Anne Kelly

Chief Casualty Actuary

New York Insurance Dept

The views expressed are my own and not necessarily those of the New York Insurance Department

Exclusive Remedy - New York’s Experience

1972

• Email Invented Ray Tomlinson of BBN develops a program to send messages across ARPANET. His program uses the "@" sign to separate email users'

names from their machines.

• First Electronic Calculator Hewlett-Packard introduces the world's first electronic calculator. The calculator is a phenomenal success, and Hewlett-Packard proves adept at adjusting the company to new technological trends.

CAS Presidential Address - 1970

“Some reform of the legal system as it applies to automobile insurance is inevitable for it is only through such reform that the insurance business can provide the service the public deserves at a cost it is willing to pay”

Daniel J. McNamara

No Fault in New York

• Part of a broad plan of legislative reforms– competitive rating, – reducing the AIP subsidy, – expanding the Guaranty Fund

• “Automobile Insurance - For Whose Benefit?” NYSID Blueprint for change

Auto Insurance in New York 1970

• Slow payment

• Unpaid victims

• Overpayment of small claims

• Underpayment of large claims

• Waste

• Duplication

• Dishonesty

Why Tort Doesn’t Work

“When you are ill you want your health insurance to pay your medical bills without requiring you to prove that your illness was caused by someone who carelessly sneezed on you on the bus. Nor would you tolerate a health insurer which sought to duck payment by claiming you would not have gotten sick if, right after the sneeze, you had run home and gone right to bed. Yet that kind of proof and that kind of defense are the mainstays of automobile insurance today.”

Supt. Richard Stewart, April 1970

Change is Inevitable!

“We should all remember that tottering institutions — defensive and fearful, out of touch with their roots, out of touch with reality, out of touch with the needs of the people they profess to serve — such institutions, however formidable and entrenched, eventually fall. The institution known as the fault insurance system was not first criticized by the Insurance Department. The fault insurance system has been exposed again and again as slow, wasteful, unfair and inhumane, living only on myth and momentum and on the dexterity of its operators at confusing the issues and obstructing change. But change will come. Eventually change always comes. Here at least we have all had ample warning and a chance to influence what is bound to happen.”

Richard E. Stewart

No Fault Law #1

• Compromise: $500 serious injury threshold instead of pure no-fault

• 75% reduction in BI claims anticipated

• $50,000 First Party package (mainly medical)

• 16% rate reduction

What Went Wrong?

• Medical Providers easily overcame threshold

• Reduction in BI claims was closer to 50% than 75%

• Industrywide losses

No Fault Law #2

• Crisis created by rate increases• Public Outcry• Legislative reform :

– Verbal threshold– NYSID arbitration– Fee schedule

• Judiciary maintains strict interpretation of new threshold

No Fault - Not for the Faint of Heart

• Auto insurance In New York is expensive and gets a lot of attention

• Underlying conditions: accident frequency, litigiousness, provider abundance

• No Fault requires significant oversight– Claims Regulations– Market conduct examinations– Anti-fraud measures

After 20 years of stability...

• Some erosion of tort threshold over time

• Steady increase in PIP costs

• Fraud, abuse, overuse targeted to claim reg loopholes and breadth of benefits

• Minimum Limits increased in 1996

RBI & PIP Pure Premiums 1975-2002

20

40

60

80

100

120

140

160

180

200

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

RBIPIP

No Fault Law #2.5

• Reg. 68 revised to shorten time allowed for claim reporting and submission of medical bills

• Anti-fraud units mandatory

• Better preparation of fraud cases and more success in getting law enforcement to pursue them

• Relentless publicity and arrests

Private Passenger Auto Rate Changes 1990-2002

100

110

120

130

140

150

160

170

7.7 9 3.9 4.7 3.5 3 0.4 -1.5 -0.4 2.9 8.1 8.4

Line 2 108 117 122 128 132 136 138 136 136 140 151 164

1990 1991 1992 1993 1994 1995 1997 1998 1999 2000 2001 2002

Private Passenger Auto Cumulative Rate Changes 1990-2002

8.4

8.1

2.9

-0.4-1.50.41.23.03.5

4.7

3.99.0

7.7

100

110

120

130

140

150

160

170

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Annual rate changes

(Average annual change: 3.9%)

