PRODUCT OUTLINE
INDIVIDUAL BUSINESS OVERHEAD EXPENSE
As of 8/1/03
Table of Contents
I. Key References................................................................................................................................1
II. Cover Page.......................................................................................................................................1
III. Policy Schedule Page.......................................................................................................................4
IV. Table of Contents.............................................................................................................................4
V. Mandatory Standard Contract Provisions........................................................................................4
VI. Optional Standard Provisions ..........................................................................................................6
VII. Permissible Exclusions and Limitations on Coverage.....................................................................7
VIII. Regulatory Rules relating to the Content of Forms for Individual Insurance..................................8
IX. Other Provisions ..............................................................................................................................9
X. Applications...................................................................................................................................15
XI. Disclosure Requirements ...............................................................................................................16
XII. Marketing of Individual Business Overhead Expense Insurance Using Group Methods..............16
XIII. Conditional Receipts/Interim Insurance Agreements ....................................................................18
XIV. Rating Procedures and Requirements…………………………………………………………….22
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I.
Key References
Key Insurance Law Sections – 3102, 3105, 3201 (Form Approval issues), 3216 especially
3216(d)(1)(2) (standard provisions), 3204 (contract/application issues).
Key Applicable Regulations – Regulation 62 (11 NYCRR 52) minimum standards for form, content
and sale of health insurance including Sections 52.2, 52.8, 52.16, 52.17, 52.31, 52.33, 52.40,
52.41, 52.43, 52.45 (minimum loss ratio standards), 52.51 (applications), 52.53 (conditional
receipts/interim insurance agreements), 52.54 and 52.60 (disclosure requirements),
Regulation 169 (11 NYCRR 420) privacy of consumer financial and health information
including Section 420.18.
Key Circular Letters – Circular Letter No. 3 (1989), Circular Letter No. 5 (1997)
II.
Cover Page
1. Company’s Name and Address (New York State licensed entity).
2. Full street address of the company’s home office in prominent place (generally front and back
of policy form) for disclosure purposes.
3. No unlicensed entity in New York State should appear on the form. – Section 3201(c)(1).
4. Include name of product on the form within the defined category of Section 52.8 of
Regulation 62. Since the purpose of a business overhead expense policy is to replace income
and revenues lost due to disability which are used to pay overhead expenses, the Department
does permit product names such as “Disability Overhead Expense Policy” or “Business
Overhead Expense Policy”.
5. Include “free look” provision within parameters of Section 3216(c)(10).
6. Form identification number in lower left-hand corner of form – Section 52.31(d).
7. Renewability provisions of form to be placed on the front page of the policy form –
Section 52.17(a)(1)(2).
8. If renewability provisions are “noncancellable” and/or “guaranteed renewable”, the
provisions must comply with Sections 52.17(a)(5)(6)(7) of Regulation 62. In general for
business overhead expense forms, the terms “noncancellable” or “noncancellable and
guaranteed renewable” can only be used in a form which the insured has the right to continue
in force by the timely payment of premiums as set forth in the form until age 65, or as an
alternative, until receipt of retirement benefits under the Social Security Act of the United
States. During this renewal period, the insurer has no right to make unilaterally any change
in any provision of the form while the form is in force. When the term “guaranteed
renewable” is to be used alone without using the term “noncancellable” in conjunction with
the term “guaranteed renewable”, the term “guaranteed renewable” may only be used in a
form which the insured has the right to continue in force by the timely payment of premiums
until age 65, or as an alternative, until receipt of retirement benefits under the Social Security
Act of the United States. During this renewal period, the insurer has no right to make
unilaterally any change in any provision of the form while the form is in force except the
insurer may make changes in premium rates by classes.
At times the Department has received inquiries from insurers or forms from insurers which
give the insurer the right to terminate a “noncancellable” and/or “guaranteed renewable”
business overhead expense policy when the reason for the policy no longer exists. For
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example, some insurers have desired to terminate a business overhead expense policy when a
professional person discontinues his/her office. These insurers indicate they have no reason
to keep accepting premium from an insured when such circumstances arise.
The Department would allow an insurer to terminate the coverage when an insured
discontinues his/her office (or some similar circumstance pertaining to the need for a business
overhead policy) so long as the business overhead policy is not “noncancellable” and/or
“guaranteed renewable”. The Department views this reason for termination as a unilateral
change which the insurer reserves to nonrenew the business overhead expense policy. Such a
reason would have to be prominently set forth in the renewal provision (Section
52.17(a)(1)(2)). Such a renewal provision would preclude the use of a level premium age-at-
issue rating methodology with the business overhead expense policy containing such a
renewal provision—see below concerning Section 52.40(b)(1). In accordance with Section
3216(f) of the Insurance Law, coverage still has to be provided to the end of any time period
for which the insurer has accepted premium or continues to accept premium. Section
52.17(c)(2)(premium refund) would have to be followed as it does with any business
overhead expense policy.
The Department adheres to this position because it is favorable to the insured as a consumer
protection. When a circumstance arises which affects the reason a business overhead expense
policy was purchased (e.g.-professional office discontinuance), the insured may view this
circumstance as a temporary situation. The insured might intend to reopen his/her office
within a short time period (e.g.-either expecting to recover from the disability or hiring a
replacement) and not want to lapse his/her business overhead expense policy or have it
unilaterally ended by the insurer. He/she may desire to keep the coverage in force for this
brief time interval to retain premium levels at an original younger (and less expensive) issue
age or to avoid being medically underwritten again at an older age which could happen if the
coverage lapsed with office discontinuance and the insured was compelled to apply for new
business overhead coverage upon reopening the office. He/she may desire to keep the
coverage in force for this brief time interval to avoid becoming subject to a new pre-existing
condition time period which could happen if the coverage lapsed with office discontinuance,
and the insured was compelled to apply for new business overhead coverage upon reopening
the office. Thus, there are valid consumer protection reasons why an insurer should not
unilaterally terminate a business overhead expense policy which is “noncancellable” and/or
“guaranteed renewable”.
Some insurers have stated that allowing an insured the sole right to decide whether to
terminate business overhead expense coverage when the reason for the coverage no longer
exists (e.g.-office discontinuance) is unfair to the insurer even in a “noncancellable” and/or
“guaranteed renewable” situation. These insurers indicate some insureds might attempt to
submit claims for overhead expenses when the office has been closed for an extended time
period, and there are no significant overhead expenses incurred. There appears to be some
apprehension by these insurers that a disabled insured will close the office and rely upon
coverage to pay fixed expenses such as rent or tenant's insurance with not much incentive to
return to full or part time work any time soon. These insurers also appear to be concerned that
perhaps variable overhead expenses can be manipulated by an insured in some circumstances
so the benefit payments might not all be used for expenses but rather for insured gain. They
appear to believe the insurer will be compelled to pay certain overhead expenses in such
situations because the insurer cannot unilaterally terminate the business overhead expense
policy which is "noncancellable" and/or "guaranteed renewable".
The Department has considered these concerns as raised by some insurers. However, the
Department must balance the valid reasons of why an insured purchases a "noncancellable"
and/or "guaranteed renewable" business overhead expense policy (see above) and the
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possible unjustifiable retention of reserves if an insurer could automatically nonrenew a level
premium age-at issue- business overhead expense policy which is "noncancellable" and /or
"guaranteed renewable" against those concerns. For example, many times the insurer limits
its liability in a business overhead policy by offering only short benefit periods of one or two
years. Exposure to the possible abuses by insureds noted above in "noncancellable" and/or
"guaranteed renewable" policies with relatively short benefit periods may be overstated by
some insurers.
