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The Office of General Counsel issued the following opinion on September 12, 2007, representing the position of the New York State Insurance. Is there a statute or regulation in New York that governs the number of days an authorized insurer has to refund unearned premium money to insureds after the cancellation of personal or commercial fire insurance policies? With respect to property/casualty insurance generally, including fire insurance policies where the premiums are financed pursuant to a premium finance agreement, N.Y. Ins. Law § 3428(d) (McKinney 2007) requires an insurer to return any gross unearned premium due to the finance company within a reasonable time not to exceed sixty days after the effective date of cancellation. There is no such specified time period concerning the cancellation of non-financed fire insurance policies, but since Insurance Law § 3428(a) permits only earned premium to be retained by an insurer, such insurer would have to refund the unearned premium within a reasonable time. Your inquiry is of a general nature, without reference to particular facts. N.Y. Banking Law § 554(8) is relevant to your inquiry. It defines a “premium finance agreement” as:
…a promissory note or other written agreement by which an insured promises or agrees to pay to, or to the order of, either a premium finance agency or an insurance agent or broker the amount advanced or to be advanced under the agreement to an authorized insurer or to an insurance agent or broker in payment of premiums on an insurance contract, together with a service charge as authorized and limited by law…. When insurance premiums are advanced under a premium finance agreement and the policy for which the premiums have been financed is cancelled, the amount that an authorized insurer, like your company, would have to return to the premium finance company would be the gross unearned premiums calculated on a pro rata basis less ten percent of the gross premium or $60, whichever is greater. Indeed, N.Y. Ins. Law § 3428(e) (McKinney 2007) provides as follows:
Whenever an insurance contract, issued by or on behalf of an authorized insurer or insurers, the premiums for which are advanced under a premium finance agreement as defined in section five hundred fifty-four of the banking law, is cancelled, upon such cancellation the authorized insurer or insurers shall return the gross unearned premiums due under the insurance contract or contracts, on a pro rata basis to the bank, lending institution, premium finance agency or premium finance company, for the benefit of the insured, provided, however, that such authorized insurer or insurers shall be entitled to retain a minimum earned premium on the policy of ten percent of the gross premium or sixty dollars, whichever is greater. The statute thus places the responsibility for remitting the gross unearned premium to the premium finance company upon the insurer. Insurance Law § 3428(d) provides that the payment must be remitted to the premium finance agency within a reasonable time not to exceed 60 days after the effective date of cancellation. Insurance Law § 3428(d) provides:
Whenever an insurance contract the premiums for which are advanced under a premium finance agreement as defined in section five hundred fifty-four of the banking law, is cancelled, the insurer or insurers within a reasonable time not to exceed sixty days after the effective date of the cancellation shall return whatever gross unearned premiums are due under the insurance contract or contracts to the bank, lending institution, premium finance agency or sales finance company, for the benefit of the insured. However, for non-financed insurance policies, the Insurance Law does not establish any time frame to refund unearned premiums to the insured. Rather, Insurance Law § 3428(a) reads only as follows:
Except as provided in subsection (e) of this section, whenever an insurance contract made or issued in this state is cancelled or otherwise terminated by the insured before the expiration thereof in accordance with the terms of such contract, the earned premium to be retained by the insurer shall be determined by the applicable rate filing, if any, otherwise in accordance with the provisions of such contract. Since the insurer may only retain the earned premium on non-financed insurance policies, the Department, in Circular Letter No. 16 (1976) (a copy of which is attached hereto), interpreted the statute to require that insurers should return the gross unearned premium to the insured within a “reasonable” time. For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office. This article needs additional citations for verification. (November 2016) An insurance policy may be canceled before the end of the policy period. This has the effect of ending the policy coverage on the date of the policy cancellation.
Three different calculation methods are commonly used. Cancellation methods are typically calculated using an online wheel calculator.[1] A non-penalty method of calculating the return premium of a canceled policy.
A return premium factor is calculated by taking the number of days remaining in the policy period divided by the number of total days of the policy. This factor is multiplied by the written premium to arrive with the return premium.[2] A penalty method of calculating the return premium[3] often used when the policy is canceled at the insured's request. It uses a table of factors that results in penalties that can be lower or higher than short rate (90% pro rata) depending upon the date of cancellation.
A penalty method where the penalty is 10% of the unearned premium.
The date a policy's coverage is cancelled prior to the normal expiration date of a policy, often resulting in a return premium owed to the insured.
The date an insurance policy's coverage is started. Also called effective date.
The period of time that an insurance policy provides coverage. Most policies have a one-year term (365 days) but many other policies also have a 6-month term. Policy terms can be for any length of time and can be for a short period when the period of risk is also short. Policy terms can also be for a multi-year period.
When a policy is canceled before its expiration date a return premium may be owed to the insured. The return premium is generally calculated using a wheel calculator.[4] The return premium is calculated by calculating the unearned premium and then subtracting any unpaid premium and penalty for early cancellation. Short rate (old short rate) and short rate (90% pro rata) are penalty methods of calculating the return premium. Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. For instance, if a 365-day policy with a full premium payment at the beginning of the term has been in effect for 120 days, 120/365 of the premium is considered earned. Earned premium will not be returned to the insured if the policy is cancelled. Unearned premium is the portion for an insurance written premium which is considered "unearned" by the insurer. It is the written premium less the earned premium. The unearned premium would be returned to the insured if the policy is canceled using pro rata cancellation method, when the policy is cancelled with no penalty. This is the premium registered on the books of an insurer or a reinsurer at the time a policy is issued and paid for.[5] Cancellation cover applies if you have booked a trip to take place within the policy period, but you are forced to cancel your travel plans because of one of changes in circumstances, which are beyond your control, and of which you were unaware at the time you booked the trip. Cancellation cover may vary but some typical examples are listed below.
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When an insured decides to cancel an insurance policy before the expiration date the unearned premium is returned on a?
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