The Office of General Counsel has issued the following informal opinion on March 15, 2000, representing the position of the New York State Insurance Department.
Pilot Project for Electronic Alternatives For Reinsurance Contracts
1. Will the reinsurance contracts entered into in accordance with the electronic protocols outlined in the requesters letter be valid and binding upon the parties in New York?
2. If the answer to question 1 above is yes, would any of the electronic protocols run afoul of any requirements contained in the New York Insurance Law?
3. Would the electronic signings of the reinsurance policies be valid under New York State Insurance Law?
4. Are the electronic protocols under the pilot project acceptable for purposes of records retention and examination requirements for insurers, reinsurers and reinsurance intermediaries?
1. Yes, the reinsurance contracts entered into in accordance with the electronic protocols outline in the requestors letter would be valid and binding upon the parties in New York.
2. No, the electronic protocols proposed would not run afoul of any requirements of the New York Insurance Law as long as the electronic document version of the reinsurance agreement placed on the Internet and printed off of the Internet is compliant with all applicable statutory requirements.
3. Yes, the electronic signings under the pilot project would be legally valid under the New York Electronic Signatures and Records Act.
4. Since the Department was not provided with information regarding exactly how the electronic documents will be incorporated into the requestors operations for purposes of document retention (e.g., storage) as electronic records, the Department could not answer the question as to whether they are acceptable for records retention purposes. However, as a general matter, if the records required to be maintained will be maintained in a "durable medium," as defined in Department Regulation No. 152 (N.Y. Comp. Codes R. & Regs. tit. 11 § 243 (1996)), and comply with other standards therein for record retention, then the electronic protocols under the pilot project would be acceptable and would allow for examination by the Department.
Requester is a New York licensed reinsurance intermediary. Among other things, Requester drafts reinsurance contracts, processes contract signings and retains copies of the reinsurance contracts. The requester described a pilot project they have been involved in since January 1998, as follows: "The pilot is designed to develop electronic alternatives to paper for transmitting, reviewing, signing and storing reinsurance contract wordings." Requester states that they have finished its testing of the project and would like the Department to review it and confirm that the methodology constitutes a valid signing for the New York Insurance Law requirements, including compliance with Chapter 22 of the NAIC's Accounting Manual for Property and Casualty Insurance, and is acceptable for purposes of insurer, reinsurer and reinsurance intermediary records retention and examinations.
Requestors desire is to streamline the reinsurance contract process by implementing the software and hardware peripherals that had already been tested as part of the pilot project. Together, they provide an electronic system for the transmittal, review, signature, storage, and retrieval of reinsurance contract wordings. "Our goals were to utilize a nonproprietary and inexpensive system that is easily installed and run on a standalone PC or PC network server-based system of any company with E-Mail access. The system needed to provide security, accuracy and speed for the electronic transmittal, review and signature process as well as the capability of permitting contracts to continue to be printed out, mailed, read and signed in wet ink should the parties choose this method over electronic means."
The requestor identified the following as components of the developed system:
A standalone or network PC running a Pentium 166 Mz or higher processor.
Word Processing software such as "Microsoft Word" or "WordPerfect".
"Adobe Acrobat 4.0" software.
"PenOp, Inc. Plug In" software for "Acrobat 4.0".
A "PenOp" compatible digitizer pen pad.
The Requester also described electronic protocols. The Mode of Execution provision included in requestors letter, indicates that the reinsurance agreement may be executed either by a "wet signature", a facsimile exchange of documents with "wet signatures" from paper documents, or using the electronic signature technology you have described. The parties to the reinsurance transaction have a choice whether or not to engage in a totally electronic transaction.
The document retention and retrieval features of Adobe Acrobat 4.0 are as follows:
Documents are given a unique file name for identification and electronic filing, record retention and retrieval. Documents are backed up along with the company's other electronic records. Documents are immediately available for viewing, review and printing at any time by other departments in a company or by outside auditors or insurance examiners which have been authorized to have electronic access to the files. Documents can be password protected as required.
