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					Producer Ethics and Disclosure




         ITI – A Family Owned Business
         Providing Continuing Education
             To New York Insurance
                  Professionals
                   Since 1996

              Robert Secovnie, Director
               Phone: 518-758-6609
                Fax: 518-758-6693
                   www.itiny.com
Insurance Practices, Policies, and Guidelines




                   ITI – A Family Owned Business
                   Providing Continuing Education
                       To New York Insurance
                            Professionals
                             Since 1996

                          Robert Secovnie, Director
                           Phone: 518-758-6609
                            Fax: 518-758-6693
                               www.itiny.com

               2
                                                      7-9
        The Insurance Training Institute (ITI) is an approved provider of Continuing Education Courses
for all New York State Insurance Department licensees required by the Insurance Law to complete
biennial education to renew their licenses. ITI provides classes at over 20 locations and will provide
classes at vour own facility. We follow all guidelines and procedures required by the NYS Education and
Insurance Departments.

          ITI provides its clients with competitive tuition and offers a broad range of up-to-date courses to
meet their needs along with the best-trained and qualified instructors. ITI provides you and your
employees the insurance training that you deserve in this rapidly changing market. For over 12 years, our
Director, Robert Secovnie, worked with many of you in his capacity as an employee of the Executive
Branch of the NYS Insurance Department, (assigned to the Licensing Bureau). Bob worked with other
states' Insurance Departments, the ASI Insurance Testing Company regarding legislative and law changes,
state examination materials, insurance course approvals, and has worked with many agencies regarding
licensing questions and problems over the years.

         ITI's goal is to meet your needs in training and consulting as a professional organization
committed to improve the operation and image of the insurance industry. Our Continuing Education
classes will qualify your agents and brokers for their license renewals. All classes will be held either at our
locations or at your office for your convenience. All classes held at your office will meet the requirements
of the NYS Insurance Department. ITI Courses will also meet the reciprocity requirements of most other
states for your Non-Resident Licenses.


                                                                 Thank you for your time and consideration;


                                                                                 Robert Secovnie, Director
                                                                      Insurance Training Institute, Inc. (ITI)
                                                                      A family owned and operated business




            Continuing Education for Life/Health Insurance, P&C Agents,
                            Brokers & Adjusters




                                                        3
Producer Ethics and Disclosure Outline

Section      Subject
Section 1    Course Introduction
1.1          Producer Ethics and Disclosure in the 21st Century
1.2          10 Principles for the Insurance Industry
1.2a         NYSID Principles Announcement
1.2b         10 Principles for the Insurance Industry
1.2c         10 Principles for Regulators
Section 2    Required Disclosures
2.1          Regulation 85 – Fraud Warning
2.2          Personal Privacy
2.2a                GLBA
2.2b                Sarbanes Oxley
2.2c                FCRA
2.2d                HIPAA
2.3          Regulation 169 NY Privacy Implementation
2.3a         Regulation 169 – Broker Binding Authority
2.4          Regulation 182 Use of Insurance Scores
2.4a         Regulation 182 – Purpose
2.4b         Regulation 182 – Disclosure
2.4c         Regulation 182 – Dispute Resolution
2.5          FACTA
2.5a         FACT Act Study
2.6          Regulation 159 – NY Homeowners Notice
2.6a         Hurricane Deductibles
2.7          CMAP
2.8          Proposed Regulation 189 –Catastrophe Reserve
2.9          Flood Notice
2.10         Regulation 79 – Photo Inspections
2.11         Section 2119 – Broker Fees
2.11a        Producer Compensation Disclosure
2.12         Regulation 87 – The Forgotten Form
2.13         Excess and Surplus Disclosures
2.14         Regulation 60 – Life Policy Replacements
2.14 a       Regulation 60 Disclosure Instructions
2.14 b       Regulation 60 Disclosure Form
2.15         Regulation 148 – Viatical Settlements
2.15 a       Viatical statement Disclosure
2.16         1035 Exchanges
Section 3    Advertising
3.1          Advertisement Part 1
3.2          Advertisement Part 2
Section 4    Producer Ethics


                                        4
4.1         Ethical Dilemmas
4.1a        Ethical Dilemmas
4.1b        Ethical Dilemmas
4.1c        Ethical Dilemmas
4.2         Disciplinary Actions
Section 5   Licensing
5.1         Waiver of Pre-License Requirement
5.1         License Renewal Changes
5.2         Online Renewal App
Section 6   Unlicensed Support Staff Guidelines
Section 7   Insurance Department Assistance
7.1         Complaint Filing
7.2         Disaster Assistance
7.3         Consumer Guides
Section 8   Glossary
Section 9   Sample Questions




                                     5
Section 1
Introduction:
The Producer Ethics and Disclosure course is a base for all insurance licensees to refer to in
developing a “Best Practices” policy for their business.

The course is designed to provide the self-study student with a comprehensive manual that reads in a
logical manner, while providing the classroom student and instructor with a reference on which
instruction and dialogue can be based.

More than 12 years of classroom conversation with tens of thousands of insurance professionals
from across New York State and decades of industry experience helped the writers shape this course
with day-to-day issues faced in a modern insurance agency and in the boardrooms of insurance
companies.

This course is an equally important guide for agency professionals and insurance carrier staff and
management. With a significant focus on the purposes of disclosure by insurance professionals to
their clients, this course, and the forms included, will help every agency ensure they are meeting the
standards expected in their profession.

While many “ethics” courses devote significant time to the philosophy of making ethical decisions,
this course makes an effort to apply the “Principles for Insurance Professionals,” as proposed by the
New York State Insurance Department, to everyday business transactions. The course focuses
specific attention on those areas which regulators have deemed significant enough to warrant
separate written disclosure to consumers. The course delves into the history behind certain
regulation and the impact of others on consumers.

Many of the areas reviewed in this manual are extremely complex and could constitute dozens of
hours of continuing education to enable a licensee to master. It is not the intention of this course to
certify licensees in any specific area and specific product questions should be directed to a
producers’ carrier for clarification. Likewise, questions of legal nature or specific to any regulation,
law or policy should be directed to the New York State Insurance Department General Counsel’s
Office or other appropriate regulatory organization.

Finally, it is the belief of the course authors that all insurance licensees, whether licensed for a
single line of business or cross licensed to sell multiple lines, will become stronger professionals
after completing the Producer Ethics and Compliance course.




                                                   6
Section 1.1

Producer Ethics and Disclosure
For the past several years, insurance producers across the country have seen a steady increase in the
number of states requiring insurance licensees to complete education in ethics as part of regular
continuing education requirements. The National Association of Insurance Commissioners’ (NAIC)
has played a key role in coordinating the licensing and continuing education requirements of the
individual states. The NAIC Consumer Affairs Committee (D Committee) runs the Producer
Licensing Working Group (PLWG), which continues to work on developing new “Producer
Licensing Model Acts” (PLMA) for adoption by individual states. One main recommendation
contained in the NAIC PLMA Licensing Handbook 2008 Draft Edition is that individual licensees
complete a minimum of 3 hours in Ethics in each biennial compliance period.

Great emphasis has been placed on the professionalism of insurance licensees and their legal, moral
and ethical conduct. While there has always been an expectation for insurance agents and brokers to
act in a moral and ethical manner, the current push to expand ethics education is linked directly to
passage of the Gramm-Leach-Bliley Act.

       The process for licensing insurance producers has had numerous phases. The first NAIC model on this subject
       was the NAIC Agent and Broker Model. The next phase was the NAIC Single License Producer Model.
       Although development of the newest model began in the late 1990’s, it was Congress’ passage of the Gramm-
       Leach-Bliley Act (GLBA) that caused the NAIC to speed the development of the new NAIC Producer Licensing
       Model Act (PLMA).

       One of the major provisions of GLBA was a provision to create an organization known as the National
       Association of Registered Agents and Brokers (NARAB).

       If created, NARAB would provide a mechanism through which uniform licensing, appointments, continuing
       education and other insurance producer sales qualification requirements and conditions could be adopted and
       applied on a multistate basis. To prevent the creation of NARAB, the states had the option either 1) to enact in
       at least 29 states reciprocity laws and regulations governing the licensure of nonresident individuals and
       entities authorized to sell and solicit insurance within those states, or 2) to enact uniform laws and regulations
       governing the licensure of individuals and entities authorized to sell and solicit the purchase of insurance
       within the states. If the states failed to accomplish at least one of these options by November 12, 2002, the
       NARAB provisions would pre-empt state insurance licensing laws.

       The NAIC moved quickly to meet the reciprocity threshold of GLBA to avoid preemption of state licensing laws.
       The PLMA was adopted, which contained guidelines for states to comply with reciprocity and established
       uniform guidelines on a number of licensing issues. In addition, the PLMA grants a commissioner the
       authority to waive any existing state requirement that violates reciprocity. A sufficient number of states adopted
       the reciprocity provisions of the PLMA prior to the 2002 deadline and NARAB was not created.

       Through the efforts of the Producer Licensing Working Group (PLWG) and its subgroups, the NAIC monitors
       state compliance with reciprocity guidelines. Under GLBA, NARAB could still be formed if the states fail to
       maintain the minimum reciprocity specified.




                                                          7
       The NAIC also set a goal to create uniform licensing practices. The PLWG has adopted a number of uniform
       resident licensing standards (URLS) and guidelines and continues to strive toward a more efficient licensing
       system among the states.
       NAIC State Licensing Handbook 2008 edition (May Draft)



While some may take offense to having their ethical, moral and professional values called into
question, a closer look at the history behind these changes is helpful in understanding regulators’
reasoning in implementing these requirements.

Throughout our history, the United States has had periodically changed insurance industry
regulations. The most notable changes are:
        The Glass Steagall Act of 1933 prohibiting national and state banks from affiliating with
        securities companies;
        The Bank Holding Company Act of 1956 prohibiting a bank from controlling a non-bank
        company;
        The 1982 Bank Holding Act further prohibiting banks from general insurance underwriting
        and agency activities.
        The 1999 Graham-Leach-Bliley (GLBA), instituting sweeping changes across the financial
        industry, changing the regulation of banks, insurers and financial institutions.

However, the GLBA was prompted in large part by the European Union (EU) Data Protection
Directive of 1995.

       “the EU passed the Data Protection Directive, which required that international data
       exchanges that used EU citizens' personal data be accorded the same level of protection that
       their home country would afford them. This meant that US companies would have to ensure
       that when they used EU citizens' personal data they provided the same level of protection
       these citizens were afforded within the EU. The EU was especially concerned with the US
       government's preference for self-regulatory approaches to privacy and the lack of federal
       privacy legislation. While the EU-US agreed to a Safe Harbor proposal, which allowed for
       companies to self-regulate under FTC oversight, financial services industries were not
       included in the original agreement.” Electronic Privacy Information Center
       http://epic.org/privacy/glba/

Since GLBA set certain frameworks for the future of the financial services industry, existing
organizations have devoted significant resources and many new groups have formed to address the
changes required by the 1999 legislation. Of significance to this course are the activities of the
National Association of Insurance Commissioners (NAIC), the New York State Insurance
Department and findings of various other groups including the Bloomberg-Schumer Report
“Sustaining New York’s and the US’ Global Financial Services Leadership”.

The Bloomberg-Schumer report released in January 2007 shows that New York remains the world’s
largest financial market and the most important in many measures. However, the report outlines
significant challenges facing the US financial services industry.




                                                       8
       “the findings also identify three factors that clearly dominate financial services leaders
       views of New Your -- and by extension the United States – as a place to do business: skilled
       workers, the legal environment, a regulatory balance (including responsiveness by
       regulators and the overall regulatory environment). In each area, ther are growing
       concerns that policy makers should consider in order to reverse the declining appeal and
       competitiveness of the United States and New York City”. Bloomberg-Schumer pf 15.

Specifically, the report notes:
       “New York and the US were at a competitive disadvantage with the UK due to “a propensity
       toward litigation and concerns that the US legal environment is less fair and less predictable
       than the UK environment”. Bloomberg-Schumer pg16.

While it is clear that business leaders respect the need for strong enforcement and punitive penalties
for corporate malfeasance, the report states,
        “business leaders increasingly perceive the UK’s single, principles-based financial sector
        regulator – the Financial Services Authority (FSA) – as superior to what they see as a less
        responsive, complex US system of multiple holding company and industry segment
        regulators at the federal and state levels.” Bloomber-Schumer pg16.

Among the Bloomberg-Schumer report recommendations is the development of a shared vision for
financial services and a set of supporting regulatory principles.

To address various GLBA requirements, industry concerns and the changing global insurance
market, the NAIC has established a Principal-Based Reserving Working Group (PBR) under the
Executive Committee. The initial focus of the PBR has been on the activities of the NAIC Life and
Health Actuarial Task Force (LHATF). Following its’ work with the LHATF, the PBR Working
Group will begin working with other area, including the Property Casualty and Corporate
Governance. The PBR has been charged with the following:

           1. To serve as a coordinating body with all NAIC technical groups involved with
              projects related to a principles-based approach to regulation.
           2. To consider policy and practice issues related to principles-based regulation for life
              insurance and thereafter property and casualty insurance, including but not limited
              to the impact on areas such as corporate governance, examination and analysis, as
              well as staff resources and other insurance department administrative concerns.
           3. To focus on balancing theoretical approaches with effective regulatory practices to
              achieve desired end-results in solvency monitoring efforts, and further coordinate
              with NAIC leadership to provide direction to NAIC technical groups, including
              whether and to what degree principles-based approaches should be pursued, setting
              timelines for such pursuit, and ensuring other issues are addressed prior to or
              concurrently with implementation of principles-based approaches by the technical
              groups.
           4. To report the status of its work to, and seek guidance from, the Executive Committee
              no less frequently than a quarterly basis.
           5. To evaluate necessary changes to existing state insurance laws, regulations or
              administrative policies to effectuate a principles-based regulatory framework.



                                                  9
Section 1.2
Principles Based Regulation
With the NAIC continuing to take action on GLBA, the release of the Bloomberg-Schumer Report
and continuing pressure from global markets to move business away from New York and the United
States, it is no coincidence that New York formed a new commission in May 2007 to modernize its’
regulation of financial services. The New York State Commission to Modernize the Regulation of
Financial Services is a 45 member of the industries powerhouses, consumer protection groups,
federal and state agency representatives and state legislators. Notable members include the
Chairman and CEO of the Goldman Sachs Group, Executive Vice President of JP Morgan Chase,
Chairman of Swiss RE America Holding Corporation, President and CEO of NASDAQ, President
and CEO of AIG, and Chairman and CEO of Merrill Lynch.

In November 2007, New York State Insurance Department Superintendent, Eric Dinallo, introduced
a proposal to the Commission to Modernize the Regulation of Financial Services for a transition to
Principals-Based Regulations. The proposal includes one set of Principles for the Insurance Industry
and a second set of Principles for Regulators. This proposal was made to the New York State
Commission to Modernize the Regulation of Financial Services, which is reviewing current
financial services statutes, regulations and policies, and will propose legislative and other necessary
changes to promote competition and the growth of business, while protecting both consumers and
honest businesses from unfair or unethical practices.
                               Principles-Guided Regulation
       A more principles-based approach to regulation aims to reduce unnecessary regulatory and
       administrative burdens, ensure that regulation and its enforcement are proportionate,
       accountable, consistent, transparent and targeted, and provide benefits for consumers from
       more efficient markets, more effective protection and better responsiveness to consumers’
       needs.

       The essential goal of regulation is not rote compliance with a long list of rules, but ensuring
       appropriate outcomes. These principles focus both the regulator and the regulated on such
       outcomes and tell regulated companies our expectations for how they will conduct their
       business. It brings the issue of compliance to the highest levels of a company – to the Board
       of Directors and the management committee. It provides the flexibility to fit the different
       business models of thousands of different companies, while improving consumer protection.

       A more principles-based approach to regulation gives the regulator the right tools to begin
       changing its relationship with the regulated. An essential part of a principles-based approach
       is an open door between the regulator and companies so the companies can seek and
       receive guidance, instead of having regulation become a periodic “gotcha” exam.
        Companies that deal honestly with a regulator should expect to be treated honestly in return.

       On November 5, 2007, Eric Dinallo, Superintendent of the New York State Insurance
       Department and Chair of the Commission, released a draft regulation that would make the
       New York Insurance Department the first in the nation to establish principles-based
       regulation. The draft includes 10 principles for industry and is accompanied by 10 principles
       for regulators. (http://www.fsc.ny.gov/rfs_pgr.htm)




                                                     10
Section 1.2a
                       ISSUED 11/05/2007          FOR IMMEDIATE RELEASE

       New York Insurance Department Issues First Principles-Based Regulation Proposing
                        Principles for Both Regulated and Regulators

   Insurance Superintendent Eric Dinallo today released a draft regulation that would make the New
   York Insurance Department the first in the nation to establish principles-based regulation. The draft
   includes 10 principles for industry and is accompanied by 10 principles for regulators. The draft
   regulation will be distributed for discussion by the industry and consumers and will be on the
   agenda of the New York State Commission to Modernize the Regulation of Financial Services,
   which Dinallo chairs.

   Principles-based regulation aims to reduce unnecessary regulatory and administrative burdens,
   ensure that regulation and its enforcement are proportionate, accountable, consistent, transparent
   and targeted, and provide benefits for consumers from more efficient markets, more effective
   protection, and better responsiveness to consumers' needs.

   “New York must have the best, most effective regulation of financial services in order to remain the
   financial capital of the world,” Dinallo said. “Today that means principles-based regulation. The
   financial services marketplace is extremely creative and innovative and our regulation must be just
   as nimble. Thus, the best way to protect consumers and promote fair and honest competition is with
   principles-based regulation.”

   “The essential goal of regulation is not rote compliance with a long list of rules, but ensuring
   appropriate outcomes. These principles focus both the regulator and the regulated on such outcomes
   and tell regulated companies our expectations for how they will conduct their business. It brings the
   issue of compliance to the highest levels of a company – to the Board of Directors and the
   management committee. It provides the flexibility to fit the different business models of thousands
   of different companies, while improving consumer protection,” Dinallo said.

   “As a code of conduct, the principles are reasonable rules that can be easily incorporated into the
   business philosophy and operations of regulated parties with little or no expense. In fact, most
   regulated entities should already be operating in accordance with such principles,” Dinallo said.
   “Importantly, the principles will not expose companies to additional private lawsuits because New
   York’s Insurance Law generally does not provide for private rights of action. Only the regulator can
   enforce the principles. This is, in fact, a significant competitive advantage for New York.”

   “The principles ask companies to be ethical to their core, rather than focusing on technical
   requirements. Indeed, if a company is generally conforming to the principles, but violates a rule in a
   way that does not harm the public, we should take that into account,” Dinallo said. “It is clear that
   detailed rules alone have not prevented misconduct. In fact, principles eliminate loopholes and gaps
   between rules that could allow activities that harm consumers or mislead regulators.”

   “The Commission will discuss the principles at the upcoming January meeting. This is an
   opportunity for the Commission to focus on a key competitiveness issue – the ability of our
   regulatory system to keep up with ever-evolving and innovative markets,” said Scott Rothstein,
   Executive Director of the Commission. “The principles do not pre-empt existing law or regulation.



                                                   11
But they make clear the fundamental purposes behind those laws and regulations and can serve as
scaffolding around the existing regulatory structure, providing support and guidance as products,
practices and markets evolve.”

“Principles-based regulation gives the regulator the right tools to begin changing its relationship
with the regulated. An essential part of a principles-based approach is an open door between the
regulator and companies so the companies can seek and receive guidance. We expect to turn
regulation from periodic ‘gotcha’ exams into a continuing dialogue. Companies that deal honestly
with the Department can expect to be treated honestly in return. But we will, if anything, be more
stern with serious violations,” Dinallo said.

The proposed new regulation continues and codifies the Insurance Department’s move towards
principles and risk-based regulation under Superintendent Dinallo, who took office this year. This
approach has already been applied in the settlement of the World Trade Center insurance claims
and in the implementation of the workers’ compensation reforms, where the Department has
introduced free-market principles. This is the third significant draft regulation circulated by the
Department for public comment in the last month that reflects the new principles-based approach.
The first requires property insurers to create a reserve for catastrophes such as hurricanes. The
second treats top-rated non-U.S. reinsurers the same as U.S. companies on the issue of posting
collateral.

The Department has also developed a proposed list of principles for regulators, which it intends to
issue as a Circular Letter. The principles for the regulators will establish a baseline for interactions
between the Department and regulated entities, and are intended to focus regulatory action on key
areas of risk, while fostering competition and innovation.

Implementing a principles-based approach will require continuation and acceleration of the changes
already begun in the Insurance Department’s movement towards a risk-focused approach to
regulation of financial solvency. Under the principles-based approach, the staff’s new role in
assessing adherence to outcomes and recognizing prospective risk in insurance companies will
require robust professional judgment, reinforcement from management and continual training. The
list of principles for regulators will assist in this migration as it provides the foundation for the
professional judgment exercised by staff.

In developing the principles, the Insurance Department has already reached out to several insurers,
insurance trade groups and other interested parties. The Insurance Department will continue to
conduct outreach by circulating a working draft of the proposed 10 principles-based regulations to
the insurance industry and consumers. It will then go through the formal proposal process, which
includes publication in the New York State Register and a formal 45-day comment period for
written comments.




                                                  12
Section 1.2b

                        10 Principles for the Insurance Industry
(1) A licensee shall lawfully conduct its business with integrity, due skill, and diligence.

(2) A licensee shall take reasonable care to organize and control its affairs responsibly and
effectively, with adequate risk management systems.

(3) A licensee shall maintain adequate financial resources.

(4) A licensee shall observe proper standards of market conduct.

(5) A licensee shall pay due regard to the interests of its clients and treat them fairly.

(6) A licensee shall pay due regard to the information needs of its clients, and communicate
information to them in a way that is clear, fair and not misleading.

(7) A licensee shall manage conflicts of interest fairly, both between the licensee and its clients and
between clients.

(8) A licensee shall take reasonable care to ensure the appropriateness or suitability of its advice and
discretionary decisions for any person or other entity that is entitled to rely upon such.

(9) A licensee shall ensure that the assets of any client for which the licensee is responsible are
adequately protected.

(10) A licensee shall interact with the superintendent and other regulators in an open and
cooperative way, and shall disclose to the superintendent any information relating to the licensee of
which the superintendent would reasonably expect notice.




                                                    13
Section 1.2c

                               10 Principles for Regulators
(1) Regulators, and the regulatory system as a whole, should assess risk comprehensively and
concentrate resources on the most important areas.

(2) Regulators should be accountable for the efficiency and effectiveness of their activities, while
remaining independent and objective in the decisions they make.

(3) Guidance from the regulator should be readily available and easily understood.

(4) Interested parties should be consulted as appropriate prior to issuance of written guidance by the
regulator.

(5) When developing new regulations, the regulator should consider how they can be implemented
and enforced using existing systems and data to minimize the administrative burden on regulated
entities.

(6) No investigation or inquiry should take place without an appropriate basis.

(7) The regulator should not require a regulated entity to provide unnecessary or needlessly
duplicative information.

(8) All regulatory action should be proportionate to the issue being addressed.

(9) Regulators should allow and encourage competition and innovation, while ensuring against
insolvency and protecting consumers and markets, and only intervene as necessary to protect
consumers and markets.

(10) Regulators should respect the responsibility of a firm’s senior management for its activities and
for ensuring that its business complies with requirements and hold senior management responsible
for risk management and controls.



                                                 ###




                                                  14
Section 2: Required Disclosures

Section 2.1

Regulation 95 – Fraud Warning
In today’s complex world of insurance the use of disclosure documents has become a part of nearly
every insurance transaction. Although the addition of each form lengthens the time it takes to close
each deal, proper discussion and execution of these forms will help to ensure that customers
understand their exposures and coverages and allows producers to better identify the needs and
concerns of their clients. Each set of contract initials or contract and endorsement signature is an
opportunity to provide better service and protection.

While the inherent nature of the sale of insurance is a process of discussing the specific coverages in
an individual policy, many policies will have specific language that must be disclosed to the insured
or prospective insured and all policies must contain a Fraud Warning.

Regulation 95 impacts all forms of insurance offered in New York. It has been determined,
however, that one statement is not a sufficient deterrent for all forms of insurance and Regulation 95
has been modified at times to address changes identified in the industry. Currently the fraud
warning for automobile insurance is worded and applied differently from all other forms of
insurance.




                                                  15
11 NYCRR 86.4

N.Y. Comp. Codes R. & Regs. tit. 11, 86.4

  OFFICIAL COMPILATION OF CODES, RULES AND REGULATIONS OF THE STATE OF
                                      NEW YORK
                      TITLE 11. INSURANCE DEPARTMENT
        CHAPTER IV. FINANCIAL CONDITION OF INSURER AND REPORTS TO
                                 SUPERINTENDENT
                SUBCHAPTER A. RULES OF GENERAL APPLICATION
    PART 86. (REGULATION 95) REPORTS OF SUSPECTED INSURANCE FRAUDS TO
                                     INSURANCE
               FRAUDS BUREAU; REQUIRED WARNING STATEMENTS
                       Text is current through January 15, 2008.

Section 86.4.Warning statements.

(a) Except with respect to automobile insurance, all claim forms for insurance, and all applications
for commercial insurance and accident and health insurance, provided to any person residing or
located in this State in connection with insurance policies for issuance or issuance for delivery in
this State, shall contain the following statement:
''Any person who knowingly and with intent to defraud any insurance company or other person files
an application for insurance or statement of claim containing any materially false information, or
conceals for the purpose of misleading, information concerning any fact material thereto, commits a
fraudulent insurance act, which is a crime, and shall also be subject to a civil penalty not to exceed
five thousand dollars and the stated value of the claim for each such violation.''
(b) All applications and claim forms for automobile insurance provided to any person residing or
located in this State in connection with insurance policies for issuance or issuance for delivery in
this State shall contain the following statement:
''Any person who knowingly and with intent to defraud any insurance company or other person files
an application for commercial insurance or a statement of claim for any commercial or personal
insurance benefits containing any materially false information, or conceals for the purpose of
misleading, information concerning any fact material thereto, and any person who, in connection
with such application or claim, knowingly makes or knowingly assists, abets, solicits or conspires
with another to make a false report of the theft, destruction, damage or conversion of any motor
vehicle to a law enforcement agency, the department of motor vehicles or an insurance company
commits a fraudulent insurance act, which is a crime, and shall also be subject to a civil penalty not
to exceed five thousand dollars and the value of the subject motor vehicle or stated claim for each
violation.''
(c) Self-insurers may adopt one or both of the required warning statements set forth in subdivisions
(a) and (b) of this section on their claim forms.
(d) Location of warning statements and type size. The warning statements required by subdivisions
(a), (b) and (e) of this section shall be placed immediately above the space provided for the signature
of the person executing the application or claim form and shall be printed in type which will
produce a warning statement of conspicuous size. On claim forms which require execution by a
person other than the claimant, or in addition to the claimant, the warning statements required by
subdivisions (a), (b) and (e) of this section shall be placed at the top of the first page of the claim


                                                  16
form or in the page containing instructions, either in print, by stamp or by attachment and shall be in
type size which will produce a warning statement of conspicuous size.
(e) Notwithstanding the provisions of subdivisions (a) and (b) of this section, insurers may use
substantially similar warning statements provided such warning statements are submitted to the
Insurance Frauds Bureau for prior approval.

11 NY ADC 86.4

END OF DOCUMENT




                                                  17
    STATE OF NEW YORK INSURANCE DEPARTMENT
                                       25 BEAVER STREET NEW YORK, NEW YORK 10004


George E. Pataki Gregory V. Serio Governor Superintendent

The Office of General Counsel issued the following opinion on October 25, 2004 representing the position of the
New York State Insurance Department.

Re: Fraud Warning

Questions Presented

1 Is there any alternative to providing the fraud warning statement required by 11 NYCRR § 86.6 (2002)
(Regulation 95) when the application procedure does not use a traditional insurance application?
2 May either the insurance broker or the insurance company provide the prospective insured with the fraud
warning statement required pursuant to 11 NYCRR § 86.6 (2002) (Regulation 95) prior to, or after insurance
coverage is bound?

Conclusions

1 No, 11 NYCRR § 86.6 (2002) (Regulation 95) requires a fraud warning statement that conforms to 11 NYCRR
§ Part 86.6 (2002) (Regulation 95) be presented to the prospective insured during the application process.
2 Pursuant to 11 NYCRR § 86.6 (2002) (Regulation 95) either the insurance broker or the insurance company
must provide the prospective insured with a fraud warning statement that conforms to 11 NYCRR § 86.6 (2002)
(Regulation 95) during the application process.

Facts

The inquirer described a situation where an insurance broker works on large commercial insurance accounts where
the insurance broker obtains from prospective insureds information for the application, but there is no physical
application provided to the prospective insured. The inquirer wants to know whether a fraud warning statement is
required in this situation, and if it is, whether the insurance broker or the insurance company has a duty to provide it
prior to, or after, insurance coverage is bound.

Analysis

11 NYCRR § 86.4 (2003) (Regulation 95) states in relevant part:

(a) . . . all applications for commercial insurance . . . provided to any person residing or located in this State in
connection with insurance policies for issuance or issuance for delivery in this State, shall contain the following
statement:

    "Any person who knowingly and with intent to defraud any insurance company or other person files an
    application for insurance or statement of claim containing any materially false information, or conceals for
    the purpose of misleading, information concerning any fact material thereto, commits a fraudulent insurance
    act, which is a crime, and shall also be subject to a civil penalty not to exceed five thousand dollars and the
    stated value of the claim for each such violation."

(d) Location of warning statements and type size. The warning statements required by subdivisions (a) . . . of this
section shall be placed immediately above the space provided for the signature of the person executing the
application . . .




                                                            18
Section 2.2

Personal Data Privacy
It seams hard to believe that even the most technically savvy among us have been online for less
than 20 years. Compuserve, the first dial-up service available to consumers and small businesses,
was introduced to the United States in 1989, followed by Prodigy in 1990 and America Online in
1991. Since the early days of “dial-up” service and the lightning fast 56K baud modems in the mid-
1990’s, the insurance community has grown universally dependent on the electronic transfer of data,
including our most private personal information. With the incredible technological advances in data
storage and access, insurance carriers and financial institutions have been able to develop and
implement new underwriting tools and provide faster service to producers and their clients. At the
same time, criminal and ethically challenged individuals have also gained access to our personal
private information stored by those companies that we all deal with on a daily basis.

Permissible and prohibited use of data gathered and stored by companies has been debated, and
standards for the collection, protection and use of that data has been codified into law by the Federal
government and at the state level across the country. Insurance companies, financial institutions and
their agents have learned to adhere to new requirements of GLBA, Sarbanes Oxley (SOX), FCRA
(Federal Credit Reporting Act), New York Regulation 169 and New York Regulation 182, all in an
effort to treat individuals fairly and to protect their personal private information.

