OGC Opinion No. 08-04-27

The Office of General Counsel issued the following opinion on April 18, 2008, representing the position of the New York State Insurance Department.

RE: Application of Regulation 30 to health insurers

Question Presented:

Must a health insurer comply with the allocation of income and expenses reporting requirements of Regulation 30, even though the Regulation specifically applies only to fire, marine, casualty and surety insurers?

Conclusion:

No. The allocation of income and expenses reporting requirements of Regulation 30 do not specifically apply to health insurers.¹ However, health insurers should use Regulation 30 as a guide when preparing their expense allocation methods for the Department’s review and approval.

Facts:

The inquirer acknowledges that the requirements of Regulation 30 apply to property/casualty insurers, but question the decision by the Department’s Health Bureau to require health insurers to comply with Regulation 30.

In subsequent correspondence with the Department, the inquirer reports that a health insurer, XYZ Insurance Company of New York (“XYZ”), which is licensed pursuant to Insurance Law § 4204, is a member of a holding company system. XYZ writes only health insurance. In compliance with Article 15 of the Insurance Law (the “holding company statute”), XYZ filed with the Health Bureau various service agreements that the company made with other members of its holding company system. However, as a condition of approval, the Health Bureau requires that XYZ makes a commitment to comply with the cost allocation methods for shared expenses prescribed in Regulation 30. The inquirer contends that XYZ should not be required to comply with the “detailed allocation methods” of Regulation 30, which apply only to property/casualty insurers, as a condition for approval of the company’s service agreement.

The Health Bureau notified the Office of General Counsel (“OGC”), and the inquirer confirmed in an email that XYZ executed a service agreement, effective December 1, 2007, in which XYZ agreed to commit to the use – as a guide – of the expense allocations prescribed in Regulation 30. The inquirer states that XYZ initially objected to the use of Regulation 30 as a template for XYZ’s expense allocation methods, and only acquiesced to the use of Regulation 30 in order to obtain approval of the service agreement. However, the inquirer still objects to the application of Regulation 30 to health insurers.

Analysis:

The introductory paragraphs of 11 NYCRR Parts 105-109 set forth the purpose of Regulation 30 with respect to the classification of expenses of property/casualty insurers. 11 NYCRR §§ 105.1, 106.1, 107.1, 108.1 and 109.1 read as follows:

Article 23 of the Insurance Law does not apply to accident and health insurance. See Ins. Law § 2302(a)(2). Thus, Regulation 30 does not apply to health insurers.

However, Insurance Law § 1505(a)(3) requires that income and expenses be “allocated to the insurer [within a holding company system] on an equitable basis in conformity with customary insurance accounting practices consistently applied.” The allocation methods prescribed in Regulation 30 are consistent with the requirements of Insurance Law § 1505(a)(3). Consequently, with an eye toward uniformity, the Department has used, and will continue to use in the short term, Regulation 30 as a guide in evaluating the expense allocation methods set forth in insurer service agreements. Nevertheless, to clarify any confusion and harmonize any inconsistencies, the Department intends to promulgate a regulation that will set forth the expense allocation methods to be used by health insurers.

If it so desires, XYZ may rescind the agreement filed with the Health Bureau in which the company agreed to comply with Regulation 30, and instead submit to the Health Bureau for review and approval other expense allocation methods that satisfy the criterion set forth in Insurance Law § 1505(a)(3). However, the Department will carefully scrutinize any such expense allocation methods upon examination pursuant to Insurance Law §§ 309 and 310.

For further information may contact Senior Attorney Camielle A. Campbell at the New York City office.

¹ While both property/casualty and life insurance companies may write accident and health insurance, the use of the term “health insurers” here refer to accident and health insurance companies licensed pursuant to N.Y. Ins. Law § 4204 (McKinney 2006) that also may write only legal expense insurance; non-profit corporations organized pursuant to Article 43 of the Insurance Law; and Health Maintenance Organizations (“HMOs”) licensed under Article 44 of the Public Health Law.