N.Y. Auto Market: Rates Down, Availability Up

Last fall, then-Superintendent Greg Serio got the ball rolling with a series of jaw-boning efforts with insurers to persuade them to lower rates as a result of the lower cost of doing business in the state.

At the time, Mr. Serio said the fact that the 86 cents out of every dollar that in 2002 had to be set aside to pay claims had dropped to 61 cents in two years meant that the policyholders deserved to reap the benefits also. (Figures available from National Underwriter Insurance Data Services show similar declines. On a direct basis, the pure loss ratio–excluding loss adjustment expenses–in New York, which was 78.3 in 2000, 74.1 in 2001 and 71.4 in 2002, fell to 56.3 by 2003 and came in at 50.0 in 2004.)

Mr. Mills, who was in the State Assembly at the time, noted that the discussions at times became contentious.

"Many of the insurers were reluctant to reduce rates, indicating that the trends could reverse themselves," he said. "Many meetings lasted for hours, while some continued for days before a satisfactory resolution was reached."

Christina Baldwin, Albany-based regional representative for the Property Casualty Insurers Association of America, said Mr. Serio's efforts only highlighted the need for the state to re-implement the so-called "flex-rating" law that gives insurers the leeway to raise or reduce rates within a 7 percent band without approval.

"Had flex-rating been in place then, companies would have reduced the rates without that pressure and probably the rate reductions would have gotten to the consumers more quickly," she said. "Companies are willing to reduce their rates if they know they can bring them back up if market conditions worsen, and they can make those adjustments with relative ease."

But she does not underestimate the challenge of convincing certain quarters in the State Legislature that such a measure will give the carriers the flexibility to merely raise rates, and that the old saw that what goes up must come down does not necessarily apply to auto premiums.

The one factor that stands out in the reduction of costs over the past couple of years has been a concomitant reduction in fraud, Mr. Mills said.

A series of legislative and regulatoy changes, along with stepped-up law enforcement efforts, led to the results that have contributed to the dropping loss ratio.

In the regulatory realm, the department has fought to reduce the 90-day time frame a no-fault claimant had to file a claim.

"Think of it–90 days," Mr. Mills said. "Does an honest policyholder really need 90 days to contact an insurer following an accident? How long did you wait to contact your insurer after your most recent accident? Maybe 90 minutes is my guess."

Lengthy court battles resulted. But in 2002, Regulation 68 reduced this time frame to 30 days. Also, the 180-day time frame within which doctors and other medical providers were previously permitted to bill no-fault insurers was reduced to 45 days.

Increased availability has matched the reduced costs of auto insurance in direct compliance with the laws of economics.

Stephen Ruchman, president of the Professional Insurance Agents of New York, said that "personal lines is wide open."

A survey of agents conducted last month by PIANY regarding the availability of 15 types of property-casualty insurance found that six coverages, including personal auto commercial liability, long-haul trucking and large property coverage, were rated easier to find than in 2002.

"Our survey results confirm what we have heard anecdotally. The property-casualty insurance market has opened up in the past couple of years, even for hard-to-place insurance risks" in New York, Mr. Ruchman said.

The fact that companies are going to tiered rating in personal auto–which more finely tunes the risks drivers pose by expanding the traditional standard, preferred and non-standard risk categories to about a dozen that take into account factors like credit scoring–has improved the market, according to Mr. Ruchman.

"So, now the clients will fall into whatever tier they fall into, but at least there is availability of insurance," he said.

Some availability problems exist in commercial private passenger automobile-type lines.

"A lot of carriers don't want that risk because if it is a corporate-owned automobile, anyone can drive that car and you can't properly underwrite it," he said.

As for the percentage of drivers in the assigned risk plan, the department said that in the early '90s the figure rose to 17 percent. While the figure declined to 2.5 percent five years ago, a subsequent rise led to efforts to get carriers to "take out" more such high risk in the standard market.

Mr. Mills would only say the assigned risk percentage began to decline again in 2004, and Mr. Ruchman backs that up anecdotally.

"I have not written an assigned risk plan in probably two-and-a-half years," he said. "And I am not a small office."

Page 13 By State Chart

Flag: New York Now Among The Best

Head: Direct Private Passenger Automobile Results By State ($000)

With a direct pure loss ratio of 50.0 for private passenger auto, New York bested every state with substantial premium volume in the line in 2004. (Only South Dakota and Vermont came in lower.)

Page 15 NY Chart

Flag: New York State Of Mind

Head: New York Private Passenger Auto Rankings

Berkshire Hathaway's gecko at GEICO leapt over Allstate in the Empire State, with an 18 percent jump in direct written premiums for private passenger auto insurance in the state. Regulations aimed at reducing no-fault insurance fraud have lowered the state's overall loss ratio to 50.0–the third-best in the nation–making New York more attractive for auto insurers.