The Office of General Counsel issued the following opinion on November 2, 2006 representing the position of the New York State Insurance Department.
Re: Surcharge on auto insurance premiums
May an insurer waive a surcharge when the three-year period for that surcharge with respect to an accident will expire within approximately the first 30-40 days of a new policy with a twelve-month term?
No, an insurer may not waive a surcharge when the three-year period for a surcharge with respect to an accident will expire within approximately the first 30-40 days of a new policy with a twelve-month term. Premiums charged by insurance companies, including surcharges, are required to be in accordance with rate/rule filings and may not summarily be changed by an insurer in disregard of its filings.
The inquirer switched insurers and is required to pay a surcharge for an accident that occurred on July 14, 2003. The new insurance started on September 23, 2006. The inquirer was told by the insurer that her policy has a twelve-month term and the surcharge will remain in effect for the whole policy term, even though the three-year period for the surcharge expires within approximately the first 30-40 days of the policy.
The inquirer wants the insurer to pro-rate the surcharge so that she is only surcharged for the first few months of the policy.
Section 169.0 of N.Y. Comp. Codes R. & Regs. tit. 11, part 169 (1997) (Reg. 100) regulates noncommercial motor vehicle insurance merit rating plans. Section 169.0 defines a merit rating plans as:
systems of rules, varying by company, for imposing insurance rate surcharges and credits, based upon an individuals past accident or violation record.
Motor vehicle insurers must file all merit rating plans for prior approval with the Superintendent. Under N.Y. Ins. Law § 2303 (McKinney 2006), the rates charged by insurers may "not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers."
Further, N.Y. Ins. Law § 2334 (McKinney 2006) establishes the standards for merit rating plans. Section 2334(a) states:
The superintendent shall, after public hearing, promulgate a regulation, which may be amended from time to time, applicable to non-commercial private passenger automobile insurance merit rating plans which reflect an individual driver's experience with respect to accidents, claims or traffic violations. The regulation shall continue to encourage competition among insurers, but shall discourage merit rating plan provisions which may tend to create confusion or misunderstanding among insureds. The regulation shall establish standards and limitations intended to insure that merit rating plans are reasonable, understandable and objective and are not unfairly discriminatory, inequitable, violative of public policy or otherwise contrary to the best interests of the people of this state.
Under N.Y. Ins. Law § 2335 (McKinney 2006), an insurer may increase a policy premium for a conviction of certain traffic infractions of the Vehicle and Traffic Law if the conviction occurred "during the thirty-six month period ending on the last day of the fourth month preceding the month of the effective date of the policy." Although under Regulation 100 there is no specific time frame that insurers may include a surcharge to the premium due to prior accidents, most insurers use the same thirty-six month period as for convictions. When an insured has an accident, the surcharge may not be applied to the policy until renewal so it is not applied on the actual date of the accident. Further, in accordance with the insurers plans, the surcharge remains on for the whole policy term, even though the three-year period for applying the surcharge has expired.
As to the charging of rates, N.Y. Ins. Law § 2314 (McKinney 2006) states,
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.
Premiums charged by insurance companies, including surcharges, are required to be in accordance with their rate/rule filings and may not summarily be changed by an insurer in disregard of its filings. Unless the policy has a specific change in exposure midterm (i.e. if the driver who had the accident no longer resides in the household), the rates may not be adjusted midterm.
For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.