Assessment of Public Comment for the First Amendment to 11 NYCRR 57 (Insurance Regulation 113).
Currently, some insurers re-classify certain insureds as smokers or tobacco users upon the attainment of a specified age without evidence of the insured's actual tobacco or nicotine usage. This amendment to Insurance Regulation 113 prohibits insurers from classifying an insured as a smoker or tobacco user unless the insured actually smokes or uses tobacco or nicotine products. The amendment also requires insurers to describe in the policy any procedures for the insured to seek risk reclassification.
The Department of Financial Services ("Department") received one comment during the public comment period from a trade association of life insurers. It commented that group insurance policies and individual conversion policies should be excluded from the scope of Insurance Regulation 113. It also commented that the Superintendent has no authority to create a determined violation by regulation.
The trade association asserts that the implementation (e.g., sale) and administration of group life insurance policies are designed to be simpler than those of individual life insurance policies, to effectuate cost efficiencies and facilitate the administration of large numbers of certificates. The trade association further asserts that some computer systems used by insurers or third party administrators ("TPAs") in the administration of group insurance are not configured to administer group coverage as the regulation contemplates (i.e., by billing a portion of a group participant's coverage at smoker rates and another portion at non-smoker rates), which could occur when an existing insured requests an increase in coverage and the insured's rating classification has changed. The trade association asserts that compliance with the proposed requirements would necessitate costly system changes for group insurers, thereby increasing the cost of doing business in New York and the price of some insurance coverages for New York consumers.
The Department does not agree that it is either necessary or appropriate to exclude group insurance from the proposed rule for the following reasons:
First, the reclassification of insureds as smokers or tobacco users at issue here constitutes post-issue underwriting, which the Superintendent deems unjust, unfair and inequitable. Insurers may not engage in this practice either through contractual terms included in their policy forms, or as an administrative matter.
Second, insurers already issue policies and certificates that either administer two rates for an individual insured or deny the additional coverage if it could not be underwritten at the existing risk classification and rate. The rule does not dictate how insurers, TPAs or, for that matter, employers should administer their billing systems. They are free to develop systems that allow flexible practices and procedures so long as they comport with the law. The Department believes there are cost effective solutions that would not require changing the software suite. For example, an insurer may determine the ratio of coverage amounts and rates and calculate an integrated premium for the consumer; it would then have to maintain a separate record of the ratio and coverage amounts. Alternatively, it could separately enter the coverage amounts as though there were two separate insureds.
The trade association also asserts that individual conversion policies should be excluded from the scope of the regulation, but provides no explanation as to why. The Department believes that the association's concern focuses on the conversion of group coverage to an individual life insurance policy, where the group policy was issued on a composite or unismoke basis. However, the regulation does not prohibit an insurer from issuing an individual conversion policy using the same rating classification as the original group insurance.
In addition, the trade association made a comment regarding new Section 57.6, which provides that a violation of Section 57.5 shall be deemed to be an unfair method of competition or an unfair or deceptive act or practice in the conduct of the business of insurance in New York, and shall be deemed to be a trade practice constituting a determined violation, as defined in Insurance Law Section 2402(c), in violation of Insurance Law Section 2403. The trade association asserts that the Superintendent has no authority to create a determined violation by regulation or prospectively to declare an act to be a determined violation. The association contends that the law allows the Superintendent to make such a finding only after a hearing pursuant to Insurance Law Section 2405. The association notes that once a decision is rendered and the method of competition, act or practice constituting the determined violation has not been discontinued, the Superintendent, through the Attorney General, may cause an action to be instituted to enjoin the person from engaging in the determined violation.
The Department agrees that the Superintendent must hold a hearing and make findings before taking action against a person in a specific case, but the same generally would be true with respect to any other violation. We disagree that the Superintendent may not clearly establish by regulation that specific methods, acts or practices would be determined violations, subject to the Superintendent's finding that such activity or practice occurred or was occurring in a specific case. The Superintendent has broad authority pursuant to Financial Services Law Sections 202 and 302 and Insurance Law Section 301 to interpret the provisions of the Insurance Law and to promulgate regulations implementing the law and furthering the public policy of this State. Article 24 of the Insurance Law accords the Superintendent broad discretion to determine whether specific methods, acts or practices constitute unfair methods of competition or unfair or deceptive acts and practices. Section 57.6 of the regulation puts insurers on notice that specific methods, practices or activities - if found to occur - are improper and subject to the sanctions set forth in Article 24. Enforcement under Article 24 does not preclude the Superintendent from taking other adjudicatory action that the Superintendent is legally authorized to take. Indeed, Insurance Law Section 109 was recently amended to clarify that the monetary penalties under that section may be levied for violations of any regulation.
The Superintendent - and the Superintendent's predecessor, the Superintendent of Insurance - has on several occasions, going back to at least the 1970s, promulgated regulations that specify certain activities as improper within the meaning of Section 2402 and its predecessor, Section 272 of the 1939 Insurance Law. For example, in 1975, Section 217.2 of 11 NYCRR 217 (Regulation 75) deemed a contravention of Section 217.1 to be an unfair act or practice with respect to sexual discrimination in refusing to renew or cancelling or declining to renew any insurance policy.
In addition, in 2002, Section 420.33 of 11 NYCRR 420 (Regulation 169), which applies to privacy of consumer financial and health information, was promulgated. It deems a contravention of Part 420 to be an unfair method of competition or an unfair or deceptive act and practice in the business of insurance in this State, and a trade practice constituting a determined violation as defined in Section 2402(c), in violation of Section 2403. Furthermore, Section 421.9 of 11 NYCRR 421 (Regulation 173), the companion regulation to Regulation 169, promulgated in 2003, similarly deems certain contraventions of the regulation to be unfair methods of competition or unfair or deceptive acts and practices in the business of insurance in this State and trade practices constituting determined violations. A similar provision is also found in Section 223.7 of 11 NYCRR 223 (Regulation 186), which was promulgated in 2008 and applies to military sales practices. And, more recently, another similar provision was included in Section 225.3 of 11 NYCRR 225 (Regulation 199), which applies to senior-specific certifications and professional designations.
In each such case, the Superintendent has used the Superintendent's broad authority under the Insurance Law (and now the Financial Services Law as well) and relied on Article 24 as the principal authority to provide guidance to the insurance industry so that insurers and other persons can take appropriate steps to ensure that they are acting properly in a manner consonant with the public policy of this State. Accordingly, the Department is not revising proposed new Section 57.6.