PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Amendment of Part 16 (Regulation 86) of Title 11 NYCRR.
Statutory authority:
Financial Services Law, sections 202, 301 and 302; and Insurance Law, sections 301, 307 and 308 and art. 63
Subject:
Special Risk Insurance.
Purpose:
To revise the regulation to comply with Chapter 490 of the Laws of 2011.
Text of proposed rule:
Section 16.0 is amended to read as follows:
Section 16.0 Introduction.
This Part implements article 63 of the Insurance Law and establishes methods, procedures and reports for licensing, facilitating, monitoring and verifying compliance with the requirements of the Insurance Law. In effect, article 63 allows special risks that are jumbo in dimensions or exotic in nature to be written, free of filing rates or policy forms with the superintendent, in what is sometimes called the "Free Trade Zone". In addition, article 63 allows certain coverage for "large commercial insureds" to be written as special risks. Although filing is not required except as specified in section 6303, rates and policy forms applied to special risks must still satisfy governing standards set forth in the Insurance Law and regulations.
Section 16.1 is amended to read as follows:
Section 16.1 Definitions.
For purposes of this Part:
(a) Accident and health insurer has the meaning set forth in section 107(a)(1) of the Insurance Law.
(b) Authorized insurer has the meaning set forth in section 107(a)(10) of the Insurance Law.
(c) Large commercial insured has the meaning set forth in section 6303((b)(1) of the Insurance Law.
(d) Life insurer has the meaning set forth in section 107(a)(28) of the Insurance Law.
(e) Major type of insurance as used in this Part means the annual statement line of business based on the coverage part with the highest estimated premium at the time of issuance of the certificate of insurance.
(f) Medical malpractice insurance has the meaning set forth in section 5501(b) of the Insurance Law.
[(d)] (g) Net premiums written means gross premiums (direct and assumed premiums, including policy and membership fees, less return premiums and premiums for policies not taken) less reinsurance ceded.
[(e)] (h) Property/casualty insurer means an insurer licensed pursuant to article 41 or 61 of the Insurance Law.
[(f)] (i) Special risk manager has the meaning set forth in section 6303(b)(2) of the Insurance Law.
(j) Special risk means:
(1) Class 1. Where all or part of the insured's business operations, for which coverage is authorized by the kinds of insurance defined in section 1113(a) of the Insurance Law, is insured in a single policy written in accordance with section 6303 of the Insurance Law, and which is written with or is reasonably expected to produce a billed annual premium of at least:
(i) $100,000 for at least one kind of insurance; or
(ii) $200,000 for more than one kind where the premium for any one kind of insurance does not exceed $100,000.
(2) Class 2. Coverages that are:
(i) of an unusual nature, a high loss hazard or difficult to place; and
(ii) enumerated in the list contained in section 16.12(e) of this Part, or additions thereto made pursuant to section 16.8(f) of this Part.
(3) Class 3. Coverage other than medical malpractice 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 this article, provided, however, that:
(i) the special risk manager is not employed by the insurer issuing the policy or any person in the insurer's holding company system; and
(ii) the special risk manager is licensed as an insurance producer in this state pursuant to Insurance Law article twenty-one, unless exempted from licensing therein.
Section 16.3 is amended to read as follows:
Section 16.3. Disclosure to insureds.
(a) The following notice shall appear conspicuously on the front page of each binder, policy, contract, rider or endorsement, and on all subsequent additions thereto, issued or renewed under Class 1 or 2 pursuant to section 6303(a)(1) or (2) of the Insurance Law:
NOTICE: THESE POLICY FORMS AND THE APPLICABLE RATES ARE EXEMPT FROM THE FILING REQUIREMENTS OF THE NEW YORK STATE INSURANCE [DEPARTMENT] LAW AND REGULATIONS. HOWEVER, [SUCH] THE FORMS AND RATES MUST MEET THE MINIMUM STANDARDS OF THE NEW YORK INSURANCE LAW AND REGULATIONS.
