New York Department of Financial Services Issues Guidance on Insurance Loss Mitigation ‎Tools and Services

On May 23, 2024, the New York Department of Financial Services (the “Department”) issued Insurance Circular Letter No. 3 (the “Letter”). The Letter is addressed to “all insurers authorized to write property/casualty insurance in New York State, the New York Property Insurance Underwriting Association [‘NYPIUA’], and rate service organizations.” The purpose of the Letter is to “encourage all insurers authorized to write property/casualty insurance in New York State (‘insurers’) to offer loss mitigation tools and services to insureds for free or a reduced fee…and to encourage insurers, the [NYPIUA], and rate service organizations…to file with the [Department] actuarially appropriate discounts for insureds for the installation of devices or systems that mitigate or prevent losses….” As a result in a rise in the InsurTech space, in 2021 the National Association of Insurance Commissioners (“NAIC”) updated the anti-rebating section of the NAIC Model Unfair Trade Practices Act (#880) (Section 4(I)) by excluding various value-added products or services that an insurer or producer may offer at no cost or a reduced fee from the definition of impermissible discrimination or rebates. Other states have also implemented such changes.[1]

With respect to insurers providing loss mitigation tools and services to insureds at no cost or for a reduced fee, the Letter reminds insurers that N.Y. Ins. Law § 2324(a) “applies to property/casualty insurance[[2]] and generally prohibits an insurer from paying or offering to pay, or giving or offering to give, to a person, a rebate or inducement that is not specified in the insurance policy.” Examples of such loss mitigation tools and services include “smart water monitor and shutoff devices and electrical fire sensors and monitors….” However, the Letter further reminds insurers that N.Y. Ins. Law § 2324(a) “permits an insurer to pay or offer to pay, or give or offer to give, to a person, any valuable consideration, including merchandise or periodical subscriptions, not exceeding $25 in value, that is not specified in the policy.” The valuable consideration not exceeding $25 must “be paid or offered in a fair and nondiscriminatory manner to like persons.”

Finally, the Letter states if a “tool or service exceeds $25 in market value, then it must be specified in the insurance policy, have a legitimate nexus to the insurance, and be necessarily or properly incidental to the insurer’s insurance business.” However, the Letter makes clear that, even if such tool or service is included in the policy, the Department may nonetheless determine the inclusion of the tool or service to “violate other provisions of the Insurance Law or regulations promulgated thereunder”, such as unfair trade practice statutes, should such tool or service not “have a legitimate nexus to the insurance, and [is not] necessarily or properly incidental to the insurer’s insurance business….”

The full text of the Letter can be found here.

[1] See, e.g., Maine Insurance Bulletin 426, dated October 25, 2017.

[2] We note N.Y. Ins. Law § 4224(c) governs prohibited inducements as applicable to life and accident and health insurance. The foregoing statute provides except for “wellness programs”, as described in N.Y. Ins. Law § 3239, “no such life insurance company…and no officer, agent, solicitor or representative thereof and no such insurer doing in [New York] the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance…any valuable consideration or inducement whatever not specified in such policy or contract other than any valuable consideration, including but not limited to merchandise or periodical subscriptions, not exceeding twenty-five dollars in value….” N.Y. Ins. Law § 4224(c). See also, NY Insurance Circular Letter No. 9, dated March 3, 2009; NY OGC Opinion, dated June 6, 2003.