Whereas, The deferred operation of this act would tend to defeat its purpose, which is to immediately further regulate certain insurance practices, therefore it is hereby declared to be an emergency law, necessary for the immediate preservation of the public convenience.
Be it enacted by the Senate and House of Representatives
in General Court assembled, and by the authority of the same,
SECTION 1. Section 18~ of chapter 6A of the General Laws, as appearing in the 1994 Official Edition, is hereby amended by adding the following paragraph:-
(8) To develop and implement, no later than July first, nineteen hundred and ninety-seven, a program to compile and annually publish statistics and information concerning the incidence each year of residential structural fires and crimes against property, including, but not limited to, arson. Such statistics shall be compiled on a geographic basis according to postal zip codes. All state and municipal fire and police authorities shall cooperate with the secretary in the collection and recording of such data. The secretary shall annually file a report of such statistics, together with his analysis of any trends discerned from the same, with the clerk of the senate and the clerk of the house of representatives, who shall forward copies to the joint committees on insurance, the judiciary and public safety, the house and senate committees on ways and means, the attorney general and the commissioner of insurance, who shall forward copies to the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C, and to the insurance fraud bureau, formed pursuant to the provisions of chapter three hundred and thirty-eight of the acts of nineteen hundred and ninety.
SECTION 2. Section 5 of chapter 174A of the General Laws, as so appearing, is hereby amended by inserting after the word "available.", in line 19, the following sentence:- In considering catastrophe hazards with respect to homeowners insurance rates, the commissioner shall consider catastrophe reinsurance and factors relating thereto.
SECTION 3. Chapter 175 of the General Laws is hereby amended by inserting after section 4, as so appearing, the following three sections:-
Section 4A. Every admitted insurer writing homeowners insurance in the commonwealth, in accordance with the provisions of section four, and the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C shall furnish for examination and inspection by the commissioner of insurance, in accordance with section five of chapter one hundred and seventy-five C, to the owners, tenants and condominium, separately, forms of homeowners insurance written since January first, nineteen hundred and ninety-four, by standard statistical territories approved by the commissioner, a statistical report of its homeowners insurance experience showing the following data: written premiums; earned premiums; incurred losses, including loss adjustment expenses; loss ratio; number of incurred claims; and number of exposures.
As of July first, nineteen hundred and ninety-seven, or such later reasonable date as the commissioner may order after a hearing, but not later than July first, nineteen hundred and ninety-eight, the twenty-five admitted insurers with the largest homeowners market share in the commonwealth and the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C, shall furnish such data as provided in the preceding paragraph on the basis of the postal zip codes of credit-eligible territories, under the plan authorized by section four of chapter one hundred and seventy-five C, of all other postal zip codes in the city of Boston and such other postal zip codes as may be designated by the commissioner.
All data reports shall be formatted and produced in accordance with the National Association of Insurance Commissioners statistical handbook. Compliance with the requirements of this section shall be effected through statistical agents approved by the commissioner to act on behalf of the reporting insurers. In setting the effective date for data reporting in accordance with the preceding paragraph, the commissioner shall consider the practical ability of each statistical agent to so collect and report such data with an acceptable level of statistical credibility.
Access to such confidential data shall be granted by the commissioner to the attorney general, to the extent he so requests, for law enforcement purposes, and to the chairmen of the joint committee on insurance; provided, however, that the attorney general and the chairmen of the joint committee on insurance shall hold and keep such data confidential. All information reported pursuant to this section shall be given confidential treatment and shall not be subject to subpoena and shall not be made public by the commissioner, attorney general, chairmen of the joint committee on insurance, or any other person, without the prior written consent of the insurer to which it pertains, except by the insurer; provided, however, that if the commissioner, after giving the insurer and its affiliates who would be affected thereby, as well as the person or organization making the request, notice and the opportunity to be heard, determines that the interests of policyholders, shareholders or the public will be served by the publication thereof. In the event that the commissioner determines that such publication is appropriate, he may publish all or part of such data in such manner as he deems appropriate. Such hearing shall be held according to the adjudicatory procedures in chapter thirty A of the General Laws.
