Regulatory Impact Statement for the Adoption of the Fourteenth Amendment to 11 NYCRR 27 (Insurance Regulation 41).

1. Statutory authority: The Superintendent's authority for the promulgation of the Fourteenth Amendment to Insurance Regulation 41 (11 NYCRR Part 27) derives from Sections 301, 316, 2101, 2104, 2105, 2110, 2116, 2117, 2118, 2121, 2122, 2130, 9102, and Article 21 of the Insurance Law, Sections 202 and 302 of the Financial Services Law, Chapter 225 of the Laws of 1997, Chapter 587 of the Laws of 2002, and Chapter 61 of the Laws of 2011.

The federal Nonadmitted and Reinsurance Reform Act of 2010 (the "NRRA") significantly changed the paradigm for excess line insurance placements in the United States. Chapter 61 of the Laws of 2011 amended the Insurance Law and the Tax Law to conform to the NRRA.

Insurance Law Section 301 and Financial Services Law Sections 202 and 302 authorize the Superintendent of Financial Services (the "Superintendent") to prescribe regulations interpreting the provisions of the Insurance Law, and effectuate any power granted to the Superintendent under the Insurance Law. Insurance Law Section 316 authorizes the Superintendent to promulgate regulations to require an insurer or other person or entity making a filing or submission with the Superintendent to submit the filing or submission to the Superintendent by electronic means, provided that the insurer or other person or entity affected thereby may submit a request to the Superintendent for an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause, subject to the Superintendent's approval.

Insurance Law Article 21 sets forth the duties and obligations of insurance brokers and excess line brokers. Insurance Law Section 2101 sets forth relevant definitions. Insurance Law Section 2104 governs the licensing of insurance brokers. Insurance Law Section 2105 sets forth licensing requirements for excess line brokers. Insurance Law Section 2110 provides grounds for the Superintendent to discipline licensees by revoking or suspending licenses or, pursuant to Insurance Law Section 2127, imposing a monetary penalty in lieu of revocation or suspension. Insurance Law Section 2116 permits payment of commissions to brokers and prohibits compensation to unlicensed persons. Insurance Law Section 2117 prohibits the aiding of an unauthorized insurer, with exceptions. Insurance Law Section 2118 sets forth the duties of excess line brokers, with regard to the placement of insurance with eligible foreign and alien excess line insurers, including the responsibility to ascertain and verify the financial condition of an unauthorized insurer before placing business with that insurer. Insurance Law Section 2121 provides that brokers have an agency relationship with insurers for the collection of premiums. Insurance Law Section 2122 imposes limitations on advertising by producers. Insurance Law Section 2130 establishes the Excess Line Association of New York ("ELANY").

Insurance Law Section 9102 establishes rules regarding the allocation of direct premiums taxable in New York, where insurance covers risks located both in and out of New York.

2. Legislative objectives: Generally, unauthorized insurers may not do an insurance business in New York. In permitting a limited exception for licensed excess line brokers to procure insurance policies in New York from excess line insurers, the Legislature established statutory requirements to protect persons seeking insurance in New York. The NRRA significantly changed the paradigm for excess (or "surplus") line insurance placements in the United States. The NRRA prohibits any state, other than the insured's home state, from requiring a premium tax payment for excess line insurance. Further, the NRRA subjects the placement of excess line insurance solely to the statutory and regulatory requirements of the insured's home state and declares that only an insured's home state may require an excess line broker to be licensed to sell, solicit, or negotiate excess line insurance with respect to the insured. In addition, the NRRA establishes uniform eligibility standards for excess line insurers. A state may not impose additional eligibility conditions.

Under the new NRRA paradigm, an excess line broker now must ascertain an insured's home state before placing any property/casualty excess line business. Thus, if the insured's home state is not New York, even though the insured goes to the broker's office in New York, the excess line broker must be licensed in the insured's home state in order for the broker to procure the excess line coverage for that insured. Conversely, a person who is approached by an insured outside of New York must be licensed as an excess line broker in New York in order to procure excess line coverage for an insured whose home state is New York.