The requester did not specify how the document and retrieval features of Adobe Acrobat 4.0 are to be incorporated; for example as to the format in which the electronic documents are to be maintained into the pilot project as well as into their business.
New York State has enacted the Electronic Signatures and Records Act ("ESRA") as part of Chapter 4 of the Laws of 1999 that added the State Technology Law as new Chapter 57-A of the Consolidated Laws. ESRA establishes a legal framework in New York for the conduct of electronic commerce. ESRA grants the Office for Technology ("OFT") broad authority as the Electronic Facilitator to promulgate regulations to effectuate the law and to issue guidelines. The provisions of the State Technology Law become effective on March 26, 2000. The Department has issued Circular Letter No. 33 (1999) regarding the use of electronic commerce in the insurance business. You may view the circular letter on the Department's web site at http:\\www.ins.state.ny.us.
OFT is expected to issue regulations addressing what is acceptable technology under ESRA. If the electronic signature technology requester would utilize meets the five criteria for an electronic signature as defined in Section 102(3) of ESRA, under New York law, an electronic signature produced by such means will be legally binding upon the parties.
Under Section 109 of ESRA the use of electronic signatures is voluntary. This was recognized in the subject proposal in that the protocol gives ceding and assuming insurers the choice whether or not to complete reinsurance transactions with electronic signatures or "wet signatures."
The substantive Insurance Law requirements that are applicable to reinsurance contracts are contained in N.Y. Insurance Law § 1308 (McKinney 1985 and Supp. 1999-2000), Department Regulations 17, 20 and 20-A (N.Y. Comp. Codes R. & Regs. tit. 11 § 125 (1994)) and Department Regulation No. 102 (N.Y. Comp. Codes R. & Regs. tit. 11 § 127 (1993). These requirements apply to the electronic versions of reinsurance agreements as well as to the non-electronic versions thereof.
Regarding matters of records retention, to the extent the reinsurance intermediary, in the circumstances described herein, would be maintaining the records of a reinsurance transaction electronically, acting on behalf of either the ceding or assuming insurer, the insurer shall require that the reinsurance intermediary comply with Department Regulation No. 152 (N.Y.Comp. Codes R. & Regs. tit. 11 § 243 (1996)) in maintaining records that the insurer would otherwise be required to maintain. Among other things, insurers are permitted to maintain their insurance record documents in a "durable medium" which is defined in Section 243.1(c) as " a medium for maintaining a record where the properties of such medium provide reasonable assurances against tampering with the information contained in the original and degradation of any reproduction generated, and where the reproduction is an exact copy of the original. The medium may include paper; facsimile; or photographic, micrographic, magnetic, optical, mechanical or electronic media."
Requestors letter does not specify how electronic documents are to be retained or stored as records. Documents required to be maintained must be in a "durable medium" as defined in Department Regulation No. 152 (N.Y. Comp. Codes R. & Regs. tit. 11 § 243 (1996)) and comply with the other standards in that regulation. However, as a general matter, if the electronic records comply with the standards contained in the aforementioned regulation they would be acceptable as a means of records retention. For examination purposes, if the records were maintained in a durable medium, the Department would be able to examine the reinsurers and other licensees involved in the placement of reinsurance and would, therefore, satisfy the Department's requirements.
The requester further inquired as to compliance with Chapter 22 of the "NAIC Accounting Manual, Property/Casualty." While the referenced manual contains terms for reinsurance contracts, it does not have the force and effect of law in New York. Under Department Regulation No. 102 (N.Y. Comp. Codes R. & Regs. tit. 11 § 127 (1993), Section 127.2, applicable to all reinsurance transactions of authorized life and accident and health insurers, and to authorized property/casualty insurers with respect to their accident and health insurance policies, there are required terms for such reinsurance contracts. Insofar as the regulation requires that certain terms be in the reinsurance agreement, these requirements must be complied with whether the agreements are entered into electronically or non-electronically.
In conclusion, based upon the electronic protocols you have enumerated, the New York Insurance Law is not an obstacle to the implementation of the project.
For further information, you may contact Associate Attorney Barbara A. Kluger at the New York City office.