As of October first, nineteen hundred and ninety-six, and annually thereafter, the commissioner shall report to the general court concerning the current state of the homeowners insurance market in the commonwealth, both voluntary and residual market, and the conclusions reached by the commissioner based upon his most recent examination and inspection of the industry premium and loss data. Each such annual report shall be filed with the clerks of the senate and house of representatives who shall forward the same to the joint committee on insurance, the house and senate committees on ways and means and the attorney general. Such report shall be made available to the public by the commissioner. Said report shall summarize on an aggregate industry basis, by standard statistical territory and, when available, by zip code, broken down between voluntary and residual markets, the data concerning premiums and losses on homeowners insurance disclosed by the reporting insurers. Further, said report shall substantively analyze: the causes of loss and any trends discerned from the data by the commissioner; the respective market shares and levels of rate subsidies of the residual market policies written by the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C, compared to the voluntary homeowners insurance market; the availability and affordability of homeowners insurance in those territories whose association market share equals or exceeds four percent, with particular attention to credit-eligible territories; and the impact of such rate subsidies of the residual market policies written by said association upon the availability of homeowners insurance in the voluntary insurance market.
Each such annual report shall further examine the availability of homeowners insurance through the admitted insurers and the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C, in coastal municipalities, as well as the extent to which direct losses to residences caused by wind affect such availability. Said report may also contain any recommendations of the commissioner concerning legislation or other suggestions relative to the homeowners insurance market, loss control or disaster mitigation in the commonwealth.
Premium, loss and other data of individual insurers collected and examined by the commissioner shall not be specifically identified in said report; provided however that the commissioner shall, in an appendix, profile, separately for the twenty-five admitted insurers with the largest homeowners market share in the commonwealth based upon statewide written premium and, for the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C, the gross number of exposures, cancellations and non-renewals that each insured under homeowners insurance forms during the relevant time period covered by the data examined and inspected by the commissioner, in each such postal zip code or standard statistical territory for which data was collected and examined by the commissioner pursuant to this section. The commissioner's report shall also include an appendix which tabulates the industry aggregate number of homeowners policy non-renewals and cancellations effected during such relevant time period as reported to the commissioner pursuant to the provisions of section four B of chapter one hundred and seventy-five.
Section 4B. The commissioner, each year, shall direct and cause the twenty-five admitted insurers with the largest homeowners market share in the commonwealth, based upon statewide written premium and the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C, to submit directly for his inspection and examination a tabulation and report, for each postal zip code within credit-eligible territories, as defined by chapter one hundred and seventy-five C, of all other postal zip codes in the city of Boston, and such other postal zip codes as may be designated by the commissioner of insurance, of the number of effected cancellations and number of effected non-renewals of homeowners policies covering properties within such zip codes; provided, however, that the personal privacy of policyholders shall be preserved and all tabulations furnished pursuant hereto shall be deemed materials described in subclause (c) of clause Twenty-sixth of section seven of chapter four.
Section 4C. No insurer licensed to write and engaged in the writing of homeowners insurance in this commonwealth nor the joint underwriting association, formed pursuant to the provisions of chapter one hundred and seventy-five C, shall take into consideration when deciding whether to provide, renew, or cancel homeowners insurance the race, color, religious creed, national origin, sex, age, ancestry, sexual orientation, children, marital status, veteran status, the receipt of public assistance or disability of the applicant or insured. Nothing herein shall preempt any existing remedy provided by law for any action that constitutes a violation of this section.