(b) The following notice shall appear conspicuously on the front page of each binder, policy, contract, rider or endorsement, and on all subsequent additions thereto, issued or renewed under Class 3 pursuant to section 6303(a)(3) of the Insurance Law:
NOTICE: THESE POLICY FORMS ARE NOT SUBJECT TO THE APPROVAL REQUIREMENTS AND THE APPLICABLE RATES ARE EXEMPT FROM THE FILING REQUIREMENTS OF THE NEW YORK STATE INSURANCE LAW AND REGULATIONS. HOWEVER, THE FORMS AND RATES MUST MEET THE MINIMUM STANDARDS OF THE NEW YORK INSURANCE LAW AND REGULATIONS.
(c) [The] Each "Notice" required by subdivision (a) or (b) of this section shall be in bold capital letters, no less than three-eighths of an inch in height, enclosed in a border.
Section 16.4 is amended to read as follows:
Section 16.4 Policy forms, certificate of insurance and other standards.
(a) Every binder, policy, contract, rider and endorsement issued pursuant to section 6301 of the Insurance Law on special risks located or resident in New York State shall comply with minimum standard policy provisions of the Insurance Law and this Title.
(b) For a coverage coded as a class 3 risk pursuant to Section 16.12 of this Part, the insurer shall electronically file with the superintendent, in a form and manner acceptable to the superintendent:
(1) Within one business day of binding the insurance coverage, a certificate of insurance evidencing the existence and terms of the policy;
(2) Within 30 days from the inception date of the policy:
(i) the certificate of insurance specified in Section 16.4(b)(1) of this part; and
(ii) the following information:
(a) The identity of the insured and a statement that the insured meets the minimum commercial risk premium and financial condition standards for a "large commercial insured" pursuant to Section 6303(b) of the Insurance Law;
(b) Major type of insurance;
(c) Rate services organization classification (such as Insurance Service Organization classification), if applicable, or, if not applicable, a description of the class to be written;
(d) Risk manager name, employer and contact information, including mailing address, phone number and email address, and a statement that the insurer has verified that the risk manager who assisted in the negotiation and purchase of the policy on behalf of the insured meets the qualifications required by section 6303(b)(2) of the Insurance Law; and
(e) The New York producer license number, if the risk manager is required to be a New York licensed producer; and
(3) with respect to a policy form that has not been previously filed with the superintendent, the policy form, within three business days after first delivery of a policy using the form, but no later than 60 calendar days after the inception date of the policy.
(c)(1) An insurer required to make a filing or a submission to the superintendent electronically pursuant to this Part may apply to the superintendent for an exemption from the electronic filing requirement by submitting a written request to the superintendent for approval at least 30 days in advance of making the filing or submission.
(2) The request for an exemption shall:
(i) Identify the time period for which the insurer is requesting the exemption, and
(ii) Specify whether the insurer is making the request for an exemption based upon undue hardship, impracticability, or good cause, and set forth a detailed explanation as to the reason that the superintendent should approve the request.
Section 16.6(a) is amended to read as follows:
(a) An authorized insurer may apply for a special risk license to transact business written pursuant to section 6302 of the Insurance Law by completing an application form, prescribed by the superintendent and available from the Property [Companies] Bureau of the [Insurance] Department of Financial Services.
Section 16.8 is amended to read as follows:
Section 16.8 Operational requirements.
(a) Class 1[or], class 2 or class 3 coverages may be provided only to:
(1) a single entity; or
(2) two or more related entities, in each of which the same person, group of persons, or corporation holds a controlling interest.
(b) Class 1, [or] class 2 or class 3 coverages may not be provided in a manner that would constitute a group policy within the meaning of Part 153 of this Title.
(c) [Covered policies as defined in section 3425(a)(1) and (2) of the Insurance Law shall not be written as class 1 or class 2 risks.
