Asleep at the Wheel
1994-1998

NY's Move to the Top of the List In Auto Insurance Rates

Report of the Speaker's Task Force on Auto Insurance
May, 1998

Sheldon Silver Speaker of the Assembly

Alexander B. Grannis Ivan C. Lafayette Co-Chairs

THE ASSEMBLY STATE OF NEW YORK ALBANY

June 4, 1998

Hon. Sheldon Silver
Speaker of the Assembly
The Capitol - Room 347
Albany, New York 12248

Dear Speaker Silver:

On behalf of the members of the Speaker's Task Force on Automobile Insurance, we are pleased to submit our report on our work investigating ways to increase access to more affordable auto insurance for New York drivers.

As you know, the Task Force members' overwhelming interest focused on the growing dissatisfaction with the high cost of auto insurance. Heightening this concern was the release of data indicating that since 1994, New York has moved from the fourth to the second most expensive state for auto insurance in the country. With New Jersey rates expected to drop up to 15% as a result of reforms recently signed into law, absent a decline in New York rates five times as great as seen in 1997, New York will in all likelihood become the most expensive state for auto insurance in the country.

With this in mind, the Task Force hosted three informative roundtables and a public hearing, followed by lively and helpful discussions with consumer groups, insurers, and agents to solicit input on how best to help the driving public. We also analyzed data from the National Association of Insurance Commissioners on insurer performance for the period 1990 to 1996. Our findings reveal a disturbing trend. New York insurers appear to have been jacking up premiums out of proportion with costs, a fact which has led to soaring company profits. From our analysis, it appears that the state Insurance Department has been approving overly generous rate increases to New York insurers in recent years, at the expense of the drivers across the state.

Included in this report are recommendations, which, if fully implemented, we believe will save consumers hundreds of millions of dollars on their auto insurance premiums. We are prepared to advance for consideration by the Assembly a full package of legislation to carry out our recommendations.

Sincerely,

Alexander B. Grannis, Co-Chair

Ivan C. Lafayette, Co-Chair

Membership of Speaker's Task Force on Auto Insurance

Alexander B. Grannis, Ivan C. Lafayette
Co-Chairs

Ann Margaret Carrozza Joan Christensen Daniel L. Feldman David F. Gantt Jeffrey Klein Joseph R. Lentol Naomi Matusow Debra Mazzarelli Brian M. McLaughlin

Audrey I. Pheffer James Gary Pretlow Peter M. Rivera David Sidikman Paul A. Tokasz Helene E. Weinstein Harvey Weisenberg Mark Weprin

Task Force Staff

Christine Olli, Associate Director, Insurance Committee
Evan Schneider, Legislative Assistant, Assymn. Lafayette
Frank McNally, Legislative Coordinator, Insurance Committee
LouAnn Ciccone, Program Analyst, Insurance Committee
Michele Milot, Committee Assistant, Insurance Committee

The Task Force would like to thank Deborah J. Hicks, Eleanor M. Wilson, Marion Hartmann, and Lisa A. Allen for their assistance in coordinating Task Force events; and Georgia H. Lynch, Barry W. Mack and Nisha Stillwell for their editorial and production support in preparing this report. Christine Olli was the principal author of this report, which can be accessed under Legislative Reports on the Assembly's Home Page http://assembly.state.ny.us.

EXECUTIVE SUMMARY

Assembly Speaker Sheldon Silver created the Task Force on Automobile Insurance on January 8, 1998 to investigate the cost and availability of auto insurance in New York State, and to review the effectiveness of laws due to expire this year that regulate access to, and affordability of these policies.

During the course of its work, the National Association of Insurance Commissioners released data indicating that since 1994, New York has moved from the fourth to the second most expensive state for auto insurance in the country, second only to New Jersey. With rates expected to drop in New Jersey by 15% as a result of reforms recently signed into law, New York will in all likelihood become the most expensive state in the nation for auto insurance.

The Task Force hosted roundtable discussions and a public hearing to solicit input on how best to help the driving public, analyzed data on auto insurance company performance, and reviewed reports from insurer groups and Mayor Giuliani's Task Force on Auto Insurance. Unfortunately, the state Insurance Department chose not to participate in any of our forums. Based on this research, we developed a number of findings, summarized as follows:

• New York auto premiums have been increasing at a far faster rate than justified by insurers' claims experience. In the period 1990 - 1996, New York average auto insurance premiums jumped by 36%, while the costs of providing coverage went up by a mere 12%. By way of comparison, countrywide premiums increased by only 20%, closely tracking an 18% rise in costs.
  
  
• If New York's rate hikes had simply kept pace with rising costs in the state, New York drivers would be saving $1.4 billion on their premiums.
  