RBI & PIP Pure PremiumYear Ending Quarterly 1998-2002

120

130

140

150

160

170

180

190

Mar

-98

Jun-

98Se

p-98

Dec

-98

Mar

-99

Jun-

99Se

p-99

Dec

-99

Mar

-00

Jun-

00Se

p-00

Dec

-00

Mar

-01

Jun-

01Se

p-01

Dec

-01

Mar

-02

Jun-

02Se

p-02

Dec

-02

RBIPIP

RBI & PIP Claim Frequency Year Ending Quarterly 1998-2002

2.00

2.05

2.10

2.15

2.20

2.25

2.30

Mar

-98

Jun-

98

Sep-

98

Dec

-98

Mar

-99

Jun-

99

Sep-

99

Dec

-99

Mar

-00

Jun-

00

Sep-

00

Dec

-00

Mar

-01

Jun-

01

Sep-

01

Dec

-01

Mar

-02

Jun-

02

Sep-

02

Dec

-02

PIP

0.750

0.775

0.800

0.825

0.850

0.875

0.900

Mar

-98

Jun-

98

Sep-

98

Dec

-98

Mar

-99

Jun-

99

Sep-

99

Dec

-99

Mar

-00

Jun-

00

Sep-

00

Dec

-00

Mar

-01

Jun-

01

Sep-

01

Dec

-01

Mar

-02

Jun-

02

Sep-

02

Dec

-02

RBI

RBI & PIP Claim SeverityYear Ending Quarterly 1998-2002

20000

20250

20500

20750

21000

21250

21500

21750

22000

Mar

-98

Jun-

98

Sep-

98

Dec

-98

Mar

-99

Jun-

99

Sep-

99

Dec

-99

Mar

-00

Jun-

00

Sep-

00

Dec

-00

Mar

-01

Jun-

01

Sep-

01

Dec

-01

Mar

-02

Jun-

02

Sep-

02

Dec

-02

RBI

5500

6000

6500

7000

7500

8000

8500

Mar

-98

Jun-

98

Sep-

98

Dec

-98

Mar

-99

Jun-

99

Sep-

99

Dec

-99

Mar

-00

Jun-

00

Sep-

00

Dec

-00

Mar

-01

Jun-

01

Sep-

01

Dec

-01

Mar

-02

Jun-

02

Sep-

02

Dec

-02

PIP

PDL, Comp & Coll Pure PremiumYear Ending Quarterly 1998-2002

65758595

105115125135145155165175185195

Mar

-98

Jun-

98Se

p-98

Dec

-98

Mar

-99

Jun-

99Se

p-99

Dec

-99

Mar

-00

Jun-

00Se

p-00

Dec

-00

Mar

-01

Jun-

01Se

p-01

Dec

-01

Mar

-02

Jun-

02Se

p-02

Dec

-02

PDLCompColl

AIP – A Quick History

• Subsidized AIP rates = No non-standard market

• 1996: Flex-rating; Multi-tier rating; rates allowed higher than AIP; Credit scoring for tier placement

• Depopulation credit programs

• Growing pains in new non-standard market

Percent of PPA Cars in AIP

0

2

4

6

8

10

12

14

16

18

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Is AIP Repopulating? No!

• Take out credits increased

• Significant AIP rate increases

• Increased anti-fraud activities

• Numerous depopulation initiatives

• New Applications appear to have stabilized

Update on New York’s No-Fault Fraud & Abuse Problem

Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: (212) 346-5520 Fax: (212) 732-1916 bobh@iii.org www.iii.org

New York Alliance Against Insurance Fraud Insurance Fraud Briefing

Albany, NYMarch 25, 2003

Insurance Fraud in the U.S. Costs Billions!

