Relates to procurement of insurance coverage.
BILL NUMBER: S7219
TITLE OF BILL : An act to amend the insurance law, in relation to excess line brokers
PURPOSE : To modernize certain aspects of New York's Insurance Law pertaining to the placement of risks in the excess line market.
SUMMARY OF PROVISIONS : This bill amends Insurance Law Section 2118 to reduce or waive the duty of an excess line broker to conduct a diligent search for an authorized insurer to underwrite a risk in circumstances where an insured is likely to select an excess line insurer from which to obtain coverage. Specifically, Section 1 of the bill amends subsection (b) of section 2118 of the insurance law to recognize that where a quote for coverage from an authorized insurer exceeds by twenty-five percent or more a quote for comparable coverage from the excess line market, the licensed insurer quote may be regarded as a declination from the authorized insurer.
Section 1 also relieves an excess line broker's diligent effort obligation to obtain three declinations of coverage from authorized insurers where the insured is sophisticated and meets the definition of an "exempt commercial purchaser." Falling within this category are insurance policies procured from the excess line market providing coverage to a publicly traded entity or an insured that otherwise qualifies as a large commercial risk, i.e., the aggregate annual premium for insurance carried by a commercial entity totals at least $100,000 exclusive of workers' compensation and health insurance costs and meets any of the following standards: (1) the insured's net worth is at least $25 million; (2) the insured is a for-profit business generating annual gross revenues of $50 million; (3) the insured is a not-for-profit organization or public entity with an annual budget exceeding $25 million dollars; or (4) the insured is a municipality with a population of not less than fifty thousand persons. Rounding out the circumstances in which the diligent effort standard would not apply is where a policy is renewed with the same insurer for a second or third consecutive one-year term.
Finally, Section 1 expands the authority of the Superintendent of Insurance to waive the diligent effort requirement and declare certain coverages eligible for export to the excess line market based upon the best interests of the insureds seeking coverage, the necessity for a manuscripted policy where standard forms are inadequate or unavailable, or where particular coverages are not reasonably and readily available.
Section 2 of the bill provides for an effective date of ninety days subsequent to the bill being signed into law.
EXISTING LAW : The Insurance Law currently grants the Superintendent discretion to waive the diligent effort, but in limited circumstances. Expanding the authority of the Superintendent to waive the diligent effort will confer a degree of commercial flexibility required for excess line brokers to meet New York insurance consumers' coverage needs in an efficient manner. This bill amends the Insurance Law to remediate redundancies that add expenses and unnecessary delay to the procurement of insurance from the excess line market.
JUSTIFICATION : The excess line market is an important segment of New York's insurance marketplace. The excess line market provides a source of additional insurance capacity and an avenue for coverage in situations involving hard-to-place risks that the licensed market cannot or will not write. This bill seeks to modernize the excess line law with tailored reforms aimed at ameliorating the burdens and costs of certain reporting requirements that are currently an unnecessary element of New York's regulatory compliance regime, but in a manner that preserves consumer protections extant in the Insurance Law. The bill's provisions eliminate, pursuant to targeted circumstances, diligent effort procedures requiring excess line brokers to obtain three declinations of coverage from authorized insurers in most cases, even where, given the commercial setting of the risk, the process of obtaining such declinations is not only unwarranted, but actually impedes the expedient effectuation of coverage, which can disrupt the business interests of the entities seeking insurance.
LEGISLATIVE HISTORY : New bill.
FISCAL IMPLICATIONS : None.
LOCAL FISCAL IMPLICATIONS : None.
EFFECTIVE DATE : This act shall take effect on the ninetieth day after it shall have become a law.
STATE OF NEW YORK ________________________________________________________________________ 7219 IN SENATE March 24, 2010 ___________Introduced by Sen. BRESLIN -- read twice and ordered printed, and when printed to be committed to the Committee on Insurance AN ACT to amend the insurance law, in relation to excess line brokers THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Paragraphs 3 and 4 of subsection (b) of section 2118 of the insurance law, paragraph 3 as amended by chapter 684 of the laws of 1993, subparagraph (A) of paragraph 3 as amended by chapter 498 of the laws of 1996, and paragraph 4 as amended by chapter 630 of the laws of 1988, are amended to read as follows: (3) (A) The submission of insurance documents to the excess line asso- ciation shall be accompanied by a statement subscribed to, and affirmed by, the licensee or sublicensee as true under the penalties of perjury that, after diligent effort, the full amount of insurance required could not be procured, from authorized insurers, each of which is authorized to write insurance of the kind requested and which the licensee has reason to believe might consider writing the type of coverage or class of insurance involved, and further showing that the amount of insurance procured from an unauthorized insurer is only the excess over the amount procurable from an authorized insurer. The licensee, however, shall be excused from affirming that a diligent effort, as defined above, was made to procure the coverage from authorized insurers if the licensee's affidavit is accompanied by the affidavit of another broker involved in the placement affirming as true under the penalties of perjury that, after diligent effort by the affirming broker, the required insurance could not be procured from an authorized insurer which the affirming broker had reason to believe might consider writing the type of coverage or class of insurance involved. The licensee and the affirming broker shall be excused from affirming that a diligent effort was made (I) FOR TRANSACTIONS DEFINED IN SUBPARAGRAPH (F) OF THIS PARAGRAPH, OR (II) if the superintendent determines, pursuant to paragraph four of this subsection, that no declinations are required. (B) A licensee or affirming broker shall be considered to have the reason to believe required by subparagraph (A) of this paragraph if theEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD16053-02-0 S. 7219 2
