STATE OF NEW YORK
GEORGE E. PATAKI, GOVERNOR
April 15, 1999
GOVERNOR INTRODUCES BILL TO DEREGULATE COMMERCIAL INSURANCE
Bill Would Provide More Insurance Options for New Yorks Small Businesses
Governor George E. Pataki today proposed landmark legislation to deregulate the commercial insurance business in New York State removing burdensome and unnecessary requirements that hinder the ability of New Yorks property and casualty insurers to offer innovative insurance products that are responsive to the needs of their business customers.
"New York State remains the undisputed financial services capital of the world and New Yorks insurance market is as sophisticated and innovative as any other," Governor Pataki said. "It is time for our insurance laws to match this sophistication. "The legislation I am proposing today would remove the regulatory straitjacket it has been wearing for so long and give New Yorks insurers the ability to provide the kinds of varied products our states businesses need," the Governor said.
This bill marks a new chapter in insurance regulation in New York State. This proposal continues valuable protections for consumers while changing the way the State regulates insurers.
Businesses with unique insurance needs are often forced to purchase coverage from out of state companies or in some instances overseas because New Yorks domestic insurers are not able to customize products for their business.
The existing regulatory process puts New York at a competitive disadvantage because insurers are required to obtain approval from the Insurance Department before offering new products or setting customer premium rates, while insurers in other jurisdictions are free to respond to competitive forces and changing market conditions. This bill would eliminate those burdensome and time-consuming restrictions that stand in the way of insurers ability to tailor products according to the individual needs of their customers.
"Under this proposal, New Yorks businesses would be able to choose from a much broader range of insurance products products that fit the needs of their varied businesses," said the Governor. "Business customers would have access to these innovative products faster, while still reaping the benefits of important consumer protections afforded to them under New York State law."
The Governors proposal calls for the deregulation of certain lines of commercial property and casualty insurance, but would not affect any personal auto, homeowners or other personal lines policies, medical malpractice, workers compensation and certain financial insurance products. The proposal also would have no effect on the way life insurance is regulated in New York State.
Regulation of commercial lines insurance included in the new bill represents a fundamental change in the way New York State regulates these insurance products. By removing regulatory requirements that are unnecessary and burdensome for this market, the Insurance Department would be able to shift its focus from intrusive and time-consuming supervisory activities such as reviewing cumbersome rate and form filings.
Instead, the Department would be able to channel its efforts into two critical areas: evaluating companies risk profiles in order to ensure their solvency, and monitoring market conduct to identify and stop abusive practices that may occur periodically.
Dan Walsh, President of the Business Council of New York State, said, "This legislation will expand the choices in purchasing insurance available to businesses throughout New York. In addition, the proposal will enhance the ability of our New York insurers to compete with foreign companies in selling insurance to New York businesses. Our New York businesses should have even greater opportunity to buy their insurance coverage from a New York insurer this legislation gives them that ability."
Mark Alesse, State Director of the New York Chapter of the 25,000 member National Federation of Independent Business, said, "The Governor has once again taken a bold step in improving New Yorks small business environment. In an economy that is changing at the speed of light, small businesses will gain from the ability to purchase insurance products tailored to their evolving individual needs."
New York State Insurance Department Superintendent Neil D. Levin said, "This proposal represents a paradigm shift in New York States approach to the regulation of commercial lines insurance. With this legislation, we will be getting out of the business of micro-managing the types of products insurers offer to their business customers, and instead monitor solvency and market conduct. As regulators, our job is to ensure the safety of the these products, protect customers, and to penalize companies that fail to comply with the law."
The bill would provide the Department with important new tools to achieve these regulatory goals. Risk Based Capital (RBC) standards will be applied to property and casualty insurers; standards that have been used successfully to monitor the capital strength of life insurers since 1993. These standards provide the Department with a valuable tool to measure a companys capital based on its size and the risks associated with its operations. RBC assists the Department in the early detection of inadequately capitalized companies allowing time for the Department to help avoid any further deterioration in condition. In addition, the bill would extend these risk standards to the operations of New Yorks health organizations.
The bill also enhances the Departments authority to impose civil penalties for violations of the law by increasing the current penalty of up to $500 per violation to a maximum of $5,000. In addition, a series of new penalties would be added for violations by insurers that issue policies in the newly-deregulated market. The maximum penalties would increase with the severity of the violation. In the most egregious cases, the Department would be authorized to impose a penalty of up to the lesser of $250,000, or one percent of the insurers total admitted assets, per violation per day. This additional authority will help deter companies from engaging in illegal practices.