  
• Pataki's policies have yielded record profits for New York auto insurers. In 1996, New York insurers' profits on insurance transactions were twice as high as their counterparts in the rest of the country. Their return on net worth was 34% more than the national average.
  
  
• The state Insurance Department has failed in its job of protecting ratepayers from rate gouging. In addition to sitting on the sidelines while insurers pushed up rates and were realizing record profits, SID inexplicably delayed for over 18 months issuing regulations to implement a key fraud fighting program that is expected to save NY car owners up to $500 million per year. (Chapter 635 of the Laws of 1996 set standards for insurers to implement far-reaching fraud fighting plans pursuant to department regulations.) Unfortunately, drivers will have to wait for another year before even beginning to see the benefits of this program.

Recommendations:

Based on its findings, the Task Force recommends implementing a broad package of initiatives to protect consumers, enhance their voice in insurance proceedings before the Insurance Department and bring down premiums. We believe that the recommendations outlined in this report are reasonable and consistent with efforts to reduce the cost of automobile insurance statewide.

Using conservative estimates, fully implemented, we believe this package will produce ongoing savings for consumers of $1.1 billion. In addition, when the savings from Chapter 635's fraud fighting initiatives are fully implemented, the combined savings will translate into a total statewide premium reduction of 20%, or roughly $260 per policy or $200 per insured car.

Our recommendations with the most significant impact on premiums are:

 

	Estimated Savings
Establish an independent Office of Consumer Advocate to intervene in rate-making proceedings.	$600 M
Make comparison shopping available through the Insurance Department's 800 # and web site.	$260 M
Strengthen the ability of insurers and law enforcement to prevent, detect, investigate and prosecute insurance fraud.	$146 M
Require a premium discount for drivers agreeing to use designated repair shops.	$ 92 M
Require premium discounts for enhanced anti-theft program	$ 10 M
	_________ $1.108 Billion ===========
Savings from full implementation of Chapter 635 Fraud Fighting Program	$ 476 M

INTRODUCTION

On January 8, 1998, Assembly Speaker Sheldon Silver announced the creation of a special task force to investigate the cost and availability of automobile insurance in New York State, and to review the effectiveness of laws due to expire this year that regulate access to, and affordability of these policies. These laws are discussed in detail on pages 17-19. The Speaker's Task Force on Automobile Insurance hosted three roundtable discussions and a public hearing to solicit input from consumers, agents, insurers, and regulators on how best to help the driving public.
A wide range of ideas and suggestions were presented, with the major concerns and recommendations highlighted below.

The Task Force brought to the table an array of issues, including longstanding concerns the Assembly has had with questionable insurer practices that contribute to high proportions of good drivers inappropriately relegated to the New York Automobile Insurance Plan (AIP), New York's assigned risk plan. The members' overwhelming interest, however, focused on the growing dissatisfaction with the high cost of auto insurance premiums.

Fueling members' interest in this issue was the revelation that since 1994, New York moved from the fourth, to the second most expensive auto insurance state in the country. And with reforms just signed into law in New Jersey expected to reduce rates by 15%, New York will become the most expensive state for auto insurance.

PROFILE OF THE NYS AUTO INSURANCE MARKET

There are about 10.5 million New York State licensed drivers and 8.2 million cars insured annually in New York. Roughly 56% of the cars are located upstate, and 44% downstate in New York City, Long Island, and Rockland and Westchester Counties. The state's 6 million private passenger auto policyholders pay roughly $7.9 billion in premiums annually.

The recent trend for average annual premium per policy in New York is as follows:

 

	Premium 1	U.S. Rank
1996	$959.83	2
1995	$905.91	3
1994	$870.01	4

The state's assigned risk plan has 1,268,850 policies as of 1995, or 16% of the auto market. Nearly 50% of plan drivers reside in New York City. (In sections of the Bronx, 78% of the drivers are covered in the plan; in Queens, 55%; in Manhattan, 40%; in Brooklyn, 37%, and in Staten Island, 15%.)

To assist the Task Force in its work, we invited representatives of consumers, agents, insurers, repair shops and SID to make presentations of their views and recommendations, which were followed by productive and helpful discussions. In addition, we held a public hearing on an issue much in the news: sport utility vehicle (SUV) safety, and the impact of accidents involving these vehicles on private passenger auto insurance rates. Following are brief summaries of these forums.

February 24, 1998 - CONSUMER ROUNDTABLE

At the first roundtable discussion, the Task Force was presented with preliminary findings that both auto premiums and insurer profits were rising, particularly in the last few years, and that the annual premiums for comparable coverage for drivers with similar profiles can vary by thousands of dollars. Arguments were made for enhancing the voice of consumers in New York's auto insurance regulatory system, from which they are now virtually completely excluded.