       GLBA – Gramm-Leach-Bliley Act / Financial Services Modernization Act of 1999
            Provides privacy protections for private financial information

       Sarbanes-Oxley (Sox / Sarbox) – the Public Company Accounting Reform and Investor
       Protection Act of 2002 - The Act created new standards for public corporations
       accountability as well as new penalties for acts of wrongdoing changed how corporate
       boards and executives must interact with each other and with corporate auditors.

       FCRA – Fair Credit Reporting Act -- The Fair Credit Reporting Act (FCRA) is a federal law
       that regulates how credit reporting agencies use your information.

       HIPAA – Health Insurance Portability and Accountability Act --

       New York Regulation 169 – Limits the disclose of nonpublic personal health information
       and nonpublic personal financial information about individuals to nonaffiliated third parties

       New York Regulation 182 – Limits the use of credit scores in the underwriting of personal
       lines insurance.




                                                  19
Section 2.2 a

Gramm-Leach-Bliley Act
     Introduction to the Gramm-Leach-Bliley Act

     Information that many would consider private--including bank balances and account
     numbers--is regularly bought and sold by banks, credit card companies, and other
     financial institutions. The Gramm-Leach-Bliley Act (GLBA), which is also known as the
     Financial Services Modernization Act of 1999, provides limited privacy protections
     against the sale of your private financial information. Additionally, the GLBA codifies
     protections against pretexting, the practice of obtaining personal information through
     false pretenses…

     The GLBA's privacy protections only regulate financial institutions--businesses that are
     engaged in banking, insuring, stocks and bonds, financial advice, and investing.

     First, these financial institutions, whether they wish to disclose your personal
     information or not, must develop precautions to ensure the security and confidentiality
     of customer records and information, to protect against any anticipated threats or
     hazards to the security or integrity of such records, and to protect against unauthorized
     access to or use of such records or information which could result in substantial harm or
     inconvenience to any customer.

     Second, financial institutions are required to provide you with a notice of their
     information sharing policies when you first become a customer, and annually thereafter.
     That notice must inform the consumer of the financial institutions' policies on: disclosing
     nonpublic personal information (NPI) to affiliates and nonaffiliated third parties,
     disclosing NPI after the customer relationship is terminated, and protecting NPI.
     "Nonpublic personal information" means all information on applications to obtain
     financial services (credit card or loan applications), account histories (bank or credit
     card) and the fact that an individual is or was a customer. This interpretation of NPI
     makes names, addresses, telephone numbers, Social Security Numbers and other data
     subject to the GLBA's data sharing restrictions.

     Third, the GLBA gives consumers the right to opt-out from a limited amount of NPI
     sharing. Specifically, a consumer can direct the financial institution to not share
     information with unaffiliated companies.

     Consumers have no right under the GLBA to stop sharing of NPI among affiliates. An
     affiliate is any company that controls, is controlled by, or is under common control with
     another company. The individual consumer has absolutely no control over this kind of
     "corporate family" trading of personal information.

     There are several exemptions under the GLBA that can permit information sharing over
     the consumer's objection. For instance, if a financial institution wishes to engage the
     services of a separate company, they can transfer personal information to that company
     by arguing that the information is necessary to the services that the company will
     perform. A financial institution can transfer information to a marketing or sales company
     to sell new products (different stocks) or jointly offered products (co-sponsored credit
     cards). Once this unaffiliated third party has your personal information, they can share


                                             20
it with their own "corporate family." However, they themselves cannot likewise transfer
the information to further companies through this exemption.

In addition, financial institutions can disclose your information to credit reporting
agencies, financial regulatory agencies, as part of the sale of a business, to comply with
any other laws or regulations, or as necessary for a transaction requested by the
consumer.

Fourth, financial institutions are prohibited from disclosing, other than to a consumer
reporting agency, access codes or account numbers to any nonaffiliated third party for
use in telemarketing, direct mail marketing, or other marketing through electronic mail.
Thus, even if a consumer fails to "opt-out" of a financial institutions' transfers, your
credit card numbers, pins or other access codes cannot be sold, as they had been in
some previous cases.

Fifth, certain types of "pretexting" were prohibited by the GLBA. Pretexting is the
practice of collecting personal information under false pretenses. Pretexters pose as
authority figures (law enforcement agents, social workers, potential employers, etc.)
and manufacture seductive stories (that the victim is about to receive a sweepstakes
award or insurance payment) in order to elicit personal information about the victim.
The GLBA prohibits the use of false, fictitious or fraudulent statements or documents to
get customer information from a financial institution or directly from a customer of a
financial institution; the use of forged, counterfeit, lost or stolen documents to get
customer information from a financial institution or directly from a customer of a
financial institution; and asking another person to get someone else's customer
information using false, fictitious, or fraudulent documents or forged, counterfeit, lost or
stolen documents.

However, investigators still can call friends, relatives, or entities not covered by the
GLBA under false pretenses in order to gain information on the victim.

(http://www.alliemae.org/Gramm-Leach-Bliley_Act.html)




                                         21
Section 2.2 b
Sarbanes-Oxley Act of 2002

     The Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation enacted in response
     to the high-profile Enron and WorldCom financial scandals to protect shareholders and the
     general public from accounting errors and fraudulent practices in the enterprise. The act is
     administered by the Securities and Exchange Commission (SEC), which sets deadlines for
     compliance and publishes rules on requirements. Sarbanes-Oxley is not a set of business
     practices and does not specify how a business should store records; rather, it defines which
     records are to be stored and for how long. The legislation not only affects the financial side
     of corporations, but also affects the IT departments whose job it is to store a corporation's
     electronic records. The Sarbanes-Oxley Act states that all business records, including
     electronic records and electronic messages, must be saved for "not less than five years." The
     consequences for non-compliance are fines, imprisonment, or both. IT departments are
     increasingly faced with the challenge of creating and maintaining a corporate records archive
     in a cost-effective fashion that satisfies the requirements put forth by the legislation.

     The following sections of Sarbanes-Oxley contain the three rules that affect the management
     of electronic records. The first rule deals with destruction, alteration, or falsification of
     records.

     Sec. 802(a) "Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or
     makes a false entry in any record, document, or tangible object with the intent to impede,
     obstruct, or influence the investigation or proper administration of any matter within the
     jurisdiction of any department or agency of the United States or any case filed under title 11,
     or in relation to or contemplation of any such matter or case, shall be fined under this title,
     imprisoned not more than 20 years, or both."

     The second rule defines the retention period for records storage. Best practices indicate that
     corporations securely store all business records using the same guidelines set for public
     accountants.

     Sec. 802(a)(1) "Any accountant who conducts an audit of an issuer of securities to which
     section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C 78j-1(a)) applies, shall
     maintain all audit or review workpapers for a period of 5 years from the end of the fiscal
     period in which the audit or review was concluded."

     This third rule refers to the type of business records that need to be stored, including all
     business records and communications, including electronic communications.

     Sec. 802(a)(2) "The Securities and Exchange Commission shall promulgate, within 180
     days, such rules and regulations, as are reasonably necessary, relating to the retention of
     relevant records such as workpapers, documents that form the basis of an audit or review,
     memoranda, correspondence, communications, other documents, and records (including
     electronic records) which are created, sent, or received in connection with an audit or


                                                22
review and contain conclusions, opinions, analyses, or financial data relating to such an
audit or review."

(http://searchcio.techtarget.com)




                                         23
Section 2.2 c
Fair Credit Reporting Act

      Your Credit Rights
      Key Rights Contained in the Fair Credit Reporting Act (FCRA)

      The Fair Credit Reporting Act (FCRA) is a federal law that regulates how credit reporting
      agencies use your information. Enacted in 1970 and substantially amended in the late 1990s
      and again in 2003, the FCRA restricts who has access to your sensitive credit information
      and how that information can be used.

      Summary of Key Rights

      The FCRA is a complex piece of legislation and contains numerous provisions not discussed
      on this page. Below are several important features of how the FCRA that are designed to
      help consumers (for the complete text, visit the Federal Trade Commission). The FCRA
      protects you by ensuring that credit reporting agencies:

      Disclose your credit report to you upon request. Credit reporting agencies must give you
      the information in your file if you ask for it and provide the agency with proper
      identification. See "To Receive Your Credit Report" below for more information.

      Limit access to your information. A credit reporting company may not provide your credit
      report to any party that lacks a permissible purpose, such as the evaluation of an application
      for a loan, credit, service, or employment. Permissible purposes also include several business
      and legal uses. For details, see the FCRA.

      Get your consent before providing your information to an employer. An agency may not
      give your credit information to an employer or potential employer unless you first give that
      employer written permission to request your credit.

      Investigate disputed information. If you tell a credit reporting company that your file
      contains inaccurate information, the agency must promptly investigate the matter with the
      source that provided the information. If the investigation fails to resolve the dispute, you
      may add a statement explaining the matter to your credit file. For more information, see
      Correcting Errors in Your Report.

      Correct or delete inaccurate information. A credit reporting company must correct or, as
      the case may be, delete from your credit file the information that is found to be inaccurate or
      can no longer be verified from your credit file. The credit reporting company is not required
      to remove accurate data from your file unless it is outdated or cannot be verified.

      Delete outdated information. In general, negative information that is more than 7 years old
      (10 years for bankruptcies) must be removed from your file.



                                                24
Remove your name from marketing lists upon request. Creditors and insurers may share
information in your credit file with marketers who send you unsolicited offers. To request
that the three credit reporting agencies not share your information with marketers, call 888-
567-8688.

Disclose your credit score to you upon request. For a fee, you may get your credit score.
In some mortgage transactions, you will get credit score information without charge. See "To
Obtain Your Credit Score" below for more information.

Add identity theft and active duty alerts. Identity theft victims may place fraud alerts and
active duty military personnel serving away from their regular duty station may place "active
duty" alerts to help prevent identity theft.

Remedying the Effects of Identity Theft. If you are, or believe that you are, the victim of
identity theft, you have specific rights under the FCRA. These rights will help you deal with
the effects of identity theft. Visit www.Equifax.com to view a brief summary of the rights
designed to help you recover from identity theft.

Place a Security Freeze on your Credit File. If you reside in select states you have the
right to place a security freeze on your Equifax credit file. To determine the availability of a
security freeze for your state and to determine the fees for placing and temporarily lifting a
security freeze, please see the State Freeze Requirements and Fees. A security freeze will
prevent us from reporting your Equifax credit file to third parties, such as credit grantors and
other companies and agencies, except those exempted by law or those for whom you
contacted us and requested that we temporarily lift the security freeze.

A security freeze will require you to plan ahead for all your credit applications as you will
need to contact us to request that we temporarily lift your freeze to allow us to report your
Equifax credit file to the credit grantor you identify. Under the laws of most states, it may
take up to three business days to process your request to temporarily lift the security freeze.
It may take longer if you have lost the security freeze confirmation number which we
provided to you when you first requested the security freeze be placed on your Equifax
credit file. You may not be able to request a temporary lift of a security freeze during non-
business hours or on weekends. A security freeze may hinder your ability to immediately
obtain credit to make major purchases. Again, if you are credit active and apply for credit on
a regular basis and have a security freeze on your Equifax credit file you need to be
especially mindful of the need to plan ahead and contact us in advance to request a
temporary lift of the security freeze on your Equifax credit file.

Only you can request a security freeze be placed on your Equifax credit file and only you
can request the security freeze be removed or temporarily lifted. A security freeze will
remain on your Equifax credit file until you request the security freeze be permanently
removed or you request a temporary lift of the security freeze for a specific credit
grantor/credit file user, or date range.

(http://www.equifax.com/cs/Satellite?pagename=elearning_credit14)



                                           25
Section 2.2 d
HIPAA
No discussion of personal privacy would be complete without acknowledgement of HIPAA, the
Health Insurance Portability and Accountability Act of 1996. This act was established:

       “To amend the Internal Revenue Code of 1986 to improve portability and continuity of
       health insurance coverage in the group and individual markets, to combat waste, fraud, and
       abuse in health insurance and health care delivery, to promote the use of medical savings
       accounts, to improve access to long-term care services and coverage, to simplify the
       administration of health insurance, and for other purposes.”
       http://aspe.hhs.gov/admnsimp/pl104191.htm

The original Act was a significant measure that ensured Americans retained health insurance
coverage through job changes. The Act was amended in 2002 (effective April, 2003) to add privacy
rules restricting the use and disclosure of protected health information to appropriate purposes.

       “(HIPAA, Title II) required the Department of Health and Human Services (HHS) to
       establish national standards for electronic health care transactions and national identifiers for
       providers, health plans, and employers. It also addressed the security and privacy of health
       data.”
       http://www.cms.hhs.gov/HIPAAGenInfo/

HIPAA appropriately applies more strictly to health insurance providers than to insurance licensees,
however, producers and carriers are clearly not excluded from regulation under HIPAA. For the
most part, the notices issued from their carriers directly to their customers cover an insurance
producers’ responsibility for HIPAA disclosure to their customers by way of their “business
associate agreement” or carrier and producer agreement. Insurance brokers, who have no direct
relationship with an insurance carrier and without binding authority may be required to obtain their
own Privacy Notice when gathering non-public personal information

       “Businesses directly affected by HIPAA are referred to as covered entities, and although
       there are differing opinions as to whether an insurance producer can be a covered entity, PIA
       believes that this in not ordinarily the case. A producer can be, however, a business
       associated of a covered entity, such as a health insurance company. A business associated is
       an entity that performs functions on behalf of a covered entity involving the use of Protected
       Health Information (PHI). Most health plans will require their agents to sign business
       associated agreements to protect the PHI they create on behalf of, or receive from the health
       plan.”
       www.piany.org

The HIPAA rules are designed to protect an individual’s personal health information. Disclosure
notices pertain to the placement of health insurance policies. Benefits excepted from HIPAA
include workers’ compensation, life, disability, property and casualty, and automobile insurance.
Licensees of the New York State Insurance Department may still be subject to HIPAA rules with
respect to individual personal health information of their customers and consumers.


                                                  26
Section 2.3
NYS Insurance Regulation 169
Regulation 169, enacted in November 2000, implemented New York State compliance with the
federal Graham Leach Bliley Financial Modernization Act protecting consumer financial
information and also sets rules for the disclosure of nonpublic personal health information. New
York’s regulation 169 requires insurance companies to provide an initial and then annual notice to
their customers of their privacy policy. With respect to financial information, Regulation 169
imposes and “opt-out” requirement on consumers, however, with respect to health information the
Regulation requires the consumer to “opt-in” when their nonpublic personal information is to be
disclosed.


                  INSURANCE DEPARTMENT OF THE STATE OF NEW YORK
                                            (11 NYCRR 420)
       REGULATION 169 PRIVACY OF CONSUMER FINANCIAL AND HEALTH
       INFORMATION
                              TABLE OF CONTENTS
       GENERAL PROVISIONS

       Section 420.0 Preamble. Section 420.1 Purpose and scope. Section 420.2 Rule of
       construction. Section 420.3 Definitions.

       PRIVACY AND OPT OUT NOTICES FOR FINANCIAL INFORMATION

       Section 420.4 Initial privacy notice to consumers required. Section 420.5 Annual privacy
       notice to customers required. Section 420.6 Information to be included in privacy notices.
       Section 420.7 Form of opt out notice to consumers and opt out methods. Section 420.8
       Revised privacy notices. Section 420.9 Delivery.

       LIMITS ON DISCLOSURE OF FINANCIAL INFORMATION

       Section 420.10 Limits on disclosure of nonpublic personal financial information
            to nonaffiliated third parties. Section 420.11 Limits on redisclosure and
            reuse of nonpublic personal financial information. Section 420.12 Limits on
            sharing policy number information for marketing purposes.

       EXCEPTIONS TO LIMITS ON DISCLOSURE OF FINANCIAL INFORMATION

       Section 420.13 Exception to opt out requirements for disclosure of nonpublic personal
       financial information for service providers and joint marketing. Section 420.14 Exceptions to
       notice and opt out requirements for disclosure of nonpublic personal financial information for
       processing and servicing transactions. Section 420.15 Other exceptions to notice and opt out
       requirements for disclosure of nonpublic personal financial information. Section 420.16
       Nondiscrimination regarding opting out.



                                                 27
RULES FOR HEALTH INFORMATION

Section 420.17 When authorization required for disclosure of nonpublic personal health
information. Section 420.18 Authorizations. Section 420.19 Authorization request delivery.
Section 420.20 Nondiscrimination regarding nonpublic personal health information. Section
420.21 Relationship to federal rules.

ADDITIONAL PROVISIONS

Section 420.22 Protection of fair credit reporting acts. Section 420.23 Determined violation.
Section 420.24 Effective date; transition rule.

                                   GENERAL PROVISIONS
Section 420.0 Preamble.

         (a) Title V of the Gramm-Leach-Bliley Act (“GLBA”) (15 U.S.C. 6801, et. seq.)
requires financial institutions, including insurers, to protect the privacy of consumers and
customers. Title V of GLBA requires that state insurance authorities establish appropriate
consumer privacy standards for insurance providers.
         (b) Section 505 (c) (15 U.S.C. §6805(c)) of GLBA provides: “If a State insurance
authority fails to adopt regulations to carry out this subtitle, such State shall not be eligible to
override, pursuant to section 47(g)(2)(B)(iii) of the Federal Deposit Insurance Act (12 U.S.C.
1831x), the insurance customer protections prescribed by a Federal banking agency under
section 45(a) of such Act.”
         (c) Sections 502 and 503 of GLBA (15 U.S.C. §§ 6802 and 6803) list specific
protections that regulators shall implement. These include requirements that financial
institutions maintain a privacy policy that is clearly communicated to consumers and
customers, that no nonpublic personal financial information be disclosed to nonaffiliated third
parties unless a consumer has been given a chance to "opt out" of having his or her information
disclosed, and that no specific account information be given to direct marketing firms. The Act
also provides numerous exceptions to specific consumer protections.
         (d) This Part provides that a licensee subject to the supervision of the Superintendent of
Insurance who, in the conduct of the business of insurance in this State, violates the provisions
of this Part shall be deemed to have engaged in an unfair method of competition or an unfair or
deceptive act and practice in the conduct of the business of insurance in this State. Such act
shall be deemed to be a trade practice constituting a determined violation, as defined in section
2402(c) of the Insurance Law, in violation of section 2403 of such law.
         (e) In addition to the foregoing, the Superintendent of Insurance possesses the authority
pursuant to sections 201 and 301 of the Insurance Law to promulgate a regulation to delineate
the responsibility of an Insurance Department licensee regarding the privacy of consumer and
customer financial and health information which the licensee receives. Such authority is an
exercise of the superintendent's power to promulgate regulations to effectuate any power given
to the superintendent under the Insurance Law, including the provisions regarding transactions
within a holding company system affecting controlled insurers (section 1505); relations and
transactions between parent and subsidiary companies for life and property/casualty insurers
(sections 1608 and 1712); minimum standards in the form, content, and sale of accident and
health insurance policies and contracts (section 3217); and, as noted above, unfair methods of
competition or unfair or deceptive acts and practices (Article 24).

                                            28
Section 420.1 Purpose and scope.

(a) Purpose. This Part governs the treatment of nonpublic personal information about
individuals (defined in this Part as consumers or customers) in this State by all licensees of the
Insurance Department. This Part:

        (1) Requires a licensee to provide notice to individuals about its privacy policies and
practices;
        (2) Describes the conditions under which a licensee may disclose nonpublic personal
health information and nonpublic personal financial information about individuals to
nonaffiliated third parties;
        (3) Provides methods for individuals to prevent a licensee from disclosing that
information; and
        (4) Provides a method for individuals to prevent a licensee from disclosing nonpublic
personal health information by not affirmatively consenting to such disclosure, subject to the
exceptions in section 420.17(b) of this Part.
        (b) Scope. This Part applies to:
        (1) Nonpublic personal financial information about individuals who obtain, seek to
obtain or are claimants or beneficiaries of products or services primarily for personal, family or
household purposes from licensees. This Part does not apply to information about companies
or about individuals who obtain products or services for business, commercial, or agricultural
purposes.
        (2) All nonpublic personal health information.




                                            29
Regulation 169 provides numerous “sample clauses” that may be used by licensees to meet the
requirements of the regulation.

       A-1 Categories of information the licensee collects (all institutions).

       A licensee may use this clause, as applicable, to meet the requirement of section 420.6(a)(1) of
       this Part to describe the categories of nonpublic personal financial information the licensee
       collects.

       Sample Clause A-1:

       We collect nonpublic personal financial information about you from the following sources:

              Information we receive from you on applications or other forms;

              Information about your transactions with us, our affiliates, or others; and

              Information we receive from a consumer reporting agency.




                                                  30
Section 2.3 a
Brokers without “Binding Authority” are not exempt from providing Privacy Notice to their
customers.

                                            STATE OF NEW YORK
                                          INSURANCE DEPARTMENT
                                                25 BEAVER STREET
                                             NEW YORK, NEW YORK 10004


The Office of General Counsel issued the following informal opinion on March 21, 2001, representing the
position of the New York State Insurance Department.

Re: Interpretation of Regulation 169

Questions Presented:

1. May the privacy notices given by an insurer to a consumer or customer relieve the insurance broker from the
obligation to give the privacy notices?

2. Is there a contradiction between example (c) and example (e) of "no continuing relationship"?

Conclusion:

1. An insurance broker may rely on the privacy notice of the insurer only if the broker has binding authority and it
does not disclose any nonpublic personal information to any person other than the insurer.

2. Examples (c) and (e) are not contradictory, but rather represent possible different circumstances.

Facts:

No facts are specified.

Discussion:

Section 420.3(p)(1) of Regulation 169 defines licensee and includes insurance brokers. Paragaraph (2) states:

(2)(i) A licensee is not subject to the notice and opt out requirements for nonpublic personal financial information
set forth in sections 420.4 through 420.9 of this Part if the licensee is an employee, agent, sublicensee, or other
representative of another licensee ("the principal") and:

(a) The principal otherwise complies with, and provides the notices required by, the provisions of this Part; and

(b) The licensee does not disclose any nonpublic personal information of a consumer or customer to any person
other than the principal from or through which such consumer or customer seeks to obtain or has obtained a
product or service, or its affiliates in a manner permitted by this Part. (N.Y. Comp. Codes R. & Regs. tit. 11 §
420.3(p)(2)(i) (2000)).

Generally speaking, an insurance broker is a representative of the insured, not the insurer. Hence, an
insurance broker will usually not fall within the exception. (emphasis added) However, where the
insurance broker has binding authority for an insurer, it is a representative of the insurer, and hence no separate
notice is required, provided that the other conditions specified in paragraph (2) are satisfied. (N.Y. Comp. Codes
R. & Regs. tit. 11 § 420.3(p)(2)(ii) (2000)).




                                                        31
N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3(i) (2000) requires a "continuing relationship" as part of the
definition of "customer relationship", then provides examples of what is and what is not a continuing relationship.
The following are two examples of what is not a continuing relationship:

(c) The individual is no longer a current policyholder of an insurance product or no longer obtains insurance
services with or through the licensee;

(e) The customer’s policy is lapsed, expired, or otherwise inactive or dormant under the licensee’s business
practices, and the licensee has not communicated with the customer about the relationship for a period of 12
consecutive months, other than annual privacy notices, material required by law or regulation, communication at
the direction of a state or federal authority, or promotional materials; (clauses (c) and (e) of N.Y. Comp. Codes
R. & Regs. tit. 11 § 420.3(i)(2)(ii)(d) (2000).

While there is some overlap between the two clauses (and hence a continuing relationship would not exist under
either of the clauses), there are certain circumstances in which only one of the provisions would apply. For
example, unlike life insurance policies, property/casualty policies do not lapse and certain statutory provisions
often preclude them from expiring without a nonrenewal or cancellation notice. In addition, a fully paid-up life
insurance policy would be considered to be inactive or dormant, but the consumer remains a current
policyholder.

For further information, you may contact Supervising Attorney Paul A. Zuckerman at the New York City Office.




                                                        32
Section 2.4

Regulation 182
Since the mid 1990’s, then the use of credit scores in the rating and underwriting of personal lines
insurance was first introduced, there has been significant debate over its fairness, equitability and
effectiveness has thrived. The National Association of Insurance Commissioners (NAIC) released a
“Model Act” proposing standards for the use of consumer credit information by the insurance industry
and virtually all states have adopted some form of control over its use. New York State passed it’s
“Use of Credit Information” law in 2004, which was implemented as New York State Insurance
Regulation 182.

Regulation 182 specifically identifies unacceptable uses of consumer credit information, including use
of “an insurance score that is calculated using income, gender, address, zip code, ethnic group,
religion, marital status or nationality of the consumer as a factor. The Regulation further identifies
acceptable use of credit information:
        “An insurer may use credit information: (1) in conjunction with any other applicable
        underwriting factors independent of credit information upon application to deny the issuance of
        a new policy of personal lines insurance.”
Other key elements contained in Regulation 182 include requirements for insurers to update the credit
score of a consumer, upon request, at least every 36 months.

A disclosure notice is required to be provided to consumers at the “time of application,” in writing or
orally, if the application is taken over the phone. Of significant importance is the “Adverse Action
Notification” to consumers which must “explain the reasons the insurer took the adverse action in clear
and specific language and shall include a description of up to four credit related factors that were the
primary influences of the adverse action.”




                                                  33
Section 2.4 a
                             NEW YORK STATE
                         INSURANCE DEPARTMENT
                           REGULATION NO. 182
                              11 NYCRR 221
        LIMITATIONS UPON AND REQUIREMENTS FOR THE USE OF CREDIT
                INFORMATION FOR PERSONAL LINES INSURANCE

     Section 221.0 Purpose.

             This Part implements, interprets, and clarifies chapter 215 of the Laws of 2004,
     which added a new article 28 to the Insurance Law entitled “Use of Credit Information”.
     Article 28 establishes limitations upon, and requirements for, the permissible use of
     credit information by insurers doing business in this State to underwrite or rate risks for
     personal lines insurance business.

     Section 221.1 Applicability and Scope.

             (a) This Part applies to the use of credit information to underwrite and rate personal
     lines insurance policies applied for, or renewed, on and after April 23, 2005.
             (b) Nothing in this Part or in article 28 shall be construed to alter any requirement or
     limitation contained in the Insurance Law, including cancellation, non-renewal, and tier
     placement requirements under Insurance Law sections 2349 or 3425; this Title; or the rules of
     the New York Automobile Insurance Plan or New York Property Insurance Underwriting
     Association.
             Section 221.2 Definitions.
             (a) The definitions contained in article 28 of the Insurance Law (“article 28”) shall
     apply to this Part.
             (b) The definitions contained in section 107 of the Insurance Law shall also apply to
     article 28 and this Part except as provided in article 28.
             (c) “Adverse action” as defined in section 2801(a) includes the non-renewal of a policy
     of personal lines insurance.
             Section 221.3 Use of credit information to underwrite or rate risks for personal lines
     insurance.
             (a) An insurer that uses credit information to underwrite or rate risks for personal lines
     insurance shall not:
             (1) use an insurance score that is calculated using income, gender, address, zip code,
     ethnic group, religion, marital status, or nationality of the consumer as a factor;
             (2) deny a policy of personal lines insurance solely on the basis of credit information,
     without consideration of any other applicable underwriting factor(s) independent of credit
     information;
             (3) use credit information to cancel a policy or as a basis for taking an adverse action
     against a current insured. However, an insurer may place the insured in a higher rated tier or
     reclassify that insured due to factors other than credit information in accordance with section
     2349 or 2351 of the Insurance Law and its rates and rules filed with the superintendent;
             (4) take an adverse action against a consumer solely because he or she does not have a
     credit card account;
             (5) consider, for any given program of insurance, an absence of credit information or an
     inability to calculate an insurance score in underwriting or rating personal lines insurance,

                                                 34
unless the insurer does one of the following:
         (i) treats the consumer as if the consumer had neutral credit information, as defined by
the insurer;
         (ii) excludes the use of credit information as a factor and uses only other underwriting
criteria; or

       (iii) makes a filing with the superintendent with respect to an individual
consumer that shall be subject to approval by the superintendent. The insurer shall
present satisfactory information applicable to the consumer that the absence of credit
information or the inability to calculate an insurance score relates to the risk for the
insurer; or

        (6) use any of the following factors as a negative factor in any insurance scoring
methodology or in reviewing credit information:
        (i) credit inquiries not initiated by the consumer or inquiries requested by the consumer
for the consumer’s own credit information;
        on a consumer’s credit report;
        (iv) multiple lender inquiries made within 30 days of one another and coded on the
consumer’s credit report as being from the home mortgage industry; however, an insurer may
consider only one such inquiry; or
        (v) multiple lender inquiries made within 30 days of one another and coded on the
consumer’s credit report as being from the automobile lending industry; however, an insurer
may consider only one such inquiry.
        (b) An insurer may use credit information:
        (1) in conjunction with any other applicable underwriting factors independent of credit
information, upon application to deny the issuance of a new policy of personal lines insurance.
The offer by an affiliate insurer to write the coverage or by the insurer to write the coverage
through one of its tiers shall not constitute a denial of a policy but shall constitute an adverse
action if the premium or policy conditions of the policy offered are less favorable to the insured
due to the use of credit information; and
        (2) upon renewal, if such use reduces the premium for the insured in accordance with
the insurer’s filed rates and rules.
        Section 221.4 Requirements for obtaining current credit information.
        (a) An insurer shall not use credit information to take an adverse action against a
consumer unless, the insurer obtains and uses a credit report issued, or an insurance score
calculated, no more than 90 days prior to the date the policy is first written.
        (b)(1) An insurer shall not use credit information unless, at least once every 36 months,
upon the request of the consumer or the producer, the insurer shall re-underwrite and re-rate the
policy based upon a current credit report or insurance score and shall make any necessary
adjustments, including moving the insured to the appropriate tier, effective as of the date of the
report or score. The re-underwriting and re-rating shall not result in a premium increase for the
insured.
        (2) If upon consideration of the current credit information, the insured is eligible for
placement in an affiliate of the insurer at a lower rate in accordance with the affiliate's current
underwriting rules and the insured was previously ineligible for placement with that affiliate
due to the prior credit information, then the affiliate shall offer the insured a new policy with
substantially equivalent coverage. If the offer is
        accepted by the insured and a new policy is issued, the affiliate may not exercise any
right that it otherwise may have under Section 3425(b) to cancel the policy within the first sixty
days other than for a reason specified in Section 3425(c).
                                               35
       (c) Notwithstanding subdivision (b)(1) of this section, an insurer may decline the
request to obtain current credit information for an insured because:

          (ii)         inquiries identified on the consumer’s credit report as relating to
                       insurance
    coverage;

                       collection accounts that have been identified with a medical
          (iii)
                       industry code

            (1)         the insurer had obtained a current credit report within the last 36
                        month
       period;
                        the insured is in the most favorably-priced tier of the insurer or
            (2)
                        the most

favorably priced company within a group of affiliated insurers; or

         (3) credit was not used for underwriting or rating the insured when the policy was
initially written.
         (d) An insurer may obtain and use current credit information upon renewal, in
accordance with its underwriting guidelines applied consistently to all insureds in a program of
insurance provided that such information may be used only to reduce the premium for the
insured.




