An examination of the auto insurance market in New York state

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1 Statement re: To: By: On: An examination of the auto insurance market in New York state Assembly Standing Committee on Insurance Public Hearing Professional Insurance Agents of New York State Inc. Matthew F. Guilbault, Esq. Director of Government & Industry Affairs Thursday, April 10, 2014, at 10:30 a.m. Legislative Office Building, Hearing Room B, Albany, N.Y. Good afternoon Chairman Cahill and the distinguished members of the New York State Assembly Insurance Committee. My name is Matthew Guilbault and I am the director of government and industry affairs for the Professional Insurance Agents of New York State, Inc. With me today is Dan Corbin, PIA s director of research. PIANY is a voluntary, membership-based trade association representing professional, independent property/casualty insurance agents throughout New York state. We are your neighbors providing valuable property/casualty insurance coverage to protect the farms, homes, businesses and automobiles of the citizens of New York state. A statewide organization, PIANY serves member insurance agencies doing business in every New York community. In every city, every town and every village, PIANY members are small businesses that employ more than 20,000 insurance professionals, providing insurance for more than 2 million households and 750,000 businesses, governmental units and other organizations. PIANY s priority issues serve to protect insurance consumers, such as our recent success in working with you to address late-notice-of-claim denials and preventing expensive accident surcharges from being imposed on policyholders who suffer minor automobile accidents. We are pleased to be able to share our views on New York state s automobile insurance marketplace. During my testimony, I will touch on a number of issues related to the market and Dan and I will be happy to take questions from the panel. Much of the testimony prepared for today was the result of a member poll that PIANY sent out last week. In our poll, 111 of our most active members were asked a series of questions about the automobile insurance marketplace. These members hail from all across New York State, from Buffalo to Brooklyn and represent small, medium and large agencies. But before I get into our poll results, I d like to talk a little bit about the automobile marketplace in New York.

2 Does New York state s automobile insurance market rank as one of the most expensive in the nation? According to a recent survey conducted by Quadrant Information Services and published on Insure.com (Feb. 21, 2014), New York state automobile insurance market ranks as 42 nd most expensive in the nation, with an average premium of $1,173 for a 40-year-old single male with policy limits of 100/300/50 and a $500 deductible on collision and comprehensive coverage. By comparison, our neighboring states are all higher. New Jersey (9 th at $1,905), Connecticut (13 th at $1,638), Massachusetts (16 th at $1,604) and Pennsylvania (25 th at $1,440) all have higher average premiums. In the Northeast, only Maine and New Hampshire (49 th at $983 and 50 th at $964, respectfully) have lower average premiums. Michigan, by comparison enjoys being the state with the highest average car insurance rates in the nation at $2,551), more than twice that of New York s. The survey calculated rates from six large carriers in 10 Zip codes per state, by asking insurance agents for their take on their state s rates. I am not aware of whether the Zip codes in New York were evenly spread across the state or included the five boroughs. Percentage of uninsured motorists by jurisdiction Moreover, according to a 2012 study by the International Risk Management Institute, New York s percentage of uninsured motorists by jurisdiction ranks the lowest in the country at only 5 percent. The countrywide average is 13.8 percent and the neighboring states of New Jersey (11 percent), Connecticut (10 percent), Pennsylvania (7 percent) and Vermont (7 percent) are all higher. Minimum coverage requirements New York s minimum limits requirements are 25/50/10 (or $60,000 combined single limit) and these limits are shared with 10 other states in the nation. These limits were last raised 19 years ago in In addition, in New York, policyholders must have 50/100 from wrongful death coverage. 2 Many of our members tell PIANY that they won't even write policies at the current minimum limits because, in their opinion, the level is ridiculously low and irresponsible. Even a young adult new to the job market with no assets should have more than $60,000 coverage for an injury and for property damage because it doesn't take a very serious wreck to cause property damage or injuries that exceed those levels. The State of Maine's requirement of a 50/100/25 minimum-limit policy currently sets the standard in the country. This is reflected in our survey results which found that 92 percent of respondents believe that minimum automobile coverage requirements in New York are inadequate.

3 Seventy-one percent believe that the minimum automobile coverage requirements generally are affordable. The exceptions are for youthful drivers (particularly downstate), especially those that have experienced traffic infractions, bad credit or policy lapses. The low property damage minimum has been cited as being particularly outdated and in need of an increase and 91 percent believe this limit should be raised. Adequate levels of comprehensive and collision coverage to meet consumer needs Ninety-two percent of respondents believe that adequate levels of comprehensive and collision coverage are available to meet consumer needs. And 69 percent believe these coverages are affordable. The residual market as well as high-risk populations Sixty-four percent access the residual market for personal automobile insurance and 63 percent access the residual market for commercial insurance. Seventy percent have difficulty placing automobile policies for high-risk populations. The role of the Department of Financial Services in regulating the automobile insurance industry Sixty percent of our members believe that the Department of Financial Services does an adequate job in regulating the automobile insurance industry. Other, comments/concerns: Supplementary uninsured motorist default to BI limits PIANY supports the changes embodied in A.10784/S.7787 of This legislation would have required automobile insurance policies to provide supplementary uninsured/underinsured motorist coverage equal to a policy s bodily injury liability limits, unless the higher SUM limits are affirmatively rejected by the policyholder and that rejection is appropriately memorialized.

