BILL NUMBER:S2875

TITLE OF BILL:
An act
to amend the insurance law, in relation to permitting certain agreements
by domestic mutual insurance corporations

PURPOSE:
To permit domestic mutual insurance
corporations to enter
into certain compensation agreements with firms and corporations in
which an officer or director has only an "indirect" pecuniary interest.

SUMMARY OF PROVISIONS:
Section 1: Amends Insurance Law Section
1209(f) that upon application be a domestic mutual insurance
corporation, the superintendent may permit the insurance corporation
to enter into such agreement with a firm or corporation that is a
licensed producer if the superintendent determines that (1) the
insurance corporation's policyholders will not be adversely affected,
(2) the officer or director has no pecuniary interest directly in the
insurance producer, and (3) any benefit to the officer or director
that accrues as a result of the agreement would not be material in
relation to the insurance corporation's overall premium volume.

Section 2: Effective date.
              

EXISTING LAW:
Existing law prohibits domestic mutual insurance
companies (except those organized before January 1, 1940 to do only
marine protection and indemnity insurance) from entering into an
agreement with any of the company's officers or directors, or with
any firm or corporation in which any such officer or director is
pecuniarily interested directly or indirectly, whereby the insurance
corporation agrees to pay, for the acquisition of business, any
commission or other compensation which under the agreement is
increased or diminished by the amount of such business or by the
insurance corporation's earnings on such business.

The Insurance Department has interpreted this law as prohibiting a
mutual insurance company from entering into a profit sharing
commission agreement with an insurance agency simply because one of
the insurance company's officers also served as a director of a
corporation that owned the insurance agency. The Insurance Department
found that the insurance company officer had an "indirect" pecuniary
interest in the insurance agency.

JUSTIFICATION:
The existing prohibition is an outdated and overly
restrictive limitation put in place nearly a century ago. It serves
no legitimate purpose today and is no longer practical in today's
business environment. In today's business community, many directors
and officers of insurance companies also serve on the board of
directors of various other, non-insurance business corporations.
Today, many corporations are part of a larger holding company
structure, and it is quite possible that a corporation where an


insurance company officer selves as director would have affiliates or
subsidiaries that engage in insurance activities. This provision
unnecessarily prohibits a mutual insurance company from entering into
certain compensation agreements with these insurance agency
affiliates and discourages mutual insurance company officers and
directors from sharing their talents and serving as directors and
officers of various other corporations.

LEGISLATIVE HISTORY:
S.7794 of 2010

FISCAL IMPLICATIONS:
None.

EFFECTIVE DATE:
Immediately.