Georgia Rates, Binders and the Insurers Insolvency Pool
Three Georgia laws operate behind every policy a producer sells: the law that governs how premiums are set, the law that gives a binder its force, and the law that pays claims when an insurer fails.
Regulation of rates (O.C.G.A. §§ 33-9-1 through 33-9-44)
Georgia regulates insurance rates “to the end that they shall not be excessive, inadequate, or unfairly discriminatory,” while permitting and encouraging competition between insurers “on a sound financial basis to the fullest extent possible” (O.C.G.A. § 33-9-1).
The chapter applies to stock and mutual insurers, Lloyd’s associations and reciprocal exchanges, and to nearly all insurance on Georgia risks (O.C.G.A. § 33-9-3). The main exceptions are life insurance, annuities, disability income, specified disease and hospital indemnity policies, ocean marine, aircraft and title insurance, and most reinsurance (O.C.G.A. § 33-9-3(a)).
The three rate standards (O.C.G.A. § 33-9-4)
Every rate must meet three standards, and Georgia defines two of them narrowly:
The two-part tests reflect the chapter’s reliance on competition: a high rate in a competitive market is left to the market.
In making rates, insurers consider past and prospective losses inside and outside Georgia, conflagration and catastrophe hazards, a reasonable margin for profit and contingencies, expenses, investment income and other relevant factors, including judgment. Fire rates may also reflect the fire insurance business’s experience over the most recent five-year period (O.C.G.A. § 33-9-4(4)).
Risks may be grouped into classifications, and class rates may be modified for individual risks under rating plans that measure differences in hazard or expense, such as size, management, individual experience or location. The modifications must apply to all risks in substantially the same circumstances, and the Commissioner sets the maximum modification (O.C.G.A. § 33-9-4(7)). For vehicle insurance, no rating plan may be based on race, creed or ethnic extraction, or on a physical disability unless it directly impairs the insured’s ability to drive (O.C.G.A. § 33-9-4(9)–(10)).
Filing rates with the Commissioner (O.C.G.A. § 33-9-21)
Every insurer keeps its rates, rating plans, underwriting rules and forms on file with the Commissioner (O.C.G.A. § 33-9-21(a)). How a rate change takes effect depends on the line:
| Type of insurance | How a rate filing takes effect |
|---|---|
| Personal private passenger auto providing only Georgia’s mandatory minimum limits | Effective only when the Commissioner approves it, or when 45 days pass after receipt without disapproval. The Commissioner may extend the 45 days by up to 55 days and must give notice of any disapproval within 100 days (O.C.G.A. § 33-9-21(b)(1)). |
| All other personal private passenger auto (higher limits, or minimum limits with any optional coverage) | Effective 60 days after filing without the Commissioner’s approval, unless the Commissioner allows an earlier date or the insurer names a later one (O.C.G.A. § 33-9-21(b)(2)). |
| All other insurance, including homeowners and commercial lines | Filed at least 45 days before its effective date. No premium may be collected under it until then (O.C.G.A. § 33-9-21(d)). |
The first row is a prior approval system with a deemer: silence approves the filing once the clock runs. The second and third rows are file and use systems with a waiting period.
A filing in the third group that produces an overall increase of 10 percent or more within 12 months triggers an examination of the insurer’s claim reserves and the data behind the filing. The Commissioner may waive all or part of it only if the increase is under 25 percent and the Commissioner already has enough information to evaluate it. Once the Commissioner gives notice of an examination, the insurer may not use the increased rates until it is complete (O.C.G.A. § 33-9-21(e)).
Large commercial risks (Ga. Comp. R. & Regs. r. 120-2-77)
Manual rates may not fit a very large business, so the chapter lets the Commissioner exempt defined commercial risks from filing (O.C.G.A. § 33-9-3(a.1)). Under the Commissioner’s rule, a large commercial risk meets all four of these tests (r. 120-2-77-.03(2)):
- 25 or more full-time employees
- Assets over $1,500,000
- Annual revenues over $2,500,000
- Property and casualty premium over $50,000 from Georgia operations, or over $250,000 for a risk with multistate operations
An insurer pricing a large commercial risk need not follow its filed manual rates, except for workers’ compensation and for errors and omissions coverage, including medical malpractice (r. 120-2-77-.05). The policy must carry a disclaimer that its rates and premiums “are exempt from the filing and approval requirements of the Office of Commissioner of Insurance” (r. 120-2-77-.08).
Consent to rate (O.C.G.A. § 33-9-32)
An insurer and an insured may agree to a rate higher or lower than the filed rate on a specific risk, if the agreement is filed with the Commissioner before the rate is used. When the premium exceeds $1,000, the insurer may bind coverage first and file the agreement within 20 days after the binder. The Commissioner then has 10 days to challenge it. If the challenge is upheld, the insurer must use its regular filed rates for the first 30 days of coverage; otherwise the agreed rate applies from the binder’s effective date.
