Free Trade Zone/Special Risk Insurance
New York Insurance Law Article 63, Section 6301 through Section 6304, authorizes the placement of certain risks WITH LICENSED INSURERS which obtain a second, additional license, from the Insurance Division of the New York State Department of Financial Services. Risks that qualify for placement in the FTZ are subject to an exemption from the filing requirements and/or prior approval requirements of rates and forms, where applicable, as follows:
Class 1 and 2 coverages : policy forms and applicable rates are exempt from the filing requirements of NY insurance law and regulations.
Class 3 coverages : policy forms are not subject to the prior approval requirements but are subject to some filing requirements, and applicable rates are exempt from the filing requirements of NY insurance law and regulations.
However, all FTZ policies issued must still meet the other statutory requirements applicable to all New York insurance policies: for instance, the Standard Fire Policy requirements of Section 3404 for fire policies and the minimum liability policy requirements of Section 3420.
Must meet certain financial and solvency standards in order to obtain this license, the business must be underwritten and transacted from an office within New York State and a notice must be affixed to such policies advising that the policies are exempt from the requirements noted above.
Types of Risk
The risks, which can be underwritten as free trade zone risks, fall into one of three classes:
1) Class 1. Individual risks which produce annual insurance premium of at least $100,000 for one kind of insurance, or $150,000 for more than one kind of insurance.
2) Class 2. Risks which have been defined as special risks by the New York State Department of Financial Services and set forth in Section 16.12 of Regulation 86.
3) Class 3. Coverage other than medical malpractice issued to a "large commercial insured" that employs or retains a special risk manager and meets the various provisions set forth in the 3rd amendment to Regulation 86.
Kinds of insurance permitted to be written in FTZ:
A) Most but not all kinds of P&C insurance. [See Section 6301(b) of the NY Insurance Law (NYIL)]
B) “Personal lines” (other than automobile insurance) if included in the list of eligible Class 2 risks.
C) Medical malpractice insurance as a Class 1 or 2, BUT NOT as a Class 3 risk.
Kinds of insurance that can’t be written in the FTZ:
A) Group policies including purchasing groups.
B) Insurance where rates are subject to prior approval [Sections 2305(b) and 2328 of NYIL] EXCEPT medical malpractice can be written as a Class 1 or 2.
C) Insurance required to satisfy any NY financial responsibility requirement.
Because these risks are being underwritten by LICENSED INSURERS, any licensed broker can place these risks. Since Free Trade Zone insurers are LICENSED INSURERS, THE EXCESS LINE LAW DOES NOT APPLY; and therefore, NO affidavits and related policy documentation need to be filed with ELANY, and NO excess line premium taxes need to be paid on these Free Trade Zone transactions.
Do Not Confuse Class 3 “large commercial insureds” in FTZ with separate excess line requirements for exempt commercial purchasers.
"This is not intended to be nor should it be construed as legal advice. Consult with your own legal counsel."
Last Reviewed or Revised: August 11, 2015