                                           36
Section 2.4 b
         Section 221.5 Disclosure requirements.
         (a) An insurer that uses credit information in underwriting or rating a consumer shall
disclose to the consumer that it may obtain credit information on the consumer. The contents of
the disclosure shall be in accordance with the statutory requirements contained in section
2804(b) of the Insurance Law.
         (b) The insurer shall provide the disclosure at the time of application and on renewal to
each consumer.
         (c) The method for providing the disclosure shall be as follows:
         (1) Written Application for New Business
         (i) The disclosure shall be made in writing, in at least 12 point type, upon receipt of the
application for insurance.
         (ii) The disclosure notice shall be provided to the consumer in a separate written
document, on company letterhead or that identifies the insurer, and shall include the address
and a toll-free telephone number of the insurer.
         (2) Telephone Application for New Business
         (i) For applications taken over the telephone, the disclosure as enumerated in section
2804(d) of the Insurance Law may be provided either orally at the time the
         application is taken or in writing, in at least 12 point type, upon receipt of the
application. If in writing, the disclosure notice shall comply with the written application
requirements in paragraph (1) of this subdivision.
         (ii) If the policy is issued, the disclosure notice shall then also be provided to the
consumer, as specified in section 2804(b) of the Insurance Law, in a separate written document,
in at least 12 point type, upon policy issuance.
         (3) Other Medium for New Business
         (i) For new business that is not applied for on the telephone or in writing, the disclosure
shall be provided either in the same medium as the application for insurance or in writing, in at
least 12 point type. The disclosure shall be provided upon the insurer’s receipt of the
application.
         (4) Renewal Business
         (i) On all renewals, a written disclosure notice, in at least 12 point type, shall be
provided at least 10 days prior to the effective date of the renewal policy.
         (ii) The disclosure notice shall be provided to the consumer in a separate written
document, on company letterhead or that identifies the insurer, and shall include the address
and a toll-free telephone number of the insurer.
         (d) Where an insurance producer or other entity has been designated by an insurer to
issue the disclosure on its behalf, the insurer shall provide the insurance producer or other
entity with the form of the disclosure notice. In addition, the insurer shall use a reasonable
means to verify that the disclosure has been provided to the consumer by the insurance
producer or other entity.
         (e) Documentation that the required notification has been provided to the consumer
shall be maintained by the insurer in accordance with section 243.2 of this Title (Regulation
No. 152).
         Section 221.6 Adverse action notification.
         (a) Section 2805(a) of the Insurance Law provides that an insurer that takes an adverse
action based upon credit information shall provide notification to the consumer that an adverse
action has been taken, in accordance with the requirements of the federal Fair Credit Reporting
Act, 15 USC 1681m(a).
         (b) The notification shall be provided within 30 days of taking the action and shall

                                            37
explain the reasons the insurer took the adverse action in clear and specific language and shall
include a description of up to four credit related factors that were the primary influences of the
adverse action. If one of the factors identified in the notification is a credit score, the
notification shall include an explanation of the score
        that may include a standardized credit explanation provided by a consumer reporting
agency or other third party vendor.
        (c) Where an insurance producer or other entity has been designated by an insurer to
issue the notification on its behalf, the insurer shall provide the insurance producer or other
entity with the form of the adverse action notification. In addition, the insurer shall use a
reasonable means to verify that the notice has been provided to the consumer by the insurance
producer or other entity.
        (d) Documentation that the required notification has been provided to the consumer
shall be maintained by the insurer in accordance with section 243.2 of this Title (Regulation
No. 152).




                                            38
Section 2.4 c
     Section 221.7 Dispute resolution and error correction.

            If a current insured obtains a determination, pursuant to the process for dispute
     resolution and error correction referred to in section 2803 of the Insurance Law, that
     the credit information used by an insurer was incorrect or incomplete, and the insurer
     receives notice of the determination from either the credit reporting agency or from the
     insured, the insurer shall, within 30 days after receiving the notice:

            (a) re-underwrite and re-rate the insured;

              (b) refund to the insured the amount of any overpayment, applicable to the last 36
     months of coverage provided by the insurer, calculated back from the date of determination of
     the overpayment. The overpayment shall be the difference between the rate that was actually
     charged and the rate that would have been charged by the insurer or its affiliate for which the
     insured was previously ineligible due to the incorrect or incomplete credit information; and
              (c)(1) make any adjustments necessary, consistent with its underwriting guidelines and
     rating rules, for the current period; including moving the insured to the appropriate tier, starting
     as of the date of determination of the overpayment. The reunderwriting and re-rating shall not
     result in a premium increase for the insured.
              (2) If upon consideration of the corrected or complete credit information, the insured is
     eligible for placement in an affiliate of the insurer at a lower rate in accordance with the
     affiliate's current underwriting rules, and the insured was previously ineligible for placement
     with that affiliate due to the incorrect or incomplete credit information, then the affiliate shall
     offer the insured a new policy with substantially equivalent coverage. If the offer is accepted by
     the insured and a new policy is issued, the affiliate may not exercise any right that it otherwise
     may have under Section 3425(b) to cancel the policy within the first sixty days other than for a
     reason specified in Section 3425(c).
              (a) An insurer that uses insurance scores to underwrite or rate risks must file its scoring
     models (or other scoring processes) with the superintendent. On or after August 15, 2005, an
     insurer shall file its scoring models (or other scoring processes) with the superintendent at least
     45 days prior to use.
              (b) Each scoring model (or other scoring processes) filing shall include the following
     information:
              (1) the name, version and the edition date of the scoring model;
              (2) a detailed description of the credit information and insurance data that were used in
     the development of the scoring model, including but not limited to the source(s) of the credit
     information and insurance data, and the time periods associated with such information and data;
              (3) a list of all the factors, and the relative importance of such factors, that are used in
     the scoring model (or other scoring processes);
              (4) the actual algorithms, computer programs, models, or other processes that is used to
     produce an insurance score; and
              (5) at least three distinct and detailed examples of insurance score calculations using the
     filed scoring models (or other scoring processes).
              (c) A scoring model (or other scoring processes) shall not include as negative factors
     any of the items listed in section 221.3(a) of this Part.
              (d) The filed scoring model (or other scoring processes) may also include loss
     experience justifying the use of credit information.
              (e) An insurer that wishes to revise one of its previously filed scoring models (or other

                                                  39
scoring processes) shall file a summary of the revision with the superintendent no later than 45
days after its use. The superintendent may request additional information if the summary does
not provide adequate information.
        (f) A third party may file scoring models or a revision thereof on behalf of an insurer. A
filing by a third party shall clearly identify those insurers on whose behalf the filing is being
made and the programs of insurance to which each scoring model applies.
        (g) Pursuant to section 2806(b), a filing made pursuant to section 2806(a) remains the
property of the insurer and is not subject to disclosure or production under Article 6 or 6-A of
the Public Officers Law or any other law of this State which authorizes or requires the
superintendent to disclose or produce records to an outside party. This information is
privileged and is not discoverable or admissible in any legal action in any

Section 221.8 Filing of scoring models (or other scoring processes).
civil, criminal or administrative proceeding but nothing in this Part or article 28 shall be
construed as preventing the superintendent from utilizing any such information in an
administrative proceeding enforcing this Part or article 28.

Section 221.9 An insurer’s use of scoring model(s), other scoring processes, or any other credit
information in the underwriting or rating of personal lines insurance policies.

         (a) Each scoring model filing made with the superintendent shall include the date upon
which the insurer intends to implement a new or revised scoring model (or other scoring
processes) in its underwriting or rating of personal lines insurance policies.
         (b) An insurer shall file a summary of how any existing, new or revised scoring model
(or other scoring processes) is used with respect to underwriting. This explanation shall
encompass the following:
         (1) the acceptance of the applicant as an insured; and
         (2) where appropriate, the initial placement with an insurer within a group of affiliated
insurers, and/or the initial tier placement that occurs immediately after the acceptance of the
applicant as an insured.
         (c) An insurer shall maintain its underwriting rules and guidelines governing the use of
credit information, and a record of all changes thereto, in writing at the insurer’s offices in
accordance with section 243.2 of this Title (Regulation No. 152) and they shall be made
available to the superintendent upon request.
         (d) An insurer that uses credit information in the rating of its personal lines insurance
policies shall also file with the superintendent its classifications, rating factors, and tier
movement rules, applicable to the use of credit information, in accordance with article 23 of the
Insurance Law.
         Section 221.10 Insurer certification.
         (a) An insurer that uses credit information in the underwriting and rating of personal
lines insurance shall complete and submit to the superintendent an Insurer Credit Information
Compliance Certification along with each and every scoring model (or other scoring processes)
filing, and every summary of revisions thereto, that it, or a third party acting on its behalf, files
with the superintendent, verifying that it is in full compliance with article 28 of the Insurance
Law and this Part.
         (b) The Insurer Credit Information Compliance Certification required by subsection (a)
of this section shall be in a form prescribed by the superintendent.



                                             40
Section 2.5

Fair and Accurate Credit Transactions Act
“Credit-Based Insurance Scores” Report – July 2007
The regulation over how consumer credit information may be used by insurance companies provides
significant protections for consumers. However, the debate over the use of credit as an underwriting
and rating tool in personal lines insurance continues. Insurance companies have successfully argued
that the data used to generate insurance scores and the outcomes of using credit is free of bias, placing
no value on an individuals’ economic, racial and geographic profile.

Although it is clear that geographical, racial and economic data are not factors used in the development
of insurance scores, consumer groups have claimed, since the mid 1990’s when credit was first
introduced, that racial and ethnic minority groups are negatively impacted.

In 2003, the Fair and Accurate Credit Transactions Act (FACTA or FACT Act) amended the Fair
Credit Reporting Act. The new Act included provisions enabling consumers to obtain free credit
reports annually from each of the credit reporting agencies (Experian, Equifax and Trans Union), help
reduce identity theft and flag individuals’ accounts if identity theft has occurred or is suspected.

   Credit Reports and Scores

   The FDIC has created this webpage to inform consumers about the new Fair and Accurate Credit
   Transactions Act's (FACTA) consumer provisions -- which gives new rights to free credit reports. FACTA
   also provides new rights to obtain your credit score. FACTA became law in December 2003.

       FACTA affects your ability to obtain your credit report and your credit score in the following ways:

                Under FACTA, you will have the right to obtain one free copy of your credit report from each of
   the three major credit bureaus every 12 months. Rules issued by the Federal Trade Commission (FTC)
   provide for free credit reports to become available in stages, beginning in western states December 1, 2004,
   and gradually moving east with completion due by September 1, 2005. FACTA also requires the major
   credit bureaus to provide a single point of contact so you can request your reports from all three companies
   with one toll-free phone call, letter or Internet request.
                Prior to FACTA, some providers of credit scores voluntarily made them available to consumers.
   But starting December 1, 2004, you will have new rights to obtain your score from a credit bureau as well as
   an explanation of the key factors used in computing the score.
                Title V of the FACTA established the Financial Literacy and Education Commission with the
   purpose of improving the financial literacy and education of persons in the United States. To reach the
   widest number of people possible, the Commission established a website (www.mymoney.gov) and a toll-
   free telephone number (1 (888) mymoney (696-6639)) to coordinate the presentation of educational
   materials from across the spectrum of federal agencies that deal with financial issues and markets.

   (http://www.fdic.gov/consumers/consumer/alerts/facta.html )




                                                       41
The FACT Act also included a directive for the Federal Trade Commission (FTC), in consultation with
the Office of Fair Housing and Equal Opportunity at the Department of Housing and Urban
Development to conduct a study to determine the affect of availability and affordability on insurance
when credit-based insurance scores are utilized. Congress specifically directed that the report focus
its’ analysis on the effects of insurance scores on members of racial and ethnic minority groups.

The report titled “Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance”
was released by the Federal Trade Commission in July 2007. The study analyzed data from five of the
largest automobile insurance firms in the country, who collectively wrote 27% of the national
automobile insurance in 2000. CLUE reports on individuals, credit report information and data from
the Census Bureau were also among the data sets utilized. Careful protections were established to
protect specific individuals from being identified for certain portions of the research, and methods for
extrapolating racial and ethnic group information were devised. The report concluded that insurance
scores are effective predictors of claims filed by consumers, as the insurance industry has claimed.




                                                   42
43
Section 2.5 a

FACT Act Study

The FACT Act study of credit-based insurance scores in automobile insurance underwriting and rating
also clearly indicated that specific differences existed between racial and ethnic groups.

     Credit-based insurance scores are distributed differently among racial and
     ethnic groups, and this difference is likely to have an effect on the
     insurance premiums that these groups pay, on average.

       • Non-Hispanic whites and Asians are distributed relatively evenly
       over the range of scores, while African Americans and Hispanics
       are substantially overrepresented among consumers with the
       lowest scores (the scores associated with the highest predicted risk)
       and substantially underrepresented among those with the highest
       scores.
       • With the use of scores for consumers whose information was
       included in the FTC’s database, the average predicted risk (as
       measured by the total cost of claims filed) for African Americans
       and Hispanics increased by 10% and 4.2%, respectively, while the
       average predicted risk for non-Hispanic whites and Asians
       decreased by 1.6% and 4.9%, respectively.

       (Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance pg. 3)

Since the study clearly correlated lower credit scores with higher claims frequency, the study
attempted to develop a new credit score methodology that would reduce the differences in scores
among different racial and ethnic groups.

       After trying a variety of approaches, the FTC was not able to develop an
       alternative credit-based insurance scoring model that would continue to
       predict risk effectively, yet decrease the differences in scores on average
       among racial and ethnic groups. This does not mean that a model could
       not be constructed that meets both of these objectives. It does strongly
       suggest, however, that there is no readily available scoring model that
       would do so. (pg. 4)




                                                   44
45
The study further examined the differences in scores between racial and ethnic groups to determine if
the scores could be an indicator, or proxy, for membership in particular ethnic, racial or income
groups. Comparisons of the risk for individuals in African American and Hispanic groups with and
without the use of credit were conducted resulting in statistically small differences between
methodologies. The model utilizing credit predicted African Americans and Hispanic individuals
would pay higher premiums by 1.1% and .7%, respectively.




                                                  46
While ethnic and racial differences were identified, it is significant to note scores by neighborhood
income were relatively evenly distributed. Middle-income neighborhoods were represented almost
exactly as comprising 10% of each of 10 score ranges. AT the highest score range, low to moderate
income neighborhoods were separated from high income neighborhoods by approximately 5%.




The full report is available on the FTC website,
http://www.ftc.gov/os/2007/07/P044804FACTA_Report_Credit-Based_Insurance_Scores.pdf




                                                  47
Section 2.6
Regulation 159
In recent years, the insurance industry has acknowledged the increased threat to property resulting
from global climate change. From wildfires to tornados, floods and hurricanes, natural disaster claims
are increasing in frequency and cost. With tremendous coastal exposure and several different
mountain range waterways, New York State is prone to significant loss to windstorm and flood
damage. Informing property owners to the potential for loss and the insurance coverage options
available to them has proven to be a substantial ongoing challenge.

Since the early 1990’s, there has been an increased interest in the potential for damage to properties in
coastal areas of New York due to hurricanes. Property insurance carriers have at times scaled back
their exposure through the non-renewal of existing customer policies and the refusal to accept new
homeowner insurance policies in areas that may be subject to hurricane damage. Prompted in part by a
market restriction in the early 1990’s, New York formed The Temporary Panel on Homeowners
Insurance Coverage to investigate the stability of the insurance market with respect to coastal
properties. The committee reported on the State of the Market with analysis of voluntary markets and
the New York Property Underwriting Association (NYPIUA), New York’s market of last resort for
residential property owners, as well as potential loss mitigation strategies and the structure of capital
markets.

The 1998 Temporary Panel on Homeowners Insurance report issued several recommendations to
improve consumer understanding of coverage options, provide carriers with tools to reduce potential
loss and implement pro-active mitigation measures.

   Hurricanes and windstorm damage has been recorded in New York for hundreds of years. During the past
   20 years, the majority of damage related to hurricanes and windstorms has been water damage from driven
   rain and flooding.

       Hurricane Bob in 1991 was a Category 2 storm and
       produced 7 inches of rainfall with estimates of $75 million
       in damage.
       Hurricane Floyd in September 1999 produced 13 inches of
       rain.
       Hurricane Isabel in September 2003 caused $90 million in
       damages.

   Damage from high winds in addition to driven water is not un-
   seen in New York.

       1954 Hurricane Carol was a storm with wind gusts of 120
       miles per hour and made landfall on Montauk Point with a
       storm surge that covered Montauk Highway. Carol caused
       $460 million in damage (1954 dollars).                        Hurricane Bob approaching the Rhode Island
       The New England Hurricane of 1938 was a Category 3            coastline in August 1991 (Photo courtesy NOAA).
       storm and had winds of 125 miles per hour and a storm
       surge of 18 feet, destroying 8900 houses.




                                                      48
Of the many recommendations contained in 1998 The Temporary Panel on Homeowners Insurance
Coverage report, the most significant actions taken by New York have been a series of homeowners
policy disclosure requirements implemented as Regulation 159.

Regulation 159 requires every homeowners and Dwelling Fire policy containing a Hurricane
Deductible to display in the declarations the percentage amount of the Hurricane Deductible and the
corresponding dollar amount for the standard deductibles. In addition, the policy must contain a clear
explanation of how the hurricane deductible will apply.

Regulation 159 was last amended in 2007. This amendment directs insurer canceling, non-renewing or
conditionally non-renewing policies in coastal areas to include information about property coverage
opportunities through NYPIUA (New York Property Insurance Underwriting Association) and CMAP
(Coastal Market Assistance Program).




                                                  49
              OFFICIAL COMPILATION OF CODES, RULES AND REGULATIONS OF
                                 THE STATE OF NEW YORK
                           TITLE 11. INSURANCE DEPARTMENT
                    CHAPTER III. POLICY AND CERTIFICATE PROVISIONS
                  SUBCHAPTER B. PROPERTY AND CASUALTY INSURANCE
   PART 74. (REGULATION 159) HOMEOWNERS INSURANCE DISCLOSURE INFORMATION AND
                                       OTHER NOTICES
                           Text is current through February 29, 2008.

Section 74.1.Policyholder disclosure.

(a) Every homeowner's and dwelling fire personal lines policy containing a hurricane deductible shall
display the applicable percentage amount and corresponding dollar amount of the hurricane deductible in
the policy declarations. The non-hurricane deductible, as well as any deductible applicable to all other
covered perils, may be shown as a dollar amount only. The hurricane deductible provisions shall be shown
in close proximity to the non-hurricane deductible provisions and shall be given equal or greater
prominence as the non-hurricane deductible provisions applicable to the policy.
(b) Every homeowner's and dwelling fire personal lines policy containing a hurricane deductible shall be
accompanied by a policyholder notice, to be filed with the Insurance Department, and which shall contain
the following minimum information:
(1) a prominent announcement that the accompanying policy is subject to a hurricane deductible;
(2) a clear explanation that a hurricane deductible means the amount for which the policyholder is
responsible in the event of a covered loss caused by a hurricane;
(3) a plain-language explanation of the coverage part or parts subject to the hurricane deductible and of
whether the hurricane deductible applies separately to each coverage part or in the aggregate to total losses
under all affected coverage parts;
(4) a statement that a clear display of the actual dollar amount as well as a description of the hurricane
deductible as a percentage of the insured value can be found on the declarations page;
(5) generic examples of how sample deductible amounts would apply to some theoretical loss scenarios,
including losses smaller than and greater than the deductible amount;
(6) a clear explanation of the event which shall trigger the hurricane deductible;
(7) a clear explanation of the time period during which the hurricane deductible will be triggered; and
(8) a clear explanation that, if a coverage part limit of liability or policy limit of liability is changed (for
example, due to contractual inflation protection provisions, adjustments reflecting changes in replacement
cost or a request by the insured), then the dollar amount of the deductible will be changed based on the
amount of the new limit of liability.
(c) This policyholder notice shall accompany all new homeowner' s and dwelling fire personal lines
policies subject to a hurricane deductible and first written to become effective on or after January 1, 1999;
and all renewal homeowners and dwelling fire policies subject to a hurricane deductible renewed effective
on or after January 1, 1999.
(d) This policyholder notice shall accompany all renewals of affected homeowner's and dwelling fire
personal lines policies annually thereafter.
(e) At its option, an insurer may combine the flood insurance notice required by section 3444 of the
Insurance Law with the policyholder notice required by this section.
                         <General Materials (GM) - References, Annotations, or Tables>




                                                       50
Section 2.6 a
                   NEW YORK HURRICANE DEDUCTIBLES (APRIL 2008)


    Hurricane deductibles are percentage or dollar deductibles that are higher than for other
    causes of loss. They are calculated as a percentage of the dollar amount of coverage on
    the dwelling. The trigger for hurricane deductibles, or the point at which they apply,
    varies by company. Triggers have some common characteristics: they generally go into
    effect only when the National Weather Service issues a hurricane watch or warning and
    remain in effect for 24 to 48 hours after the storm has passed. The intensity of
    hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5
    as the highest intensity. If the policy has mandatory deductibles, this means the insurer
    will not sell homeowners coverage without a hurricane deductible. When a deductible is
    optional, policyholders may also choose a lower deductible in exchange for a higher
    premium (a buyback) or a higher deductible for a premium credit.
    Regular (Voluntary) Market: Generally mandatory in coastal areas.

    Hurricane Deductibles: Insurers that account for almost half of the state market have
    mandatory 5 percent deductibles.


    Where the Deductible Applies: The five boroughs of New York City (Manhattan,
    Bronx, Brooklyn, Queens and Staten Island, Nassau and Suffolk Counties and parts of
    Westchester County. Hurricane deductibles as of March 2008 by company can be
    viewed on the New York State Department of Insurance Web site at
    http://www.ins.state.ny.us in the Homeowners Resources Center under "Windstorm
    Deductibles".
    If the policy contains a hurricane deductible, insurers must send the policyholder a
    disclosure statement. According to the New York State Insurance Department, the
    approved programs provide windstorm coverage subject to certain mandatory
    deductibles, depending on the geographical location of the risk. The event that triggers
    the use of these deductibles varies from insurer to insurer. Some insurers use a
    Category One hurricane as the triggering event while others use a Category Two
    hurricane. In any event, the hurricane would have to be designated as such by either the
    National Weather Service or the National Hurricane Center. Other insurers use either a
    specific mile-per-hour wind speed as a trigger or a mandatory deductible for all
    windstorm loss.
    New York Property Insurance Underwriting Association (FAIR Plan,
    http://www.nypiua.com ): The plan insures residential and commercial properties in
    the state where the homeowner cannot find coverage elsewhere. "Extended coverage"
    includes windstorm coverage. See web site for details.
    Coastal Market Assistance Plan (C-MAP, http://www.nypiua.com/cmap.html ): The
    C-MAP assists policyholders living along the coast to locate an insurer willing to provide
    homeowners coverage. See web site for details.
    ( http://www.iii.org/media/hottopics/insurance/hurricanwindstorm/ )




                                             51
                     NEW YORK STATE HOMEOWNERS COVERAGE
        APPROVED INDEPENDENT WINDSTORM DEDUCTIBLES: REVISED AS OF 03/01/08
                                  Page 1 of 17
Company, File No,      % Deductible based on          Trigger (Circumstances under          Territory
                       Dwelling (A)                   which deductible is applicable)
AAIS                   Optional, See Note A           The deductible is applicable when     See Note A.
                                                      a windstorm loss occurs 12 hours
                       The deductible amount          before or 12 hours after a Category
                       applies to the dwelling’s      2 hurricane, as determined by the
                       insured value of the           National Weather Service, makes
                       dwelling.                      landfall anywhere in NYS.
ACA Insurance          1%                             % deductible applies to windstorm     Richmond, Kings, Queens, New
Company                                               loss that occurs within a period of   York, Bronx, Nassau, Suffolk
                       The deductible amount          12 hours before or 12 hours after     and Westchester Counties.
                       applies to the dwelling’s      the storm which caused the loss
                       insured value of the           makes landfall anywhere in NYS
                       dwelling.                      as declared Category 2, 3, 4 or 5
                                                      hurricane.

                                                      Fixed dollar AOP deductible
                                                      applies to Category 1 hurricane.
AIG – Private Client   This hurricane deductible is   Applies in the event of direct        $25,000 deductible within 1 ml.
Group                  a flat $ amounts: $25,000 &    physical loss to property by          of south shore for Nassau and
                       $10,000, depending upon        hurricane that occurs within a        Suffolk counties.
American               distance from shore.           period of 12 hours before or 12
International                                         hours after the storm which caused    $10,000 deductible within 1 ml.
Insurance Company      The deductible amount          the loss makes landfall anywhere      of north shore for Nassau and
(Standard)             applies to the dwelling’s      in NYS as declared by NWS as          Suffolk counties.
                       insured value of the           Category 1, 2, 3, 4 or 5.
AIG Premier            dwelling.
Insurance Company
(Premier)

AIG Preferred
Insurance Company
(Preferred)
Allstate               5% for the coastal areas       The deductible is applicable to a     Staten Island, Bronx Queens,
                       except Westchester.            windstorm loss that occurs during     New York, Brooklyn, Nassau
                                                      the following time period: a)         and Suffolk and Westchester.
                       For Westchester – 0%, 3%       beginning 24 hours prior to the
                       or 5% - depending on zip       time that a wind speed exceeding
                       code of insured property.      100 mile per hour occurs in any
                                                      part of NYS during a hurricane, as
                       The deductible amount          estimated by the National Weather
                       applies to the dwelling’s      Service; b) during the duration of
                       insured value of the           such hurricane; and c) ending 12
                       dwelling.                      hours after the last time the
                                                      National Weather Service declares
                                                      that the hurricane has been
                                                      downgraded to a tropical storm.




                                                             52
Section 2.7
CMAP
In addition to property coverage through NYPIUA, New York State has established the Coastal Market
Assistance Program (CMAP). Coverage for coastal properties in also being written with non-admitted
carriers in the excess market. New York’s CMAP is a mechanism for property owners to connect with
voluntary markets writing in coastal areas. The program is managed under the umbrella of NYPIUA.
Participating CMAP carriers have an option to write full homeowners coverage or limit their offering
of coverage to personal property and liability with a wrap around policy for dwelling coverage written
through NYPIUA.

NYPIUA provides the following information for insurance producers:

                                Producer Information
The Coastal Market Assistance Program (C-MAP) is a network of participating insurance
companies that have agreed to give special underwriting consideration in an effort to assist
New York's coastal homeowners acquire insurance. C-MAP was created by the State of New
York Insurance Department and is administered by New York Property Insurance
Underwriting Association (NYPIUA).
The following eligibility requirements must be met and information provided when an
application for C-MAP is submitted:
       • Property must be a one (1) to four (4) family owner-occupied dwelling, apartment
       unit, or condominium unit.
       • Property must be located on Long Island's South Shore or along the shore of
       Brooklyn, Queens, Staten Island, and Long Island's Forks, within one (1) mile of the
       shore*, or
       • Property must be located on Long Island's North Shore, the Bronx, or Westchester,
       within 2500 feet of the shore, or
       • Property must be insured by New York Property Insurance Underwriting Association
       (NYPIUA).
       • Except for new purchases, homeowners must have received a non-renewal,
       cancellation notice, or conditional non-renewal from their existing insurer for a reason
       other than non-payment.
       • For new purchases, applicants are required to identify the prior owner’s insurer.
       • Homeowners must provide evidence of Flood Insurance if property is located in an A
       or V zone as indicated on Federal Flood Insurance Maps.


*The term "shore" refers only to salt-water ocean, sound, bay, or inlet with distance measured
from the normal high-tide mark.
There are two ways in which C-MAP coverage can be obtained. The first is “self-certification”,
where a company provides coverage through an agent with whom it has a contractual
relationship. As a C-MAP participant, a company may accept an application for property that
would not normally qualify under the company's proximity to shore underwriting guidelines. A
special C-MAP application is not required. The application process follows normal
company procedures.
                                                 53
The second method is “rotation”. Here, C-MAP applications are submitted to NYPIUA by
agents, brokers or homeowners. Applications are reviewed for completeness and eligibility by
NYPIUA and then transmitted to participating C-MAP companies for their consideration. A
company may exercise all underwriting prerogatives except proximity to shore when
evaluating the submission. Depending on internal policy, a company may submit
commissions, policies, endorsements, and cancellation notices to NYPIUA for transfer or
conduct business with the originating producer directly.
An insurer, under either method, may offer a homeowners form with a “wrap-around”
endorsement. This endorsement will require the applicant to obtain building coverage for fire,
extended coverage, and vandalism and malicious mischief from NYPIUA. An application for

NYPIUA coverage can be found on the NYPIUA home page under “Electronic Web
Submissions”.

With the exception of policies written in conjunction with a voluntary market policy with a
“wrap-around” endorsement, all NYPIUA policies are on an actual cash value basis. Upon
request of the producer, we will issue a replacement cost policy when our “Wrap Around
Application Supplement” is submitted. (Click Here)

To apply, complete the C-MAP application available on this Website.

If you would like more information or need a C-MAP application mailed to you, please contact
NYPIUA, C-MAP Administrator at (212) 208-9700.

Submission of a C-MAP application does not guarantee placement of coverage. Insurance
exists only after an insurer has agreed to provide coverage, all of the insurer's application
procedures have been met, and a binder has been issued.
If you would like more information or need a C-MAP application, please contact NYPIUA, C-
MAP Administrator, at (212) 208-9700.

To apply to the CMAP program, visit the NYPIUA website at www.nypiua.com.




                                               54
Section 2.8

Proposed - Regulation 189
In an effort to provide a stable marketplace, capable of withstanding natural catastrophes, the New
York State Insurance Department has proposed Regulation 189, Mandatory Catastrophe Reserve for
Property Casualty Insurance Companies. The Regulation would require authorized property/casualty
insurers to establish reserve funds for the payment of losses that occur in New York, arising out of
natural catastrophes.




                                                 55
                                            NEW YORK STATE
                                       INSURANCE DEPARTMENT
                                        10/4/07 EXPOSURE DRAFT
                                                PROPOSED
                                             REGULATION 189
                                              (11 NYCRR 111)


      MANDATORY CATASTROPHE RESERVES FOR PROPERTY/CASUALTY INSURANCE
                               COMPANIES

I, Eric R. Dinallo, Superintendent of Insurance of the State of New York, pursuant to the authority granted by
Sections 201, 301, 1113(a)(4), (5), (6), (12), and (20), 1306, 4102(c), and 4117(e) and Articles 41, 61, 66 and 67
of the Insurance Law, do hereby promulgate Part 111 of Title 11 of the Official Compilation of Codes, Rules
and Regulations of the State of New York (Regulation 189), to take effect upon publication in the State Register,
to read as follows:

                                           (ALL MATERIAL IS NEW)
Section 111.0 Statement of purpose.

