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PIANY legislative wrap-up—2009 Resource kit 31059 By Matthew F. Guilbault, Esq. The Professional Insurance Agents of New York State Inc. is a voluntary, membership-based trade association representing professional, independent property/casualty insurance agents. A statewide organization, PIANY represents member-insurance agencies doing business in every New York community. In every city; every town and every village, our members provide valuable property/casualty insurance coverage to protect the homes, businesses and automobiles of the citizens of New York state. PIANY members employ more than 20,000 insurance professionals, providing insurance for more than 2,000,000 households and 750,000 businesses, governmental units and other organizations. PIANY's issues protect our members' interests as well as those of their policyholders. As in years past, PIANY's 2009 priority legislative issues sought to protect both independent insurance agents and brokers and their policyholders. These included successfully fighting against misguided tax and fee increase proposals in the state budget as well as defending our members' interests against an overly burdensome compensation disclosure proposal drafted by the state Insurance Department. During the 2009 legislative session, PIANY also continued our tradition of placing the interests of our clients first. PIANY redoubled our efforts to pursue important consumer protection proposals that aimed to: reduce accident surcharges on policyholders who suffer minor automobile accidents; correct an unintended result of the 2007 Workers' Compensation Reform Law that adds unnecessary costs and could discourage economic activity by those visiting New York on business; repeal mandatory photo inspections; and provide credit-scoring protections for commercial lines. In the end, the Legislature had little to show for the 2009 session. After finally coming to terms with who controls the majority in the upper house (an issue that stalled legislative work for the majority of the session), the state Senate finally got back to work passing sweeping rules changes for its house which promised a more equitable distribution of resources while empowering individual members in the legislative process. Work on day-to-day legislation, however, remained stalled and in the end, the Legislature had little to show for the 2009 session. Here is a recap of some of PIANY's priority issues and how these issues fared at the conclusion of the 2009 state legislative session: Contingent compensation/disclosure: defending the independent producer The majority of our effort this session was placed on defending our members' interests as they relate to their ability to accept contingent compensation and working steadily against mandatory disclosure proposals. Background. In 2004 performance-based compensation earned by the state's thousands of insurance agents and brokers unjustly came under attack after a handful of large insurance brokers were investigated and settled with the attorney general for wrong doing. The state took appropriate action to halt these practices. These parties had knowingly entered into certain highly unusual, leveraged compensation agreements that rewarded illegal conduct as part of larger, anti-competitive business models. There is no basis in these actions to extend a ban on standard, performance-based compensation agreements to honest small businesses that conduct business legally. PIANY, therefore, opposed (and continues to oppose) proposals that would outlaw the payment of performance-based compensation to insurance agents and brokers. Furthermore, PIANY believes that, in New York state, existing state law, regulation and regulatory guidance already address disclosure. Charges against the mega-brokers showed violations of these existing rules, offenses that were detected and duly punished. Section 2119 of the Insurance Law and related regulations require written disclosure agreements whenever a customer pays a fee, including additional disclosure of commissions that may be earned in addition to consulting fees. Circular Letter 22 (1998) provides further regulatory guidance on disclosure and recordkeeping for broker compensation. No additional mandates are warranted. As it stands now. Despite numerous meetings by PIANY leaders with both the Insurance Department and the attorney general's office, this year the Insurance Department proceeded to draft proposed rules to require disclosure by insurance producers regarding their compensation by insurers. During a series of meetings, e-mails and conference calls, the New York State Insurance Department took a number of our comments on earlier drafts into consideration, and the improvements we sought have been incorporated into the most recent draft issued in September. Most recently, the Professional Insurance Agents of New York State Inc. met with the governor's counsel to discuss this most recent, and expected final, draft of the long-developing insurance producer compensation disclosure regulation. The meeting, set up at the request of the governor's counsel, gave PIANY the unique opportunity to discuss changes to the final draft and ensure that the needs of both independent insurance agents and consumers are protected. Following