This is the second in a series of posts where I am responding to certain pending legislation geared toward forcing insurance companies to pay for claims for losses related to virus and pandemic.
Assessing insurers means assessing insureds
Each of these state laws includes a provision that reads similar to this:
2.a. An insured which indemnifies an insured who has filed a claim pursuant to section 1 of this act may apply to the Commissioner of Banking and Insurance for relief and reimbursement by the commissioner from funds collected and made available for this purpose as provided in section 3 of this act.
3.a. In addition to the special purpose apportionment made pursuant to section 2… the Commissioner of Banking and Insurance is authorized to impose upon, distribute among, and collect from the companies engaged in business pursuant to subtitle 3… such additional amounts as may be necessary to recover the amounts paid to insurers pursuant to section 2 of this act.
- b. The additional special purpose apportionment authorized pursuant to subsection a. of this section shall be distributed in the proportion that the net written premiums received by each company subject to the apportionment authorized by this section for insurance written or renewed on risks in this State during the calendar year immediately preceding, bears to the sum total of all such net written premiums received by all companies writing that insurance or coverage within the State during that calendar year, as reported. The commissioner shall adopt the same procedures and calculations as are provided in section 2 of …. As appropriate to calculate the additional special purpose apportionment authorized by this section.
Again, I’m not a legal scholar, but I can read, comprehend, interpret most written documents (sometimes my handwriting escapes me, but that’s another story). This part of the act allows the state to use funds that they budget through their emergency budgeting process and if funds are needed above that budgeted amount, it also gives the state the right to collect any additional funds from insurers. We’ll call that an emergency COVID assessment.
How do assessments work?
The state will be doing some fairly simple, but detailed math according to the financial reports that insurers file and the actual payments made to insurers under this law.
- The state will calculate the total net premiums paid to all property and casualty insurers during the prior calendar year (they have that data).
- The state will calculate all of the money paid out per this law that exceeds its emergency apportionment from the state budget. This will likely be a significant shortfall. Most states don’t have the experience they would need to calculate the amount of money that they will need, nor do they have the stomach to be responsible to tell their constituents that they took budget money from their pet projects to support insurance companies.
- The state will calculate the ratio created by the net premiums of individual companies to the total net premiums written and assess the company that ratio of the total dollars that they need to raise. If a company writes 5% of the total net written premiums in the state, that company will be responsible for 5% of the total assessment.
- The insurance company will take the total amount that they were assessed and then calculate how much they need to add to the premiums of their customers and each customer will end up paying the insurance company back a small portion of the assessment that the insurer paid to the state.
In the end, the company pays the business income claims that are required by the state and then sends that data to the state for reimbursement. The state then takes that data and repays the companies according to their procedures and then when they recognize that they didn’t set aside enough money for this, they continue to pay the claims but add up how much of a budget shortfall they plan to have. The state then sends a bill to every insurance company, not every company that pays claims, but every company. Those companies then pass that assessment on to all of their customers.
So in the end, the insurance consumers and taxpayers in that state end up paying for these claims.
What happens if the state doesn’t reimburse these claims?
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