Insurers, Get Your Act Together on Commercial Lines Renewals
[The following is an updated version of a post from 2014. Unfortunately, the message is still very relevant in 2022.]
I turned 61 last month (Insert jokes about old age here). A few weeks before I turned 25, way back during the Ronald Reagan years, the New York State Legislature passed and Gov. Mario M. Cuomo signed a bill into law, formally known as Chapter 220 of the Laws of 1986. It slapped new requirements on insurers that wanted to cancel or non-renew commercial insurance policies or make major changes to them. No longer could insurers double a business’s premium or exclude important coverage with no advance notice, or non-renew a policy with a month’s notice.
I was an underwriting assistant with a large national insurer group at the time, and I remember what a big deal this change was. The underwriters in my office knew that this would take some getting used to. When I became an underwriter, I also had to work within its confines. It wasn’t always easy, but it was the law. The rules may cause underwriters some additional work they don’t want, but they’re not all that difficult to understand.
This law, New York Insurance Law Section 3426, is now 36 years old, meaning that since its enactment:
- A half dozen Big I New York employees were born.
- The World Wide Web, DVD technology, the iPhone, the Sony PlayStation, Google and text messaging were invented.
- Six U.S. presidents were elected; three of them twice.
- The following TV shows began and ended their runs: Friends, Seinfeld, The West Wing, The Sopranos, The Wire, ER, all iterations of CSI, Criminal Minds, Breaking Bad, Game of Thrones, and many more.
- The insurer groups USF&G, Continental, St. Paul, General Accident, and The Home ceased to exist.
- The Gecko, Flo, Mayhem, and Jake From State Farm were introduced.
And yet, even after all this time, too many insurers either can’t or won’t follow this law. It passed the point of being ridiculous a long time ago.
At least once a week, I receive complaints from Big I New York members such as these:
- A carrier sent a conditional renewal notice on a commercial property policy, indicating that the premium would increase by more than 10% and the “all other perils” deductible would increase to $25,000. The renewal policy arrived with the flood deductible having increased from $25,000 to $250,000. Despite the lack of prior notice, the carrier declined to return the deductible to its previous level.
- An underwriter had a letter sent to the insured before renewal but claimed it “wasn’t a 220 notice” and therefore the letter did not have to mention the new $10,000 general liability insurance deductible that showed up on the renewal policy.
- An underwriter informed an agent that a $500,000 commercial property policy would simply expire if the insured did not give the agent a bind order before expiration. The insured was out of the office and unreachable.
- A carrier notified several commercial insurance policyholders that it would add a new Abuse or Molestation exclusion to their liability policies in the middle of the policy terms.
- An underwriter issued a renewal policy more than 60 days before the expiration date. Because of this, he believed that he did not have to send a conditional renewal notice about coverage and premium changes.
- An underwriter believed that he could hike the renewal premium by 17 percent without sending a conditional renewal notice. He had switched the policy from one insurer in his group to another. He believed that this absolved him of responsibility for sending a notice.
I wish I could say that this is a new problem, but it’s not. I receive so many emails about problems our members have with insurers on this, I saved the law’s text as auto-text in Microsoft Outlook. I can insert the text in an email with two clicks of my mouse. It’s saving me a lot of time. I’ve taught webinars and in-person courses about the law’s requirements. I’ve written blog posts and even done an episode of my old podcast on the topic. I’ve been on this job for 20 years, and I probably got my first question about this law on day two.
Here are the facts from the law itself.
- It applies to commercial risk, professional liability, and public entity insurance policies.
- It defines “renewal” or “to renew” as “the issuance or offer to issue by an insurer of a policy superseding a policy previously issued and delivered by the same insurer, or another insurer under common control.”
- An insurer must provide a written notice to the first-named insured and the insured’s authorized agent or broker if it decides not to renew a policy. It also must provide the notice if it decides to renew with certain coverage changes or premium increases. Otherwise, the policy “shall remain in full force and effect pursuant to the same terms, conditions and rates.”
- The insurer must send the notice if it wants to change limits; change the type of coverage; reduce coverage; increase deductibles; add exclusions; or increase the premium more than 10 percent (not counting any premium increase generated as a result of increased exposure units, or as a result of experience rating, loss rating, retrospective rating or audit.)
- The notice must contain the specific reason or reasons for the insurer’s actions; provide the amount or a reasonable estimate of any premium increase; and describe in plain and concise terms the nature of any other proposed changes.
- The notice must inform the insured and the agent or broker that either may obtain the insured’s loss information from the insurer. The insurer must provide this information within 10 days of a request for it.
- For most policies, the insurer must provide the notice 60 to 120 days before the expiration date. It must send notices for umbrella or excess liability policies and policies issued to very large businesses 30 to 120 days in advance.
- If the insurer sends the notice less than 60 days before the expiration date, it must extend the expiring coverage and rates. The extension must be for 60 days from the date of the notice. The only exception to this rule is if the insurer sends a conditional renewal notice at least 30 days in advance and the insured does not replace the policy. If the insurer sends the notice on or after the expiration date, the insured is entitled to another full year of coverage. This coverage must be at the same terms and conditions of the expired policy and at either the expiring rates or the renewal rates, whichever is less.
- The law does not apply to some types of policies, notably assigned risk auto, property policies issued by the FAIR plan, Workers’ Comp, surety, inland and ocean marine, excess line policies, and personal lines policies (personal lines is governed by a different law).
Folks, this isn’t that hard. You have to give your policyholders at least two months’ warning if you’re going to drop them, change or reduce their coverage, or hike their premiums. You can’t play cutesy games to get out of it by switching the coverage to another insurer in your group. You can’t just issue the renewal policy two months early and let the insured figure it out. You have to tell them what changed and why, and you have to let them know they can get their loss history. You can’t just let a policy expire.
If this were a new law, I could understand the confusion, but it isn’t, and I don’t. If you manage an underwriting team and your people are not fully complying, this is your fault. Don’t rely on a cheat sheet or some other shortcut to educate them– give them a copy of the law. You can download it from the Big I New York website. For all that, give them a copy of this post. Just make sure they’re following the law.
Yes, it’s a hassle, but it’s part of doing commercial lines business in New York. And lest this start a litany of posts about how New York hates business, be aware that 18 other states also require 60 days’ notice of nonrenewal. Kentucky requires 75 days’ notice, and two states require 90 days’ notice for medical malpractice liability policies. More than half the states require at least 30 days’ advance notice of material changes and/or premium increases. New York is not unique in this respect.
This law has been on the books for almost four decades. Every insurer operating in this state should be accustomed to it by now. Stop trying to wiggle your way out of the requirements. It makes you look dishonest, whether you mean it to or not. Educate your underwriters so they know what they have to do. The insurance business is difficult enough for underwriters, agents and brokers without having to deal with easily solvable compliance issues. Follow the rules.
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