Does an insurer have to file new rates if it wants to directly recoup the regulatory surcharge from its policyholders?
Yes. Current rates are deemed to include the regulatory surcharge and therefore the surcharge is already being recouped by current premium payments. If a company wishes to recoup the regulatory surcharge more directly from its policyholders, a new rate filing is required (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 regulatory surcharge now being directly recouped by a policyholder surcharge. The policyholder surcharge, however, should not be included in the insurer’s manual of rates and rules.
If an insurer chooses to recoup the regulatory surcharge directly from its policyholders using the first option (See Section 2 of "Understanding the regulatory surcharge"), may it be recouped from some lines of insurance and not from other lines?
Yes. An insurer may elect to directly recoup the regulatory surcharge from its policyholders on some lines and not others. When an insurer chooses to allocate the surcharge to some lines and not other lines:
“Reasonably calculated” means the policyholder surcharge is based on the portion of the regulatory surcharge that is applicable 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 regulatory surcharge 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-recoups or under-recoups the regulatory surcharge directly from its policyholders?
If an insurer over-recoups or under-recoups the amount of the regulatory surcharge using a direct policyholder surcharge, the insurer must use a “true up” process to reconcile any difference. If the policyholder surcharge results in over-recoupment of regulatory surcharge, the insurer must reduce the following year’s policyholder surcharge by the amount over-recouped. Similarly, if the direct policyholder surcharge amount under-recoups the amount of the regulatory surcharge, the insurer may increase the following year’s surcharge by the amount under-recouped.
If an insurer elects to recoup the regulatory surcharge directly 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.