has that data and there is an expense factor in sorting and reporting the data,” said Woods.
Insurers are required to submit the following information for homeowners’ insurance policies (including condominium insurance, dwelling fire policies, renters/tenants insurance and mobile home/manufactured housing property insurance):
- Computations of the total amount of direct incurred losses
- Direct earned premiums
- Policy limits
- Allocated loss adjustment expense
- And the number of policies in force by earned house years for the prior calendar year by zip code.
The Act also states that such information shall be provided for each of the following policy categories:
- All homeowners policies that include windstorm coverage
- All homeowners policies that exclude windstorm coverage
- And all policies that only include windstorm coverage.
DeLano says the requested info is very basic and was decided on in cooperation with the MID. The MID will manage all the information and aggregate it.
“This gives the Department of Insurance and the Commissioner’s office great latitude in modifying the reporting requirements for the insurance companies,” said DeLano.
Insurers that do not comply with the first data call by the October 15 deadline will be sent a notice by the MID and given 90 days to submit, after which they will be fined $2,500 per month by the department until the date of compliance.
The bill also states the commissioner can assess insurers for the “costs incurred by the commissioner for outside experts and consultants in preparing the data calls and analysis of the aggregate data…”
Smaller insurance companies without the means or resources to gather this data can be granted an exemption from the law. Creditor-placed property insurance, condo minium association insurance and commercial insurance are also excluded.
Robert Arnold, vice president of Finance for Mississippi Farm Bureau Mutual Casualty Insurance, has been working on gathering the insurer’s data. He says the biggest issue and expense has been compiling the necessary information by zip code because many insureds don’t have physical mailing addresses and the company’s information is currently available only on a county level.
“We are still working on that because a lot of people are in rural areas. That is a lot of our issue because our bread and butter is the rural market and a lot of those are P.O. boxes. We had mailing zip codes and are now trying to map those out… We are still trying to work out a good source to go out and find those,” he said.
The process has also included asking its reinsurers to do some of the modeling to provide the information that the MID needs.
Getting the Mississippi Farm Bureau’s support was crucial to the passage of this bill – DeLano’s second attempt at doing so.
He first presented the bill in 2014 and was met with opposition from the insurer – the second largest homeowner writer in the state based on premiums. DeLano says the company was concerned with how to gather the data and the costs associated with it, and as a result the MID removed its support. DeLano says there were also concerns about a similar law that passed in Alabama that reportedly provided inaccurate data.
“In the first year of implementation in Alabama, grassroots people tried to make unfair assumptions based on raw data and the Department of Insurance in Alabama threw out raw data that was misinterpreted. It took another year of this data being absorbed into the marketplace before all the providers said ‘this blowback is not something we are overly concerned about,'” he said.
This time, Mississippi Farm Bureau worked with DeLano on the legislation. Arnold says the original bill was very broad and the insurer needed more clarification on what lawmakers were looking for. The company’s lobbyist sat down with DeLano to nail down the requirements and put it together in a manner the insurer could understand.
“From the standpoint of supporting the bill, we saw it seemingly was going to pass so we decided let’s get something we can live with,” he said. “Most of the data is available but in different formats and not exactly the way they were asking for it.”
Arnold says once the data is compiled and put out there, he isn’t sure what the consumer will be able to determine from it.
“They could look at it and say ‘my zip code is more than North Mississippi’ but there are a lot of factors that go into that and that analysis won’t be there. My concern is with a limited amount of information, consumers won’t know what to do with it when they get it,” he said.
The bill was structured with a “repealer” clause and a three year reporting cycle through 2022 so if it doesn’t work, legislators will be forced to address it through additional legislation, giving the insurance industry the ability to modify the bill or let it die, DeLano said.
He added that the law was not meant to be punitive or to become a burdensome cost to the insurance industry; they simply want to gain understanding into the dynamics of the marketplace and how successful or unsuccessful they are in getting insurers into these riskier communities.
“I am very thankful the insurance companies sat down and worked with us to get these issues resolved and I look forward to that same type of cooperation moving forward so we can overcome some of the issues in our coastal communities,” he said.
Arnold isn’t convinced this legislation will work in overcoming these issues and may actually have the opposite effect that legislators are hoping for, but he says it’s still too early to tell.
“Mississippi is a very small share of the [insurance] market and some companies may just decide down the road that it’s not worth the effort,” he said. “But I understand the frustration…We will have to wait and see how it plays out here.”
The Insurance Commissioner didn’t respond to requests for comment. The Department has posted instructions and a template for Mississippi insurers on its website to be used in complying with the Mississippi Property Insurance Clarity Act requirements.