The Office of General Counsel issued the following opinion on May 10, 2004, representing the position of the New York State Insurance Department.
Re: Minimum Earned Premium Imposed By Unauthorized Insurer
Question Presented:
May an unauthorized insurer that issues a property/casualty insurance policy through a licensed excess line broker impose a percentage based minimum earned premium?
Conclusion:
An unauthorized insurer that issues a property/casualty insurance policy through a licensed excess line broker is not prohibited from imposing a percentage based minimum earned premium, subject to N.Y. Ins. Law § 3428(a) and (d) (McKinney 2000).
Facts:
A licensed insurance broker ("Broker") states that his firm does business with non-admitted insurance companies through excess line brokers. We interpret that to mean that the firm works with licensed excess line brokers to have insurance placed with unauthorized insurers. The Broker cited a paragraph from an opinion that he viewed on the Department's web site, dated March 8, 2002, which states as follows:
Whether an insurer may charge a minimum earned premium of twenty-five percent on a property/casualty policy of commercial risk insurance, no matter how long the policy is in effect, is dependent upon the insurer's ability to prove that the minimum earned premium filed equals the cost associated with issuing the policy. It is unlikely, however, that a percentage based premium (rather than a flat charge) would be acceptable because the purpose of the minimum earned premium is to cover the expenses of writing the business.
The Broker questions whether this statement is applicable with respect to a property/casualty insurance policy written by an unauthorized insurer through a licensed excess line broker.
Analysis:
In accordance with N.Y. Ins. Law § 2303 (McKinney 2000) regarding the standard for property/casualty insurance rates, an authorized insurer may charge a minimum earned premium where it has supportable evidence that the minimum earned premium equals the cost associated with issuing the policy. As the Broker noted, the Department has opined that a flat fee, rather than a percentage of the premium, would most likely achieve such objective.
N.Y. Ins. Law § 2302(a) (McKinney 2000) states in relevant part: "This article shall apply to all kinds of insurance written on risks or operations in this state by an insurer authorized to do business in this state . . . . " (emphasis added.) Thus, unauthorized insurers are not subject to Article 23 of the New York Insurance Law. In that regard, an unauthorized insurer that issues a property/casualty insurance policy through a licensed excess line broker is not prohibited from imposing a percentage based minimum earned premium.
N.Y. Ins. Law § 3428 (McKinney 2000) applies to unauthorized insurers. The minimum earned premium that an insurer may retain upon policy cancellation is that amount which is provided for in the policy, whether shown in dollar or percentage amounts. N.Y. Ins. Law § 3428(a) (McKinney 2000).
Additionally, N.Y. Ins. Law § 3428(d) (McKinney 2000) establishes a cap on the minimum earned premium an insurer may retain when the premiums have been advanced under a premium finance agreement.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.