4 Prior to the enactment of Regulation 35-D, motor vehicle liability insurers were required to provide supplementary uninsured or underinsured motorist coverage to their insureds, at their request, "in an amount up to the bodily injury liability insurance limits of coverage" provided under their basic policy. This statutory requirement was interpreted to mean that "no insurance company will be permitted to refuse to provide supplementary uninsured motorist coverage if the insured requests it." However, it was also held that insurers had no duty to inform their insureds of the availability of such coverage. Pursuant to Regulation 35-D, motor vehicle liability insurers are required to take affirmative action to advise their insureds, in writing, at the time of writing or renewing a policy, of the availability and desirability of SUM coverage, and to explain the benefits for such coverage and provide examples of its application in a variety of situations. Insurance Law Section 3420(f)(2)(B) also requires auto insurers to notify their insureds, in writing, at least once each year, of the availability of SUM coverage and to explain the nature of the coverage and the amounts in which it can be purchased similar to the requirements of Regulation 35-D. Effective March 9, 1998, the limits of SUM coverage required by statute to be offered were increased to a maximum $250,000 per person and $500,000 per accident, or a combined single limit of $500,000 per accident. Under the current statute, the insurer can still offer only a $100,000/$300,000 SUM policy (the previous maximum amount) if it also offers to the insured a personal umbrella policy that covers SUM claims and has limits "up to at least $500,000." Insurers can, and frequently do, offer coverage with higher limits. However, the "supplementary uninsured" or "underinsured" motorist coverage available to the insured may still not exceed the third-party liability coverage purchased by that insured. Notwithstanding the foregoing, many insureds elect underinsured motorist coverage in lesser amounts than the coverage provided for in their bodily injury liability policy. Insurance agents and/or brokers customarily push for this coverage at the highest possible levels to overcome a lack of understanding of the importance and need for such coverage and the failure to appreciate that increases in the coverage are typically inexpensive. No insured should protect strangers more than themselves and their families, and this failure of knowledge and understanding does create a problem for insureds. Several articles in the mainstream press have provided graphic examples and illustrations where victims of accidents with underinsured motorists have been cut short and remained undercompensated by their unnecessarily low levels of SUM coverage. Unfortunately, the governor was unconvinced and vetoed the bill on Dec. 17, 2012, issuing a confusing veto message citing the need to maintain consumer choice which this bill clearly does. New York policyholders deserve another look at this issue.

5 Optional photo inspections Section 3411 of the Insurance Law currently requires insurers to conduct an inspection of a vehicle prior to insuring the vehicle. This inspection involves taking pictures of the vehicle and is, today, typically performed by third-party business franchises. The law was originally enacted in 1977 to address fraud relating to individuals securing coverage on vehicles which did not exist (phantom vehicles) in order to report the vehicles stolen and file an insurance claim. While this requirement may have made sense in 1977, technological and other fraud-fighting advances since that time have made this requirement obsolete for many insurance companies and we believe that insurance companies that have found more convenient or cost-effective ways to address this problem should not be required to continue to comply with an outdated requirement. PIANY has, dating back to 2008 and 2009, repeatedly supported liberalization of the existing photo inspection regulation. Despite working with the department on the adoption of regulatory changes for more than five years, however, we have yet to achieve any substantial success (proposals were circulated in 2008, 2009 and 2012). PIANY has supported every type of liberalization in the current rules, including all recent actions of the department to provide more time and flexibility with which to accommodate the needs of our members clients and prevent inadvertent lapses in their physical damage coverage by tolling of the five-day deferral for the inspection from the current calendar days, to business days; adoption of an unambiguous definition of new, unused automobile; a change in the existing optional waiver at Subdivision 65.3(b)(3) which reduces, from four to two policy years, the amount of time an insured must have been continuously insured with the same insurer for inspection to be waived on an additional or replacement vehicle; adding two more situations in which a company, at its discretion, may waive the inspection requirement; as well as clarifying that digital photos and other durable electronic media are acceptable for producing the required photos and storing the inspection documents. Our position has been consistently that PIANY supports and appreciates the department s continuing willingness to help customers and the industry work within the statutory requirements of the photo inspection law, which PIANY still considers to be onerous and unnecessary. Nonetheless, we continue to support repeal of the underlying statute (Insurance Law Section 3411), which we believe has been rendered unnecessary by vastly improved ways of verifying and tracking the existence and physical condition of insured vehicles since its original enactment. The simple fact is that people have actually lost coverage for physical damage to the vehicle because no auto inspection was performed. In this situation, the insured has purchased coverage and paid the premium, but will not be covered if his or her auto sustains physical damage, simply because the auto inadvertently was not inspected. In these instances, there was no fraud, no counterfeit tags and no crime was averted by this requirement. The only thing that happens is that innocent and well-intentioned drivers inadvertently miss deadlines and find that the coverage that they purchased, that they paid for, was denied, leaving them to suffer the damages of paying to fix their own vehicles out of pocket.

