Permits certain agreements by domestic mutual insurance corporations

BILL NUMBER:S2875

Title of bill

An act to amend the insurance law, in relation to permitting certain agreements by domestic mutual insurance corporations

Purpose

To permit domestic mutual insurance corporations to enter into certain compensation agreements with firms and corporations in which an officer or director has only an "indirect" pecuniary interest.

Summary of provisions

Section 1: Amends Insurance Law Section 1209(f) that upon application be a domestic mutual insurance corporation, the superintendent may permit the insurance corporation to enter into such agreement with a firm or corporation that is a licensed producer if the superintendent determines that (1) the insurance corporation's policyholders will not be adversely affected, (2) the officer or director has no pecuniary interest directly in the insurance producer, and (3) any benefit to the officer or director that accrues as a result of the agreement would not be material in relation to the insurance corporation's overall premium volume.

Section 2: Effective date.

Existing law

Existing law prohibits domestic mutual insurance companies (except those organized before January 1, 1940 to do only marine protection and indemnity insurance) from entering into an agreement with any of the company's officers or directors, or with any firm or corporation in which any such officer or director is pecuniarily interested directly or indirectly, whereby the insurance corporation agrees to pay, for the acquisition of business, any commission or other compensation which under the agreement is increased or diminished by the amount of such business or by the insurance corporation's earnings on such business.

The Insurance Department has interpreted this law as prohibiting a mutual insurance company from entering into a profit sharing commission agreement with an insurance agency simply because one of the insurance company's officers also served as a director of a corporation that owned the insurance agency. The Insurance Department found that the insurance company officer had an "indirect" pecuniary interest in the insurance agency.

Justification

The existing prohibition is an outdated and overly restrictive limitation put in place nearly a century ago. It serves no legitimate purpose today and is no longer practical in today's business environment. In today's business community, many directors and officers of insurance companies also serve on the board of directors of various other, non-insurance business corporations. Today, many corporations are part of a larger holding company structure, and it is quite possible that a corporation where an

insurance company officer selves as director would have affiliates or subsidiaries that engage in insurance activities. This provision unnecessarily prohibits a mutual insurance company from entering into certain compensation agreements with these insurance agency affiliates and discourages mutual insurance company officers and directors from sharing their talents and serving as directors and officers of various other corporations.

Legislative history

S.7794 of 2010

Fiscal implications

None.

Effective date

Immediately.