17.5 Property and Casualty Insurance Basics

Credit-Based Insurance Score

Insurers may use an applicant’s credit-based insurance score as one factor in the underwriting process to help evaluate risk and determine premiums for various types of property and casualty insurance.

Insurers may not use a credit-based insurance score as the sole factor when deciding whether to issue an insurance policy or when determining the premium charged for the policy.

A credit-based insurance score is different from a traditional credit score and may not use certain personal information when calculating the score. Prohibited information includes:

• Age
• Gender
• Marital status
• Income
• Occupation
• Employment history
• Location of residence
• Child support
• Rental agreements
• Interest rates being charged
• Participation in credit counseling

The following general areas that best determine how an individual manages risk are used to create an individual's credit-based insurance report:

• Payment history
• Outstanding debt
• Credit history length
• Pursuit of new credit
• Credit mix

Ohio Laws, Regulations, and Required Provisions

Ohio Valued Policy Law

Ohio has a valued policy law designed to protect policyholders in the event of a total loss. When a building or structure is insured against fire or lightning, the agent must examine the property, provide a complete description, and establish a fixed insurable value.

Because the property’s value is established in advance, the insurer must pay the full policy amount for a total loss caused by fire or lightning, provided that:

• The insurer received the required premium
• There was no increase in risk without the insurer’s consent
• The insured did not commit intentional fraud

However, if the policy requires the insured to actually repair or replace the building or structure before receiving payment up to the policy limits, and the insured does not complete the required repair or replacement after the loss, the insurer will pay the amount specified by the policy terms.

Note: Cellars and foundation walls are not considered part of the insured building and are therefore excluded when determining the loss settlement.

Ohio Property & Casualty Guaranty Association (OIGA)

The Ohio Property and Casualty Insurance Guaranty Association (OIGA) is a nonprofit organization made up of all licensed and admitted property and casualty insurers in Ohio. Its purpose is to provide protection for covered claims when a member insurer becomes insolvent. Membership in OIGA is required for insurers authorized to conduct property and casualty insurance business in Ohio.

OIGA covers claims that exist before an insurer is declared insolvent and claims arising within 30 days after the insolvency determination. It also covers claims occurring before the policy’s expiration date when that date falls within 30 days after the insolvency date. All applicable policy terms and provisions between the insured and the insolvent insurer remain in effect.

OIGA is funded through assessments paid by its member insurers. Each state-admitted insurer contributes an amount based on the premiums it writes, with assessments used to meet OIGA’s financial obligations.

The Superintendent must notify OIGA within 3 days after receiving notice that an insurer has become insolvent.

When an insurer becomes insolvent, OIGA will cover eligible claim obligations when:

• The claimant was an Ohio resident at the time of the loss; OR
• The claim involves property permanently located in Ohio

Claim payments by the guaranty association are subject to the following limits:

• Covered claims must be at least $100 and may not exceed $300,000
• Claims for unearned premiums are limited to $10,000
• Claims involving bodily injury or death to one person are treated as a single claim, regardless of the number of policies issued or claims filed

The guaranty association will not pay claims that are:

• Awarded as punitive or exemplary damages
• Owed to a reinsurer, insurer, insurance pool, or underwriting association through subrogation
• Owed to an affiliate of the insolvent insurer
• Owed to an insured whose net worth exceeds $50 million at the end of the previous fiscal year

The Superintendent may order:

• The association to notify the insolvent insurer’s policyholders of the insolvency and explain their rights
• After notice and a hearing, the suspension or revocation of a member insurer’s certificate of authority for failing to pay an assessment or comply with the association’s plan
• Instead of suspension or revocation, a penalty for failing to pay an assessment when due
  • The penalty must be at least $100 per month and no more than 5% of the unpaid assessment per month
• The revocation of a servicing facility’s designation when claims are not being handled satisfactorily

Claimants seeking protection from the guaranty association must cooperate with the association to the same extent they would have cooperated with the insolvent insurer. When the association pays a claim, it becomes subrogated to the claimant’s rights to the extent of the amount paid.

If a claim is covered by the guaranty association but is also payable under a policy issued by another insurer, the claimant must first exhaust coverage under the policy with the non-insolvent insurer. The guaranty association’s liability is then reduced by the amount recovered from the other insurer.

An insurer’s rate cannot be considered excessive solely because it includes a factor to recover assessments paid to the guaranty association. The association may also establish a payment plan that allows assessments or projected assessments to be paid periodically.

