COVID-19 Insurance Laws and Regulations Part II: New Rules on Licensing, Notice, Premiums and Cancellations

COVID-19 is altering traditional insurance concepts and rules in compelling ways. Lawmakers and regulators are issuing a slew of virus-related guidance, bulletins, regulations, and proposed legislation that are repositioning products, sales and delivery systems, coverage, and claims handling into an extra-contractual purgatory of sorts. In a series of four articles, noteworthy COVID-19 provisions directed to the insurance industry are identified and evaluated so practitioners can assess their scope and advise clients on how to satisfy this unexpected layer of compliance responsibility. Part I discusses impacts to the entire operations continuum. This Part II examines changes to licensing requirements for insurance intermediaries and for insureds plus new rules about premiums, notice, and cancellations. Part III explores developments relating to life/health insurance and workers’ compensation. Part IV addresses regulations and proposed laws on business interruption insurance.

See COVID-19 Insurance Laws and Regulations Part I: Insurance Operations Mandates, COVID-19 Insurance Laws and Regulations Part III: Life / Health and Workers' Compensation Insurance and Liability Protections, and COVID-19 Insurance Laws and Regulations Part IV: Business Interruption Coverage Mandates.

The nation’s legislative and regulatory mandates are both about increasing access to coverage and about circumscribing what insurers must and must not do in relation to the pandemic. As this regulatory activity continues its disruption, general themes are emerging that can help insurers and policyholders realize the elemental nature of the changes and understand the necessity of creating new approaches to relations with intermediaries and policyholders, especially with respect to licensing and claims handling. Of immediate concern are the following: • New requirements that restrict the entire operations continuum, including underwriting, sales, and claims practices • The relaxation of licensing requirements • Wide-ranging changes to traditional rules on premiums, notice, proof of loss, and cancellation • The unanticipated insolvency concerns that this regulatory activity is generating, especially in the areas of life insurance, health insurance, and workers’ compensation • Proposed legislation in eight states that would force COVID-19 business interruption coverage –and– • The potentially permanent aspects of these collective changes

How these regulatory trends are currently affecting the licensing of insurance intermediaries and of policyholders— especially insureds under personal automobile policies—as well as the claims handling process, and how these provisions may impact the industry going forward, is explored more fully below.

Impacts to Licensing

Many states are easing licensing restrictions because of the coronavirus epidemic. This is occurring with insurance intermediaries in large part because third-party testing centers and fingerprinting locations are generally closed as COVID-19 Insurance Laws and Regulations Part II: New Rules on Licensing, Notice, Premiums and Cancellations non-essential businesses under various states’ Shelter in Place orders. These relaxed licensing rules specifically apply across the board to most insurance intermediaries, including agents, adjusters, producers, surplus lines and life settlement brokers, title agents, escrow officers, and bail bondsmen.

Issuance and Renewals

Current insurance intermediary licenses will remain active in many jurisdictions (including TX, SC, LA, IN, NE, NC, CT, AR, NH, MA, and NY) for periods that vary from late May 2020, to the end of the pandemic, or even until further notice. Renewal periods on existing licenses are being treated in a similar fashion. Many states are also permitting temporary licenses to remain active, although a few states, such as North Carolina, have stopped issuing temporary licenses altogether.

Testing and Fingerprinting

Pre-licensing testing, continuing education and fingerprinting—which are important public safety components of licensing—are impacted by the coronavirus because third party testing centers and fingerprinting facilities are not considered essential businesses according to state Shelter in Place orders and are therefore closed. As a result, many states, including OK, RI, SD, IA, MI (Bulletin 2020-20-INS), OR, OH, ME, WV, MN (Regulatory Guidance 20- 20), and PA, are either permitting temporary authority to remain active past expiration or issuing new temporary licenses without the benefit of education, testing, or fingerprinting. Some jurisdictions have entirely waived the public safety component of fingerprinting for insurance intermediary licensees until further notice. A few states, such as NC, have stopped issuing temporary licenses altogether because of closing test centers and the inability to comply with fingerprinting rules.

Scattered provisions have come in since March which provide for virtual testing and remotely proctored exams in various states including ND, IA, NE, MA, GA, TX, and WI. And while Florida has suspended licensing examinations entirely during the pandemic, Minnesota has started to allow conversion of previously approved in-person continuing education courses into webinars.

Licensing of Insured Drivers

Because of the difficulties states are experiencing with providing adequate staffing and supplying customary levels of administrative and operational service, the trend involving relaxed licensing is also occurring in the context of commercial and personal automobile drivers’ licenses. For example, Washington has temporarily waived or suspended laws on the expiration and renewal of drivers’ licenses, while Arizona has ordered insurers to refrain from cancelling auto policies because of the deferred expiration of an insured’s driver’s license. In addition, Georgia has extended deadlines and requirements on drivers’ licenses, and Wyoming has suspended non-commercial driving tests in addition to providing a grace period for expired drivers licenses. In Pennsylvania, auto insurers have been directed to apply their policy provisions by encouraging flexibility consistent with the Commonwealth’s suspension of license expiration dates.

