The rules implementing the Unfair Claims Settlement Practices Act, codified at N.J.A.C. 11:2-17.8(k), require that, with respect to first-party claims, insurers make claim payments by check or draft with a statement setting forth the coverage under which payment is made and in sufficient detail to enable first party claimants to reasonably understand the benefits included within the claim payment. The New Jersey Department of Banking and Insurance (Department) has received requests from parties to revise the rules to permit payments through the use of electronic transfers, prepaid debit cards, or other comparable methods to reflect currently accepted payment practices. Prepaid debit cards would include debit cards, bank cards or other similar cards procured by arrangements between the insurer and a financial institution whereby the payment to the consumer is transferred from the insurer to the financial institution and held in an account at the financial institution, or the claim payment is otherwise provided directly from the insurer to the insured in a manner other than a lump sum payment via check, draft, or electronic transfer.
In response to numerous comments on its initial proposal, the Department deems it necessary to re-propose the amendments to N.J.A.C. 11:2-17.8 and propose new amendments to N.J.A.C. 11:2-17.10 to address concerns raised by the commenters. In responding to regulatory comments, the Department confirmed that:
- the proposed amendments would not apply in the case of health coverage, life insurance or annuities, and that the notice of re-proposal and proposal was not intended to affect the agreements with regard to those payments;
- payments by ACH, electronic funds transfer (EFT) will be considered the equivalent of payment by check or draft;
- fees on the use of credit cards will continue to be prohibited, except for the fees incurred by the claimant due to the terms of service with his or her bank;
- claimants electing to pay by electronic means may effectuate changes to the payment methodology;
- the insurer may revoke the agreement effective as soon as practicable, but no later than 30 days after notice to the claimant;
- an insured can access balance unused on a credit card at an ATM or other bank location and convert the balance into cash;
- payment of property/liability claims through an alternative payment method will be optional;
- written notice by the insurer making payment by alternative means is required and consent by the policyholder or claimant may not be implied; and
- no claim may be paid in this fashion unless the use of the payment method has first been voluntarily and affirmatively agreed to by the claimant after the insurer has fully disclosed in writing all aspects of the program, including disclosure of any potential fees.
When using an alternative payment method, the regulations require that the claimant be provided an opportunity to deposit or convert the full amount of the payment to cash with no fee. Other fees may be incurred due to the claimant’s election of certain means to access the funds, such as fees for multiple ATM withdrawals or fees charged by the financial institution used by the claimant to access the money. Those fees will not be considered a prohibited fee that reduces the claim payment amount.
The Department’s proposal recognizes the business realities underlying modern payment practices, introduces both flexibility and equity into the claims process, and expedites receipt of funds by New Jersey policyholders and claimants.
Comments should be submitted by June 3, 2016 to Denise Illes, Chief, Legislation and Regulation, Department of Banking and Insurance at the address or by fax as identified in the attached regulatory proposal linked here.