(d) The kinds of business defined in the following numbered paragraphs of section 1113(a) of the Insurance Law shall not be written as class 1 risks:
(1) life insurance;
(2) annuities;
(3) accident and health insurance;
(15) workers' compensation and employers' liability;
(18) title insurance;
(23) mortgage guaranty insurance;
(24) credit unemployment insurance; or
(25) financial guaranty insurance.] (1) Except as provided in subparagraph (2) of this subdivision, a policy may be written pursuant to Insurance Law article 63 and this Part if the policy provides only one or more of the kinds of insurance specified in Insurance Law section 1113(a)(4) through (14), (16), (17), (19) through (22), (27) and (29).
(2) A covered policy, as defined in section 3425(a)(2) of the Insurance Law or a policy providing coverage pursuant to Insurance Law section 1113(a)(1), (2), or (3) may be written as a class 2 risk if the coverage is included in the list of eligible class 2 risks contained in section 16.12(e) of this Part.
(3) A medical malpractice insurance policy may not be written as a class 3 risk.
(d) Notwithstanding any other provision of this Part, a policy may not be written pursuant to Insurance Law article 63 and this Part with respect to:
(1) Insurance specified in Insurance Law section 2328;
(2) Insurance specified in Insurance Law section 2305(b) except medical malpractice insurance may be written as a class 1 or 2 risk; or
(3) Insurance required to satisfy any financial responsibility requirement of this State.
(e) Where a policy includes coverage for both New York and non-New York exposures, the total premium for all exposures may be used for purposes of determining class 1 or class 3 eligibility pursuant to section 16.1(j) of this Part. However, a report filed with the superintendent showing special risk premiums and losses shall only include risks related to New York exposures unless the statement filing instructions specify otherwise.
(f)(1) Application may be made to the superintendent for adding a class to the list of eligible class 2 risks enumerated in section 16.12(e) of this Part.
(2) In reviewing such an application, the superintendent shall consider the following factors:
(i) whether the insurance coverage provided protects from perils or risks that are neither contained in, nor conducive to the use of, generic policy forms or filed rate schedules;
(ii) whether the type of insurance risk contains a substantial degree of peril or hazard that makes use of generic policy forms or filed rate schedules impractical; and
(iii) the extent to which the type of coverage is unavailable from authorized insurance markets.
(3) Class 2 additions shall be published in the State Register.
(4) Applications to the superintendent to add classes to the class 2 risk list shall include:
(i) a detailed description of the class for which filing exemptions are requested;
(ii) a statement indicating the reasons why the class should be considered unusual, having a high loss hazard, or difficult to place; and
(iii) a statement explaining why the filing requirements of the Insurance Law with regard to rates and forms would impose an undue impediment to the effective writing of the particular class of business in this State.
(g) Coverages qualifying as class 2 risks may be provided by separate individual policies or incorporated by endorsement into other policies. When coverages for class 2 risks are provided by endorsement, only the policy forms and rates applicable to such endorsement qualify for filing exemptions pursuant to this Part.
(h) No policy may be issued or renewed pursuant to class 3 on or after the date specified in Insurance Law section 6303(a)(3).
Section 16.12 (a) is amended to read as follows:
Section 16.12. Coding of class 1, [and] class 2, and class 3 risks.
(a) The principal operations of class 1 and class 3 risks shall be coded in accordance with the classification codes filed by the Insurance Services Office under the commercial statistical plan.
Subdivision (d) of Section 16.12 is amended to read as follows:
(d)(1) Special risks classified under class 2 [which generates] that generate a premium in [the] an amount that qualifies as a class 1 risk shall, for reporting purposes, be designated as class 2 risks; and
(2) Special risks classified under class 2 that also qualify as class 3 risks shall, for reporting purposes, be designated as class 2 risks.
Section 16.13 is repealed.
