2.2 New York Commercial Property Insurance

Rate Regulation — Prior Approval

New York is a prior-approval state for most commercial property lines. The insurer must file rates with the Department of Financial Services (DFS) and obtain approval before use. Every filed rate must be not excessive, not inadequate, and not unfairly discriminatory — the three-part statutory test. DFS reviews actuarial support; rates lacking credible loss experience are rejected.

The inland-marine split is heavily tested: the Nationwide Marine Definition (adopted from the NAIC) lists classes such as commercial floaters and transportation risks. Filed classes (e.g., personal property floaters) need approved rates; non-filed classes (e.g., jewelers block, large transit risks) are individually negotiated.

Terrorism — TRIA

The federal Terrorism Risk Insurance Act (TRIA) is a government backstop for certified acts of terrorism. New York insurers writing covered commercial property/liability lines must offer terrorism coverage and provide written disclosure of:

• The premium charged for terrorism coverage
• The existence of the federal share (government backstop) and the program cap
• The policyholder's right to accept or reject the coverage

The policyholder may reject terrorism coverage in writing; if no rejection, it is included. Workers' compensation is the exception — terrorism cannot be excluded from a comp policy.

Excess (Surplus) Line Insurance

When a commercial risk cannot be placed in the admitted market, it goes to excess line (surplus line) insurers. New York's process is exacting:

The 3.6% excess line tax is collected by the broker and remitted to the state; it is the single most-tested number in this section. Excess line insurers are non-admitted, so their insureds get no protection from the New York Property/Casualty Insurance Security Fund if the carrier becomes insolvent — a key disclosure.

Exempt Commercial Purchasers

The federal Nonadmitted and Reinsurance Reform Act (NRRA) lets large, sophisticated buyers — Exempt Commercial Purchasers (ECPs) — waive the diligent-search requirement, because they are presumed able to evaluate non-admitted coverage. An ECP must employ or retain a qualified risk manager and meet a size test. The federal net-worth floor was $20 million when enacted and is inflation-adjusted every five years (about $25 million for the current period). Alternative size triggers commonly used:

• Net worth above the inflation-adjusted threshold (~$25M), or
• Annual revenues exceeding roughly $50 million, or
• More than 500 employees (or 1,000+ for an affiliated group), or
• A non-profit/public entity meeting a budget test

For an ECP, the excess line broker may skip the three-declination diligent search but still must use an eligible insurer, pay the 3.6% tax, and file with ELANY.

Business Income (Interruption) Coverage

Commercial property buyers add business income (formerly business interruption) coverage to replace earnings lost while operations are suspended by a covered physical loss. The exam tests these elements:

Two timing concepts dominate the questions. The period of restoration begins 72 hours after the direct physical loss (the standard ISO waiting period) and ends when the property is repaired or should reasonably have been repaired. The extended period of indemnity (default 30 days, extendable) continues coverage after repairs while the business climbs back to its pre-loss revenue.

Worked example: A bakery suffers a covered fire and is closed 4 months. Lost net income during restoration is $120,000 and continuing payroll is $40,000; the policy has no coinsurance issue and a 72-hour waiting period that bars the first 3 days (≈$3,000). Recoverable business income ≈ $157,000 (the 72-hour deductible is satisfied within the multi-month outage, so only the first-3-day slice is excluded). Add extra expense if the bakery rents a temporary kitchen to keep customers.

This structure — net income + continuing expense + extra expense, gated by the 72-hour waiting period — is exactly how the exam frames the calculation.