Rating and advisory organizations
A rating organization makes rates and must be licensed by the Commissioner; an advisory organization prepares forms, underwriting rules or loss statistics without making rates (O.C.G.A. §§ 33-9-2(1), (3), 33-9-12(a)). Insurers may use an organization’s rates and forms but may not agree with one another to adhere to them (O.C.G.A. § 33-9-9). Each insurer reports its statistics through a recognized statistical agency or advisory organization (O.C.G.A. § 33-9-20(b)).
What rate regulation means for a producer
A producer may not knowingly charge, demand or receive a premium except as the rate chapter allows (O.C.G.A. § 33-9-36(b)). Two auto rules also limit what an insurer may charge:
- No surcharge on the personal auto policy of a law enforcement officer, firefighter or emergency medical technician for an accident while lawfully performing official duties, once the insured gives the insurer proof (O.C.G.A. § 33-9-39).
- No surcharge, and no cancellation, because of a multivehicle accident in which the insured was not at fault (O.C.G.A. § 33-9-40).
Review and enforcement
A person who believes a rate, rating plan or underwriting rule was misapplied to his or her insurance may ask the insurer, in writing, to review it. If it is not granted within 30 days, the person may treat it as rejected and ask the Commissioner for a hearing (O.C.G.A. § 33-9-26).
When the Commissioner believes a rate or an insurer does not comply with the chapter, the Commissioner gives written notice and at least 10 days to correct the problem, unless the noncompliance appears willful (O.C.G.A. § 33-9-27). If it is not corrected, a hearing follows (O.C.G.A. § 33-9-28), and the Commissioner may then (O.C.G.A. § 33-9-29):
- Prohibit further use of the rate
- Order the most recent rate increase refunded to current policyholders
- For a willful violation, suspend or revoke the insurer’s certificate of authority for that class of insurance
Withholding or falsifying information that affects rates is prohibited (O.C.G.A. § 33-9-35). Insurers that conspire to fix rates outside what the chapter allows are liable to anyone harmed for three times the damages plus attorney’s fees (O.C.G.A. § 33-9-37). Failing to obey a final order of the Commissioner brings a civil penalty, higher if the failure is willful, and any willful violation of the chapter is a misdemeanor (O.C.G.A. § 33-9-38).
Binders (O.C.G.A. § 33-24-33)
A binder is a contract for temporary insurance that protects the applicant while the insurer issues the policy. Georgia’s statute sets four rules:
- Form. A binder may be oral or written (O.C.G.A. § 33-24-33(a)).
- Terms. A binder includes all the usual terms of the policy it was given for, plus any endorsements the binder designates, except where the binder’s own clear and express terms say otherwise (O.C.G.A. § 33-24-33(a)).
- Duration. A binder is valid until the policy is issued or for 90 days from its effective date, whichever is shorter (O.C.G.A. § 33-24-33(b)).
- Extension. If the policy has not been issued, a binder may be extended or renewed beyond 90 days only with the Commissioner’s written approval or under the Commissioner’s rules (O.C.G.A. § 33-24-33(c)).
The 90-day limit does not apply to excess or surplus lines insurance, and the section does not apply to life or accident and sickness insurance (O.C.G.A. § 33-24-33(b), (d)).
Example: On March 1, a producer with binding authority orally binds a homeowners policy. If the policy is issued on March 20, the binder ends that day and the policy takes over. If the policy is never issued and no extension is approved, the binder ends 90 days after March 1. Until then, a loss is paid on the terms of the insurer’s usual homeowners policy.
No cancellation notice is required when a binder is void from the start for failure of consideration (O.C.G.A. § 33-24-44(d.1)), and a consent-to-rate agreement on a premium over $1,000 may be bound before it is filed (O.C.G.A. § 33-9-32).
The Georgia Insurers Insolvency Pool (O.C.G.A. §§ 33-36-1 through 33-36-20)
The Georgia Insurers Insolvency Pool is Georgia’s property and casualty guaranty fund. When a property or casualty insurer is liquidated, the pool pays its covered claims, funded by assessments on the solvent insurers.
Structure and membership
The pool has three accounts: workers’ compensation, automobile, and all other covered insurance (O.C.G.A. § 33-36-2). Every insurer authorized to write property or casualty insurance in Georgia must be a member (O.C.G.A. § 33-36-5). The pool is governed by a board of trustees called the Insurers Solvency Board, made up of seven members chosen by the Commissioner for three-year terms, with at least one from a domestic insurer (O.C.G.A. § 33-36-4(a)).
