For Insurers

Understanding the fraud and regulatory surcharge

Insurers have two options regarding treatment of the fraud and regulatory surcharges:

Option One

An insurer may recoup the fraud and regulatory surcharges by passing them directly through to its policyholders. Before the amount may be passed through as a policyholder surcharge, a new rate filing or rating manual must be filed with the Office of the Insurance Commissioner (OIC) (if rates/rating manuals must be filed for the line of business). If an insurer chooses to recoup the surcharges, it must be at a uniform rate that is “reasonably calculated” and the surcharges must be separately stated on either a billing statement or a policy statement sent to an insured.

Option Two

An insurer may build the fraud and regulatory surcharges into its rates as one of the insurer’s expected costs. However, using this option, the fraud and regulatory surcharges should not be included in the calculation of premiums on the State Page exhibit or for premium tax purposes. Instead, they should be expensed and reported as fees.

May an insurer directly recoup the fraud and regulatory surcharges for prior years?

No. A company may begin to directly recoup the fraud surcharge from its policyholders for the 2023 regulatory surcharge that was due July 15, 2023.

The OIC will monitor insurer compliance with the new law by:

  • Reviewing filed premium tax statements
  • Reviewing rate filings
  • Conducting market conduct oversight activities