|Eric R. Dinallo
The Office of General Counsel issued the following opinion on February 22, 2007, representing the position of the New York State Insurance Department.
RE: Electronic Signatures on insurance applications and electronic recordkeeping
1. May an insurance agent implement a new system in which its motor vehicle and homeowners insurance applications are signed electronically by insurance applicants?
2. May an insurance agent maintain the applications in electronic format only, thereby eliminating the need to keep hard copies?
3. May an insurance agent file a clients insurance applications electronically
with the clients insurer?
1. Yes. An insurance agent may implement a system in which motor vehicle and homeowners insurance applications are signed electronically by the insurance applicant, so long as the applicant consents to engage in an electronic transaction.
2. Yes. An insurance agent may maintain copies of its clients' insurance applications in electronic format, so long as the agent implements appropriate security measures.
3. Yes. An insurance agent may file a clients insurance application electronically with the clients insurer, if the insurer accepts applications in that format.
The inquirer is an owner of a licensed insurance agency who would like to institute a paperless office for insurance applications. The inquirer asks whether there is any legal impediment to utilizing this sort of system. For purposes of this response, we assume that the proposed system will be acceptable to the insurers that receive the applications.
The inquirer asks whether an insurance agent may implement a new system in which all of its motor vehicle and homeowners insurance applications would be signed electronically by insurance applicants.
The federal Electronic Signatures in Global and National Commerce Act ("E-Sign"), 15 U.S.C.A. §§ 7001-7031, provides that electronic records may not be denied legal effect, validity or enforceability solely because they are created electronically. New York States Electronic Signatures and Records Act ("ESRA"), N.Y. State Tech. Law § 302(3) (McKinney 2004), is consistent with federal E-Sign. N.Y. State Tech. Law § 302(3) defines the term electronic signature as follows:
"Electronic signature" shall mean an electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record.
N.Y. State Tech. Law § 304 (McKinney 2004) authorizes the Office for Technology as the electronic facilitator to establish rules and regulations governing the use of electronic signatures. See N.Y. Comp. Codes R. & Regs. tit. 9, Part 540 (2006). N. Y. State Tech. Law § 305(3) (McKinney 2007) provides that an electronic record has the same force and effect as non-electronic records.
However, N.Y. State Tech. Law § 309 (McKinneys 2004) provides that:
Nothing in this article shall require any entity or person to use an electronic record or an electronic signature unless otherwise provided by law.
Therefore, an applicant may not be required to use an electronic signature under the system proposed. The consent of the applicant to the use of electronic signature is fundamental to the validity of an electronic transaction.
While E-Sign and ESRA both allow for the use and acceptance of electronic signatures and records in commercial transactions, neither one supersedes the requirements of the New York Insurance Law or regulations applicable to doing an insurance business in New York. Thus, before implementing an electronic application process, producers should make sure that the electronic technology chosen will assure compliance with the applicable substantive requirements of the New York Insurance Law and applicable regulations.
New Yorks insurance statutory and regulatory provisions generally do not proscribe electronic transactions, and in fact, the Department has consistently encouraged such use. See Circular Letter No. 33 (1999) and Supplement 1 to Circular Letter No. 33 (September 3, 2003). Indeed, the Department has opined that an insurance agent may accept electronic signatures for motor vehicle and homeowners insurance applications. See General Counsel Opinion No. 03-10-05 (October 14, 2003). While the Department has encouraged the use of electronic signatures, the user of such technology must be capable of verifying that the person providing the electronic signature is actually the party to be charged.
Lastly, we note that the New York State Automobile Insurance Plan, an assigned risk plan that provides coverage to persons who cannot obtain insurance on the voluntary market, requires that in all instances, an insurance producer must meet in person with the individual to whom an insurance policy is being sold. Section 15(A)(1)(c) of the governing document for the plan states in pertinent part:
Each application must be accompanied by a photocopy of the front side of the operators license of the owner/applicant that is applying for insurance. If the owner/applicant applying for insurance is not licensed, the application must be submitted with a photocopy of the drivers license for the principal operator. The producer must personally compare the face and other descriptive features of the owner/applicant (or the principal operator if the owner/applicant is not licensed) with the photograph and descriptive information on the owner/applicants or principal operators drivers license
Thus, at least with respect to assigned risk motor vehicle insurance, the insurance agent or broker must meet with the insured or principal operator, even when the application is signed electronically. The insurance agent or broker must sign the application; this duty may not be delegated.
The inquirer next asks whether an insurance agent may maintain insurance applications in electronic format only.
N.Y. Comp. Codes R. & Regs. tit. 11, § 243 (2007) (Regulation 152) establishes standards for records retention by insurance companies. The term records is defined in § 243.1(b) as books, records, files, securities, data compilations and other documents. Among other things, insurers are permitted to maintain their records in a durable medium, which includes electronic media. Section 243.1(c) provides that:
Durable medium means a medium for maintaining a record where the properties of such medium provide reasonable assurances against tampering with the information contained in the original and degradation of any reproduction generated, and where the reproduction is an exact copy of the original. The medium may include paper; facsimile; or photographic, micrographic, magnetic, optical, mechanical or electronic media. [emphasis added]
Regulation 152 thus establishes that an insurer may maintain insurance records as electronic media.
N.Y. Comp. Codes R. & Regs. tit. 11, § 421 (Regulation 173) (2007) also is relevant to the inquiry. It provides in pertinent part:
(2) Each licensee shall implement a comprehensive written information security program that includes administrative, technical and physical safeguards for the protection of customer information. The administrative, technical, and physical safeguards included in the information security program shall be appropriate to the size and complexity of the licensee and the nature and scope of its activities.
(3) A licensee's information security program shall be designed to:
(a) Ensure the security and confidentiality of customer information;
(b) Protect against any anticipated threats or hazards to the security or integrity of such information; and
(c) Protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
Regulation 173 thus provides that an insurance licensee must utilize a security program that ensures the privacy and confidentiality of the insureds records, regardless of the type of system used. Therefore, an agent or broker who wishes to maintain electronic records must comply with Regulation 173.
Lastly, the inquirer asks whether an insurance agent may file insurance applications electronically with the insurer.
As previously stated, the Department encourages the use of electronic transactions and allows electronic record keeping. Thus, agents and brokers may file a clients insurance applications electronically with an insurer if the insurer accepts applications in that format.
For further information you may contact Supervising Attorney Barbara A. Kluger at the New York City Office.