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

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1 New York PIP Insurance Update: Is New York s No-Fault Crisis Returning? Insurance Information Institute January 7, 2010 Download at 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 New York State s Resurgent No-Fault Auto Insurance Problem No-Fault (PIP) Costs Are Surging New York s no-fault (PIP) average claims costs at $8,690 per claim are are the third highest in the US (as of the 3 rd quarter of 2009), behind Michigan and NJ The average cost per no-fault claim in New York is more than double (104%) that of the US median ($4,268) The average cost of a no-fault claim has soared $3,075 or 55% from $5,615 at the end of 2004 to $8,690 in the third quarter of 2009 No-Fault claim costs as of Q3 of 2009 are near the highest in NY s history, just 5.9% short of their alltime high of $9,235 in the 1 st quarter of

3 DÉJÀ VU, ANYONE? Previous Effort to Get Message Out and Drive Down Costs Was a Big Success

4 No-Fault Fraud Was Front Page News in

5 Sparking Interest in Action 5

6 Urging galbany to Action 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:Q3* Av vg. PIP Claim Severity $35,000 $30,000 $25,000 $20, $15,000 $10, $5,000 $0 $30,856 6Average No-Fault (PIP) claim costs in NY are the third highest in the US and are 64% higher than the median cost of $5,289 $1 6,637, $8 $7, $6,6 $6,3 343 $6,29 98 $5,578 $4,999 $4,268 $4,125 $3,954 $3,951 $2,924 $2,862 $2,851 $2,445 $2,087 MI NJ NY FL MN DC DE KY ND PA OR WA HI TX MD KS SC UT MA 8 Sources: Insurance Information Institute based on ISO/PCI Fast Track data. $1,797

9 Last Campaign Was a Success: PIP Average Claim Severity Plunged US excl. NY NY $7,,712 $8,271 $8,360 $8,076 $7,883 $7,600 $8,097 $8,308 $8,033 $8,597 $8,489 9,000 8,500 8,000 $6,705 $6,811 $6,729 $6,838 $7,188 $6,971 $7,060 7, ,000 6,500 NY PIP claim severity, once the 2 nd highest in the US, fell well below the US average by year- end 2004 after a crackdown on fraud, abuse. $6,299 $6, $6,,526 $6,,509 $6,548 $6,593 $6,599 $6,, ,000 $5,782 $5,929 $5,990 $6,009 $6,132 $6,001 $5,867 $6,3 5,500 5,000 00:4 01:11 01:2 01:3 01:4 02:1 02:22 02:3 02:4 03:1 03:2 03:33 03:4 04:1 04:2 04:3 04:44 *ISO Fast Track PIP data as of 2004:Q4 include the following states: FL, HI, KY, KS, MA, MI, MN, NY, ND, SC and UT. Source: Insurance Information Institute calculations based on ISO/PCI Fast Track Data.

10 Claim Frequency NY PIP Claim Frequency & Severity, ( :03) NY PIP Fraud is Back Average cost per PIP claim (severity) fell 39% between $9,500 24% 2.4% $8,347 $8,327 $8,234 $8,727 $8,577 $8,443 $8,177 $8,507 $8,025 $8,562 $8,748 $8,690 $9,235 $9,000 $8,500 02:Q1 and 04:Q4 but has since soared by 55% through 09:Q3 Freq. down 33% since % 2.2% $7,311 $6,958 $6,870 $7,063 $7,323 $7,378 $7,297 $7,888 $7,507 $7,773 $7,670 $7,740 $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 $6,699 $6,530 $6,606 im Cost $7,000 $6,500 $6,000 Third highest level in history: $8,690 per claim Avg. Claim Severity 1.9% 1.8% 17% 1.7% Avg. Clai$, $5,500 $5,000 Claim severity rose 63% in the 5 years after the 1997 Presbyterian decision Frequency 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 9:03 Sources: Insurance Information Institute based on ISO/PCI Fast Track data.

11 Claim Frequency NY PIP Claim Frequency & Severity, (2000: :03) 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 $8,025 $8,727 $8,577 $8, $8,507 $8,562 $8,748 $8,690 $9,235 $9,000 $8,500 02:Q1 and 04:Q4 but has since soared by 55% through 09:Q3 Freq. down 33% since 2000:04 2.3% 2.2% $7,311 $6,958 $6,870 $7,773 $7,063 $7,323 $7,378 $7,297 $7,670 $7,740 $8, $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 third highest level in history: $8,690 per claim y1.7% 1.9% 1.8% 17% 1.6% 1.5% $5, % 11 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 9:03 Sources: Insurance Information Institute based on ISO/PCI Fast Track data.

12 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. 12Institute.

13 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. 13 Source: New York Department of Insurance, Insurance Frauds Bureau Annual Report; Insurance Info. Institute.

14 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.

15 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.

16 NY s Private Passenger Auto Insurance Market Improvements at trisk

17 Average Expenditure on Auto Insurance, NY State vs. US: * $1,300 NY ranked as the 2 nd most NY US expensive state during the $1,200 crisis, falling to 4 th by 2007 $1,100 $1,000 $900 $800 $700 $600 $500 $959 $705 $960 $703 $930 $686 $939 $718 $1,,015 $726 $1,100 $781 $1,16 68 $ $1,1 $8 840 $1,122 $8 829 $1,083 $81 16 $1,047 $795 In the wake of NY s first no-fault crisis, the average expenditure on auto insurance in NY state fell by $125 or 10.7% between 2004 and 2007, twice the 5.4% drop in the US overall *Latest available as of December Source: NAIC; Insurance Information Institute. 17

18 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 $8.166 $8.175 $ $ $ $9.914 $9.994 $9.794 $9.789 $9.018 Auto insurance premiums paid by NY drivers dropped by almost $1 billion or nearly 9% since the end of last no-fault crisis in 2004, but the system is once again under siege from fraud and abuse.* *Exact decline between 2004 and 2008 was $921 million. Source: Highline Data; Insurance Information Institute. 18

19 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. 19

20 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. 20

21 Insurance Information Institute On-Line Download at: 21

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

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