If an insurer offered a "noncancellable" and/or "guaranteed renewable" business overhead
expense policy with relatively long benefit periods and the insurer can demonstrate that the
above noted coverage manipulation by an insured is possible and frequent, the Department
would consider reasonable alternatives to deal with such a problem in a "noncancellable"
and/or "guaranteed renewable" business overhead policy. For example, if the insurer with a
"noncancellable" and/or "guaranteed renewable" business overhead policy with relatively
long benefit periods were to terminate benefit payments after an office was discontinued (but
only after a reasonable time period was allowed for payment of "run off" expenses after
office closure), the Department would consider such submissions "case by case". Please note
that the Department would not allow the insurer to terminate the "noncancellable" and/or
"guaranteed renewable" policy, but only terminate benefit payments after office closure with
a reasonable time period for "run off' expenses. Perhaps such an approach would strike a
reasonable balance between insureds who must close their offices for a short time period (but
desire to retain the coverage in force for reasons noted above)and the concerns of some
insurers as noted above. The insurer could not terminate the coverage, but the unscrupulous
insured desiring to manipulate the "noncancellable and /or "guaranteed renewable" business
overhead expense coverage for a longer term would not be receiving benefit payments.
Appropriate language to this effect approved by the Department would have to be present in
the longer term "noncancellable" and/or "guaranteed renewable" business overhead expense
coverage from issuance. It would appear such an approach in a longer term business
overhead expense policy would provide an incentive for the unscrupulous insured to lapse the
coverage on his/her own because benefit payments over the long term would not be provided
after office closure but premium payment would still be required.
A business overhead expense form using rates predicated upon a level premium age-at-issue
basis must contain renewal provisions which are guaranteed renewable, noncancellable or
provide nonrenewal is subject to the consent of the superintendent. This is required so that an
insurer does not unjustifiably nonrenew level premium forms to keep reserves based upon a
level premium rating methodology - Section 52.40(b)(1)
Section 3216(f) requires that coverage be provided for any time period the insurer accepts
premium. Sometimes a business overhead expense form indicates if a person retires or no
longer engages in an occupation then coverage ceases immediately upon retirement or
cessation of employment (other than by reason of disability). If the insurer has accepted
premium for a time period during which retirement or employment cessation occurs,
coverage must be provided to the end of the time period. The insurer can base disability
benefits on a revised definition (e.g. – insured is unable to perform the usual activities of a
person of like age and sex) for any time period when a person has retired or ceases to be
employed for a reason other than disability. The insurer needs to take affirmative action in
ascertaining whether a person has ceased employment for reasons other than disability or
retired to determine whether premium should be accepted.
In keeping with the foregoing paragraph, often business overhead expense policies allow for
a period of "conditional renewability" or some right to continue the policy after the
"noncancellable" and/or "guaranteed renewability" time period. This period of "conditional
renewability" generally arises as of the policy anniversary on or after the insured's 65th
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birthday and can vary in length. For example, some insurers allow this conditional
renewability period to extend to ages 72 or 75 while others will extend the renewability
period for life as long as certain conditions are met.
The conditions for renewability may vary. Generally, the insurer requires the insured to be
engaged in some occupation or profession on a full time basis (e.g.-at least 30 hours per
week), the insured must be responsible for expenses relating to an office or business and the
insured must pay the applicable rates for this time period of renewability. The premium rates
payable during this renewability period relating to older ages are almost always able to be
raised by the insurer on a class basis.
We emphasize the relevance of Section 3216 (f) of the Insurance Law to the conditions which
pertain during this period of conditional renewability. Once premium is accepted to keep
coverage effective for a period of time, coverage must be provided for the entire time period
involved due to Section 3216(f). The insurer must take affirmative action in ascertaining
whether an insured is still responsible for expenses relating to an office or business to
determine whether premium should be accepted. The Department will approve policy
language through which the insurer reserves a contractual right to require proof from an
insured that he/she is still engaged in an occupation or profession and still responsible for the
expenses of running an office or business. This language should be reasonable in its scope.
For example, a contract provision requiring such proof at renewal time (e.g. through a form
sent with a premium billing) would be considered reasonable.
9. Signature of Officer(s) – signature of one or more company officers should appear on the face
page to execute the contract on behalf of the company
III.
Policy Schedule Page
1. Complete with hypothetical data – Section 52.31(f).
2. Premium summary amounts and provisions dealing with insured participation status in
surplus or dividends should appear – originates from Section 52.31(f) and Section 3216(c)(1).
3. Elimination period choices, maximum benefit period choices, monthly benefit amounts and
similar optional choices made by the insured should be set forth – originates from
Section 52.31(f) and Section 3204(a)(1).
4. Name of insured space – originates from Section 52.31(f) and Section 3216(c)(3).
5. Spaces for effective date of insurance, renewal dates and renewal terms – originates from
Section 52.31(f) and Section 3216(c)(2).
6. Optional choices of insured regarding certain benefits and/or riders should be set forth –
originates from Section 52.31(f) and Sections 3204(a)(1).
IV.
Table of Contents must be included when required by Section 3102(c)(1)(G).
V.
Mandatory Standard Contract Provisions
1. Must include “Entire Contract; Changes” provision with no incorporation by reference to
writings not part of the form – Section 3216(d)(1)(A), Section 3204(a)(1).
2. Must include “Time Limit on Certain Defenses” provision in accordance with statutory
options. Section 3216(d)(1)(B)(i) allows the insurer to have two options regarding
application misstatements for an individual business overhead expense policy and the ability
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of the insurer to void the policy or deny a claim due to misstatements. The first option allows
the insurer to void the policy or deny a claim for loss incurred or disability commencing
within the first two years of the policy issuance date on the basis of application
misstatements. For fraudulent misstatements in the application, there is no two-year time
limit on the ability of the insurer to void the policy or deny a claim for loss incurred or
disability commencing from the date of policy issuance. The second option is available only
for a policy which the insured has the right to continue in force subject to its terms by the
timely payment of premium until at least age 50 or, in the case of a policy issued after age 44,
for at least five years from its date of issue. This second option would be available to
individual business overhead expense insurers which issue “noncancellable” or “guaranteed
renewable” policies within the meaning of Sections 52.17(a)(5)(6)(7) of Regulation 62. This
second option requires the insurer to label this option as “Incontestable” and not “Time Limit
on Certain Defenses”. This option indicates that, once the policy has been in force for two
years during the lifetime of the insured, the policy is incontestable as to any statements
contained in the application. At the insurer’s option, the insurer may add a statutory phrase
extending the calculation of the two-year period by any period of disability of the insured.
Insurers are reminded these are two distinct statutory options, and the most favorable aspects
for an insurer cannot be made into a third option not sanctioned by statute. For example, the
fraudulent misstatement exception of the first option cannot be added to the second option.–
Section 3216(d)(1)(B).
Must include a preexisting condition time period complying with Section 3216(d)(1)(B)(ii).
Section 3216(d)(1)(B)(ii) sets a two-year time period from the coverage issuance date for a
business overhead expense insurer to exclude coverage for preexisting conditions. For
business overhead expense coverage, it is important to note that Section 52.2(v) defines a
preexisting condition as the existence of symptoms which would ordinarily cause a prudent
person to seek diagnosis, care or treatment within a two-year period preceding the effective
date of coverage or a condition for which medical advice or treatment was recommended by a
physician or received from a physician within a two-year period preceding the effective date
of coverage.
Section 3216(d)(1)(B)(ii) indicates that if a disability commences after two years from the
coverage issuance date, that disability is not subject to a preexisting condition limitation.
Losses payable under business overhead expense coverage unrelated to disability definitions
(e.g. – incidental benefits such as hospital indemnity benefits or non-disabling sickness or
injury indemnity benefits) have preexisting condition time periods measured from the
coverage issuance date, but such losses which occur on a continuous basis during the first two
years of coverage must be covered on the 731
st
day from the coverage issuance date (i.e. –
“loss incurred” wording of Section 3216(d)(1)(B)(ii).
Conditions of an insured not considered preexisting conditions within the meaning of Section
52.2(v) are not subject to any preexisting condition limitation. In that instance these
conditions would be considered “first manifested” or “first diagnosed or treated” after the
coverage issuance date.
3. Must include “Grace Period” provision for premium payment in accordance with statutory
options – Section 3216(d)(1)(C).
4. Must include “Reinstatement” provision in case of form lapse in accordance with statutory
options. Section 3216(d)(1)(D) of the Insurance Law makes reference to a conditional receipt
when premium is tendered with an application for reinstatement. Insurers are reminded that
the conditional receipt used for reinstatement of individual business overhead expense forms
has its own statutory requirements for use in the reinstatement situation. For example,
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Section 3216(d)(1)(D) of the Insurance Law places a maximum 45-day time limit following
the date of the conditional receipt for insurer action on a reinstatement application where the
insurer or its agent issued a conditional receipt for premium tendered. The form is reinstated
on the 45
th
day following the conditional receipt date if the insurer has not approved or
disapproved the reinstatement application in writing within that time period. -
Section 3216(d)(1)(D).