Text of proposed rule and any required statements and analyses may be obtained from:
David Neustadt, NYS Department of Financial Services, One State Street, New York, NY 10004, (212) 709-1690, email: david.neustadt@dfs.ny.org
Data, views or arguments may be submitted to:
Hoda Nairooz, NYS Department of Financial Services, 25 Beaver Street, New York, NY 10004, (212) 480-5587, email: hoda.nairooz@dfs.ny.gov
Public comment will be received until:
45 days after publication of this notice.
Regulatory Impact Statement
1. Statutory authority: Financial Services Law (FSL) Sections 202, 301 and 302, Insurance Law (NYIL) Sections 301, 307 and 308, and NYIL Article 63.
These sections establish the superintendent's authority to promulgate regulations establishing standards for governing Special Risk Insurance by exempting insurers from certain rate and policy form approval requirements.
FSL section 202 establishes the office of the Superintendent. FSL section 301 establishes the powers of the Superintendent generally. FSL 302 and Section 301 of the Insurance Law, in material part, authorize the Superintendent to effectuate any power accorded to him by the Insurance Law, and to prescribe regulations interpreting the Insurance Law.
NYIL Section 307 requires every authorized insurer and fraternal benefit society in New York to file an annual statement (audited financial statement) showing its condition at the last year end. The section further establishes specific requirement for the statements and penalties for failure to file timely.
Section 308 permits the Superintendent to request information from insurers in relation to transactions or conditions or any matter connected herewith.
Article 63 has long permitted special risks that are jumbo in dimensions or exotic in nature to be written, free of filing rates or policy forms, in what is sometimes called the "Free Trade Zone". As amended, Section 6303(a) now permits policies to be written with respect to "large commercial insureds," as such term is defined in that section. Section 6304 requires the Superintendent to promulgate rules and regulations implementing the provisions of this article by establishing methods, procedures and reports for licensing and for facilitating, monitoring and verifying compliance with this article.
2. Legislative objectives: Article 63 of the Insurance Law establishes standards for governing Special Risk Insurance. Section 6303 exempts insurers from certain rate and policy form approval requirements. Chapter 490 of the Laws of 2011 amended Article 63 of the Insurance Law to add a new exempted category of risks (Class 3 risks). The Class 3 risks are "large commercial insureds" that meet the qualifications specified in Article 63, including that a large commercial insured employ or retain a special risk manager to assist in the negotiation and purchase of the policy. Section 6304 requires the superintendent to promulgate rules and regulations implementing the provisions of Article 63 by establishing methods, procedures and reports for licensing and for facilitating, monitoring and verifying compliance with Article 63.
3. Needs and benefits: Chapter 490 of the Laws of 2011 amended Article 63 of the Insurance Law by introducing Class 3 risks to be written in New York by insurers licensed to write special risk insurance for "large commercial insureds," as defined in the amendment, provided that the insurers make certain informational filings with the Superintendent. The addition of the Class 3 risks was intended to enhance the ability of insurers to underwrite large and unusual risks in the New York market, increase speed to market for certain insurance products not currently exempted and 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 they need. The rule sets forth the requirements for writing Class 3 risks and the procedures for insurers to make the required filings as stated in Chapter 490.
4. Costs: This rule imposes no compliance costs on state or local governments. While there may be some additional costs incurred by the Department resulting from the new filings, this should be minimized by having the filings made electronically. This rule does not impose additional costs upon insurers since the additional special risk exemption is optional, not mandatory, on the part of the insurer. If an insurer chooses to issue a Class 3 policy, then the submission of a certificate of insurance and a policy form (if not previously filed) is required by the statute, and the rule is only implementing the statutory requirement. Although the filing of the certification is not mandated by the statute, it is necessary for the proper monitoring by the Department of new Class 3 business. However, since the Department has an electronic means for insurers to use for the submission of these filings, these additional costs will be nominal.
5. Local government mandates: This amendment does not impose any program, service, duty or responsibility upon a city, town or village, or school or fire district.
