Industry FAQs: Free Trade Zone
What is the Free Trade Zone?
Answer: Article 63 of the Insurance Law sets forth the means and requirements for insurers to obtain a license to issue policies that are exempt from filing requirements for special risks. The operational mechanism created by this statute is commonly known as the Free Trade Zone. Insurance Regulation No. 86 establishes the methods and procedures for obtaining the special license and for issuing policies via the Free Trade Zone, and includes the records maintenance and reporting requirements that insurers must comply with.
What is a "special risk"?
Answer: In order to be eligible for placement in the Free Trade Zone, risks must meet the requirements of Article 63 and Regulation No. 86. There are three classifications of special risks. A Class 1 risk is any eligible policy that generates annual premiums of at least $100,000 for one kind of insurance, or $150,000 in the aggregate for more than one kind of insurance if no single kind exceeds $100,000. A Class 2 risk is a coverage that is of an unusual nature, a high loss hazard, or difficult to place. The Department maintains a list of coverages that are eligible to be written as Class 2 risks, which is updated periodically. A Class 3 risk, which was added by Chapter 490 of the laws of 2011, is a policy issued to a large commercial insured that employs or retains a special risk manager to assist in the negotiation and purchase of the policy. However, a medical malpractice insurance policy may not be written as a Class 3 risk. If a risk does not qualify under Class 1 or Class 3, it may be written in the Free Trade Zone only if it appears in the Class 2 list.
What are the advantages of obtaining a special Free Trade Zone license?
Answer: The Free Trade Zone's exemption from filing requirements allows insurance companies to respond quickly to requests for coverage, and to tailor the policy language to the particular needs of the buyer. New York authorized insurers are able to more effectively compete in underwriting coverages that might not otherwise be written in the admitted market.
What are the standards for policy provisions and rates in the Free Trade Zone?
Answer: Insurers may customize policy provisions to accommodate unique characteristics of the insured risk or an underwriter's specific requirements. Although the policy forms and rates are generally not reviewed by the Department of Financial Services and need not be filed, they must meet all of the standards of the law and regulations that otherwise apply to all policies. For Class 3 risks, per NYIL section 6303, a policy form may need to be filed with the superintendent for informational purposes only. Specific filing requirements is available on the page “Property Insurers: Filing Instructions” under Section II-General Guidelines, Paragraph C. “Free Trade Zone Class 3 Risks“.
Where can I obtain more information about the Free Trade Zone?
Answer: Article 63 of the Insurance Law and Insurance Regulation No. 86 (11 NYCRR 16) include detailed information regarding licensing; limitations on aggregate Free Trade Zone writings; records maintenance and reporting; as well as a list of eligible Class 2 risks.