Consumer Voice in Rate-making / Easier Shopping
We were urged to support the establishment of an Office of Independent Insurance Counsel (OPIC), modeled on the office created in Texas in 1991. Texas' OPIC intervenes on behalf of consumers in rate and other insurance policy matters, and serves as a consumer education resource. In 1996, through its advocacy in rate hearings and rule decisions, the Texas OPIC reportedly saved consumers $602 million in auto insurance premiums; in 1995, savings totaled $778 million. The Texas OPIC is funded by a $5.7 cent assessment on property/casualty and title insurance policies, and group health, accident or life policies.

It was also recommended that the SID provide individualized premium quotes to consumers through an 800 number and over the Internet in order to ease comparison shopping. Consumers Union currently has a service where consumers can call and, for a fee, get price quotes on automobile insurance rates. It is too soon to identify how much New York consumers save on their policies by using this service, but, nationwide, average consumers who use Consumers Union's service save approximately $400 on their policies.

Cut Costs by Fighting Fraud
Consumer advocates stressed the need to address the high level of insurance fraud. Citing the National Insurance Crime Bureau estimate that the cost of fraud makes up over 16% of every insurance policy, they estimated that fraud adds over $150 to every New York auto policy premium.

The advocates criticized the SID for its inexplicable year and a half delay in implementing the regulations called for in the hard-hitting anti-fraud measure advanced by the Assembly and enacted into law in September 1996. (At the time of this writing, the regulations had been finalized. Drivers will have to wait close to another year before beginning to realize the savings expected from this initiative.) Finally, we were urged to ensure that the $1 fee assessed on every private passenger auto policy since 1992 to fund local anti-auto theft initiatives be devoted exclusively for this purpose.

March 17, 1998 - PUBLIC HEARING

The Task Force convened a public hearing to investigate the impact that high losses associated with accidents involving light trucks and sport utility vehicles (SUVs) may be having on automobile insurance premiums. The hearing was announced following the release of studies by the National Highway Traffic Safety Administration, the Insurance Institute for Highway Safety and Highway Loss Data Institute documenting their findings that accidents involving SUVs and light trucks and cars result in proportionally greater damage and kill more people than in car-to-car accidents. According to the Highway Loss Data Institute, light trucks (other than minivans) cost insurance companies significantly more in property damage liability than any other class of car.

The Task Force received written testimony from a number of interested parties, and heard from representatives of the Highway Loss Data Institute, Allstate Insurance Company and Progressive Insurance Company. NYS Insurance Department Superintendent Neil Levin declined the Task Force's invitation to present testimony and did not respond to our follow-up request for the department's views on the issue.

No Clear "Right" Way to Rate SUVs
The two insurer representatives presented a stark contrast in their rating practices with respect to light trucks versus regular private passenger cars. Progressive adjusts for make and model in its liability rates to reflect the higher losses its insureds have under these coverages for SUVs. Allstate makes no such differentiation, claiming that according to its experience, higher losses for SUVs on bodily injury and property damage liability are offset by lower losses on personal injury protection (no-fault), uninsured motorists, and collision coverages.

Absent any input from SID, and without any independent actuarial studies on the experience of New York insurers, the Task Force concluded it did not have enough information to make recommendations on this matter at this time. A clearer picture of industry-wide losses for SUVs versus cars should emerge, however, when the Insurance Services Office (ISO), a rate service organization which analyzes data and assists in developing rates for its member companies, completes its research into the issue. Based on its findings, ISO may design a new rating system. This study is expected to be completed later this year.

March 24, 1998 - INSURER ROUNDTABLE

A large group of insurance company and agent representatives expressed general consensus that the New York auto insurance market is the most competitive it has been in years, particularly for "non-standard" drivers. Non-standard drivers are drivers considered to be higher risks which insurers historically have shunned as unprofitable.

Signs of an Improved Market
As evidence of the new insurer hunger for these heretofore undesirable drivers, presenters cited the declining number of applications to the New York Automobile Insurance Plan (AIP), the state's assigned risk pool. Also cited was the fact that many storefront brokers, who are often located in urban areas and offer only AIP coverage, are increasingly finding voluntary market companies in which to place their business, sometimes at rates lower than the AIP. It was noted that this trend is not as pronounced in New York City and its suburbs. Insurer representatives offered as further proof of the competitive nature of the market the fact that NY rates went down .45% in 1997.

There was consensus among this panel that the Legislature should renew the auto insurance statutes expiring this year. These laws allow insurers to non-renew up to 2% of their drivers in a particular geographic region, receive automatic rate increases if the increase sought is 7% or less, and offer managed care as an option for treatment of injuries claimed under no-fault.

Most participants expressed concern with rising costs for bodily injury liability (BI) and personal injury protection (PIP), also known as no-fault coverage, citing a pronounced jump in the costs for these coverages from 1996 to 1997.