6. Paperwork: With respect to the new Class 3 filings, the rule requires an insurer to submit the certificate of insurance for each risk and to complete a certification form in a manner acceptable to the Superintendent. The Department intends to develop a standard certification form for insurers to use and plans to post the form on the Department's web site along with instructions for completing the form. Insurers are also required to file any policy form that has not been previously filed with the Superintendent, for informational purposes. Submissions of the certificate of insurance and of any policy form not previously filed with the Superintendent are statutory requirements of the new law. The completion and submission of the form to accompany the certificate of insurance is to facilitate compliance with the requirements with respect to Class 3 risks.
7. Duplication: This rule will not duplicate any existing state or federal rule.
8. Alternatives: The rule requires the submission of a certificate of insurance along with a form that includes additional information such as the identity of the insured and the risk manager utilized by the "large commercial insured" (the above-referenced certification form). The Department performed outreach with various insurer trade associations; the associations stated that it would be difficult for them to comply with the requirement to file electronically the certificate of insurance and the certification form within one business day from binding the policy. After further consideration of these comments, the Department revised the regulation to allow insurers to submit the certificate of insurance through a dedicated e-mail box within one day from binding the policy in order to comply with the statute. In addition, in order to provide more time for insurers to file the certification form the rule has been revised to require insurers to electronically file the certificate of insurance again along with the certification form within 30 days from the inception date of the policy. The alternative of not requiring the certification form to be submitted with the certificate of insurance was considered and rejected because the form will expedite the review of the filings, enhance compliance with the statute and rule and enable the Department to more easily monitor the types of Class 3 risks that insurers are writing.
The Department also received comments asking that the new notice required by the regulation to be placed on policies should be combined with the existing notice. However, upon consideration, the Department felt that combining the two notices would be confusing because of the differing requirements between Class 1 and 2 with new Class 3.
The rule requires Class 3 risk filings to be submitted electronically, unless the insurer is granted a hardship exemption, in which case a paper filing will be accepted. The alternative of accepting paper submissions from all insurers was considered and rejected as electronic submission of Class 3 risk filings will facilitate the monitoring and the generation of reports for Class 3 risks.
9. Federal standards: There are no minimum standards of the federal government for the same or similar subject areas.
10. Compliance schedule: The effective date of the enabling legislation, Chapter 490 of the Laws of 2011, is November 15, 2011. Pursuant to the law, insurers may start writing the Class 3 risks as of the effective date and are required to file the certificate of insurance with the Department within one business day of binding the insurance coverage. Insurers are also required to file a policy form, which has not been previously filed with the Superintendent, for informational purposes, but both of these filings are required by the statute.
Regulatory Flexibility Analysis
1. Small businesses:
The Department of Financial Services finds that this rule will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at property/casualty insurance companies licensed to do business in New York State, none of which falls within the definition of "small business" as found in section 102(8) of the State Administrative Procedure Act. The Department of Financial Services has monitored Annual Statements and Reports on Examination of authorized property/casualty insurers subject to this rule, and believes that none of the insurers falls within the definition of "small business", because there are none that are both independently owned and have fewer than one hundred employees.
2. Local governments:
The rule does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliance requirements on any local governments. The basis for this finding is that this rule is directed at property/casualty insurance companies, none of which are local governments.
Rural Area Flexibility Analysis
The Department of Financial Services finds that this rule does not impose any additional burden on persons located in rural areas, and it will not have an adverse impact on rural areas. This rule applies uniformly to regulated parties that do business in both rural and non-rural areas of New York State.
Job Impact Statement
The Department of Financial Services finds that this rule should have no adverse impact on jobs or economic opportunities in New York State. It merely revises the filing requirements and governing standards of special risk insurance to add a new exempted category of risks (Class 3 risks) for certain “large commercial insureds” in order to comply with Chapter 490 of the Laws of 2011. The number of insurance company personnel necessary to submit Class 3 filings should be no different than submitting these risks under the prior law.