SECTION 4. Section 99B of said chapter 175, as so appearing, is hereby amended by adding the following paragraph:-
The commissioner shall approve for use within the commonwealth, if filed by a rating organization licensed under chapter one hundred and seventy-four A on behalf of its members and subscribers or filed independently by any company licensed to write such insurance under authority of subclause (g) of section fifty-one, clause (g) of section fifty-four or section fifty-four E, any form of policy of homeowners multi-peril insurance which is to be issued to insure an owner-occupied condominium unit or dwelling structure of four or fewer units, or a tenant in such a condominium or dwelling structure, and which:
(a) contains a loss settlement clause which provides coverage for property loss to the extent of the actual cash value of the damage to the insured unit or structure; or
(b) contains a loss settlement clause which provides coverage for property loss on the basis of like-kind-and-quality replacement cost; or
(c) contains, in accordance with clause Twelfth A of section ninety-nine
(1) a loss settlement clause which provides functional replacement or repair cost coverage;
(2) which otherwise limits an insurer's liability for property loss to the tax assessment value of the insured unit or structure; or
(3) which otherwise requires actual cash value loss settlement calculations to be based upon the fair market value of the insured unit or structure, net of land value, without consideration of replacement cost less accrued depreciation due to physical deterioration and functional and economic obsolescence; provided, however, such policy forms shall not be issued or renewed when the market value of the unit or structure proposed to be insured is less than the total amount of mortgage liens outstanding upon such unit or structure at the time of policy issuance or renewal.
The commissioner shall compose and require, as a condition of approval of any alternative loss settlement clause pursuant to clause (c), appropriate consumer disclosure forms to be used by companies issuing such policy forms in the commonwealth. Policy forms approved under this section need not correspond to the standard fire insurance policy set forth in section ninety-nine, but shall, except for the loss settlement provisions of any such approved policy, assure to the policyholders and claimants protection no less favorable than such policyholders would be entitled to under section ninety-nine and shall otherwise conform to the substantive requirements of that section.
SECTION 5. The first paragraph of section 193P of said chapter 175, as so appearing, is hereby amended by striking out the last sentence.
SECTION 6. Section 1 of chapter 175C of the General Laws, as so appearing, is hereby amended by striking out the definition of "Facility", "Association", and "Basic property insurance" and inserting in place thereof the following four definitions:-
"Association", the joint underwriting association described in section four.
"Basic property insurance", insurance against direct loss to property as defined and limited in the standard fire policy and extended coverage endorsement thereon, filed with and accepted by the commissioner, and insurance against direct loss to such property from the perils of vandalism and malicious mischief and homeowners coverages, including the scheduled personal property endorsement and such other coverages as the commissioner after public hearing shall determine or the Secretary of the United States Department of Housing and Urban Development shall designate by rule made in accordance with the provisions of the Urban Property Protection and Reinsurance Act of 1968 (Public Law 90-448) but shall not include insurance on automobile or manufacturing risks except such classes of manufacturing risks as may, after proper hearing, be designated by the commissioner.
"Territory", one of the standard statistical territories approved by the commissioner.
"Credit eligible territory", any territory of the commonwealth in which at least twenty percent of the homeowners premium averaged over the most recent three calendar years was written by the association.
SECTION 7. Section two of said chapter one hundred and seventy-five C is hereby repealed.
SECTION 8. Said chapter 175C is hereby further amended by striking out section 3, as appearing in the 1994 Official Edition, and inserting in place thereof the following section:-
Section 3. No insurance company shall direct any agent or other producer not to solicit business through the association; no insurance agent shall direct any other agent in his employ or any broker or other producer not to solicit business through the association; and no agent, broker or other producer shall be penalized in any way by an insurance company or employer producer for submitting applications to the association.
No insurance agent or broker licensed to sell basic property insurance shall be allowed to refuse a request for inspection from an eligible applicant for basic property insurance unless such applicant is:
(a) Then indebted to any agent, broker or company for coverage requested;
(b) Then unwilling to make satisfactory payment arrangements for the coverage requested.
Agents and brokers submitting applications to the association shall be compensated by commissions upon the original issuance of coverage, each installment payment if any, and each renewal thereof and shall be entitled to no other compensation.
Commissions to licensed insurance agents and brokers from the association established in accordance with the provisions of this chapter shall be set by the commissioner from time to time at such percentage of the average commission rate customarily paid by those insurance companies who customarily compensate agents by commissions, as the commissioner, after appropriate hearing, shall find to be sufficiently attractive to encourage agents and brokers to actively seek out risks and to assist property owners to obtain coverage while at the same time leaving a further incentive to the agent or broker to place such business through his customary markets when he finds that it is practicable.
