Commerical Modernization Lifts Burdens, Improves Vitality Market

Albany, N.Y.—Legislation for the commercial modernization of New York’s insurance law, which was cosponsored by Senator James L. Seward of Oneonta (R-C-I), Chair of the Senate Insurance Committee, and Assemblyman Joseph D. Morelle of Irondequoit (D-I), Chair of the Assembly Insurance Committee, has been signed into law by Governor Andrew M. Cuomo and becomes effective immediately according to Superintendent of The Department of Financial Services (DFS) Ben Lawsky. The law will provide for certain rate and approval requirement exemptions for large commercial insured and special risk policies written in New York.

“Commercial modernization has been a longtime priority of mine,” Senator Seward said. “It really moves the state forward toward the modernization and the streamlining of insurance regulation. It helps keep premium dollars in New York State because this law, by exempting certain large insureds from having to go through the former prior approval of their rate and form, encourages those premium dollars to stay in New York State.”

“These are the larger, more sophisticated purchasers of insurance that do not require the same level of protection that the other consumers of insurance require,” Senator Seward stated.

The Chair of the Assembly’s insurance committee and cosponsor of the legislation, Assemblyman Joseph Morelle said, “By removing these regulatory obstacles, we allow New York’s insurers to better compete in the higher-end commercial risk markets. It not only benefits the state’s insurance industry, it also means that businesses have more options and can obtain the insurance they need faster and more efficiently.”

“This is the essence of the prudent deregulation, in that it improves the state’s business climate while still protecting the consumer,” Assemblyman Morelle said. “The Superintendent has oversight in these transactions, and the standard requirements of the State Insurance Law still apply. I think it’s fair to call this a win-win for everyone involved.”

Dick Poppa of IIABNY supported the legislation and believes that anything that responsibly expands the commercial market is good for consumers and producers. “We are still reviewing the regulation and hope that we can get it to the point that it causes carriers to use the Free Trade Zone for eligible risks.”

Senator Seward said, “The legislation outlines that you have to have $25,000 in premiums, and other criteria:

Employ special risk managers to help negotiate and purchase policies.

Write policies for the kinds of insurance outlined in the long but exclusive list of Chapter 490

Represent large commercial insureds that meet at least one of seven criteria, which include: companies that have a net worth of $7.5 million; have gross assets exceeding $10 million and a net worth of at least $1.5 million; or generate annual gross revenues exceeding $15 million, and have a net worth of at least $1.5 million.”

“We’re talking about larger corporations that normally look for tailor-made, one-of-a-kind policies,” Senator Seward said. “Your large corporation needs to have tailor-made coverages to fit your business and enterprise. So, ordinarily with this legislation every deviation from a normal policy would have to through a prior approval process. This takes away that requirement. The policies are filed for informational purposes only so the coverage can move forward rapidly.”

Chief Counsel for IIABNY James C. Keidel said, “I don’t know how it’s going to impact me, but I think it’s a great idea. I believe that a lot of people have been complaining for years that standard insurance policies don’t fit the needs of particular customers, especially the larger businesses that have unique and special needs.”

“As I understand it, and I haven’t done a lot of research into this—I just looked into it recently when it was brought to my attention by some of my IIABNY members—modernization will give the insurance companies the ability, the latitude to custom design insurance that best meets the needs of the insureds. It gives them a better time frame instead of taking forever as it previously did,” Keidel said.

Senator Seward said, “Often what would happen in the past is these large, sophisticated purchasers would go offshore or to the non-admitted market and those premium dollars would go elsewhere. This law, by allowing our New York insurance companies to be able to offer coverage in a streamlined way, is going to keep premium dollars here and meets the needs of our large corporations. Non-admitted markets are companies that are not under the jurisdiction of the State Insurance Department.”

“Any company that writes the commercial insurance will benefit from this legislation, as will, of course, their clients.”

“This will bring money into New York State from the aspect of keeping the premium dollars in New York State. I’m not aware of any actual estimate of how much it will bring in, but we know it will be a net positive.”

“This type of law has been the case in many other states; this law brings New York into conformance with many at least 26 other states have adopted some form of commercial modernization,” Senator Seward said.

“What the Department of Financial Services had to do was come up with some rules and regulations, which they’ve done, and now we’re set to go. As I said, it’s a big step forward— it’s been a Senate priority for many years. We passed it when I was Chairman, and even when the Democrats were in control it passed. It has been a bipartisan effort in the Senate, and this year we finally got it passed in the Assembly, and we got the new Governor to go along.” Certain inland marine insurance policies are a part of this legislation, Keidel said. “There are two different types of policies, but with inland marine each different type of property is unique in its own respect. So, that’s why I assume that they directed this change at this type of coverage in addition to large commercial coverages because they are not the cookie cutter type of businesses that you could take a particular policy that has been approved for general use and apply it to those companies.”

