HB 1554: Collateral Protection Insurance Act; enact

House Bill 1554

By: Representatives Howard of the 71st, New of the 40th, Huddleston of the 72nd, and Smith of the 18th

A BILL TO BE ENTITLED

AN ACT

To amend Chapter 24 of Title 33 of the Official Code of Georgia Annotated, relating to insurance generally, so as to provide for collateral protection insurance; to provide for legislative intent; to provide for applicability; to provide for definitions; to provide for requirements for collateral protection insurance policy terms; to provide for restrictions on insurance charges made to mortgagors; to provide for the calculation of coverage and premiums; to require certain excess replacement cost coverage to be paid to the mortgagor; to prohibit insurers from writing collateral insurance having certain premium rates; to prohibit certain practices by insurers and insurance agents; to provide for certain requirements for the delivery and contents of policies or certificates of collateral protection insurance; to specify requirements for the filing of policy forms and rates; to require certain insurers to file annual reports with the Department of Insurance; to provide for statutory construction; to provide for related matters; to provide for a short title; to provide for an effective date and applicability; to repeal conflicting laws; and for other purposes.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:

SECTION 1.

This Act shall be known and may be cited as the "Collateral Protection Insurance Act."

SECTION 2.

Chapter 24 of Title 33 of the Official Code of Georgia Annotated, relating to insurance generally, is amended by adding a new article to read as follows: "ARTICLE 5

33-24-130.

(a) It is the intention of the General Assembly:

(1) To promote the public welfare by strengthening this state's laws governing collateral protection insurance on real property;

(2) To create a legal framework within which collateral protection insurance on real property shall be written in this state;

(3) To help maintain appropriate separation between the lenders and servicers and the insurers and insurance agents; and

(4) To minimize the possibility of unfair competitive practices in the sale, placement, solicitation, and negotiation of collateral protection insurance.

(b) This article applies to:

(1) Insurers and insurance agents engaged in any mortgage transaction involving collateral protection insurance; and

(2) All collateral protection insurance written in connection with mortgaged real property, including manufactured and mobile homes, except:

(A) Insurance associated with mortgage loans or other extensions of credit made primarily for business, commercial, or agricultural purposes;

(B) Insurance offered by the lender or servicer and elected by the mortgagor at the mortgagor's option;

(C) Insurance purchased by a lender or servicer on real estate owned property; or

(D) Insurance for which no specific charge is made to the mortgagor or the mortgagor's account.

33-24-131.

As used in this article, the term:

(1) 'Affiliate' means any person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the person specified.

(2) 'Agent' has the same meaning as set forth in Code Section 33-23-1.

(3) 'Collateral protection insurance' means commercial property insurance where a creditor is the primary beneficiary and policyholder, covering the creditor's interest in real or personal property following a borrower's failure to maintain required coverage; provided, however, that, for purposes of this article, such term applies only to mortgaged real property and not to personal property.

(4) 'Individual collateral protection insurance' means coverage for individual real property evidenced by a certificate of coverage under a master collateral protection insurance policy or a collateral protection insurance policy for individual real property.

(5) 'Insurer' means any person engaged as an indemnitor, surety, or contractor that issues insurance, subscriber contracts, or other contracts of insurance by whatever name called.

(6) 'Investor' means a person, or an affiliate thereof, holding a beneficial interest in loans secured by real property.

(7) 'Lapse' means the date on which a mortgagor has failed to comply with a mortgage agreement's requirements to maintain valid and sufficient insurance upon mortgaged real property.

(8) 'Lender' means a person, or an affiliate thereof, making loans secured by an interest in real property.

(9) 'Loss ratio' means the ratio of incurred losses to earned premium.

(10) 'Master collateral protection insurance policy' means a group policy issued to a lender or servicer which provides coverage for all loans in the lender's or servicer's loan portfolio as needed.

(11) 'Mortgage agreement' means the written document setting forth an obligation or a liability of any kind secured by a lien on real property and due from, owing by, or incurred by a mortgagor to a lender on account of a mortgage loan, which document includes the security agreement, the deed of trust, other documents of similar effect, and any other document incorporated by reference.

(12) 'Mortgage loan' means a residential loan intended for personal, family, or household use.

(13) 'Mortgagee' means a person that holds mortgaged real property as security for repayment of a mortgage agreement.

(14) 'Mortgagor' means a person that is obligated on a mortgage loan pursuant to a mortgage agreement.

(15) 'Real estate owned property' means property owned or held by a lender or servicer as a result of a foreclosure under the related mortgage agreement or acceptance of a deed in lieu of foreclosure.

(16) 'Replacement cost value' means the estimated cost to replace covered property at the time of loss or damage without deduction for depreciation. Such term does not mean market value but is the cost to replace covered property to its pre-loss condition.

(17) 'Servicer' means a person, or an affiliate thereof, contractually obligated to service one or more mortgage loans for a lender or an investor. Such term includes an entity involved in subservicing arrangements.

33-24-132.

(a) Collateral protection insurance shall become effective no earlier than the date of lapse of insurance upon mortgaged real property subject to the terms of a mortgage agreement or any state or federal law requiring the same.

(b) Individual collateral protection insurance terminates on the earliest of the following dates:

(1) The date on which insurance acceptable under the mortgage agreement becomes effective, subject to the mortgagor providing sufficient evidence of such acceptable insurance;

(2) The date on which the applicable real property no longer serves as collateral for a mortgage loan pursuant to a mortgage agreement;

(3) Such other date as specified by the individual policy or certificate of insurance;

(4) Such other date as specified by the lender or servicer; or

(5) The termination date of the policy.

