The Office of General Counsel issued the following opinion on July 11, 2003, representing the position of the New York State Insurance Department.
Re: Electronic Payment Fees
May a property/casualty insurance company, that sells personal and commercial coverage, charge its insureds a transaction fee to make premium payments by telephone using an Electronic Fund Transfer?
New York Insurance Law does not prohibit an insurer from passing such transaction fees on to an insured. However, the Department offers no opinion as to whether such activity is prohibited by any other state or federal law.
The inquirer works for an insurance company that sells property and casualty insurance to both commercial and personal customers. The inquirers company would like to offer its insureds the ability to pay by telephone using an Electronic Fund Transfer. The inquirers company would like to charge a transaction fee in the range of $2.00 to $10.00 for this service. This service would not be part of a filing and no premium taxes would be paid. The inquirer wants to know if insurance companies that sell property and casualty lines insurance to personal and commercial customers would be allowed to impose this fee for this service.
The New York Insurance Law does not prohibit an insurer from charging a service fee to an insured that has paid its premium by Electronic Fund Transfer as a means to offset the transactions fees imposed on the insurer by its bank and/or the electronic fund transfer service provider. The Department has no opinion as to whether the charging of a transaction fee to an insured is prohibited by any other state or federal law. Office of General Counsel Opinion No. 01-12-26 (2001). Further, this opinion does not address whether this fee is part of the premium for tax purposes.
Assuming that there is no prohibition under state or federal law against an insurer defraying a transaction fee by passing it onto the insured as a service fee, the Department views such service fee as properly classified as a fee that is beyond the rating structure, and so does not have to be filed with the Department or included as part of the manual rates. Such fee may be charged separately and apart from the policy premium because the expense that such fee is meant to defray arises independently from the issuance, underwriting, or general maintenance of an insurance policy. The fee results from the way an insured chooses to pay the premium in contrast to the insurers underwriting expenses.
In addition, this service fee, and any consequences an insured would experience for failure to pay such fee, must be clearly presented in writing to the insured either in the insurance policy form or in the billing statement. To prevent discrimination, all insureds of the same class to which the fee applies, must receive equal treatment regarding the terms and conditions of the fees. Furthermore, the amount of the fee must be reasonable.
For further information one may contact Senior Attorney Susan Dess at the New York City Office.