Oregon Joint Underwriting Association
A residual market makes coverage available to people and businesses that cannot buy it from insurers voluntarily. Oregon law provides for several, and two of them are covered in this course. For essential property insurance, the residual market is the Oregon FAIR Plan Association, covered in its own chapter. For commercial liability insurance, Oregon law lets the Director of the Department of Consumer and Business Services step in when certain businesses and service providers cannot buy the coverage they need: first through a market assistance plan and then, if that does not solve the problem and no coverage is available to them, through a joint underwriting association.
Residual markets: Joint Underwriting Association (ORS 735.200 to 735.260; ORS 737.390)
Purpose (ORS 735.200)
The Legislative Assembly found that some Oregon businesses and service providers had experienced major problems with both the availability and the affordability of commercial liability insurance, and that the lack of adequate coverage threatened businesses and services the state needs.
The law’s purpose is to remedy the problem of unavailable commercial liability insurance for these businesses and service providers in one of two ways:
- By authorizing the Director to assist in establishing a market assistance plan
- If necessary, by requiring all insurers authorized to write commercial liability insurance in Oregon to be members of one or more joint underwriting associations created to provide that insurance
Two mechanisms (ORS 735.205)
| Mechanism | What the statute says it is |
|---|---|
| Market assistance plan | A mechanism through which admitted casualty insurers in Oregon provide commercial liability insurance for classes of risks designated by the Director |
| Joint underwriting association | A mechanism requiring casualty insurers doing business in Oregon to provide commercial liability insurance to certain businesses and service providers, either on an assigned risk basis or through a joint underwriting pool underwritten to standards adopted under the Insurance Code |
The market assistance plan comes first (ORS 735.210)
After a public hearing, the Director may by rule require insurers authorized to write, and writing, commercial liability insurance in Oregon to form a market assistance plan. The plan assists businesses and service providers that are unable to buy specified classes of commercial liability insurance in adequate amounts from either the admitted or the nonadmitted market.
A market assistance plan operates under a plan of operations prepared by admitted insurers, eligible surplus line insurers and insurance producers, and approved by the Director.
When the Director may form a joint underwriting association (ORS 735.215)
The Director may mandate a joint underwriting association only after directing the formation of a market assistance plan and allowing it a reasonable time to relieve the availability problem. The Director must then find both of the following:
- There are businesses or service providers in Oregon for which no commercial liability insurance is available
- Oregon needs the goods or services they provide, and the lack of available insurance will cause a substantial number of them to cease operations in the state
The Director may make these findings only after a public hearing, and must name the specific classes of business or lines of insurance found to be unavailable.
A joint underwriting association is not appropriate when coverage is unavailable because of legitimate insurance underwriting considerations. The statute gives three examples: past claims experience, licensing noncompliance and inadequate risk management.
The yearly review. At least once each year, the Director holds a public hearing to decide whether the classes or lines the association offers are still unavailable in the voluntary insurance market. If a class or line is found to be available, the association must stop underwriting it.
How a joint underwriting association is set up (ORS 735.220 to 735.240)
The statute does not create a joint underwriting association. It authorizes one: after making the findings above, the Director may form and put into operation an association. That differs from the FAIR Plan, which the statute itself created. The rules below apply to an association formed under this law.
Legal form. The association is a temporary, nonprofit, nonexclusive association. It is a legal entity separate and distinct from its members, and all of its funds and reserves are held and invested separately (ORS 735.220).
Membership. The association is made up of all insurers authorized to write, and writing, commercial liability insurance in Oregon on a direct basis, including the commercial liability portions of multiperil policies. Every such insurer must remain a member as a condition of its authority to continue to transact insurance in Oregon (ORS 735.225).
Rates. The board engages an independent actuarial firm to develop and recommend rates, rating plans, rating rules and classifications. The Director approves the association’s rates under the rating law (ORS 737.310). Approved rates must be actuarially sound and calculated to be self-supporting (ORS 735.230).
Board of directors. A seven-person board appointed by the Governor controls the association (ORS 735.235):
| Directors | Represent |
|---|---|
| 2 | Insurance carriers participating in the association |
| 1 | Insurance producers |
| 3 | The affected classes of insureds |
| 1 | The public, with no ties to the insurance industry |
The board elects one of its members as chairperson.
Annual statement. The association files an annual statement prepared by an independent certified public accountant, with a financial statement and a summary of its transactions and operations for the prior year (ORS 735.240).
If the association cannot pay its obligations (ORS 735.245)
If the board determines that the association will be unable to pay its outstanding lawful obligations as they mature, it certifies that condition to the Director and submits a schedule of policyholder surcharges.
- The schedule becomes final 30 days after certification, unless the Director finds after a public hearing that the surcharges are unreasonable or unjustifiable
- A surcharge is paid in addition to the premium, not in place of it
- Surcharge money is held in a separate fund and may be used to satisfy the association’s legal obligations
- No part of the association’s profit or loss goes to the benefit of a member insurer or becomes a member insurer’s obligation
Limits on liability, and rules (ORS 735.250 to 735.260)
- Exemption from liability. There is no liability or cause of action against a member insurer or self-insurer or its agents or employees, the association or its agents or employees, the members of the board, or the Department or its representatives, for any action taken or statement made in performing their powers and duties under ORS 735.210 to 735.260 (ORS 735.250).
- The state does not stand behind the association. The state is not liable for any debt or obligation of an association, and no one may bring a claim against the state or its agencies for an association’s acts or omissions (ORS 735.255).
- Rules. The Director may adopt the rules needed for the efficient and equitable operation of a market assistance plan or a joint underwriting association, including rules that require or limit certain policy provisions (ORS 735.260).
Joint underwriting under the rating law (ORS 737.390)
Oregon’s rating law, ORS chapter 737, has its own rule for insurers that pool risks. No group, association or other organization of insurers that engages in joint underwriting or joint reinsurance may engage in any activity that is unfair, unreasonable or otherwise inconsistent with the provisions of that chapter (ORS 737.390).
The Director examines each of these organizations as often as the Director deems expedient, and the organization examined pays the reasonable cost of the examination (ORS 737.515).
Lesson summary
- A residual market makes coverage available to those who cannot get it voluntarily. In Oregon the FAIR Plan is the residual market for essential property insurance, and a market assistance plan or joint underwriting association is the mechanism for unavailable commercial liability insurance (ORS 735.200 to 735.260).
- A market assistance plan comes first: after a public hearing, the Director may by rule require commercial liability insurers to form one.
- The Director may mandate a joint underwriting association only after a market assistance plan has had a reasonable time, and only on findings, made after a public hearing, that no commercial liability insurance is available to certain businesses or service providers, that Oregon needs the goods or services they provide, and that a substantial number would cease operations without coverage.
- A joint underwriting association is not appropriate when coverage is unavailable for legitimate underwriting reasons such as past claims experience.
- The statute authorizes an association and does not create one. An association formed under it is temporary, nonprofit and nonexclusive, and every insurer writing commercial liability insurance in Oregon on a direct basis must be a member as a condition of its authority.
- Its rates are approved by the Director and must be actuarially sound and calculated to be self-supporting. A seven-person board appointed by the Governor controls it.
- At least once a year the Director holds a public hearing on whether each class or line the association offers is still unavailable in the voluntary market, and the association stops underwriting a class or line found to be available.
- A shortfall is met by a policyholder surcharge, and the state is not liable for the association’s debts.
- Any organization of insurers engaged in joint underwriting or joint reinsurance may not act in a way that is unfair, unreasonable or inconsistent with ORS chapter 737, the rating law (ORS 737.390).