The Office of General Counsel issued the following informal opinion on March 13, 2000, representing the position of the New York State Insurance Department.
Distribution of dividends, rebates, and refunds via the Internet.
1. May an insurer distribute dividends, rebates, and refunds to a policyholder via the Internet?
2. If dividends, rebates, or refunds are distributed to a policyholder via the Internet, may the amounts of the dividend, rebates, or refund be greater than if distributed by means other than the Internet?
3. If dividends, rebates, or refunds are distributed to a policyholder via the Internet, may the amounts of the dividend, rebates, or refund be greater if the policyholder makes purchases from online merchants associated with the insurer's website, who will pay commissions to the insurer to subsidize these greater amounts?
1. Dividends, rebates, or refunds may be distributed to a policyholder via the Internet if the policyholder agrees, and the distribution is otherwise in accord with the New York Insurance Law. Generally, rebates are prohibited.
2. The amount of a dividend or refund may be greater if distributed via the Internet than if distributed by other means only if such a difference would be allowable under the applicable provisions of the law. As noted, rebates are generally prohibited.
3. The amount of a dividend or refund generally may not be greater if the policyholder makes purchases from on-line merchants. As noted, rebates are generally prohibited.
A company intends to assist insurers with the development of systems to facilitate the distribution of dividends, rebates, and refunds via the Internet, and requested an opinion regarding such proposed activities.
Since the inquiry concerns policyholders, we assume that the questions about dividends is limited to distribution of dividends to policyholders of mutual insurers, and that the inquiry is not about distribution of dividends to stockholders of stock insurers. Additionally, we assume that "refunds" refers to return of unearned premium.
The inquiry is extremely broad, in that it seeks a response of a general nature, to be applied across the board to all insurers and for all kinds of insurance, without regard to any specific fact pattern. There is no single response that would be applicable to all situations, since different provisions of the New York Insurance Law would apply to different kinds of insurers, policies, and transactions. We cannot provide an exhaustive response addressing every possible situation. While there are a few general comments that we can provide in regard to transactions governed by the Insurance Law, please recognize that a specific statute may compel a different result in specific cases. Insurers should consult with counsel in regard to their own situations.
The Electronic Signatures and Records Act (ESRA), as part of a new State Technology Law, was enacted into law on September 28, 1999 (Chapter 4 of the Laws of 1999). The substantive provisions of the State Technology Law will become effective on March 26, 2000. The Act creates a statutory structure in New York State that supports the use of electronic signatures and electronic records in everyday public and business undertakings. A fuller discussion of the Act is contained in Circular Letter No. 33 (1999), which you may view on the Department's website at http://www.ins.state.ny.us.
Generally speaking, insurance transactions may be effectuated over the Internet to the same extent that they may be effectuated by other means. In other words, effectuating an insurance transaction over the Internet does not add any additional requirements (other than as may be required by ERSA), not otherwise required pursuant to the Insurance Law.
Accordingly, absent a specific prohibition in the Insurance Law, return of unearned premium or payment of dividends to policyholders may be done over the Internet, provided such method is acceptable to the insured. However, please note that rebates are generally prohibited under the Insurance Law, and would likewise be prohibited via the Internet. (See N.Y. Insurance Law §§ 2324 and 4224 (McKinney 1985 and Supp.1999-2000).
In regard to dividends, the applicable statutes that address dividend amounts would govern whether the amount of a dividend distributed over the Internet could be more for an Internet transaction than for a non-Internet transaction. Note, for example, N.Y. Insurance Law § 4114 (McKinney 1985), which applies to dividends of mutual property/casualty insurers, permits "reasonable classifications of policies," which shall be filed with and approved by the Superintendent. In regard to foreign or alien insurers, the filing and approval requirements apply only to risks located or resident in this state. Where the only distinction between two classes of policies is the mode of dividend receipt, any permissible difference in the amount of dividends would have to reflect actual expense savings. However, differing dividend amounts based upon shopping with certain online merchants would not be a "reasonable classification of policies", would be an impermissible tie-in under Section 2324, and would not be approvable. In regard to other kinds of insurers, the applicable provisions of law should be reviewed.
In regard to return of premiums, please note that insurance rates are generally subject to filing requirements, and, for many kinds of insurance, prior approval by the Superintendent. They are also governed by certain statutory standards, such as having to be non-discriminatory. An insurer would have to evaluate the specific provisions of the Insurance Law that applies to it and to the particular kind of policy to determine whether a cost saving based upon Internet distribution is permissible as part of its rate filing. However, different returns of premium based upon shopping with online merchants would generally be impermissible as being violative of the anti-tie-in and rebating provisions and as being unfairly discriminatory. Nor would commissions received by the insurer from online merchants be valid factors in setting insurance rates.
For further information you may contact Supervising Attorney Paul Zuckerman at the New York City Office.