Cancellation and Nonrenewal - General Regulations

A policyholder has the right to cancel a policy at any time and for any reason by submitting a written request. A policyholder may also choose not to renew a policy. Every policy must clearly state these rights.

However, when the insurer cancels or nonrenews a policy, specific legal restrictions apply. An insurer that violates these requirements may have its certificate of authority revoked by the Superintendent.

Cancellation

Note: The following regulations apply to commercial and general property insurance policies. Homeowners, dwelling, and personal auto policies are subject to additional cancellation restrictions and requirements.

If a policy has been in effect for more than 90 days, the insurer may cancel it only for one of the following reasons:

• Nonpayment of premium
• Fraud or material misrepresentation
• A moral hazard or willful or reckless act or omission
• A significant change in the insured risk
• Loss of reinsurance covering all or most of the risk
• Failure to correct safety code violations or comply with written loss control recommendations
• A determination by the Superintendent that a public hazard exists

If a policy is cancelled for nonpayment of premium, the insurer must provide at least 10 days’ notice before the cancellation becomes effective. For all other permitted cancellation reasons, the insurer must provide at least 30 days’ notice.

A written cancellation notice must be mailed to the insured’s last known address and must include:

• The reason for cancellation
• The date of the notice and the effective date of cancellation
• The policy number

For cancellation due to nonpayment of premium, the insurer may include the cancellation notice with the billing statement. In this case, the cancellation may become effective on or after the premium due date.

Upon cancellation, any unearned premium refund will be calculated using the short-rate method.

Nonrenewal

An insurer may nonrenew a policy without stating a reason, but must notify the policyholder at least 30 days before the policy’s expiration date. If the notice is mailed late, the policy must remain in effect for 30 days after the notice is mailed.

If renewing a policy will result in a substantial premium rate increase, the insurer must notify the policyholder at least 30 days before the policy’s expiration date.

Medical Malpractice - Cancellation and Nonrenewal

For medical malpractice insurance, cancellation for any reason other than nonpayment of premium requires at least 60 days’ notice before the cancellation becomes effective.

An insurer must file a written notice with the Superintendent before cancelling, terminating, or nonrenewing all medical malpractice policies:

• Issued to a particular class, type, or specialty of practitioner
• Issued within a specific geographic area, including the entire state

The following advance notice requirements apply:

• 180 days’ notice when the insurer intends to terminate all medical malpractice policies issued in Ohio
• 120 days’ notice when the insurer intends to terminate all medical malpractice policies for a specific class, type, or specialty of practitioner, or within a specific geographic area other than the entire state
• 120 days’ notice before changing underwriting guidelines when those changes will result in the cancellation, termination, or nonrenewal of all medical malpractice policies for a specific class, type, specialty, or geographic area other than the entire state

Notification of FAIR Plan Eligibility

Insurers that cancel or nonrenew a risk eligible for FAIR Plan coverage must provide, along with the required 30 days’ written notice, an explanation of the insured’s FAIR Plan eligibility and application procedures.

This requirement does not apply to binders lasting 30 days or less. It also does not apply when cancellation or nonrenewal is due to nonpayment of premium, misrepresentation, or evidence of arson.

Controlled Business

Controlled business refers to insurance business over which an agent can exercise personal influence or control. This includes coverage written for the agent, the agent’s family members, employees, associates, or personal business interests.

In Ohio, when a producer places controlled business equal to or greater than 5% of an insurer’s admitted assets in a single year, the insurer may not accept additional business from that producer unless a written contract defines each party’s responsibilities. The insurer’s board of directors must approve the contract, which must provide that:

• The insurer may terminate the contract for cause with written notice and suspend the agent’s authority to write business while a dispute over the termination is pending.
• The agent must provide the insurer with accounts of all material transactions, including information supporting all commissions, charges, and fees received or owed.
• The agent must remit funds owed to the insurer monthly, with premiums remitted no later than 90 days after the policy’s effective date.
• The agent must hold funds collected for the insurer in a fiduciary capacity and maintain separate, clearly identifiable records of business written for the insurer.
• The agent’s commissions, charges, and fees may not exceed those charged for comparable business placed by noncontrolling producers.

The insurer must report annually to the Superintendent:

• The amount of commissions paid to the controlling agent
• The percentage those commissions represent of the insurer’s net premiums written
• The amount of commissions paid to each noncontrolling agent for placing the same type of insurance
• The percentage those commissions represent of the insurer’s net premiums written

Notice to Prospective Insureds

Before an insurance policy becomes effective, a controlling producer must provide the prospective insured with written notice disclosing the controlling relationship between the producer and the controlled insurer.

