New York PIP Insurance Update: Is New York s No-Fault Crisis Returning?

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1 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 Tel: (212) Fax: (212) bobh@iii.org

2 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 are the second highest in the US (as of the 2 nd 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 1 st quarter of

3 NY s Private Passenger Auto Insurance Market Size and Marketshare

4 New York State Direct Pvt. Passenger Auto Premiums Written: $11.0 $10.5 $10.0 $9.5 $9.0 $8.5 $8.0 $7.5 $7.0 $9.018 $8.166 $8.175 $ $ $ $9.914 $9.994 $9.794 $9.789 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 Source: Highline Data; Insurance Information Institute. 4

5 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, Allstate Insurance Co Group ALLSTATE INSURANCE GROUP 1,844,794, State Farm Mutual Group STATE FARM GRP 1,060,333, Progressive Casualty Group PROGRESSIVE GRP 641,957, Liberty Mutual Group LIBERTY MUTUAL INSURANCE GROUP 559,129, Travelers Cos & Affil TRAVELERS GRP 538,882, Nationwide id Group NATIONWIDE CORP GRP 286,052, New York Central Mut Fire Ins Co CENTRAL SERV GRP 269,489, Metropolitan P&C Ins Co & Affiliates METROPOLITAN GROUP 253,168, Hartford Fire Group HARTFORD FIRE & CASUALTY GROUP 222,681, American International Group AMERICAN INTL GRP 208,727, United Services Automobile ASN Group UNITED SERV AUTOMOBILE ASSN GRP 191,513, Unitrin Prop & Cas Ins Grp UNITRIN GRP 134,559, Motors Insurance Corp Group GMAC INS HOLDING GRP 104,591, Adirondack Ins Exch N/A 98,818, Onebeacon Ins Grp WHITE MOUNTAIN GROUP 91,412, Amica Mutual Group AMICA MUTUAL GRP 86,573, Combined Federal Ins Co & Affiliates CHUBB & SON INC GRP 81,495, Hanover Insurance Co Group THE HANOVER INS GRP 81,413, Countrywide Insurance Co N/A 77,264, Erie Insurance Exchange Group ERIE INS GRP 61,404, Esurance Ins Co and Affiliate WHITE MOUNTAIN GROUP 60,874, Ngm Ins Co MAIN STREET AMER GRP 56,858, Farmers Insurance Group ZURICH INS GRP 55,162, Preferred Mutual Insurance Co N/A 50,892, Source: Highline Data; Insurance Information Institute. 5

6 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, Lincoln General Insurance Co KINGSWAY GRP 48,762, Response Ins Grp RESPONSE INSURANCE GROUP 39,068, Commerce Group Inc COMMERCE INC GRP 33,329, Utica National Insurance Group UTICA GRP 29,739, Mercury Casualty Group MERCURY GENERAL GRP 28,114, QBE The Americas QBE INS GRP 26,518, Amer Natl Prop & Cas Co & Affiliates AMERICAN NATL FIN GRP 24,434, IDS Property Casualty Group AMERIPRISE FIN GRP 22,034, Firemans Fund Insurance Group ALLIANZ INSURANCE GROUP 17,792, Tri-State Consumer Insurance Co N/A 17,755, Electric Insurance Company ELECTRIC INS GRP 12,395, American Modern Home Group INC MUNICH RE GRP 12,310, Balboa Casualty Grp BANKAMERICA CORP GRP 12,275, Eveready Insurance Co N/A 12,002, Merchants Mutual Group MERCHANTS MUT GRP 11,354, Long Island Ins Co N/A 8,412, Interboro Mutual Indemnity Ins Co N/A 7,793, California State Automobile Assoc CALIFORNIA STATE AUTO GRP 5,796, Harleysville Mutual Insurance Co Grp HARLEYSVILLE GRP 5,655, Assurant Group ASSURANT INC GRP 5,588, Ocean Harbor Casualty Insurance Co OCEAN HARBOR GRP 4,943, Infinity Prop & Cas Cos INFINITY PROP & CAS INS GRP 4,553, Central Mutual of OH Group CENTRAL MUT INS CO GRP 4,516, United Farm Family Mut Ins Co & Affi INDIANA FARM BUREAU GRP 4,061, Sentry Insurance A Mutual Co Group SENTRY INSURANCE GROUP 3,950,514 0 Source: Highline Data; Insurance Information Institute. 6

7 NY PIP UPDATE Is New York s No-Fault System Out of fcontrol Again?

8 Average PIP (No-Fault) Claim Cost as of 2009:Q2 Av vg. PIP Claim Severity $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 $17,757 7 $8,7 748 $7,240 $7,193 $6,991 $5,916 $5 5,137 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 $4,955 $4,5 599 $4,15 52 $3,86 63 $3,37 4 $2,913 $2,849 $2,834 $2,330 $1,869 $1,736 $1,552 $668 $ $ $ $ $ $ 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 8 Sources: Insurance Information Institute based on ISO Fast Track data.

