NU Online News Service, Jan. 6, 3:03 p.m. EST

Emphasizing the need for a new approach to state government, New York's new governor is seeking a radical realignment of the way the state does business, including folding the Department of Insurance in with two other agencies.

Yesterday, newly elected Gov. Andrew M. Cuomo delivered his State-of-the-State address where he proposed folding the Department of Insurance into two other regulatory agencies, the Department of Banking and the Consumer Protection Agency.

In his speech, Gov. Cuomo, who was the state attorney general before being elected governor, said he spent four years fighting corruption on Wall Street and asked where the federal and state regulatory agencies were to protect consumers.

"I believe Washington was primarily responsible, but I also believe New York could have done a better job…I believe our current organization is not effective because it is not organized [to deal with] the way Wall Street works anymore," Gov. Cuomo said in his address.

He said the three separate agencies are failing to perform their job.

"We can have a win-win," the governor said. "We can consolidate them into a department of financial regulation that better protects the consumer and the consolidation will save the taxpayers money by reducing the cost of three separate organizations."

Mr. Cuomo did not go into detail about how this new financial regulatory department would work or who would head it, since such change would first require legislative action.

Reacting from the insurance industry perspective, Ellen Melchionni, president of the New York Insurance Association, told NU Online News Service that she applauded the governor's intention to reduce state spending and is hopeful that a reduction in the cost of the department would translate into a reduction for the costs for insurers.

"We are very encouraged and hope the efficiency in new agency will be created," said Ms. Melchionni.

Specifically, she spoke to the practice of suballocation insurers have been subject to for years. The Department of Insurance is funded through assessments on insurers that pay for the department's functions. However, she said that through the legislature, insurers have been paying additional assessments, "a back-door tax," to fund additional functions such as fire safety pamphlets for cigarettes and monies to the Department of Health for services and expenses such as development of a forge-proof prescription program.

The NYIA filed suit early last year over the suballocations, which Ms. Melchionni said are "improper and deceitful." She noted that of the $455 million in assessments for the 2009-2010 fiscal year, $317 million went to suballocation and not to the running of the insurance department as was intended.

Ms. Melchionni said she hopes the changes will modernize the department and emphasize market solutions to pricing issues while allowing the department to concentrate on solvency and making certain companies do not charge too little for what they underwrite.

On the whole, she said the changes mean no downside for consumers and that there are indications legislators are on board with the idea.

Ms. Melchionni said she remains optimistic about the governor's plans and his emphasis on creating a business-friendly environment in the state, saying, "I think the opportunity is ripe for change."

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