This Part requires authorized property/casualty insurers to establish reserve funds for the payment of losses that
occur in New York, arising out of natural catastrophes. Insureds pay for catastrophe coverage every year as part
of their property insurance premiums, yet catastrophic events generally happen infrequently. This results in
significant underwriting gains for insurers for years in which no catastrophe occurs. These underwriting gains
should be retained by insurers in the event of future catastrophe losses. This reserve will have a stabilizing
effect on insureds’ premiums. It will facilitate the ability of insurers to fund catastrophic losses and mitigate the
exposure of insurers’ surplus to policyholders to large fluctuations resulting from such losses.

Section 111.1 Applicability and scope.

Every authorized property/casualty insurer issuing a policy of insurance or contract of reinsurance covering
losses resulting from a natural catastrophe for property risks located or resident in this State shall establish a
contingent liability, specified as its New York mandatory catastrophe reserve, which shall be used to fund the
payment of claims resulting from qualifying losses.

Section 111.2 Definitions.

(a) Catastrophe shall mean an event designated as a catastrophe by the Property Claims Service and covering
     losses related to a natural event such as wind, hail, hurricane, earthquake, winter storms (snow, ice,
     freezing), fire, tsunami, or flood.
 (b) New York subject premiums shall mean premiums related to property risks located or resident in this State
     with respect to the kinds of insurance specified in Section 1113(a)(4), (5), (6), (12), or (20) or pursuant to
     Section 4102(c) of the Insurance Law, that are written on a direct or assumed reinsurance basis.
 (c) New York mandatory catastrophe reserve shall mean a contingent liability account.
 (d) Property/casualty insurer shall mean an insurer licensed pursuant to Article 41, 61, 66, and 67 of the
     Insurance Law
 (e) Qualifying losses means losses and loss adjustment expenses incurred, net of reinsurance, which are directly
     attributable to a catastrophe in this State.


Section 111.3 Annual contribution to the New York mandatory catastrophe reserve.

(a) Every property/casualty insurer shall fund its mandatory catastrophe reserve in an amount no less than the
    aggregate catastrophe load included in the premium of policies covering risks located or resident in this
                                                         56
    State with respect to the kinds of insurance specified in Section 1113(a) (4), (5), (6), (12), or (20), or in any
    reinsurance contract of such risks, written pursuant to Insurance Law Section 4102(c) or otherwise, for the
    calendar year. The reserve liability so established shall be net of any reinsurance ceded, and federal, state
    and local income tax incurred on such reserves.
(b) Notwithstanding subdivision (a) of this section, an insurer need not fund its mandatory catastrophe reserve
    with respect to assumed reinsurance premiums on excess of loss reinsurance contracts or treaties.

Section 111.4 Accumulation of the New York mandatory catastrophe reserve.

The New York mandatory catastrophe reserve shall have a 20-year rolling term. At the end of the 20th year, the
first year’s contribution (to the extent not used to fund catastrophe losses), shall be taken into income and the
following year’s contribution shall be added to the reserve.

Section 111.5 Transfers from the New York mandatory catastrophe reserve.

(a) A property/casualty insurer shall release its New York mandatory catastrophe reserve when it incurs a loss
    on a catastrophe for property risks located or resident in this State.
 (b) Within 30 days of releasing the funds from the New York mandatory catastrophe reserve, a
    property/casualty insurer shall provide the superintendent with written notice of such release. The notice
    shall be in a form as specified by the superintendent showing the amount of the transfer, calculation of the
    transfer, and the catastrophe that necessitated the transfer.
(c) A property/casualty insurer shall return to the New York mandatory catastrophe reserve any reserves
    transferred from the New York mandatory catastrophe reserve that are not ultimately expended to pay losses
    resulting from a natural catastrophe.

(d) The superintendent may approve funds for release from the New York mandatory catastrophe reserve:

        (1) to mitigate the potential impairment of the property/casualty insurer;
         (2) when the property/casualty insurer no longer has exposure for losses resulting from a catastrophe;
             or
         (3) where the release of funds would be in the best interests of the property/casualty insurer, its
             policyholders, or the people of this State.

Section 111.6 Reporting requirements.

(a) For a domestic insurer, the New York mandatory catastrophe reserve shall be shown as a write-in liability
    item on the quarterly and annual statements.

(b) For an insurer other than a domestic insurer, the New York mandatory catastrophe reserve shall be shown as
    a write-in liability item on the New York supplement to the property and casualty annual statement.




                                                        57
Section 2.9

Flood Insurance Notice
Obtaining an adequate homeowners or dwelling fire policy can be a challenge in coastal areas.
However, with respect to hurricanes, these policies still leave property owners unprotected from the
major cause of hurricane damage, wind driven rain and flood. Flooding, as a result of storm surge or
wind driven rain can be devastating to a family in coastal areas, yet New York State home owners also
suffer tremendous damage from inland flooding as a result of extensive rain, thawing of ice and snow
and failure of dams, other water retaining systems and disruption of natural waterways.

        “Nearly 95% or all communities in New York State have qualified to participate in the
        National Flood Insurance Program, making homeowners residing in theses participating
        communities eligible to purchase federal flood insurance.” (New York State Insurance
        Department Circular Letter 18, 2008)

New York State Insurance Law 3444 has required insurance carriers, upon issuance of a new
homeowners or dwelling fire policy, to notify the policyholder that their policy does not cover flood
damage. In 2008, the law was amended to require notification each year with the policy renewal.
While excess lines policies issued are not necessarily required to contain this notice, excess lines
brokers are asked to deliver the flood insurance notice to the insured.


                                    IMPORTANT FLOOD INSURANCE NOTICE

        Your homeowners or dwelling policy does NOT provide coverage for loss caused by flood or mudslide, which
is defined, in part, by the National Flood Insurance Program as:

 A general and temporary condition of partial or complete inundation of normally dry land areas from overflow of inland
or tidal waters or from the unusual and rapid accumulation or runoff of surface waters from any source.

       If you are required by your mortgage lender to have flood insurance on your property, or if you feel that your
property is susceptible to flood damage, insurance covering damage from flood is available on most buildings and
contents in participating communities through the National Flood Insurance Program.

       Information about flood insurance and whether your community participates in the program can be obtained
from your insurance company, from your insurance agent/broker, or directly from the National Flood Insurance
Program by calling 1-800-638-6620 or via their website at http://www.floodsmart.gov.

New York has also taken action to comply with the Flood Insurance Reform Act of 2004, a Federal
requirement, that states “all producers selling flood insurance policies under the National Flood
Insurance Program (NFIP) be properly trained and educated about the NFIP to ensure producers may
serve their clients.” New York has approved several courses that meet FEMA (Federal Emergency
Management Agency) minimum standards. Many homeowners and dwelling fire insurance carriers
sponsor approved courses for their appointed agents.




                                                          58
59
60
STATE OF NEW YORK
INSURANCE DEPARTMENT
ONE COMMENCE PLAZA
ALBANY, NEW YORK 12257
                                           Circular Letter No. 9 (2007)
                                                  April 26, 2007

TO: All Insurers and Insurance Producers with a Property Line of Authority and Continuing Education
Provider Organizations approved to offer Property/Casualty Courses

RE: Flood Insurance Training Requirements For Insurance Producers With A Property Line Of Authority
Selling Through The National Flood Insurance Program (NFIP)

STATUTORY REFERENCE: Article 21 and Section 207 of the Flood Insurance Reform Act of 2004

This Circular Letter will supplement Circular Letter 1 of 2005 and Circular Letter 12 of 2006.

In order to continue their authority to solicit, negotiate or sell flood insurance, all New York licensed resident
insurance producers must comply with the minimum training requirements of section 207 of the Flood Insurance
Reform Act of 2004 (Act), and basic flood education as outlined at 70 Fed. Reg., 52,117 (Sept. 1, 2005), or such
later requirements as are published by the Federal Emergency Management Agency (FEMA). Section 207 of
the Act requires that all producers selling flood insurance policies in accordance with the National Flood
Insurance Program (NFIP) be properly trained and educated about the program to ensure that producers may
best serve their clients.

Indeed, the Act directs the Director of FEMA, in cooperation with the insurance industry, State insurance
regulators, and other interested parties, to establish minimum training and education requirements for all
insurance agents who sell flood insurance policies. (See Federal Register Vol. 70, No. 169, published 9/1/05.)
FEMA and state-approved continuing education providers are developing courses related to the NFIP that will
meet these requirements. This Department has approved continuing education courses that meet the
requirements of the Act. You may view them on the Department’s website at www.ins.state.ny.us .

Failure to comply with this education requirement may jeopardize the producer’s authority to write insurance
through the NFIP. Licensed insurers must demonstrate to the Superintendent, upon request, that their licensed
and appointed producers who sell federal flood insurance policies have complied with the minimum federal flood
insurance training requirements.

If you have any questions regarding this circular letter, please contact Clark Williams, Director of
Licensing Services, at NYS Insurance Department, One Commerce Plaza, Albany, NY 12257 or send
an email to Licensing@ins.state.ny.us .

Very Truly Yours,
Salvatore Castiglione
Assistant Deputy Superintendent &
Chief Examiner
Consumer Services/Licensing Bureau




                                                        61
Section 2.10
Regulation 79
Well-seasoned insurance professionals may recall the institution of Regulation 79 in 1977, when there
was a high frequency of “phantom” vehicles insured with comprehensive coverage reported as stolen,
when follow up investigations determined that no vehicle originally existed. To combat the problem,
New York required insurance carriers to verify the existence of each vehicle to be covered with
comprehensive and/or collision coverage with a photo inspection.

The Regulation instituted a requirement that all vehicles covered by comprehensive and collision
insurance must be inspected and a photo record maintained by the insurance carrier.

       Section 67.2. Mandatory inspection requirements for private passenger automobiles insured under a
       new policy or endorsement or insured as an additional or replacement vehicle effective on and after
       December l, 1977.

       (a) No new policy or endorsement insuring a private passenger automobile shall be issued in this State
       to provide coverage for automobile physical damage unless the insurer has inspected the automobile.
       (b) Automobile physical damage coverage shall not be effective on an additional or replacement private
       passenger automobile until the insurer has inspected the automobile

The new Regulation provided insurers with several “waivers” to the photo inspection requirement.
Perhaps the most significant waiver is for new vehicles where the insurer is provided with a copy of
the bill of sale is provided, an MV-50 form from the Department of Motor Vehicles, and a copy of the
window sticker or dealer invoice showing the itemized options and equipment for the vehicle. Other
important waivers include vehicles greater than 7 years old, vehicles subject to a “book transfer”
within an agency, and when an individual policy is being transferred by an independent agent from one
carrier to another, provided that a photo inspection has been completed within the prior 2 years and the
inspection report is made available to the new insurer. It is important to note that these waivers are
optional to insurers, not required by Regulation 79.

       Section 67.3. Waivers of mandatory inspection.

       (a) An insurer shall waive or dispense with a mandatory inspection of:
       (1) a temporary substitute automobile; and
       (2) an automobile which is leased for less than six months, provided the insurer receives the lease or
       rental agreement containing a description of the leased automobile including its condition. Payment of
       a physical damage loss shall be conditioned upon receipt of the lease or rental agreement.
       (b) An insurer may waive or dispense with a mandatory inspection under any of the following
       circumstances:
       (1) During calendar year 1982, all 1975 and older model year vehicles. On January 1, 1983, and on
       each January 1st thereafter, the applicable model year shall be moved forward by one year. For
       example: in 1982 an insurer must inspect 1976 and newer model year vehicles and in 1983 an insurer
       must inspect 1977 and newer model year vehicles. An insurer may, in its filed plan of operation, elect to
       inspect specified vehicles included within this waiver. Such exceptions to this optional waiver must be
       based on underwriting criteria uniformly applied.
       (2) Where a new, unused automobile is purchased or leased from a franchised automobile dealership
       and the insurer is provided with either a copy of the bill of sale which contains a full description of such
       automobile, including all options and accessories, or a copy of the lease or MV-50 form, provided by
       the Department of Motor Vehicles, which establishes transfer of ownership from the dealer to the
       customer and a copy of the window sticker or advanced dealer shipping notice (invoice) showing the
       itemized options and equipment in addition to the total retail price of the vehicle on which will be added
                                                       62
       any dealer installed options installed on the vehicle at the time of sale or lease. The physical damage
       coverage on such new, unused automobile shall not be suspended during the term of the policy due to
       the insured's failure to provide the required document(s). Payment of a claim shall be conditioned upon
       receipt by the insurer of such document(s) and no physical damage loss occurring after the effective
       date of coverage shall be payable until the document(s) are provided to the insurer. If the above
       document(s) are not submitted by the insured 60 days prior to the annual renewal date, the insurer upon
       renewal of the automobile physical damage insurance must require a physical inspection, pursuant to
       the provisions of section 67.7 of this Part.
       (3) For an additional and/or replacement vehicle, where the named insured has been continuously
       insured for automobile insurance, with the same insurer, or affiliate, for four or more policy years. An
       insurer may, in its filed plan of operation, elect to inspect specified vehicles included within this waiver.
       Such exceptions to this optional waiver must be based on underwriting criteria uniformly applied.
       (4) Where a nonowned automobile is insured under a policy providing automobile physical damage
       insurance issued by an insurer which has inspected such automobile in accordance with the provisions
       of this Part.
       (5) Where the insured automobile is insured under a commercially rated policy which insures five or
       more motor vehicles.
       (6) Where a producer is transferring a book of business from one insurer to other insurer(s).
       (7) When an individual insured's coverage is being transferred by an independent insurance agent (as
       defined in section 2101[b] of the Insurance Law) to a new insurer and said agent provides the new
       insurer with a copy of the inspection report completed on behalf of the previous insurer, provided the
       independent agent represents both insurers, and the insured vehicle was physically inspected by the
       previous insurer.
       (8) When one insurer has agreed to accept the majority of another insurer's book of automobile physical
       damage insurance written in New York State and an individual insured has elected to transfer coverage
       to the new insurer from the previous insurer, which had inspected the insured automobile in accordance
       with the provisions of this Part, provided that the previous insurer supplies the new insurer with a copy
       of the inspection report that was completed on its behalf.
       (9) Where an individual insured's coverage is being voluntarily written by an insurer in accordance
       with a program, approved by the superintendent, that is designed to reduce the number of persons
       insured pursuant to the provisions of Article 53 of the Insurance Law, provided that the insured vehicle
       was physically inspected by the insurer assigned by the New York Automobile Insurance Plan (NYAIP)
       and that such insurer supplies the new insurer with a copy of the inspection report that was completed
       on its behalf. Such coverage must become effective with the new insurer immediately after the
       termination of coverage with the insurer assigned by the NYAIP.
       (10) Where an insurer has agreed to write an individual insured's coverage which is otherwise
       terminating with another insurer under common control or ownership with the terminating insurer and
       where the terminating insurer had inspected the insured motor vehicle in accordance with the
       provisions of this Part.
       (c) If a mandatory inspection is waived pursuant to paragraphs (7), (8), (9) or (10) of this subdivision
       and if the new insurer does not receive a copy of the inspection report 60 days prior to the first annual
       renewal date, the insurer, upon renewal of the automobile physical damage insurance, must require a
       physical inspection pursuant to the provisions of section 67.7 of this Part.

Regulation 79 further allows the insured 5 business days to complete the required photo inspection
prohibits inspectors from charging a fee to the insured for the inspection service.

Insurers are required to utilize inspection reports to document prior damage, condition, mileage and
optional equipment in addition to attaching copies of inspection reports to all claim files.

                     ACKNOWLEDGMENT OF REQUIREMENT FOR PHOTO INSPECTION

      APPLICANT OR INSURED NAME: ______________________

                                                       63
     ADDRESS: _______________________________

    VEHICLE(S) TO BE INSPECTED

                    YEAR MAKE MODEL
                    1 _______, _________, _________
                    2 _______, _________, _________

    EFFECTIVE DATE OF COVERAGE:                       ________________ (DATE)

    INSPECTION MUST BE COMPLETED BY:                  ________________ (DATE)

    BY MY SIGNATURE BELOW I CERTIFY THAT I HAVE BEEN INFORMED THAT MY VEHICLE(S)
    WHICH IS BEING INSURED FOR COLLISION AND/OR COMPREHENSIVE COVERAGE MUST BE
    INSPECTED BY A REPRESENTATIVE OF THE INSURER. THIS INSPECTION MUST BE COMPLETED
    WITHIN [FIVE (5) CALENDAR] FIVE (5) BUSINESS DAYS AFTER THE EFFECTIVE DATE OF
    COVERAGE, IN NO EVENT LATER THAN THE DATE SHOWN ABOVE TO AVOID A SUSPENSION IN
    COVERAGE. I UNDERSTAND THAT FAILURE TO OBTAIN THE REQUIRED INSPECTION(S) WILL
    RESULT IN THE SUSPENSION (LOSSES WILL NOT BE COVERED) OF THE PHYSICAL DAMAGE
    COVERAGE (COLLISION, COMPREHENSIVE, FIRE, THEFT) AS OF 12:01 A.M. OF THE DAY
    FOLLOWING THE DATE THE INSPECTION MUST BE COMPLETED BY.

    IF COVERAGE IS SUSPENDED IT WILL BE RESTORED AFTER THE INSPECTION IS COMPLETED.

    SIGNATURE OF APPLICANT OR INSURED
    ______________________________ DATE _________________
    SIGNATURE OF PRODUCER OR INSURANCE COMPANY REPRESENTATIVE
    ______________________________ DATE _________________

             NAME, ADDRESS & TELEPHONE NUMBER
             OF PRODUCER OR INSURANCE REPRESENTATIVE
             COMPLETING THIS FORM
             ___________________________________
             ___________________________________
             ___________________________________
INSURED (APPLICANT) SHALL BE FURNISHED A COMPLETED COPY OF THIS FORM.




                                                 64
Section 2.11
2119 Disclosures
To many in the property casualty industry, the term “disclosure” is associated with charging additional
fees for service while acting as a broker. Section 2119 of the insurance law outlines when a service fee
may be charged. The law does not limit the amount of a service fee that may be charged, however,
rulings have been made against brokers by the New York State Insurance Department where it was
determined the amount of the fee was excessive for the service provided. (NYSID Disciplinary
Actions 4/7/98)

Broker fees may be charged in connection with a number of services provided in insurance agencies.
While fees are commonly charged by brokers for personal auto policies, they are also frequently
charged for the placement of workers compensation policies with the New York State Insurance Fund,
commercial insurance policies through excess and surplus lines insurance markets and for services
after the initial sale of a policy by a broker.

The purpose of charging a fee for service is to provide total compensation to an insurance producer
sufficient to cover their operational expenses. Often, the commission earned by an insurance producer
is less than the minimum level needed to cover expenses. The New York State Insurance Fund, for
example, provides no compensation to producers. Clearly, no business can operate with zero
compensation. In many situations, fees in addition to commission are necessary to reach a level of
profitability.

In the 2006 study, “An Examination of the Role of Insurance Producers and Compensation in the
Insurance Industry” an average range of producer compensation is detailed. According to the study,
agencies receive commission from 11.4% to 17% for Personal Lines business and 13.8% to 22.8% for
Commercial Lines.

The New York Automobile Insurance Plan (NYAIP) has recognized that value of insurance producers
and the need in certain situations for an agency to receive compensation greater than the 10% provided
on business placed. Although the NYAIP places caps on the amount that may be charged by a
producer to a consumer, that fee limit has been adjusted over time from $35 in the early 1990’s to $50
in 2006.

Insurance producers may also charge fees for services provided in connection with the placement of an
insurance policy. For example, an extensive review of a prospects insurance needs and current
coverages may be conducted by a broker. If new policies for insurance are written, the commission
earned may be insufficient to cover all the expenses incurred by the broker and a fee may be warranted.

If an insurance producer intends to perform reviews for a client without seeking to place business
through their agency, their only source of compensation would be through a fee. The producer should
obtain a “Consultants” license and charge a consultants fee, in accordance with New York State
Insurance Law Section 2119, in this situation.




                                                  65
When charging a Section 2119 fee, a written disclosure must be used. The following are minimum
provisions for the form:

Agency Name                        ______________________________
Agency Address                     ______________________________
Agency Telephone Number            ______________________________

Insured Name                       ______________________________
Insured Address                    ______________________________

Policy Effective Date              ______________________________
Policy or Binder Number            ______________________________

Description of Services Provided______________________________
                                ______________________________
                                ______________________________

Amount of Fee                      ______________________________


Signature of Insured               ______________________________
Date                               ______________________________


Signature of Broker                ______________________________
Date                               ______________________________




                                               66
Section 2.11 a

Producer Compensation
There has been significant debate over the interpretation of New York State Insurance Law Section
2119 and disclosure of broker compensation. In 1998, the New York State Insurance Department
released Circular Letter #22 in response to concerns raised by internal “risk managers” of large
corporate insurance customers regarding the practice of insurance brokers receiving compensation in
addition to commission. For several years the Department did not provide clarification as to it’s
interpretation of exactly what compensation must be disclosed. In an opinion released on 8/25/2005,
the Department did provide some clarification:

       “Neither the Insurance Law nor regulations promulgated thereunder require that a broker
       disclose to its clients the fixed commission that it earns on the policies that it places.”

An additional opinion, released on 1/30/2008, further clarifies the Department’s position. However, to
date the Department has not provided an opinion regarding how brokers should provide disclosure of
compensation in addition to commission which has not yet been earned.




                                                  67
                                         STATE OF NEW YORK
                                       INSURANCE DEPARTMENT
                                             25 BEAVER STREET
                                          NEW YORK, NEW YORK 10004


The Office of General Counsel issued the following opinion on January 30, 2008, representing the
position of the New York State Insurance Department.

Re: Update on broker disclosure of fixed commission and other compensation

Question Presented:

Is an insurance broker required to disclose to its clients the fixed commission it earns on the policies it
places?

Conclusion:

No. At present, and as a general matter, there is no legal requirement that a broker disclose to its clients
the fixed commission that it earns on the policies that it places.

Facts:

The inquirer’s inquiry, which is general in nature and does not set forth particular facts, refers to both
OGC Opinion Number 05-08-18 (08/30/2005), and OGC Opinion Number 06-11-19 (11/20/2006).
Those opinions concluded that neither the Insurance Law nor regulations promulgated thereunder
require that a broker disclose to its clients the fixed commission it earns on the policies it places. The
inquirer also cites Circular Letter Number 22 (August 25, 1998), and asks whether that Circular Letter
only requires brokers to disclose compensation other than commission.

Analysis:

Fixed commission is the amount payable to a producer for sale of a particular insurance contract or
policy, set prior to the sale of the contract or policy. Neither the Insurance Law nor regulations
promulgated thereunder require that a broker disclose to its clients the fixed commission that it earns
on the policies that it places. See OGC Opinion Number 05-08-18 (08/30/2005), and OGC Opinion
Number 06-11-19 (11/20/2006). Thus, at present and as a general matter, there is no legal requirement
that an insurance broker disclose to its clients the fixed commission that it earns on the policies it
places.

Please be advised, however, that in the Insurance Department's Regulatory Agenda published in the
New York State Register on June 27, 2007, the Department expressed its intention to adopt "a new part
to 11 NYCRR to establish requirements regarding disclosure of all sources and amounts of
compensation received by licensed insurance brokers and certain agents." Although the Department


                                                    68
will not adopt this regulation during the remainder of 2007, the Department plans on proposing such a
regulation in 2008.

The inquirer also refers to Circular Letter Number 22 (August 25, 1998), and asks whether it only
requires that brokers disclose compensation other than commission. The Insurance Department did not
intend that the Circular Letter apply to a broker's disclosure of fixed commission. The Circular Letter
provides guidance regarding broker disclosure of compensation to producers over and above fixed
commission payments. Such compensation would include contingent commissions, which may be
based upon business volume, profitability, new business generated, existing business retained, or loss
experience of business placed with the insurer by the producer. Contingent commissions are included
in the kinds of compensation arrangements that the Circular Letter addresses in advising brokers that
they should disclose “...to insureds prior to the purchase so as to enable insureds to understand the
costs of the coverage and the motivation of their broker in placing the business.”

This opinion supersedes the opinion on this matter issued by the Department's Office of General
Counsel of December 12, 2007.

For further information, you may contact Senior Attorney Robert Freedman, at the New York City
office.

                                                 ####




                                                  69
Section 2.12

Regulation 87
Not all disclosure notices are intended to ensure that clients fully understand the decisions being made.
New York State Insurance Regulation 87 requires producers to notify the New York State Insurance
Department when business is placed through their agency on behalf of a municipality. The regulation
was adopted to prevent licensees from receiving fees from governmental units or commissions or fees
from insurers or other licensees, when they did not actually provide services, nor place or service
insurance coverages for the governmental unit.

Regulation 87 requires an annual disclosure statement be filed with the New York State Insurance
Department Licensing Bureau before April 15th of each year. Regulation 87 also requires Party
Officers and Public Officers to make notation of their positions on the disclosure form.




                                                   70
                                    EXHIBIT B
                  GOVERNMENTAL INSURANCE DISCLOSURE STATEMENT
                      FOR USE ON AND AFTER DECEMBER 31, 1979

Pursuant to 11 NYCRR 29.5 (Regulation 87) the undersigned hereby affirms, under the penalties of perjury, that
the statements made hereinafter are true.

Filed By:

NAME:            __________________________________

ADDRESS:         __________________________________

1. Name of governmental unit (including county) which ordered insurance services and/or coverages.

2. Name and office address (including county) of person who placed the order for insurance services or
coverages:

3. Will you share any fees or commissions received on account of business listed in item 1 with any other
licensee(s) or other person(s), directly or indirectly?

YES         NO

4. Are you a public officer or party officer?


YES         NO

If you answered "NO" to items 3 and 4, you are not required to answer items 5 through 10. You must sign and
date the form where indicated and mail it to the address indicated below.

If you answered "YES" to items 3 or 4, you are required to complete the remaining applicable items, and you
must sign and date the form where indicated and mail it to the address indicated below.

5. Names and addresses of licensees or others to whom you paid fees and/or commissions:

6. The dollar amount you paid to each licensee or other person:

7. The services rendered by the persons listed in item 5 for which a share of commissions were paid.

8. Schedule of coverages placed on account of which fees or commissions were paid to the persons listed in item
5:



                                                 - Continued -


Name of Insurer          _______________________________

Policy #                 _______________________________

                                                      71
9. Services rendered on account of which fees were paid to the persons listed in item 5.

10. What public office or party office do you hold?

DATE:           __________________



Signature       ___________________________________

Type name of person whose signature appears above:


Telephone No.: _____________________________



Mail the original disclosure statement to:

New York State Insurance Department
Licensing Services Bureau
Governmental Insurance Disclosure Unit
One Commerce Plaza
99 Washington Ave.
Albany, N.Y. 12257

Mail a copy of the disclosure statement to:

The most senior official of the governmental unit which ordered the insurance services or coverages listed
thereon.

2/07




                                                       72
                                             STATE OF NEW YORK
                                           INSURANCE DEPARTMENT
                                                   25 BEAVER STREET
                                                NEW YORK, NEW YORK 10004


George E. Pataki Governor
Gregory V. Serio Superintendent

Office of General Counsel issued the following informal opinion on December 27, 2004, representing the
position of the New York State Insurance Department.

RE: Public official placing municipal insurance

Question Presented

Does N.Y. Insurance Law, or the regulations promulgated there under, prohibit an elected public official from
placing the municipal insurance for the town he or she is an elected board member of?

Conclusion

No. Neither the N.Y. Insurance Law, nor the regulations promulgated thereunder, expressly addresses whether
an elected public official who is a licensee of the Insurance Department may place the municipal insurance for
the town he or she is an elected board member of. However, there may be other laws in the State of New York
that do prohibit such conduct. The Department, in this instance, will limit its opinion to Insurance Law and will
not render an opinion on other statutes or cases.

Facts

The inquirer’s inquiry is of a general nature

Analysis

N.Y. Ins. Law § 2128 (McKinney 2000) provides:

(a) Notwithstanding the provisions of sections two thousand three hundred twenty-four and four thousand two
hundred twenty-four of this chapter, no insurance agent, insurance broker, insurance consultant, excess line
broker, reinsurance intermediary or insurance adjuster shall receive any commissions or fees or shares thereof
in connection with insurance coverages placed for or insurance services rendered to the state, its agencies and
departments, public benefit corporations, municipalities and other governmental subdivisions in this state,
unless such insurance agent, insurance broker, insurance consultant, excess line broker, reinsurance
intermediary or insurance adjuster actually placed insurance coverages on behalf of or rendered insurance
services to the state, its agencies and departments, public benefit corporations, municipalities and other
governmental subdivisions in this state.

(b) The superintendent shall, by regulation, require insurance agents, insurance brokers, insurance consultants,
excess line brokers, reinsurance intermediaries and insurance adjusters to file disclosure statements with the
insurance department and the most senior official of the governmental unit involved, with respect to any
insurance coverages placed for or insurance services rendered to the state, its agencies and departments,
public benefit corporations, municipalities and other governmental subdivisions in this state.



                                                          73
N.Y. Comp. Codes R & Regs. tit. 11, § 29.4 (2002) (Regulation 87), which implements N.Y. Ins. Law § 2128
(McKinney 2000) provides in relevant part:

No licensee shall share in or receive any fee or commission in connection with any insurance service rendered
to, or insurance coverage placed on behalf of, a governmental unit unless such licensee actually rendered
insurance services to, or placed or serviced insurance coverages on behalf of, such governmental unit, for
which said fees and/or commissions were paid.

§ 29.5 further provides that:

(a) Any licensee who receives any fees and/or commissions, or shares thereof, in connection with any insurance
services rendered to, or insurance coverages placed or serviced on behalf of, a governmental unit, shall file,
with the Insurance Department and the most senior official of the governmental unit which ordered such
insurance services or coverages, a completed Governmental Insurance Disclosure Statement, affirmed by the
licensee as true under penalties of perjury, on the prescribed form attached hereto as Exhibit B, which
statement after filing shall be a public record.

N.Y. Ins. Law § 2128 provides that no licensee described therein shall receive any commissions or fees or
shares thereof in connection with insurance coverages placed for or insurance services rendered to the state or
other governmental subdivisions described therein unless the licensee actually placed coverage or rendered
services to the government. Regulation 87 implements N.Y. Ins. Law § 2128 and requires the filing of a
disclosure statement. Neither the statute nor regulation, however, address whether an elected town board
member, who is a licensee of the Insurance Department, may place insurance. The inquirer would be advised to
consult the New York State Office of the State Comptroller, the Department of State or the Department of Law
for opinions on local government officials’ conflict of interest in particular transactions, including insurance.

