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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on December 27, 2005, representing the position of the New York State Insurance Department.

RE: Minimum Premium for IRPM Plan

Question Presented:

May the $2,500 per coverage threshold that is required under N.Y. Comp. Codes R. & Regs. tit. 11, § 161.8 (Reg. 129) in order to apply an IRPM plan to a divisibly rated policy be replaced with a threshold amount of $5,000 for total policy premium?

Conclusion:

No, the $2,500 per coverage threshold that is required under N.Y. Comp. Codes R. & Regs. tit. 11, § 161.8 (Reg. 129) in order to apply an IRPM plan to a divisibly rated policy may not be replaced with a threshold amount of $5,000 for total policy premium.

Facts:

An actuary proposes an IRPM plan for his employer’s ("Insurer") Apartment and Condominium Association policy, which provides more than one type of coverage, each of which is separately rated and for which separate premiums are developed.

The actuary seeks to avoid the $2,500 per coverage threshold required to apply an IRPM plan to each of the coverages under the program policy and wishes to replace the threshold amount per individual coverages with a $5,000 minimum combined coverage premium. He believes this is permissible under N.Y. Comp. Codes R. & Regs. tit. 11, § 161.8 (Reg. 129).

Analysis:

N.Y. Comp. Codes R. & Regs. tit. 11, § 161.8 (Reg. 129) states in relevant part:

(a) Experience rating, schedule rating, IRPM, loss rating, composite rating and retrospective rating plans may be used in the rating of commercial risk, professional liability and public entity insurance policies, and may not be used in rating personal lines policies. Expense reduction plans may be used in connection with commercial and personal lines policies.

(b) Such rating plans shall contain reasonable internal credibility constraints and, for eligibility purposes, may only be used in the rating of risks which would otherwise generate at least the following basic limits premium for the type(s) of insurance addressed by the particular rating plan, except that an indivisibly rated policy shall generate a basic limits premium of at least $3,500 in order to qualify for application of an experience rating, schedule rating or IRPM plan:

(1) Experience Rating $2,500

(2) Schedule Rating $2,500

(3) IRPM $2,500

(4) Expense Reduction $10,000

(5) Retrospective Rating $25,000

* * *

(d) Any rating plan designed to be applied simultaneously to property, liability or other types of coverages shall contain reasonable factors that give appropriate recognition to the distinct exposures involved in such coverages, except that the divisible premium attributable to each of the different coverages involved may not be combined for purposes of determining whether such risk meets the premium thresholds set forth in subdivision (b) of this section.

An indivisibly rated policy is one that provides more than one type of coverage but uses only one rate to develop the premium for the entire policy, such as a business owner’s policy (BOP). A divisibly rated policy, such as a commercial package policy, contains one or more types of coverage that are each rated separately and for which separate premiums are developed. The Apartment and Condominium Association policy, which provides more than one type of coverage, each of which is separately rated and for which separate premiums are developed, is a divisibly rated policy.

Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 161.8 (Reg. 129) the minimum premium that must be generated in order to qualify for application of an IRPM plan is $2,500 for each type of coverage under a divisibly rated policy, and $3,500 total premium for an indivisibly rated policy. Should any of the coverages under a divisibly rated policy not generate at least $2,500 in premium, such coverage(s) will not be eligible for the application of the IRPM plan.

Thus, the $2,500 per coverage threshold that is required under N.Y. Comp. Codes R. & Regs. tit. 11, § 161.8 (Reg. 129) in order to apply an IRPM plan to a divisibly rated policy may not be replaced with a threshold amount of $5,000 for total policy premium.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.