Removes the state insurance funds exemption from licensing and other requirements of the insurance law

Summary of provisions

Section 1 of the bill amends § 1108 of the Insurance Law by deleting subsection (c) which exempts the state insurance fund from licensing and other requirements of the Insurance Law.

Section 2 of the bill replaces the Commissioner of Labor with the Superintendent of Insurance as the person who must approve the rules adopted by SIF for the conduct of its business. It also deletes the provision allowing for rules to be adopted if not approved by the Commissioner of Labor within 30 days.

Section 3 of the bill deletes the requirement of policyholders of SIF to provide 30 days notice of their intent to withdraw from the Fund. Instead, policyholders would have to provide written notice of the effective date of cancellation.

Existing law

Currently SIF is not subject to licensing and other requirements that apply to private insurance carriers providing workers' compensation insurance and may adopt rules for the conduct of Its business without approval from the Superintendent of Insurance. Unlike policyholders of private workers' compensation insurers, policyholders of SIP are required to provide 30 days advance notice if they want to discontinue their policy.

Justification

New York Insurance Law § 1108 exempts certain insurers, including SIF from licensing and other requirements of the Insurance Law. SIP is a non-profit agency of the State of New York established in 1914 to provide a guaranteed source of workers' compensation insurance

coverage for employers in New York State. SIF is the largest single carrier of workers' compensation insurance in the State, with approximately 37 percent of the market. SIF is administered by nine Commissioners, including the Commissioner of Labor and eight members who are appointed by the Governor with the consent of the Senate. The Commissioners appoint an executive director who is responsible for the direction and operation of SIP. SIF is completely self sustaining, acquiring all of its operating and reserve funds from the premiums it collects from its policyholders and its investment income.

Although a quasi-public agency, SIF was intended by the Legislature to be treated the same as a private insurance company. See Commissioners of State Insurance Fund v. Low, 285 App. Div. 525, 138 N.Y.S.2d 437 (3rd Dep't 1955). It is more closely equated to an insurance company than to a typical state agency. Martin Minkowitz, Practice Commentaries, N.Y. Work. Comp. §76 (McKinney 1994).

Despite the fact that SIF was intended to be treated as a private insurance company, it is not licensed by the New York State Insurance Department, nor is it subject to the Department's oversight and regulation. As a result, SIF policyholders are put at a disadvantage when compared to policyholders of private workers' compensation insurers. If a SIF policyholder has a dispute with SIF regarding an unfair insurance practice, they have no recourse other than to bring the matter up with SIF. In contrast, policyholders of private carriers may appeal to the Insurance Department if they have a dispute with their insurer. SIF policyholders have reported various unfair practices which have gone unchecked. One common complaint is that SIP takes retaliatory actions against policyholders who seek to move their business from SIP to another coverage provider. Policyholders have reported aggressive and unfair tactics, such as SIF suddenly revising audits and questioning classifications in an effort to charge a departing customer a higher premium.

Additionally, private insurance carriers who must be licensed by the Insurance Department and subject to insurance law, are also placed at a competitive disadvantage compared to the SIF which is not subject to the same rules and regulation. To illustrate the competitive advantage, SIF recently announced that it would not charge the same assessment announced by the Compensation Insurance Rating Board applicable to all workers' compensation policies. SIF determined it would not change the 8.9% portion of the assessment applicable to the Special Disability Fund, although required by law to do so. The fact that SIP is allowed to charge a lesser amount creates an unfair marketplace advantage for SIP and results in an overcharge to consumers who buy their insurance from private insurers. To rectify these inequities, the bill would place SIP on an even footing with other insurers providing workers' compensation insurance by removing SIP's exemption from licensing and other insurance requirements. The bill would also insert the Superintendent of Insurance, as opposed to the Commissioner of Labor, as the appropriate person to approve the rules adopted by the commissioners of SIP for the conduct of its business. These rules of conduct include those pertaining to the issuance of policies and their terms and conditions, the fixing of premium rates, record keeping, payroll audits, billing and collection of premiums, inspection of risks and

setting standards of safety, and the adjustment and payment of claims and awards.

Lastly, the bill would remove a requirement placed upon policyholders of SIP that does not apply to policyholders of private insurers. Currently, SIP policyholders that want to cancel their policy with SIP because they have found other coverage must provide SIP with 30 days advance written notice. During this notice period, policyholders report that SIP employs aggressive and retaliatory tactics in an effort to retain the business. It is simply unfair to require policyholders of the SIP to provide more notice than is required of policyholders of private carriers.

Legislative history

2009-10 S.1662; 2007-08, S.7673.

Effective date

This act shall take effect on the ninetieth day after it shall have become law.