Summary of Public Comments and Agency Responses:

The Department received five written comments on the proposed readoption with amendments, from three insurers (Allstate New Jersey Insurance Company, The Harleysville Insurance Companies and The MIIX Group, Incorporated), one from an insurance association (New Jersey Association of Mutual Insurance Companies) and one from an insurance agents association (Professional Insurance Agents of New Jersey).

COMMENT: One commenter expressed concern regarding N.J.A.C. 11:1-2, which addresses property-liability filings. The commenter stated that with respect to commercial lines filings, Exhibits A, B, C and PP-1 should be combined or eliminated, because much of this information is reflected in the applicant’s filing letter and support information as required under N.J.A.C. 11:1-2.2 and 2.5.

RESPONSE: The Department agrees with the commenter. The Department will be proposing new rules, amendments and repeals in a subsequent proposal to revise and consolidate the questionnaires that are submitted along with an insurer’s or rating organization’s commercial lines filings.

COMMENT: One commenter stated that the information required for personal lines filings in N.J.A.C. 11:1-2 (such as the Department’s General Filing Questionnaire, Compliance With Plain Language Law form, Affidavit of Compliance and PP-1) should be condensed and the forms combined, thereby facilitating filings in accordance with N.J.A.C. 11:1-2.2 and 2.5.

RESPONSE: The Department will be proposing new rules, amendments and repeals in a subsequent proposal to revise the information and forms that are submitted along with an insurer's or rating organization’s personal lines filings.

COMMENT: One commenter suggested that the Department amend the notice regarding flood damage coverage found in N.J.A.C. 11:1-5.5 to be consistent with the Department’s Bulletin No. 00-14, issued November 6, 2000.

RESPONSE: The Department notes that Bulletin No. 00-14, issued November 6, 2000, was to inform fire and casualty insurers of the requirement of P.L. 2000, c. 84 that requires these insurers to provide policyholders with a written notice regarding the lack of coverage in the event of flood loss. Upon adoption, the Department has revised N.J.A.C. 11:1-5.5(a)6 regarding the notice to conform more clearly to the authorizing statute. The Department's rule language addresses the contents of the notice; the Bulletin reinforces the rule. The requirements of the rule control.

COMMENT: One commenter expressed concern with the FAIR Plan retention level, found in N.J.A.C. 11:1-5.6. The commenter believes that since the FAIR Plan is a residual market, its rates should be set at a level sufficient to avoid competing directly with the voluntary market. The commenter stated that the FAIR Plan rates should be fully adequate to support a book of business which has been judged to be more hazardous than the norm. The commenter stated that absent catastrophic events, FAIR Plan rates should not produce a deficit, and that assessments should be an unusual, not a routine occurrence.

RESPONSE: N.J.A.C. 11:1-5.6 addresses the maximum level of retention for the FAIR Plan, which is currently established pursuant to N.J.S.A. 17:37A-18 at $35 million. The Department believes that this is a reasonable retention level at this time. This provision does not set rates, nor does it provide for the setting of rates. The Department notes that the FAIR Plan has the right to make rate filings with the Department.

COMMENT: One commenter expressed concern with N.J.A.C. 11:1-6, the New Jersey Property-Liability Insurance Guaranty Association Assessment Premium Surcharge. The commenter suggested that the Department add a provision to this subchapter to establish a better mechanism to maintain a more even assessment and surcharge level so that assessments remain more even over time. The commenter stated that significant operational and accounting challenges are presented when assessments are made one year but not the next year, and recoupment systems for surcharges must be turned on and turned off.

RESPONSE: This subchapter implements a statutory mechanism that provides for the spreading of losses of insolvent insurers among various insurers. The amount of money insurers are assessed in a given year may vary, depending on the amount of money needed to address known or potential insolvencies that may occur. The Department notes that for the past several years, assessments have remained stable.

COMMENT: One commenter suggested that the Department amend N.J.A.C. 11:1-11.2. This subchapter addresses conduct constituting violations by brokers and agents. The commenter specifically suggested that the Department amend N.J.A.C. 11:1-11.2(a). This subsection provides that a licensed agent who is a shareholder or officer of a corporate licensee who declares insolvency, dissolves, ceases to do business or does not renew its insurance license primarily to avoid certain fines or debts has demonstrated unworthy behavior and acted in bad faith. The commenter recommended that N.J.A.C. 11:1-11.2(a) be amended to include (additions in boldface):

The commenter suggested that subsections (b) and (c) be amended to include licensees of other forms of business entities, such as limited liability companies and partnerships, which engage in similar conduct. The commenter stated that there is no reason to differentiate between the unworthy behavior of different types of business organizations.

RESPONSE: The Department is currently reviewing and planning to propose amendmentsto the producer licensing rules found in Chapter 17. The Department will be recodifying N.J.A.C. 11:1-11 into Chapter 17 as part of that proposal and will consider the commenter’s suggestions as part of these proposed amendments and recodification.

