New York Property Casualty Insurers’ Group Challenges ‘Improper’ Assessments

The following article was published in the Wall Street Journal on February 14, 2011:

Insurers’ Group Challenges “Improper” Assessments

By Leslie Scism

NEW YORK—A trade group representing New York-based insurers is challenging Gov. Andrew Cuomo’s reliance on what it contends are about $300 million in “improper” assessments to fund an array of programs beyond what state law obliges the insurers to fund.

The New York Insurance Association, which represents property-casualty insurers, delivered testimony before a joint state Senate and House panel in Albany as lawmakers consider the governor’s proposed budget. In prepared remarks, the group said the assessments “have increased at an alarming rate in recent years.”

The group sued the state over the assessments in January 2010. The suit, which is still pending, was subsequently joined by a trade group for New York-based health insurers, the New York Health Plan Association.

In the suit filed in New York Supreme Court in the county of Albany, the insurers accused the state of “systematic and intentional abuse” of state law “to create a slush fund through which expenses of other state agencies and general state expenditures are funneled” so that they are passed on to insurers, “rather than being obligations of the state’s General Fund, or other funding sources, where they properly belong.”

The suit said insurers have been subject to “assessments to defray operating expenses” of the insurance department since 1940, under state law. The trade group objects to the use of the assessments to fund such things as fire-safety training programs at privately operated colleges, a forgery-proof pharmaceutical-prescription program and development of fire-safety standards for cigarettes, according to a spokeswoman for the group.

In court filings, the state has denied wrongdoing. It said the assessments disputed by the trade group are used for purposes related to the insurance business and its regulation. It noted that the largest chunk of the disputed tally goes toward “desirable” health-related programs “to provide New Yorkers with affordable insurance coverage.”

The trade-group lawsuit tallied $455.4 million in assessments on property-casualty, health and life insurers in the 2009-10 budget, of which the trade groups said just $138 million covers expenses allowable under state law.

In the 2010-11 budget, the assessments total $450.5 million, of which the New York Insurance Association disputes $304.7 million, its spokeswoman said.

“Since 2008, the assessments on domestic insurers have nearly doubled” while the disputed allocations “have nearly tripled,” Ellen Melchionni, president of the New York Insurance Association, said in the prepared remarks at a hearing of the state Senate Finance Committee and Assembly Ways and Means committees. “The proposed budget calls for a mere 35% of the assessment to be properly used for the operations of the insurance department. The remaining 65% would be used to fund other state agencies for programs not directly related to insurance.”