New Yorkers are being overcharged for auto and homeowners insurance while receiving reduced coverage, according to data released by consumer groups led by the Consumer Federation of America (CFA).

Following up on a national study released in January that reached similar conclusions, CFA said the problem is particularly acute in New York, where loss ratios are significantly lower than the national averages for auto and homeowners insurance.

“In the last quarter century, New York has gone from being one of the best to merely mediocre in protecting consumers from unfair insurance rate hikes,” said J. Robert Hunter, CFA's director of insurance.

For the five years ended December 31, 2006, CFA said that the loss ratios for the nation were 62 percent for homeowners and 61 percent for private passenger autos. For New York, the loss ratios were 46 percent for homeowners and 55 percent for auto.

The consumer groups, which included Consumers Union and the New York Public Interest Research Group (NYPIRG) in addition to CFA, specifically referenced the coastal homeowners market in New York, where, they said, insurers have sharply increased premiums and reduced or eliminated coverage for residents in coastal areas such as Long Island.

The consumer groups made a series of recommendations in their statement and called for Gov. Eliot Spitzer to create an Insurance Consumer Advocate to “counterbalance the extraordinary resources of the insurance industry.”

The recommendations also called for better oversight of rating factors such as credit scoring, further scrutiny of computer-based claims settlement procedures, better regulation of catastrophe modeling, the availability of state-backed reinsurance, a review of homeowners policies to identify hidden provisions and coverage exclusions, and further disclosure of insurer data to the department.

CFA also sent a letter to New York Insurance Superintendent Eric Dinallo calling for action.

Responding via email, Andy Mais, a spokesman for the New York Insurance Department, addressed the perceived need for further consumer protections. Mr. Mais said, “Indeed, the department has a Consumer Services Bureau (CSB) devoted solely to helping consumers. In addition to various consumer outreach programs, CSB responded to approximately 175,000 calls and 55,109 complaints last year, effectively representing consumers who needed help navigating the insurance process or gaining redress.”

Addressing the consumer groups' policy recommendations, Mr. Mais said that while all feedback is welcome, some of the recommendations listed do not apply to New York, “because they reflect already existing New York laws or regulations. For example, New York does not allow catastrophe modeling in establishing rates, does not allow exclusions eliminating mold coverage (that coverage can be limited, but not totally excluded), and does not allow for removal of coverage if a non-covered event occurs at the same time.”

Paul Tetrault, northeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC), questioned the consumer associations' methodology.

He noted that some of the recommendations, such as state-backed reinsurance, are ideas that have been put forward in Florida and judged as “failed policies” by commentators.

“It looks like Bob Hunter feels like he fixed Florida, and he's trying to do the same for New York,” Mr. Tetrault said.

Regarding the loss ratio numbers reported by the consumer groups, Mr. Tetrault said, “You can't just look at loss ratios isolated–you have to look at the entire financial picture.”

Robert P. Hartwig president of the Insurance Information Institute (I.I.I.) agreed. “I believe [the figures are] likely correct; the problem is that one of Mr. Hunter's modus operandi is to deliberately leave out very important costs of doing business.”

“For instance, he includes loss and possibly loss adjustment expense, but does not include the costs of actually operating an insurance company,” said Mr. Hartwig. Those expenses, he added, include paying employees, operating facilities, taxes and agent commissions.

Mr. Hartwig also pointed to the cyclical nature of the insurance business. A typical cycle lasts 10 years, he said, but the consumer groups' analysis factors in only the “last five good years.” He added, “It is not a coincidence at all that they choose to look at the last five years rather than the last 10.” He noted that in New York, 2001 was the worst year for insurers in the history of the state because of 9/11, and 2000-01 was also a bad year for auto insurers.

Additionally, insurers have been lowering auto rates in recent years because of the softening market, Mr. Hartwig said, which will result in loss ratios “ticking up” when 2007 and 2008 numbers are released.

Mr. Mais noted, “The past four years have been profitable for insurers writing auto insurance, but that comes after a string of losing years, mainly caused by an increase in fraud. Through a concerted effort to combat fraud, losses went down, as did auto rates in New York beginning in 2003, saving New York drivers more than half a billion dollars per year.

With respect to the homeowners insurance situation in the state, particularly in coastal areas, Mr. Hartwig said the pricing there reflects a real risk.

“What needs to be recognized is that Long Island faces a very significant hurricane risk,” he said. He noted that estimates reveal that a repeat of the 1938 “Long Island Express” hurricane that struck the area would cost more than $35 billion were it to occur today.

Mr. Mais said, “The homeowners market has seen rate increases, mainly due to the increased cost of catastrophe reinsurance for the state's coastal areas. The price of reinsurance, which is not regulated, is an expense factor that is a cost of doing business and is passed on through the rates charged to policyholders. We question whether the loss ratios cited in the press release are measured against premiums charged to policyholders before the cost of reinsurance is deducted from those premiums.”

Special Reports /

CFA Says Insurers Overcharge New Yorkers

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