Does an insurer have to file new rates if it wants to recoup the fraud and regulatory surcharges directly from its policyholders?
Yes. Current rates are deemed to include fraud and regulatory surcharges. The surcharges are already being recouped by current premium payments.
A new rate filing is required if a company wishes to recoup the fraud and regulatory surcharges from its policyholders (if rates/rating manuals must be filed for the line of business). This rate filing should show a commensurate reduction in the rate attributable to the fraud and regulatory surcharges now being recouped by a policyholder surcharge. Do not include the policyholder surcharge in the insurer’s manual of rates and rules.
If an insurer chooses to recoup the fraud and regulatory surcharges from its policyholders, may it be recouped from some lines of insurance and not from other lines?
Yes. If an insurer chooses to recoup the fraud and regulatory surcharges from its policyholders using the first option (see Section 2 of "Understanding the regulatory surcharge"), an insurer may elect to recoup the fraud and regulatory surcharges from its policyholders on some lines and not others.
When an insurer chooses to apply the surcharge to some lines and not other lines:
“Reasonably calculated” means the policyholder surcharge is based on the part of the fraud and regulatory surcharge applied to that policy. For example, if personal lines auto insurance makes up 40% of a company’s premium volume, then 40% of the company’s fraud and regulatory surcharges should be uniformly charged to personal lines auto policies.
“Uniformly charged” means the policyholder surcharge is based on the policy’s annual premium and not a fixed amount assessed without considering the policy’s annual premium.
What happens if an insurer over or under-recoups the fraud and regulatory surcharges from its policyholders?
The insurer must use a “true up” process to reconcile any difference. If the policyholder surcharge results in over-recoupment of fraud and regulatory surcharge, the insurer must reduce the following year’s policyholder surcharge by the amount over-recouped. If the direct policyholder surcharge amount under-recoups the amount of the fraud and regulatory surcharges, the insurer may increase the following year’s surcharge by the amount under-recouped.
If an insurer elects to recoup the fraud and regulatory surcharge from its policyholders, does an insurer need to file the policyholder surcharge amount for approval by the Office of the Insurance Commissioner (OIC)?
No. An insurer should not file the policyholder surcharge amount for review or approval. Any insurer’s filing of its policyholder surcharge will be returned to the insurer without any action by the OIC.