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Groups Criticize N.Y. Department for Shifting Insurer Assessments to Other State Departments

Source: BestWeek

Posted on 07 Dec 2009

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Insurance associations are railing against the New York State Insurance Department for what they claim are back-door tax increases on insurers. The department's budget -- paid for by assessments from in-state insurers -- is largely being re-channeled to other state departments, critics claimed in testimony at the New York State Assembly.

The state collects assessments from domestic insurers based on each company's share of direct written premiums statewide, totalling $455 million for the 2009-2010 state budget. That's supposed to fund the regulation of insurance in the state. But the majority of this money -- according to the New York Insurance Association -- is being sub-allocated to other state departments for spending not related to insurance.

Marc Craw, vice president of the association, told BestWire that the practice has "dramatically escalated in recent years." He said, "This is really undermining and running directly counter to the intent and purpose of the Section 332 assessment law."

The American Insurance Association weighed in, too, criticizing the use of more than $317 million of the assessed $455 million for other state agencies. "Having insurance carriers fund more and more programs by essentially funneling money through the insurance department might be a politically expedient method of budgeting, but such practices come with a cost to New York-domiciled companies, their policyholders and to the business climate of the state generally," said John Murphy, AIA northeast region vice president, in a statement.

The insurance department's budget has increased from $112 million in 2001-2002 to more than $500 million in the current fiscal year, according to the AIA. Most of the budget is channeled to programs not directly involved with the department's regulation of the insurance industry, it said.

But according to Matt Anderson, a spokesman from the New York Division of the Budget, "These assessment changes provide funding for critical health and insurance programs, which we believe will lower long-term costs for insurers." He said that two major recipients of appropriations in the current budget were programs that involve health insurance -- Health New York and HMO Direct Pay.

The NYIA pointed out sub-allocation examples such as money to repair and maintain the state fire training academy and a line item for pharmaceutical programs at the state's Department of Health.Craw, who testified before the state's insurance committee, said, "We would like to see the sub-allocations reduced and eventually eliminated."