The Legislative Representative for the Independent Insurance Agents & Brokers of New York, Michael Barrett, said, “I think the legislation on commercial modernization will have a positive impact on agents and brokers and then the marketplace because it is going to give companies the ability to develop coverages for ‘sophisticated businesses,’ and to not have to go through the filing process to get those filings to those companies in an expeditious way. Having the ability to tailor those abilities for certain businesses is going to be helpful to those businesses that are clients of agents and brokers.”

“The effect of this on insurance agents and brokers is going to depend on their mix of business. We don’t think it’s going to be used a lot because it is just tailored to sophisticated businesses. There will be some impact, but I’m not sure what the total impact is going to be. We don’t think it’s going to be used a lot, just more selectively. So, the impact on an agent or broker will depend on what their mix of business is—as far as commercial lines.”

“We were involved in discussions on the legislation and actually in the final version of the bill to make sure it works well for consumers and for agents as well as for the insurance carriers who want to use this kind of tool,” Barrett said. “We ended up being a part of that, and we ended up being supportive of the bill.”

Ellen Melchionni of the New York Insurance Association, Inc. (NYIA), which has represented the property and casualty insurance industry for over 125 years, said, “NYIA appreciates the state’s intent to modernize regulation within commercial lines. We feel this legislation enables greater freedom with rate and form filings for certain commercial policies, but further flexibility within commercial lines still needs to be put into place for the state to experience a thriving insurance marketplace. The majority of states around the country allow commercial insurance companies greater latitude with rate and form filings. While this law was a positive first step, NYIA looks forward to improving this law and thereby bringing New York in line with these states and more broadly modernizing the commercial lines market. This would further the goal of making New York the business-friendly state it once was when it earned the moniker ‘Empire State.’”

The Professional Insurance Agents of New York State, Inc. (PIANY) has scrutinized the new law. “PIANY has reported on this game-changing regulation (Chapter 490 of the Laws of 2011 and Regulation 86), since its inception and continues to help New York’s producers prepare for the Free Trade Zone expansion by providing in-depth analyses and education, including a ‘Webinar’ now available on demand to its members,” PIANY’s Director of Communication, Mary Christiano, said.

“Despite concerns that caused the association to oppose the passage of the original law, PIANY was actively involved in responding to proposed guidance circulated by the Department of Financial Services on the implementation of the new Class 3. The provisions of Regulation 86 were amended to incorporate changes PIANY suggested and the Regulation was adopted on an emergency basis. The changes are explained in Circular Letter No. 10 (2011). The Free Trade Zone expansion took effect on Nov. 15.”

The letter states, “New York’s ‘Free Trade Zone’ is the popular term for a relaxed regulatory scheme created by Article 63 of the Insurance Law which frees New York-admitted insurers from some rate and form filing requirements. Producers should care about the new Class 3 FTZ because even before expansion of Article 63 to include a third class of eligible risk, FTZ writings may be larger than many people realize. Many more of the typical agent’s commercial accounts will become eligible for FTZ placement. To write a “Class 3” FTZ risk, the insurer must ascertain that a “special risk manager” takes part in each transaction. Special Risk managers must be licensed producers; and credentials required for the special risk manger role could exclude quite a few incumbent producers.”

Christiano said, “Producers should be concerned about the expansion of the Free Trade Zone because business in this class already represents nearly 20 percent of the admitted market and agents and brokers must make sure they are not precluded from taking part in these and other types of transactions to remain competitive.”

“Many more of the typical agent’s commercial accounts could become eligible for Free Trade Zone placement,” said PIANY Director of Government and Industry Affairs Matthew F. Guilbault, Esq. “The addition of Class 3 risks to the Free Trade Zone will require specific qualifications that producers need to make sure they comply with, so they can write such policies.”

Keidel is not sure what the financial impact will be for the businesses included in this legislation. “I think it’s going to depend on the company and what it’s going to do with the rating. My attitude is if they don’t have to go through the department, they are going to have a lot more flexibility, and hopefully it should help the insureds get a better rate. It should be more negotiable.”

Keidel said there is always a possibility that there will be mishaps within the industry if it doesn’t have to go through the DFS. “With the Department looking at it, you have another set of eyes looking at it from the regulatory aspect and keeping an eye on it. So, arguably it would offer another level of safety. I’m not sure if it will really have that impact, but arguably it could.”

Keidel expects the modernization will benefit agents and brokers. “Many of the members of the IIABNY that deal with large commercial insureds reached out to me and told me that they are interested in this, and hope that this will help them in making placement. My hope is that it can help streamline the process for the large commercial firms, some of which are struggling because of the economy. Maybe this will help move things along a little more expeditiously.”

Superintendent Lawsky, following his confirmation in early May, said, “The new Department of Financial Services would promote healthy and vibrant banking and insurance industries while also protecting consumers and our markets.” This change is apparently the Superintendent’s inaugural stamp of approval on the modernization of insurance regulation.