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 Exclusive Remedy - New York’s Experience

1972 Invented Ray Tomlinson of BBN develops a program to send messages across ARPANET. His program uses the sign to separate 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.

CAS Presidential Address “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

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

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

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

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

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

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

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

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

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

RBI & PIP Pure Premiums

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

Private Passenger Auto Rate Changes

Private Passenger Auto Cumulative Rate Changes Annual rate changes (Average annual change: 3.9%)

RBI & PIP Pure Premium Year Ending Quarterly

RBI & PIP Claim Frequency Year Ending Quarterly

RBI & PIP Claim Severity Year Ending Quarterly

PDL, Comp & Coll Pure Premium Year Ending Quarterly

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

Percent of PPA Cars in AIP

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

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

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

*Through 4 quarters ending 2000:3 rd. Source: American Insurance Association/ISO FastTrack; Insurance Information Institute Change in PIP Loss Costs: New York vs. US * By 2000, growth in New York PIP loss costs were more than twice (121%) the national average.

*Through 4 quarters ending 2002: 3rd. Source: American Insurance Association/ISO FastTrack; Insurance Information Institute Change in PIP Loss Costs: New York vs. US * In 2002:III, cumulative growth in New York PIP loss costs were nearly twice (+89% above) the national average.

New York Insurance Fraud Reports Source: New York Department of Insurance; Insurance Information Institute.

New York Insurance Fraud Reports Source: New York Department of Insurance; Insurance Information Institute.

New York Insurance Fraud Reports Source: New York Department of Insurance; Insurance Information Institute.

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

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

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

NYSID Fraud Report 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 "The Department’s hard-hitting approach to eliminating insurance fraud is clearly evident with the record breaking statistics for 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