approval from the governor's office and the Governor's Office of Regulatory Reform, the regulation will be published in the State Register, initiating a formal 45-day public comment period. Changes already secured through PIANY's advocacy and incorporated into the second draft included: deletion of offensive language purporting an inherent “conflict of interest” on the part of independent producers; addition of a warning to consumers that producers cannot rebate their compensation; a two-step disclosure process that incorporates a “boilerplate” up-front disclosure suited more appropriately to the buyer's level of interest and inquiry; and provision for oral disclosure in some cases. PIANY is pleased to report on even further changes for which it advocated that were incorporated into the third draft, including: the adoption of a "de minimus" standard to eliminate the need to disclose advertising products less than $100 cumulatively per insurer; an expanded option for oral disclosure which expands the opportunity for the producer to comply with the initial disclosure orally; a limitation on the amount of time a producer must maintain records, which states that a purchaser can request information up to three years after the placement of the original policy; a more realistic scope of alternative quote information required to be retained. The new draft removes the word "detailed" from the mandate of providing descriptions of alternative quotes and deletes the term "considered," so if the purchaser requests more information about alternative quotes, the producer now will be required to provide a description of any alternative quotes actually "obtained"; and elimination of the penalty section of the regulation. This new draft strikes the penalty portion of the regulation, eliminating any reference to Unfair Trade Practices contained in the prior draft. While we appreciate the frank, open dialogue the Insurance Department has maintained with producer groups throughout the process, PIANY will continue to object to the imposition of any mandatory disclosure requirement on independent producers and will offer final comments on the draft regulation during the formal public comment period. Watch for further details and compliance guidelines in your PIA publications. State budget: increased insurance fees, fines and assessments defeated When money is tight in Albany, PIANY maintains special vigilance, lest our members and/or their policyholders be singled out for ruinous additional levies by the state. In January, Gov. David A. Paterson announced a two-year, $5.2 billion deficit reduction plan that included substantial hikes in fines and penalties on insurance producers. PIANY is pleased to report that, due to our strong opposition, the final budget proposal eliminated a majority of these costly and misguided fee increase proposals. Among the proposals we were able to defeat are: an increase in the maximum penalty for willful violation of the Insurance Law from $500 to $2,500—DEFEATED; an increase in the fines for acting without a license from $500 to $10,000 for each transaction—DEFEATED; an increase in the amount of time an insurance producer whose license has been revoked must wait to be eligible for re-licensing from one to three years—DEFEATED; an increase in the penalties for acting for or aiding unlicensed or unauthorized insurers or health maintenance organizations from $500 to $10,000—DEFEATED; an increase in the penalties the superintendent may impose in lieu of revoking or suspending a license from $500 to $2,500—DEFEATED; an increase in the penalties for rebating from $500 to a maximum of $5,000—DEFEATED; application of these penalties to virtually any prohibited act or any regulation—DEFEATED; an increase in the amount of civil penalty the superintendent may impose in connection with unfair methods of competition and unfair and deceptive acts and practices from $500 to $1,000—DEFEATED; and a proposal which would have allowed the superintendent to issue an emergency cease-and-desist order without prior notice and hearing—DEFEATED. While no one condones violations of the Insurance Law, PIANY expressed the concern of its members that the proposed levels of these fines were not commensurate with the gravity of the underlying offenses. Additionally, the final budget proposal jettisoned the proposal to require insurance agent, broker, adjuster, consultant or intermediary applicants to submit their fingerprints to the Division of Criminal Justice Services as part of a background check. However, despite PIANY's opposition, $5 increase in the MVLE surcharge on auto insurance policies was retained and the MVLE fees were made permanent. Auto insurance Prohibit surcharges for minor vehicle damage. Given today's repair costs, the most minor vehicle damage results in expensive insurance surcharges. Legislation supported by PIANY would prevent surcharges for these incidents. New York state currently lets insurers surcharge drivers for three years, following accidents causing property damage of more than $1,000. The current $1,000 threshold has been in place since 1991. Since then, the cost of auto repairs has increased dramatically. Today, the slightest fender bender can exceed $1,000. Total surcharges paid over the next three years can equal or exceed the