For further information one may contact Principal Attorney Donald Carroll at the New York City Office.




                                                       74
Section 2.13
Excess and Surplus Market

Market Availability and Access

Changing economic cycles often have an impact on the availability of products from insurance
companies, or markets, as their willingness to accept insurance risks is, to certain degrees, dependent
of market conditions. Loss experience and competition between insurers also have impact upon
product availability and price. Specific State Laws and Regulations may also have an impact on the
willingness of carriers to accept risks and the limitations that are placed on coverage, if it is made
available.

Insurance agents are directly limited in their ability to secure coverage by their relationships with
carriers, while brokers have an ability to look to alternative markets on their customers’ behalf.
Insurance brokers should understand the important distinction between Admitted and Non-Admitted
insurance companies when placing business.

       An admitted insurance company is one that has applied for authority to conduct
       business within a state. In addition, it will comply with all of the dictates of that state
       including maintaining sufficient reserves, subjecting its self to tax laws, and abiding by
       the mandates of that state’s Insurance Department regulations. That state will issue an
       officials accreditation - known as a Certificate of Authority – to the admitted insurance
       company.

       A non-admitted insurance company must comply with the basic operating mandates
       of the state in which it does business, but does not seek Certification of Authority. It
       may want to solicit only certain classes of business but does not want to comply with
       the regulations of the state relating to maintaining reserves, residency, and tax
       regulations of the state.

       Both admitted and non-admitted carriers are authorized to conduct business in a state.
       The terms authorized and unauthorized can be confusing. Both can conduct business in
       the state. The term unauthorized means that the insurance carrier possesses no
       authorized Certificate of Authority and thereby has not fully subjected itself to the full
       regulatory authority of the state.

An admitted insurance company, or Standard Market, offers the highest level of security to insurance
consumer. The willingness of the admitted market to comply with state regulations provides the
regulatory agency with an ability to intercede on behalf of the consumer in disputes between the
parties.

Excess and Surplus Market

When an admitted market is unavailable to an insurance producer, only a broker may pursue a non-
admitted market, or Excess and Surplus Lines market. Lloyds of London is Excess and Surplus
business is regulated in New York State by the Excess Lines Association of New York, ELANY.
Specific regulations are in place covering the placement of every individual account. Most important
of these regulations is the requirement for a “Total Cost Form” disclosure to be presented to the
                                                   75
consumer. The Total Cost Form itemizes the individual charges to be paid, including policy premium,
separate tax charges, policy fees and inspection fees.




                                                76
                          NOTICE OF EXCESS LINE PLACEMENT

                                                      Date:




Consistent with the requirements of New York Insurance Law and Regulation 41
__________________________ is hereby advised that after a diligent effort to place the required
insurance with companies authorized in New York to write coverages of the kind requested, all
or     a     portion     of     the   required     coverages    have    been      placed     by
__________________________________ with insurers not authorized to do an insurance business
in New York and which are not subject to supervision by this State. Policies issued by such
unauthorized insurers may not be subject to all of the regulations of the Superintendent of
Insurance pertaining to policy forms. In the event of insolvency of the unauthorized insurers,
losses will not be covered by any New York State Insolvency Fund.

                                            TOTAL COST FORM

In consideration of your placing my insurance as described in the policy referenced below, I agree to pay the total
cost below which includes all premiums, inspection charges(**) and a service fee that includes taxes, stamping fees,
and (if indicated) a fee(**) for compensation in addition to commissions received, and other expenses(**).

I further understand and agree that all fees, inspection charges and other expenses denoted by (**) are fully earned
from the inception date of the policy and are non-refundable regardless of whether said policy is cancelled. Any
policy changes which generate additional premium are subject to additional tax and stamping fee charges. *Where
a portion of the risk is located outside the state of New York, taxes and stamping fees are only charged against the
premium allocated to the New York portion of the risk.

Re: Policy No.                            Insurer

Policy Premium                                                             $
New York Allocated Premium (where applicable)          $
Service Fee Charges:
    Excess Line Tax (3.60%) (*)                                            $
    Stamping Fee (*)                                                       $
    Broker Fee (**)                                                        $
    Inspection Fee (**)
    Other Expenses (specify)(**)__________________________________         $____________________
                                               Total Policy Cost           $

_____________________________________
(Signature of Insured)




                                                        77
Section 2.14
Regulation 60
As with most regulations, the purpose of Regulation 60 is the protection of the buying public. Specific
to life insurance policies and annuity contracts, Regulation 60 was promulgated to prevent twisting -
unfair methods of competition and practices in the replacement of life insurance policies and annuity
contracts. To ensure the insured has sufficient information to make an informed decision.

       Regulation 60 does not apply if the applications for the new insurance is made under a
   Contractual Conversion Privilege provided by the same insurance company that issued the
   existing policy: or if the existing life insurance is a nonrenewable, nonconvertible Term Policy
   with five years or less to its expiration date; sales in which the new coverage is provided under:
   (a) an individual life or annuity policy whose cost is borne totally by the Insured's employer or
   an association; (b) a group insurance program except when an agent or insurer directly solicits
   the certificate holder for the new coverage and a portion of the premium or consideration is
   borne, directly or indirectly, by the certificate holder; policy changes that are approved by the
   Superintendent of Insurance and customarily granted by the insurer are not considered
   replacements if they do not result in additional surrender or expense charge or suicide or
   contestable restrictions.

      If any question on the Definition of Replacement form is answered "yes" a "Client
   Replacement Information Authorization" form must be completed and signed by both the
   applicant and agent.

       A list must be obtained of all existing life insurance policies or annuity contracts proposed to
   be replaced, including the issuing company's name and policy or contract numbers and
   submitted to each insurer whose policy or contract is being replaced along with a request for the
   information necessary to complete the "Disclosure Statement'.
        Upon receipt, the existing insurer is allowed 20 days for a response. If the existing insurer
   does not respond within 20 days. the distributor may use "good faith" approximations in
   completing the Disclosure Statement It is wise for the distributor to obtain a "proof of mailing".
       The "Disclosure Statement" is designed so that when completed it will tell the applicant in
   both words and figures the primary reason(s) for recommending the new life/annuity and why the
   existing policy/annuity does not meet the applicant's objectives. The "Disclosure Statement', the
   "IMPORTANT Notice Regarding Replacement' or "Change of Life Insurance Policy or Annuity
   Contract' should be acknowledged, signed and presented to the applicant.




                                                  78
       The following documents should be submitted to the insurer who will be issuing the
   replacement policy:

        (1) completed application,
        (2) completed "Definition of Replacement' form,
       (3) complete list of all life insurance policies or annuities
   proposed to be replaced with issuing company name and policy or contract number,
        (4) a copy of any proposal,
        (5) a copy of any sales material used in the sale,
(6) proof of "receipt by the applicant of the "IMPORTANT Notice Regarding Replacement or
    Change of Life Insurance Policies or Annuity Contracts" form,
        (7) a completed Disclosure Statement,
(8) any supporting documentation used as a source of information for the completion of the
    Disclosure Statement.
        The IMPORTANT Notice to Policyholder form must be acknowledged by applicant. This
    allows applicant a 60 day "free look" period. If the policy or contract is returned the company
    will send the applicants a full refund within 10 business days

        Note: The above is under current review and subject to change.




                                                 79
Section 2.14 a

                Regulation 60 Disclosure Statement Completion Instructions
                  (To be used on all replacements other than annuity to annuity)
     All questions must be completed. Use N/A (Not Applicable) when appropriate.
     1. Name of Applicant – Print name of person applying for coverage.
     2. Telephone Number – Home telephone number of applicant.
     3. Address – Full address of applicant.
     4. Name of Agent – Print name of agent writing new coverage.
     5. Telephone Number – Agent’s business telephone number.
     6. Company – Name of Agency or Company affiliation, if any.
     7. Address – Agency business address.
     8. Source used to complete information – If any information on existing coverage was received from the
     replaced company, mark "X" in "the replaced company" box. If any approximations were used because
     requested information was not provided by the replaced company, mark "X" in the "approximations" box.
     1. Description of Transaction Section
     9. As of Date – Date the stated values were measured.
     10. Company – Names of insurance companies for existing and proposed policies.
     11. Customer Service Telephone Number – Customer Service telephone numbers for existing and replacing
     insurance companies.
     12. Type of Insurance – Type of insurance (i.e. Term, Whole Life, Universal Life).
     13. Face Amount – Face amount of base policy excluding riders.
     14. Riders – Indicate type of rider and benefit amount (if applicable) for all riders attached to base policy.
     15. Premium – Include the premium for the base policy and all riders. Premium should be annualized if
     applicant is paying a premium mode other than annual.
     16. Contract Number – Policy/contract/certificate number of existing policies (blank for proposed policy).
     17. Issue Date – Issue date of existing policies.
     18. Surrender Charge – Specify current surrender charge of policies (if applicable).
     19. Guaranteed Interest Rate – Specify contract minimum guaranteed interest rate (if applicable) for existing
     and proposed policy.
     20. Loan Interest Rate – Indicate loan interest percentage (if applicable) for existing and proposed policy.
     21. Contestable Expiry Date – Indicate if contestable period has expired or contestable expiry date (month and
     year) for current policies and duration of contestable period for proposed policy.
     22. Suicide Expiry Date – Indicate if suicide period has expired or suicide expiry date (month and year) for
     current policies and duration of suicide period for proposed policy.
     23. Lapse or Surrender – Check if existing policy(ies) are to be lapsed or surrendered.
     24. Amendment or Re-Issue – Check if existing policy(ies) are to be amended or re-issued.
     25. Loan or Withdrawal – Check if existing policy(ies) cash value will be borrowed or withdrawn.
     26. Reduction To – Indicate reduced face amount of existing policies.
     27. Reduced Paid Up For – Indicate new face amount if policy(ies) are being placed on reduced paid-up non-
     forfeiture option.
     28. Extended Term For – Specify the duration of Extended Term Period if policy(ies) are being placed on
     Extended Term Insurance (ETI) non-forfeiture option.
     29. Cash Release at Time of Change – Enter applicable year and dollar amount of funds released by exercising
     one of the above changes.
     30. Use of Cash Released – Describe how the cash released will be used (e.g., 1035 Exchange, pay premiums
     on proposed policy).
     2. Summary Result Comparison Section
     New With Existing Coverage Changed [Values reflecting planned changes for existing policy(ies)]
     31A, B&C Annual Premium – Indicate total annualized premium on a guaranteed and non-guaranteed basis at
     present, five years hence and ten years hence for proposed policies. Premiums should be annualized if applicant
     is paying a premium made other than annual.

                                                           80
32A,B & C Surrender Value – Indicate surrender value (net of loan) on a guaranteed and non-guaranteed basis
at present, five years hence and ten years hence for proposed policies.
33A,B&C Death Benefit – Enter death benefit on a guaranteed and non-guaranteed basis at present, five years
hence and ten years hence for proposed policies.
34A,B&C Dividends – Enter illustrated dividends, if applicable, at present, 5 years hence and ten years hence
for proposed policies. [To be competed if dividends are not included above in Surrender Value and Death
Benefit.]
Existing Coverage Unchanged
35A,B&C Annual Premium – Indicate total combined existing policy(ies) annual premium based on existing
coverage unchanged on a guaranteed and non-guaranteed basis, at present, five years hence and ten years hence.
36A,B&C Surrender Value – Enter total combined existing policy(ies) surrender value on a guaranteed and
non-guaranteed basis, at present, five years hence and ten years hence based on existing coverage unchanged.
37A,B&C Death Benefit – Enter total combined existing policy(ies) death benefit on a guaranteed and non-
guaranteed (including paid-up additions) basis, at present, five years hence and ten years hence based on
coverage unchanged.
38A,B&C Dividends – Enter illustrated dividends, if applicable, at present, five years hence and ten years
hence based on existing coverage unchanged. [To be completed if dividends are not included above in Surrender
Value and Death Benefit.]
3. Agent Statement Section
39. Disclosure Question 1 – Enter the reason(s) for recommending the new life policy or annuity contract (i.e.,
lower premium).
40. Disclosure Question 2 – Enter the reason why the existing insurance policy(ies) or annuity contract(s)
cannot meet the applicant’s objectives (e.g., too expensive, not enough coverage).
41. Disclosure Question 3 – List the advantages of continuing the existing insurance policy or annuity contract
(e.g., contestability and suicide clause have expired).
42. Remarks – Enter any pertinent comments bearing on the transaction.
43. Proposal Used – Check the appropriate box indicating if a proposal/sales material was used to make the
sale.
44. Agent Certification – Agent signs and dates.
45. Applicant’s Acknowledgment – Applicant and spouse (if his/her policy will be replaced with new
coverage) sign and date. If applicant and owner are different, owner must sign also.




                                                      81
Section 2.14 b
                            DEFINITION OF REPLACEMENT
IN ORDER TO DETERMINE WHETHER YOU ARE REPLACING OR OTHERWISE CHANGING THE STATUS OF
EXISTING LIFE INSURANCE POLICIES OR ANNUITY CONTRACTS, AND IN ORDER TO RECEIVE THE
VALUABLE INFORMATION NECESSARY TO MAKE A CAREFUL COMPARISON IF YOU ARE
CONTEMPLATING REPLACEMENT, THE AGENT IS REQUIRED TO ASK YOU THE FOLLOWING QUESTIONS
AND EXPLAIN ANY ITEMS THAT YOU DO NOT UNDERSTAND.
As PART OF YOUR PURCHASE OF A NEW LIFE INSURANCE POLICY OR A NEW ANNUITY CONTRACT, HAS
EXISTING COVERAGE BEEN, OR IS IT LIKELY TO BE:

(1) LAPSED, SURRENDERED, PARTIALLY SURRENDERED, FORFEITED, ASSIGNED TO THE INSURER
REPLACING THE LIFE INSURANCE POLICY OR ANNUITY CONTRACT, OR OTHERWISE TERMINATED?
                                                                               Yes __ No __

(2) CHANGED OR MODIFIED INTO PAID-UP INSURANCE; CONTINUED AS EXTENDED TERM INSURANCE
OR UNDER ANOTHER FORM OF NONFORFEITURE BENEFIT; OR OTHERWISE REDUCED IN VALUE BY THE
USE OF NONFORFEITURE BENEFITS, DIVIDEND ACCUMULATIONS, DIVIDEND CASH VALUES OR OTHER
CASH VALUES?
                                                                              Yes __ No __

(3) CHANGED OR MODIFIED SO AS TO EFFECT A REDUCTION EITHER IN THE AMOUNT OF THE EXISTING
LIFE INSURANCE OR ANNUITY BENEFIT OR IN THE PERIOD OF TIME THE EXISTING LIFE INSURANCE OR
ANNUITY BENEFIT WILL CONTINUE IN FORCE?
                                                                                 Yes __ No __

(4) REISSUED WITH A REDUCTION IN AMOUNT SUCH THAT ANY CASH VALUES ARE RELEASED,
INCLUDING ALL TRANSACTIONS WHEREIN AN AMOUNT OF DIVIDEND ACCUMULATIONS OR PAID-UP
ADDITIONS IS TO BE RELEASED ON ONE OR MORE OF THE EXISTING POLICIES?
                                                                             Yes __ No __

(5) ASSIGNED AS COLLATERAL FOR A LOAN OR MADE SUBJECT TO BORROWING OR WITHDRAWAL OF
ANY PORTION OF THE LOAN VALUE, INCLUDING ALL TRANSACTIONS WHEREIN ANY AMOUNT OF
DIVIDEND ACCUMULATIONS OR PAID-UP ADDITIONS IS TO BE BORROWED OR WITHDRAWN ON ONE OR
MORE EXISTING POLICIES?
                                                                            Yes __ No __

(6) CONTINUED WITH A STOPPAGE OF PREMIUM PAYMENTS OR REDUCTION IN THE AMOUNT OF
PREMIUM PAID?
                                                                            Yes __ No __

IF YOU HAVE ANSWERED YES TO ANY OF THE ABOVE QUESTIONS, A REPLACEMENT AS DEFINED BY
NEW YORK INSURANCE DEPARTMENT REGULATION No. 60 HAS OCCURRED OR IS LIKELY TO OCCUR
AND YOUR AGENT IS REQUIRED TO PROVIDE YOU WITH A COMPLETED DISCLOSURE STATEMENT AND
THE IMPORTANT NOTICE REGARDING REPLACEMENT OR CHANGE OF LIFE INSURANCE POLICIES OR
ANNUITY CONTRACTS.
Date: __________   Signature of Applicant: ____________________________________
Date: __________   Signature of Applicant: ____________________________________

To THE BEST OF MY KNOWLEDGE, A REPLACEMENT IS INVOLVED IN THIS TRANSACTION:
                                                                                       YES __ No __
       Date:   __________   Signature of Agent:    _________________________________________




                                                  82
                  Insurance Department of the State of New York
                                Important Notice
                         THIS NOTICE IS FOR YOUR BENEFIT
                        AND REQUIRED BY REGULATION NO. 60

YOU ARE CONTEMPLATING THE PURCHASE OF A LIFE INSURANCE POLICY OR ANNUITY CONTRACT
IN CONNECTION WITH THE SURRENDER, LAPSE OR CHANGE OF EXISTING LIFE INSURANCE
POLICIES OR ANNUITY CONTRACTS. THE AGENT IS REQUIRED TO GIVE YOU THIS NOTICE
TOGETHER WITH A SIGNED DISCLOSURE STATEMENT CONTAINING THE SUMMARY RESULT
COMPARISON FOR THE NEW LIFE INSURANCE POLICY OR ANNUITY CONTRACT AND ANY LIFE
INSURANCE POLICIES OR ANNUITY CONTRACTS TO BE CHANGED THAT SETS FORTH THE FACTS OF
THE TRANSACTION AND ITS ADVANTEGES AND DISADVANTAGES TO YOU. YOUR DECISION COULD
BE A GOOD ONE – OR A MISTAKE – SO MAKE SURE YOU UNDERSTAND THE FACTS. YOU SHOULD:


1)     CARFULLY STUDY THE DISCLOSURE STATEMENT, WHICH INCLUDES A SUMMARY RESULT
       COMPARISON, UNTIL YOU ARE SURE YOU UNDERSTAND FULLY THE EFFECT OF THE
       TRANSACTION.
2)     ASK THE COMPANY OR AGENT FROM WHOM YOU BOUGHT YOUR EXISTING LIFE INSURANCE
       POLICIES OR ANNUITY CONTRACTS TO REVIEW WITH YOU THE TRANSACTION AND THE
       DISCLOSURE STATEMENT. YOU MAY BE ABLE TO EFFECT THE CHANGES YOU DESIRE MORE
       ADVANTAGEOULSLY WITH THEM. THEIR CUSTOMER SERVICE TELEPHONE NUMBER IS
       CONTAINED IN THE DISCLOSURE STATEMENT.
3)     CONSULT YOUR TAX ADVISOR. THERE MAY BE UNFAVORABLE TAX IMPLICATIONS
       ASSOCIATED WITH THE CONTEMPLATED CHANGES TO YOUR EXISTING LIFE INSURANCE
       POLICIES OR ANNUITY CONTRACTS.

As a general rule, it is often not advantageous to drop or change existing coverage in favor of new
coverage, whether issued by the same or a different insurance company. Some of the reasons it may
be disadvantageous are:

1)     The amount of the annual premium under an existing life insurance policy may be lower than that called
       for by a new life insurance policy having the same or similar benefits. Any replacement of the same
       type of policy will normally be at a higher premium rate based upon the insured’s then attained age.
2)     Since the initial costs of a life insurance policy are charged against the cash value increases in the
       earlier life insurance policy years, the replacement of an old life insurance policy by a new one results in
       the policyholder sustaining the burden of these costs twice. Annuity contracts usually contain provision
       for surrender charges, therefore a replacement involving annuity contracts may result in the imposition
       of surrender charges.
3)     The incontestable and suicide clauses begin anew in a new life insurance policy. This could result in a
       claim being denied under the new life insurance policy that would have been paid under the life
       insurance policy that was replaced.




                                                       83
       INSURANCE DEPARTMENT OF THE STATE OF NEW YORK
                     DISCLOSURE STATEMENT

IMPORTANT - IT MAY NOT BE IN YOUR BEST INTEREST TO SURRENDER, LAPSE, CHANGE
OR BORROW FROM EXISTING UFE INSURANCE POLICIES OR ANNUITY CONTRACTS IN
CONNECTION WITH THE PURCHASE OF A NEW UFE INSURANCE POLICY OR ANNUITY
CONTRACT WHETHER ISSUED BY THE SAME OR A DIFFERENT INSURANCE COMPANY. YOU
ARE URGED TO CONTACT YOUR EXISTING AGENT OR INSURANCE COMPANY PRIOR TO
COMPLETING THE TRANSACTION. THEY CAN HELP YOU DECIDE WHETHER THE
REPLACEMENT IS IN YOUR BEST INTEREST.


FOR YOUR PROTECTION, the Insurance Department of the State of New York requires that
you be given this Disclosure Statement, the IMPORTANT Notice Regarding Replacement or
Change of Life Insurance Policies or Annuity Contracts and the Definition of Replacement,
together with policy information on all proposed and existing coverage affected.


Name of Applicant(s)       _____________        Telephone Number ____________

Address       ______________________________________________________________

Name of Agent        ____________________       Telephone Number _____________

Agents Address       ________________________________________________________



The Information On Existing Coverage On This Form Was Obtained From:


G      The following replaced company (ies):    ________________________________

__________________________________________________________________________


G      Approximations if the following replaced company (ies) failed to provide information

in the prescribed time:




                                               84
Section 2.15

Regulation 148 – Viatical Settlements
Viatical Settlement Regulation 149 was established by Law in 1993, significantly in part due to the
AIDS epidemic which began in the 1980’s. The law enabled those with catastrophic or life threatening
illnesses or conditions to sell their life insurance policy while still living. Funds from viatical
settlements typically have been used to subsidize the healthcare and living expenses of terminally ill
individuals. These “viatical” settlements are available to policyholders who have a life-threatening
illness or condition, with a life expectancy of less than 2 years.

       "Viator" means the owner of a life insurance policy insuring the life of a person who has a
       catastrophic or life threatening illness or condition, who enters into an agreement under which
       the viatical settlement company will pay compensation or anything of value, which
       compensation or value is less than the expected death benefit of the insurance policy, in return
       for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of
       the insurance policy to the viatical settlement company. Viator may also include a person
       insured under a group life insurance policy who is not prohibited from assigning his or her
       rights or benefits and who assigns those rights or benefits by a viatical settlement. (NYS
       Insurance Law Section 7801)


The required Viatical Settlement Disclosure specifically requires the “delivery of an
infromation booklet to every applicant.” This booklet must illustrate the following:
       How viatical settlements opperate
       Possible alternatives to viatical settlements
       Tax consequences that may result from entering into a viatical settlement agreement
       Possible impact on medical and public assistance benefits
       The viator’s right to rescind the agreement withing 15 days fo the reciept of the viatical
       settlement proceeds




                                                       85
                         PART 380. (REGULATION 148) VIATICAL SETTLEMENTS
                                 Text is current through February 29, 2008.

Section 380.8.Disclosure.

(a) The viatical settlement company shall deliver an information booklet to every applicant, and delivery of the
booklet must be acknowledged by the applicant in the application form. The information booklet must include
the following:
(1) how viatical settlements operate;
(2) possible alternatives to viatical settlements for persons with catastrophic or life-threatening illnesses,
including, but not limited to, accelerated death benefits offered by the issuer of the life insurance policy or
certificate and loans secured by the life insurance policy or certificate;
(3) tax consequences that may result from entering into a viatical settlement;
(4) consequences of interruption or loss of assistance as provided by medical or public assistance programs;
(5) the viator's right to rescind a viatical settlement within 15 days of receipt of the viatical settlement proceeds;
(6) the identity of any person who will receive any fee or compensation from the viatical settlement company
with respect to the viatical settlement and the amount and terms of such compensation; and
(7) the viatical settlement company's complete name and main office address.
(b) The company shall disclose to the applicant, either on the application or through the information booklet,
that the proceeds payable to the viator may not be exempt from the viator's creditors, personal representatives,
trustees in bankruptcy and receivers in State and Federal courts.
(c) The company shall disclose to the applicant, either on the application or through the information booklet,
that the payment of proceeds pursuant to a viatical settlement will be made in a lump sum. The disclosure shall
state that installment payments are not permissible unless the viatical settlement company is a licensed insurance
company or bank or the viatical settlement company has effected the purchase of an annuity or similar financial
instrument issued by a licensed insurance company or bank.
(d) The company shall disclose on the application or through the information booklet that medical, financial or
other personal information obtained from the viator will not be disclosed to any other person or entity without
the viator's specific written consent.
(e) The company shall disclose on the application or through the information booklet the procedures available
concerning the payment of death benefit proceeds for any insured other than the viator or for the payment of
accidental death proceeds.
(f) The viatical settlement company, upon receipt of an application to viaticate and after determining the value to
be offered in return for the assignment, transfer, sale, devise or bequest of the death benefit or ownership of a
life insurance policy or certificate to the viatical settlement company, shall deliver a proposal to the applicant
before the agreement is required to be signed.




                                                         86
Section 2.15 a
Viatical Settlement Disclosure

       The proposal shall disclose the following information:
       (1) insurance contract death benefit in each of the next 10 years if the insurance contract is not
       viaticated.
       (2) amount of death benefit to be viaticated.
       (3) policy cash value before deducting any loan.
       (4) policy net cash value after deducting any loan.
       (5) policy death benefit less net cash value.
       (6) amount offered to applicant.
       (7) whether any supplemental benefit(s), including but not limited to the following benefits, will be
       continued and, if so, the source of premium payment and the beneficiary of the proceeds of such
       supplemental benefit(s):
                (i) accidental death benefit.
                (ii) disability income.
                (iii) waiver of premium or of monthly deduction waiver.
                (iv) guaranteed insurability options.
                (v) children or spouse coverage.
       (8) name of insurer
       (9) whether insurer does or does not have an accelerated death benefit program subject to qualification
       of applicant _____ Does _____ Does Not.
       (10) if insurer does have an accelerated death benefit program:
                (i) all must be accelerated _____Yes _____No
                (ii) applicant may accelerate all or a portion.......... _____Yes _____ No
                (iii) applicant may not accelerate all but only a portion.........._____ Yes _____No
       (g) The proposal shall include a notice stating that a detailed description of how the payment amount
       was determined, including interest rate, expense factors, and the assumed life expectancy used in such
       determination may be obtained by written request made to the viatical settlement company.
       (h) Upon written request by the applicant for a detailed description of how the payment amount was
       determined, the viatical settlement company shall provide a detailed description stating the assumed life
       expectancy in months, the interest rate used to discount the amount at risk, the adjustments, if any, for
       future premiums, dividends and additional amounts, broker's compensation, and retention for other
       expenses, risk charge and profit.
       (i) The broker shall provide a written statement to the applicant prior to completion of any application to
       viaticate describing the manner in which the broker will be compensated.




                                                       87
Viatical settlements are specifically different from life settlements, cash value policy surrenders and
policy loans. Life settlement agreements are similar to viatical agreements; however the life
expectancy of the policyholder in a viatical agreement is less than 2 years and the life expectancy of
the policyholder in a life settlement is between 2 and 10 years.

Life policies, other than Term Life, generally have a cash value that increases with premiums paid and
the owner of the policy typically has an option to “cash out” the policy prior to its’ maturity for a sum
relative to the amount of premium actually paid. Alternatively, the owner of a life policy, other than
term life, may also be able to borrow against the premium paid into a life policy, with loan payments
made back to the policy and unpaid balances paid from proceeds of the policy in the event of death of
the insured.

       A life settlement is the sale, assignment, transfer, or bequest of the death benefit or ownership
       of a life insurance policy by the owner of the policy where the insured does NOT have a
       catastrophic or life-threatening illness or condition. Typically, the owner of the policy receives
       cash (generally an amount greater than the cash surrender value in the policy, but less than the
       full amount of the death benefit); and the life settlement company becomes the new owner and
       beneficiary of the policy and is responsible for the payment of all future premiums. Upon the
       death of the insured, the death benefit is paid to the life settlement company. Life settlements
       usually involve the sale of life insurance policies by owners where the insured is a senior citizen
       or where the insured may have a medical condition that will likely result in a shortened life
       expectancy. (NYSID Life Settlement Top 10 Questions -
       http://www.ins.state.ny.us/que_top10/que_life_set.htm)


       A policy’s cash surrender value is the amount of cash that the policyholder would receive
       from the life insurance company if they terminated (surrendered) their life insurance policy
       before it became payable by their death or the policy’s maturity.

       To the extent that there are sufficient funds in the cash value to secure a policy loan, a
       policyholder may borrow cash from their policy. There may be a waiting period of up to three
       years before a loan is available. If the policy owner borrows from the policy, the cash value is
       used as collateral, and interest is charged at the rate specified or described in the policy. Any
       money owed on an outstanding policy loan is deducted from the benefits upon the insured's
       death or from the cash value if the policy owner surrenders the policy for cash.

Viatical sales are specifically regulated and require separate licensure in New York State for
producers and companies. In 2005 there were only seven viatical settlement companies
operating in New York, illustrating the limited market for this product.

Life settlement agreements are currently un-regulated in New York Stateand the life settlement
industry has grown steadily as the investment industry continues to look for alternative and
emerging financial market options. The New York State Insurance Department investigated
the expansion of Regulation 148 to encompass life settlement sales and proposals are now
pending action in the State Legislature.




                                                       88
Section 2.16
1035 Exchanges

As individuals age, their life investments sometimes outgrow their purpose or effectiveness.
Individuals who invest in life insurance policies to guarantee an education for their children, for
example, may find more beneficial uses of those funds once their children complete graduate from
college. Advising a client to exchange one product for another is common for professional financial
planners, but that same transaction may possibly be a once in a lifetime event for the average customer.

New York State Insurance Regulation 60 regulates the transfer of a life insurance product from once
company to another in New York State. However, securities, including annuities, a common
component in a life investment portfolio, are subject to regulation beyond the New York State
Insurance Department.

In order to deal with annuity and other security products, individuals must be registered, (licensed),
with the Financial Industry Regulatory Authority, (FINRA - formerly the National Association of
Securities Dealers NASD). It is common for individuals licensed by FINRA to also be licensed by the
State to sell variable life products. FINRA requires a Series 6 or 7, and 63 registration to sell variable
annuities and mutual funds.

       Series 6: Representative Investment Company Products/Variable Contract
       Qualifies an individual to sell investment company securities, variable annuities, and variable life insurance
       mutual funds.

       Series 7: General Securities
       Qualifies a representative to sell any type of security.

       Series 9: General Securities Sales Supervisor
       Qualifies an individual to register as a principal to supervise sales activities in corporate, municipal, and
       options securities, investment company products, variable contracts, and direct participation programs.

