A Lawyer Walks into a Market of Last Resort …

I have a client who happens to be an attorney. I’ll call him Joe for purposes of the story I’m about to share. Joe recently called me for advice about a client of his who was having a problem with the New York State Insurance Fund. I understand the client was audited and the NYSIF incorrectly classified certain offices of his business. Joe was trying to straighten this problem out, and went from office to office at the Fund without any success. By the time he called me, he was totally frustrated with the bureaucratic jams he was running into. I couldn’t help but laugh at the irony in the situation—I said, “Joe, this is why I send clients to a lawyer when they’re having trouble with the State Insurance Fund!”

I wish there were a funny punch line to this, but unfortunately, working with the Insurance Fund is no laughing matter. Joe finally found someone in the Fund’s New York City office who could help with the problem, and he was directed to confirm the solution with a subordinate in the same office. When the subordinate heard from Joe, his nose was out of joint because he felt Joe had gone over his head, but at least he had gotten something done. Joe asked me how anyone gets anything done with the State Insurance Fund. “How can you do business with them?” he complained. I said, “Joe, I don’t even get a commission with the fund—At least you are getting billable hours for your work.”

Jumping at the opportunity to commiserate, I shared with Joe my own recent experience trying to help a client of mine who had a problem with the Fund. My client was insured there for more than 35 years and never had any reason to interact with the organization until he received an audit bill. The Fund had begun charging premium for two officers on the basis of minimum payroll for active officers. These were inactive officers who had sold their practice to someone else. They remained officers and check signers for the company upon legal advice, until the payout for the company was complete. This would protect them in case of an issue with the buyer. For nonpayment of $132 in additional premium, the State Fund threatened to cancel the policy. The insured tried to explain the problem, but found he was talking to deaf ears. The policy was canceled; the business was left without coverage, and subjected to severe fines

My client went from person to person at the State Fund; in the New York City office, then the Albany office, and was told by each person with whom he spoke that they had no authority to address this problem. Finally, he spoke with someone who was able to reinstate the policy, but only months later.

It’s typically difficult to work with any large bureaucracy, but I have personally been able to overcome the challenges of dealing with the NYSIF by working with PIANY, which has developed a strong working relationship with them. I have called PIA Director of Research Dan Corbin, CPCU, CIC, LUTC, and usually, within two weeks, he can get the problem resolved. It’s good to see The SIF responds to PIANY, which is known for fostering positive relationships with policymakers on behalf of its our members and clients. I have to say one of the many benefits of PIA membership is the speedy help I always get from the association’s staff in Glenmont. I also should thank the employees at the SIF and recognize the successes we’ve had working with them. The beef agents have with the organization isn’t really with the individuals who work there, and they must take the brunt of the resentment the producer community, which frankly, feels taken advantage of because of the unfair advantage the SIF has over them with regard to rating and compensation. The NYSIF, along with private insurers, were authorized by legislation in 1914 to write workers’ compensation insurance. Because the NYSIF is the market of last resort, the state has given it great latitude in competing with private insurers, so not to become the “dumping ground for bad risks that no company would insure” (from the 1915 Annual Report of the Industrial Commission). Independent agents don’t earn a commission for policies written through the NYSIF, despite the inordinate amount of time we spend straightening out issues. On top of all this, the Fund has extraordinary authority because it is not subject to cancellation laws that typical agents face; and it is exempt from licensing and other requirements of the Insurance Law. The NYSIF operates at a significant cost advantage to private carriers. The only tax liability to which it is subject is the New York state franchise tax and the MTA surcharge. One would think that with these enormous advantages, the NYSIF’s underwriting would be more flexible; but as I mentioned, the Fund is known as an excessively frugal organization, tough on audits and for squeezing every penny they can get from its policyholders, who have told me they receive as little respect as we agents get.

Unlike its residual market counterparts, the NYAIP and NYPIUA, the NYSIF markets itself actively. It also uses its competitive advantages, such as its advance-notice cancellation requirements, easy payment plans and an accommodative rating structure, to ensure that it gets and keeps business— not the type of operation one would expect a residual market to engage in. Responding to regular requests for help from its members, PIANY has repeatedly urged the NYSIF to include a factor in its rates to compensate producers for their services, which are essentially the same services they perform in connection with workers’ compensation policies they place with their regular commercial carriers. But, NYSIF’s statutory rating provisions prevent it from providing compensation to the insured’s broker of record. Throughout the first part of the year, PIANY volunteers have met with their local lawmakers, asking them to answer the association’s call to remove the NYSIF’s exemption from licensing and other insurance requirements as one of the key issues PIA is asking them to consider. I hope they take this matter seriously.