SECTION 9. Said chapter 175C is hereby further amended by striking out section 4, as so appearing, and inserting in place thereof the following section:-
Section 4. (a) All insurers licensed to write and engaged in writing in this commonwealth, on a direct basis, basic property insurance or any component thereof in multi-peril policies, shall cooperate in organizing a joint underwriting association which shall provide basic property insurance to eligible applicants who are otherwise unable to obtain such coverage in the voluntary market. Every such insurer shall be a member of the association and remain a member as a condition of its authority to transact such insurance within the commonwealth.
(b) Such association shall be authorized to inspect properties, issue policies, collect premiums and accept payment in installments under plans approved by the commissioner consistent with plans offered by voluntary market insurers, adjust claims and pay losses on behalf of its members, employ officers, agents and other employees, enter into contracts, sue and be sued in its own name and take all other actions necessary or appropriate to carry out its functions hereunder.
(c) The association shall submit to the commissioner a proposed plan of operation, consistent with the purposes of this chapter, to provide for the prompt and efficient provision of basic property insurance to eligible applicants who meet reasonable underwriting standards and are otherwise unable to obtain coverage from insurers in the voluntary market. Such plan of operation shall provide for economical, fair and nondiscriminatory administration including, but not limited to, provisions for preliminary assessment of all members for initial expenses necessary to commence operations, establishment of necessary facilities, management of the association, assessment of members to defray losses and expenses, commissions, reasonable underwriting standards and limits of liability, purchase of reinsurance and procedures for determining amounts of insurance to be provided.
(d) The plan of operation shall be subject to approval by the commissioner and shall take effect ten days after having been approved by him. If the commissioner disapproves the proposed plan of operation, the association shall, within thirty days, submit for review an appropriately revised plan of operation and, if the association fails to submit such a plan or if the revised plan is also disapproved by the commissioner, the commissioner shall promulgate a plan of operation consistent with this section. The association may, on its own initiative or at the request of the commissioner, amend the plan of operation, subject to approval by the commissioner.
(e) (1) All members of the association shall participate in its writing, expenses, profits and losses in the proportion that the premiums written by each such member for basic property insurance, as defined in section one, bear to the aggregate premiums for such insurance written in the commonwealth by all members of the association; provided, however, that premiums for insurance on automobile and manufacturing risks shall be excluded from the plan and that portion of the premiums attributable to the operation of the association during the preceding calendar year. Such participation by each insurer in the association shall be determined annually on the basis of such premiums written during the preceding calendar year as disclosed in the annual statements and other reports filed by the insurer with the commissioner.
(2) The participation of each member of the association writing personal lines coverage shall be adjusted based on the homeowners premiums written by such a member in any credit-eligible territory in accordance with the following clauses:
(i) The participation ratio of each member writing personal lines insurance shall be recalculated, in accordance with the procedures set forth in subparagraph (1) but subtracting the premium written by members of the association writing only commercial lines insurance from the aggregate premiums written in the commonwealth by all members of the association.
(ii) The participation ratio of each member writing personal lines insurance as recalculated in clause (i) shall be multiplied by the sum of the total premium written by the association in the commonwealth and the total industry homeowners premium written in credit-eligible territories, as defined in this chapter.
(iii) In determining the total industry homeowners premium written in credit-eligible territories, premium written in the territory in which the association's homeowners insurance market share is largest shall be weighted at one. The weight assigned to premium written in other credit-eligible territories shall be calculated by determining the ratio expressed as a decimal, between the percentage market share of the homeowners premium written by the association in such territory and the percentage market share of homeowners premium written by the association in the territory in which the association's market share is the largest, and then rounding such ratio to the nearest tenth. All such calculations shall be based on an average of the premiums written in the three most recent calendar years. Weights calculated in accordance with this clause shall be adjusted whenever a territory becomes or ceases to be credit-eligible, or every three years if no adjustment has been made in the two preceding years.
