Insurance Circular Letter No. 3 (2024)

May 23, 2024

TO: All Insurers Authorized to Write Property/Casualty Insurance in New York State, the New York Property Insurance Underwriting Association, and Rate Service Organizations

RE: Offering of Loss Mitigation Tools and Services and Discounts for the Installation of Loss Mitigation Devices and Systems

STATUTORY AND REGULATORY REFERENCES: N.Y. Insurance Law §§ 1113(a), 1106, 1610, 2324(a), 2346, and 2346-a, and 11 NYCRR § 160.6

I. Purpose

Property/casualty insurance rates have increased significantly in recent years, while the availability of coverage has decreased.  In order to reduce risks and costs to ensure a more affordable and resilient market, the purpose of this Circular Letter is to encourage all insurers authorized to write property/casualty insurance in New York State to offer loss mitigation tools and services to insureds for free or a reduced fee, such as smart water monitor and shutoff devices in connection with homeowners’ insurance policies, and to encourage insurers, the New York Property Insurance Underwriting Association (NYPIUA), and rate service organizations (RSOs) to file with the Department of Financial Services actuarially appropriate discounts for insureds for the installation of devices or systems that mitigate or prevent losses, including, but not limited to, smoke alarms, sprinkler systems, fire extinguishers, and deadbolt locks. Insurers and NYPIUA are also reminded that they must provide an actuarially appropriate reduction in rates for the fitting or retrofitting of real property with hurricane/storm shutters and hurricane resistant laminated glass windows or doors pursuant to Insurance Law §§ 2346 and 2346-a and 11 NYCRR § 160.6.

II. Discussion

Insurers have expressed an interest in providing loss mitigation tools and services, such as smart water monitor and shutoff devices and electrical fire sensors and monitors, to insureds for free or a reduced fee.& Insurance Law § 2324(a) applies to property/casualty insurance and generally prohibits an insurer from paying or offering to pay, or giving or offering to give, to a person, a rebate or inducement that is not specified in the insurance policy. However, this section permits an insurer to pay or offer to pay, or give or offer to give, to a person, any valuable consideration, including merchandise or periodical subscriptions, not exceeding $25 in value, that is not specified in the policy. The $25 limitation refers to market value available to the general public and not to a special rate that the insurer may negotiate. See Insurance Circular Letter No. 2 (2022) and OGC Opinion No. 88-102 (NILS) (Dec. 8, 1988). An insurer may not pay or offer to pay, or give or offer to give, valuable consideration that equals or exceeds the insured’s premium. See Insurance Circular Letter No. 2 (2022). In addition, the valuable consideration should be paid or offered in a fair and nondiscriminatory manner to like persons. See id. If the valuable consideration exceeds $25 in market value, then it must be specified in the policy pursuant to Insurance Law § 2324(a). In reviewing policy forms, the Department looks to see that the goods or services offered in the policy have a legitimate nexus to the insurance coverage provided under the policy and are necessarily or properly incidental to the insurer’s insurance business. See Insurance Law § 1113(a); see also Insurance Law §§ 1106 and 1610 and Insurance Circular Letter No. 2 (2022).

The Department permits insurers to offer loss mitigation tools and services to insureds for free or a reduced fee.  If the tool or service is $25 or less in market value, then the insurer may offer it for free or a reduced fee without being specified in the insurance policy If the tool or service exceeds $25 in market value, then it must be specified in the insurance policy, have a legitimate nexus to the insurance, and be necessarily or properly incidental to the insurer’s insurance business. For example, the Department considers smart water monitor and shutoff devices and electrical fire sensors and monitors to have a legitimate nexus to a homeowners’ insurance policy and to be necessarily or properly incidental to the insurer’s insurance business. When including these tools and services in a policy, the policy should specify what is being offered, who is paying for the tools and services, and how much an insured must pay. The Department will not accept overly broad or vague language that could allow for unfair discrimination among like insureds or otherwise violate other provisions of the Insurance Law or regulations promulgated thereunder.

In addition, the Department encourages insurers, NYPIUA, and RSOs to file with the Department actuarially appropriate discounts to insureds for the installation of devices or systems that mitigate or prevent losses, including, but not limited to, smoke alarms, sprinkler systems, fire extinguishers, and deadbolt locks. See Insurance Law §  2346.  In addition, insurers and NYPIUA are reminded that they must provide an actuarially appropriate reduction in rates for the fitting or retrofitting of real property with hurricane/storm shutters and hurricane resistant laminated glass windows or doors pursuant to Insurance Law §§ 2346 and 2346-a and 11 NYCRR § 160.6.

III. Conclusion

Property/casualty insurance rates have increased significantly in recent years, while the availability of coverage has decreased In order to reduce risks and costs, the Department encourages insurers, NYPIUA, and RSOs to facilitate the adoption of loss mitigation tools and services, such as smart water monitor and shutoff devices in connection with homeowners’ insurance policies, and to file with the Department actuarially appropriate discounts, which will strengthen the financial condition of insurers, lower costs for insureds, and result in a more stable and resilient insurance market.

Please direct questions regarding this circular letter by email to [email protected].

Very truly yours,

Bernard Ganley
Deputy Superintendent, Property Bureau