5. Must include “Notice of Claim” provision in accordance with statutory options –
Section 3216(d)(1)(E).
6. Must include “Claim Forms” provision – Section 3216(d)(1)(F).
7. Must include “Proofs of Loss” provision – Section 3216(d)(1)(G).
8. Must include “Time of Payment of Claims” provision in accordance with statutory options –
Section 3216(d)(l)(H).
9. Must include “Payment of Claims” provision in accordance with statutory options –
Section 3216(d)(l)(I).
Section 3216(d)(1)(I) contains several scenarios and/or options for the insurer. Each scenario
and/or option chosen must be as favorable or more favorable than Section 3216(d)(1)(I).
10. Must include “Physical Examinations and Autopsy” provision – Section 3216(d)(1)(J).
11. Must include “Legal Actions” provision – Section 3216(d)(l)(K).
12. When applicable, must include “Change of Beneficiary” provision in accordance with
statutory options – Section 3216(d)(l)(L).
13. When applicable, must include “Conversion Privilege” provision – Section 3216(d)(l)(M).
VI.
Optional Standard Provisions
1. If insurer chooses to place a “Change of Occupation” provision in the coverage, must comply
with Section 3216(d)(2)(A).
2. If insurer chooses to place a “Misstatement of Age” provision in the coverage, must comply
with Section 3216(d)(2)(B).
3. If insurer chooses to place an “Other Insurance in this Insurer” provision in the coverage,
must comply with Section 3216(d)(2)(C).
4. If insurer chooses to place an “Insurance with Other Insurers” provision in the coverage, must
comply with Section 3216(d)(2)(E).
5. If insurer chooses to place a “Relations of Earnings to Insurance” provision in the coverage,
must comply with Section 3216(d)(2)(F).
6. If insurer chooses to place an “Unpaid Premium” provision in the coverage, must comply
with Section 3216(d)(2)(G).
7. If insurer chooses to place a “Cancellation” provision in the coverage, must comply with
Section 3216(d)(2)(H).
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8. If insurer chooses to place a “Conformity with State Statutes” provision in the coverage, must
comply with Section 3216(d)(2)(I).
9. If insurer chooses to place an “Illegal Occupation” provision in the coverage, must comply
with Section 3216(d)(2)(J). See also Section 52.16(c)(4)(i) of Regulation 62.
10. If insurer chooses to place an “Intoxicants and Narcotics” provision in the coverage, must
comply with Section 3216(d)(2)(K).
VII.
Permissible Exclusions and Limitations on Coverage*
1. If insurer chooses to place a preexisting condition limitation in the coverage, must comply
with Sections 52.16(c)(1) and 52.2(v) of Regulation 62 and Section 3216(d)(1)(B)(ii) of the
Insurance Law.
2. If insurer chooses to place an exclusion or limitation on coverage for mental or emotional
disorders, alcoholism or drug addiction must comply with Section 52.16(c)(2) of
Regulation 62 and Section 3216(d)(2)(K) as pertinent.
3. If insurer chooses to place an exclusion or limitation on coverage for pregnancy, must comply
with Section 52.16(c)(3) of Regulation 62.
4. If insurer chooses to place an exclusion or limitation on coverage for war or act of war,
suicide, attempted suicide or intentionally self-inflicted injuries, must comply with
Section 52.16(c)(4) of Regulation 62.
If insurer chooses to place an exclusion or limitation on coverage for participation in a felony,
riot or insurrection, service in the armed forces or units auxiliary thereto, aviation (other than
as a fare-paying passenger on a scheduled or charter flight operated by a scheduled
airline),
must comply with Section 52.16(c)(4). For felony participation, see also
Section 3216(d)(2)(J) of the Insurance Law. For service in the armed forces, insurer must
also include a “suspension” provision complying with Sections 3216(c)(13)(14) and
Section 52.17(a)(9).
5. If insurer chooses to place an exclusion or limitation on coverage for cosmetic surgery, must
comply with Section 52.16(c)(5) of Regulation 62.
6. If insurer chooses to place an exclusion or limitation on coverage for foot care, must comply
with Section 52.16(c)(6) of Regulation 62.
7. If insurer chooses to place an exclusion or limitation on coverage for care in connection with
structural imbalance, distortion or sublaxation in the human body for purposes of removing
nerve interference must comply with Section 52.16(c)(7) of Regulation 62.
8. If insurer chooses to place an exclusion or limitation on coverage for benefits provided by the
government, benefits provided pursuant to certain laws, services provided by certain
employees or family members or for services normally provided free of charge, must comply
with Section 52.16(c)(8) of Regulation 62.
9. If insurer chooses to place an exclusion or limitation on coverage for dental care or treatment,
must comply with Section 52.16(c)(9) of Regulation 62.
10. If insurer chooses to place an exclusion or limitation on coverage for eyeglasses, hearing aids,
and exams for their prescription or fitting, must comply with Section 52.16(c)(10) of
Regulation 62.
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11. If insurer chooses to place an exclusion or limitation on coverage for rest cures, custodial care
and transportation, must comply with Section 52.16(c)(11) of Regulation 62.
12. If insurer chooses to place an exclusion or limitation on coverage related to territorial
restrictions, must comply with Section 52.16(c)(12) of Regulation 62.
For Section 52.16(c)(12) compliance, must provide coverage within the United States, its
possessions and the countries of Canada and Mexico.
13. For compliance with Sections 52.16(e)(2) and 52.2(i) of Regulation 62, insurers should note
that Regulation 62 recognizes only aviation and its related activities and participation as a
professional in sports as extra-hazardous activities which can be initially underwritten. These
extra-hazardous activities may be excluded from coverage by means of prominently disclosed
waivers (see Section 52.16(e)(2)) at coverage issuance or extra premium (“rate up”) may be
charged for coverage of such extra-hazardous activities or standard coverage may be issued
when an applicant indicates participation in such extra-hazardous activities or coverage may
be declined based upon participation in such extra-hazardous activities. Sections 52.16(e)(2)
and 52.2(i) do not recognize any other avocations, vocations or activities as extra hazardous.
Therefore, the insurer may only issue standard coverage or decline coverage for applicants
participating in avocations, vocations or activities other than those defined in Section 52.2(i).
14. Individual accident and health coverages, including business overhead expense insurance, are
not plans which can contain coordination of benefit provisions (Section 52.23(e)(3)(i)).
Insurers have the ability to financially underwrite for other coverage before issuance, and
have statutory provisions (Sections 3216(d)(2)(C), (D) and (E) for excess insurance situations
after issuance.
*In general, the exclusionary or limiting language can be no less favorable than the various
paragraphs of Section 52.16(c) of Regulation 62.
VIII.
Regulatory Rules relating to the Content of Forms for Individual Insurance
1. If insurer reduces benefits due to an age limit attainment, including a benefit period
reduction, such reduction must be referenced on the first page or specification page of the
policy – Section 52.17(a)(3) of Regulation 62.
2. If policy contains accident benefits, accident benefits cannot be predicated upon loss
occurring through accidental means or violent and external means – Section 52.17(a)(8) of
Regulation 62.
3. Insurer must comply with Section 52.17(a)(9) of Regulation 62 and Section 3216(c)(13)(14)
of the Insurance Law for insureds entitled to suspend coverage during periods of military
service.
4. Insurer attaching any rider or endorsement which reduces or eliminates coverage after policy
issuance shall provide for signed acceptance by the insured – Section 52.17(a)(12) of
Regulation 62. See also 52.16(e)(2), however, for waivers issued as a condition of issuance,
renewal or reinstatement.
5. Riders or endorsements providing a benefit for which a specific premium is charged shall
show the premium on the application, rider or elsewhere in the form – Section 52.17(a)(14) of
Regulation 62.
6. In general, the form cannot require loss from accidental injury to commence within less than
30 days after the date of an accident – Section 52.17(a)(26) of Regulation 62.