Rules for Documents

Due in part to reduced staffing, but mostly as a result of both business closures and social distancing requirements, regulators have relaxed many of the requirements imposed upon hard-copy documentation for licensing. Provisions have appeared across most jurisdictions that have dispensed with documentary requirements including: • New forms • Post office mailing • Wet signatures –and–

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• Notary requirements

Some states are even accepting surety bonds with electronic signatures.

While regulatory easing of licensing and documentation requirements does not appear to be as extensive or as drastic as the developments taking place around the life / health / workers’ compensation or business interruption sectors of the insurance industry (discussed in Parts III and IV of this article series), less stringent licensing requirements nevertheless put significant consumer protection issues at play. Deterioration of the licensing processes that ensure compliance with qualifications and standards for the operation of motor vehicles is particularly problematic. The potential for more serious repercussions is very real if the relaxion of licensing rules continues for the long term.

Cancellation and Non-renewal for Unpaid Premiums

Regulators in most jurisdictions have implemented additional protective measures for consumers by altering existing provisions on cancellation and non-renewal of policies. Some states have issued mere recommendations (Montana) or requests for insurers to consider implementation (Illinois) of these measures, while in Delaware an initial recommendation was later amended into a mandatory requirement. The majority of jurisdictions have taken a direct approach and issued blanket prohibitions against anything that will separate a policyholder from its coverage during the coronavirus pandemic. Jurisdictions including AR, DE, GA, NY, WV, IN, LA, NJ, MA (Bulletin 20-05), VT, HI (Memorandum 2020-31), and MI have put executive orders or bulletins in place that preclude policies from being cancelled or not renewed.

These cancellation and nonrenewal provisions apply generally to any authorized insurer in a state regardless of line of coverage, although some states specify the application of these rules to life, property and casualty, workers’ compensation and surplus lines insurers. However, in New York, non-cancellation provisions do not apply to personal and commercial excess line policies.

There are some variations to the general prohibitions against policy cancellation during the pandemic. A few jurisdictions (like Arkansas) limit these protections to insureds who are diagnosed with or positively test for COVID- 19. Oregon includes an additional compliance wrinkle by prohibiting commercial liability insurers from withdrawing from, cancelling, or failing to renew any commercial liability insurance or class of business, with specific mention of child-care facilities, without supplying appropriate written justification and approval from the Department of Consumer and Business Services.

Premium Payments

One of the most prevalent underlying reasons for these rules arises from the financial difficulties that commercial and individual policyholders continue to experience due to nation-wide business shutdowns and employee layoffs during the pandemic. Accordingly, regulators have also called for changes to the rules and expectations for premium payments. The varying provisions in states like NY (Regulation 62), NJ (Order No. 123)), TX, CA (Bulletin 2020-3), WA (Emergency Order 20-03), MI (Bulletin 2020-16-INS), IN, OR, DE, MD (Bulletin # 20-12), CT (Bulletin IC-40), AL (Bulletin B 20-80), HI (Memorandum 2020-31), AK (Order R20-03), and others include both requests and mandates for reasonable accommodation with respect to premium payments, deferred payments at no cost, extended due dates and grace periods, and waiver of late payment penalties.

Many insurers have voluntarily instituted premium refund initiatives. For example, in early April 2020, Farmers Insurance announced it would be providing more than 115,000 business insurance customers in the restaurant, retail and service sectors with a monthly premium credit of 20 percent over the next two months on their upcoming premium notices. The program also temporarily paused cancellations by extending premium payment deadlines.

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The requirements for grace periods are also directed to premium finance companies in various states, including New Jersey (Bulletin No. 20-17), Pennsylvania (Notice #2020-11), and Tennessee (Bulletin C-20-1). Louisiana amended Emergency Rule 40 discusses the complete elimination of all provisions pertaining to premium financing arrangements.

Some of these premium-related provisions demonstrate the value of having a state-based system of insurance in the United States. For example, in April 2020, the Kentucky Department of Insurance issued region-specific guidance to all insurers offering mine subsidence insurance in the state, as well as reinsurers, agents and administrators participating in the mine subsidence insurance funds operations that extended first quarter premium payments from May to August 2020.

Premium Audits

Many states’ regulatory provisions surrounding reduction of and grace periods for premium payments have corresponding mandates on policies calculated using an auditable exposure that may have changed during the pandemic. These items are directed to insurers and in some instances to surplus lines insurers, and apply to various auditable exposure bases, including payroll, sales, enrollment, attendance, occupancy rates, square footage, etc.

