Regulatory Impact Statement for the Twelfth Amendment to 11 NYCRR 216 (Insurance Regulation 64).

1. Statutory authority: Sections 202 and 302 of the Financial Services Law and Sections 301, 2601, and 3404(e) of the Insurance Law. Financial Services Law § 202 grants the Superintendent of Financial Services (“Superintendent”) the rights, powers, and duties in connection with financial services and protection in this state, expressed or reasonably implied by the Financial Services Law or any other applicable law of this state. Insurance Law § 301 and Financial Services Law § 302 authorize the Superintendent to prescribe regulations interpreting the provisions of the Insurance Law and to effectuate any power granted to the Superintendent under the Insurance Law. Insurance Law § 2601 prohibits an insurer doing business in New York State from engaging in unfair claims settlement practices, sets forth certain acts that, if committed without just cause and performed with such frequency as to indicate a general business practice, constitute unfair claims settlement practices, and imposes penalties if an insurer engages in these acts. Insurance Law § 3404(e) sets forth the form of the standard fire insurance policy (which form may be substituted for another policy form provided that, with respect to the peril of fire, terms and provisions are no less favorable to the insured), which requires an insured to protect the insured’s property from further damage.

2. Legislative objectives: Insurance Law § 2601 prohibits an insurer doing business in New York State from engaging in unfair claims settlement practices and sets forth a list of acts that if committed without just cause and performed with such frequency as to indicate a general business practice, will constitute unfair claims settlement practices. Furthermore, Insurance Law § 301 and Financial Services Law § 302 authorize the Superintendent to prescribe regulations interpreting the provisions of the Insurance Law and to effectuate any power granted to the Superintendent under the Insurance Law.

3. Needs and benefits: On October 26, 2012, in anticipation of extensive power outages, loss of life and property, and ongoing harm to public health and safety expected to result from then-Hurricane Sandy, Governor Andrew M. Cuomo issued Executive Order 47, declaring a State of Disaster Emergency for all 62 counties within New York State. As anticipated, Storm Sandy struck New York State on October 29, 2012, causing extensive power outages, loss of life and property, and ongoing harm to public health and safety. In addition, a nor’easter struck New York just a week later, adding to the damage and dislocation. Many people still had not had basic services such as electric power restored before the second storm hit.

Insurers insuring property in areas that were hit the hardest by the storms, including Long Island and New York City, have not always begun to investigate all claims, including by deploying insurance adjusters to adjust the claims, in a prompt manner. As a result, many homeowners and small business owners have not been able to start to repair or replace their damaged property. As the holiday season approaches and temperatures drop, it is of the utmost importance that homeowners and small business owners be able to start to rebuild their homes and businesses right away.

Therefore, with respect to New York, Bronx, Kings, Richmond, Queens, Nassau, Suffolk, Westchester, Rockland, and Orange, the areas that suffered the greatest storm damage, this rule reduces the number of days within which an insurer must commence an investigation of a claim upon receiving notice of the claim and, if the insurer wishes its investigation to include an inspection of the damaged or destroyed property, requires that the inspection, whether performed by the insurer, an independent adjuster, or other representative of the insurer, occur within the prescribed time frames. In addition, the rule clarifies that, where necessary to protect health or safety, a claimant may commence immediate repairs to heating systems, hot water systems, and necessary electrical connections, as well as exterior windows, exterior doors, and, for minor permanent repairs, exterior walls, in order to enable property to retain heat, and that any policy requirement that the policyholder exhibit the remains of the property may be satisfied by the policyholder submitting proof of loss documentation of the damaged or destroyed property, including photographs or video recordings; material samples, if applicable; and inventories, as well as receipts for any repairs to or replacement of property. The clarification regarding repairs does not apply to claims under flood policies issued under the national flood insurance program.

4. Costs: This rule does not impose compliance costs on state or local governments. The rule may increase costs for insurers, because they may need to hire additional staff to comply with the reduced time period within which they must commence an investigation. However, because of the magnitude of the storm and the extraordinary degree of damage, it is hard to quantify the cost impact. This rule should, though, speed up the claims process and thereby may reduce costs for homeowners and small business owners who will be able to repair or replace their damaged or destroyed property sooner.