Noncompliance

If the Superintendent determines that a controlling producer has failed to comply with Ohio insurance laws or regulations, the Superintendent may order the producer to stop placing business with the controlled insurer.

If the Superintendent determines that a controlling producer’s noncompliance caused loss or damage to the controlled insurer or a policyholder, the Superintendent may seek compensatory damages or other appropriate relief.

Retaliatory Provisions

If another jurisdiction imposes specific requirements on Ohio insurers or agents doing business there, Ohio will impose the same requirements on insurers and agents from that jurisdiction doing business in Ohio.

For foreign insurers selling fire insurance in Ohio, 20% of any fees collected under these requirements must be paid to the Ohio Fire Marshal’s Fund.

Immunity for Providing Information Related to Fraud

In the absence of fraud or bad faith, a person who provides or receives information concerning suspected insurance fraud is protected from civil liability, including claims for libel, slander, or other related torts.

The Superintendent is not subject to civil liability for publishing a report or bulletin concerning the official activities of the Superintendent’s office or an insurance fraud bureau related to fraudulent insurance acts.

Mine Subsidence

Mine subsidence refers to loss or damage to buildings or structures caused by the collapse or movement of underground mines. Mine subsidence does not include loss caused by:

• Strip or surface mining
• Earthquake
• Landslide
• Volcanic eruption
• Collapse of dams or tunnels

The Ohio Mine Subsidence Insurance Underwriting Association (OMSIUA) provides mine subsidence coverage for structures in Ohio by transferring the risk from member insurers to the association. All admitted Ohio property insurers must be members. OMSIUA and participating insurers may also assume or cede reinsurance for uninsured risks.

OMSIUA administers the Mine Subsidence Insurance Fund, which is funded by reinsurance premiums paid by member insurers. The fund is audited annually by the state auditor, and the state treasurer serves as its custodian.

Eligibility

The following structures are eligible for OMSIUA coverage:

• 1–4 family dwellings with at least 50% of the total living area occupied
• Builders’ risks involving construction of a 1–4 family occupied dwelling
• Seasonal properties
• Structures with incidental occupancy, provided that:
  • The structure is not commercially rated; AND
  • The structure qualifies for a Homeowners or Dwelling policy

In addition, the structure must be:

• Currently insured under a valid Homeowners, Farm, Mobile Home, or basic property policy
• Located in an eligible Ohio county where mine subsidence coverage is either required or must be offered

Coverage may be denied for:

• A material misrepresentation of facts or circumstances related to mine subsidence
• An increase in occupancy hazard that is known to the insured and within the insured’s control

Coverage and Limits of Liability

The annual premium for mine subsidence coverage is:

• $5 in a mandatory county, where insurers are required to include the coverage
• $20 in an optional county, where insurers are required only to offer the coverage

Mine subsidence coverage includes a deductible for each occurrence. The deductible must be at least $250 but cannot exceed $500.

For structural property damage caused by mine subsidence, OMSIUA provides coverage up to $300,000 or the amount of insurance on the dwelling, whichever is less.

The Valued Policy Law does not apply to mine subsidence insurance policies.

Unfair Property/Casualty Claims Settlement Practices

In Ohio, it is considered an unfair or improper claim settlement practice to fail to accept or deny a claim within 21 days after receiving proof of loss, unless the claimant is notified that additional investigation time is needed. If more time is required, the insurer must provide the claimant with a status update at least every 45 calendar days.

Standards for Automobile Insurance Claims

Partial Losses

When settling a partial loss, the insurer must provide the claimant with a copy of any estimate used to determine the settlement amount. If the insurer’s estimate is lower than the claimant’s estimate, the insurer must either:

• Pay the difference between the two estimates; OR
• Identify at least one repair shop that will complete all necessary repairs for the amount of the insurer’s estimate

If an insurer designates a specific repair shop, the following requirements apply:

• The vehicle must be restored to its condition before the loss
• The insurer may not charge the claimant any additional costs beyond those permitted by the policy
• The repairs must be completed within a reasonable period of time

If an insurer reduces a claim payment because of betterment, depreciation, or comparative negligence, it must maintain all information supporting the reduction in the claim file. Each deduction must also be clearly itemized and stated as a specific dollar amount on the estimate.