When the pool steps in
The pool acts for an insolvent insurer: one that was licensed to write property or casualty insurance in Georgia and against which a court has entered a final order of liquidation with a finding of insolvency (O.C.G.A. § 33-36-3(5)). When an insurer is ordered liquidated, its policies become the pool’s obligation, for covered claims, for 30 days after the determination, or until the policy expires or is replaced within those 30 days if sooner (O.C.G.A. § 33-36-9).
The Commissioner notifies claimants and insureds by first-class mail and may require each of the insurer’s agents to notify the insureds for whom the agent was agent of record (O.C.G.A. § 33-36-8).
Covered claims and their limits
A covered claim is an unpaid claim under a property or casualty policy issued by an insolvent insurer that was authorized in Georgia when the policy was issued or when the insured event occurred, with a Georgia connection: a Georgia-resident policyholder or insured, property permanently located in Georgia, or a Georgia-resident party to a liability or workers’ compensation claim (O.C.G.A. § 33-36-3(4)(A)–(B)). The statute then limits what it pays (O.C.G.A. § 33-36-3(4)):
| Rule | Limit |
|---|---|
| Small claims | Claims under $50 are not covered; claims of $50 or more are paid in full. |
| First-party claims | Up to the policy limit or $300,000, whichever is less. |
| Third-party claims, other than workers’ compensation | Up to the policy limit or $300,000, whichever is less. |
| Unearned premium | Up to $20,000, only for a stated premium on a policy in force at the final liquidation order. |
| Large insureds | No first-party claim by an insured with a net worth over $10 million, and, unless that insured is in bankruptcy or receivership, no third-party claim under the policy of an insured with a net worth over $25 million. |
| Never covered | Punitive damages, interest, claims of other insurers for subrogation or contribution, and first-party claims by the insolvent insurer’s affiliates. |
Workers’ compensation claims are excluded from the third-party cap. Some kinds of coverage are outside the pool entirely, including life and health insurance (except health coverage written as part of an auto policy), title insurance, credit insurance, mortgage guaranty, fidelity and surety bonds, warranties, ocean marine, and insurance provided by government (O.C.G.A. § 33-36-3(11)).
Filing a claim and other coverage first
A claim must be filed with the pool by the earlier of 18 months after the liquidation order or the final date the court sets for claims against the liquidator. Claims for losses incurred but not yet reported are not covered (O.C.G.A. § 33-36-11(a)). The pool cannot be found in default (O.C.G.A. § 33-36-11(b)).
A claimant who also has coverage for the same claim under a policy from a solvent insurer must use that policy first. The solvent policy is primary, the pool’s obligation is reduced by what the solvent insurer pays, and the insured’s own liability is reduced by the same amount (O.C.G.A. § 33-36-14(a), (c)). The pool may recover what it paid on behalf of an insured whose net worth exceeds $25 million (O.C.G.A. § 33-36-14(d)).
How the pool is funded
The Commissioner levies assessments separately for each account, in proportion to each member’s net direct written premiums in Georgia for that account’s lines in the preceding calendar year. Members get at least 30 days’ written notice, and no member may be assessed more than 2 percent of those premiums in any one year (O.C.G.A. § 33-36-7(b)). A member recoups its assessment over the following year through a surcharge on premiums, stated separately on the bill or declarations page. It is not premium for premium tax or commission purposes (O.C.G.A. § 33-36-7.1). The Commissioner may, after notice and hearing, revoke the certificate of authority of a member that does not pay (O.C.G.A. § 33-36-12).
Lesson summary
- Georgia rates must not be excessive, inadequate or unfairly discriminatory; excessive means unreasonably high where competition is lacking, and inadequate means unreasonably low and threatening solvency or competition (O.C.G.A. § 33-9-4).
- Minimum-limits personal auto rates need approval or 45 days without disapproval, other personal auto rates take effect 60 days after filing, and all other rates are filed at least 45 days before use (O.C.G.A. § 33-9-21).
- An overall increase of 10 percent or more within 12 months triggers an examination of the insurer’s claim reserves (O.C.G.A. § 33-9-21(e)).
- Large commercial risks may be priced outside filed manual rates, except for workers’ compensation and errors and omissions (r. 120-2-77).
- A binder may be oral or written, carries the usual policy terms and lasts until the policy is issued or 90 days, whichever is shorter (O.C.G.A. § 33-24-33).
- Every insurer authorized to write property or casualty insurance in Georgia belongs to the Insurers Insolvency Pool, which pays covered claims up to the policy limit or $300,000, whichever is less (O.C.G.A. §§ 33-36-3, 33-36-5).
- An insolvent insurer’s policies stay in force for covered claims for up to 30 days, claims must be filed within 18 months or by the court’s earlier deadline, and a solvent insurer’s coverage pays first (O.C.G.A. §§ 33-36-9, 33-36-11, 33-36-14).
- Using the pool’s existence to sell insurance is prohibited (O.C.G.A. § 33-36-19).