On March 31, 2011, Governor Andrew M. Cuomo signed into law Chapter 61 of the Laws of 2011, Part I of which amended the Insurance Law to conform to the NRRA. This rule accords with the public policy objectives Congress and the Legislature sought to advance in enacting the NRRA and Chapter 61 by making conforming changes so that the rule does not conflict with them.

3. Needs and benefits: Insurance Regulation 41 governs the placement of excess line insurance. The purpose of the excess line law is to enable consumers who are unable to obtain insurance from authorized insurers to obtain coverage from eligible excess line insurers. This rule implements the provisions and purposes of Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the NRRA. The NRRA and Chapter 61 took effect on July 21, 2011 and have been impacting excess line placements since that date.

Prior to the enactment of the NRRA, Insurance Regulation 41 prohibited an excess line broker from placing coverage with an excess line insurer unless the insurer had established and maintained a trust fund. However, the new NRRA eligibility requirements do not include a trust fund with respect to foreign insurers (alien insurers, however, must maintain a trust fund that satisfies the International Insurers Department ("IID") of the National Association of Insurance Commissioners ("NAIC")). As such, New York no longer is requiring a trust fund with respect to foreign insurers.

In addition, Insurance Regulation 41 currently states that when the insured's home state is New York, an excess line broker may not place coverage with an unauthorized insurer unless the insurer has filed with the Superintendent a current listing that sets forth certain individual policy details. Such a requirement could be construed as an eligibility requirement not permitted under the NRRA. Accordingly, Insurance Regulation 41 is being amended to instead impose an affirmative requirement on an excess line insurer to file certain individual policy details when the insured's home state is New York, rather than prohibiting an excess line broker from placing coverage if the insurer has not filed these details.

Insurance Regulation 41 also currently requires an excess line broker to obtain and review certain information before placing insurance with an unauthorized insurer. The Department recognizes that certain of the required information is not publicly available and that as a result of the NRRA, an unauthorized insurer may not provide the information voluntarily to an excess line broker. Therefore, the Department is amending Insurance Regulation 41 to remove from the list certain information that an excess line broker must obtain and review.

Insurance Law Section 316 authorizes the Superintendent to promulgate regulations to require an insurer or other person or entity making a filing or submission with the Superintendent to submit the filing or submission to the Superintendent by electronic means, provided that the insurer or other person or entity affected thereby may submit a request to the Superintendent for an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause, subject to the approval of the Superintendent. The amendment requires excess line brokers to file annual premium tax statements electronically, and requires excess line insurers to file electronically listings that set forth certain individual policy details. In addition, the Department is amending Insurance Regulation 41 to allow excess line brokers or insurers to apply for a "hardship" exception to any electronic filing or submission requirement.

4. Costs: The rule is not expected to impose costs on excess line brokers, and it merely conforms the requirements regarding placement of coverage with excess line insurers to the requirements in Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the NRRA. While new Section 27.14 imposes an affirmative requirement on an excess line insurer to file certain individual policy details when the insured's home state is New York, this section should not impose any additional costs on excess line insurers, because excess line insurers have already been filing this information. Although the amended rule will require excess line brokers to file annual premium tax statements and will require excess line insurers to file listings that set forth certain individual policy details electronically, most brokers and insurers already do business electronically. In fact, ELANY already requires documents to be filed electronically. Moreover, the regulation also provides a method whereby excess line brokers and insurers may apply for an exemption from any electronic filing or submission requirement.

Costs to the Department also should be minimal, as existing personnel are available to review any modified filings necessitated by the rule. In fact, filing forms electronically may produce a cost savings for the Department.

This rule does not impose compliance costs on any state or local governments.

5. Local government mandates: This rule does not impose any program, service, duty, or responsibility upon any county, city, town, village, school district, fire district, or other special district.