Why BI and PIP Costs are Increasing
Insurers identified the causes for increasing BI and PIP costs as fraud, exaggeration of injuries by over-use of diagnostic tests and treatments ("claim padding"), a rising frequency of bodily injury claims, particularly downstate, and a high rate of injury claims in the downstate regions. (While the frequency of bodily injury claims has increased 15% from 1990 to 1996, no insurer offered data indicating that this increase is due to a disproportionate increase in lawsuits downstate. In addition, the frequency of bodily injury claims in New York is .77 per 100 insured vehicles versus 1.31 for the nation. Nevertheless, there is a wide disparity in the frequency and cost of bodily injury claims between upstate and downstate. In 1997, the frequency of bodily injury claims in Brooklyn was 2.82 per 100 insured vehicles at an average cost of $534.59. In Rochester, the frequency was .27 at an average cost of $56.30. It should be noted that in states with no-fault laws similar to New York's, the disparity in losses between upstate/downstate regions is more than twice as high as the disparity between upstate/downstate New York.)

Variations in NY Bodily Injury Claiming

Territories High Claiming Brooklyn Bronx South Queens Suburban Queens

BI Claim Rate* 2.82 2.12 1.82 1.50

Average Loss Cost $534.59 $402.32 $389.12 $266.99

Low Claiming Corning Monroe (balance) Sub. Rochester Orleans County Rochester Jefferson County Ontario County Steuben (balance) Genesee County

0.19 0.22 0.23 0.25 0.27 0.27 0.28 0.29 0.30

$72.95 $99.75 $79.40 $76.30 $56.30 $71.19 $67.44 $65.85 $81.93

Source: Insurance Services Office, 1996 experience, per American Insurance Association
*Number of injury claims per 100 insured vehicles.

Curb BI and PIP Costs
Many of the panel's recommendations were directed at controlling BI and PIP costs by limiting the costs of personal injury litigation perceived as unnecessary. Popular among the industry were various proposals to limit a person's right to sue an at-fault driver. One frequently advanced idea was to eliminate the "90 out of 180 day" standard for serious injury in the no-fault law. Under no-fault, lawsuits for non-economic loss are not allowed against a third party whose negligence caused one's injuries, unless those injuries are "serious". Panel members expressed concern that too many people who are not really seriously injured are qualifying to sue by showing that they are unable to perform their daily activities for 90 out of 180 days after the accident. Panelists also suggested setting up a peer review system for no-fault coverage, where insurers could deny payment until treatment is approved by same-specialty doctors.

Control Repair Costs/Fight Fraud
There was broad support for reducing the cost of collision and comprehensive coverages by authorizing insurers to offer a discount to insureds who agree to repair their car at an insurer-approved shop, known as "directed repair" or "managed repair". Carriers estimate consumers choosing this option would receive a 5% to 10% discount on these coverages, with the higher discount likely to be in downstate areas. Some expressed a preference for simply lifting the current restriction on "steering" consumers to shops, without providing consumer choice in exchange for a discount. Finally, several proposals were advanced to help companies address fraud and decrease the number of uninsured drivers, including increased penalties for driving without insurance.

March 30, 1998 - REPAIR SHOP ROUNDTABLE

Representatives of the repair shop industry walked Task Force members through the auto repair claims settlement process and expressed concerns with pressure they receive from consumers who want to avoid paying their deductible. High on the panel's list of concerns was the difficulty in getting insurers to pay a reasonable hourly rate for their labor. The discussion focused on these concerns as well as fraud, and consumers' legal right not to repair their cars with their insurance claim awards. The repair shop representatives expressed opposition to managed repair, and strong support for requiring insurers to pay labor rates that reflect the prevailing rates in given geographic regions of the state.

April 7 - PRESENTATION BY SUPERINTENDENT NEIL D. LEVIN

The Superintendent declined our invitation to address the Task Force.

RATES

The Task Force looked at auto insurance data compiled by the National Association of Insurance Commissioners (NAIC) and reports released by the American Insurance Association (AIA), New York Public Interest Group (NYPIRG), and Mayor Giuiliani's Task Force on Insurance Rates, and offers the following observations on costs, rates and profits.

Ranking
New York now holds the dubious distinction as the second most expensive auto insurance state in the country. As has been widely reported, New Jersey is the only state where automobile insurance is more expensive than in New York. The latest figures available show an average premium of $959.83 for 1996, compared to $870.01 in 1994, when the state ranked fourth. With the reforms just signed into law by Governor Christine Todd Whitman expected to drop New Jersey's rates by 15%, New York will most likely move to the top of the list.