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7. In general, any form which the insurer may cancel or refuse to renew cannot require that the
form be in force at the time loss commences if the accident occurred while the form was in
force – Section 52.17(a)(26) of Regulation 62.
8. Forms based upon attained age shall include the applicable schedule of rates –
Section 52.17(a)(29) of Regulation 62.
9. Business overhead expense forms which contain accidental death and dismemberment
(AD&D) benefits shall have the AD&D benefits payable if the loss occurs within 90 days
from the date of the accident, irrespective of total disability - Section 52.17(b)(1) of
Regulation 62.
10. Business overhead expense forms which contain specific accident dismemberment benefits
shall not have the specific accident dismemberment benefits payable in lieu of other benefits
unless the specific benefit exceeds the other benefit – Section 52.17(b)(3) of Regulation 62.
11. Benefits for specific injury due to accident shall not be in lieu of business overhead benefits,
unless the specific benefit exceeds the disability benefit – Section 52.17(c)(1) of
Regulation 62.
12. Since a business overhead expense policy limits benefits for disability to specified items,
the policy must provide a premium refund, pro rata or in accordance with a short rate
table, in the event that none of the specified items to be indemnified exist, but only if the
insured gives timely notice. Any premium refund may be limited to a one-year premium.
Section 52.17(c)(2) of Regulation 62.
13. No business overhead expense form shall provide for reduction of benefits prior to age 65 by
reason of a change in employment status of the insured except in accordance with
Sections 3216(d)(2)(A) – Section 52.17(c)(3) of Regulation 62.
14. No business overhead expense form shall reduce benefits solely on the basis of the sex or
marital status of the insured – Section 52.17(c)(3) of Regulation 62.
15. Disability benefits conditioned upon hospital confinement shall be considered hospital,
medical or surgical expense benefits for purposes of renewability and eligibility under
Section 3216 of the Insurance Law and any relevant regulations – Section 52.17(c)(4) of
Regulation 62. (This may be applicable when hospital indemnity benefits are a part of
business overhead expense coverage)
16. Business overhead expense forms providing disability benefits for dependents shall
adequately define the conditions establishing disability – Section 52.17(c)(5) of
Regulation 62.
IX.
Other Provisions
1. Form definition of “occupation” must be meaningful as used in a business overhead expense
policy, fair to the consumer and fully disclosed in the policy language – originates from
Sections 3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c), 52.1(d) and 52.8 of
Regulation 62.
2. Form definitions of “disability”, “total disability”, “residual disability”, “concurrent
disability”, “recurrent disability”, “partial disability” and similar terms must be meaningful as
used in a business overhead expense policy, fair to the consumer and fully disclosed in the
policy language – originates from Sections 3201(c)(3), 3217(b) of the Insurance Law and
Sections 52.1(c), 52.1(d) and 52.8 of Regulation 62.
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Business overhead expense forms often contain provisions regarding “recurrent disabilities”,
“concurrent disabilities” and terms of similar import. Essentially, the insurer explains in such
provisions how the coverage will pay one overhead expense benefit (usually monthly) for a
defined disability no matter how many causes (e.g. – how many sicknesses or injuries cause
the disability). Such provisions also explain when the insurer deems subsequent disabilities
to be related to a prior disability (i.e. – in sum, how much recovery time must elapse before a
later disability is eligible for a new benefit period and a new elimination period and is not
deemed to be still satisfying an elimination period of a prior disability period or still running
out the benefit period of a prior period of disability).
The Department will review such provisions according to the standards noted in Sections
3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c), 52.1(d) and 52.8 of
Regulation 62.
3. Form definition of “complications of pregnancy” and pregnancy must comply with
Section 52.2(e) of Regulation 62, and all pertinent federal statutes, regulations and
requirements.
4. Form definitions of consumer price indexes and consumer price index factors able to be used
in individual business overhead expense forms must be meaningful as used in a business
overhead expense form, fair to the consumer and fully disclosed in the form language.
Business overhead expense insurers which reserve the right to change the consumer price
index used to calculate policy adjustments in a business overhead expense form should
indicate in the form language that any new index chosen by the insurer or change to a present
index made by an insurer will be subject to the prior approval of the Superintendent of
Insurance (or, as a more general alternative, subject to the approval of the insurance
regulatory authority of the state where the form was delivered or issued for delivery when
required). An insurer which makes changes in an index or chooses a new index is essentially
reserving the right to materially affect future form benefits for which an insured pays
premiums based upon an index. This right of an insurer to change an index or choose a new
index can make the benefit illusory if the insurer’s action reduces or eliminates form benefits
in the future based upon the index. This would be contrary to Section 3201(c)(3) of the
Insurance Law. In addition, future changes to a present index or choosing a new index in the
future will vary the language of an approved form, and this requires approval of the wording
describing the new index or index changes under Section 3201(b)(1) of the Insurance Law.
Changes to form language must appear in the contract of insurance under Section 3204(a)(1)
of the Insurance Law. – originates from Sections 3201(b)(1), 3201(c)(3), 3204(a)(1), 3217(b)
of the Insurance Law and Sections 52.1(c), 52.1(d) and 52.8 of Regulation 62.
5. Form definitions of “elimination period”, “waiting period”, or similar provisions which set a
time period before overhead expense benefits will be paid must be meaningful as used in a
business overhead expense form, fair to the consumer and fully disclosed in the form
language – originates from Sections 3201(c)(3), 3217(b) of the Insurance Law and Sections
52.1(c), 52.1(d) and 52.8 of Regulation 62.
6. Form definition of “hospital” as used in an individual business overhead expense form must
comply with Section 52.2(m) of Regulation 62.
7. Form definitions of “injuries”, “sickness”, “preexisting condition”, “first manifest”, “first
diagnosed or treated” or similar terminology must be meaningful as used in a business
overhead expense form, fair to the consumer and fully disclosed in the form language –
originates from Sections 3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c),
52.1(d), 52.2(v) and 52.8 of Regulation 62.
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8. Form definitions of “Covered Overhead Expenses”, “Maximum Overhead Expense Benefit”,
“Accumulation Benefit” (ie – some type of “carry forward” mechanism), Extension of
Benefits” and similar terms used to calculate benefits payable under a business overhead
expense policy must be meaningful as used in a business overhead expense form, fair to the
consumer and fully disclosed in the form language.
For example, business overhead expense policies often vary in the language used to define
covered overhead expenses. Usually there is an attempt to list or describe fixed and variable
expenses that are usual and customary in the operation of an office or business which would
normally be paid from the earnings or revenues generated by an insured who is not generating
those earnings or revenues, in whole or in part, due to disability as defined in the policy.
Rent, electricity, telephone, heat, water, interest on debt are all illustrations of such expenses,
but this is not an all inclusive list.
Similarly, business overhead expense policies often vary in the language used to define or
describe overhead expenses that are not covered by the policy. Common overhead expenses
which are not covered include salaries, fees, drawing accounts, profit or remuneration for the
insured person or person sharing business expenses with an insured person. Such items
would not be covered for the insured or a person sharing business expenses with an insured
because these items represent income (rather than a business expense) which would be
covered by a disability income policy if these persons had purchased a disability income
policy.
Some business overhead policies might cover remuneration for a person hired to perform the
disabled insured’s duties (replacement) while others might not cover that item or only cover it
for an additional premium. The differences appear to be related, in part, to an insurer’s
philosophy in handling exposure to disabilities resulting in revenue/earnings losses and
benefit payments for covered overhead expenses related to those revenue/earnings losses. It
would seem some insurers may view covering the remuneration of a replacement as a method
to generate some revenue/earnings while the insured is disabled to mitigate payment of other
expenses which would be reduced by the revenues/earnings of the replacement. Other
insurers might view the coverage of remuneration for a replacement as a method too much
within control of the disabled insured who may own the business. Those insurers may take
the view the disabled insured has less incentive to return to work either full time or part time
and the claim will be prolonged. So they do not cover remuneration for a replacement or will
only cover it for added premium.
The Department will approve reasonable definitions and reasonable descriptions so long as
the result is payment of meaningful benefits with a premium rate which is reasonable in
relation to those benefits. The foregoing should serve as illustrations of reasonableness.