Some provisions such as AK Bulletin B 20-10 and Order R20-03, LA Emergency Rule 39, TX Bulletin #B-0020-20, and Mississippi Bulletin 2020-2, encourage insurers to permit policyholders to self-audit and self-report changes in their exposure or risk profile as a result of events pertaining to COVID-19 to replace physical audits. These provisions specifically authorize audits mid-term through a policy. Most provisions also specify that mid-year audits do not replace the final audits that policies permit or require.

Several provisions include the ability to request a physical audit, although others like New Hampshire Bulletin Docket No. 20-019-AB require insurers to use virtual audits. A few provisions, such as the Texas Bulletin, also require insurers to consider any reduced risks for business insureds that change operations or elect to continue to pay employees when they are not working. Some provisions such as Alaska Order R20-03 specify that reasonable and consistently applied audit accommodations will not be pursued by insurance commissioners as violations of statutes governing premium returns or changes, or considered as non-compliant with approved rating plans, rules or policy language.

Voluntary Premium Reductions

COVID-19-related regulations are especially prevalent in the automobile insurance market, where regulators are calling for premium reductions due to the non-use of automobiles on the part of policyholders who cannot drive while under stay-at-home orders in various states. Insurers operating in a number of jurisdictions, including AL, CT, CA, HI, MI, NH, OK, MA, MD, NM, MT, ME, and CO, have voluntary initiatives in place to issue discounts or other types of premium relief to both private passenger and commercial automobile policyholders.

For example, Next Insurance provided general liability, professional liability and commercial auto insurance customers with a 25% premium discount in April 2020 because of reduced business levels and transportation activities. Likewise, the Shelter-in-Place Payback program announced by Allstate gives policyholders across the board a 15% reduction in their April premiums and free identity protection for the remainder of 2020. In a similar vein, American Family will be providing its personal auto insurance customers with a one-time refund of $50 per covered vehicle.

The Farmers Cares initiative also temporarily modifies auto policies to extend a customer’s existing personal auto coverage when the insured uses a personal vehicle for the delivery of food, groceries, and pharmacy and medical supplies. Insureds will also receive a 25% discount on their April 2020 premium to reflect changed driving conditions arising from the states’ various Shelter in Place orders.

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Where such voluntary initiatives exist, regulators are requiring insurers to submit a regulatory filing about the refund or discount plan. The directions set forth in Colorado Bulletin No. B-5-39 provide a good illustration of these new filing requirements. Included in the categories of information that regulators are requesting in these filings are: • The justification for the premium relief action • An explanation of the actuarial and underwriting judgment and assumptions to support each discount • A definition of the discount recipients • An explanation of the discount duration –and– • Details about how the insurer will ensure discounts do not result in dissimilar treatment or unfair subsidization

Similar provisions have been issued in Montana, Virginia, Washington, and elsewhere. Missouri Bulletin 20-08 advised all commercial and personal lines insurers that the insurance department would be conducting expeditious review of all COVID-19 premium relief filings.

Cancellation and Non-Renewal for Other Reasons

Some jurisdictions also prohibit cancellations for reasons other than non-payment of premiums. As a result of the coronavirus pandemic, Georgia is not permitting cancellations or non-renewals because of any claim that is filed. New York prohibits cancellations for any of the following reasons: • Because of any acts or omissions that may have increased the hazard insured against • Because property no longer meets underwriting standards –or– • Because of an insured’s failure to respond to non-renewal notices

A few cancellation provisions are tied into the reciprocal obligations of good faith that exist in insurance transactions. In general, states continue to permit cancellations based upon a policyholder’s fraud or misrepresentation, regardless of the coronavirus. And in Maine, any attempt to use COVID-19 as a reason to attempt to narrow or cancel the coverage of an existing policy will be considered a violation of Maine’s Trade Practices and Frauds law. Maine also prohibits the emerging threat of COVID-19 from being treated as a “substantial change in the risk” justifying policy termination or unilateral policy modification when exposure to the coronavirus is coincidental to risks that the policy already covers. Maine’s Bulletin 443 was issued after regulators became aware of insurers notifying insureds that their policies would not cover COVID-19 risks.

Looking Ahead

Regulators have taken unprecedented steps to be certain that insurers and intermediaries can continue to operate and policyholders can remain insured in spite of the behavior restrictions and financial hardships brought about by the coronavirus pandemic. Yet these measures come with potential complications. The dilution of licensing requirements not only for agents and brokers, but for individual and commercial drivers, poses an ostensible threat to public safety. And the continuation of coverage occurring simultaneously under policies where the payment of premiums is reduced or delayed could threaten insurer solvency in unanticipated ways.

In addition, because coronavirus-related licensing, cancellation / non-renewal, and premium payment provisions are in effect in most states, and because regulators continue to update and issue new guidance, it is incumbent upon counsel representing insurers and other parties with compliance obligations review state insurance department websites on a regular basis to remain current on new and updated provisions.

For a list of insurance department contact information for all 50 U.S. states and the District of Columbia, see Insurance and Workers’ Compensation Department Information State Chart.

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