Exempts large commercial insureds from certain rate and policy form approval requirements

Summary of provisions

Section 1 of the bill would amend Insurance Law § 6301(a) to require the Superintendent of Insurance (the "Superintendent") to permit exemptions from rate and form filing requirements for any of the kinds of insurance specified in § 6301(b). Section 1 also would amend § 6301(b) to allow an exemption pursuant to subsection (a) for the kinds of insurance set forth in Insurance Law § 1113(a)(4) through (14), (16), (17), (19) through (22), (27) and (29), and any kind of insurance substantially similar thereto. However, the Superintendent may not permit an exemption for insurance subject to Insurance Law §§ 2305(b) (except medical malpractice insurance) or 2328, insurance required to satisfy any financial responsibility requirement of New York, or a policy written on a group basis.

Section 2 would add a new Insurance Law § 6301(d), which would provide that nothing in Article 63 of the Insurance Law shall exempt any insurer, and any policy issued pursuant to Article 63, from any applicable provision or standard in the Insurance Law, regulations promulgated thereunder, or requirement of state law. Section 2 also would add a new Insurance Law § 6301(e), which defines "medical malpractice insurance" for the purposes of Article 63.

Section 3 would amend Insurance Law § 6302(b) to increase the special license fee to $2,000 per year. Section 2 also would amend § 6302(c) to state that a special license may be issued to: (1) an authorized insurer that maintains at all times a surplus to policyholders of at least 200% of the authorized control level as set forth in Article 13 of the Insurance Law, except that with respect to a policy issued to a large commercial insured pursuant to Insurance Law § 6303(a)(3), an authorized insurer that maintains at all times a surplus to policyholders of at least 250% of the authorized control level as set forth in Article 13 of the Insurance Law; (2) a United States branch that maintains at all times a trusteed surplus of at least 200% of the authorized control level as set forth in Article 13 of the Insurance Law, except that with respect to a policy issued pursuant to paragraph three of subsection (a) of section six

thousand three hundred three of this article, a United States branch that maintains at all times a trusteed surplus of at least 250% of the authorized control level as set forth in Article 13 of the Insurance Law; or (3) until June 30, 2014, a domestic property/casualty insurance company that maintains at all times a surplus to policyholders of at least twice the minimum surplus to policyholders required to be maintained for the kinds of insurance that it is authorized to write in New York, or an insurer licensed pursuant to Article 61 of the Insurance Law as a reciprocal insurer that maintains at all times a surplus to policyholders of at least the minimum surplus to policyholders required to be maintained for the kinds of insurance that it is authorized to write in New York, provided that the insurer has total direct premiums comprised of at least 90% medical malpractice insurance, assumes reinsurance premiums in an amount that is less than 5% of total direct premiums written, and writes 90% of its total direct premiums in New York.

Section 4 would amend Insurance Law § 6303 to add a new exemption until June 30, 2013 for a policy (other than a medical malpractice insurance policy) issued to a large commercial insured that employs or retains a special risk manager to assist in the negotiation and purchase of a policy exempted under Article 63 of the Insurance Law, provided, however, that: (1) the special risk manager is not employed by the insurer issuing the policy or any person in the insurer's holding company system; (2) the special risk manager is licensed as an insurance producer in New York pursuant to Article 21 of the Insurance Law, unless otherwise exempt; (3) the insurer must file with the Superintendent a certificate of insurance evidencing the existence and terms of the policy within one business day of binding the insurance coverage; and (4) policy forms that have not been previously filed with the Superintendent must be filed with the Superintendent for informational purposes within three business days after first delivery of a policy using such form, but no later than 60 calendar days after the inception date of such policy.

Section 4 also would amend § 6303 to add definitions of "large commercial insured," "special risk manager," and "municipality," and to permit the amounts specified in the definition of "large commercial insured" to be adjusted for inflation. In addition, Section 4 would amend § 6303 to require every policy issued pursuant to Article 63 (except with regard to a policy issued to a large commercial insured pursuant to Insurance Law § 6303(a)(3) to contain a notice to the policyholder that the rate and policy form are not subject to the filing requirements of New York and such other notices required by the Superintendent pursuant to regulation. Every policy issued to a large commercial insured must contain a notice to the policyholder that the rates are not subject to the filing requirements of New York and the policy forms are not subject to the approval requirements of New York, and such other notices required by the Superintendent pursuant to regulation.

Section 4 further would amend Insurance Law § 6303(e) to permit the Superintendent to re-impose filing or approval requirements to the extent that the Superintendent deems it in the interest of policyholders.

Section 5 would amend Insurance Law § 2307 by adding a new subsection (e), which states that policy forms for inland marine risks where the rates for such risks by general custom of the business are not written according to manual rates or rating plans shall not be filed pursuant to § 2307(b), unless the Superintendent directs that they be filed.

Section 6 would amend Insurance Law § 2320(d) to state that § 2320 shall apply to kinds of insurance or insurance activities the rates for which are not subject to prior approval and which are subject to Article 23 of the Insurance Law.

Section 7 would amend Insurance Law § 2321(f) to state that § 2321 shall apply to kinds of insurance or insurance activities the rates for which are subject to prior approval and which are subject to Article 23 of the Insurance Law.

Section 8 would amend Insurance Law § 3110 to state that whenever by the provisions of the Insurance Law an insurer may use a policy form without obtaining the prior approval of the Superintendent, the Superintendent may, after notice and hearing given to the insurer, order the insurer to cease using such policy form, if the use of such form is contrary to the requirements applicable to such form at the time of the effective date of such order. Any such order shall be effective at the expiration of such period, not less than ninety days after the giving of a notice of cessation, as the superintendent shall in such notice prescribe.

Section 9 states that the bill takes effect 90 days after it becomes law.

