The Office of General Counsel issued the following opinion on February 6, 2003, representing the position of the New York State Insurance Department.
Re: Rating a motor vehicle policy with a youthful operator
1. In regard to a non-commercial motor vehicle insurance policy, may the insurer increase the premium merely because the insureds son, who resides with the insured but is not listed on the policy, obtains a drivers license?
2. May the insurer accept an affidavit or other proof that the son will not drive the vehicle and adjust the premium accordingly?
3. Where the son obtains the license in the middle of the policy term, is it permissible for the insurer to increase the premium immediately or must it wait until the next renewal?
1. In regard to a non-commercial motor vehicle insurance policy, an insurer may increase the premium merely because the insureds son, who resides with the insured but is not listed on the policy, obtains a drivers license.
2. Depending upon the insurers rating plan, the insurer is not required to adjust the premium if the insured submits an affidavit that the son will not drive the vehicle.
3. Where the son obtains the license in the middle of the policy term, it is permissible for the insurer to increase the premium immediately.
No specific facts were included. Yours are general questions, regarding the rating of non-commercial motor vehicle insurance policies.
Rates for non-commercial motor vehicle insurance are subject to the requirements of N.Y. Ins. Law Art. 23 (McKinney 2000 & Supp. 2003). Specifically, "[r]ates shall not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers." N.Y. Ins. Law § 2303 (McKinney 2000). Insurers establish rating rules and rating plans and they may not deviate from the rates and rating rules and plan filed with the Department.
An insurers rates and rating rules and plan reflect its potential exposure. Rates for youthful operators are generally higher than for older or more experienced drivers. Hence, when a son or daughter who lives at home obtains a drivers license, the premium will typically increase to reflect the increased exposure. This does not constitute a surcharge; rather it reflects the changed classification for the insured risk.
Although the youthful operator may rarely drive the insured vehicle, the policy nonetheless provides coverage for the youthful operator if he or she does drive the insured vehicle, and the insurer, if the rating plan and rules so provide, is within its rights to increase the premium to reflect that exposure. This is the case even if the insured submits an affidavit that the youthful operator will not drive the insured vehicle, because the risk remains and may be substantial.
Where there are several vehicles insured under a policy, some insurers might increase the premium only for the vehicle for which the youthful operator will be the principal driver. However, this depends upon the insurers specific rating rules and plan.
As to when the insurer may increase the premium, this also depends upon the filed rating rules and plan of the insurer. The policy form should govern changes in premium during the policy period and the rates on file govern what should be charged to the insured. Typically, an insurer will increase the premium when advised that the child has obtained a drivers license and will not wait until the next renewal date. Since the increased premium reflects increased risk, this is permissible and is not prohibited under the Insurance Law. Note that the insured is usually required by the insurer to advise it of any change in driving status of the members of the household. Hence, if the insured failed to timely notify the insurer that a child had obtained a drivers license, and the insurer subsequently finds out, the insurer may be entitled to additional premium retroactive to the issuance of the drivers license.
It is our understanding that most insurers have rating rules that would allow them to increase the premium where there is an additional driver in the household, whether or not the person actually drives the vehicle.
Under N.Y. Ins. Law § 2319(b) (McKinney 2000), an insured may challenge a rating determination by an insurer before the Superintendent. In a 1998 appeal, the insurer billed the insured for additional premium because the insureds son had obtained a drivers license. The insurer provided no evidence that the son ever drove the vehicle, and the petitioner denied that the son ever did so. The insurer did not establish that it had a rating rule that would allow it to surcharge an insured automatically if there were additional drivers in the household, even where they did not drive the vehicle. Accordingly, the Superintendent determined that the insurer was not entitled to the additional premium.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.