(iv) The product of the multiplication described in clause (ii) of this subsection shall be reduced by subtracting therefrom the homeowners premium written by each member in any credit-eligible territory adjusted in accordance with the weights set forth in clause (iii).
(v) The result of the calculation described in clause (iv) shall be divided by the total premium written by the association in the commonwealth. The resulting ratio shall be the adjusted participation ratio for the member.
(vi) The adjusted participation ratio of those members whose participation ratio is calculated as provided in this subparagraph shall apply to that portion of the writings, expenses, profits and losses of the association not recovered by applying the participation ratios of the remaining members of the association as calculated, as provided in subparagraph (1).
(3) On or before November first, nineteen hundred and ninety-eight, the association shall file an amendment of the credit system applicable to homeowners insurance, as set forth in section four, for approval by the commissioner, who shall approve such a credit system effective on or before January first, nineteen hundred and ninety-nine, so as to award credits based upon homeowners premiums written in postal zip codes, rather than territories. The revised credit plan shall identify any credit-eligible zip codes by the percentage of the total homeowners premium written in such zip codes by the association, shall require a higher market share penetration by the association than set for credit-eligible territories, shall provide that the percentage of the statewide homeowners premium written by the association in such credit-eligible zip codes does not exceed the percentage of such premium written by the association in territories which are credit-eligible in nineteen hundred and ninety-seven and shall set forth the appropriate weights for such zip codes in accordance with the provisions applicable to weighting premium in credit-eligible territories.
(4) The participation of any member of the association writing personal lines insurance shall be further adjusted if such member has written homeowners insurance during the preceding calendar year, hereafter called the "base year", on property that was insured by the association in the year immediately preceding such base year and which is located in any coastal territory in which the rate of increase in the market share of the association has exceeded sixty percent in the base year and in the preceding calendar year. The participation of such a member shall be adjusted by reducing the amount of premium written by such member in subparagraph (1) by twenty percent of the total homeowners insurance premiums written by the member on property described in this clause. Such adjustment shall not apply to any insurance written on property that was insured by the member or any affiliate or subsidiary member in either of the two years preceding the base year.
(f) The association shall be governed by a board of eighteen directors, who shall serve without compensation, ten to be elected annually by the members of the association by cumulative voting, and two representatives of associations of insurance agents and brokers doing business in the commonwealth and six public representatives not affiliated with the insurance industry to be appointed annually by the commissioner of insurance. Cumulative voting by members shall be permitted at all such elections.
SECTION 10. Section 5 of said chapter 175C, as so appearing, is hereby amended by striking out, in lines 1 and 4, the words "facility or", each time they appear.
SECTION 11. Said section 5 of said chapter 175C, as so appearing, is hereby further amended by adding the following two paragraphs:-
The association shall be authorized to make rate filings in accordance with the provisions of chapter one hundred and seventy-four A and chapter one hundred and seventy-five A; provided, however, that any such filing shall be subject to the prior approval of the commissioner, after proper notice and hearing, subject to the adjudicatory procedures of chapter thirty A; and, provided further, that in reviewing the rates for the association, the commissioner shall give consideration, in addition to all other relevant factors, to the loss experience of insurers in the voluntary market, as well as the experience of the association and to the intent of this chapter to make basic property insurance available at reasonable cost to eligible applicants in territories in which the market share of the association equals or exceeds four percent during the three most recent calendar years.