Costs and Premiums
Both in comparison to other jurisdictions and in actual dollars, the costs of insuring vehicles in New York State is indeed expensive, with New York's average loss cost 33% above the national average.2 This helps to explain why New York's premiums are 44% higher than the national average.

Injury Costs
According to the AIA report, Reducing Costs While Preserving the Benefits of the New York Auto Insurance System, costs and premiums are kept stubbornly high by an increasing number of injury lawsuits and excessive medical treatment trends. However, insurer practices may well have a hand in influencing these trends. The Task Force has received independent reports that several large insurance carriers have recently instituted an across-the-board policy of refusing to settle low-value injury claims, thereby forcing an increased number of lawsuits for recovery on claims which previously would have been settled quickly as a matter of course. An increase in insurer legal costs would be reflected in an increase in the cost of providing coverage. According to Henry E. Strawn, Director of Insurance for the American Arbitration Association, many lawsuits would not be necessary if carriers handled claims in a timely manner. The Task Force is continuing to look into the veracity of these assertions.

Costs vs. Premiums Trends - 1990-1996
Regardless of "who is to blame", the Task Force does not dispute that rising costs of providing BI and PIP coverages are a major factor in New York's increasing premiums. However, a disturbing trend emerges when comparing overall average loss cost increases for all coverages against premium increases over time. New York's loss costs have increased less than the national average, yet its premiums increased more than the national average. (See charts on the following pages.)

Premiums Increasing Out of Proportion
From the period 1990 to 1996, New York's overall average loss costs increased by 12%, versus the countrywide increase in loss costs of 18%. One might reasonably expect that countrywide premium increases would also be greater to account for the greater increase in costs. Yet New York's premiums over the same period jumped three times as much as loss costs -- 36%, versus the countrywide premium increase of 20% which closely tracked the nation's increase in loss costs. The fact that New York's loss cost increases were less severe than the country, at the same time as its premium increases were more severe than the country, raises questions as to why the SID has allowed New York premiums to climb at a higher rate than rising costs appear to justify.

Profitability Up
At the same time that costs and premiums have been going up, insurer profitability in New York has also soared, particularly in recent years. Industry profitability was compared with auto rates in NYPIRG's new report, New Yorkers Pay More - The High Cost of Auto Insurance in New York State and a Road Map to Reform.

One of the report's more interesting findings was that while New York auto insurance premiums have been increasing faster than the rest of the country, New York has become an increasingly profitable state for insurers. In 1995 and 1996, auto insurance profitability jumped considerably, surpassing the countrywide average by widening margins in underwriting profit, profit on insurance transactions and return on net worth. The increase in underwriting profit is particularly noteworthy because it excludes investment income. Even accounting for the increase in premiums that took effect January 1, 1996 to reflect the increase in minimum liability limits that drivers are required to carry, in the same year, New York insurers outperformed the nation in profitability.

Insurer Profitability - New York vs. Countrywide

Return on Net Worth   1994 1995 1996 New York 10.7% 13.5 16.2 Countrywide 11.4% 11.6 12.1 Underwriting Profit/Loss   1994 1995 1996 New York -1.7% 1.2 5.6 Countrywide -0.7% -0.9 -0.3 Profit on Insurance Transactions   1994 1995 1996 New York 5.1% 7.3 10.2 Countrywide 4.4% 4.5 5.0

Profits in the Rating Process
There is no doubt that the increased profitability insurers have been enjoying in New York reflects to a large degree the strong performance of their investments. Though industry spokespeople imply that this is an irrelevant factor in the setting of insurance rates, insurers have always considered investment income in devising their pricing strategies. In fact, under Section 2303 of the state Insurance Law, in determining if an insurer's rates comply with the standards that rates not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers, the superintendent must take into account "all income earned by such insurer and any insurer controlling or controlled by such insurer or under common control by or with such insurer on all its investments of any kind and wherever located."

With New York premiums and profits increasing at a greater rate than the rest of the country, at the same time that costs are increasing at a lower rate than the country, it appears that the rate increases approved in recent years by the state Insurance Department have been overly generous to New York insurers.

Limited Access to Rating Information
Among the difficulties in analyzing insurance rates are the obstacles encountered by independent parties seeking timely and complete insurance information. Mayor Giuliani's Task Force on Auto Insurance examined the relationship between decreasing auto theft rates and comprehensive insurance premiums. The Mayor's Task Force report, Taken for a Ride: Have New Yorkers Reaped the Rewards of the Decline in Auto Theft?, cited delays and resistance in obtaining the information it requested from both insurers and the SID. Carrier-specific data had to be obtained by subpoena.

