Permits certain agreements by domestic mutual insurance corporations.
BILL NUMBER: S7794
TITLE OF BILL : An act to amend the insurance law, in relation to permitting certain agreements by domestic mutual insurance corporations
PURPOSE : To permit domestic mutual insurance corporations to enter into certain compensation agreements with firms and corporations in which an officer or director has only an "indirect" pecuniary interest.
SUMMARY OF PROVISIONS : Section 1: Amends Insurance Law Section 1209(f) to remove the prohibition against domestic mutual insurance companies entering into certain commission agreements with firms or corporation in which one of its officers or directors has an "indirect" pecuniary interest.
Section 2: Effective date.
EXISTING LAW : Existing law prohibits domestic mutual insurance companies (except those organized before January 1, 1940 to do only marine protection and indemnity insurance) from entering into an agreement with any of the company's officers or directors, or with any firm or corporation in which any such officer or director is pecuniarily interested directly or indirectly, whereby the insurance corporation agrees to pay, for the acquisition of business, any commission or other compensation which under the agreement is increased or diminished by the amount of such business or by the insurance corporation's earnings on such business.
The Insurance Department has interpreted this law as prohibiting a mutual insurance company from entering into a profit sharing commission agreement with an insurance agency simply because one of the insurance company's officers also served as a director of a corporation that owned the insurance agency. The Insurance Department found that the insurance company officer had an "indirect' pecuniary interest in the insurance agency.
JUSTIFICATION : The existing prohibition is an outdated and overly restrictive limitation put in place nearly a century ago. It serves no legitimate purpose today and is no longer practical in today's business environment. In today's business community, many directors and officers of insurance companies also serve on the board of directors of various other, non-insurance business corporations. Today, many corporations are part of a larger holding company structure, and it is quite possible that a corporation where an insurance company officer serves as director, would have affiliates or subsidiaries that engage in insurance activities. This provision unnecessarily prohibits a mutual insurance company's from entering into certain compensation agreements with these insurance agency affiliates and discourages mutual insurance company officers and directors from sharing their talents and serving as directors and officers of various other corporations.
LEGISLATIVE HISTORY : None.
FISCAL IMPLICATIONS : None.
EFFECTIVE DATE : Immediately.
STATE OF NEW YORK ________________________________________________________________________ 7794 IN SENATE May 12, 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 permitting certain agreements by domestic mutual insurance corporations THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subsection (f) of section 1209 of the insurance law is amended to read as follows: (f) No domestic mutual insurance corporation, except a domestic mutual insurance company organized before January first, nineteen hundred forty to do only marine protection and indemnity insurance, shall enter into any agreement with any of the officers or directors, or with any firm or corporation in which any such officer or director is pecuniarily inter- ested directly
[or indirectly,]whereby the insurance corporation agrees to pay, for the acquisition of business, any commission or other compen- sation which under the agreement is increased or diminished by the amount of such business or by the insurance corporation's earnings on such business. S 2. This act shall take effect immediately.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD17254-01-0