Similarly, definitions and descriptions of “carry forward” mechanisms as noted above will be
approved by the Department so long as they are reasonable and priced appropriately. Often
insurers agree to “carry forward” the difference between the maximum monthly overhead
expense benefit and the lesser actual monthly covered overhead expenses for any given
month of claim. They also agree to “carry forward” the difference between actual monthly
covered overhead expense benefits and the maximum monthly overhead expense benefit
when actual monthly covered overhead expenses exceed the maximum monthly overhead
expense benefit for a given month of claim. Often they agree to such “carry forward”
processes on a cumulative basis for a given claim subject to certain time or monetary payout
limitations such as a maximum benefit period or a maximum overhead expense benefit. If
the policy language provides a meaningful benefit “carry forward” or accumulation for an
insured, the Department would approve it. The foregoing should serve as illustrations of
what is reasonable and meaningful.
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9. Form definitions of “maximum benefit periods”, “benefit periods”, or similar provisions
which set a maximum time period for payment of business overhead expense benefits must
be meaningful as used in a business overhead expense form, fair to the consumer and fully
disclosed in the form language. Reductions in benefit periods due to attainment of age limits
must be prominently disclosed by placement on the form face page or specification page –
originates from Sections 3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c),
52.1(d), 52.17(a)(3) and 52.8 of Regulation 62.
10. Form definition of “mental disorders” must be meaningful as used in a business overhead
expense form, fair to the consumer, and fully disclosed in the form language – originates
from Sections 3201(c)(3), Sections 3217(b), 4224(b)(2) of the Insurance Law and
Sections 52.1(c), 52.1(d) and 52.8 of Regulation 62.
11. Form definition of “physician” or any substitute terms cannot unduly limit access of the
insured to business overhead expense benefits under the form – originates from
Sections 3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c), 52.1(d) and 52.8 of
Regulation 62.
12. Form provisions dealing with waiver of premium during period of disability resulting from
injuries or sickness or assignments must be meaningful as used in a business overhead
expense form, fair to the consumer and fully disclosed in the form language – originates from
Section 3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c), 52.1(d), 52.8 and
52.16(b) of Regulation 62.
13. Form provisions which are drafted to provide business overhead benefits using defined form
terms must be constructed so as to provide a meaningful benefit amount, for a meaningful
time period after any reasonable time delay before benefits are paid. For example, a business
overhead expense policy which defines total disability of an insured as being unable to
perform the material and substantial duties of your occupation, requiring the regular
attendance of a physician and having the disability result from an injury or sickness would be
acceptable. However, for a business overhead expense form such a definition should be
incorporated into a benefit provision trigger where covered overhead expenses actually
incurred for each month are reimbursed for each month of total disability. The
reimbursement paid by the insurer during total disability can be after an elimination or
waiting period of reasonable duration chosen by an insured (generally no longer than 6
months). The reimbursement paid by the insurer during total disability can be subject to a
maximum monthly benefit each month and to an overall reimbursement level determined by a
maximum benefit period expressed in time or a cumulative maximum monthly overhead
expense benefit expressed in dollar terms. Sometimes the maximum benefit period or
cumulative maximum monthly overhead expense benefit concepts are used in the same policy
together with an accumulation (e.g.-“carry forward”) concept (see above). Generally, a
maximum benefit period of at least one year would be considered reasonable. A reasonable
cumulative maximum monthly overhead expense benefit would be arrived at by multiplying
the maximum monthly benefit each month (arrived at through choices of the insured as
limited by insurer underwriting practices as applied to the actual overhead expenses stated on
the insured’s application for business overhead expense coverage) by the general minimum of
twelve months. – originates from Section 3201(c)(3) of the Insurance Law and Sections
52.1(c), 52.1(d) and 52.8 of Regulation 62.
14. Form provisions which are drafted to provide less than the entire benefit amount for total
disability for periods of time when the insured might be able to work part-time or work full-
time but not perform all occupational duties (e.g. – residual disability benefits, partial
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disability benefits, or similar benefits) must be constructed so as to provide a meaningful
benefit amount, for a meaningful time period after any reasonable time delay before less than
full form benefits are paid. For example, a business overhead expense policy which defines
partial disability of an insured as being able to do one or more but not all of the main duties
of your occupation or performing all of your main duties for 50% or less of the time normally
required would be acceptable. The policy may require the partial disability to be caused by a
sickness or injury, and the policy may also require the insured with the partial disability to be
under the regular care and treatment of a physician. Ordinarily the business overhead
expense form would incorporate the partial disability definition into a benefit provision
trigger where covered overhead expenses actually incurred for each month are reimbursed for
each month of partial disability. The reimbursement paid by the insurer during partial
disability can be after an elimination period or waiting period of reasonable duration chosen
by an insured (generally no longer than 6 months with most insurers giving credit for time
elapsed during total disability toward any elimination period or waiting period for partial
disability). The reimbursement paid by the insurer during partial disability can be subject to a
maximum monthly benefit each month and to an overall reimbursement level determined by a
maximum benefit period expressed in time or a cumulative maximum monthly overhead
expense benefit expressed in dollar terms. For coverage of covered overhead expense
benefits during partial disability, the insurer may choose to cover only a reasonable
percentage (e.g. 50%) of the maximum monthly benefit each month or impose other
reasonable limits on reimbursement levels appropriate for periods of less than total disability.
These lesser reimbursement levels would be acceptable because the partially disabled insured
would be expected to generate some earnings/revenues to be used toward covered overhead
expenses resulting in less need for the insurance coverage. As a “rule of thumb”, the lesser
overall reimbursement levels for partial disability should provide at least 6 months worth of
benefits to be considered reasonable whether the benefits are expressed in time periods or
dollar terms. The foregoing provides one kind of example, but the Department would
consider other reasonable approaches such as those based upon gross monthly revenue, prior
gross monthly revenue, current gross monthly revenue and loss of gross monthly revenue. -
originates from Section 3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c),
52.1(d) and 52.8 of Regulation 62.
15. Form provisions drafted to provide voluntary rehabilitation benefits when the insured and
insurer (and some other acceptable parties such as the insured’s medical provider or insured’s
immediate family) agree in writing as to the nature of the benefits and amount payable are
approvable. In accordance with Section 3201(c)(3) of the Insurance Law, such provisions
cannot be drafted to compel an insured to participate in a program for which the insured does
not want to participate. The provision as drafted should be constructed to aid the insured in
returning to work and to increase the amount of earnings/revenues which an insured can
generate for overhead expenses to decrease the need for the coverage.
16. Section 3216(d)(1)(K) is goverened by “lead in” wording present in Section 3216(d)(1). The
“lead in” wording proscribes approval of language which would be less favorable in any
respect to an insured than the wording in Section 3216(d)(1)(K). Section 3216(d)(1)(K) sets
forth parameters to allow an insured to bring an action at law or equity in a business overhead
expense policy or any individual commercial accident and health insurance policy.
Arbitration provisions set forth as a contractual right of an insurer generally preclude an
insured from bringing an action at law or equity. Therefore, the Department is under a
statutory constraint because arbitration provisions in a policy which preclude an insured from
bringing an action at law or equity would be less favorable in many respects to an insured
than the parameters set forth in Section 3216(d)(1)(K).
The Department addresses here its statutory inability to approve arbitration provisions in a
business overhead expense policy. The Department does not address in this product outline
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other reasonable and appropriate mechanisms which an insurer may be able to use in its
ongoing relationship with an insured.
17. Generally form provisions are drafted so that an insured can access coverage for covered
overhead expenses through a disability rendering the insured unable to perform the material
and substantial duties of their own occupation. We believe that insurers generally adhere to
this wording because they desire to be certain of the covered overhead expenses and need for
business overhead coverage associated with the specific occupation of the insured at issuance
and throughout any disability. It appears possible that a dual definition (e.g. disabled from
their own occupation and, after a time period, disabled from any occupation for which the
insured is fitted by reason of education, experience or training) could be used in a business
overhead expense policy, however, the insurer would have an uncertainty as to the overhead
expenses associated with a later occupation and not necessarily be certain that a later
occupation would require an office or business at all (e.g a doctor who is a disabled surgeon
becomes an internist with differing equipment, personnel costs in the office or a doctor who
is a surgeon becomes a medical school professor with no need for an office at all). The
Department would review and approve reasonable structures in a business overhead policy.–
originates from Sections 3201(c)(3), 3217(b) of the Insurance Law and Sections 52.1(c),
52.1(d) and 52.8 of Regulation 62.
