Auto insurance companies are profiting at unprecedented levels from New York drivers who are spending more on insurance premiums while the industry pays out less in claims, New York City Comptroller William C. Thompson, Jr. has charged.
He called for insurers to cut premiums for New York City drivers by at least $1.5 billion.
Thompson based his charge on his department’s report, “Highway Robbery: The High Cost of Automobile Insurance in New York,” which he says reveals that premiums in New York have ballooned even as insurance companies’ losses dropped.
Insurers criticized the report as faulty and maintained that Thompson’s recommendations would only make the market worse for consumers.
“Insurance companies are deriving record profitability at the expense of New York City drivers,” Thompson charged. “The auto insurance industry needs to put the brakes on these increases, and take immediate steps to reduce premiums by at least $1.5 billion.”
In a letter, Thompson called on Governor-elect Eliot Spitzer to address the impact of “unjustifiably high” rates on New Yorkers. “These onerous rates – and the notable absence of a justifiable reason for them – are simply unconscionable,” he wrote.
Auto insurers reported $10.5 billion in earned premiums in New York in 2005, a jump of nearly 29 percent from $8.2 billion in 2000, according to the report. Meanwhile, during the same period, incurred losses went down by more than 20 percent, from $6.4 billion to $5.1 billion, according to the study.
In contrast, premiums increased 33.8 percent nationally, moderately faster than New York, yet losses increased 12.9 percent nationally. From 2000 to 2005, the report claims that the loss ratio in New York fell from 78.3 percent to 48.4 percent of premiums, based on figures from the National Association of Insurance Commissioners (NAIC).
Thus the report concludes that in 2005 only 48.4 cents of each premium dollar was paid to policyholders, a nearly 30 percentage point drop from 2000. The 2005 New York loss ratio was the lowest in the nation and was 11.8 percentage points below the nationwide loss ratio of 60.2 percent, it says.
Thompson also maintained that New York automobile insurers’ enjoy an “extraordinary return on net worth,” as reported by the NAIC. In 2004, industry net worth was 18.6 percent in New York, the highest return in New York since at least 1990. Comparatively, in 2004, the national return on net worth was 13.2 percent, which was also well above its historical range.
Thompson’s report claims that since 2001, New York’s status as one of the most expensive states to insure an automobile has been reinforced by statewide premium increases that were substantially greater than the inflation rate and exceeded 40 percent in some areas for some major insurers.
In 2006, the average of the representative premiums published in the Insurance Department’s annual Consumers Guide to Automobile Insurance for the state’s four largest insurers for minimal, required coverage for a 35-year old male exceeded $1,500 in Urban (southern) Bronx and Brooklyn. Since 2001, in the Urban Bronx insurance rating territory, this amount increased 51.2% and in Brooklyn it went up 24.5%. (Average was computed using 2005 premiums for Allstate because the Consumers Guide substituted a different Allstate subsidiary in 2006.)
“An insurer’s profitability is based on its premiums, losses, expenses, and investment income,” Thompson said in the report. “In the last three years, the automobile insurance industry has become very profitable in New York, largely because premiums continued to climb even as losses moderated and declined. The result has been declining loss ratios and historically very high profitability.”
In response, insurers said that the Comptroller’s fails to justify its claims and makes recommendations that would actually hurt New York motorists.
“This report doesn’t support its political headlines,” said David Snyder, American Insurance Association vice president and assistant general counsel. “The report tries to isolate a single year and draw conclusions that do not hold up over time.”
Snyder noted that New York motorists have been enjoying premium reductions in most of the market. “It is important to note, however, that New York’s prior approval system of setting rates delays insurers’ ability to respond to market conditions and lower rates quickly to be competitive,” he said.
“If New York’s policymakers want a system that is more responsive to the ups and downs in insurance loss costs then they must give insurers the regulatory freedom to compete and respond to market conditions and trends,” said Snyder. “The Comptroller’s recommendations for more bureaucracy and rate filing procedures would do the exact opposite.”
Thompson made the following recommendations:
Auto insurers should lower their overall New York premiums by at least 15 percent, or about $1.5 billion per year. Insurers did modestly lower rates after 2004, but the total savings is only about $500 million a year.
Municipalities should be allowed to petition the Insurance Department for rate reductions.
To help consumers shop for lower cost auto insurance, the Insurance Department’s annual consumer guide should provide a comprehensive list of pricing information. Similarly, insurers should be required to publish their loss ratios according to a uniformly defined rating territory, thereby providing New York drivers with a means to track comparative costs.
New York State should create an Office of the Insurance Consumer Advocate within the Department of Insurance. This office would represent insurance consumer interests at the Insurance Department.
Sources: N.Y. City Comptroller American Insurance Association