Pennsylvania Introduces Regulatory Changes for Surplus Line Licensees and Policyholder Incentives

In a significant move to refine insurance practices, Pennsylvania has introduced regulatory changes impacting surplus line licensees and policyholder incentives. Signed into law on July 8 by Governor Josh Shapiro, these modifications include the ability for licensees to levy service fees and increase nonmonetary gifts to policyholders, marking a progressive step in the state’s insurance market dynamics.

The new statute allows surplus lines licensees to impose a service fee on carriers for facilitating policies within the non-admitted market. For individual policy agreements, fees are capped at either $150 or 4% of the policy premium, whichever is higher. These fees must accurately reflect the actual costs associated with underwriting, issuing, and processing the policies.

Additionally, agents must disclose detailed information to policyholders before issuing a policy. This includes the service fee amount, inspection fees, applicable premium taxes, and a comprehensive breakdown of charges for each service. Transparency also extends to any compensation or ownership interests surplus line licensees have in inspection-related companies, with an exception for holdings in publicly traded stock portfolios.

Agents are now permitted to recover inspection costs necessary for policy placement directly from policyholders. These costs must be genuine, non-retainable by the agent, and fully documented.

Effective July 15, insurance carriers can offer nonmonetary gifts to policyholders valued up to $125 annually, an increase from the previous $100 limit. These gifts, which must relate to insurance coverage, aim at loss mitigation, risk assessment, or enhancing policyholder safety and health, such as providing smoke detectors. These inducements are not contingent upon the purchase or renewal of a policy, ensuring fair practice and consumer choice.

This regulatory update aligns Pennsylvania with the National Association of Insurance Commissioners’ model law, advocating for greater flexibility in noncash gifts and inducements. Insurance providers meeting the criteria for these incentives must notify the state insurance department ahead of implementation.

Despite attempts to obtain further commentary from the Pennsylvania Surplus Lines Association and the Pennsylvania Insurance Department, responses were not received at the time of reporting.