NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A10298
SPONSOR: Rules (Weprin) TITLE OF BILL:
An act to amend the insurance law, in relation to expanding authori-
zation for certain exemptions from filing requirements
PURPOSE:
This bill would extend the authority for a domestic medical malpractice
insurer to secure a license to use the Free Trade Zone
(FTZ) and would also expand this authorization to properly allow these
insurers to assume reinsurance without any limit.
SUMMARY OF PROVISIONS:
Section 1 of the bill amends section 6302 (c) (3) of the insurance law
to extend the authority of a domestic medical malpractice insurance
company meeting the requisite surplus to policyholder ratio to write in
the FTZ from June 30, 2025 to June 30, 2029. In addition, the bill would
remove the current law's prohibition on a domestic medical malpractice
insurer assuming reinsurance in an amount that exceeds 5 percent of such
insurer's total direct premiums written.
EXISTING LAW:
The current law expires on June 30, 2025.
JUSTIFICATION:
In 2011, the Legislature adopted the New York ("NY") version of "commer-
cial deregulation" by adding a new Class 3 as a type of risks that may
be written in NY's FTZ with the Governor signing this bill into law as
Chapter 490. Part of that chapter included a prohibition against medical
malpractice insurers writing Class 3 risks and also substantially
amended then-Insurance Law section 6302 (c) (3) to expressly codify the
already-existing authority for domestic med mal insurers to write in the
FTZ, provided they meet the following criteria: 1) maintain a surplus of
at least twice the minimum surplus required to be maintained for the
types of insurance that the med mal insurer is authorized to write in
NY; 2) has total direct premiums comprised of at least 90 percent med
mal insurance; 3) assume reinsurance premiums of less than 5 percent of
total direct written premium; and 4) write 90 percent of its total
direct premium in NY.
Prior to 2011, and since 1984. NY domestic med mal insurers were author-
ized to write med mal insurance in the FTZ. During all of those years,
the only restriction on NY med mal insurers seeking to write med mal FTZ
policies was 1 above, namely that they had to maintain the surplus of 2X
the minimum required by law for their company. There was no limit
regarding the type of insurance they wrote that did not consist of med
mal insurance, there was no requirement that they write at least 90
percent of their total direct premium in NY and there was no prohibition
on the domestic med mal insurers assuming more than 5 percent of their
total direct written premium in reinsurance premiums.
This bill would not affect three of the criteria listed above in order
to ensure minimum financial safeguards remain in place. However, for the
following reasons, the limit on the amount of reinsurance a domestic med
mal insurer can assume in order to continue to write policies in the FTZ
is a needless and archaic competitive hindrance for all NY domestic med
mal insurers.
There were only 5 MPLI insurers in 1985 (and furthermore there were no
RRGs since that law was not passed until 1986), now there are approxi-
mately 40 MPLI insurers with numerous RRGs vying for business with
admitted carriers.
Not only is the current NY MPLI market no longer small and noncompet-
itive as it was from 1985 through 2011, in fact it is large, growing and
extremely competitive. For example, one good indicator of an insurance
market's competitiveness is its residual market, i.e., the market of
last resort after a health provider is unable to obtain MPLI from an
admitted company. NY's residual market for MPLI is the Medical Malprac-
tice Insurance Pool ("MMIP"). The MMIP's earned premium has decreased
from over $110 million to under $40 million in the last ten years. In
addition, an excellent quantitative indicator of an insurance market's
competitiveness is application of the US Justice Department's commonly
used measure of competition in markets, the Herfindahl-Hirschman Index
("HHI"). The HHI for the NY MPLI market demonstrates that in 2007 the NY
MPLI market had an HHI of 2,527 (any HHI score over 2,500 is a highly
concentrated market). In 2017 the HHI score for the NY MPLI market was
1,250 (any market with a score from 0 to 1,500 is a highly competitive
market). Finally, in looking at number of competitors in the NY MPLI
market, in 2020 the NY MPLI market consisted of 78 admitted insurers
writing MPLI and 43 RRGs writing MPLI.
As for the changes in the NY Healthcare marketplace, according to the
American Medical Association employed physicians were 50.2% of all
patient care physicians in 2020 in the US, up from 47.4% in 2018 and
41.8% in 2012. In contrast, self-employed physicians were 44% of all
patient care physicians in 2020, down from 45.9% in 2018 and 53.2% in
2012. The percentage of physicians who were independent contractors has
been steady, fluctuating in the narrow band between 5% (2012) and
6.7% (2018). While these are US figures, MSSNY and other NY medical
groups do not dispute that there is a large and growing trend of physi-
cians becoming employed by an entity other than themselves in New York
State.
This trend of larger and larger hospitals and health systems consolidat-
ing and self-insuring themselves and increasingly their employed physi-
cians is borne out in the official numbers from the New York Department
of Financial Services ("DFS") regarding NY MPLI premiums. According to
the DFS Annual Reports, in 2015 NY MPLI premiums were $1.1 billion. In
2021, NY MPLI premiums were $853 million. This represents a 23 percent
decline during those years and a 9 percent decline in MPLI premiums from
2017 to 2021. The rise in self-insurance is fueled in large part by the
ever-increasing concentration of fewer companies in the hospital and
large physician group space and increased acquisitions and mergers among
health care providers.
What this means for NY domestic med mal insurers such as MLMIC and
others is that opportunities to insure individual physicians is shrink-
ing but the need of these large hospitals and health systems/large
physician groups for reinsurance is growing. Sound NY public policy
would dictate that NY domestic insurers should not be disadvantaged from
competing for these reinsurance opportunities due to an arbitrary limit
on the amount of reinsurance they can write in order to also write in
the FTZ. The other restrictions in the current law, especially the
requirement that any such domestic med mal insurer must maintain a
surplus of at least 2X the minimum legally required surplus, will fully
and more than adequately provide solvency and fiscal safeguards for
these insurers and their customers. This proposal merely levels the
playing field for NY domestic med mal insurers.
LEGISLATIVE HISTORY:
New bill.
FISCAL IMPLICATIONS:
None
EFFECTIVE DATE:
Immediately.
STATE OF NEW YORK
________________________________________________________________________
10298
IN ASSEMBLY
May 17, 2024
___________
Introduced by COMMITTEE ON RULES -- (at request of M. of A. Weprin) --
read once and referred to the Committee on Insurance
AN ACT to amend the insurance law, in relation to expanding authori-
zation for certain exemptions from filing requirements
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Paragraph 3 of subsection (c) of section 6302 of the insur-
2 ance law, as amended by chapter 158 of the laws of 2023, is amended to
3 read as follows:
4 (3) until June thirtieth, two thousand [twenty-five] twenty-nine, a
5 domestic property/casualty insurance company that maintains at all times
6 a surplus to policyholders of at least twice the minimum surplus to
7 policyholders required to be maintained for the kinds of insurance that
8 it is authorized to write in this state, or an insurer licensed pursuant
9 to article sixty-one of this chapter as a reciprocal insurer that main-
10 tains at all times a surplus to policyholders of at least the minimum
11 surplus to policyholders required to be maintained for the kinds of
12 insurance that it is authorized to write in this state, provided that
13 the domestic property/casualty insurance company or reciprocal insurer:
14 (A) has total direct premiums comprised of at least ninety percent
15 medical malpractice insurance; [(B) assumes reinsurance premiums in an
16 amount that is less than five percent of total direct premiums written;]
17 and [(C)] (B) writes ninety percent of its total direct premiums in this
18 state.
19 § 2. This act shall take effect immediately.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD15275-01-4