       Series 10: General Securities Sales Supervisor
       Qualifies an individual to register as a principal to supervise sales activities in corporate, municipal, and
       options securities, investment company products, variable contracts, and direct participation programs.

       Series 11: Assistant Representative/Order Processing
       Qualifies an individual associated with an NASD member form to accept unsolicited telephone orders and
       give quotes to customers.

       Series 63: Uniform Securities Agent State Law
       Qualifies individuals to sell securities across state lines. These laws are sometimes called "Blue Sky" laws


With the steady decline in pension fund participation by employers over the past 30 years and the
subsequent diversification of individual investment opportunities, life insurance and annuity products
now play a smaller role in many individual investment portfolios. However, they remain important.
These products, as well as others, allow individuals to defer the taxable event to the point the
individual investor withdraws all or a portion of the funds.


       Tax Deferred Refers to investment earnings such as interest, dividends or capital gains that accumulate
       free from taxation until the investor withdraws and takes possession of them. The most common types
                                                         89
       of tax-deferred investments include those in individual retirement accounts (IRAs) and deferred
       annuities. (http://www.answers.com/topic/tax-deferred)


Examples of tax-deferred investment vehicles include
      Keogh Plans
      Annuities
      Variable Life Insurance; Whole Life Insurance; and Universal Life Insurance
      Stock Purchase or Dividend Reinvestment Plans
      Simple IRAs
      Salary Reduction Plans
      Series Ee and Series Hh U.S. Savings Bonds.

When an individual elects to withdraw funds from a tax-deferred investment, the withdrawn funds are
fully taxable at the individual’s current taxable status. Section 1035 of the Internal Revenue Code
provides exception to taxation when a life insurance or annuity policyholder exchanges one insurance
contact for another in a “like kind exchange”.

The following exchanges by a policyowner qualify as permissible Section 1035 exchanges and,
therefore, are not taxable events:
       The exchange of a life insurance policy for another life insurance policy where both policies
       insure the same person.
       The exchange of a life insurance policy for an annuity contract.
       The exchange of one annuity contract for another annuity contract where annuity benefits
       are payable to the same person or persons.

Other transactions involving the exchange of life insurance and annuity contracts are treated for
income tax purposes as if the original policy were surrendered. Any gain realized as a result of the
surrender is taxable.
Two types of transactions not permissible under Section 1035 exchanges are:
   1. The exchange of a policy insuring one life for a policy insuring two lives does not qualify as a
      tax-free exchange. For example, assume that a policyowner exchanges two individual policies
      insuring his own life and the life of his wife for one joint life insurance policy that insures both
      of their lives. Because only one policy was received in exchange for the surrender of two
      policies, this transaction is not a permissible Section 1035 exchange and may result in taxable
      income to the policyowner.
          a. By contrast, consider a situation in which a husband and wife are insured under a joint
              and last survivor life insurance policy. Upon the death of one spouse, the surviving
              spouse exchanges the joint and last survivor policy for another policy insuring his life.
              In such a case, the transaction qualifies as a Section 1035 exchange because at the time
              of the exchange both policies involved in the transaction insure the life of the surviving
              spouse.
   2. The exchange of an annuity for a life insurance contract is not a permissible Section 1035
      exchange. In such a case, the transaction is treated for income tax purposes as if the annuity
      were surrendered for its cash surrender value.

According to the cost recovery rule, the surrender of a life insurance policy results in taxable income to
the recipient if the net cash surrender value received is more than the total amount paid for the policy.
                                                     90
In such a case, the recipient must calculate the total cost of the policy, and, if the policy was received
as part of a Section 1035 exchange, that fact must be recognized in the cost calculation. Although a
Section 1035 exchange does not result in taxable income, the cost basis of the original contract, the
price paid for the original contract, becomes the cost basis of the new contract.




                                                    91
"no gain or no loss shall be recognized on the exchange" of life insurance policy for another
life insurance policy or endowment or annuity policy.

Non Taxable Transfers

Robert purchased a life insurance policy 20 years ago with a death benefit of $100,000, the
premium was $1,000 a year and has a cash surrender value of $75,000. Robert is now retiring
and has adequate life insurance provided by another life insurance policy.

Robert doesn't need any income at this time but has decided to purchase an annuity paying a
guaranteed rate of interest at 6.0%. Robert doesn't want to "cash in" in his life insurance since
there would be a "gain" which would be taxed.

The value of the policy is $75,000 the premiums paid total $20,000 and if Robert "cashed in"
his policy the gain of $45,000 would be subject to taxation.

The solution is to "cash in" his life insurance policy by executing a "1035 Exchange". Robert
would fill out a 1035 Exchange form which would direct the life insurance company to "cash
in" his policy and send the $45,000 directly to the company which is issuing his annuity policy.

In this way there would be no taxes due, further the "cost basis" of $20,000 would become the
"cost basis" of his annuity contract.

1035 exchange are used with annuity or variable annuity contracts in the same way to transfer
the funds of one annuity to that of an annuity paying a higher rate of interest. It is suggested
that before you do this, check an see if there would be any penalties or surrender charges
imposed before you "cash in" an annuity contract.

Reference Tax Code Section 1035
(http://www.annuityprofessionals.com)




                                           92
Section 3
Section 2122 of the New York State Insurance Law is a brief three paragraphs relating to
advertisements published by agents and brokers. The Law, however, is by no means the only measure
of guidance to be used by producers in their marketing efforts.

§    2122. Advertising by insurance agents and brokers. (a) (1) No
    insurance agent or insurance broker shall make or issue in this state
    any advertisement, sign, pamphlet, circular, card or other public
    announcement purporting to make known the financial condition of any
    insurer, unless the same shall conform to the requirements of section
    one thousand three hundred thirteen of this chapter.
      (2) No insurance agent, insurance broker or other person, shall, by
    any advertisement or public announcement in this state, call attention
    to any unauthorized insurer or insurers.
      (b) Every agent of any insurer and every insurance broker shall, in
    all advertisements, public announcements, signs, pamphlets, circulars
    and cards, which refer to an insurer, set forth therein the name in full
    of the insurer referred to and the name of the city, town or village in
    which it has its principal office in the United States.



Title 11, Chapter IX of the New York State Rules and Regulations, governs unfair trade practices.
Within Chapter IX, Regulation 34 and Regulation 34A provide the most specific guidance to licensees
with respect to advertising. Regulation 34 relates to “Advertisements of Accident and Health
Insurance” and Regulation 34A relates to “Rules Governing Advertisements of Life Insurance and
Annuity Contracts.”

While property and casualty language is conspicuously missing from these regulations, P&C brokers
can take significant guidance from these regulations in developing their own advertising efforts. The
New York State Insurance Department General Counsel Office has issued numerous opinions relating
to advertisements and promotional materials. Producers are encouraged to reference their marketing
concepts at the Department website, www.ins.state.ny.us.




                                                 93
Section 3.1 + 3.2
By Matthew F. Guilbault, Esq.

Summary
The purpose of this resource kit is to help PIA members ensure that advertising relating to insurance
policies sold in the state of New York conforms to current statutes and regulations, presents clear and
accurate information to the public and does not mislead consumers about the characteristics or
operations of any insurance plan or product. It is not meant to be an all-inclusive legal analysis. Please
consult the actual text of the cited statutes and Insurance Department opinions for more specific
information.

What is an advertisement?
Although the terms "advertisement" and "public announcement" are not defined in New York
Insurance Law Section 2122(a)(2); New York Insurance Regulation 34-A [11 NYCRR 219.1-219.7]
broadly defines the term "advertisement" in Section 219.3(a) as (when designed to be used or are
actually used, to induce the public to purchase, increase, modify, reinstate or retain a policy):

   1. printed and published material, audio, visual material and descriptive literature of an insurer
      used in direct mail, newspapers, magazines, radio scripts, television scripts, billboards and
      similar displays;
   2. descriptive literature and sales aids of all kinds, including but not limited to circulars, leaflets,
      booklets, depictions, illustrations and form letters, issued by an insurer, agent, broker, solicitor
      or organization sponsoring the insurance for presentation to members of the insurance-buying
      public;
   3. prepared sales talks, presentations and material for use by agents, brokers and solicitors; or
   4. material used for the recruitment, training and education of an insurer's sales personnel, agents,
      brokers and solicitors.

[OGC Opinion dated Jan. 7, 2003]

Advertisement of accident and health insurance
Regulation 34 [11 NYCRR 215] governs the advertisement of accident and health insurance. Its stated
purpose is to assure the truthful and adequate disclosure of all material and relevant information in the
advertising of accident and health insurance. This purpose is intended to be accomplished by the
establishment of, and adherence to, certain minimum standards of conduct in the advertising of
accident and health insurance in a manner which prevents unfair competition among insurers and is
conducive to the accurate presentation and description to the insurance-buying public of policies of
such insurance offered through various advertising media.

Information conspicuous in advertisements
Notably, Regulation 34 requires all information required to be disclosed by this regulation to be set out
conspicuously and in close conjunction with the statements to which such information relates or under
appropriate captions of such prominence that it shall not be minimized, rendered obscure or presented
in an ambiguous fashion or intermingled with the context of the advertisement so as to be confusing or
misleading. [11 NYCRR 215.4—Method of disclosure of required information]



                                                    94
General prohibitions: financial condition; unauthorized insurers
Specifically, New York Insurance Law Section 2122 governs advertising by insurance agents and
brokers. Although this section is relatively brief, it is nonetheless important for agents and brokers to
be aware of its requirements.

       Section 2122. Advertising by insurance agents and brokers. (a)(1) No insurance agent or
       insurance broker shall make or issue in this state any advertisement, sign, pamphlet, circular,
       card or other public announcement purporting to make known the financial condition of any
       insurer, unless the same shall conform to the requirements of Section 1313 of this chapter.
       (Note: Producers should be advised to avoid these types of advertisements due to the
       complex nature of compliance associated with this section of law.)
       (2) No insurance agent, insurance broker or other person, shall, by any advertisement or
       public announcement in this state, call attention to any unauthorized insurer or insurers.
       Safe harbor. Although the language in Section 2122(a)(2) seemingly imposes an absolute
       prohibition against any advertisement or public announcement in New York state that calls
       attention to an unauthorized insurer, a review of past opinions of the Office of General Counsel
       demonstrates that the department has recognized certain exceptions. First, the department has
       permitted such advertisements addressed to the insurance industry in insurance trade
       publications, reasoning that such advertisements are directed to insurance brokers and not
       prospective insureds. Additionally, an advertisement or public announcement in a national
       publication may call attention to the unauthorized insurer, so long as a disclaimer is made
       stating that the unauthorized insurer is not licensed in New York state and does not solicit
       business in New York state. However, if the advertisement or public announcement were
       intentionally aimed at New York state residents, such as placing an advertisement in a New
       York newspaper, the calling of attention to an unauthorized insurer would be prohibited
       regardless of any disclaimer. These are narrow exceptions to the general prohibition and, other
       than as so specified, a disclaimer does not nullify the Section 2122(a)(2) prohibition against
       calling attention to an unauthorized insurer. [OGC Opinion dated Jan. 7, 2003]

Additionally, Regulation 34 prohibits advertisements from containing statements which are untrue in
fact, or by implication misleading, with respect to the assets, corporate structure, financial standing,
age or relative position of the insurer in the insurance business. According to the rule, an advertisement
shall not contain a recommendation by any commercial rating system unless it clearly indicates the
purpose of the recommendation and the limitations of the scope and extent of the recommendation.
[NYCRR 215.16—Statements about an insurer]

Name of insurer required
Insurance agency advertisements must be in compliance with applicable sections of the New York
Insurance Law and regulations promulgated. Of particular note is New York Insurance Law Section
2122(b), which provides that the name and address of the insurer be included in certain advertisements:

        Every agent of any insurer and every insurance broker shall, in all advertisements, public
        announcements, signs, pamphlets, circulars and cards, which refer to an insurer, set forth
        therein the name in full of the insurer referred to and the name of the city, town or village in
        which it has its principal office in the United States.
[See also NYCRR 215.10—Identification of plan or number of policies and NYCRR 215.13—Identity
of insurer]

Statistics
Regulation 34 [11 NYCRR 215.9(c)], in regard to the use of statistics in accident and health insurance
                                                95
advertisements, requires that the source of any statistics used in an advertisement must be identified in
the advertisement. Accordingly, if the advertisement includes statistics it must provide the source of
those statistics. [See NYCRR 215.9—Use of statistics]

Testimonials
For instance, the testimonial that states "I saved over $102 on my car insurance" violates this section
of law. By mentioning a specific amount saved, this advertisement necessarily must be making
reference to a specific insurer. Accordingly, it is a violation of this law when the advertisement which
makes reference to a specific insurer fails to mention the name of the insurer, as well as the city in
which the insurer's principal office is located. [OGC Opinion dated June 10, 2004]

In an advertisement containing a testimonial, an insured that shares his or her experience saving money
thereby makes reference to the insurer that issued the policy. Accordingly, this department has opined
that an advertisement including a testimonial must comply with New York Insurance Law Section
2122(b) by specifying the name in full of the insurer referred to and the name of the city, town or
village of its principal office in the United States. In addition, Regulation 34 [11 NYCRR 215.8],
applicable to accident and health insurance, and Regulation 34-A [11 NYCRR 219.4], applicable to
life insurance, set out further disclosure requirements that can serve as general guidance for property
insurance advertisements utilizing testimonials. Section 215.8 of Regulation 34 and Section 219.4 of
Regulation 34-A both state that a testimonial must be genuine, represent the current opinion of the
person giving the testimonial, and be applicable to the policy advertised. [OGC Opinion dated June 22,
2005].

Specific rates
Moreover, if an advertisement mentions specific rates, provided by particular insurers, even if several
insurers provide that rate, New York Insurance Law Section 2122(b) requires that the statutorily
required information be included in the advertisement. [OGC Opinion dated Jan. 7, 2003]

        Safe harbor. If an agent represents several insurers, uses general language and does not
        mention specific prices in the advertisement, such advertisement would then fall outside of the
        bounds of New York Insurance Law Section 2122(b) and would not constitute a violation
        thereof. For example, an advertisement indicating "Savings of up to 37 percent on Auto
        Insurance" does not refer to a particular insurer and indicates only a potential "savings up to 37
        percent" where the producer represents more than one insurer. It reflects the licensee's ability to
        shop around and obtain a more favorable rate for the insured although not necessarily from the
        same insurer in each case. Therefore, by indicating savings up to 37 percent and not naming an
        insurance company this advertisement does not violate New York Insurance Law Section
        2122(b). This would not be the case where the producer represented only one insurer, since the
        producer would have to be referring to a specific insurer. [OGC Opinion dated June 5, 2001)]
        However, by mentioning potential savings up to a particular amount or an average dollar
        amount saved across the board, such an advertisement refers to a specific insurer and must,
        therefore comply with Section 2122. An insurer may advertise its own rates and potential for
        savings, but must specify in the advertisement its name in full and city, town or village of its
        principal office in the United States. [OGC Opinion dated June 22, 2005]
Introductory, initial or special offers
According to Regulation 34, an advertisement of an individual policy shall not directly or by
implication represent that a contract or combination of contracts is an introductory, initial or special
offer, or that applicants will receive substantial advantages not available at a later date, or that the offer
is available only to a specified group of individuals, unless such is the fact. Moreover, an
advertisement shall not describe an enrollment period as "special," or "limited," or use similar words or
                                                     96
phrases when the insurer uses enrollment periods as the usual method of advertising accident and
sickness insurance. Finally, special awards, such as a "safe drivers' award" shall not be used in
connection with the advertisements of accident and health insurance. [11 NYCRR 215.15—
Introductory, initial or special offers]

False or misleading advertising
New York Penal Law Section 190.20 provides that a person is guilty of false advertising when he
makes a false or misleading statement:

       ... with intent to promote the sale or to increase the consumption of property or services, he
       makes or causes to be made a false or misleading statement in any advertisement....

Therefore, an advertisement may not say "We guarantee to save you money" or "We guarantee
satisfaction in doing business with our agency" as both statements are considered misleading. It cannot
be guaranteed that every insured can save money by purchasing insurance through the advertised
insurance agency, nor can it be guaranteed that every insured will be satisfied with the services
provided. [See also 11 NYCRR 215.5—Form and content of advertisements, 11 NYCRR 215.11—
Disparaging comparisons and statements, 11 NYCRR 219.1 and 219.4.]

       Safe harbor. Note that this advertisement is different from one that states that there may be a
       potential savings by using a particular producer who has the ability to shop around and perhaps
       obtain a more favorable rate for an insured. [OGC Opinions dated Feb. 19, 2003, and Feb. 28,
       2000]

Moreover, an advertisement that states that the insurance agency "provides affordable policies for all
trade contractors" is misleading and therefore improper. The company does not provide every type of
contractor policy nor can the company assert that coverage for every contractor would be affordable
even for those types that it does provide. [OGC Opinions dated Feb. 19, 2003, and Jan. 11, 2006]

In addition, Section 350 of the General Business Law states:

False advertising in the conduct of any business, trade or commerce or in the furnishing of any service
in this state is hereby declared unlawful.

Additionally, the standard for determining whether an advertisement is misleading or deceptive is set
forth in Regulation 34-A:

       Whether an advertisement has the tendency or capacity to mislead or deceive shall be
       determined by the superintendent from the overall impression that the advertisement may be
       reasonably expected to create upon a person not knowledgeable in insurance matters. [11
       NYCRR 219.4(a)(3)]

Prohibitions on the offering of inducements
New York Insurance Law Section 2324(a) prohibits the offering of inducements in connection with the
purchase of most kinds of insurance, including property/casualty insurance. That statute reads in
pertinent part:

       (a) No authorized insurer, no licensed insurance agent, no licensed insurance broker and no
       employee or other representative of any such insurer, agent or broker shall make, procure or

                                                   97
       negotiate any contract of insurance other than as plainly expressed in the policy or other
       written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by
       giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or
       allow to the insured or any employee of the insured, either as an inducement to the making of
       insurance or after insurance has been effected, any rebate from the premium which is specified
       in the policy, or any special favor or advantage in the dividends or other benefit to accrue
       thereon, or shall give or offer to give any valuable consideration of inducement of any kind
       directly or indirectly, which is not specified in such policy or contract, other than any article or
       merchandise not exceeding $15 in value which shall have conspicuously stamped or printed
       thereon, the advertisement of the insurer, agent or broker. (emphasis added) [New York
       Insurance Law Section 2324(a)]
       The express language of Section 2324 precludes insurers, brokers, agents and their employees
       and representatives from directly or indirectly offering inducements or valuable consideration
       (other than an article of merchandise, or "keepsake," not exceeding $15 in value), in connection
       with the offer of insurance, unless such inducement or valuable consideration is specified in the
       insurance policy. [Insurance Law Section 4224(c) extends substantially similar restrictions
       with respect to life and health insurance policies. However, there is no "keepsake" exception
       under Section 4224(c)—which means that an accident and health insurance agent is
       prohibited from distributing any item of valuable consideration or inducement not specified
       in the policy as this would constitute a violation of New York Insurance Law Section 4224(c).]
       [OGC Opinion dated May 17, 2006]

Cash, lunch or keepsakes
For instance, a proposal to offer $50 to a customer who requests an insurance quote is impermissible
because it constitutes an inducement to prospective insureds to purchase insurance by providing them
with the benefit of $50 that is not set forth in the insurance policy. [OGC Opinion date Dec. 8, 2006]
Likewise, an offer to buy lunch for a potential insured if the company cannot save the potential insured
at least $100 serves as an unlawful inducement for potential insureds to purchase insurance. Moreover,
it does not come within the meaning of the "keepsake" exception of Section 2324, which contemplates
an article of merchandise that conspicuously bears the insurance company's name and is intended to
keep the name of the agency before the customer. [OGC Opinion dated Nov. 7, 2001]

Gift certificates
The offering of gift certificates to those who receive a quote for the purpose of inducing him to place
his insurance business through your company would violate the law because the prospective insured
would receive a direct benefit (the gift certificate). [With respect to life, accident and health insurance,
this action would violate the prohibition contained in New York Insurance Law Section 4224(c).]
Although the Insurance Law, except in connection with life or health insurance sales, allows for the
presentation of a "keepsake" which costs less than $15 and is designed to keep the name of the insurer
or producer before the customer through the embossing of the insurer's or producer's name, a gift
certificate, even if for an amount less than $15, which is redeemable upon receiving a free quote, is not
equivalent to a pen or other item of merchandise, as contemplated under this section and, therefore,
would be violative of
the Insurance Law. [OGC Opinion dated Oct. 31, 2000]

       Safe harbor. However, the department would have no objection if there were no requirement
       of a rate request. If the gift certificate is available to everyone and receipt of the gift certificate
       is not contingent upon a request for a quote, it would not constitute an improper inducement in
       violation of the Insurance Law. [OGC Opinion dated Oct. 31, 2000]

                                                     98
Frequent flyer miles
Similarly, a proposal to offer 500 free miles to members of an airline's frequent flyer group who
request an auto insurance quote is equally impermissible. Although in this circumstance the offer is
being made by the airline rather than the insurance company, the department considers the airline to be
acting on behalf of the insurance company. [OGC Opinion dated Dec. 13, 2004) Interestingly, in
addition, by acting on behalf of an insurance company in offering an inducement in connection with
the purchase of insurance, the airline may be considered as soliciting insurance and acting as an agent
or broker in violation of Insurance Law Section 2102, which prohibits acting as an insurance producer
or insurance adjuster in this state without a license. [OGC Opinion dated July 18, 2007]

Charitable contributions
Moreover, the advertising of a charitable contribution as incentive for new insurance business
constitutes an improper inducement in violation of New York Insurance Law Sections 2324 and 4224.
Although the insured would receive no direct benefit inasmuch as the donations would go to charity,
the very nature of the proposal would amount to a benefit (albeit indirectly) to a prospective insured to
induce him to place his insurance business through your company. [OGC Opinion dated March 17,
2000]

Advertisements, referrals and solicitations on the Internet
According to Circular Letter 2001-5, issued by the department on Feb. 1, 2001, the department does
not consider the mere maintenance of a passive Web site that is accessible to New York residents
containing information about specific insurance products or services to constitute solicitation under
New York Insurance Law. A Web site that merely contains advertisements for insurance products or
services also does not constitute solicitation. However, advertisements that appear on the Internet are
subject to all applicable existing statutory and regulatory guidelines and restrictions applicable to
advertisements in any other medium.

Nonlicensee hosting
Internet advertisements for products or services of insurance companies, agents or brokers can appear
in many forms, including banners, titles, hypertext links, frames or embedded links. Such
advertisements must be clearly delineated as such and are permitted to appear on the Web site of a
nonlicensee even if it leads the consumer to, or is linked to, a Web site where insurance solicitation
takes place, as long as the advertisement or Web site does not include, or the advertisement is not
framed by, recommendations, endorsements or promotions from the nonlicensee concerning the
insurance products or services. Accordingly, a nonlicensee hosting such advertisements on its Web site
may receive compensation calculated in any manner, including flat fees for such advertisements or fees
that are based upon the amount of insurance business produced as a result of such advertisements.
[OGC Opinion dated Sept. 26, 2003]

Misrepresentation of benefits
New York Insurance Law prohibits misrepresenting the benefits of any policy or contracts. Section
2123 specifically provides:

       No agent or representative of any insurer or health maintenance organization authorized to
       transact life, accident or health insurance or health maintenance organization business in this
       state and no insurance broker, and no other person, firm, association or corporation, shall
       issue or circulate or cause or permit to be issued or circulated, any illustration, circular,
       statement or memorandum misrepresenting the terms, benefits or advantages of any policy or
       contract of life, accident or health insurance, any annuity contract or any health maintenance
       organization contract, delivered or issued for delivery or to be delivered or issued for delivery,
                                                    99
       in this state, or shall make any misleading estimate as to the dividends or share of surplus or
       additional amounts to be received in the future on such policy or contract, or shall make any
       false or misleading statement as to the dividends or share of surplus or additional amounts
       previously paid by any such insurer or health maintenance organization on similar policies or
       contracts, or shall make any misleading representation, or any misrepresentation, as to the
       financial condition of any such insurer or health maintenance organization, or as to the legal
       reserve system upon which such insurer or health maintenance organization operates.

Unfair competition in replacement life insurance policies
In addition, Regulation 60 [11 NYCRR 51] which governs the sale of replacement life insurance
policies and annuity contracts, was promulgated to prevent unfair methods of competition and
practices in the replacement of life insurance policies and annuity contracts by providing applicants
with enough information to make an informed decision regarding replacements.

Specifically, Section 51.5 (c)(3) of this regulation provides that where a replacement is involved the
agent must provide the insured with the "IMPORTANT notice regarding replacement or change of
life insurance policies or annuity contracts" and a completed "disclosure statement" signed by the
agent. Thus, a disclosure statement should provide the insured with accurate comparative information
about significant features of the replaced and replacing policies or annuity contracts.

This department has opined that under circumstances surrounding the sale of life insurance policies or
annuity contracts, where fees and charges may be a significant factor in a determination by a client to
purchase or replace a life insurance policy or annuity contract, an illustration of applicable fees and
charges is an essential element in the disclosure. [OGC Opinion No. 01-07-13 dated July 11, 2001]
11/07
Think PIA first

Document Information:
Title:        New York laws regulating insurance agency advertising
Url:          http://www.pia.org/IRC/qs/show?q=31236&s=ny
QuickSource#QS31236
Last Updated: 0000-00-00




                                                  100
Section 4
Producer Ethics
       “The Principles ask companies to be ethical to their core” Eric Dinallo

The actions currently being developed and implemented in the transition toward Principles-Based
Regulation focuses extensively on the oversight of large institutions that are subject to different
regulations in multiple states and in some many instances countries. However, the individual producer
is not left out in this transition. Just as companies are being asked to be “ethical to their core,”
producers are expected to act in the most ethical manner as well. While a philosophical debate on
ethics has thrived since the time of Socrates, the 10 Principles for the Insurance Industry are
“reasonable rules that can be easily incorporated into the business philosophy and operations of
regulated parties,” according to Dinallo. To simplify the 10 Principles, it may serve producers to ask
themselves if their actions further the interests of their client.

Classroom discussions of philosophy, rules and practice in the effort to meet the ethical standards of
their profession and the Principles proposed in New York is their own proper understanding of policy
coverage and required disclosures plus a thoughtful discussion with their clients about the content of
those coverages and disclosures.




                                                  101
Section 4.1
Ethical Dilemmas

Although the Fraud Warning is part of every insurance policy, it is likely that few insurance producers
take time to review the details of this notice with their clients. Whether the insurance producer is
uncomfortable bringing attention to the language before a prospective client out of respect for that
client’s position in society, or the producer uses their own intuition to determine the customer’s
personal ethics, the statements are a required part of every insurance application and policies contain a
Fraud Notice that should be reviewed with all customers.


Let Us Consider the Following:

At the point of an auto policy sale, the producer makes not of the Fraud Warning Statement.

        “any person who knowingly and with intent to defraud any insurance company or other person files an
       application for insurance or statement of claim containing any materially false information, or conceals
       for the purpose of misleading, information concerning any fact material thereto, commits a fraudulent
       insurance act, which is a crime, and shall also be subject to a civil penalty not to exceed five thousand
       dollars and the stated value of the claim for each such violation.''

The producer then notes that the customer may either contact their office or the insurance company
claims reporting center directly, if they ever need to file a claim.

The customer then asks “what type of accidents need to be reported?”
The question proposes an interesting dilemma for the producer. Most auto insurance policies have a
clause stating that “all accidents will be reported to the company”, the producer considers all of the
small incidents and accidents that have run through their office, including:
        Opening a car door into another car in a parking lot
        Backing into another car a neighbors’ house
        Running off the road in slippery conditions

Knowing that all claims filed with an insurance company, whether paid or not, are reported to CLUE
(Comprehensive Loss Underwriting exchange) and are used in the underwriting process by the
insurance companies to determine if the policy will be renewed and at what premium, the producer
considers the following responses:

       If it is only minor damage to your car and you don’t see a need to repair the damage of the
       repair will be less than the deductible on your policy, I don’t see any reason to file a claim.
       If it is clear that no person has been injured and you want to pay for the repair to someone
       else’s car, not filing a report will keep the claim off your policy history and it may be better to
       reserve reporting the claim until you truly need to
       Even though it may be a small incident and the cost of the damage is small, the policy states
       that you will report all accidents. It is only fair to the company that they know your driving
       history so they can charge the rate that they determine to be appropriate.




                                                      102
This question puts the interest of the customer against the interest of the company. A consideration not
mentioned, though fairly insignificant under the premise, is the potential impact of the customers’
actions on the producers loss ratio.

To further examine the issue we reference the “10 Principles for the Insurance Industry”, specifically
items 1, 4, 5 and 8.

       (1) A licensee shall lawfully conduct its business with integrity, due skill, and diligence.

       (4) A licensee shall observe proper standards of market conduct.

       (5) A licensee shall pay due regard to the interests of its clients and treat them fairly.

       (8) A licensee shall take reasonable care to ensure the appropriateness or suitability of its
       advice and discretionary decisions for any person or other entity that is entitled to rely upon
       such.

Item number one refers to lawful conduct of business. With respect to the law, the New York
Department of Motor Vehicle provides the following information.

       What must I do at the accident scene?

       If you are in an accident, you are required by the NYS Vehicle and Traffic Law to stop and exchange
       information with the involved drivers. If the accident caused property damage only, then exchange
       information about your driver license, insurance, and registration with the involved drivers. If a parked
       vehicle or other property is damaged, or if a domestic animal is injured, you must locate the owner or
       contact the police.

       If the property damage of any person is $1,001 or more, all the involved drivers are required by the
       NYS Vehicle and Traffic Law to file form MV-104 (Report of Motor Vehicle Accident). File form MV-
       104 with the DMV no more than 10 days after the accident. The DMV can suspend your driver license
       if you fail to report an accident.
       If a person is injured or killed, you are required by the NYS Vehicle and Traffic Law to immediately
       notify the police. All the involved drivers and the police must file an accident report with the DMV. It is
       a crime to leave the scene of an accident that causes personal injury or death.
       The accident appears on the records of all the involved drivers. An accident listed on your driver record
       does not indicate that you were at fault. The DMV does not try to determine fault in an accident.

(http://www.nydmv.state.ny.us/dmvfaqs.htm)

Item number 4, standards of market conduct, would also have the producer advise that the incident,
however minor, be reported to the company. The agreement signed by the customer clearly states that
all accidents will be reported to the company. It is expected that the producer adhere to the contract.

Items number 5, and 8 present the true dilemma for the producer. Due regard to the interests of clients
and appropriateness or suitability of its (producers’) advise, are important considerations. As with up-
front underwriting, it is reasonable to expect the producer to have a level of discretion in dealing with
customers.