NYC Finds Rate Filings Inadequate
With the information in hand, economist and former Texas insurance regulator, Birny Birnbaum, analyzed the rate filings of several large carriers on behalf of the Mayor's Task Force. Birnbaum filed an affidavit in support of a lawsuit by the City against the insurance department, which sought to force a reduction in several carriers' premiums. In that document, Birnbaum asserted that some of the rate filings contained insufficient information to support several key assumptions insurers made to justify the rate increases that were granted by the insurance department. Among its conclusions, the Mayor's Task Force recommended that insurers submit uniform rate filings to facilitate the examination and comparison of filings and the data upon which they are based.

Limited Ability to Intervene in Rate-making Process
The Mayor's lawsuit against SID was based on his conclusion that the City's dramatically declining auto theft rates were not being reflected in appropriate premium reductions. SID filed a motion to dismiss for lack of standing. An appeal is being considered should the motion be granted. Another of the Mayor's Task Force recommendations is to clearly empower the Mayor and other independent parties to challenge SID's decisions on insurer rate filings.

Imbalance in the Rate-making Process
In its discussion of the frustrations it experienced seeking information from the insurance industry, the Mayor's Task Force report declared that "the ongoing, severe imbalance in the ability to get information about insurance rates and about how they are set puts New York City consumers, and consumer advocacy organizations, at a great disadvantage." The report went on to assert "that a culture of secrecy pervades the insurance industry and the SID."

The SID has argued in the past that it acts as an advocate for consumers every time it examines an insurance company rate filing. In criticism of the current system, the report quotes Robert Hunter, the former Texas insurance commissioner:

You have an insurance commissioner who is supposed to be a judge in these matters and yet - all the judge hears is from the insurance industry.

There is nobody before the judge saying, 'Oh, by the way, can we point out they didn't give you the exhibits that you need here.' And what you need to have in my view is something like the Office of Public Insurance Counsel in Texas, an external advocate whose job it is to hire lawyers and experts to come before the department and make a case on behalf of the consumers to replace - to balance the one-sided nature of the current situation in New York.

RECOMMENDATIONS

1. Sources of Rate Reduction. To assist SID, insurers and consumers to reduce premiums:

a. Establish a clearly delineated independent institutional voice for consumers in an Office of Insurance Consumer Advocate. The Consumer Advocate would have a mandate to advocate for the interests of consumers as a class in rate setting, rule making and other insurance-related matters before the SID.

b. Provide the SID's 800 number and web site address on all policy forms so that consumers can obtain premium samples to aid in shopping.

c. Require rate filings to conform with standards of uniformity.

d. Authorize insurers to offer policyholders a premium discount for agreeing to use repair shops designated by the insurer (managed repair).

e. Authorize municipalities to petition SID for appropriate rate reductions for its residents.

f. Require the SID to study the appropriateness and fairness of insurers' use of surcharges.

2. Fraud Prevention. Effective efforts at preventing, detecting, investigating, and prosecuting insurance fraud can result in significant savings for honest policyholders. The following could help reduce the costs of this crime:

a. Create a 30-day deadline by which health care providers must notify insurers of initial treatment of injuries claimed under no-fault and shorten the deadline for billings to 45 days. Currently, providers can delay submitting billings for up to 180 days.

b. Make any company practice that arbitrarily forces unnecessary litigation an unfair claims settlement practice.

c. Grant insurers the right to re-inspect vehicles before, during and after repairs.

d. Establish a mechanism for determining prevailing auto repair labor rates by region to reduce inducements for fraudulent practices in negotiations of repair costs between insurers and repairers. This would streamline the claims settlement practice, promote more uniform settlements and provide for easier regulatory review of claims settlement practices.

e. Reward people whose reports of insurance fraud result in successful prosecutions or recoveries.

f. Increase penalties for scam artists who hire others to participate or who participate themselves in fraudulent activities.

g. Revoke or suspend professional licenses and permits of scam artists convicted of insurance fraud crimes.

h. Permit insurers to take possession of unclaimed stolen cars to minimize the costs of damage to unattended vehicles.

i. Speed up the implementation of and require real-time electronic reporting under the DMV/ insurer instant insurance registry/sticker law, enacted pursuant to Chapter 678 of the Laws of 1997. The law is aimed at improving the state's system of detecting and tracking uninsured motorists by creating a more up-to-date computer registry of insureds. Under the current schedule, improvements will not begin until January 1, 2000.

j. Increase penalties for driving without insurance.

k. Require the Superintendent to report by September 1, 1999 the level of insurer compliance with requirements for strong anti-fraud plans, and on the effectiveness and cost savings realized under these plans. Chapter 635 of the Laws of 1996 required the SID to promulgate regulations to set standards for insurer fraud fighting plans under which each company must establish a special in-house investigation unit to root out fraud. Industry leaders already employing this method report saving $10 for every dollar invested in these units.

