Increased Fines Against Insurance Producers – Another Bad Idea for New York’s Main Street Businesses

EDITORIAL

Gov. Andrew Cuomo’s proposed New York State budget includes a plainly misguided addition that must be expunged, if small businesses – thousands of them across the State – are to sustain their viability and continue to serve other local businesses, homeowners and drivers. We refer to a newly minted set of penalty levels that independent insurance agents and brokers would face for violating some of the thousands of regulatory restraints and codicils in New York Insurance Law. The State’s notoriously high fining and penalizing DFS – whose hundreds of million dollar fines against banks and insurance organizations are said by some to have balanced State budgets single-handedly – does not need the extra levels to enforce regs effectively, especially against small agencies and brokers whose practices range from storefronts in the five boroughs to remote hamlets near the Canadian border. No sense in this except possibly some artificial fundraising for State coffers at the expense of the economics of local businesses. The proposal would also give DFS the ability to sue violators directly, whereas now only the attorney general may take such action.

Insurance laws enacted in 2011 permit the DFS to fine violators up to $1,000 per offense. Prior to that, the maximum fine was $500. The governor’s budget would allow DFS to assess fines up to the greater of:

  • $10,000 per offense
  • Double the aggregate damages attributable to the violation
  • Double the aggregate economic gain the individual made from the violation

That’s a lot of money for an agency that employs, typically, three-to-seven (3-7) people and that insures local businesses and residents at competitive rates, working in a tight, low margin business themselves. Makes no sense at all and should be undone.

The Chairman of one trade group, IIABNY’s John H. (Jack) Smith, Jr. puts it this way: “An agency that forgets to renew one of its four licenses may face a $10,000 fine for each policy it sells while the license is lapsed. A typical IIABNY member agency has seven employees and less than $1 million in annual revenues. Fines of this size could put a small agency out of business because of an oversight, negating the governor’s stated goal of making New York State pro-job creation. Acts like this tend to reduce jobs, not increase them, and that is not good for any New Yorker.”

That makes sense. Will legislators, especially any of them who have local storefront agents in his district, i.e. every legislator in the State, force a rethinking of this…and its elimination?

That’s a fine idea.—SA