The commissioner shall approve all rates for the association for homeowners insurance in territories in which the market share based on written premium of the association averages less than four percent during the three most recent calendar years if the commissioner finds that the proposed rates for such territories comply with the requirements of the General Laws; provided, however, that the commissioner may disapprove any such rate upon a finding that it exceeds a rate equal to the ninetieth percentile of the rates then in use in such territory by the ten insurers with the largest market shares of homeowners insurance written in the commonwealth on a statewide basis. The commissioner shall approve all rates for the association for homeowners insurance in territories in which the market share based on written premium of the association equals or exceeds four percent on average during the three most recent calendar years only if the commissioner finds that (a) the proposed rates for the association for such territories comply with the requirements of the General Laws and (b) no rate for any such territory in any calendar year increases over the lowest rate for that product charged by the association during the prior calendar year in such territory by more than the overall statewide average percentage increase in rates charged from December thirty-first of the year preceding the prior calendar year to December thirty-first of such prior calendar year for homeowners insurance by the ten insurers with the largest market shares of such insurance written in the commonwealth on a statewide basis. Whenever the average market share of the association during the most recent three years shall reach a level which equals or exceeds four percent in a given territory, the association shall analyze the rates of companies in such territory and shall file a report with the commissioner who shall, in turn, either re-certify the current rate or approve a revised rate for such territory filed by the association which bears a relationship to the rates in the voluntary market in such territory which is consistent with the average relationship between the rates charged by the association in all territories in which it has a similar market share and the rates in the voluntary market in those territories. As used in this paragraph, the term "homeowners insurance" shall apply only to the types of products sold by the association on the effective date of this section. All other types of homeowners products subsequently sold by the association shall have a rate based on a factor approved by the commissioner that reflects the relative value of the coverage provided by such types of products to those for which rates have been approved by the commissioner as hereinbefore described.
SECTION 12. Section 6 of said chapter 175C, as so appearing, is hereby amended by striking out, in line 2, the words "the facility".
SECTION 13. Said section 6 of said chapter 175C, as so appearing, is hereby further amended by striking out, in line 4, the word "facility".
SECTION 14. Said section 6 of said chapter 175C, as so appearing, is hereby further amended by striking out, in line 10, the words "the facility and".
SECTION 15. Section 7 of said chapter 175C, as so appearing, is hereby amended by striking out, in line 1, the words "denial by the facility, or the".
SECTION 16. Said chapter 175C, as so appearing, is hereby further amended by adding the following section:-
Section 9. The association established pursuant to the provisions of this chapter shall prepare and submit to the commissioner of insurance a market assistance plan to assist applicants to obtain homeowners insurance in the voluntary market. All members of the association may, but shall not be required to, participate in the plan. The plan shall be approved by the commissioner if he finds that it is consistent with the purposes of this chapter and will assist applicants in obtaining insurance in the voluntary market.
The plan shall provide that, upon request, any applicant or licensed broker on behalf of such applicant who contacts the plan shall be directed to an insurer which has elected to participate in the plan and shall be advised of an appropriate means to contact such insurer. Upon being contacted by the applicant or broker, the participating insurer shall evaluate the insurance risk posed by such application and may accept or decline to underwrite the insurance coverage. An insurer which declines to underwrite such coverage shall have the duty of informing the applicant and his broker of the process for obtaining coverage from the association.
The association shall publicize the availability of the plan to insurance consumers and brokers in credit-eligible territories and all other areas in which the association believes that the availability of homeowners insurance is particularly constrained due to exposure to hurricanes or other catastrophic natural disasters.
SECTION 17. The Massachusetts Property Insurance Underwriting Association, as presently organized and approved by the commissioner, shall be deemed to have been organized under section four of chapter one hundred and seventy-five C of the General Laws and shall have all powers and duties as set forth therein; provided, however, that the provisions of subparagraphs (1) and (4) of paragraph (e) of said section four shall be effective for policy years beginning January first, nineteen hundred and ninety-six.
SECTION 18. On or before December thirty-first, nineteen hundred and ninety-six, the joint underwriting association, established by chapter one hundred and seventy-five C of the General Laws, shall file with the speaker of the house of representatives, the president of the senate, the attorney general and the commissioner of insurance a report that analyzes the causes of insurance losses in urban areas of the commonwealth. Said report shall identify factors affecting such losses that are more prevalent in such areas than elsewhere in the commonwealth. Said report shall include recommendations to city governments, insurers and insureds as to how such losses can be mitigated and shall include any proposed legislation which would assist in such mitigation. In preparing this report the association shall consult with representatives of city governments and with interested residents of the affected communities.