Surplus lines insurance, insurance security fund, automobile insurance, and granting rule-making authority

Under current law, the policyholder of surplus lines insurance generally must pay a 3 percent tax on gross premium. If a policy covers risks in more than one state including this state, the tax payable to this state is computed on the premium allocated to this state for the portion of the risk located in this state. Under the bill, that computation applies only for policies issued or renewed before July 21, 2011.

For policies issued or renewed on or after that date, the tax is payable to this state only if this state is the home state of the insured, and it is computed on the entire premium, including premium attributable to risks outside of this state.

The bill specifies that the licensing requirements for intermediaries in this state do not apply to a person who solely procures insurance that may be placed directly or through a broker with an insurer that is not authorized to do an insurance business in this state and that is not surplus lines insurance; that the requirements related to filing insurance forms with the commissioner for approval do not apply to a surplus lines insurance form, except for a form for rustproofing warranty insurance; and that the provision relating to insurance policies containing provisions for independent appraisal and compulsory arbitration, subject to the requirements for form filing and approval, does not apply to surplus lines insurance.

Auto insurance Under current law, the auto insurance provisions relating to required coverage and minimum limits apply to all liability insurance policies that insure with respect to any owned motor vehicle registered or principally garaged in this state. The bill eliminates the condition that the requirements apply only if an owned motor vehicle is insured so that, unless a specific exemption applies, the coverage and minimum limit requirements apply to any policy that insures with respect to any motor vehicle.

The bill makes a few modifications to the auto insurance provisions that, under Act 14, go into effect on November 1, 2011. Act 14 provided a definition for a "commercial liability policy" as a policy that provides coverage for the insured's general liability arising out of business or commercial activities and that includes as one component coverage for the insured's liability arising out of the ownership, maintenance, or use of a motor vehicle. Under Act 14, commercial liability policies are not subject to the requirement for motor vehicle insurance policies that they must include uninsured motorist coverage and medical payments coverage, unless the insured rejects medical payments coverage, or the requirement that an insurer must notify the insured of the availability of underinsured motorist coverage. The bill does all of the following:

1. Specifies that a commercial liability policy is not subject to these requirements if the coverage provided under the policy for the insured's liability arising out of the maintenance or use of a motor vehicle is limited to nonowned motor vehicles.

2. Provides that if a policy that is exempt from the requirements does, however, provide uninsured or underinsured motorist coverage or medical payments coverage, that coverage must have at least the limits that are required under the statutes for those coverages. (For uninsured motorist coverage, the minimum limits are $25,000 per person and $50,000 per accident; for underinsured motorist coverage, the minimum limits are $50,000 per person and $100,000 per accident; and for medical payments coverage, the minimum limit is $1,000 per person.)

3. Excludes commercial automobile liability policies from the definition of commercial liability policies so that commercial automobile liability policies are subject to the same requirements as motor vehicle insurance policies and defines a "commercial automobile liability policy" as a policy that is intended principally to provide primary coverage for the insured's liability arising out of the ownership, maintenance, or use of a motor vehicle in the insured's business or other commercial activities.

4. Clarifies that only one named insured is required to reject medical payments coverage for the rejection to be effective.

Insurance security fund Under current law, the state maintains an insurance security fund to protect insured parties from excessive delay and loss in the event an insurer is liquidated and to provide for the continuation of protection under certain policies and contracts in the event of a liquidation of an insurer. Insurers, with some exceptions, are required to contribute moneys to the insurance security fund. Current law also specifies that, with some exceptions, the maximum obligation of the insurance security fund on any single risk, loss, or life is $300,000.

In addition to making other changes to the insurance security fund, this bill specifies that retained asset accounts are covered by the insurance security fund. A retained asset account is any mechanism in which the settlement of proceeds payable under a life insurance policy is accomplished by the insurer or an entity acting on behalf of the insurer depositing the proceeds into an account with check or draft writing privileges, where those proceeds are retained by the insurer under a written supplementary contract not involving annuity benefits. The bill specifies that a retained asset account is a type of supplementary contract for which an insured may make a claim for payment against the fund. The bill also specifies that retained asset accounts are eligible for continuation protections as are certain other policies and contracts. The bill defines, for the purposes of the maximum fund obligation, "disability insurance" as comprehensive health insurance and major medical health insurance. The bill clarifies that the maximum obligation applies regardless of the number of policies or contracts. The bill also sets the maximum aggregate liability of the fund for a single risk, loss, or life with respect to benefits for property insurance, liability insurance, and disability insurance at $500,000, while the maximum for other insurance policy or contract types remains at $300,000.