18. Form provisions providing update increases or future guaranteed option increase dates or
events where business overhead expense benefits are automatically increased without
evidence of good health upon payment of proper premium are approvable in general.
The Department would allow a reasonable number of times for such increase to occur for an
appropriate premium.
The Department would allow an insurer to use reasonable methods to protect itself against
anti-selection and to encourage insureds to opt for increases without evidence of good health
when still relatively healthy. However, limiting an insured to maximum increase amounts
based upon undefined issue and participation limits in effect at some future date would make
the benefit illusory. The insurer could adversely change its issue and participation limits in
the future to limit or eliminate the insured’s ability to increase business overhead expense
benefits without evidence of good health. An insurer should guarantee its issue and
participation limits in effect when the benefit providing increases without evidence of good
health is issued so the benefit is not illusory. – originates from Sections 3201(c)(3), 3217(b)
of the Insurance Law and Sections 52.1(c), 52.1(d) and 52.8 of Regulation 62.
19. Form provisions which coordinate or integrate business overhead expense benefits with
benefits payable from other individual or group health or business overhead expense policies
are not approvable in New York State for use in individual business overhead expense forms
– Section 52.23(e)(3)(i) of Regulation 62.
20. The Department notes that business overhead expense insurers often include conversion
privileges in their policies to permit insureds to convert to individual disability income
policies. This feature is not required by statute or regulation, but it appears to be a
mechanism to allow insureds with changing needs for coverage of disabilities to retain
coverage with the same insurer. An insured who permanently closes an office or business,
but now is employed by another business may need to cover his/her income from losses due
to disability. The change in status from self-employment to general employment may occur
at an older age when premiums are higher and/or medical conditions complicate the
underwriting process. Therefore, the Department will approve conversion privilege language
in business overhead policies which is reasonable. For example, allowing conversion from
business overhead coverage to disability income coverage before age 60 without evidence of
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medical insurability so long as the insured is not disabled at conversion time is reasonable.
Further conditions considered to be reasonable are: limiting the disability income policy
maximum benefit period to 2 years, limiting the waiting period of the disability income
policy to one as long or longer than the waiting period of the business overhead coverage,
indicating the maximum monthly benefit of the new disability income policy when added to
the amount of disability income coverage in force with all companies at time of conversion
does not exceed published issue and participation limits in effect for disability income
coverage in effect at issuance of the business overhead expense policy (unless future changes
in those issue and participation limits after issuance of the business overhead expense policy
are more favorable to the insured at time of conversion).
21. Policies which limit benefits for disability to specified items such as a business overhead
expense policy must provide for a premium refund, pro rata or in accordance with a short rate
table, in the event that none of the items to be indemnified exist as when an office or business
closes. The policy language may require the insured to give timely notice that the items to be
indemnified no longer exist, and the insurer may limit premium refund to a one year
premium. – Section 52.17(c)(2)
22. Earlier in this outline (IX., 8.) an example was given of how business overhead expense
insurers differ in the type of covered overhead expenses which they always cover and those
covered overhead expenses excluded or covered for additional premium. Due to Section
3217(b)(5) of the Insurance Law and Section 52.1(c) of Regulation 62, the Department will
not approve business overhead expense policies which unduly attempt to fragment the risk
insured by a business overhead expense policy. If an insurer began to exclude coverage of
certain covered overhead expenses normally incurred in the operation of a business or office
and only made them available as optional coverages for added premium, the Department
would be concerned with undue fragmentation.
Such an approach in a business overhead expense policy would allow an insurer to provide a
policy which did not meet the basic needs of an insured operating a business or office when
that insured did not purchase the optional benefits. In addition, offering certain covered
overhead expenses normally incurred in the operation of an office or business only on an
optional basis for added premium would allow the insurer to charge more (e.g. added
underwriting and administrative costs when optional benefits integral to the operation of an
office or business are offered on an optional basis) than would be the case if the basic
overhead expenses were included in a more comprehensive business overhead policy as usual
coverage.
Therefore, insurers should always include overhead expenses normally incurred in the
operation of an office or business in the basic policy structure of a business overhead policy
as usual benefits. This will avoid Department comments about fragmentation and expedite
the approval process.
23. Insurers in the individual business overhead expense market are reminded of their obligations
under Section 3228 of the Insurance Law.
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X.
Applications
1. If more than one application will be used, objective criteria is required to avoid unfair discrimination
under Section 4224(b) of the Insurance Law. An example of unfair discrimination would be that, if
two applications offer different levels of underwriting, two individuals would receive the same
policy but undergo different levels of underwriting
.
Insurers are reminded of their obligations under Section 4224(b)(1) as they pertain to the use of
application forms with business overhead expense insurance policies. Objective and rational criteria
must be used by the insurer to avoid unfair discrimination if the insurer is using multiple application
forms with a business overhead expense insurance form so different applicants are subjected to
different medical and financial underwriting in attempting to obtain coverage. When a submission is
made of multiple application forms to be used with business overhead expense insurance where the
Department could reasonably inquire about such obligations, the insurer should provide a detailed and
prominent explanation in the submission letter about the use of multiple application forms with a
business overhead expense insurance product.
2. Section 52.51(a) of Regulation 62 requires that an application cannot contain questions as to race of
the applicant.
3. Section 52.51(b) of Regulation 62 requires that questions regarding past or present health of any
person that refers to a specific disease or general health must be asked to the best of the applicant’s
knowledge and belief. Questions regarding factual information, such as doctor’s visits or hospital
confinements, do not require this qualification.
4. Section 52.51(c) of Regulation 62 requires that no application will contain a provision that changes
the terms of the policy to which it is attached.
5. Section 52.51(d) of Regulation 62 requires that no application will contain a statement that the
applicant has not withheld any information or concealed any facts.
6. Section 52.51(e) of Regulation 62 requires that no application will contain an agreement that an
untrue or false answer material to the risk shall render the contract void.
7. Section 52.51(f) of Regulation 62 requires that no application will contain an agreement that
acceptance of any policy issued upon the application will constitute a ratification of any changes or
amendments made by the insurer and inserted in the application, except in conformity with Section
3204 of the Insurance Law.
8. Section 52.51(g) of Regulation 62 requires that applications for conversion policies may not contain
questions as to the health of the person or persons entitled to conversion.
9. Section 52.51(h) of Regulation 62 requires that applications for policies subject to Section
3216(d)(2)(D) or (E), “Insurance with Other Insurers”, will contain a question or questions requiring
information with respect to such other insurance.
10. Section 52.51(i) of Regulation 62 requires that if an insurer includes in a policy the optional standard
provision under Section 3216(d)(2)(C), “Other Insurance in this Insurer”, a statement describing the
provision in the policy must be included in the application, or provided at the time of application by
separate notice.
11. Section 52.51(j) of Regulation 62 requires that if a policy contains a provision with respect to “pre-
existing conditions”, a statement describing the policy provision must be included in the application
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OR provided at the time of application by delivery of the disclosure statement required by Section
52.54.
12. Previous HIV test results are NOT questioned, sought or used per Sections 3217(b) and 52.1 of
Regulation 62. Information regarding the diagnosis or treatment of AIDS or ARC may be sought and
used. Also, the insurer has the right to conduct its own medical tests as part of the underwriting
process.
13. Individual business overhead expense insurers are reminded of their obligations under Section 2611
of the Insurance Law and Section 2782 of the Public Health Law regarding written informed consent,
authorization and disclosure of confidential information when the insurer uses an HIV antibody test in
underwriting. Circular Letters No. 3 (1989) and No. 5 (1997) are relevant.
14. If this filing contains a reference to a telephone or in-person interview, the interview is conducted in
the following manner:
Any questions raised during the interview are limited to those questions appearing on the application
(i.e., questions over the phone would be no different than those being asked in the application).