                                                      103
4.1 a
ACME Insurance Agency operates in a community with several competitors. ACME notices that a
few of its competitors have started running advertisements in local papers that claim they have the
“lowest rates” and fail to provide any details.

ACME, noticing a drop in applications, is faced with the business decision of running competing ads
or trying to stop the competitors from continuing to run their effective ads.

        Although ACME is a competing business, they hold no ill wishes towards their competitors and
        reporting the faulty ads to the New York State Insurance Department would likely subject the
        competitors to fines and other consequences.

        Running a competing ad that meets the requirements of the Law and Regulations would be
        costly and revenues have been down due to lower sales.

        Although ACME competes with other local agencies, they have common insurance carriers.
        ACME considers contacting one of the carrier marketing representatives to act as an
        intermediary to get the competitors to stop running their ads.




                                                 104
4.2 b
An insurance agency is approached by an insurance carrier entering the state with low rates and
looking to appoint new producers. The company currently has no claims staff and will be utilizing
independent adjusters until they can staff an internal department.

The insurance agency has seen other insurance companies enter the state with similar plans only to
withdraw within a year or two after receiving heavy losses.

The producer considers taking the appointment based on the following:

        Even though customers will likely receive claim service that is inferior to other companies
        represented in the office, the agency justifies that the lower rate charged to customers will be
        worth the tradeoff.

        Knowing that his competitors will accept the company if they do not, they take on the company
        knowing that it will likely fail and they will need to move those customers in the future.

        Believing that it will be an unstable company with significant customer service problems, they
        refuse the appointment and decide to work harder to sell policies based on quality and not
        price.

4.1 c
A life insurance agent has a prospect that is married with two young children. The prospect has
recently taken a new job and currently has no life insurance or investment program. The prospect
considers him self to be healthy and should have 30 more years to work and save for retirement. Since
he has so long before retirement, the prospect wants to invest some of his available funds in aggressive
growth funds and the rest in stocks that he can buy and sell at will.

The agent considers the following:

The customer is always right and this is an easy sale with more money on each trade made. He
prepares the paperwork and goes straight to the sale.

The client has less than the maximum annual amount of funds to invest than government incentive
programs allow and could benefit from funding standard retirement vehicles. In addition, although the
prospect is healthy, the lack of life insurance is a concern. The agent presents an alternative
investment strategy for the prospect to consider, but will do whatever they decide.

The agent presents the alternative program. The prospect states that they only want the aggressive plan
they came in with. The agent refuses to place any business for the prospect because there is no
consideration made for the prospects family and he would rather lose the business than place bad
business.




                                                   105
Section 4.2
LICENSEE ADDRESS PENALTY
 (Agent)
Pleasant Valley, NY 12569
$1,500 fine
Respondent failed to comply with Department Regulation 60 in connection with annuity
replacement transactions. [Stipulation approved July 2, 2008.]

LICENSEE ADDRESS PENALTY
Garden City, NY 11530
$250 fine
Respondents failed to report to the Superintendent within 30 days of the final disposition that
Respondent ARC Excess & Surplus LLC was fined by the Commonwealth of Massachusetts,
Office of Consumer Affairs and Business Regulation, Division of Insurance. [Stipulation
approved June 18, 2008.]

LICENSEE ADDRESS PENALTY
Richmond Hill, NY 11418
$500 fine
Respondents mailed out fliers to potential insureds that contained misleading language and
specified an insurance rate without setting forth in the advertisement the name of the insurer
and the name of the name of the city in which the insurer has its principal office. [Stipulation approved
June 18, 2008.]

LICENSEE ADDRESS PENALTY
Manlius, NY 13104
$1,500 fine
Respondent failed to comply with Department Regulation 60 in connection with annuity
placement transactions. [Stipulation approved July 9, 2008.]

LICENSEE ADDRESS PENALTY
Camden, NY 13316
$500 fine
Respondent violated Section 4224(c) of the Insurance Law in connection with the placement
of Medicare Supplemental insurance policies by paying policy fees on behalf of the insureds
as inducement to the insureds to acquire the policies. [Stipulation approved June 2, 2008.]




                                                  106
LICENSEE ADDRESS PENALTY
 (Agent, Broker, and Sublicensee)
Staten Island, NY 10307
Same as Above.
$3,000 fine
Respondent conducted insurance business under names that were not
previously approved by the Superintendent. Respondents violated Section 2119(c)(1) of the Insurance
Law by collecting service fees from prospective insureds without first obtaining a signed memorandum
specifying the amount of the fee. [Stipulation approved April 14, 2008.]

LICENSEE ADDRESS PENALTY
Amherst, NY 14226
$750 fine
Respondent failed to comply with Department Regulation 60 in connection with an annuity
replacement transaction. [Stipulation approved February 6, 2008.]

LICENSEE ADDRESS PENALTY
(Agent and Broker)
Orchard Park, NY 14127
Licenses
Revoked
Respondent failed to file disclosure statements with the Department concerning commissions
he received from a school district in violation of Section 2324 of the Insurance Law and
Department Regulation 87 (11 NYCRR §29.5) . [Stipulation approved April 17, 2008.]




                                                107
Section 5 Licensing Requirements
The New York State Insurance Department licenses individuals and entities conducting several areas
of the business of insurance. Only the following licensees are required to complete bi-annual
continuing education:

Life Accident and Health Agents (LA)
Life Accident and Health Brokers (LB)
Property Casualty Agents (PC)
Property Casualty Brokers (BR)
Public Adjusters (PA)
Life Consultants (C1)
Property Casualty Consultants (C3)



§    1102. Insurer's license required; issuance. (a) No person, firm,
    association, corporation or joint-stock company shall do an insurance
    business in this state unless authorized by a license in force pursuant
    to the provisions of this chapter, or exempted by the provisions of this
    chapter from such requirement...

          ... Any   person,   firm,   association,
    corporation   or joint-stock company which transacts any insurance
    business in this state while not authorized to do so by a license issued
    and in force pursuant to this chapter, or exempted by this chapter from
    the requirement of having such license, shall, in addition to any other
    penalty provided by law, forfeit to the people of this state the sum of
    one thousand dollars for the first violation and two thousand five
    hundred dollars for each subsequent violation.

Each of these licenses requires the individual to complete a “Pre-Licensing” course requirement.
Those seeking Life Accident and Health authority are required to complete a 40 hour course
requirement. A “full” Property Casualty license requires 90 hours of pre-licensing, while the “personal
lines” license only requires 40 hours of pre-licensing.

Information for prospective licensees is available at the New York State Insurance Department
website, www.ins.state.ny.us.

Examinations for licensure are conducted by private organizations under contract with the Insurance
Department. Candidate for licensure must successfully complete the exam prior to application for a
license.




                                                 108
Section 5.1
Waiver of Pre-Licensing Criteria

Under certain circumstances, individuals may receive a waiver of the requirement to complete the pre-
licensing requirement. The waiver does not eliminate the requirement for individuals to successfully
pass the required examination for their individual license class.

The following form may be used by individuals seeking licensure as either a Life Accident and Health,
or Property Casualty Broker. Agents are not eligible to apply for licensure with a waiver of the pre-
licensing requirement. However, a currently licensed broker may apply for an Agent license.




                                                 109
STATEMENT OF EMPLOYER FORMPROPERTY AND CASUALTY BROKER
               THIS FORM MUST BE COMPLETED BY THE EMPLOYER
1. __________________ _____________________
      Employee's Name Date of Birth Social Security Number

2. __________________________________________________________
      Employee's Address

3._______________________________________________________________
      Employer's Name

4. _____________________________________________________________________
                                                             Employer's Address
5. Under what license number was the above employer continually licensed by the Superintendent of Insurance?
                                                              _______________
                                                                                    License Number

6. Is/was the above employee regularly employed by the above employer for a period of not less than one year
during the last three years in responsible insurance duties relating to the underwriting or adjusting of losses in
any one or more of the following branches of insurance: Fire, Marine, Liability and Workers’ Compensation,
Fidelity and Surety, Property and Casualty?                _____ ______
                                                                                  Yes No
6a. If question 6 was answered "No," is/was the above employee regularly employed by the above employer in
responsible insurance duties relating to the underwriting or adjusting of losses in any one or more of the
following branches of insurance: Fire, Marine, Liability and Workers’ Compensation, Fidelity and Surety,
Property and Casualty for less than one year?     _____ _____
                                                                                  Yes No
6b. If question 6a was answered "Yes," include the dates of employment below:
        FROM ______________ TO _______________
        FROM ______________ TO _______________




Under penalty or perjury, I affirm that I have completed this statement and the information set forth is true.
7.________ 8._____________________________________ 9._________________
  DATE SIGNATURE OF EMPLOYER TITLE
NOTE: If the employer is a Corporation, Partnership, Limited Liability Company or Insurance
Company, this form must be signed by an officer, director or member.
EMP-1-032601




                                                                     110
       INSTRUCTIONS FOR COMPLETION OF STATEMENT OF EMPLOYER FORM

                 PROPERTY AND CASUALTY BROKER

                                      NOTICE TO EMPLOYER
Before completing the statement of employer form and attesting to the employee’s experience, please read the
following instructions to determine if the employee meets the experience requirements necessary to be exempt
from the education requirements as prescribed by Section 2104 of the Insurance Law.
THE EMPLOYEE MUST --
1       Be regularly employed for a minimum of one full year within the last three years. This employment may
be with more than one employer. An employer must be an insurance company, insurance agent, or insurance
broker.
2       Perform responsible insurance duties relating to the underwriting or adjusting of losses. The duties must
be in any one or more of the following lines of insurance, fire, marine, liability, workers’ compensation, fidelity
& surety, property and casualty.

WHEN COMPLETING THE FORM
1      Complete all numbers. Do not complete 6a or 6b unless applicable. The form will not be accepted if it is
not complete.
2      If more than one employer is involved, a separate statement from each employer is required.

ATTACH THE FORM TO THE APPLICATION
    1. After taking the examination, attach the completed Statement of Employer Form to the
       application; then send us the application




                                                       111
Section 5.2
Continuing Education Requirements

New York State Insurance Department Licensees are required to complete 15 hours of approved
continuing education during their licensing term. Changes to the education requirements are being
implemented by the New York State Insurance Department to transition from date specific renewals
for lines of authority to the date of birth for individual licensees.

Traditionally, individuals holding licenses for different lines of authority, such as Property Casualty
Agent and Life Health & Accident Agent, are issued separate licenses with separate renewal dates
(Life/Health agent renewals on 6/30 in odd years, Property/Casualty agent renewals on 6/30 in even
years.) While individuals will continue to receive separate licenses for Life/Health and Property
Casualty lines of authority, they will begin to renew all licenses together renewing on their date of
birth and in the odd or even numbered year corresponding with their date of birth.

Transition to Birth Date Renewal

       Beginning in 2007 individual/tba Producer Licenses will begin the transition from a fixed date
       renewal to a renewal date based on their date of birth.
       An Individual with multiple licenses will end up with them all renewing on the same date.
       The licensing period will remain two years once the transition period has past.
       This will effect all individual/tba Producer licensees.

Date of Birth renewal

   •   Following Classes of licenses issued to individuals/tba will be effected by this change
           • Life, A/H
           • PC, Personal Lines
           • Life Broker
           • Consultants
           • Brokers/Excess Line Brokers
           • Reinsurance Intermediaries

General Rules

   •   The renewal period will not be less then two years
   •   The license renewal process will begin 120 days before its expiration date
   •   If a Producer licensed for LA, PC, LB, or BR does not submit a renewal application 60 days
       prior to the expiration date there will be an additional fee of $10




                                                   112
Section 5.3




              113
114
115
116
117
118
119
120
121
122
123
124
125
Section 6

     Unlicensed and Support Staff Guidelines Part

     Any person who "Acts as such in the solicitation of, negotiation for, or making of an insurance or
     annuity contract" must be licensed. Anyone who performs these acts without a license is guilty of a
     misdemeanor.

     The following are exempt from being licensed:

        A. Regular salaried officers of employees who do not solicit or accept applications or orders
           outside the office of the Insurance Agent.

        B. Regular salaried officers and employees who do not receive compensation or commission
           dependent upon the amount of business transacted.

        C. A regular salaried employee of an insurer who devotes very little of his time to the soliciting of
           insurance and whose compensation doesn't depend directly on the amount of business obtained.

        D. Licensed attorneys acting in their capacity as such.

        E. Actuaries of CPA's not soliciting insurance.

     If you have unlicensed employees setting appointments for licensed agents and you pay them a
     "bonus" for each appointment, this may be a violation of this section of the Law. It is better that you
     pay them a regular salary that is based on performance. The only alternative is to have them licensed
     as agents.




                                                       126
Authorized Activities

         Perform secretarial/receptionist duties such as:
                     Answering the phone
                     Scheduling appointments (provided there are no discussions about insurance coverages,
                     cost, or related issues)
                     Maintaining files and records
                     Referring prospect or customer to the Agent or a licensed Sales Producer, where appropriate
                     Word processing and data entry
                     Assisting with advertising and mailing campaigns
         Accept payments on existing policies that are made in the office in situations in which there are no
         coverage discussions
         Secure expiration dates from prospects limited to the date the policy expires and the current carrier, and
         whether they would be interested in speaking to the Agent or a licensed Sales Producer.
         Take loss information from customers and report this information to the Claims Department.
         Handle changes to existing policies that do not involve any discussion of coverages or require the
         binding of additional coverages, increasing or decreasing coverages, removal of coverages, or the
         addition of vehicles
         Inform insureds as to coverages indicated in the policy record.
         Receive requests for coverage for transmittal to the Agent or a licensed Sales Producer.

Unauthorized Activities

Don’t:
         Prospect or solicit for insurance
         Quote premiums
         Discuss or provide advice concerning coverages, limits, or deductibles
         Interview customers for the purpose of developing information as part of the completion of an
         application
         Bind new policies or make changes to existing policies that require the binding of additional coverages,
         increasing or decreasing coverages, removal of coverages, or the addition of vehicles
         Accept payments on new policies
         Accept payments on existing policies outside the office
         Receive compensation based on sales

Be involved in any activity or transaction that is not in compliance with company policies and procedures or that
is in violation of state licensing or other laws.




                                                        127
Market Hits 'Universal Life' Policies
By TOM LAURICELLA

   Universal life insurance has grown in           Basic or Variable                          to another policy, but the commissions
popularity thanks to its flexibility. But          Universal life insurance comes in two      could eat away at the remaining money.
policyholders may not realize their            flavors. In a basic policy, the death             "It's very punitive once you fall behind
coverage could be dwindling.                   benefit and cash value can build just as       on these policies," says Mr. Witt.
   Universal life is considered                with a whole-life policy -- by                    Watch for Changes
permanent life insurance, yet it actually      accumulating the premiums and                     Even basic universal-life policies are
has an expiration date that's usually set      dividends paid to the policyholder by the      feeling the pinch as the lower long-term
past most life expectancies. But lower         insurance company, which invests the           interest rates of the past two decades
interest rates, a falling stock market -- or   premiums mainly in bonds.                      have reduced the dividends that
a combination of both -- may limit how             Then there's the variable universal        insurers pay to policyholders.
long these policies remain in force.           life, or VUL, policy. With a VUL policy,          On a whole-life policy, this merely
                                               the holder chooses investments --              reduces the available cash value. But
                                               commonly stock mutual funds -- and             on a universal life policy, it also reduces
                                               those returns help create a policy's           the length of coverage.
                                               value. Higher projected returns on                Consider a 70-year-old man who took
                                               stocks can make it possible to get a           out a universal-life policy with $500,000
                                               bigger death benefit with lower                coverage until age 100 when interest
                                               premiums.                                      rates were at 8%. The policy assumed
                                                   The catch isn't just the possibility of    rates would stay at 8% during the first
                                               losing money in stocks. When a policy          10 years of the policy, but they actually
                                               is issued, the stated premiums and             fell to 5.5%. To maintain his coverage,
                                               death benefits are typically premised on       the holder would have to increase his
                                               the investments returning the same             annual premium to $22,200, from
                                               amount year after year. When the               $16,395.
                                               markets are volatile and don't live up to         Of course, should interest rates rise
                                               those expected returns, policyholders          and stocks enter into a long bull market,
                                               risk seeing their policies expire years        these forces will reverse and benefit
  Tom Bloom                                    earlier than they expected.                    universal-life policyholders.
    Shoring up these policies may require          Scott Witt, a fee-only insurance              In the meantime, policyholders should
handing over more money to your                adviser in New Berlin, Wis., has seen          give their statements a close read to
insurer or reducing coverage.                  how the stock market's swings can set a        see the status of their coverage. If it
Policyholders need to keep a close eye         VUL policy far off course. Take the case       looks like it has changed, call your
on statements for any changes.                 of clients who came to him after rolling       insurer or insurance agent to discuss
    "It can be just as important to manage     $425,000 from another life-insurance           what steps can be taken -- including
your insurance policies as it is to            policy into a VUL policy in 1999. With a       running different scenarios for rebuilding
manage your portfolio," says Robert            12% assumed annual return, the death           coverage.
Burger, a vice president at financial          benefit was $10 million and was
planners Lenox Advisors. With universal        expected to last at least through age
life policies, "you don't set it and forget    100, without the need for additional
it."                                           premiums.                                          Write to Tom Lauricella at
    Universal life insurance generally falls       For that to happen, the policy needed          tom.lauricella@wsj.com
in between the permanent coverage of           to have an account value today of
whole life and the temporary benefits of       $850,000. But thanks to the stock
a term policy. Unlike term or whole life,      market's weak performance during the
policyholders have flexibility with the        past decade and fees taken by the
amount and frequency of premium                insurer, it's just $225,000, Mr. Witt says.
payments, after the initial payment.               As a result, if the clients, now age 65,
    However, with universal life policies,     don't pay any more premiums, the
the length of time that coverage is in         policy could expire worthless when the
place can change mid-policy. It can vary       clients reach age 78.
depending on complicated math that                 In order to get back to the original
factors in the amount of premiums paid,        coverage, the clients would to need to
investment earnings and the size of the        pay premiums of $64,000 a year until
so-called mortality and expense                age 100. If they didn't want to pay any
charges deducted by the insurer.               more premiums, but wanted the
    Still, most policies are issued with the   coverage to last the rest of their lives,
aim of lasting until a policyholder            they could reduce the death benefit to
reaches age 95 or 100. (There are no-          $2.7 million. But neither would
lapse policies, which guarantee lifetime       guarantee they wouldn't fall behind
coverage. But they have their own set of       again if the stock market was to again
plusses and minuses.)                          post big losses. They also could switch

                                                                  128
Isaac Gets a Credit Card – and a Lesson
By STEPHEN KREIDER YODER, ISAAC S. YODER and LEVI YODER

   ISAAC: One day last week, I went to             I plan to strictly adhere to my $800      out loans to buy cars. I avoided credit
the college mailroom, opened my                 credit limit.                                cards in college and throughout my 20s.
mailbox and pulled out a small envelope            I'll only use my card to buy things          Then I caved. Karen and I got our first
with a shiny little piece of plastic inside -   online if I would have bought those          major credit cards at age 32 when, just
- my first credit card.                         things in a store with cash, given the       back to the U.S. from living in cash-
   I was thrilled. But wary. This seemed        option.                                      friendly Japan, we found we couldn't
a little too easy. It struck me as strange         As soon as the new card arrived, I        rent a car or reserve a hotel room
that I, a college student with an               quickly called the phone number on the       without one. Karen and I vowed always
unproven record, could garner the               credit card to activate it. Though I         to use our credit cards as if they were
bank's trust so quickly.                        couldn't understand a word the man           ATM cards, setting them up for
   It was only a couple of weeks earlier        (who spoke with a foreign accent) on         automatic payment of the full monthly
that I had decided that my ATM card             the phone was saying, I agreed to all        balance.
was inadequate, and that I was finally          the contractual agreements.                     I'm sure Isaac could have avoided
ready for a credit card.                           But wait a minute: Right before I hung    getting a credit card. He could have
   I was tired of asking my parents             up, the guy told me that something was       gotten a Paypal account linked to his
anytime I wanted to order something             free for 30 days. That didn't sound right.   checking account, for example, that
online, tired of using my dad's iTunes          I thought the card was free.                 would let him make many Web
account (iTunes accounts generally                 I sent a text to my dad, who              purchases.
require a credit card) and tired of             suggested that I might have                     But credit cards are all but
waiting in the checkout line of a corner        inadvertently signed up for extra            unavoidable today to have a normal
store only to find out that their register      services that charge a fee each month.       financial life. So Isaac may as well get
didn't take my ATM card.                        Sure enough, as I logged into the            one now and learn to use it right. If he
   That was OK in high school. Not now.         bank's Web site, I found out that I was      really sticks to his own rules, he'll be
Plus, it seemed like a good idea to start       enrolled for some identity monitoring        ahead of the pack. (If he doesn't, we'll
my credit history early, so if I need a         and credit-protection service. Oops. I       make sure readers know about it.)
loan after college I'll have a better           canceled that.                                  And it sounds like Isaac got a taste of
chance.                                            STEVE: I'm of two minds about             what will be a lifelong battle against
   I went to my bank's Web site to apply        putting a credit card in a teenager's        banks' efforts to up-sell him. "This is a
for a card and was met by a flurry of           hands, and I know our readers are, too.      good lesson," I emailed him. "Whenever
different options. I had no idea how to            In our New Year's resolution column, I    you sign up for anything at a bank, they
sort out what seemed subtle                     vowed to help Isaac get a card and to        always try to sell you some other
differences. Finally, I somewhat                teach him safe credit habits before he       garbage, especially if it's a subscription
arbitrarily decided on a card that offered      left for college. Then I dallied. I have a   where they get you to pay automatically
"thank you points" for good GPAs and            deep-seated ambivalence toward               month after month."
for purchasing things like textbooks.           consumer credit, and my procrastinating
   Half a week later came the email:            let me avoid facing my gnawing doubts.
accepted.                                          Some readers emailed, encouraging         Steve Yoder is chief of The Wall
   I understand that credit cards can be        me to get on with the deed. They had         Street Journal's San Francisco
dangerous -- I've heard all the horror          gotten credit cards for their teens,         bureau. His son Isaac is 18 years
stories of credit-card debt consuming           usually with strict credit limits and
college kids. And many of my college            balances that the parents could monitor
                                                                                             old and a freshman in college.
classmates have decided to avoid                daily. It was a rich teaching opportunity,   His son Levi is 14 years old and a
getting one for that reason.                    several readers reported, that led to        freshman in high school. Email:
   But I think I can successfully stay out      good kitchen-table discussions about         yoder&son@wsj.com
of the debt trap. Here's how:                   the perils of credit.
   I'll try to not use the real "plastic" any      Other readers were aghast. "Shame
differently than my old ATM card --             on you," wrote one, who said my
paying mainly with cash, and                    resolution to put plastic in Isaac's hands
remembering that I'm using real money           was like providing him with addictive
when I make transactions with my card.          starter drugs. Have Isaac stick to cash,
   I set up automatic payment online, to        she admonished.
pay off the full balance every month, so           I wanted to agree with her. I grew up
I avoid paying interest.                        believing consumer debt was a bad
                                                thing -- a lesson from Depression-era
                                                parents who paid only in cash they
                                                already had earned. Avoiding debt was
                                                an almost religious tenet for me. I paid
                                                off my college loans early, feeling like
                                                that debt was somehow a disgrace, and
                                                I was aghast at classmates who took


  James Steinberg                                                 129
Laws Take On Financial Scams Against Seniors
States Increase the Penalties When Victims Are Elderly; Is Special Protection Needed?
By JENNIFER      LEVITZ

   Fed up with purported financial         elderly.                                    industry's self-regulatory body,
advisers preying on unwitting older            Such laws, however, have drawn          brought 3,211 enforcement actions
people, investigators from the             criticism from some legal experts who       against financial firms and sales
Arkansas Securities Department last        oppose singling out seniors for             people for violations against seniors
year staged an undercover sweep of         protection. These critics say the laws      in the seven years through January.
one of the hucksters' favorite             amount to reverse discrimination by         That compares with 1,753 actions
showcases -- free lunch seminars.          implying that older people aren't           related to people approaching
   The Arkansas sweep triggered            sophisticated enough to keep from           retirement.
several investigations of financial        being taken in by sales pitches.               The frequency of scams is
firms that are still under way. It also    Jonathan Macey, deputy dean of Yale         increasing in the recession, many
uncovered enough in the way of             Law School, says an enhanced                financial experts say. Seizing on fear
shady practices -- misleading claims,      penalty law regarding seniors isn't         of stock-market turmoil, sales people
underplayed risk -- to prompt              illegal or unconstitutional, but "I think   and fraudsters are hawking
legislative action. This spring,           it's just stupid. There are all kinds of    investments that claim to be "low-
Arkansas legislators passed a law,         vulnerable groups in society, like          risk," or a supposedly safe way to
effective July 1, that doubles the civil   poorly educated recent immigrants, et       invest in the stock market and earn
penalties for financial securities         cetera. The bad guys will just target       back losses. In fact, the products may
violations when the victim is 65 or        them."                                      be complex and have significant
older. Though the state securities             Regulators say that no investors        downsides.
department can't bring criminal            are more vulnerable to scams than              Lavonne Selvog, an 82-year-old
complaints, it can refer such cases to     older people, who depend on their           widow in South St. Paul, Minn., says
the attorney general's office.             savings for a secure retirement. Since      seniors like her come from a different
   Arkansas is one of a number of          2007, government regulators and             era and can be more vulnerable. Ms.
states that are passing or amending        securities industry officials have been     Selvog says she was sold a complex
securities and criminal laws to impose     cracking down on senior scams,              annuity by a broker at a senior
"enhanced penalties" on people who         including sending sleuths to monitor        seminar, when she thought she was
commit financial crimes against            free-lunch seminars.                        buying a certificate of deposit. "I had
seniors. Similar legislation is                The events are generally pitched        never been involved in handling the
expected to be proposed in Congress        as educational events, with a free          finances -- my husband did all that. I
next month by Democratic Sens. Bob         meal thrown in. But in Arkansas, state      guess I was just too trusting of this
Casey of Pennsylvania and Herb             agents instead found that the dozens        fellow," she says. She says the
Kohl of Wisconsin, chairman of the         of seminars they attended all featured      investment restricted access to her
Senate Special Committee on Aging.         hard-sell pitches for financial             nest egg so much that she couldn't
   "If you target an older person in       products, many of which weren't             afford to replace the drafty windows
Michigan, we're going to target you,"      appropriate for elderly investors.          in her house.
says Ken Ross, commissioner of the         Presenters at about half of the                Pending State Laws
Office of Financial and Insurance          seminars made misleading claims                Besides Arkansas and Michigan,
Regulation for the state, which also       about potential investment returns,         Idaho also passed a senior-victim law
has passed legislation protecting the      Arkansas regulators say. And at             in recent months that will go into
                                             about a quarter of the events,            effect this year. Six other states,
                                             products being pushed were ill-           including Maryland, Minnesota,
Preying On the Elderly                       suited to older people, such as           Missouri, New Jersey, Rhode Island
Financial scams that target                  investments heavily exposed to            and West Virginia, have similar bills
seniors are on the rise, and                 swings in stock prices.                   pending in their current legislative
states are cracking down.                       "Older Americans remain a              session.
      The recession has spurred more         primary target for unscrupulous              Michigan's new law allows for an
      scams that play off people's fear      individuals," says Heath Abshure,         additional $500,000 penalty tacked
      of stocks.                             the Arkansas securities                   onto securities violations involving
      Some investments pitched as            commissioner. "There has to be a          seniors or people deemed unable to
      low-risk could instead be quite        deterrent to the effect that this is a    understand the transaction. The law
      complex.
                                             class of people who rely on their         was partly inspired by a 2008
      Regulators are sending sleuths to
      monitor free-lunch seminars, and       investments day to day to pay their       investigation in which at least 12
      some new state laws boost              utilities, their doctors, and to buy      people were charged with
      penalties for scams against older      their groceries," he says.                misappropriating funds from nursing-
      people.                                   The Financial Industry Regulatory      home residents in the state. Another
                                             Authority, or Finra, the securities



                                                             130
85 cases remain under investigation     determine suitability for customers          penalties for investor education
as part of that sweep.                  over the age of 65. Ms. Selvog says          aimed at seniors.
   Firms that have been cited for       she received a refund as part of the            There is nothing illegal about
violations range from big financial     settlement. In a statement, Allianz          financial advisers pitching products at
giants to single-person offices. In     said it "strongly denied all charges in      seminars, but under securities and
October 2007, a unit of Allianz SE,     the case."                                   investor-protection laws, there are
the German financial company,              Higher penalties imposed as a             lines that these salespeople can't
agreed in a settlement with             result of the new laws aren't expected       cross. Brokers must follow "suitability"
Minnesota's attorney general to         to cut into potential restitution. Idaho's   standards, meaning they can't sell a
review sales practices and to give      new law, for instance, says that if          product that doesn't make sense
refunds to as many as 7,000             restitution for the victim is ordered by     given a person's age, income, or
Minnesota seniors that the state said   regulators, that must be paid before         liquidity needs. They can't
may have been sold unsuitable           the enhanced penalty is paid. Some           misrepresent products. Sales
annuities since 2001. Allianz also      states, including Michigan, plan to          materials and oral presentations must
agreed to strengthen its process to     use funds from their enhanced                show a balanced picture, with both
                                                                                     the risks and benefits of investing in
                                                                                     the product. Any statements to
                                                                                     investors that an investment is "safe
                                                                                     as cash" or that it carries no market
                                                                                     or credit risk "would raise serious
                                                                                     questions under FINRA's advertising
                                                                                     rules," according to the regulatory
                                                                                     group.
                                                                                        A number of products sold to
                                                                                     seniors have triggered investigations
                                                                                     in recent months, including reverse
                                                                                     mortgages, which can help senior tap
                                                                                     equity into the home and be
                                                                                     beneficial, but which can also include
                                                                                     hidden costs. Also popular are
                                                                                     deferred annuities, which promise
                                                                                     future payments to the investor but
                                                                                     which can lock up money for a
                                                                                     decade or more.
                                                                                        Pitches in a Recession
                                                                                        Another popular pitch to older
                                                                                     people in the recession, regulators
                                                                                     say, is "adviser" services, in which a
                                                                                     financial pro offers to meet one-on-
                                                                                     one to review seniors' assets to see
                                                                                     that they are well-situated for any
                                                                                     market downturns while also
                                                                                     positioned for a possible upturn.
                                                                                     While seeking help from an adviser is
                                                                                     often an a wise idea, recent scams
                                                                                     and Ponzi schemes have shown that
                                                                                     investors must be careful that the
                                                                                     person isn't misappropriating money
                                                                                     out of their account or shifting them
                                                                                     into high-commission investments
                                                                                     that aren't in their best interest.
                                                                                     Investors should be vigilant about
                                                                                     reviewing their account statements




                                                                                         MAY 19, 2009




                                                          131
Section 8

Glossary
Many of the coverage terms used in this course are familiar to all insurance producers. However,
certain terminology does not carry across the P&C / L&H boundary.

