Be sure your firm doesn't lose its
balance in the New York two-step.
When former New York Attorney General Andrew Cuomo became
governor in January, one of his first official acts was to
propose consolidating the state’s insurance and banking
departments. Cuomo said the combined agency would be more
efficient, help to address the state’s historic fiscal
crisis, and be more effective at preventing a repeat of the
2008 financial crisis.
Benjamin Lawsky, a former federal prosecutor who previously
served as Cuomo’s chief of staff, was appointed in May to
take the reins when the new Department of Financial Services
opened its doors Oct. 3. Almost as soon as the doors opened,
the new department issued Insurance Circular Letter No. 10 and
a Third Amendment to Regulation 86. Together these implement
New York’s new law adding a new “Class 3”
risk to its deregulated “Free Trade Zone.” Risks
that satisfy the new Class 3 requirements are exempt from rate
and form filing and approval requirements until June 30,
To be eligible, an insured must:
- Employ or retain a “special risk manager”
(who can be an independent agent or broker)
- Generate annual commercial risk insurance premiums of
more than $25,000
- Satisfy one of seven other eligibility criteria based on
entity size (such as having 50 or more employees; net worth
criteria, gross assets or gross revenue options for
for-profit businesses; a $20 million budget threshold for
nonprofit businesses; or being a municipality with a
population exceeding 50,000).
Policies issued under the exemption must satisfy all New
York form requirements (other than prior approval), and they
must be filed with the department within 60 days of binding.
For a complete overview, check outCircular
Letter No. 10 and theThird
Amendment to Regulation 86 .
The legislation creating the new department went further
than simply consolidating oversight over banking and insurance.
It also created a powerful new Financial Frauds and Consumer
Protection Division. The new unit and the appointment of Lawsky
are clear indications that the financial services industry has
a new sheriff in town.
Lawsky spent more than five years as a federal prosecutor in
the Southern District of New York. He served as chief counsel
to Sen. Charles Schumer, D-N.Y. He was Cuomo’s right hand
for four years in the attorney general’s office. Seasoned
and ambitious, Lawsky would not have left his post as the
governor’s chief of staff if he and Cuomo did not have
big plans for the new department.
Even before the new office’s launch, Cuomo and Lawsky
were stocking the existing insurance and banking departments
with veteran investigators and prosecutors from the attorney
general’s office. There is little doubt they will be
making waves in areas some might consider new territory for
state insurance and banking regulators.
Early indications are that there is competition between the
new insurance enforcement authority and new state attorney
general Eric Schneiderman. Just before July 4, for example,
Schneiderman subpoenaed major life insurers, demanding
information about their claims handling and unclaimed property
procedures. Historically, this is an area at the heart of
insurance regulation. That same week, the Cuomo/Lawsky
Insurance Department sent information requests to 160 life
insurers and announced they were revising claims handling and
unclaimed property regulations.
There is no indication the agencies will be coordinating
their efforts. Indeed, some signs suggest they are in
competition to be the first to take the upper hand.
Schneiderman announced in November, for example, that he was
joining forces with New York comptroller Tom DiNapoli (who
oversees escheatment of unclaimed property to the state
treasury) to “undertake the largest and most
comprehensive investigation of life insurance practices in the
As you might imagine, this caused quite a stir among state
regulators and those they regulate. Many brokerages, agencies
and carriers could find themselves the subject of much unwanted
attention. When that scrutiny first comes—and it will
come soon for some—the best course of action to defend
past practices will be to consider the enforcement and policy
objectives of each of these state authorities. Be ready to
engage either on the policy merits of your firm’s conduct
from the outset in presenting a consistent account that is
mindful of each authority’s independent objectives. While
work of this kind takes great effort and foresight, its return
on investment will be beyond measure.
A new day has dawned in New York. Is your firm ready?
Sinder is CIAB’s General
Matthew Gaul and Douglas Kantor,
partners with Steptoe & Johnson, contributed to this
Gaul is a former deputy superintendent for life insurance and
chief of the Investor Protection Bureau in the N.Y. Attorney
General’s office. firstname.lastname@example.org
Kantor is a former deputy chief of
staff and special counsel to Secretary Cuomo at HUD. email@example.com