New York PIP Insurance Update: Is New York’s No-Fault

New York PIP Insurance Update: Is New York’s No-Fault Crisis Returning? Insurance Information Institute November 5, 2009 Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: (212) 346-5520 Fax: (212) 732-1916 [email protected] www.iii.org

Summary of Findings: New York State’s No-Fault Auto Insurance Problem No-Fault (PIP) Costs Are Surging New York’s no-fault (PIP) average claims costs—at 8,748 per claim—are the second highest in the US (as of the 2nd quarter of 2009) The average cost per no-fault claim in New York is more than double (111%) that of the US median ( 4,152) The average cost of a no-fault claim has soared 3,133 or 56% from 5,615 at the end of 2004 to 8,748 in the second quarter of 2009 No-Fault claim costs as of Q2 of 2009 are the second highest in NY history, just 5% short of their all-time high of 9,235 in the 1st quarter of 2002 2

NY’s Private Passenger Auto Insurance Market Size and Marketshare

New York State Direct Pvt. Passenger Auto Premiums Written: 1999-2008 11.0 10.710 10.558 10.262 10.5 9.914 10.0 9.994 9.794 9.789 9.5 9.018 9.0 8.5 8.0 7.5 8.166 8.175 Auto insurance premiums paid by NY drivers dropped by nearly 9% or 921 million since the end of last no-fault crisis in 2004, but the system is once again under siege from fraud and abuse 7.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Highline Data; Insurance Information Institute. 4

Private Passenger Auto Insurers in New York State, 2008 (1-25) Rank Company Group Direct Premiums Written Mkt. Share (%) 1. Geico BERKSHIRE HATHAWAY GRP 2,250,603,467 23.0 2. 3. 4. 5 .6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Allstate Insurance Co Group ALLSTATE INSURANCE GROUP 1,844,794,441 18.8 State Farm Mutual Group STATE FARM GRP 1,060,333,783 10.8 Progressive Casualty Group PROGRESSIVE GRP 641,957,648 6.6 Liberty Mutual Group LIBERTY MUTUAL INSURANCE GROUP 559,129,362 5.7 Travelers Cos & Affil TRAVELERS GRP 538,882,826 5.5 Nationwide Group NATIONWIDE CORP GRP 286,052,407 2.9 New York Central Mut Fire Ins Co CENTRAL SERV GRP 269,489,658 2.8 Metropolitan P&C Ins Co & Affiliates METROPOLITAN GROUP 253,168,898 2.6 Hartford Fire Group HARTFORD FIRE & CASUALTY GROUP 222,681,116 2.3 American International Group AMERICAN INTL GRP 208,727,125 2.1 United Services Automobile ASN Group UNITED SERV AUTOMOBILE ASSN GRP 191,513,078 2.0 Unitrin Prop & Cas Ins Grp UNITRIN GRP 134,559,311 1.4 Motors Insurance Corp Group GMAC INS HOLDING GRP 104,591,800 1.1 Adirondack Ins Exch N/A 98,818,395 1.0 Onebeacon Ins Grp WHITE MOUNTAIN GROUP 91,412,435 0.9 17. 18. 19. 20. 21. 22. 23. 24. 25. Amica Mutual Group AMICA MUTUAL GRP 86,573,149 0.9 Combined Federal Ins Co & Affiliates CHUBB & SON INC GRP 81,495,932 0.8 Hanover Insurance Co Group THE HANOVER INS GRP 81,413,362 0.8 Countrywide Insurance Co N/A 77,264,817 0.8 Erie Insurance Exchange Group ERIE INS GRP 61,404,626 0.6 Esurance Ins Co and Affiliate WHITE MOUNTAIN GROUP 60,874,361 0.6 Ngm Ins Co MAIN STREET AMER GRP 56,858,636 0.6 Farmers Insurance Group ZURICH INS GRP 55,162,750 0.6 Preferred Mutual Insurance Co N/A 50,892,503 0.5 Source: Highline Data; Insurance Information Institute. 5

