The Office of General Counsel issued the following opinion on February 20, 2008 representing the position of the New York State Insurance Department.
Re: Age-based and tenure-based exceptions to non-renewal
1) May a property/casualty insurer rely upon (among other legitimate underwriting criteria related to the risk insured) the length of time that the insured has renewed his or her coverage, and the advanced age of the policyholder, when deciding to renew an insured homeowner's policy?
2) If a policyholder is otherwise eligible for nonrenewal under the age and tenure criteria, may the insurer nevertheless renew a policy if the policyholder simply asks the insurer to renew the policy?
1) Yes. The New York Insurance Law and regulations promulgated thereunder do not prohibit an insurer from using, among other legitimate underwriting criteria related to the risk insured, the length of time that the insured has renewed his or her coverage, and the advanced age of the policyholder, in deciding whether to renew an insured’s homeowner’s policy.
2) No. By only renewing policyholders who request to be renewed, an insurer would be unfairly discriminating between insureds of the same class. An insurer must apply uniformly and consistently age-based and tenure-based criteria as an underwriting factor.
The inquirer is an authorized property/casualty insurer. The insurer asks whether it may renew policyholders who are advanced in age—for example, of retirement age—even if those policyholders would otherwise be non-renewed. Although the insurer has not set forth a specific age that triggers renewal, it looks to the Department for guidance to determine what age would be considered “advanced.”
In addition to advanced age, the insurer would like to consider the policyholder’s tenure as a homeowner’s policyholder in deciding whether to renew. The insurer states that neither of these criteria would be exclusively used to renew or non-renew; rather, advanced age and policy tenure would be two criteria among other legitimate criteria related to the risk insured upon which the company would rely.
The insurer also asks whether the law requires it to apply uniformly and “proactively” such age- or tenure-based criteria in underwriting. For example, if a policyholder is eligible for non-renewal under the age and tenure criteria, the insurer asks whether it may renew that policyholder where the policyholder simply requests that the company abstain from non-renewal.
The general rule in New York is that "an insurer ... is free to select its risks and it makes inquiry of matters which [sic] it deems material to the risk". Vander Veer v. Continental Cas. Co., 34 N.Y.2d 50, 52 (1974). This principle is embodied in the statutory provision, contained in the section enumerating the kinds of authorized insurance, that "[n]othing herein contained shall require any insurer to insure every kind of risk which it is authorized to insure.” Health Ins. Ass'n of America v. Corcoran, 154 A.D.2d 61 (3rd Dept. 1990) (quoting New York Insurance Law § 1113(b) (McKinney 2007)).
As a general matter, the Insurance Department does not involve itself in evaluating an insurer’s underwriting guidelines, provided that such criteria are not unfairly discriminatory or otherwise violative of a law or statute. See, e.g., Office of General Counsel Opinion dated July 19, 2000 (“If the [underwriting] criteria used by the insurer constitutes discrimination in benefits or is prohibited by law (e.g., basing upon geographical location of the risk), its use would violate the applicable law. If the insurer can demonstrate that the criteria used relates to the risk being insured, however, there would be no violation of law”).
With respect to an age-based exception, Insurance Law § 3425(i) prohibits an insurer from refusing to issue or renew a covered policy solely based on the advanced age of the applicant or insured. But, as the inquirer correctly notes in its letter, that section is inapplicable where, as here, the insurer proposes to use advanced age as a positive factor in choosing to retain a policyholder. Nevertheless, at all times the insurer must act in a manner that does not contravene Article 24 of the Insurance Law, which prohibits unfair methods of competition, and unfair and deceptive acts and practices.
The inquirer’s letter does not state the specific age that the insurer considers “advanced.” Nor does the Insurance Law contain a single specific age that constitutes “advanced age.” For example, Insurance Law § 3435-a(b), which applies to motor vehicle insurance, prohibits insurers from refusing to renew an existing motor vehicle liability insurance policy solely upon the basis of the named insured having reached 60 years of age. Additionally, Insurance Law § 3111(f), which sets forth special contract provisions relating to senior citizens, defines a “senior citizen insured” as a New York resident who is over 65 or older. And, other laws in New York relating to “senior citizens” define the term as aged 62 or older. See, e.g., General Business Law § 352-e (McKinney 2007) (relating to real estate syndication offerings). As long as the insurer defines “advanced age” within the generally accepted meaning of the term, the Department would not object to the company’s using of advanced age as a favorable criterion to renew.
With respect to the tenure-based criteria, there is no legal prohibition against the insurer basing any renewal decision of a homeowner’s policy on an insured’s tenure with the insurer as a homeowner’s policyholder. But if such decision hinges on the fact that an insured had (or should have had) other business with the insurer, then the insurer would, as explained in the August 27, 2007 circular letter issued by the Department, run afoul of Insurance Law § 2324.
In an e-mail dated February 5, 2008, the insurer, states:
[The insurer] does not intend to use either age or homeowner's policy tenure on their own as the sole underwriting criteria [sic] to either renew or non-renew a policy.
Given that the insurer does not intend to rely upon either advanced age or homeowner’s policy tenure as the sole underwriting criteria in deciding whether to renew or non-renew an insured’s policy—and because there is no legal prohibition against using advanced age and tenure among other legitimate criteria related to the risk insured when deciding to renew a homeowners’ insured’s policy—the Department has no objection to the insurer’s use of these criteria in tandem as a basis to renew insureds.
The inquirer’s final inquiry asks whether the insurer must apply age-based or tenure-based criteria consistently and proactively, or whether the insurer may opt to retain the customer upon the customer’s request to avoid non-renewal. Insurance Law § 2324, which prohibits rebating and discrimination in property/casualty insurance, is relevant to this question. That provision reads as follows:
(a) No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker, or shall give, sell or purchase, or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage, provided, however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year.
Insurance Law § 2324 (and each of its predecessor statutes) was enacted to end the practice of rebating, whereby agents, eager to secure business, would arrange to refund to certain insureds a portion of the commission to which the agent would otherwise be entitled. The “evil” that the statute proscribes is discrimination, through rebating of any special favor or advantage, between insureds who are in all other respects equal risks, where such favor or advantage is not specified in the policy or contract.
By only renewing insureds who request to be renewed, the insurer would risk discriminating between insureds that otherwise stand as equal risks, without specifying the favor or advantage in the policy or contract. Therefore, the insurer, if properly applying age-based and tenure-based criteria, should do so uniformly and consistently.
For further information you may contact Senior Attorney Sapna Maloor at the New York City office.