The Office of General Counsel issued the following informal opinion on May 6, 2005, representing the position of the New York State Insurance Department.
RE: Mass Merchandising
1) May customers of a bank constitute permissible members of a mass merchandising plan for personal lines of insurance pursuant to Regulations 58 and 135?
2) May an advertisement state that "the Bank of XXX customers are eligible for a discount on Personal Insurance products (Automobile, Homeowners, Boat & Umbrella)?"
1) Yes, under certain circumstances, bank customers might constitute permissible members of a mass merchandising plan for personal lines of insurance.
2) A mass merchandising plan does not provide a "discount" for the bank customers from the rates offered to non-plan members. Rather, the rates are determined by the loss exposure of the plan and the expense factors involved in the arrangement between the sponsoring entity and the insurer.
An inquiry was made regarding whether a rating plan could be approved for personal lines of insurance, i.e. automobile, homeowners, boat and umbrella, where bank customers and only bank customers would be eligible for a "discount." It was also inquired as to whether it would be appropriate for an advertisement to read:
the Bank of XXX customers are eligible for a discount on Personal Insurance products (Automobile, Homeowners, Boat & Umbrella).
The concern lies specifically with regard to the words "eligible for a discount."
N.Y. Comp. Codes R. & Regs. tit. 11 Part 13 (McKinney 1995) (Regulation 58) permits employees of particular employers or members of particular associations or organizations to take advantage of rates that result from mass merchandising arrangements between the employer, association or organization and the insurer based on loss exposure and expense factors in securing the insurance.
N.Y. Comp. Codes R. & Regs. tit. 11 §153.1 (j) (McKinney 1995) states that mass merchandising means:
a method of marketing individually underwritten and issued property/casualty or liability insurance policies to participants that are employees of an employer, or members of an association or organization, that has agreed to promote or otherwise facilitate such coverage from an insurer to such participants, with reasonably anticipated economies of acquisition or administration.
A mass merchandising plan is a "quasi-group" under Regulation 153. N.Y. Comp. Codes R. & Regs. tit. 11 §153.1 (q) (McKinney 1995) states that a "quasi group" means:
any method of marketing individually underwritten and issued property/casualty or liability insurance policies in a group context to participants engaged in similar activities or organized in a common network, through a mass merchandising, safety group or similar program in connection with state or federal law or federal purchasing group. (Emphasis added)
The Department has approved one mass merchandising plan for bank customers only for automobile insurance for the credit card customers of the bank. The credit card customers of the bank were determined by the Department to be members of a "quasi-group" as they were individuals organized in a common network through mass merchandising. Since no other program has been approved, no other program may be offered in New York although other programs, if filed with the Superintendent, might qualify for approval under the N.Y. Ins. Law and the regulations promulgated thereunder.
With regard to an advertisement addressing such a mass merchandising plan, it would be inaccurate for the advertisement to state that the bank customers are eligible for a "discount." Quasi-group members do not receive a "discount" on premium rates from the rates offered to non-quasi-group members. Rather, the rates of the mass merchandising plan are determined based on the loss exposure of the quasi-group members, and expense factors involved in securing the insurance under the plan. It would therefore be inappropriate to refer to such rates as a "discount."
Although the N.Y. Ins. Law does not provide specifically for regulation of these advertisements, N.Y. Ins. Law Article 24 (McKinney 2000) authorizes the Superintendent to make a determination that a person subject to the N.Y. Ins. Law is engaging in unfair methods of competition or unfair or deceptive acts or practices that would constitute a defined violation. False or misleading advertisements are also prohibited by N.Y. Penal Law §190.20 (McKinney 1999).
For further information you may contact Supervising Attorney Paul Zuckerman at the New York City Office.