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PA Bulletin, Doc. No. 01-699


Book Transfers; Notice 2001-04

[31 Pa.B. 2239]

   Recently, the Insurance Department (Department) has received complaints, alleging that agents or agencies have transferred blocks of business from one insurer to another without the prior consent of the insureds. In most instances, the agency provided a roster, including the insureds' names, addresses, current coverages and rates to the proposed insurer. The proposed insurer then issued coverage to each insured based on the information provided by the agency, without ensuring the prior knowledge and consent of the insureds.

   In some instances, agencies have sent letters to insureds notifying them of the transfer of coverage to the new insurer and requesting their signatures on applications to facilitate the transfer. Although the insureds frequently failed to give consent to the transfer, new coverage was effectuated. Moreover, in instances involving auto insurance, coverage was issued without the required tort selection forms, including notice of the premium differential for full and limited tort, or other coverage options such as stacked or waived stacking of underinsured/uninsured coverage. By replacing coverage without valid Act 6 election forms (75 Pa.C.S. § 1705, relating to election of tort options), this activity creates confusion in the market place and exposes insurers to uncertain liability for coverage.

   Further, in some instances, replacing insurers notified the Pennsylvania Department of Transportation, or lien holders, that insureds' coverage had been terminated for failure to pay premium. This occurred even when insureds did not elect to replace coverage. Some insurers transferred ''delinquent premium accounts'' to collection agencies for earned premium for insureds that had not authorized or agreed to the transfer.

   Much of the abuses and confusion, discussed herein, were aggravated by the agent or company's use of negative roll-ons. The use of a negative roll-on to effect a book transfer is noncompliant with Pennsylvania law because it does not reflect a clear offer and acceptance, which are essential to binding coverage.

   The Department wishes to make it clear that it finds the transfer of insureds accounts for insurance coverage, without the prior express consent of the insured, to be in violation of Pennsylvania insurance laws, especially as it relates to the Unfair Insurance Practices Act (40 P. S. §§ 1171.4 and 1171.5) and 75 Pa.C.S. § 1705 of Act 6. In those instances where the Department determines that an agency or insurance company has improperly transferred coverage without the insureds' prior knowledge and consent, appropriate enforcement actions have, and will be, taken. This includes substantial monetary penalties, a cease and desist order, and potential licensure action.

   The Department also wishes to clarify that it does not seek to discourage competition but, rather, that the ultimate decision of where an insured places coverage rests with the consumer.

   Any questions regarding this notice should be directed to Dennis C. Shoop, Enforcement Director, at (717) 783-2627.

Insurance Commissioner

[Pa.B. Doc. No. 01-699. Filed for public inspection April 20, 2001, 9:00 a.m.]

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