Accident
       An unforeseen, unintended, unexpected event, mishap, or casualty.

Actual cash value
        An amount equivalent to the replacement cost of lost or damaged property at the time of
the loss, less depreciation

AD&D
        Accidental Death and Dismemberment

Additional PIP
        Additional First Party Benefits that pay for extended loss on account of personal injuries
sustained by an eligible injured person. Coverage applies to named insured’s and other persons
sustaining injuries.

Additional Disability Coverages
       Wage loss benefits exceeding state minimums typically opted for by high income earners.

Admitted Company
       An insurance company authorized and licensed to do business in a given state

Adverse Selection
        The tendency of a disproportionate number of poor risks to buy insurance or maintain
existing insurance in force. Also called “Selection Against the Company”.

Agent
        One who solicits, negotiates, or effects contracts of insurance on behalf of an insurer.

Annuity
        A contract affording periodic income payments for a fixed period of time or usually
during the lifetime of a person who is called the Annuitant. If the annuity payments are limited
to a certain period, it is called a Temporary Annuity; if the payments are terminated only upon
the death of the Annuitant, it is known as a Life Annuity.

Application
         A signed statement submitted to the insurance company by an applicant, who may or may
not be the proposed insured. The application form contains a series of questions designed to
elicit pertinent information, e.g., age, medical history, Beneficiary(ies), etc., which serves as a
basis for underwriting the risk and which become part of the policy.


                                                132
Arbitration clause
         The provision in a property insurance contract which states that if the insurer and insured
cannot agree on an appropriate claim settlement, each will appoint an appraiser, and they will
select a neutral umpire.

Article 78
        A proceeding used to challenge an action of an agency, or officer of the government,
which will bring the case to the Supreme Court

Assignment
      Transfer by the policy owner of legal rights or interest in the policy contract to a third
party

AutoLiability
        Covers against bodily injury and property damage for which the insured may become
liable. The Minimum limit in NYS is 25,000/50,000/10,000.

BI – Bodily Injury
        Bodily Injury means bodily harm, sickness or disease, including required care, loss of
services and death that result. BI coverage is provided to a named insured under auto coverage
policies.

Binder
        A temporary contract or agreement executed by an agent or insurer putting the insurance
in force before the contract has been written or the premium paid

Beneficiary
        A person(s) or other entity designated to receive specified cash payment(s) in the event of
the Insured’s death.

Broker
       One who represents an insured in the solicitation, negotiation, or procurement of
contracts of insurance, and who may render services incidental to those functions including
additional services such as processing payments on claims. Traditionally are viewed as the
intermediary between the insured and the insurer.

Buy Sell Agreement
       In the sale of a business, a buy-sell clause (or shotgun clause) in a shareholder agreement
preserves continuity of ownership in the business and insures that everyone is fairly treated, the
buyer as well as the seller. It is a binding contract between business partners or shareholders
about the future ownership of the business.

Cancellation
       When a portion of the premium is returned by insured and coverage has ended.
Possible reasons for cancellation include fraud and non-payment of premiums



                                                133
Cash Surrender Value
        The amount (stated in the policy) which is available in cash upon the surrender of a
policy for cancellation before the policy matures as a death claim or otherwise.

COBRA (CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1988, 1989).
        Employers of 20 or more employees maintaining a group health plan are required to offer
employees and their dependents the option of continuing membership in the group plan at their
own expense after they leave employment under certain circumstances. The cost of the COBRA
extension can be charged to the employee at 102 percent of the group’s cost for an active
employee. Furthermore, the law adds a “portability” feature to coverage wherein an insurer must
credit the time a person was covered under a prior health insurance policy toward satisfying any
pre-existing condition waiting period imposed by the subsequent policy, as long as the prior
coverage was in force at least 63 days before the effective date of the subsequent policy.

Coinsurance clause for property
       A clause under which the insured shares in losses to the extent that he is underinsured at
the time of loss.

Coinsurance clause for health
        A provision stating that the insured and the insurer will share all losses covered by the
policy in a proportion agreed upon in advance. If a provision specifies a 75% -25% the company
pays 75% and the insured pays 25%

Collision
         Sudden damage to a vehicle caused by it coming in contact with another object. This
definition is usually modified by terms and conditions in an automobile insurance policy.

Community rating
        A rating system in which the charge from insurance to all insured’s depends on the
medical and hospital costs in the community or area to be covered. Individual characteristics of
the insured’s are not considered at all

Compliance
      Also known as laws, rules, and regulations set up by state and federal government.

Comprehensive
       This is the broadest form of coverage and will provide for any loss except for collision or
overturn of the vehicle. An example is a deer crashing into the side of the vehicle.

Commercial General Liability (CGL)
        CGL Policy provides coverage for the insured in the event a third party suffers an injury
because of business activities of the insured. An insured’s liability may be for Bodily Injury
(BI), Personal Injury (PI), Advertising Injury (AI) or Property Damage (PD). Also covered
under the liability section of the policy are Medical Expenses incurred for bodily injury caused



                                               134
by an accident regardless of negligence on the part of the insured and the obligation for the
insurer to provide a defense of its policy holder against all valid suits.

Conditions
       These are provisions of an insurance policy which state either the rights and duties of the
insured or the rights and duties of the insurer

Conditional Receipt
        A receipt (there are several types) given for the payment of the first Premium if
accompanying the application which states when the insurance will be in force if the conditions
of the receipt are met. Almost all Life Insurance companies’ initial premium receipts are
conditional. A “Binding Receipt” provides coverage without conditions, is rare in Life
Insurance, and this label should be used only in those few instances.

Coordination of Benefits
        Coordination or non-duplication of benefits may apply when an individual is covered
under more than one group insurance contract. Coordination ensures that the total amount of the
benefits under all contracts does not exceed 100% of the actual medical expenses.

CMAP (Coastal Market Assistance Program )
       Assists property owners living along the coast with securing insurance coverage for wind
storms, including hurricanes.

Cross Purchase Agreement
       With a cross-purchase agreement, each owner of the corporation purchases an insurance
policy on the other shareholders. The purchaser is both owner and beneficiary of the policies.

Declaration
        A term used in insurance other than life or health to denote that portion of the contract in
which is stated such information as the name and address of the insured, the property insured, its
location and description, the policy period, the amount of insurance coverage, applicable
premiums, and supplemental representations by the insured.

Disability Income (DBL)
        Standard disability income insurance provides wage earners with temporary cash
payment/benefits to partially replace wages lost for disabilities due to non-occupational injury or
illness. A person who becomes disabled while unemployed is also eligible under certain
circumstances. The New York Disability Benefits Law (DBL) provides for payment of 50% of
the average weekly wage to a maximum of $170 per week for maximum of 26 weeks within a
consecutive 52 week period and commences on the eight day of disability. The minimum benefit
is $20 or 100% of the claimants coverage weekly wage. DBL does not cover rehabilitation
expenses.

Direct loss
        A loss which is a direct consequence of a particular peril. Fire damage to a refrigerator
would be a direct loss.



                                                135
Dividend Options
        The insured is given the option to apply dividends as follows: receive the dividend in
cash, apply the dividend toward the payment of any premium due on the policy, apply the
dividend to the purchase of paid-up insurance, or leave the dividend with the insurance company
to accumulate at interest. Some companies have additional options.

Endorsement
        A legal emendment6 added to the policy by which the scope of coverage is altered, e.g.,
restricted or increased. The terms of such endorsement (rider) take precedence over the printed
portions of the policy which are in conflict with the endorsement.

ERISA (EMPLOYEES RETIREMENT INCOME SECURITY ACT OF 1974)
        Self-insured plans that are not governed by state insurance law must meet the
requirements of ERISA. ERISA requires a “creditable” claims review procedure and notices
that state the reason for claim denials.
Ethics
       Honesty, integrity i.e. Insurance professionals should give full disclosure of information
used for underwriting decisions

Excess and Surplus Market
       When an admitted market is unavailable to an insurance producer. Only a broker may
pursue a non-admitted market or excess and surplus lines market. Lloyds of London is and
example of an excess and surplus business regulated in NYS

Exchanges (1035)
       Used with the transfer of securities or variable products. A form of disclosure similar to
Regulation 60.

Fair Credit Reporting Act (FCRA)
       A federal law that regulates how credit reporting agencies use your information.

Felony
       A charge in criminal conduct. The most serious form of a crime, such as committing
insurance fraud.

Fidelity Bond
        Protects insured regarding money and securities. Protects retirement plans against loss
resulting from acts of fraud and dishonesty on the part of the fiduciary either directly or in
collusion with others

Fiduciary
       A person holding the funds or property of another in a position of trust.




                                               136
Flexible Savings Accounts (Section 125 Plan)
        Permits employees to purchase fringe benefits with pre-tax dollars instead of after tax
dollars. This election for employees to voluntarily reduce their gross taxable income results in
an employee paying fewer taxes in the area of Federal, State, and FICA taxes

Flood Insurance
        Property Insurance set up by the federal government for primarily sing family dwellings.
Live stock can also be covered.

Fraud
        Deliberate deception used as a means of obtaining money, goods, and/ or services

Free Look Provision
       The right of an Insured to change his mind and return the policy within a certain number
of days (usually between 10 and 30) following the delivery thereof. The Insured is permitted to
void the contract and receive a full refund of the Premium he has paid. No charge is made by the
insurance company either for any expenses incurred or for the interim coverage.

Glass Steagall Ac of 1933-
         This act changed the insurance industry by prohibiting national and state banks from
affiliating with securities companies.

Grace Period
        A specified period (usually 31 days) after a Premium payment is due, during which the
protection of the policy continues even though the payment for the Renewal Premium has not yet
been received.

Graham-Leach Bliley (GLBA)-
        This act changed the insurance industry in 1999 by instituting sweeping changes across
the financial industry, changing the regulations of banks, insurers, and financial institutions.

Hazard-
        A specific situation that increases the probability of the occurrence of loss arising from a
peril, or that may influence the extent of the loss

Health Insurance-
        A broad term covering the various forms of insurance relating to the health of persons. It
includes such coverage as accident, sickness, disability, and hospital and medical expense. This
term is used instead of sickness and accident insurance. This insurance can be written by those
with a life accident and health agent license (LH), a life accident and health broker license (LB)
license and property and casualty broker license (BR). Consultants and property casualty agents
cannot write health insurance.

HIPAA
        Health Insurance Portability and Accountability Act




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Health Maintenance Organization (HMO)
        An organization that provides for a wide range of comprehensive health care services for
a specified group in consideration of fixed periodic premium payments. An HMO may be
sponsored by a medical school, hospital, employer, labor union, consumer group, insurance
company, hospital medical plan, or the government.

Health Saving Accounts
        Tax sheltered savings account similar to the IRA but enacted by the laws of NYS and the
Federal Government, they are earmarked for medical expenses. They apply to high deductible
health care insurance coverage.

Home Care
        A provision in health insurance policies. Home care must be covered if inpatient hospital
care is covered for residents of NYS.

Home Owners Policy
        A multi-line policy for owner occupied residences. Homeowner’s policies provide
property and liability coverage for dwelling and other structures and personal property. The basic
limit for personal liability coverage is $100,000. The conditions section of the policy states that
the insured must file a proof of loss statement.

IRA-
       An Individual Retirement Account (or IRA) is a retirement plan account that provides
some tax advantages for retirement savings in the United States.
There are a number of different types of IRAs which may be either employer-provided or self-
provided plans. The types include:
       Roth IRA - contributions are made with after-tax assets, all transactions within the IRA
       have no tax impact, and withdrawals are usually tax-free. Named for Senator William
       Roth.
       Traditional IRA - contributions are often tax-deductible (often simplified as "money is
       deposited before tax" or "contributions are made with pre-tax assets"), all transactions
       and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed
       as income (except for those portions of the withdrawal corresponding to contributions
       that were not deducted).
       SEP IRA - a provision that allows an employer (typically a small business or self-
       employed individual) to make retirement plan contributions into a Traditional IRA
       established in the employee's name, instead of to a pension fund account in the company's
       name.
       SIMPLE IRA - a simplified employee pension plan that allows both employer and
       employee contributions, similar to a 401(k) plan, but with lower contribution limits and
       simpler (and thus less costly) administration. Although it is termed an IRA, it is treated
       separately.
       Self-Directed IRA - a self-directed IRA that permits the account holder to make
       investments on behalf of the retirement plan.




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Indirect loss
       Loss resulting from a peril but not caused directly and immediately by that peril

Insurable Interest
       Relationship between the Beneficiary or Owner and the Insured, i.e., a blood relationship,
marriage, or economic dependence.

Insurance Company
       - Alien, one that was organized under the laws of a country other than the United States
       - Domestic, one conducting business in the Sate in which it was organized
       - Foreign, one conducting business in a State other than the State in which it was
organized

Insurance fraud
       Deliberate deception used as a means of obtaining money, goods, and/ or services in the
insurance industry. Common types include arson, theft, staging vehicle accidents

Insurance Law
        Statutory laws made by the assembly, senate and governor. Violation of these laws may
also be imposed by the Superintendent of Insurance in addition to civil and criminal penalties

Insurance Risk Score –
        An underwriting tool that most property and casualty insurance companies use in
establishing premiums

Insurance Scheme
        A plot to receive money from unsuspecting customers looking to buy insurance.
Insured’s should be suspicious of the price of insurance seems to good to be true. They should
contact the NYS Insurance department in order to make sure the agent and company are licensed
as well as always check the bills closely for accuracy

Insurance Services Organization (ISO)
         An organization of the property and liability insurance business designed to gather
statistics promulgate rates, and develop policy forms. They print and distribute manuals, provide
rules and forms. They also collect and compile data

Insuring agreement
       That proportion of an insurance contract which states the perils insured against, the
persons and/or property covered, their locations, and the period of the contract. The obligations
assumed by the insurance company in contract of insurance are found in the insuring agreement.

Joint Life Insurance
        Insurance on the lives of two or more persons with the face amount payable in the event
of the death of either (or any one) of them, or, in some policies, at the death of each of the
insureds.




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Key Person Insurance
        An Individual Policy designed to reimburse an employer for the loss of a key person’s
service due to his death. Usually, the employer pays the Premium and is the Beneficiary.

License Renewal-
         Individuals and corporations must renew their license online. You can now change your
address online at time of renewal, and print off a copy of the invoice document for your records.
The renewal application is accessed through the NYSID website. Licenses are issued within 48
hours to those who pay NYS by credit card. The NYSID has established a dedicated telephone
and website for licensees. If you are going to sell insurance to outside of NYS you will need to
secure a non-resident license in that state. There is a statutory late fee for applicants that renew
their license within the last two months of the expiration date

Life Insurance
        Insurance upon the lives of human beings that creates an immediate and guaranteed estate
at the death of an insured and which may also provide living benefits through cash value. In life
insurance comparisons, only ‘net’ premiums should be compared.

Limit of Liability-
       The maximum amount which an insurance company agrees to pay in case of loss

Litigation
        To contest in legal proceedings. Legal actions are typically employed by an injured
individual against an insurance company to gain policy benefits to stated maximums. Litigation
based on liability of an insured may also be used as a measure to obtain additional money to
provide for additional losses.

Loan Value
        The amount specified in a policy which the insurance company will lend to an Insured at
a rate of interest which the insurance company may charge for such loans (as indicated in the
policy). If the debt is not fully repaid at death, the company can subtract the unpaid amount of
the load, and loan interest from the death proceeds.

Long Term Care

         Insurance available through private insurance companies as a means for individuals to
protect themselves against the high costs of long-term care. Long term care is the type of care
that you may need if you can no longer perform "activities of daily living" by yourself, such as
eating, bathing or getting dressed. It also includes the kind of care you would need if you had a
severe cognitive impairment like Alzheimer's disease. Care can be received in a variety of
settings, including your own home, assisted living facilities, adult day care centers or hospice
facilities. Long term care can be covered completely or in part by long term care insurance.
Most plans let you choose the amount of the coverage you want, as well as how and where you
want to use your benefits. A comprehensive plan includes benefits for all levels of care,
custodial to skilled.




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Material misrepresentation
       The most serious type of misrepresentation; i.e. a fraudulent statement made by the
application of an insurance policy (also see Misrepresentation)

Medical Payments (Med Pay)
        Medical Payments paid as reimbursement for medical and funeral expenses because of
bodily injury, paid on a per-person, per-accident basis. Benefits are paid only to third parties
under homeowner’s policies and to first and third parties under auto coverage. Claims generally
must be made within 3 years. Auto medical payments cover the insured driver injured in an auto
accident, a passenger in the insured’s vehicle involved in the auto accident, or the insured as a
pedestrian hit by a motor vehicle.

Medicare
        A program of health insurance and medical care for persons who are 65 years of age or
over, and certain other disabled persons under age 65, operated under the provisions of the Social
Security Act. Medicare has two parts: Part A (Hospital Insurance), and Part B (Medicare
Insurance, helps cover doctors' services, outpatient hospital care, and some other medical
services that Part A does not cover). Under Part A, a new benefit period begins when a person
has been out of a hospital for 60 days, and covers psychiatric hospital benefits to a life time
maximum of 190 days. Part B is voluntary, and covers 80% of approved doctor’s charges.
Medicare supplement policies will cover both members of a married couple as long as they are
both at least 65 years old. They are regulated by the Federal Government.

Medigap policies-
        Issued to supplement Medicare benefits (paying for deductibles, coinsurance and even
charges not covered by Medicare). In 1991, Congress established 10 standardized Medigap
polices. All polices must contain a disclosure statement. Medigap policies will cover both
members of a married couple as long as they are both at least 65 years old.

Miscellaneous expenses-
       Hospital charges other than room-and-board; i.e. X-rays, drugs, laboratory fees, etc. (in
connection with hospital insurance).

Misdemeanor
         Criminal conduct i.e. filing an insurance claim which contains a fraudulent statement. It
is less serious than a felony. An example is making a false insurance claim.

Misrepresentation
       A false statement, which the prospective insured makes in an application for a policy. A
misrepresentation is material if the insurance company, having known the true facts, would have
refused to issue the policy or taken other underwriting action such as charge an additional
premium or requiring the attachment of an impairment waiver. Statements are considered
representations and not warranties. If an insurance company discovers an insured’s
misrepresentation on a policy they may cancel any coverage not required by law, giving the
named insured usually 20 days notice.




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Moral hazard
      A condition of morals or habits that increases the probability of loss from a peril.

Morale hazard
       Hazard arising out of an insured’s indifference to loss because of the existence of
insurance.

Motives for insurance fraud
        Reasons why people file false claims and commit insurance crimes. They include loss of
a large account, desire to change locations, gambling debts, economic loss, facing bankruptcy,
inability to fill contracts, etc

NAIC
       National Association of Insurance Commissioners. Organized in 1871 to organize the
regulatory and supervisory efforts of state insurance commissioners.

Non admitted Insurer (unauthorized or unlicensed insurer)
      An insurer not licensed to do business in the jurisdiction in question.

Non Forfeiture options
        In the event of a default in payment of the premium, there shall be three basic options
available. 1st- Take the cash surrender value in a lump sum. 2nd- extended term insurance. 3rd-
reduced paid up insurance. Whole life polices can provide continuing cash value build up under
the reduced paid up insurance addition provision.

Non-Owned Auto Coverage
       Covers bodily injury and property damage for your company while vehicles are used by
employees for your business use. Coverage for the physical damage to non-owned autos is
found in part D (physical damage coverage) of the contract.

Non Renewal
       When an insurance company does not renew a policy. In auto and home owners
insurance the non-renewal notice is sent to the insured and must include the reason for non
renewal

NY Property Insurance Underwriting Association (Fair Plan)-
       The plan that insures the residential and commercial properties in the state where the
homeowner cannot find coverage elsewhere. “Extended coverage,” which includes windstorm
coverage, is written by authorized insurers engaged in writing fire and other extended coverage
insurance.

NYS Fraud Bureau
        The investigative unit that are assigned to insurance fraud cases. They often work with
law enforcement agencies as well as the insurance company’s special investigative unit. They
require insurance companies to develop thorough plans for prevention and detection of insurance
fraud



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OBEL – Optional Basic Economic Loss
        Basic Economic Loss consists of medical expense, work loss, other expense and death
benefit not to exceed $50,000. Basic Economic Loss coverage is provided under statutory
personal injury protection (PIP). Optional Basic Economic Loss provides and additional $25,000
of coverage that may be applied as directed by the recipient, subject to policy language.

Occurrence-
      An event that causes loss over time

Ordinary Life Insurance
       A policy which provides coverage for the entire life of the policyholder and for which
the Premiums are payable until death. It is also called Whole Life or Straight Life.

Open Enrollment Period
       A period of time during which people, who would otherwise have to submit evidence of
insurability, can apply for group insurance or HMO coverage, without such evidence.

Paid Up Insurance
        Life insurance on which future Premium payments are not required. For example, the
term is used to identify a 20-Payment Life Insurance Policy on which 20 Annual Premiums have
been paid. Reduced Paid-Up Insurance is the term applied to the policy which is issued under
the Non-forfeiture Option, i.e., when the Insured does not wish to pay further Premiums on his
policy and elects this option.

Peril-
         The cause of a possible loss

Permanent Insurance
      Permanent covers a person for life, as long as he or she is paying the premium.

Physical hazard
        Any hazard arising from the material, structural, or operational features of the risk itself
apart from the persons owning or managing it.

PIP - No Fault
        Personal Injury Protection coverage provides reimbursement for basic economic loss
sustained by an eligible injured person on account of personal injuries caused by an accident.
Benefits include Basic Economic Loss, Medical Expense, Death Benefit and Other Expenses
defined in a policy. Benefits are limited by the insuring agreement. Basic coverage provides up
to $2,000 per month for lost wages resulting from an auto accident. Loss of hearing would also
be covered. Workers comp, medicare and dbl are the primary coverages before PIP pays. There
is no coverage is caused while committing a felony.




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Photo Inspection Regulation 79-
        Instituted in 1979 the requirement that most vehicles covered by comprehensive and
collision insurance must be inspected and a photo record maintained by the insurance carrier.
There was a high frequency of “phantom” vehicles insured with comprehensive coverage
reported as stolen, when follow up investigations determined that no vehicle originally existed.

Preferred Provider Organization (PPO)
       Health Insurance that is affiliated with approved hospitals and doctors

Property Damage Liability Insurance-
        Protection against liability for damage to the property of another not in care, custody and
control of the insured as distinguished for liability and bodily injury
Pro Rata
        Distribution of the amount of insurance under one policy among several objects or places
covered in proportion to their value or the amounts shown

Rebating
       Paying anything of value, offering to pay or allow, the giving of anything of value, or any
valuable consideration not specified in the policy to any person as an inducement to apply for
and secure a policy of insurance. Rebating is considered illegal in most States.

Regulation 60
        The New York State Insurance Department Regulation governing the replacement of life
insurance policies and annuity contracts in New York State. Regulation 60 primarily relates to
disclosure information. Incomplete comparisons are strictly prohibited. Penalties include a
return of commission by the agent, liability to any agent of an insurance company for the amount
of the commission lost by such license, or even imprisonment, revocation, or suspension.

Regulation 79
        Verification of the existence of each vehicle to be covered with Collision and
Comprehensive coverage by a photo inspection. Also known as “Phantom Vehicles” auto
regulation.

Regulation 87
       A requirement for producers to notify the New York State Insurance Department when
insurance covering a municipality is written

Reinstatement
        The resumption of coverage under a policy which lapsed. The Insured is required to pay
overdue Premiums plus interest and to provide satisfactory evidence of insurability to effect a
reinstatement.

Rental Car Coverage
       Includes coverage to rent a vehicle in the event of a covered loss.




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Replacement cost
      The cost of replacing property without a reduction for depreciation

Representation
       A statement in legal terms, made on an application for insurance that the applicant
represents as correct to the best of his knowledge and belief

Sarbanes Oxley
       The Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation enacted in
response to the high-profile Enron and WorldCom financial scandals to protect shareholders and
the general public from accounting errors and fraudulent practices in the enterprise

Section 125 Plan
         Section 125 Plans go by a variety of names, such as Premium Only Plans (POP), Salary
Reduction Plans, Flexible Benefit Plans and Premium Conversion Plans, all are based on the
guidelines of the Internal Revenue Code Section 125. In layman's terms, a Section 125 Plan
permits employees to purchase fringe benefits with PRE-TAX dollars instead of AFTER TAX
dollars.

Self Insurance
        Making financial preparations to meet pure risks by appropriating sufficient funds in
advance to meet estimated losses, including enough to cover possible losses in excess of those
estimated.

Small Business Fraud
       A small business committing insurance fraud. They have a higher tendency to consider
arson and other crimes as a way out of financial difficulties. Statistics show a rise in small
business fires when facing economic loss and/or bankruptcy

Social Security
       A government program which provides economic security for portions of the public.

Soft Fraud
       When a normally honest person tells little white lies to their insurance company i.e. a
homeowner inflating the value of their stereo stolen during a robbery

Special Investigative Unit (SIU)
        An insurance company’s fraud investigation department. They investigate fraudulent
practices

Spendthrift Clause
       A clause which protects the proceeds of the policy from claims of creditors of a
Beneficiary. Generally, the Insured must request that this provision be incorporated in a chosen
Settlement Option Provision of the policy.




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Split Limit Insurance-
        The Amount of Insurance for bodily injury liability and property damage liability are
stated separately

State Insurance Fund
        A fund set up by a state government to finance a mandatory insurance system such as
Workers Compensation and Non occupational disability benefits.

Stock Redemption Agreement
        A stock redemption agreement is an agreement in which the corporation owns insurance
policies on the lives of the shareholders. When a shareholder dies, the corporation buys the
deceased shareholder’s interest in the company with the insurance proceeds.

Subrogation
        The right of one who has taken over another’s loss to also take over his right to pursue
remedies against a third party. The insurer pays its insured for a loss then assumes the insured’s
right of action against the responsible party for reimbursement of the loss.

Superintendent of Insurance
       The person in charge of the NYS Insurance department i.e. commissioner. He may
revoke a license for any violation of the NYS Insurance law. Punishments include possible fines
and imprisonment for up to one year plus suspension or revocation of all licenses. All fines must
be paid within 15 days. The superintendent enforces the insurance laws and regulations.

Supplemental Spousal Liability
       Supplemental Spousal Liability Insurance means coverage against liability of an insured
because of death or injuries to his or her spouse up to the liability insurance limits provided
under the policy even where the injured spouse, to be entitled to recover, must prove the culpable
conduct of the insured spouse.

Support Staff
         Non-licensed employees in an insurance agency prohibited by law from prospecting or
soliciting insurance, quoting premiums, or receiving compensation based on sales.

Term Insurance
       A term policy provides coverage for an allotted amount of time. Most group life
insurance policies are term policies - covering employees only while they are working for your
business.

Total Disability
        An illness or injury which prevents an Insured from continuously performing every duty
pertaining to his occupation or from engaging in any other type of work for remuneration. (This
wording varies from one insurance company to another.)

Towing
      Covers cost to tow an insured vehicle



                                               146
Twisting
       Inducing an insured to cancel his preset insurance and replace it with insurance in the
same or another company by misrepresenting the facts or by presenting an incomplete
comparison.

Underwriting
        The analysis of information pertaining to an applicant which was obtained from various
sources and the determination of whether or not the insurance should be: (a) issued as requested,
(b) offered at higher Premium, or (c) declined.

Uninsured and Underinsured Motorist
        Pays damages for bodily injury caused by drivers of uninsured vehicles, when such
drivers are legally liable for injury to the insured and/or passengers. An example is a hit and run
driver or a driver whose insurance company is not solvent.

Viaticals
        Viatical, or a life settlement, is the sale of a life insurance policy by the beneficiary of the
policy, before the policy matures. Such a sale, at a price discounted from the face amount of the
policy but usually in excess of the current cash surrender value, provides the seller an immediate
cash settlement. Generally, viatical settlements involve insured individuals with a life
expectancy of less than two years. The life settlement market is currently focused on individuals
with life expectancies of three to ten years. A life settlement can be an innovative wealth and
estate planning tool, especially when the policy holder encounters changed circumstances, such
as bankruptcy, divorce, unaffordable premiums, change in tax laws, or a serious or life
threatening illness. From the perspective of the investor, purchasing a life settlement is similar
to buying a bond with a negative coupon and an uncertain redemption date.

Viatical Settlements
       Funds from a Life Insurance Policy used to subsidize the healthcare and living expenses
of terminally ill named insureds

Waiver of Premium
       A provision included in many policies which waives the payment of premiums after an
Insured has been totally disabled for a specified period of time (usually 6 months).

Warrant -
        A provision in a policy that pledges that a condition exists or will exist at some time in
the future




                                                  147
Workers Compensation
        Benefits paid for an injury (or causally related disease contracted) arising out of and in
the course of employment. The amount of the benefits and the conditions, under which
employees are eligible, are determined by the workers’ compensation law. In Most states, the
insurance providing these benefits may be purchased from private insurance companies. In a
few states, only a monopolistic state workers’ compensation fund is permitted to issue such
insurance. In some states, the coverage may be obtained from either a state fund or from a
private insurance company. NYS has a 7 day waiting period which is waived after the 14th day.
The employee is usually paid directly. Benefits may be denied in cases when the empoyee’s
injuries were intentionally self inflicted, or the injuries were sustained while engaged in an
activity which had been strictly forbidden by the employer, or if the employee was intoxicated.
Benefits cannot be taxed, and the time limit for benefits is the period of disability. The
maximum funeral expense is $6,000. There is no waiting period for medical, hospital and
surgical treatment.




                                               148
Section 9
Sample Test Questions

   1) NYS regulation 182 regarding credit scores are used in the underwriting of:

      a.   Personal lines insurance
      b.   Commercial insurance
      c.   Life insurance
      d.   Health insurance

   2) Regulation 60 primarily relates to:

      a.   licensing
      b.   types of property insurance policies
      c.   the replacement of life policies and annuity contracts in NY
      d.   property/casualty insurance premiums

   3) An underwriting tool that most property and casualty insurance companies use in
      establishing premiums is known as

      a.   contract of adhesion
      b.   estoppel
      c.   hold-harmless clause
      d.   insurance risk score

   4) The New York State FAIR Plan is known as:

      a.   The New York Fair Plan
      b.   New York Property Insurance Underwriting Association
      c.   Fair Access To Insurance Plan
      d.   New York Automobile Insurance Plan

   5) which of the following statements regarding the 1999 Graham-Leach-Bliley (GLBA)
      are correct

      a.   It instituted sweeping changes across the property and casualty industry
      b.   It instituted sweeping changes across the health insurance industry
      c.   It instituted sweeping changes across the financial industry
      d.   It instituted sweeping changes across the life insurance industry




Answers: 1 a 2 c      3d     4b       5c



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