PCI Urges Pataki: Sign NY Surplus Lines Bill

PCI said the bill, S.B. 6474, would eliminate a wrong legal interpretation by State Insurance Superintendent Gregory V. Serio setting limits on minimum earned premium for a premium financed surplus lines transaction.

Michael G. Koziol, PCI assistant vice president and counsel, said as the law currently stands the New York Insurance Department applies it to limit surplus lines insurers from charging more than 10 percent of the premium or $60.

Mr. Koziol explained that the industry wants the limit removed because if the insured cancels early there isn't enough premium to recoup upfront costs such as investigation, property visits and risk analysis that are incurred before the policy goes into effect.

Insurers, he said, would recoup those costs only if the insured stays with the insurer for the full term of the policy.

"If New York wants the surplus lines to be available it needs to give full freedom to recover upfront costs. If the insured stays with the insurer this isn't an issue," he said.

The bill, he said, would prevent early cancellations of policies. He noted that the minimum premium charges are disclosed at the time of purchase and that the buyers are commercial buyers, who are presumably sophisticated purchasers.

Surplus lines coverage, he advised is only purchased when it is not available on the admitted market.

Mr. Koziol said PCI believes the bill is opposed by Mr. Serio, but said he did not know what his reasons were.

There was no immediate response to a request for comment from Mr. Serio's office.

Mr. Koziol said, "Any restrictions on rate and form serve only to limit the number of entities willing to write on a surplus lines basis."

In his letter to Mr. Pataki he wrote, "Insurers enter the New York surplus lines market based on reasonable certainty that they will get a return on investment. When acquisition costs exceed the greater of 10 percent of premium or $60, and the insured terminates the contract before those costs are recouped, the surplus lines market operates under a loss basis."

"The New York Assembly overwhelmingly ratified S.B. 6474, and we urge the governor to sign this much-needed bill," Mr. Koziol said

A minimum earned premium will cover acquisition costs involved in reviewing, inspecting, processing, analyzing and ultimately placing a risk and operates to assure that the insurer will retain the business for a sufficient period to recoup acquisition and other costs, according to PCI.

PCI counts 1,000 member companies. The organization said that on a surplus lines basis in New York, members accepted, in 2002 (the last year for which data is available) nearly $400 million in exported surplus lines business.