5. Local government mandates: This rule does not impose any requirement upon a city, town, village, school district, or fire district.

6. Paperwork: This rule does not impose any additional paperwork.

7. Duplication: This rule will not duplicate any existing state or federal rule.

8. Alternatives: The Department considered making these rules applicable to the entire state. However, since the concerns appeared to be localized, the applicability of the amendment is limited to those counties most impacted by the storm.

9. Federal standards: There are no minimum standards of the federal government for the same or similar subject areas. The rule is consistent with federal standards or requirements.

10. Compliance schedule: Insurers will be required to comply with this rule upon the Superintendent’s filing the rule with the Secretary of State.

Statement setting forth the basis for the finding that the Twelfth Amendment to 11 NYCRR 216 (Insurance Regulation 64) will not impose adverse economic impact or compliance requirements on small businesses or local governments.

1. Small businesses: The Department of Financial Services (“Department”) finds that this rule will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping, or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at insurers authorized to do business in New York State, none of which fall within the definition of a “small business” as found in State Administrative Procedure Act § 102(8). The Department has monitored annual statements and reports on examination of authorized insurers subject to this rule, and believes that none of the insurers falls within the definition of “small business” because no insurer is both independently owned and has fewer than 100 employees.

2. Local governments: The rule does not impose any impact, including any adverse impact, or reporting, recordkeeping, or other compliance requirements on any local governments. The basis for this finding is that this rule is directed at authorized insurers, which are not local governments.

Rural Area Flexibility Analysis for the Twelfth Amendment to 11 NYCRR 216 (Insurance Regulation 64).

1. Types and estimated numbers of rural areas: Insurers affected by this rule operate in every county in this state, including rural areas as defined under State Administrative Procedure Act (“SAPA”) § 102(10).

2. Reporting, recordkeeping and other compliance requirements; and professional services: The rule would not impose any additional reporting or recordkeeping requirements. However, the rule would impose other compliance requirements on insurers operating in rural areas by reducing the number of days within which an insurer must commence an investigation of a claim upon receiving notice of the claim and, if the insurer wishes its investigation to include an inspection of the damaged or destroyed property, the inspection, whether performed by the insurer, an independent adjuster, or other representative of the insurer, requiring that the inspection occur within the prescribed time frames.

It is unlikely that professional services would be needed in rural areas to comply with this rule.

3. Costs: The rule may result in additional costs to insurers in rural areas, because they may need to hire additional staff to comply with the reduced time period within which they must commence an investigation. However, because of the magnitude of the storm and the extraordinary degree of damage, it is hard to quantify the cost impact. However, this rule should speed up the claims process and thereby may reduce costs for homeowners and small business owners who will be able to repair or replace their damaged or destroyed property sooner.

4. Minimizing adverse impact: The Department of Financial Services considered the approaches suggested in SAPA § 202-bb(2) for minimizing adverse economic impacts Because the public health, safety or general welfare has been endangered, establishment of differing compliance or reporting requirements or timetables in rural areas is not appropriate; however the rule applies only in the counties of New York, Bronx, Kings, Richmond, Queens, Nassau, Suffolk, Westchester, Rockland, and Orange, the areas that suffered the greatest storm damage, and thus impact of the rule on rural areas is minimized.

5. Rural area participation: Public and private interests in rural areas will have an opportunity to participate in the rule making process once the rule is published in the State Register and posted on the Department’s website.

Statement setting forth the basis for the finding that the adoption of the Twelfth Amendment to 11 NYCRR 216 (Insurance Regulation 64) will not have a substantial adverse impact on jobs and employment opportunities.

The Department of Financial Services finds that this rule will have little or no impact on jobs and employment opportunities. This rule reduces the number of days within which an insurer must commence an investigation of a claim upon receiving notice of the claim, and, where necessary to protect health or safety, permits a claimant to commence immediate repairs to certain of the claimant’s property without awaiting an inspection.

The Department does not believe that this rule will have any adverse impact on jobs or employment opportunities, including self-employment opportunities.