New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on July 19, 2000, representing the position of the New York State Insurance Department.

Re: Premium installment payment plans

Questions Presented:

The following questions relate to non-commercial automobile insurance, a "covered policy" under N.Y. Ins. Law § 3425 (McKinney 1985 & Supp. 2000):

1) Does an insurer that offers a more limited choice of premium installment payment plans to its new applicants (who deal with the insurer through agents who have neither preferred agent nor exclusive agent contracts) than is made available to other new applicants (who deal with the insurer through preferred or exclusive agents) violate the New York State Insurance Law?

2) Does an insurer that offers only the paid-in-full payment option to certain policyholders upon renewal, based upon underwriting criteria, violate the New York Insurance Law?

3) If the affected policyholders in question 2 are youthful drivers and those whose policies list more drivers than there are vehicles, does the insurer violate the New York Insurance Law?

4) Does an insurer that previously offered premium payment installment options but thereafter offers only the paid-in-full payment option for certain policy renewals, determined on the basis of geographic rating territories, engage in redlining in violation of N.Y. Ins. Law § 3429 (McKinney 1985)?

5) Does an insurer that advises its agents that it will not issue any policies in New York City rating territories, pending approval of its multi-tier rate filing, engage in redlining in violation of N.Y. Ins. Law § 3429 (McKinney 1985)?

6) Does an insurer that limits the choice of premium installment payment plans, which were previously available to an insured, upon renewal or continuance of the insured’s policy, and after the insured's agent or broker was terminated by the insurer, violate the "policy continuation and renewal rights of insureds of terminated insurance agents and brokers" under N.Y. Ins. Law § 3425 (j) (McKinney 1985 & Supp. 2000)?

Conclusions:

1) Basing the availability of installment payment plan options on the status of a new applicant’s agent constitutes a prohibited discrimination in benefits under N.Y. Ins. Law Art. 23 (McKinney 1985 & Supp. 2000). The status of the agent is not a valid underwriting criteria.

2) An insurer that offers only the paid-in-full payment option to certain policyholders upon renewal, based upon underwriting criteria, may or may not be violating the law; the answer is deependent upon the criteria used. If the criteria used by the insurer constitutes discrimination in benefits or is prohibited by law (e.g., basing upon geographical location of the risk), its use would violate the applicable law. If the insurer can demonstrate that the criteria used relates to the risk being insured, however, there would be no violation of law.

3) See answer 2 above.

4) When, at renewal, an insurer eliminates a previously available premium installment payment option because of the geographic rating territory on which the risk is located, the insurer is effectively non-renewing the policy in violation of N.Y. Ins. Law § 3429 (McKinney 1985).

5) An insurer that advises its agents that it will not issue any policies in New York City rating territories, pending approval of its multi-tier rate filing, has engaged in redlining in violation of N.Y. Ins. Law § 3429 (McKinney 1985).

6) An insurer that limits the choice of premium installment payment plans, which were previously available to an insured, upon the renewal or continuance of the insured’s policy, and after the insured's agent or broker was terminated by the insurer, violates the policy continuation and renewal rights of affected insureds in contravention of N.Y. Ins. Law § 3425 (j) (McKinney 1985 & Supp. 2000).

Facts:

The Department has been advised that several insurance companies have recently acted to limit the availability of private-passenger automobile insurance premium installment payment plans. The facts were stated as follows:

Insurer A

Insurer A has undertaken two different actions. First, the insurer has notified its agents that it will be restricting the availability of payment plans for certain agents with respect to all new applicants of 12-month personal auto policies. These agents (those who do not have the company's preferred agent or exclusive agent contracts) will be able to offer only the 4-payment and paid-in-full options to their new applicants.

Insurer A's second action affects all agents. The Insurer told agents and PIANY that some personal auto policyholders will receive only the paid-in-full option with their renewal quotes, as determined by certain underwriting criteria.

Company B

Company B has advised its agents that it will offer only a paid-in-full plan at renewal to some of its policyholders: those with youthful drivers and those with more drivers than vehicles.

Company C

Company C notified its New York agents that, pending approval of its multi-tier rate filing, the company would no longer accept any policies in the New York City rating territories. Also, the company said that certain downstate renewals (including business in New York City, Long Island, and Westchester/Rockland counties) will require payment in-full. While the company told agents that it intends to resume writing new business in the New York City area upon approval of its rate filing, it did not indicate whether it would change its requirement that downstate renewals must submit payment in-full.

Analysis:

All of the insurer activities inquired about involve the restriction of premium installment payment options in connection with non-commercial automobile insurance policies, which are covered policies under N.Y. Ins. Law § 3425 (McKinney 1985 & Supp. 2000). In general, if the criteria upon which the insurer seeks to impose a restriction on premium installment payment options (other than what was previously available) can be demonstrated by the insurer to relate to the risk being insured, it may not violate the Insurance Law. If such cannot be demonstrated, it may constitute a violation of certain Insurance Law statutes, including those that prohibit discrimination in benefits under N.Y. Ins. Law Art. 23 (McKinney 1985 & Supp.2000) and redlining under N.Y. Ins. Law § 3429 (McKinney 1985). In addition, the insurer's actions in this regard may constitute a prohibited withdrawal or substantial withdrawal from the automobile insurance market, or a material reduction in its volume of policies written if it fails to submit a plan for orderly reduction to the Superintendent in accordance with N.Y. Ins. Law § 3425 (o) (McKinney Supp. 2000).

Much of the inquiry is of a general nature, which prevents the Department from providing a specific response. Therefore, the reader should be aware that each situation would have to be evaluated individually, before regulatory action could be taken by the Department. However, to the extent that the inquiry is specific, the following information concerning applicable law is presented for informational purposes.