Top Private Passenger Auto Insurers in New York State, 2008 (26-50) Rank Company Group Direct Written Premiums Mkt. Share (%) 26. Preferred Mutual Insurance Co N/A 50,892,503 0.5 26. Lincoln General Insurance Co KINGSWAY GRP 48,762,542 0.5 27. Response Ins Grp RESPONSE INSURANCE GROUP 39,068,213 0.4 28. Commerce Group Inc COMMERCE INC GRP 33,329,594 0.3 29. Utica National Insurance Group UTICA GRP 29,739,636 0.3 30. Mercury Casualty Group MERCURY GENERAL GRP 28,114,418 0.3 31. QBE The Americas QBE INS GRP 26,518,443 0.3 32. Amer Natl Prop & Cas Co & Affiliates AMERICAN NATL FIN GRP 24,434,340 0.2 33. IDS Property Casualty Group AMERIPRISE FIN GRP 22,034,901 0.2 34. Firemans Fund Insurance Group ALLIANZ INSURANCE GROUP 17,792,523 0.2 35. Tri-State Consumer Insurance Co N/A 17,755,332 0.2 36. Electric Insurance Company ELECTRIC INS GRP 12,395,453 0.1 37. American Modern Home Group INC MUNICH RE GRP 12,310,466 0.1 38. Balboa Casualty Grp BANKAMERICA CORP GRP 12,275,118 0.1 39. Eveready Insurance Co N/A 12,002,501 0.1 40. Merchants Mutual Group MERCHANTS MUT GRP 11,354,814 0.1 41. Long Island Ins Co N/A 8,412,317 0.1 42. Interboro Mutual Indemnity Ins Co N/A 7,793,341 0.1 43. California State Automobile Assoc CALIFORNIA STATE AUTO GRP 5,796,218 0.1 44. Harleysville Mutual Insurance Co Grp HARLEYSVILLE GRP 5,655,744 0.1 45. Assurant Group ASSURANT INC GRP 5,588,944 0.1 46. Ocean Harbor Casualty Insurance Co OCEAN HARBOR GRP 4,943,255 0.1 47. Infinity Prop & Cas Cos INFINITY PROP & CAS INS GRP 4,553,098 0 48. Central Mutual of OH Group CENTRAL MUT INS CO GRP 4,516,397 0 49. United Farm Family Mut Ins Co & Affi INDIANA FARM BUREAU GRP 4,061,793 0 50. Sentry Insurance A Mutual Co Group SENTRY INSURANCE GROUP 3,950,514 Source: Highline Data; Insurance Information Institute. 6 0

NY PIP UPDATE Is New York’s No-Fault System Out of Control— Again?

668 649 604 544 539 539 4,152 3,863 3,374 2,913 2,849 2,834 2,330 1,869 1,736 1,552 4,955 4,599 6,991 5,916 5,137 7,240 7,193 17,757 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Average No-Fault (PIP) claim costs in NY are the second highest in the US and are more than double (111%) higher than the median cost of 4,152 8,748 Avg. PIP Claim Severity Average PIP (No-Fault) Claim Cost as of 2009:Q2 NJ NY FL MN DE DC KY HI ND PA WA OR TX MD KS SC UT MA MI MN AZ AL SC CO LA Sources: Insurance Information Institute based on ISO Fast Track data. 8

NY PIP Claim Frequency & Severity, (2000:04 – 2009:02) 7,000 5,500 8,443 8,177 8,507 8,025 8,562 8,748 PIP severity is now at its second highest level in history: 8,748 per claim 6,500 6,000 6,156 6,052 5,820 5,991 5,615 6,094 5,914 6,250 6,269 6,530 6,606 7,063 7,323 7,378 7,297 7,670 7,740 7,500 7,773 7,311 6,958 6,870 8,000 2.4% 2.3% 2.2% 2.1% 2.0% 1.9% 1.8% 1.7% Avg. Claim Severity 1.6% Frequency 1.5% 1.4% 0:04 1:01 1:02 1:03 1:04 2:01 2:02 2:03 2:04 3:01 3:02 3:03 3:04 4:01 4:02 4:03 4:04 5:01 5:02 5:03 5:04 6:01 6:02 6:03 6:04 7:01 7:02 7:03 7:04 8:01 8:02 8:03 8:04 9:01 9:02 5,000 Sources: Insurance Information Institute based on ISO Fast Track data. 9 Claim Frequency Avg. Claim Cost 8,500 8,271 8,327 7,888 7,507 8,234 9,000 9,235 8,727 8,577 9,500 NY PIP Fraud is Back Average cost per PIP claim (severity) fell 39% between 02:Q1 and 04:Q4 but has since soared by 56% through 09:Q2 Freq. down 32% since 2000:04

