BILL NUMBER: S3640

SPONSOR: BRESLIN
 
TITLE OF BILL:  An act to amend the insurance law, in relation to
enhancing the financial condition of domestic mutual property and casu-
alty insurance companies

 
PURPOSE:

This bill would provide for parity between the treatment of taxes and
regulatory compliance expenses in the law governing management expense
caps for domestic mutual property and casualty insurers and cooperative
insurers.

 
SUMMARY OF PROVISIONS:

Section 1. Amends subsection (a) of section 4110 of the Insurance Law to
add as an expense that is not included within the definition of manage-
ment expenses for domestic mutual property and casualty insurance compa-
nies the expenses incurred in complying with the laws requiring an
insurer to obtain an independent certified public accountant's opinion
              

on the insurer's financial statement, the mandate to obtain an independ-
ent qualified actuary's Statement of Actuarial Opinion, and compliance
with the cybersecurity regulation.

Section 2. Amends subsection (b) of section 6613 of the Insurance Law to
add as an expense that is not included within the definition of manage-
ment expenses for cooperative property and casualty insurance companies-
the expenses incurred in complying with the laws requiring an insurer to
obtain an independent certified public accountant's opinion on the
insurer's financial statement, the mandate to obtain an independent
qualified actuary's Statement of Actuarial Opinion, and compliance with
the cybersecurity regulation.

Section 3. The bill shall take effect immediately.

 
JUSTIFICATION:

Domestic mutual property and casualty insurance companies are important
drivers of the New York state economy, employing well over 1,500 New
Yorkers. In addition, they provide important property and casualty
coverage to numerous New York businesses and individuals as well as
businesses and individuals in other states. Another group of New York
domestic property and casualty insurance companies, cooperatives, are
also serving a vital role in the New York property and casualty insur-
ance market. Cooperatives are the major insurance writers of farm
owners' coverage and agricultural-related small businesses, small
contractors' liability insurance, seasonal businesses, as well as small
diners and taverns. Co-ops also provide employment for over 2,200
professional and clerical staff in New York State, with the vast bulk of
these jobs spread throughout Upstate New York. Furthermore, New York
cooperative insurance companies provide necessary property and casualty
coverage to over 70,000 New York State small businesses.

Both domestic mutual property and casualty insurers and cooperatives are
subject to numerous costly mandates that divert scarce resources away
from their primary function to offer essential property and casualty
insurance coverage to New Yorkers and New York businesses.  Three of
these mandates are fees paid to an independent certified public account-
ant to render an opinion on the insurer's financial statement, fees paid
to an independent actuary for rendering the statement of actuarial opin-
ion, and the expenses of complying with the financial services cyberse-
curity regulation contained in 23 NYCRR Part 500. Since the management
expense cap for these companies already excludes items such as taxes and
the fees and expenses of the examination all domestics must undergo.
every 3 to 5 years, this legislation would merely add three similar
expenses as those that should be excluded from calculating the manage-
ment expense cap.

Another factor supporting this legislation is the reality that all of
these companies pay almost 1 percent of their premium in Financial
Services Law section 206 assessment, with over 50 percent of the
expenses paid for from this assessment not going to pay for the operat-
ing expenses of the New York Department of Financial Services as the law
originally intended but rather is annually diverted to other state agen-
cies. By freeing up the ability of these insurers to increase investment
of their capital, they can maximize their services to customers and hire
more New Yorkers.

These compliance costs are especially harming the smaller cooperatives,
who have been covering thousands of homeowners, renters, small busi-
nesses and farms in New York for decades and, in many cases, for over a
century. Unfortunately, over the last few decades some have had to close
up shop or be acquired by other insurers, leading to less competition in
the insurance markets of rural and underserved areas of Upstate New
York. Failing to recognize these costs in the current management expense
cap state laws may result in the market options shrinking considerably
with the policyholders very possibly facing price increases due to the
lack of options.

In sum, this bill is needed to ensure a stable, competitive and vibrant
property and casualty insurance market in New York, a market that will
benefit New Yorkers.

 
LEGISLATIVE HISTORY:

S.7540 of 2017-18.

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately.