Empire State insurance regulators want to change the way group life insurers handle liability coverage issues for their agents and securities broker-dealer representatives.[@@]

Some mandatory group life producer liability insurance programs appear to be illegal, according to Jeffrey Angelo, chief of the New York State Insurance Department’s life bureau, and Mark Presser, chief of the department’s property bureau.

Insurers that are sponsoring or writing the problem group life producer liability programs should tell the New York department about the programs within 30 days and suggest plans for taking corrective action, Angelo and Presser write in Circular Letter Number 6 (2005).

If any property-casualty insurer has issued an illegal group life producer liability policy, “the insurer must restructure the program and make appropriate filings to be in compliance with the laws and regulations,” Angelo and Presser write. “Any illegal policy must be nonrenewed as of its next renewal date.”

The liability programs under attack require agents and broker-dealer reps to buy liability insurance coverage through a master policy issued to the life insurer by a specific property-casualty insurer, Angelo and Presser write.

Most of the policies impose an overall aggregate limit, and that means claims against all covered producers could exhaust the resources available to cover claims against a particular producer, the officials write.

The liability programs violate New York law because the policies are not issued on a purchasing group basis; the policies contain an overall group policy aggregate and the life insurers holding the master policies require the agents and reps to buy the coverage, the officials write.

In New York, a policy that insures agents or reps may not be issued as a group personal excess insurance policy, and an insurer may not require that its New York producers buy insurance under a group insurance policy insuring the insurer and its other producers, the officials write.

New York law also prohibits an insurer from requiring producers to buy insurance from a specific insurer, the officials write.

The New York department has posted the circular letter on the Web at http://www.ins.state.ny.us/cl05_06.htm