3. Other Sources of Rate Relief

a. Require the superintendent to monitor insurer claims settlement practices, focusing on turnaround time and workloads, and set standards, if appropriate, for methods to promote timely settlements.

b. Require insurers to reduce no-fault premiums for retired and disabled drivers who are unemployed to reflect their lack of need to pay for "loss of earnings" benefits.

c. Mandate actuarially-justified discounts to insureds participating in the Combat Auto Theft (CAT) program or other approved anti-theft programs.

d. Appropriate receipts from the Motor Vehicle Law Enforcement Fee currently charged to private passenger policies, to fund the Auto Insurance Consumer Advocate, with the remainder for local auto theft programs beginning in FY '99.

e. Require insurers to file their underwriting criteria with the SID for the purpose of evaluating what standards and classifications of risk insurers are using to determine amounts and costs of coverage provided.

f. Conduct an independent audit of the SID's implementing regulations and its oversight of compliance with the excess profits law.

g. Tighten the standard in state law governing the acceptable level of excess profits allowed auto insurers.

h. Mandate that insurers provide policies to all good drivers in accordance with standards established by the superintendent in regulation.

4. Extend Auto Insurance Laws
The Task Force recommends extension of the 2% Non-Renewal and Flex-Rating authorizations, but calls for a Flex Rating modification to lower the limit on the upper flex band. This would ensure closer scrutiny of rate increase requests and reign in premium hikes. At the same time, the lower flex band should be expanded, to encourage more timely filings of rate decreases. To further encourage prompt filing for rate decreases, insurers should be required to submit rate filings with the SID annually.

A number of Task Force members have concerns with the efficacy of No-Fault Managed Care. We are awaiting information from SID regarding the performance, quality, cost savings and consumer satisfaction with the operations of this program to date before finalizing a recommendation on whether to extend the authorization for this pilot program, and the length of such extension.

AUTO INSURANCE LAWS EXPIRING IN 1998

Several key state laws governing the regulation and availability of auto insurance coverage are subject to renewal this year.

1. The 2% Rule - expires August 1, 1998

This law allows insurers to nonrenew or conditionally renew up to 2% of their private passenger auto policies in any rating territory for any reason, provided that decisions regarding such policies are not based on race, color, creed, national origin, disability, sex, marital status or advanced age of the insured. In addition, under the 2% Rule, insurers may nonrenew one additional policy for every two new policies written in any territory. While violations of this law occur, the average rate of nonrenewals has been about 1.5%.

2% Exceptions
Cancellations within the first 60 days that a policy has been in force do not count against the 2% cap. Such cancellations are generally limited to cases where relevant information is discovered that was not revealed at the time of application which places the insured outside the company's standards for taking on a policy. The failure to disclose past accidents would be one example. These standards are known as underwriting criteria. Also excluded is a company's right to cancel mid-policy for certain reasons prescribed by statute, such as nonpayment of a premium or suspension or revocation of a driver's license.

If 2% Law Sunsets
Other provisions with sunsets tied to the 2% Rule include those which establish the policy period for auto insurance at a minimum of one year, protect the rights of terminated agents and brokers, and require reporting by the State Insurance Department (SID) on patterns of nonrenewal and industry compliance with the 2% Rule.

Expiration of these provisions would result in a reversion to backup provisions of the Insurance Law, which set out the list of specific reasons for which a company may nonrenew a policy. SID and the insurance industry strongly support the 2% Rule, arguing that it encourages companies to write more business by providing flexibility to drop customers who they anticipate may prove to be unprofitable. On the negative side, public resentment over being dropped for almost any reason creates a steady stream of constituent complaints to members' offices.

2. Insurance Rate Provisions (Flex-Rating) - expires June 30, 1998

Under flex-rating for private passenger auto insurance, companies can adjust their overall average rate up or down by up to 7% in a one-year period without prior approval of the SID. Information justifying the rate changes must be submitted to the SID for review to ensure compliance with state standards. Rate changes outside this "flex-band" require approval before they can go into effect.

Flex-rating was authorized for private passenger auto insurance in 1995. Other lines of insurance (commercial risk, professional liability and public entity insurance) are also flex-rated. As required by law, the SID issued a report on March 31, 1998 on the impact of the first few years of New York's auto flex-rating law.

Too Soon to Gauge Impact of Flex-rating
SID's report noted that there have been subtle changes in the private passenger automobile insurance market since the flex-rating law was enacted, including shifts in insurer market share and position, an increase in the volume of rate revisions filed in the most recent calendar year, a modest (.45%) reduction in the overall rates, a modest increase in new and renewal policies, and a reduction in assigned risk plan writings in 1996. The SID concluded that the flex-rating law "probably" had an impact on these changes, but has not been in effect for a sufficient time to test its effectiveness as an independent factor in improving the automobile insurance market in New York.