Option based on agent

An insurer that offers a more limited choice of premium installment payment plans to new applicants based on the type of insurance agent used constitutes a prohibited discrimination in benefits under N.Y. Ins. Law Art. 23 (McKinney Supp. 2000). Such criteria, on its face, would have no relationship to the nature of the risk covered and, therefore, cannot be utilized by an insurer to determine payment plans offered to individual applicants.

Redlining

N.Y. Ins. Law § 3429 (McKinney 1985) provides, in pertinent part, that:

 

No insurer shall refuse to issue or renew or shall cancel a policy of:

(1) fire insurance or fire and extended coverage insurance, or

(2) automobile insurance subject to section three thousand for hundred twenty-five of this article based solely on the geographical location of the risk within this state. Such prohibition shall not preclude an insurer from refusing to issue or renew or from canceling such policies based on sound underwriting and actuarial principles reasonably related to actual or anticipated loss experience subject to the applicable provisions of section three thousand four hundred twenty-five of this article.

Insofar as an insurer refuses to issue, renew or cancel a non-commercial automobile insurance policy based solely on the geographical location of the risk insured, it violates the above statutory prohibition. An insurer that has offered a premium installment payment option on a particular policy but that, upon policy renewal, subsequently eliminates the premium installment payment option based solely on the geographic location of the risk, has engaged in the same kind of discriminatory behavior that is addressed by this section. This is similar to a case wherein the insurer does not offer a premium installment payment option to a new insured that it offers to another new insured, predicated solely on the basis of geographic location. The insurer is effectively nonrenewing or refusing to renew the policy in a discriminatory fashion, in violation of the anti-redlining provisions of N.Y. Ins. Law § 3429 (McKinney 1985).

Discrimination in Rating

This office has previously opined that the method of premium payment is a benefit under a policy of insurance and that Article 23 of the New York State Insurance Law (McKinney 1985 & Supp.2000) proscribes discrimination in rates or benefits of insurance. Accordingly, an insurer is prohibited from accepting payment by credit card from some insureds but not others within a particular class. (Opinion reprinted in the Department’s Bulletin, August 1990.) Installment premium payments are no different than payment by credit card in this regard; both are methods of payment. Accordingly, an insurer’s refusal to accept installment premium payments (of the frequency previously offered) by only certain policyholders within a particular class, upon policy renewal, constitutes prohibited discrimination in a benefit in violation of N.Y. Ins. Law § 2324 (McKinney 1985).

Withdrawal From Market

By Chapter 647 of the Laws of 1992, a new subsection (n) was added to N.Y. Ins. Law § 3425 (McKinney Supp.2000) to address situations in which an insurer implements marketing actions to effectuate a withdrawal, or substantial withdrawal, from writing automobile insurance. The statutory provision requires such insurers to take certain actions with regard to producer commissions and consumer safeguards. Subsection (n) provides, in pertinent part, as follows:

Withdrawal from writing automobile and homeowners’ insurance. In the event of a determination by the superintendent that an insurer's elimination of premium installment plans, reduction in commission, or any other marketing action was implemented to effectuate a withdrawal or substantial withdrawal from writing automobile insurance:

(1) an agent shall be permitted to terminate its contract with the insurer, or that portion of the contract authorizing the agent to accept automobile insurance, and the insurer shall be required to accept new business and issue renewals in accordance with paragraph one of subsection (j) of this section;

(2) notwithstanding the provisions of subparagraph (D) of paragraph one of subsection (j) of this section, where an agent's contract is terminated or a portion thereof is terminated pursuant to this subsection, commissions for automobile insurance shall be paid at the rate in effect applicable to the agent for the longest duration during the twelve-month period immediately preceding the action which is determined by the superintendent to have been implemented to effectuate a withdrawal or substantial withdrawal from writing automobile insurance;

(3) premium payment installment options shall be maintained in a manner substantially similar to options offered by the automobile insurance plan established pursuant to article fifty-three of this chapter;

(4) paragraphs one and two of this subsection shall not apply to an agent who agrees to represent exclusively one insurer or group of insurers; and… [Emphasis added]

For the remedies of the statute to be triggered, a determination must first be made by the Superintendent that an insurer's marketing action was implemented to effectuate a withdrawal, or substantial withdrawal, from the automobile insurance market. The statute explicitly includes the elimination of premium installment plans as an action that may constitute a withdrawal or substantial withdrawal.

Pursuant to N.Y. Ins. Law § 3425 (n) (3) (McKinney Supp. 2000), if the Superintendent determines that an insurer’s elimination of premium installment plans was implemented to effectuate a withdrawal, or substantial withdrawal, from writing automobile insurance, the insurer must maintain premium payment installment options in a manner substantially similar to those maintained by the New York Automobile Insurance Plan (NYAIP). Accordingly, if an insurer reduces its premium payment installment options below the level that the NYAIP offers, the Department considers such reduction the implementation of a marketing action to effectuate a withdrawal, or substantial withdrawal, from the market. The NYAIP currently offers a four-payment plan. Accordingly, the Department has objected to insurer proposals to reduce four-payment options to two or three-payment options. To date, such insurers have refrained from implementing payment options that are not substantially similar to the four-payment option of the NYAIP.

Material reduction in volume of covered policies written

N.Y. Ins. Law § 3425 (o) (McKinney Supp. 2000) (emphasis added) provides as follows:

(o) An insurer that intends to materially reduce its volume of policies written, covered by this section, shall submit to the superintendent, at least thirty days in advance of implementing such actions, a plan for orderly reduction that: (1) describes the contemplated actions; (2) sets forth the reasons for such actions; (3) describes the measures such insurer intends to take in order to minimize market disruption; and (4) such other information as the superintendent may require.

For further information you may contact Associate Attorney Barbara A. Kluger at the New York City Office.