The Office of General Counsel issued the following informal opinion on January 24, 2002, representing the position of the New York State Insurance Department.
Re: Estimate of Premium Increase in a Conditional Renewal Notice Under Section 3426.
Must a conditional renewal notice issued pursuant to N.Y. Ins. Law § 3426(e)(1)(B) (McKinney 2000), which is based, in whole or in part, upon a premium increase in excess of ten percent, set forth an estimate of the premium increase within a range of five percent?
Where the actual amount of a premium increase cannot be determined at the time the conditional renewal notice is provided, N. Y. Ins. Law § 3426(e)(2) (McKinney 2000) requires that a conditional renewal notice set forth an estimate of the premium increase within a range of five percent.
An insurance broker has indicated that its competitors have issued notices of conditional renewal that state only that there will be an "increase in premiums greater than 10%", without setting forth an estimate of the premium increase. The insurance broker inquired as to whether this form of conditional renewal notice complies with N.Y. Ins. Law § 3426 (McKinney 2000).
N.Y. Ins. Law § 3426(e)(2) ( McKinney 2000) provides, in relevant part, as follows:
[A] conditional renewal notice as specified in subparagraph (B) . . . shall contain the specific reason or reasons for . . . conditional renewal, set forth the amount of any premium increase (or, where the amount cannot reasonably be determined as of the time the notice is provided, a reasonable estimate of the premium increase based upon the information available to the insurer at the time), and describe in plain and concise terms the nature of any other proposed changes specified in paragraph one of this subsection. The superintendent shall by regulation specify the permissible range of such estimate (which shall not exceed five percent of the actual amount) . . . . (emphasis added).
The statute plainly requires that the conditional renewal notice set forth the amount of any premium increase, or a reasonable estimate of the premium increase, where the insurer is unable to determine the actual amount because of the unavailability of information at the time the notice is provided. The statute also provides for the Superintendent to specify by regulation the permissible range of the estimate up to a limit of five percent. Since there is no regulation governing the permissible range, however, the statute establishes the upper limit of the range at five percent. Thus, the conditional notice must set forth either the actual amount of the premium increase or provide an estimate of the premium increase within a range of five percent.
Consistent with § 3426(e)(2), Circular Letter No. 14 (1986) provides as follows with respect to the handling of premium increases in conditional renewal notices:
When a notice of conditional renewal results from rate increases or other factors yielding a premium increase exceeding ten percent (10%), an exact dollar amount difference, precise percentage differential, or side-by-side premium comparison is encouraged. The conditional renewal notice must at least indicate a percentage range a (sic) within five percent (5%) (e.g., proposed premium increase between 20% and 25%), or set forth the amount of the proposed premium advising the insured that this figure represents a greater than ten percent (10%) premium increase over the previous policy and that the insured should contact its agent or broker, or the company itself, if the insured needs more specific pricing information than apparent from its own records. The basic reasons for the proposed premium increase should also be explained in the conditional renewal notice.
The Circular Letter also notes that: "A primary objective of [Section 3426] is to maximize understanding and information between insurers and insureds."
Given the plain language of N. Y. Ins. Law Section 3426(e)(2), and the above objective, a conditional renewal notice that merely references an "increase in premiums greater than 10%" is impermissible.
For further information you may contact Associate Counsel Joseph A. DeMauro at the New York City Office.