6. Paperwork: The rule does not impose any new reporting requirements on regulated parties. While new Section 27.14 imposes an affirmative requirement on an excess line insurer to file certain individual policy details when the insured's home state is New York, this section does not impose any new reporting requirements on excess line insurers, because excess line insurers already are filing this information.

7. Duplication: The regulation will not duplicate any existing state or federal rule, but rather will implement and conform to the federal requirements.

8. Alternatives: Originally, when the Department promulgated this amendment on an emergency basis, it made an excess line insurer subject to Insurance Law Section 1213 (service of process on Superintendent as attorney for unauthorized insurers) if the insurer chooses not to maintain a trust fund. However, after further discussion with industry representatives, the Department has decided to eliminate the trust fund section altogether in order to achieve uniformity with other states in a manner consistent with the goals of the NRRA.

In addition, the Department considered continuing the requirement that when the insured's home state is New York, an excess line broker may not place coverage with an unauthorized insurer unless the insurer had filed with the Superintendent a current listing that sets forth certain individual policy details. However, after discussion with industry representatives, the Department decided to instead impose an affirmative requirement on an excess line insurer to file certain individual policy details when the insured's home state is New York.

The Department also considered continuing the requirement that an excess line broker obtain and review certain information before placing insurance with an unauthorized insurer. However, after discussion with ELANY, the Department decided to remove from the list certain information that an excess line broker must obtain and review because the Department recognized that certain information is not publicly available and that an excess line broker likely could not otherwise obtain it from an unauthorized insurer.

9. Federal standards: This regulation does not exceed any minimum standards of the federal government for the same or similar subject areas. Rather, the rule implements the provisions and purposes of Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the NRRA.

10. Compliance schedule: Pursuant to Chapter 61 of the Laws of 2011, this amendment, which has been previously promulgated on an emergency basis, impacts excess line insurance placements effective on and after July 21, 2011 and thus the permanent adoption will take effect upon publication of the rule in the State Register.

 

Statement setting forth the basis for the finding that the Fourteenth Amendment to 11 NYCRR 27 (Insurance Regulation 41) will not impose adverse economic impact or compliance requirements on small businesses or local governments.

This rule is directed at excess line brokers and excess line insurers.

Many excess line brokers are independently owned and have fewer than 100 employees, and therefore are small businesses as defined in State Administrative Procedure Act Section 102(8). However, the rule is not expected to have an adverse impact on these small businesses because it conforms the requirements regarding placement of coverage with excess line insurers to Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the federal Nonadmitted and Reinsurance Reform Act of 2010.

In addition, the Insurance Law and Insurance Regulation 41 already require excess line brokers to file annual premium tax statements. The rule merely requires that such filings be made electronically, and thus does not establish any new reporting or compliance requirements on them. However, an excess line broker may submit a request to the Superintendent of Financial Services ("Superintendent") for an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause, subject to the Superintendent's approval.

Further, the Department of Financial Services ("Department") has monitored annual statements of excess line insurers subject to this rule, and believes that none of them fall within the definition of "small business," because there are none that are both independently owned and have fewer than 100 employees.

Accordingly, the 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 rule does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliance requirements, on any local governments.

 

Statement setting forth the basis for the finding that the Fourteenth Amendment to 11 NYCRR 27 (Insurance Regulation 41) will not impose adverse economic impact or compliance requirements on rural areas.

The Department of Financial Services ("Department") finds that this rule does not impose any additional burden on persons located in rural areas, and the Department finds that it will not have an adverse impact on rural areas. This rule applies uniformly to regulated parties that do business in both rural and non-rural areas of New York State.

 

Statement setting forth the basis for the finding that the Fourteenth Amendment to 11 NYCRR 27 (Insurance Regulation 41) will not have a substantial adverse impact on jobs and employment opportunities.

The Department of Financial Services finds that this rule should not have any impact on jobs and employment opportunities. The rule conforms the requirements regarding placement of coverage with excess line insurers to Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the federal Nonadmitted and Reinsurance Reform Act of 2010.