SECTION 5.4184. Application of Premium Surcharges

(a) When assessed under Insurance Code §2210.6132, the contingent surcharges must apply to all policies with insured property in the catastrophe area that are issued or renewed with effective dates in the surcharge period specified in the commissioner's order.

(b) For association policies that meet the requirements of §5.4912 of Division 10 of this subchapter (relating to Filing and Issuance of Policy Forms Relating to Premium Surcharges under Insurance Code §§2210.612, 2210.613, and 2210.6131), association surcharges must apply to all association policies that are in effect on the surcharge date. For association policies that do not yet meet the requirements of §5.4912 of Division 10 of this subchapter, association surcharges must apply to all association policies that are issued or renewed with effective dates in the surcharge period determined under §5.4126 of this division (relating to Determination of the Association Surcharge Percentage).

(c) There are two exceptions to the requirements of subsections (a) and (b) of this section:

(1) insurers must not surcharge policies, and are not responsible for collecting premium surcharges on policies that did not go into effect or were canceled as of the inception date of the policy; and

(2) for multiyear policies, the premium surcharge in effect on the effective date of the policy, or the anniversary date of the policy, must be applied to the 12-month premium for the applicable policy period.

(d) Premium surcharges collected under Insurance Code §2210.6132 are refundable.

(1) If the policy is canceled, an amount of the contingent surcharge that is proportionate to the returned premium must be refunded to the policyholder; however,

(2) instead of a refund of the contingent surcharge, the insurer may credit the return contingent surcharge against amounts due the insurer but unpaid by the policyholder; and

(3) an additional contingent surcharge will not apply to a policy that was canceled after the effective date of the policy, and is later reinstated, if the contingent surcharge was paid in full. If the policyholder did not pay the contingent surcharge in full, the policyholder must pay the contingent surcharge that is due but unpaid before the insurer may reinstate the policy. For purposes of this section a policy is reinstated if it covers the same period as the original policy without a lapse in coverage, except as provided in Insurance Code §551.106.

(e) If a midterm policy change increases the premium on the policy, the policyholder must pay an additional contingent surcharge for the increased premium attributable to insured property located in the catastrophe area, which will be determined by applying the applicable contingent surcharge percentage to that portion of the additional premium attributable to insured property located in the catastrophe area.

(f) If a midterm policy change decreases the premium, the policyholder is due a refund of the contingent surcharge for the decreased premium attributable to insured property located in the catastrophe area, which must be determined by applying the applicable contingent surcharge percentage to that portion of the return premium attributable to insured property located in the catastrophe area. The insurer must credit or refund the excess contingent surcharge to the policyholder within 20 days of the date of the transaction, except as provided by subsection (g) of this section. The insurer, or surplus lines agent allowed by an affiliated surplus lines insurer to credit or refund excess surcharges, may credit any refund paid or credited to the policyholder to the association through the offset process described in §5.4187 of this division (relating to Offsets).

(g) Surcharges or refunds must apply to all premium changes resulting from exposure or premium audits, retrospective rating adjustments, or other similar adjustments that occur after policy expiration. On inception of the policy, the contingent surcharge must be collected on the deposit premium paid. If, after exposure or premium audit, retrospective rating adjustment, or similar adjustment after policy expiration, an additional premium is required, an additional contingent surcharge must be paid. If, after exposure or premium audit, retrospective rating adjustment, or other similar adjustment after policy expiration, the deposit premium exceeds the actual premium, the excess contingent surcharge must be refunded to the policyholder, and the insurer, or surplus lines agent allowed by an affiliated surplus lines insurer to credit or refund excess surcharges, may credit any refund paid to the association through the offset process described in §5.4187 of this division. Additional contingent surcharges and refunds must be determined by applying the contingent surcharge percentage in effect on the inception date of the policy, or the anniversary date of the policy in the case of multiyear policies, to the additional premium (or return premium) attributable to insured property located in the catastrophe area.

(h) Even if a contingent surcharge was in effect on the inception date of the policy, or the anniversary date in the case of multiyear policies, no additional contingent surcharges or refunds will apply to premium changes resulting from exposure or premium audits, retrospective rating adjustments, or other similar adjustments that occur when there is no contingent surcharge in effect.

(i) An affiliated surplus lines insurer may allow a surplus lines agent to credit or refund contingent surcharges on its behalf. An affiliated surplus lines insurer, or surplus lines agent allowed to credit or refund contingent surcharges on its behalf, must credit or refund the excess surcharge to the policyholder under subsections (f) and (g) of this section not later than the last day of the month following the month in which the corresponding transaction was effective.

(j) An affiliated surplus lines insurer that allows an agent to credit or refund contingent surcharges on its behalf under subsection (g) of this section may be held liable by the department for the failure of its agent to comply with this section.

Source Note: The provisions of this §5.4184 adopted to be effective February 16, 2011, 36 TexReg 784; amended to be effective June 12, 2014, 39 TexReg 4463; amended to be effective March 9, 2016, 41 TexReg 1697