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Insurance industry priorities in the 2009 legislative session.


The restaurants and bars are more crowded, and parking spaces are even harder to find. Non-locals walk the streets in expensive suits carrying leather portfolios and placard carrying protestors disembark from coach buses and block our streets. Yes, each of these sights are a sure sign that the 2009 New York Legislative session is now in full swing up here in sunny Albany. With a large current year budget deficit looming, and the New York economy continuing its steady decline, this session will be dominated by debate over the Governor's deficit reduction plan and other efforts that will be designed to enable the State Government to weather this crisis.

Nonetheless, there are numerous important insurance issues that will come up for consideration this year. As discussed in earlier columns, the new leadership in the State Senate could bring a major change in direction for New York's insurance industry. Senator Neil Breslin, the new chair of the Senate Insurance Committee and his majority members on the committee will undoubtedly bring some new initiatives and priorities to the legislative process.

With all of that being said, I will attempt to predict what the industry can expect from the 2009 legislative session. (In case you might want to rely on my prediction I should warn you that I predicted that the New York Mets would be in the World Series last year.) I have had several discussions with industry and trade association representatives and I believe that the legislation described below will be considered in some way during this legislative session:

Agent and Broker issues--There should be a great deal of activity effecting agents and brokers this year. Of course, the recent release of a preliminary draft of a compensation disclosure regulation by the New York Insurance Department has many tongues wagging here in Albany. While a more in-depth article on this entire matter will come in a latter issue, it suffices to say here that the dramatic impact that this proposed regulation will have on the producer side of the business will most assuredly result in some legislative involvement. Depending on how amenable the Department is in the next few months to changing the proposed regulation to make it more palatable to the industry, it is not out of the question to envision that the Agent and Broker trade groups will seek some legislative "protection" from the Department.

The Professional Insurance Agents of New York (PIANY) reports that its members will seek a repeal of the mandatory photo inspection requirement of damaged automobiles contained in the New York regulations. While enacted over 20 years ago to combat fraud and reduce auto insurance premiums, the PIA argues that the photo inspection program has instead become a largely ineffective nightmare for insurers, agents and claimants. The significant advances in fraud detection and fighting, along with the institution of technological advances, make the photo identification program "redundant and unnecessary."

The NYPIA will also seek to raise the threshold at which carriers may impose premium surcharges under NY Ins. Law Section 2335, from $1,000 to $2,000. The change is necessary to keep pace with inflation and the rising cost of automobile repairs. Also on the agenda is a proposed amendment to Article 28 of the Insurance Law to extend that laws protections against the use of credit information to commercial lines insurance. Increasingly, credit histories of individuals is being accessed and used by carriers in underwriting commercial lines of insurance. The NYPIA will also ask the legislature to allow agents to request cancellation of a policy in circumstances where the agent has accepted a client's check for the premium which is subsequently returned for insufficient funds. Currently, a June 2007 General Counsel's opinion provides that in those circumstances the agent is deemed to have "loaned" the client the premium payment and the agent's only recourse is to collect from the client. The legislation would put New York on a similar footing in these matters as Connecticut or New Jersey.

The Independent Insurance Agents & Brokers of New York, Inc. (IIABNY) have reported that they are working with the New York Department to develop legislation to transition from New York's current licensing system to a single producer license, thus leaving behind the concept of multiple licenses and equating New York with other states. The "Big I" Association chair, Neal L. Sullivan, believes that "a change to a single producer license will greatly benefit insurance producers by eliminating the administrative burden and costs of maintaining and renewing multiple licenses." Other issues on the "Big I" agenda are standardizing windstorm deductible triggers in coastal areas to alleviate consumer confusion between insurance carriers and implementation of "non-adversarial" alternative dispute mechanisms for settling insurance claims in the aftermath of a major hurricane or other disaster to speed up the payment to claimants in such a crisis situation.

The "Big I" will also seek reintroduction of 2008 legislation which would place the State Insurance Fund under the regulatory control of the Superintendent of Insurance. The bill would require SIF to obtain a license from the Department and be subject to the same regulations as other insurers providing worker's compensation insurance. Further the bill provides that rules governing the conduct of SIF operations would have to be approved by the Superintendent. The "Big I" seeks to create a "level playing field" between SIF and its private sector competitors.

The "Big I" also opposes the provisions in the Governor's budget that would raise the fine for acting without a license or aiding an unauthorized insurer from $500 to $10,000 per occurrence on the basis that an honest mistake in timely renewing a license could subject a licensee to such staggering penalties that he or she would be forced out of business.