insurance claim benefit. This is unfair to consumers. Moreover, it leads many to pay out of pocket, when they could legitimately collect from their insurer. It puts agents in an untenable position when clients ask what they should do. PIANY believes accidents should not result in surcharges unless they cause at least $2,000 in damage. (A.1952/S.1700) These bills died in committee. Combat auto insurance fraud. PIANY proudly participates in a coalition dedicated to fighting fraud in our auto insurance system: New York 's competitive auto-insurance market already reflects the benefit of reforms the New York First Auto Fraud coalition has helped enact. But more can be accomplished. PIANY advocated for: Extending time for fraud challenges. Currently, insurers only get 30 days to spot a suspicious claim. Criminalizing “runners.” Fraud specialists called “runners” organize fake accidents and help run up huge medical bills. Set treatment standards. Approved standards (like those used in New Jersey for auto-accident victims and recently enacted in New York state for workers' compensation) could reveal unnecessary or fictitious doctor visits, treatments, tests and procedures. Mandate arbitration for provider disputes. Currently, arbitrated decisions on disputed medical payments aren't binding. This clogs both the arbitration and the court systems. Repeal mandatory photo inspections. PIANY considers this outdated requirement onerous and unnecessary. We support repeal of the underlying statute (Insurance Law Section 3411), which has been rendered unnecessary by vastly improved ways of verifying and tracking the existence and physical condition of insured vehicles since its original enactment. (S.1039) This bill died in committee. Side-door airbags. Permits insurance premium reductions for personal injury protection and medical payment coverages for side door airbags in noncommercial private-passenger vehicles; also allows for a premium credit for other vehicles so equipped. (A.1004) This bill was vetoed. Consumer credit Protect the use of an individual's credit data in commercial-lines rating. New York state protects individual consumers when their credit data is pulled to underwrite and rate personal-insurance products. However, these same individuals lack protection if their credit is used regarding a commercial policy, as frequently happens to owners of small businesses. PIANY believes commercial policyholders should be notified if their credit information will be accessed. (A.5181) This bill died in committee. Workers' compensation Out-of-state insurance requirements. New York state's historic workers' compensation reforms made many beneficial changes to the workers' compensation system—changes that will benefit New York workers and employers for decades to come. As with any major undertaking, a few results were unforeseen. In the effort to crack down on non-New York employers operating within the state without New York coverage, the reform inadvertently swept in everyone who may visit New York in an employment-related role: people attending professional conventions; business flyers changing planes at the state's airports; long-haul truckers traversing the Thruway; or others who have no New York operations or job sites. Potential enforcement of these requirements threatens such severe consequences that people and businesses may well avoid coming to New York state. With so much at stake, our members cannot rely on vague guidelines or regulatory pronouncements that may be in conflict with a judge's interpretation of the law. Legislative change is needed so these incidental contacts within the state can remain covered under their home states' insurance policies for New York claims. PIANY supports language permitting a return to the pre-reform rules for incidental or transient contact within the state. This change would not affect the requirement that these employees must be covered if they make New York claims for any injury occurring in the state. Compensation for brokers' services from the State Insurance Fund. Currently, insurance brokers whose business clients obtain workers' compensation coverage from the New York State Insurance Fund get no compensation for their services on these clients' behalf. This practice contrasts with the state's other residual markets for automobile and property insurance, which do pay brokers' commissions. PIANY believes the time has come to change the State Insurance Fund practice of denying compensation to the insurance professionals that serve its policyholders. Enhance policyholder protections. Currently, other types of business insurance coverage are governed by provisions of Insurance Law that confer far greater protections than apply to workers' compensation. Better protection against cancellation and nonrenewal and longer notice prior to coverage termination all would be conferred if workers' compensation were added to the type of insurance protected under Section 3426 of the Insurance Law. Workers' compensation should be afforded the protections offered under Section 3426 of the Insurance Law. Property insurance Catastrophe funds. Hurricane Katrina and the events of Sept. 11 underscored how quickly enormous amounts of property can be destroyed. Each disaster caused insured losses of around $40 billion. As a result, insurance