Welcome to part two of my series, What's The Rule? Part one looked at disclosures insurance producers have to make when they sell insurance to municipalities. Today we'll look at what personal auto insurance companies can and cannot do regarding surcharges on policy premiums.
Surcharging auto premiums is governed by New York Insurance Regulation 100, Noncommercial Private Passenger Automobile Insurance Merit Rating Plans. New York Insurance Law Sections 2334 and 2335 permit and govern merit rating plans. You should not confuse merit rating with the multiple tier rating system that many insurers use. Theoretically, tiering creates different broad pricing points for risks that meet mutually exclusive underwriting and rating criteria. A separate regulation (Regulation 150) applies to them. Regulation 100 deals only with surcharging.
So, what limitations does this regulation place on surcharging?
- Insurers cannot surcharge for an accident that does not result in aggregate property damage in excess of the Department of Motor Vehicles's accident reporting threshold. This is currently $1,000, but legislation awaiting the governor's signature would raise the surcharge threshold (but not the reporting threshold) to $2,000.
- Insurers cannot surcharge premiums for Comprehensive coverage, and they may not surcharge for Comprehensive-only claims.
- Insurers may not surcharge for accidents occuring when a car is lawfully parked; when a car is struck in the rear by another vehicle and the insured driver is not convicted of a moving violation relating to the accident; when the car is struck by a hit-and-run vehicle and the insured reports it to the police within 24 hours; when the insured operates a vehicle for hire or a commercial auto while in the course of employment and the accident does not result in a conviction for a moving violation; or when the insured has an accident while driving a commercial vehicle on the job and the accident is not the result of the insured's intentional action or gross negligence.
- Insurers may not charge an insured in two or more ways for the same series of accidents or violations. However, the insurer may move the insured to a higher-rated pricing tier.
- The regulation places upper limits on the surcharges (three times the manual premium under "additive" type plans; two times the premium under "multiplicative" type plans.)
- Insurers may allocate a surcharge among any or all vehicles on a policy but may not surcharge more than the premium one car would have generated.
- Insurers must refund surcharges if the insured can show that the accident falls within an exception in the merit rating plan, if the insured's conviction for a chargeable violation is reversed, if the surcharge was made in error, or if the insurer sets up a claim reserve and no claim is submitted within three years after the accident. The refund applies to all affected policy periods.
- Insurers must place a specific notice of the surcharge on the policy, premium bill, or notice accompanying the policy. They must also state the surcharge in terms of dollar amounts. The notice must state the date of each chargeable accident and the conviction date of each chargeable violation.
The rest of the regulation applies to filing requirements and gives the Insurance Department some flexibility with regard to exempting a particular plan from some of these requirements.
What do you see in the market? Are insurers following these rules?