COMMENT: One commenter expressed concern with N.J.A.C. 11:1-12.2 and 12.5, which address the responsibility of active officers of corporate licensees and partnership licensees. The commenter stated that recently the Department amended N.J.A.C. 11:17A-1.6(c), to provide that "licensed partners, officers and directors and all owners with an ownership interest of five percent or more in an organization shall be held responsible for all insurance related conduct of the organization licensee, any of its branch officers, its other licensed officers or partners, and its employees." The commenter stated that at that time, it commented that unlicensed partners, officers and directors should be held responsible for insurance related conduct of their organization in the same way as licensed owners. Additionally, the commenter stated that there is no reason to differentiate between an unlicensed owner's responsibility and an unlicensed partner's, officer's or director's responsibility for such conduct; all of these persons should be held accountable for the conduct of their licensed organization. The commenter stated that the Department agreed that an amendment to N.J.A.C. 11:17A-1.6(c) would be made to clarify that there is no difference between being licensed or unlicensed.

The commenter requested that the Department conform N.J.A.C. 11:1-12.2 and 12.5 to the current and future amendments of N.J.A.C. 11:17A-1.6(c) and suggested the following changes that would delete the term "active" regarding officers and add "directors, owners and partners" and the phrase "with an ownership of 5% or more" where appropriate.

The commenter stated that if the Department determines that N.J.A.C. 11:1-12.2 and 12.5 should not conform to N.J.A.C. 11:17A-1.6, then the Department should define the term "active."

RESPONSE: The Department is currently reviewing and planning on proposing amendments to the Producer Licensing rules found in Chapter 17. The Department will be recodifying N.J.A.C. 11:1-11 into Chapter 17 as part of that proposal and will consider the commenter’s suggestions as part of those proposed amendments and recodification.

COMMENT: One commenter expressed concern with the nonrenewal and cancellation notice requirements found in N.J.A.C. 11:1-20.2(c). The commenter stated that this section provides that with respect to the payment of the renewal premium, an insurer must provide notice of the amount of the renewal premium and any change in the contract terms to the insured not more than 120 days nor less than 30 days prior to "the due date of the premium."

The commenter believes that the intent of the regulation ostensibly is to notify the insured of any contract changes and the amount of their renewal premium prior to the policy's renewal date. According to the commenter, this provides the insured with time to decide whether he wants to renew the policy at the proposed terms. However, the language of the regulation does not state that the notice must be given prior to the renewal date of the policy, but rather prior to the due date of the premium. The commenter stated that in compliance with the Department’s rule, some insurers have been sending renewal premium bills (which often reflect a substantial increase in premium) to insureds after the inception date of their renewal policy, but 30 days prior to the bill's due date. In these cases, insureds are not provided with the opportunity to decide whether to renew the policy at this higher premium, nor time to shop for a more favorable policy.

Therefore, the commenter suggested that the Department's proposed rules should be amended to provide that notice be given prior to the expiration of the existing policy, rather than the due date of the premium.

RESPONSE: The Department does not believe that this amendment is necessary. N.J.A.C. 11:1-20.2(j) states that if an insurer fails to renew based on the requirements in N.J.A.C. 11:1-20.2(c), the insured is allowed to continue the expiring policy under the same terms and premiums until such time as the insurer sends an appropriate notice of termination or nonrenewal. This means that if the renewal is not sent until the policy renews, the insured has 30 days to pay the new renewal premium and if the insured decides not to accept the new renewal, he or she can replace the coverage and only owe the prorated portion of the premium from the expiring term up to the date the insured replaced coverage.

COMMENT: One commenter expressed concern with N.J.A.C. 11:1-20.4(b)13, the cancellation and nonrenewal underwriting guidelines, which requires an insurer to make a written offer of continued coverage to an insured even when it has received documentation that the insured has obtained better or equal replacement coverage. The commenter stated that when insureds received this offer of continued coverage they often become confused since their insurance has already been placed by their agent with another carrier. The commenter stated that the purpose of the Department’s rule would seem to be to protect the insured by providing that in instances where replacement coverage has not been obtained, the insured is offered continued coverage with his existing insurer, despite the fact that his agent's relationship with the insurer has been terminated. The commenter further stated that it provides no benefit to the customer for insurers to provide this offer of continued coverage in instances where the insured has already obtained replacement coverage at comparable rates and terms. Therefore, the commenter suggested that this provision be amended to require the insurer to provide the written offer of continued coverage only in instances where it has not received documentation that the insured has replaced coverage at comparable rates and terms.

The commenter suggested the following changes; (deletions in brackets; additions in boldface):

1. The insurer receives documentation from the agent or the insured [document] that replacement coverage at comparable rates and terms has been provided to the insured, [and the insurer has informed the insured, in writing, to his or her right to continue coverage with the insurer]: or
2. The insurer has informed the insured, in writing, of his or her right to continue coverage with the insurer and the insured has agreed, in writing, to the cancellation or nonrenewal based upon the termination of his or her appointed agent.

RESPONSE: The Department does not believe that this amendment is necessary since it only applies to nonrenewals. These rules provide that an insurer cannot nonrenew a person solely because he or she has terminated an agent unless it is permitted pursuant to N.J.A.C. 11:1-20.4(b)13. These rules are designed for the protection and proper notification of the insured, not the insurer. The Department believes these rules achieve that purpose.