Betterment deductions are permitted only when they reflect:

• A measurable decrease in the vehicle’s market value due to:
  • Poor condition of the vehicle
  • Prior damage to the vehicle
• The vehicle’s overall condition, including:
  • Age
  • Wear and tear
  • Rust
  • Missing parts

If like kind and quality parts are expected to be used for repairs, the estimate must clearly identify the location of the licensed salvage dealer from which the parts will be obtained.

Total Losses

In Ohio, insurers determine a total loss using the Total Loss Formula, which adds the vehicle’s repair cost to its projected salvage value. If this amount exceeds the vehicle’s actual cash value (ACV), the vehicle is considered an Economic Total Loss. If the vehicle is demolished or cannot reasonably be repaired, it is considered a Constructive Total Loss.

When settling a total loss by offering a replacement automobile, the insurer must:

• Provide a vehicle from the same manufacturer, of the same or newer model year, with similar body style, options, and mileage as the claimant’s vehicle
• Provide a vehicle in equal or better overall condition than the claimant’s vehicle before the loss
• Make the replacement vehicle available for inspection within a reasonable distance of the claimant’s residence
• Pay all applicable taxes, license costs, and ownership transfer fees, minus any policy deductible
• Document both the replacement offer and any rejection of the offer in the claim file

When settling a total loss with a cash settlement, the insurer must base the offer on the actual cost of purchasing a comparable vehicle, minus any applicable policy deductible or betterment deduction. The settlement value may be determined using:

• The average cost of 2 or more comparable vehicles in the local market that were available to consumers within the previous 90 days
• The average cost of 2 or more comparable vehicles in nearby markets, including the closest major metropolitan areas in or outside the state
• If comparable vehicles are unavailable, the average of 2 or more price quotes obtained from licensed dealers in the local market
• A cost estimate from a generally recognized used motor vehicle industry source

Note: Whichever method or source is selected to determine the vehicle’s value must be applied consistently.

If a claimant accepts a cash settlement and purchases a replacement vehicle within 30 days, the insurer must reimburse the applicable sales tax when the replacement vehicle costs the same as or less than the settlement amount. The insurer may also choose to include the sales tax directly in the settlement payment.

If the replacement vehicle costs more than the settlement amount, the insurer is responsible for sales tax only on the amount of the settlement, not the additional cost of the replacement vehicle.

The claimant must provide proof of the vehicle purchase and sales tax paid within 33 days after receiving the settlement. If the required documentation is not provided within this timeframe, the insurer is not required to reimburse the sales tax.

The insurer must inform the claimant of the right to renegotiate the settlement if a comparable replacement vehicle cannot be purchased within 35 days after receiving the settlement.

Standards for Fire and Extended Coverage Claims

If a fire and extended coverage policy settles losses on a replacement-cost basis, the following requirements apply:

• Unless specifically excluded, the loss must include the repair or replacement of damaged property and any consequential damage resulting from that repair or replacement
• If a replacement item does not match the original in quality, color, or size, the insurer must replace enough of the property to achieve a reasonably comparable appearance
• If the insured must pay part of the repair or replacement cost as betterment, the insurer must document how the charge was calculated and obtain the insured’s agreement before the repair or replacement expense is incurred

For policies that settle losses based on actual cash value (ACV), the insurer calculates ACV using the replacement cost at the time of loss, including sales tax, minus applicable depreciation.

However, this ACV requirement does not apply when the damaged property has little or no economic value, or when its value is disproportionate to the replacement cost minus depreciation.

Fire Loss – Treasury Certificate/Demolition Fund

For Ohio municipalities that have opted into these fire-claim requirements by adopting a resolution or ordinance and filing it with the Superintendent, the following procedures apply:

• For a fire-damage claim exceeding $5,000, the insurer must first determine whether the property has any delinquent assessments or back taxes. If so, those amounts must be paid directly to the county treasurer from the claim proceeds before payment is made to the insured.
• For fire losses equal to or greater than 60% of the policy limit, part of the claim proceeds must be reserved and held by a designated municipal official until the property is repaired, demolished, or secured.
• The amount reserved is $2,000 for every $15,000 of loss. Alternatively, if the insured provides a contractor’s estimate, the amount of the estimate may be reserved.
• Once the required work is completed, the reserved funds are released to the insured. If the municipality performs the work, its costs are deducted from the reserved funds and any remaining balance is paid to the insured.
• The purpose of these requirements is to discourage arson and property abandonment and help prevent community blight.