The applicant will have an opportunity to review and make corrections to those
statements that were
attributed to him/her in the interview.
Any information obtained in the interview that will be used in the underwriting process will be
reduced to writing, signed by the applicant and attached to the policy in compliance with Section
3204 of the Insurance Law.
15. If an Investigative Consumer Report will be prepared or procured, the insurer complies with
Section 380-c of the General Business Law by providing notice in the application or in a separate
form.
16. If a Medical Information Exchange Center (such as a Medical Information Bureau) will be used,
the insurer complies with Section 321 of the Insurance Law.
17. Section 420.18(b) of Regulation 169 requires that an authorization to disclose nonpublic personal
health information specifies the length of time the authorization will remain valid (maximum 24
months).
18. Section 403(d) of the Insurance Law requires a fraud warning on the application form.
19. Section 3204 of the Insurance Law contains requirements that apply to application forms for
individual business overhead expense insurance policies. An insurer may make insertions for
administrative purposes only as long as the insertions are clearly not ascribed to the applicant. No
other insertions or alterations of a written application will be made by anyone other than the applicant
without his written consent.
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XI.
Disclosure Requirements
1. Sections 52.54 and 52.60 of Regulation 62 set forth disclosure requirements which apply to
individual business overhead expense policies.
XII.
Marketing of Individual Business Overhead Expense Insurance Using Group Methods
The individual business overhead expense insurance checklist contains items pertaining to whether a
filing is individual, “list bill” or franchise. The requirements for each category are listed in the checklist,
and those requirements will not be repeated here. However, this individual business overhead expense
insurance product outline will explain the necessity of including these items on the individual business
overhead expense checklist.
These items are a recognition of how individual business overhead expense insurance is generally sold in
the New York State marketplace by insurers and their agents, brokers or other representatives. In the sale
of individual accident and health insurance, including business overhead expense insurance, it is
generally recognized that individual sales on a “one to one” basis are the most time consuming and costly
to administer. There is no ability to know beforehand the characteristics of the insureds who will
purchase the individual product (as contrasted with true group coverage where, as an example, one knows
the type of employer or association purchasing---e.g. coal miners vs. librarians). True individual sales
only occur by individual solicitation where not many insureds are purchasing at a particular point of sale.
The medical underwriting, if any, is generally detailed to obtain and process. Due to such factors, the
minimum loss ratios in Regulation 62 for such coverage are generally lower than for group coverages or
coverages where many sales are made at one time or where group characteristics are apparent. Similarly,
the individual sale is usually an adhesion contract situation where the insurer retains most of the
bargaining leverage at point of sale, and the insurer retains that superior bargaining position concerning
various issues such as claim processing after individual coverage is in force. This situation aids in
explaining why many of the Insurance Law provisions pertaining to individual accident and health
coverages (such as standard provisions) are more detailed and protective of the individual insured. This
same situation aids in explaining why many of the Regulation 62 provisions pertaining to individual
accident and health coverage are also more detailed and protective of the individual insured.
Over the years, however, insurers have developed mechanisms in the individual accident and health
insurance marketplace which are not solely individual sales. These mechanisms seek to market or offer
the individual product using group or quasi-group type methods. Often, however, the insurer does not
want to pass on all or some of the savings or advantages of marketing an individual product in a group or
quasi-group type manner. Thus, insurance regulations become necessary to protect the consumer. In
addition, even when the insurer seeks to pass on some of the savings or advantages, the group or quasi-
group type arrangement is not present forever. Sometimes the individual product group-type sales
arrangement does not meet statutory requirements in New York State. Statutory and regulatory
requirements can determine whether the group or quasi-group type marketing methods for an individual
product are appropriate, and how much of the advantage of those methods should be passed on to the
insured and for how long. The integrity of the New York statute recognizing groups is important when
considering the appropriateness of marketing or offering an individual product with group or quasi-group
methods. The integrity of that statute is important so the public is not misled into believing an individual
product (without all or some of the advantages of a group product) is a group product as recognized by
law with the consequential advantages of a group product.
Based upon the foregoing, the individual business overhead expense insurance checklist has set forth the
mechanisms through which individual business overhead expense insurance products can be marketed
using group or quasi-group methods. The first method which is a step toward group or quasi-group
methods is a payroll deduction arrangement. When this arrangement is used for premium payments with
no discounts at all and no other type of group or quasi-group methods, the individual business overhead
expense product remains subject to regulation as an individual product. No group or quasi-group savings
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or advantages to any significant degree are claimed by the insurer, and the individual insured has the
convenience of payroll deduction as long as the employer is willing to provide that convenience. Here the
insurer will accept premium payments directly from an insured should the insured lose the convenience of
payroll deduction or choose not to use payroll deduction to pay premiums. In the business overhead
expense situation, this arrangement might occur for a business owner who is an employee of a small
corporation.
The second method which is the next step toward group or quasi-group methods is “list bill.” One will
not find this method as a statutory or regulatory exception to the statute which recognizes permissible
groups in New York State. It has been a method recognized by the Insurance Department as an
accommodation to insurers for over 30 years.
Essentially, insurers desiring to use this method must differentiate it from franchise insurance (see below)
to retain the exclusive treatment as an individual product, including but not limited to the generally lower
individual minimum loss ratio more favorable to the insurer. The Insurance Department views this
method as the sale of very few individual policies at a common site or address (usually an employer or
some association) with no exclusivity granted to the insurer, no sponsorship by the employer or
association, no mass marketing (i.e. - agent or representative engages in the “one on one” sale) and no
contribution of premiums by the employer or association. The employer or association may remit or not
remit premiums through the sending of a single bill to the common address of the employer or association
where the few individual insureds work or have a membership. Generally, this situation goes further than
the payroll deduction arrangement because there are a few sales at a small employer or association site,
and the insurer provides actuarial justification to the Insurance Department that the “list bill” arrangement
is worth some small discount.
It is important to note that the “list bill” discount is dependent upon the factual circumstances noted here
for its continued existence. Since the “list bill” arrangement as understood by the Insurance Department
provides such marginal savings and advantages of a group or quasi-group nature and a rather small
discount, the Insurance Department regulates the individual business overhead expense insurance product
as still an individual product with the generally more favorable individual minimum loss ratio. However,
due to the marginal savings and advantages, the Insurance Department requires that the small discount
revert to the higher individual premium if the “list bill” situation goes out of existence, and the insured
continues to pay his/her premium on a direct bill basis. Once the “list bill” situation goes out of existence
and the marginal savings and advantages also do not exist, the insured is a usual individual insured who
should pay the undiscounted individual rate like other individual insureds to avoid “unfair discrimination”
under Section 4224(b)(1) of the Insurance Law. Prominent disclosure in the form of the increased rate
when the “list bill” situation ends must occur.
A “list bill” situation involving business overhead expense insurance might involve several policies sold
to partners of one business or members of a limited liability company to cover each partner’s or member’s
share of covered overhead expenses in the business. The relevance of a “list bill” situation going out of
existence might happen when one partner or member leaves a business to join or start another business on
his/her own and desires to pay premiums for the business overhead policy on a direct bill basis. This
paragraph is citing a possible example while other situations might be possible as well.
The third method which is the last method and the most expansive method of marketing or offering
individual business overhead expense insurance products with group or quasi-group savings or
advantages is franchise insurance. Sections 52.2(k), 52.19 and 52.70 of Regulation 62 (11NYCRR52)
should be consulted. Generally, individual business overhead expense insurance products are distributed
on a mass merchandising basis, administered by group methods and provided with or without evidence of
insurability. Sponsorship by an employer or association occurs and exclusivity in the marketing of the
individual products is granted to a particular insurer. The individual contract mechanism is retained. So
the legal relationship is directly between the insured and insurer with no group policy being issued to a
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group policyholder. However, the insurer is generally able to know beforehand the characteristics of the
insureds (e.g. – bar association, medical society, etc.), and the insurer is generally able to obtain a
significant number of insureds due to the sponsorship of the employer or association, exclusivity granted
to the insurer in marketing the individual business overhead expense insurance product and more sizeable
discounts for the insured. We are just short of marketing the product as group under New York law, but
the employer or association does not enter the direct legal relationship of the insurance contract and is not
the group policyholder.
