Premiums Amidst a Crisis
Considerations for Nonpayment and Premium Receivable Valuation and Admissibility
During the COVID-19 pandemic, policyholders may be experiencing an unprecedented financial hardship and unable to pay their insurance premiums in a timely manner. To provide relief to policyholders, certain state insurance regulators imposed a moratorium on canceling or non-renewing a policy based on nonpayment including, but not limited to, the following:
- Extending the grace period for an additional 60 days or for a specific expiration;
- Providing reasonable accommodations prior to canceling or non-renewing a policy;
- Waiving late fees; and
- Providing relief to certain classes of policyholders that meet eligibility requirements.
Please refer to your state insurance department’s website for more details, as these and other restrictions vary by state.
Given the above concessions, it’s understandable that there is a higher probability of nonpayment on insurance policies during 2020 than in the past. How does that impact your Company’s premium receivable accounting for year end 2020? On a statutory basis, there may be a large increase in non-admitted premiums receivable and an increase in impairment write-offs through the income statement. On a GAAP basis, insurers need to consider the impact to and adequacy of premium receivable valuation allowances and bad debt expense.
Recently, the National Association of Insurance Commissioners (NAIC) released Interpretation 20-02: Extension of Ninety-Day Rule for the Impact of COVID-19 (INT 20-02), which permits an extension to the original ninety-day admissibility rule for policies in effect and current prior to March 13, 2020, and policies written or renewed on or after March 13, 2020. INT 20-02 is set to expire on December 30, 2020, and may be used through the September 30th quarterly filings.
As a result, insurers may need to spend additional time evaluating the impact of nonpayment on impairment and valuation allowances for premiums receivable than in the past.