Under the 2+ claims rule, what action does the board take regarding the surcharge when there are two or more claims in a year?

Under the 2+ claims rule, what action does the board take regarding the surcharge when there are two or more claims in a year?

• A. The board waives the surcharge
• B. The board refunds the premium
• C. The board sets a surcharge up to 5% of the premium
• D. The board sets a surcharge up to 10% of the premium

Answer: (D)

When a policyholder has two or more claims in a single year, regulators allow the board to adjust the premium to reflect the increased risk of frequent claims. This surcharge is added to the premium and is capped, ensuring the increase remains within a predictable limit. The rule specifies that the board can set this surcharge up to 10% of the premium, meaning the additional charge could be zero, or up to 10%, depending on the situation. This approach helps balance the insurer’s higher expected costs with consumers, rather than waiving or refunding amounts. It’s not about returning money to the insured or applying a smaller fixed percentage like 5%; the maximum allowed under this rule is 10%.

When a policyholder has two or more claims in a single year, regulators allow the board to adjust the premium to reflect the increased risk of frequent claims. This surcharge is added to the premium and is capped, ensuring the increase remains within a predictable limit. The rule specifies that the board can set this surcharge up to 10% of the premium, meaning the additional charge could be zero, or up to 10%, depending on the situation. This approach helps balance the insurer’s higher expected costs with consumers, rather than waiving or refunding amounts. It’s not about returning money to the insured or applying a smaller fixed percentage like 5%; the maximum allowed under this rule is 10%.