BILL NUMBER: S5310
SPONSOR: BAILEY
 
TITLE OF BILL:
An act to amend the insurance law, in relation to permitting a waiver of
the diligent effort requirement in limited circumstances for certain
insurance coverage to be placed by licensed excess line brokers with
unauthorized insurers
 
PURPOSE OR GENERAL IDEA OF BILL:
This bill would exempt certain commercial lines insurance transactions
placed by wholesale insurance brokers from the excess line diligent
effort requirement. The bill would eliminate both a process and exces-
sive data reporting which provide no benefit to insureds and instead
allow brokers to focus on providing services that consumers need and
value.
 
SUMMARY OF PROVISIONS:
Section one amends subparagraph (A) of paragraph 3 of subsection (b) of
section 2118 of the insurance law, as amended by section 12 of part I of
chapter 61 of the laws of 2011, to establish a waiver of the diligent
effort requirement in limited circumstances.
Section two amends section 2118 of the insurance law by adding a new
subsection (g).
 
JUSTIFICATION:
The excess line market exists as a matter of public policy to insure
risks which New York admitted insurers choose not to underwrite because
the risks are distressed, unique, volatile, or involve new businesses or
coverages without loss history. The legislature reasoned that New York
businesses could not operate without a secondary market to insure risks
that are rejected by licensed insurers. The excess line market is of
vital importance to New York and nimble processing is essential to
effectively serve consumer needs.
The law requires that brokers make a good faith attempt to seek coverage
from a licensed insurer before turning to the excess line market. This
is called a diligent effort. The law considers a diligent effort to be
complete when three licensed insurers have considered and then rejected
a risk. The bill would exempt commercial insurance policies placed by
retail insurance brokers through unaffiliated wholesale excess line
brokers from the diligent effort requirement. Diligent effort would
still apply to all personal lines policies as well as commercial lines
policies that are not placed through an unaffiliated wholesale excess
line broker.
A substantial portion of excess line risks are placed by small main
street retail insurance brokers who turn to wholesale excess line
brokers when they have exhausted their own licensed insurer options. It
is inherent to the insurance industry that retail brokers will exhaust
all licensed market options before seeking excess line coverage through
a wholesale broker. Retail brokers will not choose to split their
commissions with wholesale excess line brokers unless that is the only
way to obtain coverage for an insured. Retail brokers know the under-
writers at the licensed insurers with whom they deal regularly and are
familiar with their policy forms, their licensed companies often direct-
ly bill insureds and therefore eliminate collection risks, and policies
issued by licensed insurers are covered by state security funds that
also de facto protect retail brokers by supporting their clients. A
retail broker loses these benefits in excess line transactions.
Therefore, diligent effort is unneeded to ensure that commercial risks
are placed with licensed insurers when feasible where retail brokers
place risks with unaffiliated wholesale excess line brokers. The process
and data reporting under these circumstances places an unnecessary delay
and cost on placing insurance policies that is detrimental to consumers.
 
PRIOR LEGISLATIVE HISTORY:
2023-24: S5896 - Passed Senate
2021-22: S8128 - Passed Senate
 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None.
 
EFFECTIVE DATE:
Immediately.

Statutes affected:
S5310: 2118 insurance law, 2118(b) insurance law