Pennsylvania recently enacted two new insurance laws that significantly expand the permissible kinds of value-added products and services that may be provided by insurance licensees in general and the fees that may be charged by surplus lines licensees to an insured in a personal lines policy. Pennsylvania is joining a number of states that have recently enacted a substantially similar version of the recent amendments to the NAIC Unfair Trade Practices Act that authorizes certain value-added products and services not identified in an insurance policy to be provided by insurance companies and producers to policyholders. 

What You Need to Know:

• For rebates and inducements, Act 62 of 2024 provides greater flexibility to insurers and insurance producers by expanding the permissible kinds of value-added products and services that may be provided from the prior law, which only authorized services or other offerings related to “loss control.”
• For surplus lines, Act 45 of 2024 provides much needed clarification for the surplus lines market regarding the permissible fees that may be charged by surplus lines licensees after the 2020 Pennsylvania Supreme Court decision in Woodford v. Insurance Department, which interpreted Pennsylvania law as prohibiting the charging of additional fees by producers in a personal lines policy.  

Surplus Lines Law Revisions: Act 45 of 2024 was signed into law by Pennsylvania Governor Josh Shapiro on July 8, 2024 and takes effect 60 days thereafter. The purpose of Act 45 is to provide clarity to the surplus lines market on the permissible fees in addition to a commission that may be charged by surplus lines licensees for personal lines policies by adding a new provision to the surplus lines law to set forth requirements and limitations for fees charged by surplus lines licensees/producers.

The new law authorizes a surplus lines licensee/producer to charge a service fee for the placement of a surplus lines insurance policy in addition to a commission received from a surplus lines insurer in accordance with the following requirements:

• For personal lines insurance policies, the service fee may not exceed the greater of $150 or 4 percent. The service fee may be charged for each policy.
• Any service fee must be reasonable in relation to the cost of underwriting, issuing and processing the policy.
• In advance of placement of any policy, the surplus lines licensee/producer must make a clear and conspicuous disclosure in writing of (i) the total amount of the service fee, if any; (ii) the total amount of any inspection fee; (iii) the amount of premium tax due on the policy; and (iv) an itemization of fees charged for each service.

Rebate & Inducement Law Revisions: Act 62 of 2024 was signed into law by Governor Shapiro on July 15, 2024 and takes effect 180 days thereafter. The Legislative Memo accompanying the introduction of the legislation provides that the purpose of the legislation is to better align Pennsylvania law with the NAIC’s 2020 model legislation allowing consumers to receive non-cash items and value-added products and services from their insurers or producers as long as such awards are offered in a nondiscriminatory manner. Such value-added products and services must relate to the insurance coverage and are meant to reduce potential losses in claims or claim settlements and to educate consumers while also enhancing the personal and physical health of the consumer. Another purpose of the legislation is to increase the amount of non-cash gifts that insurers and producers may give to consumers from $100 per year to $125 per year to reflect inflation.

Act 62 accomplishes these objectives as follows:

• Act 62 repeals certain provisions of existing law that address rebates and inducements, i.e., certain rebate/inducement provisions of the Unfair Insurance Practices Act, the rebate/inducement provisions of Pennsylvania’s producer law, and the rebate provisions of Pennsylvania law relating to insurance policies and contracts. In general, and with certain specified exceptions, the prior law provides that, unless set forth in the insurance contract, an insurer or producer is prohibited from giving anything of value to an insured or prospective insured except in two (2) circumstances: 

1. Non-cash gifts/allowances on an annual aggregate basis that have a cost of redeemable value of no more than $100; and 
2. Offering or giving to an insured or a prospective insured, for free or at a discounted price, services or other offerings that relate to loss control of the risks covered under the policy.

• Act 62 adds a new Chapter to Pennsylvania insurance law (Chapter 47) that specifically defines and addresses all aspects of what are considered prohibited and permitted rebates and inducements as they relate to insurers and producers. The new law identifies four exceptions to the rebating prohibition. Most importantly, Act 62 provides the following updates and clarifications to the two (2) excepted circumstances from existing law as set forth above. The new exceptions include:

1. De minimis Exception: On a nondiscriminatory basis, an insurer or producer may offer or give noncash gifts, items or services, including meals to or charitable donations on behalf of a customer, in connection with the marketing, sale, purchase or retention of insurance policies, in an amount not exceeding $125 on an annual, aggregate basis. 
2. Commercial/Institutional Customers Exception: An insurer or producer may offer or give noncash gifts, items or services, including meals to or charitable donations on behalf of a customer, to commercial or institutional customers in connection with the marketing, sale, purchase or retention of insurance policies, if the cost is reasonable in comparison to the premium or proposed premium and the cost of the gift or service is not included in any amounts charged to another person or entity. The offer or gift must be made in a manner that is not unfairly discriminatory and may not be contingent on the purchase or retention of insurance.
3. Raffle/Drawing Exception: Another specified permissible activity by insurers and producers is that they may conduct a raffle or drawing to the extent permitted by state law as long as: there is no financial cost for entrants to participate; the raffle or drawing does not obligate participants to purchase insurance; the prizes are not valued in excess of $125; and the raffle or drawing is open to the public.
4. Value-Added Product or Services Exception: As a replacement to the “loss control” exception in current law, an insurer or producer, by or through employees, affiliates or third-party representatives, is permitted to offer on a nondiscriminatory basis a value-added product or service that is not otherwise specified in the insurance policy at no or reduced cost if all of the following requirements are met:

     (i) The product or service relates to the insurance coverage.

     (ii) The product or service is primarily designed to satisfy one or more of the following: (a) provide loss mitigation or loss control; (b) reduce claim costs or claim settlement costs; (c) provide education about liability risks or risk of loss to persons or property; (d) monitor or assess risk, identify sources of risk or develop strategies for eliminating or reducing risk; (e) enhance health; (f) enhance financial wellness through items such as education or financial planning services; (g) provide post-loss services; (h) incentivize behavioral changes to improve the health or reduce the risk of death or disability of a customer; and/or (i) assist in the administration of the employee or retiree benefit insurance coverage.

     (iii) The cost to the insurer or insurance producer offering the product or service to a customer is reasonable in comparison to that customer's premiums or insurance coverage for the policy class.

     (iv) If the insurer or insurance producer is providing the product or service, the insurer or insurance producer must ensure that the customer is provided with contact information to assist the customer with questions regarding the product or service.

     (v) The availability of the product or service must be based on documented objective criteria, and the insurer or insurance producer must maintain the criteria and produce the criteria upon request by the Pennsylvania Insurance Department.