New York Superintendent's powers and insurer regulation: certificate of authority, solvency, claim practices, and agent appointments

The New York Superintendent and how insurers are regulated

New York regulates insurance through the Department of Financial Services (DFS). Its head is the Superintendent of Financial Services, who is appointed by the governor with the advice and consent of the senate and serves at the governor's pleasure. The Superintendent holds every right, power and duty over financial services that the Financial Services Law or any other New York law expresses or reasonably implies. Insurance is one of two divisions: the Superintendent must appoint a deputy for insurance to head the insurance division, and a deputy for banking to head the banking division. Deputies and authorized employees may take any action the Superintendent has delegated to them.

For the exam, think of the Superintendent as the single gatekeeper who controls an insurer's whole life in New York. The Superintendent lets it in, watches its money, polices how it pays claims, and controls who may sell for it.

Where the power comes from

• General powers. The Superintendent has whatever powers the Financial Services Law, the Insurance Law, the Banking Law or any other state law confers.
• Rulemaking. The Superintendent may adopt, amend and withdraw rules and regulations, and issue orders and guidance, that carry out powers granted by law, interpret the Insurance Law, and govern the department's procedures. Many familiar New York insurance rules are regulations issued under this power.
• Consumer protection. The Superintendent investigates matters affecting consumers, receives and tracks complaints, assists consumers, mediates complaints with providers, refers matters to other agencies or the Attorney General, runs consumer education, and continues to detect, investigate and prevent insurance fraud.
• Discretion. Where a law authorizes but does not require an action, or requires the Superintendent's approval, that decision lies in the Superintendent's sound discretion.

Certificate of authority: the insurer's license

An insurer cannot transact insurance in New York until the Superintendent authorizes it. Other states and the exam call that authorization a certificate of authority. New York's Insurance Law calls it an insurer's license. An insurer holding one is an authorized (admitted) insurer, and one without it is unauthorized.

Before issuing the license, the Superintendent reviews the applicant. Once told it has complied, the company must deposit the money or securities the law requires with the Superintendent. On compliance, the Superintendent may license it to write only the kinds of insurance named in its charter. Each license goes to a single licensee, an individual or a corporation. Generally, the Superintendent will not grant a license to an insurer, agent, agency or broker that proposes a name identical to an existing insurer's, or so similar that it is likely to deceive or mislead the public. There is a proviso: on satisfactory proof of a resolution by an insurance corporation's board of directors, the Superintendent may, in his discretion, license a similar but not identical name to do a different kind of insurance business. Separately, the Superintendent may refuse any name likely to deceive or mislead the public.

Solvency: watching the money

Solvency regulation exists so that the insurer can still pay claims years after it collects the premium. The standard tools are these:

• minimum capital and surplus before licensing and continuously afterward;
• reserves for unpaid claims and future policy obligations;
• annual statements filed with the Superintendent, plus periodic financial examinations of the insurer's books;
• limits on investments, and early-warning tests such as risk-based capital.

When an insurer becomes financially hazardous, the Superintendent can step in through conservation, rehabilitation or liquidation. The Superintendent's annual report to the governor and legislature lists the insurers placed in liquidation, conservation or rehabilitation that year. It also lists the examination reports filed on authorized insurers and tables each class of insurer's assets, liabilities, premiums and insurance in force. Licenses also depend on paying DFS's operating assessments: if a licensee has not paid within 30 days after the due date, the Superintendent may suspend its license on notice, and reinstate it if the licensee pays within 90 days of the suspension notice.

Claim practices

The Superintendent polices how claims are handled. Standard unfair-claims-practice rules prohibit misrepresenting policy provisions, failing to acknowledge and investigate claims promptly, and failing to pay a claim once liability is reasonably clear. They also prohibit compelling claimants to sue by offering substantially less than is owed. Violations can bring penalties and action against the insurer's license. New York also requires health insurers, Article 43 corporations and HMOs to report quarterly and annually on health claims received, paid, pended and denied. The reports are due within 45 days after each period ends and are published, including on the department's website.

Agent appointments

A producer's license lets a person sell, but an agent may represent a particular insurer only after that insurer appoints the agent and the appointment is filed with the Superintendent. The insurer is accountable for its appointed agents. When it ends an appointment, it must notify the Superintendent, and when the termination is for cause it must state the reasons. Brokers represent the client, not the insurer, and so are not appointed. Agent, agency and broker licenses are also barred from using deceptive names.

Exam tip: "Certificate of authority" means the insurer may do business. A producer's license means the person may sell. An appointment links the two.