decision to offer the risk to the authorized insurer was based on any of the following: (i) Recent acceptance by the authorized insurer of a type of coverage or class of insurance similar to that for which coverage is presently being sought; (ii) Advertising by the authorized insurer or its agent indicating that the authorized insurer is willing to consider acceptance of this or a similar type of coverage or class of insurance; (iii) Media communications (i.e., newspaper or magazine articles, trade publications, television and radio programming) indicating that the authorized insurer is writing, or is considering writing, this type of coverage or class of insurance; (iv) Communications with other insurance professionals, risk managers, trade associations, the excess line association or the insurance depart- ment, which indicates that the authorized insurer might consider writing this type of coverage or class of insurance; or (v) Any other valid basis for making such decision. (C) Every licensee, or affirming broker, in connection with the place- ment of each risk pursuant to this section, shall record on the affida- vit required pursuant to subparagraph (A) of this paragraph the informa- tion relied upon that formed the basis of such licensee's or affirming broker's reason to believe that the authorized insurer might consider writing the type of coverage or class of insurance involved. (D) Declinations obtained from authorized insurers which are affil- iates of, or, as defined in article fifteen of this chapter, under common control with, each other or the unauthorized insurer shall not meet the requirements of this subsection unless such related insurers operate as distinct and autonomous entities, and for underwriting purposes, compete with each other for the same type of coverage or class of insurance. (E) (I) The superintendent, in a regulation, may determine whether there are circumstances where it may be appropriate, due to the unavail- ability from an authorized insurer of the leading type of coverage or the leading class of insurance required by the insured, to waive the requirement in subparagraph (A) of this paragraph that a licensee may procure from an unauthorized insurer only the amount of insurance which is excess over the amount procurable from an authorized insurer, and to instead permit the licensee to procure from an unauthorized insurer the full amount of insurance required by the insured. (II) WITH RESPECT TO ANY QUOTE FOR COVERAGE FROM AN AUTHORIZED INSURER WHERE THE GROSS PREMIUM EXCEEDS BY TWENTY-FIVE PERCENT OR MORE, A QUOTE FOR COMPARABLE COVERAGE ACQUIRED BY A LICENSEE MAY BE SUBMITTED AS A DECLINATION BY THE LICENSEE OR AFFIRMING BROKER. (F) NO DILIGENT EFFORT SHALL BE REQUIRED WHERE THE POLICY PROCURED: (I) INSURES A PUBLICLY TRADED ENTITY, (II) INSURES AN ENTITY WHICH PAYS AGGREGATE ANNUAL PREMIUMS ON ALL RISKS TOTALING AT LEAST ONE HUNDRED THOUSAND DOLLARS FOR POLICIES WRIT- TEN EXCLUSIVE OF PREMIUM FOR WORKERS' COMPENSATION AND HEALTH INSURANCE BENEFITS, EMPLOYS, UTILIZES OR RETAINS A RISK MANAGER TO ASSIST IN THE NEGOTIATION AND PURCHASE OF A POLICY; AND IN ADDITION, IN ALL CASES MEETS ANY ONE OF THE FOLLOWING CRITERIA: HAS A NET WORTH OF AT LEAST TWENTY-FIVE MILLION DOLLARS, IS A FOR-PROFIT BUSINESS ENTITY THAT GENER- ATES ANNUAL GROSS REVENUES OF FIFTY MILLION DOLLARS, IS A NOT-FOR-PROFIT ORGANIZATION OR PUBLIC ENTITY WITH AN ANNUAL BUDGET EXCEEDING TWENTY-FIVE MILLION DOLLARS OR IS A MUNICIPALITY WITH A POPULATION OF NOT LESS THAN FIFTY THOUSAND PERSONS, ORS. 7219 3
(III) RENEWS A POLICY WITH THE SAME INSURER FOR A SECOND CONSECUTIVE ONE YEAR TERM, OR RENEWS THE POLICY FOR A THIRD CONSECUTIVE ONE YEAR TERM. (4) The number of declinations constituting diligent effort in regard to placement of coverage with authorized insurers for purposes of para- graph three of this subsection shall be three, unless (A) THE DILIGENT EFFORT IS EXCUSED BY SUBPARAGRAPH (F) OF PARAGRAPH THREE OF THIS SUBSECTION, OR (B) the superintendent after a hearing, on a record, upon findings and conclusions, determines that another number of such decli- nations is appropriate in regard to particular coverages. In making such determinations, the superintendent shall consider relevant market condi- tions, including
[unavailability of particular coverages from authorized insurers, and may conduct market surveys]WHAT IS IN THE BEST INTERESTS OF INSUREDS SEEKING INSURANCE, THE NECESSITY FOR MANUSCRIPTED POLICIES WHERE STANDARD FORMS ARE INADEQUATE OR UNAVAILABLE, FOSTERING INSURANCE PRODUCT INNOVATION AND DEVELOPMENT, AND WHERE PARTICULAR COVERAGES ARE NOT REASONABLY AND WIDELY AVAILABLE. THE SUPERINTENDENT MAY CONDUCT MARKET SURVEYS TO DETERMINE MARKET CONDITIONS. Any such determination shall be reviewed at least annually by the superintendent. S 2. This act shall take effect on the ninetieth day after it shall have become a law; provided, however, that the amendments to subsection (b) of section 2118 of the insurance law made by section one of this act shall not affect the expiration of such subsection and shall be deemed to expire therewith.