Exclusive Remedy - New York’s Experience

1. Anne Kelly Chief Casualty Actuary New York Insurance Dept Exclusive Remedy - New York’s Experience The views expressed are my own and not necessarily those of the New York Insurance Department

2. 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.

3. 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

4. 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

5. Auto Insurance in New York 1970 • Slow payment • Unpaid victims • Overpayment of small claims • Underpayment of large claims • Waste • Duplication • Dishonesty

6. 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

7. 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

8. 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

9. What Went Wrong? • Medical Providers easily overcame threshold • Reduction in BI claims was closer to 50% than 75% • Industrywide losses

10. 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

11. 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

12. 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

13. RBI & PIP Pure Premiums 1975-2002

14. 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

15. Private Passenger Auto Rate Changes 1990-2002

16. Private Passenger Auto Cumulative Rate Changes 1990-2002 Annual rate changes (Average annual change: 3.9%)

17. RBI & PIP Pure PremiumYear Ending Quarterly 1998-2002

18. RBI & PIP Claim Frequency Year Ending Quarterly 1998-2002

19. RBI & PIP Claim SeverityYear Ending Quarterly 1998-2002

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

21. 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

22. Percent of PPA Cars in AIP

23. 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

24. Update on New York’s No-Fault Fraud & Abuse Problem New York Alliance Against Insurance Fraud Insurance Fraud Briefing Albany, NY March 25, 2003 Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: (212) 346-5520 Fax: (212) 732-1916 bobh@iii.org  www.iii.org

25. Insurance Fraud in the U.S. Costs Billions! Total Fraud Costs are $96.2 Billion Source: Conning & Co.

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

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

28. New York Insurance Fraud Reports 1995 - 2002 Source: New York Department of Insurance; Insurance Information Institute.

29. New York Insurance Fraud Reports 1995 - 2002 Source: New York Department of Insurance; Insurance Information Institute.

30. New York Insurance Fraud Reports 1995 - 2002 Source: New York Department of Insurance; Insurance Information Institute.

31. Composition of Fraud Reports 1995 vs. 2001 1995 Total Reports = 20,205 2001 Total Reports = 26,028 Source: New York Department of Insurance; Insurance Information Institute.

32. Composition of Fraud Reports 2001 vs. 2002 2001 Total Reports = 26,028 2002 Total Reports = 24,578 Source: New York Department of Insurance; Insurance Information Institute.

33. No-Fault Fraud A Growing Problem PIP fraud reports accounted for 61% of all fraud reports in 2002 compared with 22% in 1995 Source: New York Department of Insurance; Insurance Information Institute.

34. 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