NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A5253
SPONSOR: Hunter TITLE OF BILL:
An act to amend the insurance law, in relation to permitting a waiver of
the diligent effort requirement in limited circumstances for certain
insurance coverage to be placed by licensed excess line brokers with
unauthorized insurers
PURPOSE OR GENERAL IDEA OF BILL:
This bill would exempt certain commercial lines insurance transactions
placed by wholesale insurance brokers from the excess line diligent
effort requirement. The bill would eliminate both a process and exces-
sive data reporting which provide no benefit to insureds and instead
allow brokers to focus on providing services that consumers need and
value.
SUMMARY OF PROVISIONS:
Section one - Amends subparagraph (A) of paragraph 3. of subsection (b)
of section 2118 of the insurance law, as amended by section 12 of part I
of chapter 61 of the laws of 2011, to establish a waiver of the diligent
effort requirement in limited circumstances.
Section two - Amends section 2118 of the insurance law by adding a new
subsection (g).
Section three - Establishes the effective date.
JUSTIFICATION:
The excess line market exists as a matter of public policy to insure
risks which New York admitted insurers choose not to underwrite because
the risks are distressed, unique, volatile, or involve new businesses or
coverages without loss history. The legislature reasoned that New York
businesses could not operate without a secondary market to insure risks
that are rejected by licensed insurers. The excess line market is of
vital importance to New York and nimble processing is essential to
effectively serve consumer needs.
The law requires that brokers make a good faith attempt to seek coverage
from a licensed insurer before turning to the excess line market. This
is called a diligent effort. The law considers a diligent effort to be
complete when three licensed insurers have considered and then rejected
a risk. The bill would exempt commercial insurance policies placed by
retail insurance brokers through unaffiliated wholesale excess line
brokers from the diligent effort requirement. Diligent effort would
still apply to all personal lines,policies As well as commercial lines
policies that are not placed through an unaffiliated wholesale excess
line broker.
A substantial portion of excess line risks are placed by small main
street retail insurance brokers who turn to wholesale excess line
brokers when they have exhausted their own licensed insurer options. It
is inherent to the insurance industry that retail brokers will exhaust
all licensed market options before seeking excess line coverage through
a wholesale broker. Retail brokers will not choose to split their
commissions with wholesale excess line brokers unless that is the only
way to obtain coverage for an insured. Retail brokers know the under-
writers at the licensed insurers with whom they deal regularly and are
familiar with their policy forms, their licensed companies often direct-
ly bill insureds and therefore eliminate collection risks, and policies
issued by licensed insurers are covered by state security funds that
also de facto protect retail brokers by supporting their clients. A
retail broker loses these benefits in excess line transactions.
Therefore, diligent effort is unneeded to ensure that commercial risks
are placed with licensed insurers when feasible where retail brokers
place risks with unaffiliated wholesale excess line brokers. The process
and data reporting under these circumstances places an unnecessary delay
and cost on placing insurance policies that is detrimental to consumers.
PRIOR LEGISLATIVE HISTORY:
2021-22: A.9117
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None.
EFFECTIVE DATE:
Immediately.
STATE OF NEW YORK
________________________________________________________________________
5253
2023-2024 Regular Sessions
IN ASSEMBLY
March 7, 2023
___________
Introduced by M. of A. HUNTER -- read once and referred to the Committee
on Insurance
AN ACT to amend the insurance law, in relation to permitting a waiver of
the diligent effort requirement in limited circumstances for certain
insurance coverage to be placed by licensed excess line brokers with
unauthorized insurers
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subparagraph (A) of paragraph 3 of subsection (b) of
2 section 2118 of the insurance law, as amended by section 12 of part I of
3 chapter 61 of the laws of 2011, is amended to read as follows:
4 (A) Except as provided in subparagraph (F) of this paragraph and
5 subject to subparagraph (C) of this paragraph, submission of insurance
6 documents to the excess line association shall be accompanied by a
7 statement subscribed to, and affirmed by, the licensee or sublicensee as
8 true under the penalties of perjury that, after diligent effort, the
9 full amount of insurance required could not be procured, from authorized
10 insurers, each of which is authorized to write insurance of the kind
11 requested and which the licensee has reason to believe might consider
12 writing the type of coverage or class of insurance involved, and further
13 showing that the amount of insurance procured from an unauthorized
14 insurer is only the excess over the amount procurable from an authorized
15 insurer. The licensee, however, shall be excused from affirming that a
16 diligent effort, as defined above, was made to procure the coverage from
17 authorized insurers if the licensee's affidavit is accompanied by the
18 affidavit of another broker involved in the placement affirming as true
19 under the penalties of perjury that, after diligent effort by the
20 affirming broker, the required insurance could not be procured from an
21 authorized insurer which the affirming broker had reason to believe
22 might consider writing the type of coverage or class of insurance
23 involved. The licensee and the affirming broker shall be excused from
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD05708-01-3
A. 5253 2
1 affirming that a diligent effort was made if the superintendent deter-
2 mines, pursuant to paragraph four of this subsection, that no declina-
3 tions are required. Notwithstanding any provision to the contrary
4 contained in this chapter, where a retail producing insurance
5 broker seeks to procure or place commercial lines insurance through
6 an unaffiliated wholesale excess line insurance broker, both the
7 retail producing insurance broker and the wholesale excess line insur-
8 ance broker shall be excused from making any diligent effort otherwise
9 required by this article.
10 § 2. Section 2118 of the insurance law is amended by adding a new
11 subsection (g) to read as follows:
12 (g) (1) As used in this section:
13 (A) "retail producing insurance broker" means an insurance broker
14 licensee who directly deals with an insured;
15 (B) "wholesale excess line insurance broker" means the licensed excess
16 line insurance broker from whom or through whom the retail insurance
17 broker has procured excess line coverage on behalf of the insured; and
18 (C) "commercial lines insurance" means any policy of insurance not
19 defined as a "covered policy" in subsection (a) of section three thou-
20 sand four hundred twenty-five of this chapter.
21 (2) A retail producing insurance broker and a wholesale excess line
22 insurance broker are unaffiliated if such broker does not control, is
23 not controlled by, or is not under common control with the other. A
24 retail producing insurance broker or a wholesale excess line insurance
25 broker has control over the other if the broker: (A) directly or indi-
26 rectly or acting through one or more other persons owns, controls, or
27 has the power to vote twenty-five percent or more of any class of voting
28 securities of the other, or (B) controls in any manner the election of a
29 majority of the directors or trustees of the other.
30 § 3. This act shall take effect immediately, provided, however, that
31 the amendments to subparagraph (A) of paragraph 3 of subsection (b) of
32 section 2118 of the insurance law made by section one of this act shall
33 not affect the expiration of such subsection and shall be deemed to
34 expire therewith.
