The Office of General Counsel issued the following opinion on April 17, 2003, representing the position of the New York State Insurance Department.
Re: Different Premiums for Renewals and New Policyholders in the Same Territory.
May an insurers rates for new applicants be higher than those for current policyholders who are in the same territory and present the same risks?
No. An insurers rates for new applicants cannot be higher than those for current policyholders who are in the same territory and present the same risks.
The inquirer states that a property/casualty insurer received approval from the New York State Insurance Department for an overall statewide increase of premium of 15%, but a 25% increase in a particular territory. He would like to know whether the insurer may cap the increase for current policyholders upon the renewal of the policy at 20%, but offer a new applicant a premium that is consistent with the 25% increase.
Property/casualty insurance rates are subject to the standards of Article 23, subject to certain exceptions that are not relevant herein. Specifically, N.Y. Ins. Law § 2303 (McKinney 2000) provides, in relevant part, as follows:
Rates shall not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers. . . .
Section 2314 (McKinney 2000) provides:
No authorized insurer shall, and no licensed insurance agent, no employee or other representative of an authorized insurer, and no licensed insurance broker shall knowingly, charge or demand a rate or receive a premium which departs from the rates, rating plans, classifications, schedules, rules and standards in effect on behalf of the insurer, or shall issue or make any policy or contract involving a violation thereof.
An insurer may not have different rates for renewal business and for new applicants in the same territory that present the same objective risk characteristics, as this is unfairly discriminatory in violation of Section 2303. State Farm Fire and Cas. Co. v. Superintendent of Ins. of State of N.Y., 162 A.D.2d 313, 556 N.Y.S.2d 893 (1st Dept. 1990).
Moreover, if the Department approved a 25% increase in a particular territory, the insurer would be required to comply with its rate filing in applying a 25% increase to all existing insureds and new applicants in that particular territory. Otherwise, this would also be considered a deviation from the insurers rate filing in violation of N.Y. Ins. Law § 2314 (McKinney 2000).
For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.