(c) An insurance charge shall not be made to a mortgagor for collateral protection insurance before the effective date of the collateral protection insurance or for a term longer than the scheduled term of the collateral protection insurance.

(d) The calculation of coverage and payment of premiums shall be as follows:

(1) Any collateral protection insurance coverage, and the subsequent calculation of premium, shall be based upon the replacement cost value of the property, which is determined as:

(A) If known to the lender or servicer, the last known coverage amount, which is the dwelling coverage amount set forth in the most recent evidence of insurance coverage provided by the mortgagee. The insurer shall inquire of the insured at least once as to the last known coverage amount. If the insurer is unable to obtain the last known coverage amount from the insured or in another manner, the insurer may proceed according to subparagraph (B) or (C) of this paragraph, as applicable;

(B) If the last known coverage amount is unknown, the replacement cost of the property serving as collateral, as calculated by the insurer, unless the use of replacement cost for this purpose is prohibited by other state or federal law; and

(C) If the last known coverage amount is unknown and the replacement cost is not available or its use is prohibited by other state or federal law, the unpaid principal balance of the mortgage loan;

(2) In the event of a covered loss, any replacement cost coverage provided by an insurer in excess of the unpaid principal balance of the mortgage loan shall be paid to the mortgagor; and

(3) An insurer may not write collateral protection insurance for which the premium rate differs from that determined by the schedules of the insurer on file with the department as of the effective date of any such policy.

(e) An insurer or agent shall not:

(1) Issue collateral protection insurance on mortgaged property that such insurer or agent, or an affiliate thereof, owns, performs the servicing for, or owns the servicing right to;

(2) Compensate, including through the payment of commissions to, a lender, an insurer, an investor, or a servicer on collateral protection property insurance policies issued by the insurer;

(3) Share collateral protection insurance premium or risk with the lender, investor, or servicer that obtained the collateral protection insurance;

(4) Offer contingent commissions, profit sharing, or other payments dependent upon profitability or loss ratios to any person affiliated with a servicer or the insurer in connection with collateral protection insurance;

(5) Provide free or below-cost outsourced services to lenders, investors, or servicers or outsource its own functions to lenders, insurance agents, investors, or servicers on an above-cost basis; or

(6) Make any payments, including, but not limited to, the payment of expenses to a lender, an insurer, an investor, or a servicer, for the purpose of securing collateral protection insurance business or related outsourced services.

(f) Collateral protection insurance shall be set forth in an individual policy or certificate of insurance. A copy of the individual policy, certificate of insurance, or other evidence of insurance coverage shall be delivered by first-class mail or in person to the last known address of the mortgagor, or delivered in accordance with Code Section 33-24-14. Notwithstanding any other information required by general law or by rule, the individual policy or certificate of insurance coverage shall include the following information:

(1) The address and identification of the insured property;

(2) The coverage amount, or amounts if multiple coverages are provided;

(3) The effective date of the coverage;

(4) The term of coverage;

(5) The premium charge for the coverage;

(6) Contact information for filing a claim; and

(7) A complete description of the coverage provided.

33-24-133.

(a) With regard to filing, approval, and withdrawal of forms and rates:

(1) Except as otherwise provided in this article, all policy forms and certificates of insurance to be delivered or issued for delivery in this state are subject to the applicable provisions of Code Section 33-24-9, and the schedules of premium rates pertaining thereto are subject to the applicable provisions of Code Section 33-9-21;

(2) With respect to any analysis of rates in accordance with Code Section 33-9-21, the analysis must also include a determination as to whether expenses included by the insurer in the rate are appropriate;

(3) Notwithstanding any provision of law to the contrary, insurers subject to this article shall refile collateral protection property insurance rates at least once every four years;

(4) All insurers writing collateral protection insurance shall have separate rates for collateral protection insurance and voluntary insurance obtained by a mortgage servicer on real estate owned property; and

(5) Upon the introduction of a new collateral protection insurance program, the insurer shall reference its experience in existing programs in the associated filings. This article does not limit an insurer's discretion, as actuarially appropriate, to distinguish different terms, conditions, exclusions, eligibility criteria, or other unique or different characteristics. An insurer may, where actuarially acceptable, rely upon models or, in the case of flood filings where applicable experience is not credible, on National Flood Insurance Program data.

(b)(1) By April 1 of each year, each insurer with at least $100,000.00 in direct written premium for collateral protection insurance in this state during the prior calendar year shall report to the department the following information for the prior calendar year:

(A) Actual loss ratio;

(B) Earned premium;

(C) Any aggregate schedule rating debit or credit to earned premium;

(D) Itemized expenses;

(E) Paid losses; and

(F) Loss reserves, including case reserves and reserves for incurred but not reported losses.

The report shall be separately produced for each collateral protection insurance program and presented on both an individual jurisdiction and nation-wide basis.

(2) Except in the case of collateral protection insurance covering the peril of flood, to which this subsection does not apply, if an insurer experiences an annual loss ratio of less than 35 percent in any collateral protection insurance program for two consecutive years, the insurer shall submit a rate filing, either adjusting its rates or supporting their continuance, to the department no more than 90 days after the submission of the data required in paragraph (1) of this subsection.

33-24-134.

This article shall not be construed to authorize an insurance agent or insurer solely underwriting collateral protection insurance to circumvent the requirements of this article. Any requirement, limitation, or exclusion provided in this article applies to an insurer or insurance agent involved in collateral protection insurance."

SECTION 3.

This Act shall become effective on January 1, 2028, and shall apply to all applicable insurance policies issued, delivered, issued for delivery, or renewed on or after such date. For purposes of this Act, all contracts are deemed to be renewed no later than the first anniversary of the contract date.

SECTION 4.

All laws or parts of laws in conflict with this Act are repealed.