Existing law

Currently, Insurance Law § 6301 permits limited exemptions from rate and policy form filing requirements for certain insurance authorized to be written in New York. However, exemptions are not permitted for the kinds of insurance set forth in Insurance Law 1113(a)(1) (life), (2) (annuities), (3) (accident and health), (15) (workers' compensation), (18) (title), or (23) (mortgage guaranty insurance), or for coverage for personal lines to natural persons for nonbusiness purposes; provided, however, that the Superintendent may allow an exemption for any risk pursuant to § 1113(a)(1), (2), or (3) or for personal risk insurance (other than private passenger, non-fleet automobile insurance) on the list maintained by the Superintendent for unusual nature, high loss hazard or difficult to place risks. Although an insurer may be exempt from filing and approval requirements, the insurer, and any policy issued pursuant to Article 63, is still subject to any applicable provision or standard in the Insurance Law, regulations promulgated thereunder, or requirement of state law.

Insurance Law § 6302 requires an authorized insurer to obtain a special license from the Superintendent as a condition precedent to obtaining an exemption. The annual fee for the special license is $1,000 and may only be issued to: (1) an authorized insurer that maintains at all times a surplus to policyholders of at least twice the minimum surplus to policyholders required to be maintained for

the kinds of insurance that it is authorized to write in New York; (2) a United States branch that maintains at all times a trusteed surplus of at least twice the minimum trusteed surplus required to be maintained for the kinds of insurance that it is authorized to write in New York; or (3) an insurer initially licensed on or after July 1, 1982 pursuant to Article 41, 42, or 61 of the Insurance Law, if the insurer at least meets the minimum trusteed surplus requirement imposed upon the insurer by the provisions of the article pursuant to which it was initially licensed.

Insurance Law § 6303 states that the exemption that may be granted pursuant to Article 63 shall apply only if the business is underwritten and transacted from an office within New York; and (1) the risk, as defined in regulations of the Superintendent, produces a minimum annual premium in excess of $100,000 or such higher amount as the Superintendent may prescribe by regulation; or (2) the coverage is for a risk or class of risks that is of an unusual nature, a high loss hazard, or difficult to place, pursuant to a list promulgated or amended by the Superintendent. The Superintendent has promulgated 11 NYCRR 16 (Regulation 86) to implement the provisions of Article 63.

Insurance Law § 2307(b) prohibits a policy form from being delivered or issued for delivery if the Superintendent has disapproved it as being misleading or violative of public policy. Pursuant to § 2307, insurers must file all property/casualty policy forms for approval with the Superintendent, unless specifically exempted.

Moreover, Insurance Law § 2320(d) states that § 2320 does not apply to kinds of insurance or insurance activities the rates for which, pursuant to Insurance Law §§ 2305(a), 2328, or 2344, are not subject to prior approval, while Insurance Law § 2321(f) sets forth similar language with regard to rates that are subject to prior approval.

Insurance Law § 3110 states that whenever by the provisions of the Insurance Law the Superintendent is authorized to give approval of any form of insurance policy or contract, the Superintendent may, after notice and hearing given to the insurer that submitted such form for approval, withdraw an approval previously given, if the use of such form is contrary to the requirements applicable to such form at the time of such withdrawal. Any such withdrawal is effective at the expiration of such period, not less than ninety days after the giving of notice of withdrawal, as the Superintendent shall in such notice prescribe.

Statement in support

The Legislature enacted the predecessor section to Article 63 of the Insurance Law in 1978 to encourage insurance producers to place their large or unusual risks in the authorized New York market. At that time, overseas and out-of-state companies, such as Lloyd's of London, wrote the great majority of these risks. Article 63 was intended to allow New York-authorized insurers to compete more effectively with the London and out-of-state markets. The Superintendent promulgated 11 NYCRR 16 (Regulation 86), implementing Article 63.

This bill would expand the ability of New York-authorized insurers to compete more effectively with the London and out-of-state markets, by

permitting them to apply an exemption under Article 63 for policies issued to a "large commercial insured" that employs or retains a "special risk manager" to assist in the negotiation and purchase of a policy, so long as the special risk manager meets certain qualifications and the insurer makes certain informational filings. At the same time, the bill would provide safeguards by allowing the Superintendent to re-impose filing and approval requirements where and to the extent that the Superintendent deems it in the interest of policyholders.

The bill also would exempt insurers from filing requirements with respect to inland marine insurance policies where the rates for the risks are not filed because by general custom of the business the rates are not written according to manual rates or rating plans. This exemption for the policy forms would follow the existing exemption for the rates contained in § 2310. Historically, the Superintendent has not required such policy forms to be filed. This amendment would clarify the requirements for inland marine insurance. The Superintendent would retain the right to impose filing requirements.

The bill would also clarify that Article 63, in accordance with the Department's longstanding interpretation, only exempts an insurer from the filing requirements of the Insurance Law, and that the insurer or any policy issued subject to Article 63 remains subject to all other applicable provisions or standards in the Insurance Law, regulations promulgated thereunder, and requirements of state law.

Collectively, these amendments would enhance the ability of insurers to underwrite large and unusual risks in the New York market, and would increase speed to market for certain insurance products not currently exempted. Passage of this legislation would enhance the competitiveness of New York's domestic insurers. The bill would also strengthen the financial requirements for an insurer to place coverage in the special risk market and enhances the Superintendent's authority to take appropriate action to protect insureds where the insurer does not abide by minimum standards and requirements. Additionally, the bill would facilitate more streamlined economic development in New York, as existing and emerging businesses that need to insure large or unusual risks would have quick access to the insurance products they need.

Budget implications

There are no budget implications from this bill.

Effective date

The bill would take effect 90 days after it becomes law.