The Office of General Counsel issued the following opinion on October 18, 2007 representing the position of the New York State Insurance Department.
RE: Insurer utilizing an MGA seeks specific guidance
What must an insurer do to comply with the requirement of § 33.6(c) of N.Y. Comp. Codes R. & Regs. tit. 11, Part 33 (2003) (Regulation 120) to "at least semi-annually conduct an on-site review of the underwriting and claims processing operations of the MGA?"
Pursuant to § 33.6(c) of Regulation 120, an insurer's duty with respect to supervision of its MGA is to ensure that the MGA is in compliance with the Insurance Law and regulations promulgated thereunder. An insurer must supervise its MGA so that the insurer is managed in a financially prudent manner, and in accordance with all laws.
The inquirer reports that he is an attorney advising an insurer about its responsibility under 11 NYCRR § 33.6(c). The inquirer asks what the insurer must specifically include in its minimum semi-annual on-site review of the underwriting and claims processing operations of its MGA, as defined in 11 NYCRR § 33.6(c).
Section 33.0 is the Preamble of Regulation 120, which was first promulgated in 1985. That provision sets forth the Insurance Department's continuing concern that some insurers may shift their responsibility to manage all or part of their insurance business to an MGA:
Some insurance companies have entered into contracts with individuals or organizations, commonly referred to as managing general agents or managers, to manage all or part of their insurance business. This may represent a shifting of an insurance company's responsibilities to a person, firm, association or corporation outside of its organization. This Part is promulgated because the Insurance Department is concerned that such delegation of authority has been subject to abuses detrimental to both insurance companies and insureds.
Regulation 120, including 11 NYCRR § 33.6(c) about which the inquirer asks, was amended in 2003 to require that certain provisions be included in contracts between insurers and their MGAs. (The amendment was originally enacted on an emergency basis in 2001). The "Needs and Benefits" section of the Regulatory Impact Statement explained as follows:
These new provisions will help ensure that an insurer maintains proper supervision over an MGA and does not relinquish its authority, responsibilities and control to an MGA. This will help maintain the insurer's financial stability, thereby safeguarding the interests of both insureds and the general public, and help protect against any other abuses to insureds that may occur when another entity manages the affairs of the insurer.
An insurer must conduct its business in compliance with the Insurance Law and regulations promulgated thereunder, irrespective of whether the insurer contracts with an MGA. An insurer that contracts with an MGA has the duty under the Insurance Law and regulations promulgated thereunder, which the insurer may not delegate, to supervise the MGA so that the insurer is managed in a financially prudent manner, and in accordance with all laws.
Regulation 120 does not specifically direct what an insurer must do to comply with 11 NYCRR § 33.6(c). That provision states: "The insurer shall at least semi-annually conduct an on-site review of the underwriting and claims processing operations of the MGA." The regulation does not specify what the insurer must include in its review, but since the insurer is responsible for ensuring compliance with the Insurance Law and regulations promulgated thereunder, the review must be sufficient to satisfy the insurer that the MGA is acting in a prudent and proper manner, and that the insurer does not relinquish its responsibilities.
For further information, you may contact Senior Attorney Robert Freedman at the New York City office.