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Frequently asked questions about a new premium surcharge

Q:

I've heard that a surcharge will be added to my auto insurance premiums when I renew my policy in 2004. What's this about?

A:

Since January 2004, many insurers have been adding a surcharge to most types of property and casualty insurance sold in Oregon. Auto and homeowner insurance are the most common types of property and casualty insurance. The surcharge amount will be indicated on your billing statement or policy renewal form.

Q:

Why is this surcharge being added to my policy?

A:

Insurance companies use the surcharge to recover assessments they pay to the Oregon Insurance Guaranty Association (OIGA). Insurers used to be able to claim tax credits to offset these assessments. The 2003 Oregon Legislature passed House Bill 3051, which eliminates the tax credits and requires insurers to recover OIGA assessments directly from policyholders using a premium surcharge.

Q:

Are all companies surcharging their policyholders?

A:

All companies selling property and casualty insurance in Oregon can surcharge their customers to recover the assessments paid to the OIGA. Some companies that do little business in Oregon may find it too expensive to install new computer software or increase their accounting or billing staff to oversee the surcharges. These companies are allowed by the new law to consider the assessments paid to the OIGA as a business expense. They do not have to surcharge their policies.

Q:

Will the surcharge be added to my policy every time it's renewed?

A:

Companies will be assessed as needed by the OIGA to settle claims of insolvent insurers. The assessment will vary each year and may not appear each time a policy is renewed.

Q:

What is the Oregon Insurance Guaranty Association and how does it benefit consumers?

A:

The OIGA was formed in 1971 to protect policyholders when an insurance company becomes insolvent and is unable to pay claims. The guaranty fund will pay covered claims when an Oregon insurer is insolvent and is liquidated by a court order.

Most property and casualty insurers licensed to do business in Oregon must belong to the OIGA. The OIGA assesses other property and casualty insurance companies to provide funds to pay claims that otherwise would go unpaid. As a result, your claim could still be paid or at least partially paid even if your insurance company becomes insolvent. The guaranty fund will not pay any claim the insurance company would not have paid. There are some limitations on the maximum payments policyholders can receive.

Q:

How much will the assessment be?

A:

The assessment will be your insurer's share of the amount needed to pay the insolvent insurance company's claims. The assessment will vary depending on how many possible claims there are and the total of the expected claims.

In the past three years, OIGA assessed companies four times for a total of $40,000,000. This is less than 1 percent of this year's premiums earned in Oregon by property and casualty insurance companies.

Q:

How was my surcharge determined?

A:

Each company determined the rate needed to recover its OIGA assessment. For example, if your auto insurance premiums are $400 and the surcharge rate for your company is .7 percent, your auto policy would be surcharged $2.80 or $400 times .7 percent. All policies your insurance company issued at the same time as your policy would be surcharged at this rate.

Q:

When will other assessments take place?

A:

An assessment will take place when an insurance company selling insurance in Oregon becomes insolvent and can't pay its claims. The Oregon Insurance Division works hard to monitor the financial condition of the insurance companies whose home state is Oregon. Other states' insurance departments monitor their insurance companies.

Q:

Why does my auto policy have a surcharge but my life policy doesn't?

A:

OIGA covers only property and casualty insurance. Auto insurance is sold by property and casualty insurers.

Another guaranty association (the Oregon Life and Health Guaranty Association) covers life and health insurance sold in Oregon. Oregon law currently allows life and health insurance companies to offset their assessments against the Oregon corporate excise tax. They are not allowed to surcharge their policies.

Q:

Do other states have guaranty associations?

A:

Yes, all states have guaranty associations.

Q:

How are they funded?

A:

All of the guaranty associations in other states also pay claims by assessing other property and casualty companies. Other states differ from Oregon in how they allow these companies to recover these assessments. Some states allow a tax credit against their premium tax or against their state excise tax. Other states allow companies to pass a surcharge to their customers. A few states don't allow companies to recover their assessment. The insurance companies must list the assessments as an expense of doing business. This added expense might increase the rates of those companies and cause policyholders to pay more in premiums.

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This document was last revised on May 11, 2004 .