N.Y. Surplus Lines Industry Worried Gov. Pataki Will Not Sign Minimum Premium Bill

The New York surplus lines industry is trying to convince the Pataki administration to allow a change in the premium financing of surplus lines accounts, a change that lawmakers have approved overwhelmingly, but the industry is having a tough time.

A bill (S.B. 6474) to the industry’s liking was passed unanimously by lawmakers in both chambers but is being held from Gov. George Pataki for his signature by officials in the New York State Insurance Department who are worried about the bill, according to the industry.

According to the Excess Line Association of New York (ELANY) officials, the NYSID counsel upset prevailing practice in July, 2003 with an opinion in a case involving minimum earned premium on a surplus lines account with a premium finance agreement. Industry officials say the NYSID is balking at the bill because it would overturn that opinion.

NYSID spokesman Eric Mangan would only say that the department is advising the governor on the bill.

New York has a law establishing that the most an insurer can claim as earned premium on a premium-financed policy cancelled early is the greater of 10 percent, or $60. While standard insurance markets for have followed this rule years, that’s not been the case in the surplus lines arena.

The usual practice in the state’s surplus lines industry has been for an insurer to ask for a minimum earned premium of 25 percent, not 10 percent, with the premium finance company agreeing to finance the remaining 75 percent of the premium, according to industry officials. Carriers believe the 25 percent covers acquisition costs for an account and protects them against a loss should the insured cancel within 90 days.

The NYSID’s ruling last year marked the first time the state said the 10 percent limit also applies to surplus lines transactions in which premiums were financed, according to ELANY Executive Director Daniel F. Maher.

ELANY officials maintain the restriction was never meant apply to surplus lines, which are generally free from rate and form regulation, and that imposing this requirement could curtail coverage availability and premium financing options for insureds.

As part of the effort to convince NYSID to go along, ELANY has met with officials and will meet with Superintendent of Insurance Greg Serio later in the month.

Also, the Property Casualty Insurers of America (PCI) has sent a letter urging Pataki to sign the bill.

“I can’t say I’m optimistic,” Maher said of the chances of Pataki signing the bill.