9 Claim Frequency NY PIP Claim Frequency & Severity, (2000: :02) NY PIP Fraud is Back Average cost per PIP claim (severity) fell 39% between $9,500 24% 2.4% $8,271 $8,327 $7,888 $7,507 $8,234 $8,727 $8,577 $8,443 $8,,177 $8,507 $8,025 $8,562 $8,748 $9,235 $9,000 $8,500 02:Q1 and 04:Q4 but has since soared by 56% through 09:Q2 Freq. down 32% since 2000:04 2.3% 2.2% $7,311 $6,958 $6,870 $7,063 $7,323 $7,378 $7,297 $7,773 $7,670 $7,740 $8,000 $7, % 2.0% $6,156 $6, 052 $5,820 $5,991 $5,615 $6,,094 $5,914 $6,250 Avg. Claim Cost $6,269 $6,530 $6,606 $7,000 $6,500 $6,000 $5,500 Avg. Claim Severity Frequency PIP severity is now at its second highest level in history: $8,748 per claim 1.9% 1.8% 17% 1.7% 1.6% 1.5% $5, % 9 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 Sources: Insurance Information Institute based on ISO Fast Track data.

10 Claim Frequency NY PIP Claim Frequency & Severity, ( :02) NY PIP Fraud is Back Average cost per PIP claim (severity) fell 39% between $9,500 24% 2.4% $8,347 $8,327,234 $8,727 $8,577 $8,443 $8,177 $8,507 $8,025 $8,562 $8,748 $9,23 5 $9,000 $8,500 02:Q1 and 04:Q4 but has since soared by 56% through 09:Q2 Freq. down 32% since 2000:04 2.3% 2.2% $7,311 $6,958 $6,870 $7,063 $7,323 $7,378 $ 7,297 $7,888 $7,507 $7,670 $7,740 $8, $7,773 $8,000 $7, % 2.0% $5,675 $6,063 $6,156 $6,052 $5,820 $5,991 $5,615 $6, 094 $5,914 $6,250 $6,269 Avg. Claim Cost $6,699 $6,530 $6,606 $7,000 $6,500 $6,000 $5,500 $5,000 Claim severity rose 63% in the 5 years after the 1997 Presbyterian decision Second highest level in history: $8,748 per claim Avg. Claim Severity Frequency 1.9% 1.8% 17% 1.7% 1.6% 1.5% 1.4% :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 Sources: Insurance Information Institute based on ISO Fast Track data.

11 New York Insurance Fraud Reports, ,000 Auto Collision 18,000 Damage 16,000 14,000 12,000 Auto Theft No-Fault Auto No-fault fraud reports fell 35% between 2003 and 2006, but are now rising (up 22% in 2008 over 2006) 10,000 8,000 6,000 Number of No-Fault related fraud reports remains high 4,000 and dis beginning i to rise again 2, * Source: New York Department of Insurance, Insurance Frauds Bureau Annual Report; Insurance Info. 11Institute.

12 No-Fault/Auto Unit Arrests by NY Insurance Fraud Bureau 600 No fault/auto unit arrests fell 30.3% from 2004 to but are beginning to rise (up 5.4% in 2007) * *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.

13 No-Fault Auto Unit Investigations by NY Insurance Fraud Bureau No-fault fraud investigations have more than doubled since 2004 up 140% through Source: New York Insurance Department Ins. Info. Institute.

14 No-Fault Auto Unit Cases Opened by NY Insurance Fraud Bureau No-fault cases opened have more than doubled since up 119% 20 through Source: New York Insurance Department Ins. Info. Institute.

15 What Needs to be Done? Solutions to Reduce Costs in NY s No-Fault System Institute t Medical Protocols/Utilization ti 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

16 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

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

New York PIP Insurance Update: Is New York s No-Fault Crisis Returning? Insurance Information Institute January 7, 2010

New York PIP Insurance Update: Is New York s No-Fault Crisis Returning? Insurance Information Institute January 7, 2010 Download at http://www.iii.org/presentations Robert P. Hartwig, Ph.D., CPCU, President