NY PIP Claim Frequency & Severity, (1997 – 2009:02) 6,500 6,000 5,500 Claim severity rose 63% in the 5 years after the 1997 Presbyterian decision 8,443 8,177 8,507 8,025 8,562 8,748 6,156 6,052 5,820 5,991 5,615 6,094 5,914 6,250 6,269 6,530 6,606 7,063 7,323 7,378 7,297 7,670 7,740 7,000 7,311 6,958 6,870 6,699 7,500 7,773 8,000 5,675 6,063 Avg. Claim Cost 8,500 2.4% Second highest level in history: 8,748 per claim Avg. Claim Severity Frequency 2.2% 2.1% 2.0% 1.9% 1.8% 1.7% 1.6% 1.5% 1.4% 1997 1998 1999 2000 1:01 1:02 1:03 1:04 2:01 2:02 2:03 2:04 3:01 3:02 3:03 3:04 4:01 4:02 4:03 4:04 5:01 5:02 5:03 5:04 6:01 6:02 6:03 6:04 7:01 7:02 7:03 7:04 8:01 8:02 8:03 8:04 9:01 9:02 5,000 2.3% Sources: Insurance Information Institute based on ISO Fast Track data. 10 Claim Frequency 8,347 8,327 7,888 7,507 8,234 9,000 9,235 8,727 8,577 9,500 NY PIP Fraud is Back Average cost per PIP claim (severity) fell 39% between 02:Q1 and 04:Q4 but has since soared by 56% through 09:Q2 Freq. down 32% since 2000:04

New York Insurance Fraud Reports, 1995 – 2008 20,000 18,000 16,000 Auto Collision Damage Auto Theft 14,000 12,000 No-fault fraud reports fell 35% between 2003 and 2006, but are now rising (up 22% in 2008 over 2006) No-Fault Auto 10,000 8,000 6,000 4,000 Number of No-Fault related fraud reports remains high and is beginning to rise again 2,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008* 11Institute. Source: New York Department of Insurance, Insurance Frauds Bureau Annual Report; Insurance Info.

No-Fault/Auto Unit Arrests by NY Insurance Fraud Bureau 600 500 No fault/auto unit arrests fell 30.3% from 2004 to 2006 but are beginning to rise (up 5.4% in 2007) 400 479 391 332 334 352 2006 2007 300 182 200 107 100 50 0 2000 2001 2002 2003* 2004 2005 *In August 2003 the no-fault unit was merged with auto unit Data beginning in 2003 include no-fault auto unit arrests. 12 Source: New York Department of Insurance, Insurance Frauds Bureau Annual Report; Insurance Info. Institute.

No-Fault Auto Unit Investigations by NY Insurance Fraud Bureau 600 500 400 300 No-fault fraud investigations have more than doubled since 2004—up 140% through 2007 479 349 278 250 200 268 200 100 0 2002 2003 2004 2005 2006 2007 13 Source: New York Insurance Department http://www.ins.state.ny.us/acrobat/fd07ar2g.pdf; Ins. Info. Institute.

No-Fault Auto Unit Cases Opened by NY Insurance Fraud Bureau 180 160 160 140 120 142 122 113 88 100 80 73 60 40 20 No-fault cases opened have more than doubled since 2004—up 119% through 2007 0 2002 2003 2004 2005 2006 2007 14 Source: New York Insurance Department http://www.ins.state.ny.us/acrobat/fd07ar2g.pdf; Ins. Info. Institute.

What Needs to be Done? Solutions to Reduce Costs in NY’s No-Fault System Institute Medical Protocols/Utilization Reviews Guidelines for medical care for specific auto accident-related injuries to reduce cost of over-treatment and unnecessary treatment Note: NY’s no-fault system may be the last major payor for medical treatments that does not mandate protocols or utilization reviews. This virtual “blank check” drives up system costs dramatically. Require Disputes Be Resolved via Arbitration Avoids costs and uncertainty of trial for all parties Expedites resolution of claim Unclogs overburdened court system Increase Penalties for Runners Upgrading to felony from misdemeanor as deterrent 15

What Needs to be Done? (cont’d) Solutions to Reduce Costs in NY’s No-Fault System Streamline Process for Adjudicating No-Fault Claims For small no-fault disputes (under 5,000), permit parties to submit proof based on sworn affidavit from their doctor rather requiring that the doctor appear in person Note: New York City courts are inundated with no-fault cases (approx. 1/3 of cases are no-fault and in 2009 courts were setting 2011 dates to hear cases) Implement Fair Burden of Proof Requirements Presently, health service providers are required only to submit proof that a bill was received by the insurer to establish entitlement to receive amounts billed (irrespective of suspicions of fraud/abuse) Insurers burden is much higher—required to produce both a witness to testify under oath that the claim was handled in accordance with regulations and a medical expert to testify on the “lack of medical necessity” Solution: Require that in order to establish the right to no-fault benefits, the plaintiff be required to produce a witness with personal knowledge of the facts alleged in a complaint. Furthermore, there should be no presumption medical necessity based on documents submitted by non-medical plaintiffs and/or witnesses who do not have personal knowledge of such necessity 16

Insurance Information Institute On-Line If you would like a copy of this presentation, please give me your business card with e-mail address 17