COMMENT: One commenter suggested that the Department amend N.J.A.C. 11:1-35.6, which addresses the acquisition proceedings under the Insurance Holding Company Systems Act. The commenter requested that the Department clarify its position regarding the definition of "interested persons" affected by acquisition hearings. The commenter stated that the Department’s Summary of the proposal stated that it recognized shareholders, policyholders, claimants or creditors of the insurer being acquired as persons with a different area of interest and, therefore, permitted to have greater participation in these hearings (for example, discovery, examination of witnesses, etc.).

The commenter stated that the language proposed at N.J.A.C. 11:1-35.6 recognizes only shareholders, policyholders, claimants or creditors as "persons whose interest may be affected" by the hearing and permitted greater participation.

The commenter urged the Department to revise proposed N.J.A.C. 11:1-35.6(a), to reflect the Department's stated intentions that persons may have the opportunity to petition to demonstrate their unique role in the proceeding. The commenter stated that the determination of who maintains a unique role may vary from proceeding to proceeding and could include a broker, another regulatory agency, an employee, a competitor, etc. The commenter suggested that the Department establish an expedited process with standards for determining who constitutes an interested party and is permitted greater participation. The commenter stated that it would hope that the Department would not narrowly define those persons who might be legitimately affected by an acquisition of control hearing determination.

Additionally, the commenter stated that although it recognizes that the regulation proposes to limit discovery only to those items contained in the Form A filing, it believes that the Department should continue to entertain comments from the public that may provide insights to information not part of the existing filing. The commenter believes that this process could be a source of pertinent information for the Department to consider in its review of the filing.

Finally, the commenter requested that the Department indicate whether persons reviewing the acquisition hearing transcript at the Department are permitted to make copies of any of the pages of the transcript. The commenter stated that frequently, documents available for inspection at the Department may be copied by members of the public.

RESPONSE: N.J.A.C. 11:1-35.6 as proposed provides that a person whose interest may be specifically affected beyond that of shareholders, policyholders, claimants or creditors, etc., in general by the acquisition of the domestic insurer may apply to the Commissioner to conduct discovery and examine and cross-examine witnesses at the hearing. The Department interprets the authorizing statute to require an interest that is unique beyond being a general member of the insurance-buying public or of the public in general in order to participate in the hearing with the rights of discovery, examination and cross-examination.

Additionally, persons reviewing the acquisition hearing transcript at the Department are not permitted to make copies. Copies of the transcript may only be obtained directly from the stenographic service that created the transcript.

Summary of Agency Initiated Changes:

The Department is amending N.J.A.C. 11:1-15.2(a) which sets forth the information that must be included in petitions for rulemakings filed with the Department. The Department’s amendment seeks to clarify what constitutes a rulemaking petition. Historically, it is often unclear whether someone’s correspondence with the Department is an attempt to offer general suggestions for regulatory change or correspondence specifically attempting to trigger the process for a rulemaking petition. The Department’s amendment seeks to require that future petitions for rulemaking contain a caption at the beginning of the correspondence which indicates that the document is a petition for rulemaking pursuant to N.J.S.A. 52:14B-4(f) and that the address for the correspondence identify it as a rulemaking petition. This requirement will clarify what is, and is not, a petition for rulemaking and will expedite the Department's handling of petitions.

A Federal standards analysis is not required because these readopted rules and amendments are not subject to any Federal requirements or standards.

Full text of the readoption can be found in the New Jersey Administrative Code at N.J.A.C. 11:1.

Full text of the adopted amendments follows (additions to proposal indicated in boldface with asterisks *thus*; deletions from proposal indicated in brackets with asterisks *[thus]*).

11:1-5.5 Notice regarding flood damage coverage

1. All fire and casualty insurers, including the New Jersey Insurance Underwriting

Association (FAIR Plan), that write homeowners insurance, as defined in N.J.A.C. 11:2-41.2, shall provide their policyholders at least annually with a notice that includes the following information:

1. – 5. (No change from proposal.)

1. *[Flood]* *Standard homeowners insurance policies do not cover damage to property, contents and structure resulting from floods; however, flood* insurance may be available through the National Flood Insurance Program *which exists* in participating communities; and
2. (No change from proposal.)

11:1-15.2 Procedure for petitioner

(a) Any person who wishes to petition the Department to promulgate, amend or repeal a rule must submit to the Commissioner, in writing, the following information:

1. - 2. (No change.)

3. The reasons for the request and the petitioner's interest in the request; *[and]*

4. References to the statutory authority for the Department to take the requested action*.* *[and]*

5. A caption at the top of the document *identifying it as* a petition for rulemaking pursuant to N.J.S.A. 52:14B-4(f) and this subchapter.

(b) Petitions shall be sent to the following address:

*[Commissioner of Banking and Insurance]*

Attn: Rulemaking Petitions*

Trenton, NJ 08625

(c) (No change from proposal.)