In the franchise situation, the agent or insurer representative usually does less work because of the
sponsorship and exclusivity. The insurer achieves economies of acquisition and administration as well as
knowing there is some affinity or relationship among all the insureds purchasing the franchise individual
product. Therefore, the Insurance Department requires that these factors accrue to the insured’s benefit in
the regulation of the franchise individual product. A higher minimum loss ratio is required, and the
insurer can allow the discount on the franchise product to remain if the franchise arrangement ends
because of the sizeable savings and advantages occurring at point of sale which can be recognized over
the lifetime of the franchise form. (These sizeable savings and advantages do not occur with the first two
methods either resulting in no discount or the reversion to the higher individual rate. The Department will
allow an insurer to charge the higher individual rate upon termination of the franchise arrangement for
any reason if the insurer provides actuarial justification as to why the franchise savings and advantages do
not warrant continuation of the discount upon termination of the franchise arrangement. In that instance,
prominent disclosure of the higher rate in the form is necessary as with the “list bill” arrangement.)
In the employer franchise business overhead expense situation, a corporate employer might sponsor and
endorse the business overhead expense product of one insurer for all partners or members of the corporate
employer sharing covered overhead expenses. In the association franchise business overhead expense
situation, a bar association or medical society might sponsor and endorse the business overhead expense
product of one insurer for its members with law offices or medical offices. The relevance of the
continuation of a franchise discount might happen when a lawyer or doctor ends membership in an
association or society but desires to continue the coverage on his/her own. This paragraph cites possible
examples while other situations might be possible as well.
XIII. Conditional Receipts/Interim Insurance Agreements
Section 52.53 of Regulation 62 requires that, if premium is paid prior to policy delivery and the insurer
requires a determination of insurability as a condition precedent to the issuance of a policy, an insurer
must issue either a conditional receipt or interim insurance agreement. In general, Section 52.53 sets
forth two permissible methods for money to be accepted with an application – conditional receipt or
interim insurance agreement. Section 52.53(c) defines a “determination of insurability” as a
determination by the insurer as to whether the proposed insured is insurable under its underwriting rules
and practices for the plan and amount of insurance applied for and at the insurer’s standard premium rate.
1. A conditional receipt sets an effective date for the policy if the applicant successfully completes
the underwriting process. The conditional receipt shall contain an agreement to provide
coverage subject to any reasonable limit regarding the amount of insurance specified in the
receipt, contingent upon insurability, and provides that such insurability be determined as of a
date no later than:
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The date of completion of all parts of the application, including completion of the first medical
examination if one is required by the company’s underwriting rules, AND
The required premium has been paid.
Completion of a second medical examination may be required as a condition precedent to
coverage if initially required by the company’s underwriting rules because of the amount of
insurance applied for or the age of the proposed insured.
If the proposed insured is insurable as of the above date, coverage under the issued policy begins
not later than such date, except as provided in paragraph 4 below. Section 52.53(a) of
Regulation 62.
2. Although the proposed insured dies, undergoes a change in health or otherwise becomes
uninsurable according to the insurer’s underwriting standards for the insurance plan for which
application was made after the date provided in paragraph 1 above but before the application is
approved or rejected and before the expiration of any time limit specified in the receipt, an
insurer may determine that the proposed insured is not insurable only as of the date stated in
paragraph 1 above. Information relating to an event or physical condition that is the subject of a
question in any part of the application cannot be considered for underwriting purposes if the
event or accident occurred or sickness first manifested itself after completion of that part of the
application. Adverse changes in insurer underwriting rules after the date stated in paragraph 1
above cannot be taken into account when such adverse changes in underwriting rules take effect
after the date stated in paragraph 1 above but before the application is approved or rejected and
before the expiration of any time limit specified in the receipt. (In summary, policy underwriting
can only be based on the insured’s health status as of the date provided for in paragraph 1
above.) Section 52.53(e) of Regulation 62.
Suppose a business overhead expense applicant pays premium with his/her application, and the
insurer issues a conditional receipt to the applicant on December 1, 2002. The applicant
completes all parts of the application truthfully on December 1, 2002, and the applicant awaits the
insurer's underwriting decision. Then assume on December 8, 2002 (which is before the
expiration of a 60 day time limit in the receipt), the applicant is diagnosed with a severe condition
causing disability which would be covered under the business overhead expense policy applied
for (but not yet issued because the insurer is in the process of underwriting). The applicant begins
to incur covered overhead expenses on December 15, 2002. Then assume the applicant dies on
January 27, 2003. The insurer would be using its underwriting rules in effect on December 1,
2002, and the insurer would be assessing the insured's health as of December 1, 2002 based upon
a truthful application submitted by the applicant on December 1, 2002. The insurer would issue a
business overhead expense policy dated effective December 1, 2002. If the business overhead
expense policy issued had a 0-day waiting period for covered overhead expenses, the insurer
would be obligated to pay for covered overhead expenses incurred according to policy terms from
December 15, 2002 until January 27, 2003. This might all occur retrospectively if the insurer used
the full 60 day period mentioned in the conditional receipt and did not issue the business
overhead expense policy with a December 1, 2002 effective date until January 29, 2003.
3. An
interim insurance agreement provides some type of immediate limited insurance coverage as
of the application date. The agreement provides coverage in accordance with the policy and plan
of insurance described in the application subject to any reasonable limit regarding the amount or
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duration of insurance specified in the agreement. Coverage is provided as of the application date
and must provide at least 60 days coverage unless:
The policy applied for is issued prior to the end of the 60 days, OR
The applicant receives actual notice that coverage under the agreement is cancelled because the
application has been declined. If notice is given by mail, it may be deemed received on the fifth
day after mailing such notice to the applicant. Section 52.53(b) of Regulation 62.
4. An insurer may honor a written request from the applicant that coverage begins as of a specified
date later than the date provided for in the conditional receipt or interim insurance agreement. In
other than replacement situations, the applicant’s written request for a later effective date must
contain a statement signed by the applicant that he/she understands that he/she may be waiving
certain rights and guarantees under the conditional receipt or interim insurance agreement.
Section 52.53(f) of Regulation 62.
5. If coverage is provided under a conditional receipt or interim insurance agreement for two or
more proposed insureds, the coverage must be determined separately for each proposed insured,
except, however, all proposed insureds may be rejected in the event of fraud or material
misrepresentations. Section 52.53(d) of Regulation 62.
6. If a policy is not issued within the time specified in the conditional receipt or interim insurance
agreement, the application will be deemed rejected and all premiums will be refunded. Section
52.53(i) of Regulation 62.
7. In mail order cases only, an insurer may postpone the effective date of coverage to the date of
issuance of the policy. Section 52.53(g) of Regulation 62.
8. In franchise cases, the coverage under the conditional receipt or interim insurance agreement
may be made contingent upon meeting specified participation requirements. Section 52.53(h) of
Regulation 62.
The Department will entertain reasonable alternatives to Section 52.53 requirements, but any
alternative must be as favorable for an insured as Section 52.53 requirements. The insurer cannot
take the most favorable aspects of a conditional receipt and interim insurance agreement for an
insurer and submit a hybrid form that is not as favorable for an insured as under Section 52.53.
XIV.
Rating Procedures and Requirements
1. Section 52.40(a) of Regulation 62 sets forth general procedures and requirements which apply to
the rating of business overhead expense forms.
2. Section 52.40(b) of Regulation 62 sets forth prohibited rating practices which may be applicable
to business overhead expense forms.
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3. Section 52.40(c) of Regulation 62 sets forth requirements applicable to individual business
overhead expense forms.
4. Section 52.40(d) of Regulation 62 sets forth requirements applicable to individual business
overhead expense forms.
5. Section 52.41 of Regulation 62 sets forth gross premium differentials based on sex which apply
to individual business overhead expense forms.
6. Section 52.43(a) of Regulation 62 sets forth standards for maintaining experience data which
apply to individual business overhead expense forms.
7. Section 52.44(b) of Regulation 62 sets forth monitoring standards which apply to individual
business overhead expense forms.
8. Section 52.45(a),(c),(d) and (e) of Regulation 62 sets forth minimum loss ratio standards which
apply to individual business overhead expense forms.
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