Life Insurance--Perhaps one of the biggest issues on the life insurance side this session will be the life settlement bill. Each year since 2005, life insurers, their agents and brokers, and members of the life settlement industry have sought legislation which would extend the Department's supervision to this controversial market. Each year, however, the parties involved are unable to reach consensus and no legislation has been enacted. Last year, the Department draft dominated the session when it was released but was moved aside for a proposal that was based, at least in part, on the National Conference of Insurance Legislators (NCOIL) model bill. The controversy always centers on the practice known as "Stranger originated life insurance" or STOLI which entails the initiation of a life insurance policy solely for the purpose of selling the policy into the secondary market.

A possible variable in this complex scenario may develop as the Department is expected to propose a "new" life settlements bill. In 2008, the Department held several public hearings across the state focusing on the consumer impact of a life settlement. These hearings were designed to elicit testimony from consumer advocates and persons who were a party to a life settlement arrangement. The new legislative proposal will presumably incorporate information gathered at those hearings and also may include, perhaps, lessons learned in prior sessions. The new Department bill may be released imminently.

Another topic that will undoubtedly come up for consideration this year will be a bill to authorize New York's participation in the Interstate Insurance Product Regulation Commission (also known as the Interstate Compact). Perhaps 2009 will be the year that New York joins the other 33 states that have agreed to be members of the Compact which provides a "one-stop" approval process for life insurance, annuity, disability and long term care insurance product forms. The bill, which would create a new Article 88 of the Insurance Law, would authorize the policy form approvals, which would take place at the Compact located in Washington, D.C., to be usable for New York consumers.

There are two other potential areas that may see some activity. The regulatory issues surrounding variable annuities with guaranteed living benefits could take the form of a legislative initiative in the near future. This complex area has been the topic of much conversation between life insurers and their regulators and the issue could spill over into the legislative session if one party or the other sees no other way to resolve these issues. Another issue that is not necessarily a life insurance issue is the question of whether or not the state insurance regulators should begin to regulate credit default swaps. The CDS market played a significant role in last fall's financial market meltdown and state legislators may be ready to step into this critical area.

Also expected in the life area will be proposed legislation to decrease the number of New York resident directors on life insurer boards from two to one and to enact the National Conference of Insurance Legislators' (NCOIL) model Market Conduct Surveillance Law. Neither proposal has had much traction in the past.

Property Casualty--Even though last year's session was an extremely productive one for the Property Casualty industry, there remains several important issues to be considered which would affect that sector in 2009. No-fault and worker's compensation insurance fraud issues are always very much on the minds of insurers and it is reasonable to expect more legislation on these issues. The industry seek may seek to again pass legislation to mandate arbitration of no-fault motor vehicle insurance claims.

There may be renewed push this year to further curtail or prohibit insurer's use of credit scoring data in the underwriting of various property casualty policies.

Legislation has already been introduced that would require the licensing of title insurance agents.

Another area to keep an eye on is whether the task force on worker's compensation group self insurance, which was created by the controversial 2008 bill increasing the Worker's Compensation Board's oversight of the entire self-insurance area, will recommend further provisions to get better control of this market. Among the potential recommendations is the creation of a dedicated "security fund" for self-insurance.

The Senate leadership is also proposing a bill to lower the trigger levels for Insurance Department approval of market withdrawals by carriers. This bill would base the triggers on regional in-force levels instead of statewide in-force levels. The result would be that withdrawals from particular regions of the state, such as coastal areas, would become significantly harder to enact, and would involve the extensive showings required in Article 32 of the insurance law.

Health Insurance--This area could, perhaps, be the busiest one for insurance legislation. With the new Senate leadership focusing on health insurance issues in many of its early submissions, health insurers and HMO's could be busy putting our many fires as the session progresses. Senator Neil Breslin has proposed the HMO liability bill which would create legal liability for health care decisions made by HMO officials not made in a "timely" or prudent manner. This bill has not moved through the Senate in previous sessions but with the change in leadership in the Senate, this bill could pass this year in some form.

As the state's uninsured population grows in these difficult economic times, bills to provide health coverage for more New Yorker's may receive renewed attention. Cost estimates for universal coverage has potentially put that concept on the back burner in this budget crisis but we may see less ambitious measures such as "freedom health insurance plans" which combine and expand existing programs like Healthy--NY and health savings accounts to facilitate coverage of more New Yorkers.

Also expected are the usual bills which mandate that health plans cover many maladies and conditions that are not currently covered, such as cleft palates, cleft lip, enteral formulas and eosinophilic disorders.

Depending on how long it takes the state legislature to resolve the current deficit and enact a new budget for the next fiscal year, there may be some time left in the session to consider a number of insurance issues. If fiscal issues are not resolved until very late in the session, there may only be time enough to consider the most pressing issues and to defer others to a time when the financial picture is more settled.

By Peter Molinaro

Former Senior Deputy Superintendent of the New York State Insurance Department and Attorney at Law
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Title Annotation:AROUND NEW YORK
Author:Molinaro, Peter
Publication:Insurance Advocate
Date:Feb 23, 2009
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