companies were forced to reassess their exposure to catastrophic loss. Losses as high as $100 billion have been projected if a major storm were to hit Long Island. PIANY urges caution as New York lawmakers consider a strictly state-based catastrophe fund. Previous insurance-related funds (originally created by the Legislature in good faith) have been raided when the state budget fell short. A stand-alone New York fund, even if maintained intact, would require significant financial contributions by the state, yet could fail to provide adequate protection when put to the test. The danger to the national economy from major catastrophes requires participation by the federal government. Congress needs to create an ultimate financial backstop with a framework for state-level participation and change to federal tax policy. Only Congress can enact tax changes allowing insurers to reserve a part of their premiums for future catastrophes. New York should consider a state-level catastrophe funding mechanism only in partnership with a pre-existing federal plan including tax changes. (S.1017, et al) This bill died in committee. Windstorm deductibles. Provides that the maximum deductible allowed on policies for windstorms shall not be greater than $1,500. (A.337/ S.241) This bill died in committee. Annual company reports. Requires insurers to report annually on the types of coverage written, premiums charged, losses incurred, policy nonrenewals and cancellations. (S.330) This bill died in committee. Coastal Market Assistance Program. Reduces the percentage of policies that an insurer can cancel or nonrenew without state approval, requires insurers to demonstrate potential risk or loss, to justify such cancellations or nonrenewals before such approval shall be granted, authorizes the superintendent of insurance to have oversight over participation levels in a Coastal Market Assistance Program and limits notices of intent by insurers. (S.331) This bill died in committee. Consumer Advocate Insurance Commission. Establishes the Consumer Advocate Insurance Commission. (S.413) This bill died in committee. Redlining. Prohibits discrimination in the issuance of homeowners insurance policies and clarifies prohibition of refusal to issue policies based solely on geographical location. (A.2742) This bill died in committee. Nonrenewal. Limits an insurer's reduction of coverage by limiting the volume of notices of intention to 4 percent of the total number of covered policies of such insurer's rating territory. (A.2760) This bill died in committee. Labor Law reform Change Labor Law “absolute liability” to a negligence standard. Sections 240, 241 and 241-a of the New York Labor Law impose an absolute liability standard on general contractors and property owners when workers are injured at their job sites. Absolute liability removes access to the customary legal defenses when a suit is brought. Because of this law, insurers cut back general liability coverage for the state's contractors. Most can get coverage only with exclusions precluding payments for Labor Law cases, so contractors risk bankruptcy from uninsured claims. Many contractors cannot get insurance that satisfies the terms of their construction contracts or cannot stay in business due to high insurance costs. Increasingly, these claims affect owners of properties where contractors work. The state faces a loss of jobs and economic activity as the costs are factored into bids and new construction becomes uneconomical. PIANY supports a change to substitute a negligence standard for the absolute liability imposed by current law. (A.1895/S.4037) These bills died in committee. Other issues Restrict advertising in official state mailings. PIANY believes state agencies should not send commercial ads in official state mailings, when the advertised product or service is related closely to the agency's regulatory authority. This practice implies that the state's official endorsement is for sale and could mislead the public. Moreover, it puts New York state small businesses that cannot afford to pay for this expensive advertising at a competitive disadvantage to large national corporations. (A.1100) This bill died in committee. Self-storage insurance. This bill would have permitted self-service storage companies to obtain limited licenses to sell insurance coverage on personal property stored in a self-service storage space. (S.3577) This bill was vetoed by the governor. Risk-based capital requirements for fraternal benefit societies. This bill makes all authorized fraternal benefit societies subject to the risk-based capital ("RBC") requirements of Insurance Law Section 1322. (S.4768) This bill was signed into law as Chapter 289. Stock or mutual insurance companies. This bill revised the standards relating to the incorporation of stock or mutual insurance companies. (A.1005) This bill was signed into law as Chapter 293. New York domicile of foreign insurance companies. This bill authorizes foreign insurance companies to transfer their corporate domicile to New York. (S.3628/A.7249) This bill was signed into law as Chapter 48. For more information on any of these issues, or help in researching any insurance-related topic, just give us a call at (800) 424-4244. 9/09

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