6 No-fault coverage No-fault fraud needs to be addressed comprehensively. PIANY supports reform of the no-fault system, and has consistently done so since 1974 when the system was adopted. Our member agents were well-served by the state s adoption of no-fault, as the policies we sold were able to more quickly prove their value in the event of an accident and our policyholders were spared a costly and inconvenient negligence-based system in the courts. Through our participation in the New York First Automobile Insurance Fraud Coalition, we support both the Legislature s, as well as the department s, endeavor to address the ever-growing problem of automobile no-fault fraud. True comprehensive reform of the system is needed, and can only be accomplished through a coordinated approach of both reforming Regulation 68, as well as modifying the statutory framework of no-fault through legislation. Now, once again, New York state is experiencing steep increases in no-fault fraud, evidenced by a 56 percent increase in typical no-fault payments for medical care of accident victims in the last five years. As a result, the costs associated with fraud and abuse of the state s no-fault system are ultimately borne by policyholders, our members clients, and are now the second highest in the country and 111 percent higher than the U.S. average. Nonetheless, New York s no-fault system remains sound public policy and a viable system to ensure that injured policyholders claims are paid in an effective and efficient manner. But the very existence of no-fault remains threatened if excessive costs from illegitimate claims payments are allowed to continue unchecked. Unfortunately, the very strengths of the no-fault system (expedited payment without needing to prove responsibility for an accident) also make it a target for the unscrupulous, as staged accidents, medical mills and dishonest health-care providers and attorneys exploit the system for personal gain. The time has come, once again, for substantive change of the no-fault system through both legislation and regulation. PIANY supports changes to New York s laws and regulations to fight the epidemic of insurance fraud that is attacking the state s no-fault system. The necessary statutory changes (ones that PIANY has long supported) are as follows: 1. requiring the use of medical guidelines for specific auto-related injuries to reduce overtreatment and unnecessary procedures; 2. requiring that disputes be resolved by arbitration to speed up the resolution of claims and avoid the costs and uncertainty of a trial; 3. permitting those with claims for less than $5,000 to submit proof based on a doctor s sworn affidavit instead of requiring physicians to appear in person; 4. strengthening the penalty for acting as a runner and facilitating fraudulent transactions to a felony; and

7 5. raising the burden of proof for receipt of no-fault benefits by requiring the plaintiff to produce a witness with personal knowledge of the facts alleged in the complaint. Now is the time to enact comprehensive and systemic reform of the no-fault system, while preserving the benefits that justified its adoption 36 years ago reducing costs and delays in paying claims. We believe a comprehensive reform of the regulation, combined with the adoption of key legislative changes long advocated by PIANY, will benefit the vast majority of honest insureds and claimants, and strengthen insurers hands in investigating suspected fraud. To abandon the entire system in favor of returning to an expensive and time-consuming system focused on determining who is at fault and legally liable when accidents occur, as opposed to the timely payment of claims, would be shortsighted and a detriment to all policyholders. Other issues raised by our members Credit rating and its effect on automobile insurance. Higher physical-damage deductibles should be available for the owners of expensive vehicles and more realistic premium reductions available for taking these higher deductibles. Thank you for your time. We would be happy to take any questions. 1 Chapter 305 of the Laws of New York, 1995: Increases minimum limits of liability required under motor vehicle coverage from $10,000 and $20,000 to $25,000 and $50,000 for injury or death. 2 The minimum financial responsibility insurance requirement for motor vehicles in New York is $25,000/$50,000/$10,000. $25,000 is the maximum amount payable for any one person injured in an auto accident when caused by the negligence of the insured. $50,000 is the maximum amount payable if more than one person is injured in the auto accident. $10,000 is the maximum amount payable for property damage resulting from the auto accident. Alternatively, the minimum financial responsibility requirement could be satisfied with a $60,000 combined single limit, which allows the one limit to be used as needed for injuries and/or property damage. In addition, the minimum financial responsibility requirement includes a $50,000 limit per person if the injured person dies and $100,000 limit if more than one injured person dies.