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NEW FEES
AND TAXES
By Roland L. Enz - President,
California Plus Insurance Service, Inc.
2003 is not going to
bring any relief to insurance premiums. Throughout the past year,
we have witnessed premium increases of 25 to 50%. In some extreme
cases, premiums have even doubled. The insurance industry is going
through some extraordinary times. 9/11 was not the only event that
rocked the industry. Natural disaster, increased medical costs and
litigation all contribute to this cycle. The one major element contributing
to this debacle is the loss on investment income. Our financial house
of cards has collapsed and we will all pay the price. Without investment
income, underwriting (or the risk itself), will have to stand on its
own. Future profits will come from underwriting and rates, unfortunately,
will rise to meet that objective.
This coming year will bring additional costs tagged onto your premium.
On November 26, 2002, President George W. Bush signed the Terrorism
Risk Insurance Act of 2002 into law. The Act affects most commercial
lines of property and casualty insurance, including excess insurance,
worker’s compensation insurance and sureties. There are exclusions
such as crop or livestock insurance, title insurance, financial guaranty
insurance issued by monocline financial guaranty insurance corporations,
medical malpractice, health or life insurance, flood provided under
the National Flood Insurance Act and reinsurance. What the Act does
for the insured is to remove the exclusions normally associated with
terrorism. This is retroactive. Insurance companies will charge a
fee of 1 to 7% depending upon the type and/or location of the risk.
The Act’s focus is on the insurance industry and outlines the financial
consequences each company is responsible for in the event of a loss.
This additional fee, surcharge, premium or tax (what ever you want
to call it) will now be included in your premium. The insurance industry
still does not know how to handle this. Only one company that I know
of is currently requiring disclosure. Every company is required to
charge this premium and to inform you of these additional charges.
There is also another new fee that you will see on your cargo and/or
general liability policy. Insurance companies that do business in
California, as admitted carriers, participate in what is called the
California Insurance Guarantee Association (CIGA). The CIGA provides
guarantees of coverage in the event that the insurer is insolvent
and can not pay claims. Most of you that pull or provide coverage
naming someone else as an additional insured are requested to provide
insurance through an admitted company. This is the reasoning. Non
admitted companies do not participate in the guarantee program and
coverage does not, in the event of insolvency, exist. This additional
fee is 2% of the premium charged.
All fees and taxes, if applicable, should be disclosed when you purchase
your insurance. There are brokerage fees, policy fees, inspection
fees and CIGA fees. These fees do not show up on your insurance policy,
but should be accounted for on the quote and through any financing.
Most fees are 100% earned and are collected up front. Fees drive up
the cost of insurance and usually impact the down payment. Your quote
should be in writing, outlining all costs associated with your insurance
transaction. I have always been against brokerage fees added by the
retail agent or broker. There may be circumstances necessitating fees,
but they should be up front, and they most certainly can be negotiated.
Make sure that you receive everything in writing and be sure to keep
it all with your permanent records.
If you have any comments or would like to discuss any insurance related
topic, I can be reached through California Plus Insurance Service
in Modesto, CA by calling 1-800-699-7101. I always enjoy hearing from
readers and getting their feedback. I can also help you with all your
insurance needs. I specialize in serving customers in the Central
California area. I am proud to say that we at California Plus Insurance
Service do not add any brokerage fees to our customer's policies,
so call us today.
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