Sec. 161.0. Preamble

(a) On June 28, 1986, omnibus legislation embodied in chapters 220 and 221 of the Laws of 1986 was signed into law, in response to affordability and availability problems experienced in New York and the rest of the nation in connection with commercial risk insurance, professional liability insurance, and public entity insurance, as these terms are added and defined in section 107 of the Insurance Law. Companion legislation, containing tort reform measures in addition to those in the omnibus legislation, was signed into law on July 30, 1986, becoming chapter 682 of the Laws of 1986.

(b) Among the components of this omnibus legislation is a significant change, a flexible-rating system (“flex-rating”), pursuant to new section 2344 of the Insurance Law, amended in part by chapter 235 of the Laws of 1989, in regard to rate changes for property/casualty commercial insurance markets not subject to prior approval. Since January 1, 1970, most commercial insurance markets have been subject to a competitive rating system, which permitted insurers on a file and use basis to revise rates upward or downward without prior approval of the Superintendent of Financial Services. This competitive rating system relied almost exclusively upon interaction among market forces, tending to produce wide cyclical swings in commercial insurance rates.

(c) In order to promote stability and predictability of insurance rate changes in problem markets involving vital coverages and enhance consumer protection, the new laws institute the flex-rating system, a novel blending of prior approval and competitive rating principles. Flex-rating allows periodic rate changes within applicable flexibility bands (“flex-bands”) on a file-and-use basis and, unless markets are specifically exempted by the superintendent from flex-rating, requires the superintendent's approval in order to implement rate changes beyond such bands. Exempt markets remain subject to file and use.

(d) Section 2344 of the Insurance Law requires that regulations setting forth flex-rating exemptions, standards and procedures be promulgated. In addition, section 2344 provides that insurer rating plans, pursuant to which rates are modified in the development of premiums for individual risks, shall be approved by the superintendent compatible with criteria established by regulation. These rating plan standards will encourage sound underwriting, maximize risk management and permit recognition in an equitable manner among insureds of expected differences in loss and expense characteristics in accordance with reasonable rating plans.

(e) Section 2344 also requires that, no later than 90 days after the effective date of the omnibus legislation, viz., on or before September 26, 1986, rates for commercial risk, professional liability and public entity insurance markets not exempted from flex-rating must be refiled by affected insurers, to reflect the likely cost-reductive effects reasonably attributable to the Civil Practice Law and Rules, Court of Claims Act, and Not-for-Profit Corporation Law amendments that are also integral parts of the omnibus and companion legislation.