Anne Kelly

1
Exclusive Remedy - New Yorks Experience

• 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
2
1972

• Email Invented Ray Tomlinson of BBN develops a
  program to send messages across ARPANET. His
  program uses the "_at_" 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 Doesnt 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 Yorks 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 [phone] ? Fax [phone]
? bobh_at_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 CostsNew 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 20003rd. Source
American Insurance Association/ISO FastTrack
Insurance Information Institute
27
Change in PIP Loss CostsNew York vs. US
1993-2002
In 2002III, 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
2001 Total Reports 26,028
1995 Total Reports 20,205
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 Departments year-end
  fraud fighting statistics show that arrests
  reached an all time high, increasing by 27 from
  2001 and over 400 since 1996.
• "The Departments hard-hitting approach to
  eliminating insurance fraud is clearly evident
  with the record breaking statistics for 2002. The
  Departments 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