OGC Op. No. 08-10-04

The Office of General Counsel issued the following opinion on October 10, 2008, representing the position of the New York State Insurance Department.

Re: Down Payment for Personal Automobile Insurance

Questions Presented:

1. May an insurer require an applicant for personal automobile insurance, who has been uninsured in the thirty days immediately preceding the making of the insurance application, to pay a portion of the premium as a down payment to bind the insurance?

2. If permitted, what requirements must an insurer fulfill or what restrictions must it put in place to require these applicants to pay a portion of the premium as a down payment?

3. If permitted, how does requiring these applicants to pay a portion of the premium as a down payment affect guidelines, billing plans, and agency contracts?

Conclusions:

1. New York Vehicle and Traffic Law § 311(5)(c) (McKinney Supp. 2008) requires an insurer to collect at least ten percent of the annual premium due for all new policies.

2. An insurer must apply Vehicle and Traffic Law § 311(5)(c) in a fair and non-discriminatory manner to all new automobile insurance applicants. Specifically, an insurer may not require applicants to pay different down payments unless the underwriting criteria used to determine the down payments relate to the risks being insured. If use of the underwriting criteria results in discrimination in benefits under Article 23 of the Insurance Law or is otherwise expressly prohibited by law, then the insurer may not use the criteria to determine the down payments.

3. The question the inquirer presents is too broad and general in nature. Without more specific facts, the New York State Insurance Department (“Department”) is unable to answer it at this time.

Facts:

The inquirer states that she is a senior compliance analyst at ABC Services, and reports that an insurer has contacted her to determine whether it may require an applicant for personal automobile insurance, who has been uninsured in the thirty days immediately preceding the making of the insurance application, to pay a portion of the premium as a down payment to bind the insurance. This includes new drivers and those who previously had insurance, but who have not had existing coverage within the past thirty days. The inquirer further states that there would not be any difference in the overall premium charged to the applicant.

Analysis:

The Insurance Law and regulations promulgated thereunder do not specifically provide an answer to the inquiry. However, N.Y. Vehicle and Traffic Law § 311(5)(c) requires every certificate of insurance to contain a statement that at least ten percent of the annual premium due on a new policy has been paid. For purposes of that paragraph, a transfer of insurance from one insurer to another by an agent or a broker is not considered the issuance of a new policy.

In the situation presented by the instant inquiry, a personal automobile insurance applicant who has been uninsured during the thirty days prior to making the insurance application would receive a new policy. As a result, Vehicle and Traffic Law § 311(5)(c) applies, thereby requiring the insurer to collect at least ten percent of the annual premium from new automobile insurance applicants.

However, an insurer must apply Vehicle and Traffic Law § 311(5)(c) in a fair and non-discriminatory manner. Specifically, an insurer may not require new automobile insurance applicants to pay different down payments unless the underwriting criteria used to determine the down payments relate to the risks being insured. See Office of General Counsel Opinion 00-07-12 (July 19, 2000). If use of the underwriting criteria results in discrimination in benefits under Article 23 of the Insurance Law, or is otherwise expressly prohibited by law, then the insurer may not use the criteria to determine the down payments. See id. For example, requiring new automobile insurance applicants to pay varying down payments based solely upon geographical location could violate the anti-redlining provisions set forth in Insurance Law § 3429.

Lastly, the inquirer questions how requiring these applicants to pay a portion of the premium as a down payment would affect guidelines, billing plans, and agency contracts. That question, however, is too broad and general in nature for the Department to answer in the absence of more specific facts.

For further information, you may contact Attorney Joana Lucashuk at the New York City office.