Health$61.4 billion

64%

Life$11.8 billion

12%

Disability$0.5 billion

1%

Prop./Casualty$22.4 billion

23%

Total Fraud Costs are $96.2 Billion

Source: Conning & Co.

0%25%

50%75%

100%

125%150%

175%200%225%

250%275%

U.S.

New York

*Through 4 quarters ending 2000:3rd.Source: American Insurance Association/ISO FastTrack; Insurance Information Institute

Change in PIP Loss Costs:New York vs. US 1987-2000*

By 2000, growth in New York PIP loss costs were more than twice (121%) the national average.

50%

75%

100%

125%

150%

175%

200%

225%

250%

U.S.New York

*Through 4 quarters ending 2002: 3rd.Source: American Insurance Association/ISO FastTrack; Insurance Information Institute

Change in PIP Loss Costs:New York vs. US 1993-2002*

In 2002:III, cumulative growth in New York PIP loss costs were nearly twice (+89% above) the national average.

New York Insurance Fraud Reports 1995 - 2002

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1995 1996 1997 1998 1999 2000 2001 2002

Auto Collision Damage

Auto Theft

No-Fault Auto

Source: New York Department of Insurance; Insurance Information Institute.

New York Insurance Fraud Reports 1995 - 2002

4,3935,214

7,042

9,6599,191

12,372

15,219 14,852

1,0861,733

862798661698758851

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1995 1996 1997 1998 1999 2000 2001 2002

Workers' Compensation

No-Fault Auto

Source: New York Department of Insurance; Insurance Information Institute.

New York Insurance Fraud Reports 1995 - 2002

1,572 1,518

7,042

9,6599,191

12,372

15,219 14,852

2,2052,3592,637

5,4575,841

4,7125,214

4,393

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1995 1996 1997 1998 1999 2000 2001 2002

Health/Accident

No-Fault Auto

Source: New York Department of Insurance; Insurance Information Institute.

Health Accident

6% Auto Theft8%

Auto Collision

4%

No-Fault Auto59%

Workers' Comp

4%

All Other16%

Composition of Fraud Reports 1995 vs. 2001

Workers' Comp3.9%

All Other29%

No-Fault Auto22%

AutoTheft7.6%

Auto Collision

10%

Health Accident

23%

Source: New York Department of Insurance; Insurance Information Institute.

2001Total Reports = 26,028

1995Total Reports = 20,205

Health Accident

6%

Auto Theft8%

Auto Collision

4%

No-Fault Auto59%

Workers' Comp

4%

All Other16%

Composition of Fraud Reports 2001 vs. 2002

Source: New York Department of Insurance; Insurance Information Institute.

All Other19%

Workers' Comp

4%

No-Fault Auto61%

Auto Collision

3%Auto Theft

7%Health Accident

6%

2001Total Reports = 26,028

2002Total Reports = 24,578

No-Fault Fraud A Growing Problem

0

5,000

10,000

15,000

20,000

25,000

30,000

1995 1996 1997 1998 1999 2000 2001 2002

Total All Types of Fraud

No-Fault Auto Fraud

Source: New York Department of Insurance; Insurance Information Institute.

PIP fraud reports accounted for 61% of all fraud reports in 2002

compared with 22% in 1995

NYSID Fraud Report -2003

Superintendent of Insurance Gregory V. Serio today announced that the Department’s year-end fraud fighting statistics show that arrests reached an all time high, increasing by 27% from 2001 and over 400% since 1996.

"The Department’s hard-hitting approach to eliminating insurance fraud is clearly evident with the record breaking statistics for 2002. The Department’s efforts to prompt changes to laws regulating insurance fraud, promote increased law enforcement collaborations resulting in more expansive sweeps, increase consumer education programs and utilize forfeiture laws have resulted in our best, most aggressive year fighting fraud," said Serio.

NYSID Annual Fraud Report - 2003