If Flex-rating Sunsets
Absent an extension of the flex-rating laws, SID would be required to prior approve all changes in private passenger auto insurance rates. In addition, certain consumer protections are also due to sunset, including:

• prohibitions on the imposition of surcharges for certain motor vehicle infractions;
  
  
• requirements for premium reductions for completing safe driving courses and for having certain motor vehicle safety features, including passive restraints, anti-lock brakes, anti-theft and recovery devices and window glass etching;
  
  
• prohibitions on anti-competitive behavior by insurers;
  
  
• the consumers' advisory council;
  
  
• requirements for insurer reporting; and
  
  
• authority for the Superintendent to enforce and regulate the rating provisions, including authority to impose prior approval.

Proponents of flex-rating argue that allowing companies to file and use their adjusted rates quickly in response to shifts in costs creates a more competitive environment that results in lower rates and increased availability of coverage. Opponents express concern that flex rating is an open invitation to ratchet up rates, and urge that the law be changed to limit rate increases and, when justified, encourage speedier rate decreases.

3. No-fault Managed Care - expires June 30, 1998

In 1994, auto insurers were authorized to offer managed health care as an option for no-fault coverage. This system allows companies to offer drivers reduced rates if they agree to receive treatment for injuries in an auto accident through the company's managed care program. These requirements do not apply to emergency care after an accident, provided that notification about such care is received by the insurance company within 48 hours of treatment. For the purposes of no-fault managed care, an insurer's program can allow consumers to see their own doctors.

No-fault Managed Care Participation
Only three insurers offer no-fault managed care to date, at a discount of 15% off the no-fault premium. One company's plan allows consumers to see doctors of their own choosing. After initial emergency and diagnostic care, treatment is "pre-certified" by the company. Another company imposes a $2,500 deductible if claims are not reported within 48 hours of treatment.

The poor level of insurer participation in no-fault managed care can partly be explained by the fact that the SID took a year and a half to finalize the implementing regulations. Many insurer representatives assert that the notification requirements of the regulations are too onerous to allow companies to offer the program cost effectively. The Task Force has been advised, however, that additional companies are interested in participating, but are waiting for the Legislature's decision regarding the program's future.

Opponents of no-fault managed care express concerns with the concept embodied in those plans that allow insurers to direct consumers which doctors to use to treat their injuries, even if that option is chosen by the consumer for a premium discount.

ROUNDTABLE PARTICIPANTS

CONSUMER ROUNDTABLE:

Marta Genovese, Chair Legislative Committee Richard Schrader, NYC Director Blair Horner Russ Haven David Casselano

Automobile Club of New York State Citizen Action of New York NYPIRG

REPAIR ROUNDTABLE:

Ed Kizenberger, Exec. Director Vincent Raimo Pamela Madeiros Robert Caprara Henry Hancock Richard Skora Ralph Defibaugh Ralph Bombadiere Tom O'Brion Michael Porcelli

New York State Auto Collision Technicians Association (NYSACT) NYSACT NYSACT/WNYABA (Western New York Auto Body Assn.) Mike Skora's Collision NYSACT, Spa Body Works NYS Assn. of Svc. Stations and Repair Shops Gas Station Retailers Assn. of NY (GRANY) Central Automobile Information

INSURER ROUNDTABLE:

Jim Tuite Victor Politzi David Nadig Richard Yocius Jeff Greenfield John Reiersen John B. Reilly Dave Fazioli Jeff Barrett Steve Rodriguez John Miletti Patrick Woods Mary Lally Jane Golden

State Farm Insurance Progressive Insurance Allstate Insurance Company Professional Insurance Association Eagle Insurance Group - Robert Plan New York Auto Agents Alliance Dave Fazioli & Son Agency New York Central Mutual Travelers Insurance Insurance Services Office (ISO)

THE ASSEMBLY STATE OF NEW YORK ALBANY

Appendix 1

May 26, 1998

Insurance company

Dear :

On behalf of the Speaker's Task Force on Automobile Insurance, we are writing to request information regarding your company's experience over the past several years in settling automobile bodily injury liability claims.

Would you please provide us with the number of automobile bodily injury claims against your New York insureds for each of the years 1995, 1996 and 1997. Please indicate how many were settled before the commencement of a lawsuit, how many were settled after the commencement of a lawsuit, how many resulted in judgements, and the average dollar value of the claims for each category. Please provide subsets of these numbers which represent claims between your own insureds.

Finally, during the period 1995 to 1997, did your company change its policy with regard to settlement practices involving liability claims above or below any particular dollar value or damage threshold? If yes, please explain.

Thank you for your prompt attention to this request.

Sincerely,

 

Alexander B. Grannis, Co-Chair

Ivan C. Lafayette, Co-Chair