In a significant step toward improving insurance practices, Pennsylvania has introduced a series of regulatory changes affecting licensees with excess lines of insurance and policyholder incentives. The changes, which include the ability for licensees to charge service fees and enhance non-cash gifts to policyholders, represent a progressive step in the dynamics of the state’s insurance market.

Under the latest law signed by Gov. Josh Shapiro on July 8, surplus line licensees are now allowed to charge carriers a service fee when facilitating policies in the non-admitted market. For individual policy agreements, that fee is capped at either $150 or 4 percent of the policy premium, whichever is higher. Each fee must accurately reflect the actual costs associated with insuring, issuing and processing the policy in question.

In addition, before issuing any policy, agents are required to disclose detailed information to policyholders. This includes the amount of service fees, additional examination fees, applicable premium taxes, and a comprehensive breakdown of fees for each service provided. Transparency extends to disclosing any compensation or excess ownership interests that licensees may have in examination-related companies, excluding holdings in publicly traded stock portfolios.

The reform also includes a provision allowing agents to recover the costs of the inspection required to issue the insurance policy directly from the policyholders. These costs must be real, not retained by the agent, and fully documented.

The changes don’t stop at service fees. Starting July 15, another bill allows insurers to give non-cash gifts to policyholders worth up to $125 per year. The change, which represents a $25 increase from the previous limit, takes into account inflation and is in line with proposals by lead sponsors Sens. John DiSanto and Sheriff Street. The gifts, which must be tied to insurance coverage, are intended to mitigate losses, assess risk, or promote the safety and health of policyholders, such as providing smoke detectors.

Furthermore, these incentives are not conditional on the purchase or renewal of an insurance policy, ensuring fair practice and consumer choice.

This regulatory update brings Pennsylvania closer to the standards set by the National Association of Insurance Commissioners’ model law, which calls for greater flexibility in noncash gifts and incentives. Insurance providers who believe they meet the criteria for these incentives can now try them, provided they notify the state’s insurance department before implementing them.

Despite efforts to obtain further comment from the Pennsylvania Surplus Lines Association and the Pennsylvania Department of Insurance, there were no responses at the time of this writing.

What do you think of these regulatory changes in Pennsylvania? Share your thoughts in the comments below.