On Monday, August 7, an insurance carrier that has written a significant amount of personal auto and homeowners coverage in New York informed its agents that it intends to withdraw its primary underwriting company from the preferred home and auto insurance market in all states. Since that announcement, we have received questions from members about the rules the carrier must follow in New York as it implements its exit.
The bottom line is that any carrier providing personal property and casualty insurance must have a withdrawal plan approved by the New York State Department of Financial Services (DFS). They cannot implement that plan without approval. Here are the details:
The applicable law is Section 3425 of the New York Insurance Law, titled Certain property/casualty insurance policies; cancellation and renewal provisions; agents' contracts and brokers' accounts. Download the complete text of the law.
Subsection (o) of that law sets requirements for “(a)n insurer that intends to materially reduce its volume of policies written …"
A regulation that the law required DFS to issue regarding withdrawal plans for homeowners insurance (there is not a similar regulation for auto insurance) defines “material reduction of volume of policies" as:
- a reduction in the net number of homeowners insurance policies written, by 20 percent or more, or a reduction in the net number of such policies by 500, whichever is greater, during a five-year period; or
- a reduction of the net number of homeowners insurance policies in force, by 4 percent or more, or a reduction in the net number of such policies by 100, whichever is greater, during a one-year period.
- That number does not include any policies that the law permits the insurer to cancel mid-term under one of the handful of permitted reasons, such as non-payment of premium.
Subsection (o) sets two sets of rules for such an insurer – one set for personal auto, the other for homeowners.
The insurer is required to submit to the New York State Department of Financial Services (DFS) a detailed plan that describes:
- What they want to do
- Why they're doing it
- What they will do to minimize market disruptions, and
- Anything else DFS may require.
The regulation mentioned above defines “minimizes market disruption" as “actions to be taken by an insurer which intends to materially reduce its volume of policies to provide for the orderly reduction in homeowners insurance coverage." These may include:
- measures such as locating alternate insurers to provide coverage, and determining the effects of the replacement coverage on insureds' coverage and premium costs;
- efforts by the insurer to maintain a service force in affected areas during the exit period;
- efforts to inform insureds of options available for replacement of coverage with admitted insurers;
- efforts by the insurer to prevent the increase in the volume of policies issued by the New York Property Insurance Underwriting Association (NYPIUA) in affected areas which may result the exit; and
- any other actions serving to minimize market disruption.
The regulation sets very detailed requirements for what must be in the plan. For example, the carrier must inform DFS of the number of policies to be canceled or non-renewed in each county; areas within a mile of the salt shoreline in Westchester County and the four New York City boroughs other than Manhattan; and areas where policy volume written through NYPIUA has increased significantly since 1992.
The insurer must submit the plan to DFS at least 30 days before it intends to implement the plan for personal auto, and at least 60 days in advance for homeowners.
DFS has 30 days to act on the plan. The plan is acceptable if it “it demonstrates that the material reduction is accomplished in a manner that minimizes market disruption." DFS must explain any reasons for rejecting the plan, and the carrier has 15 days to respond to the objection. Once DFS approves a plan, the carrier must implement it and provide periodic reports to DFS.
The carrier may still cancel auto policies for any reason during the first 60 days of the first policy term, and it may cancel after that for non-payment of premium, suspension or revocation of an insured driver's license, or fraud and material misrepresentation.
If the carrier writes more than 750 auto policies statewide, it is limited to non-renewing up to 2% of its policies in each rating territory in addition to its ability to cancel policies.
If it writes less than 750 policies and intends to non-renew them, it must submit to DFS a market withdrawal plan similar to that required for homeowners.
The carrier's communication to agents said it will “begin developing plans for the reduction of business and will communicate with you about the impact to your agency and customers as plans are finalized." We encourage any of you who are affected by this action to carefully monitor future communications from the carrier about its exit plans. We also suggest that you begin the process of locating alternative markets, in the best interests of your clients, as soon as possible.
More information about carriers' ability to terminate or change policies is available from the Cancellations, Nonrenewals & Conditional Renewals page in the Answer Center of our website.