Update on New York’s No-Fault Fraud & Abuse Problem: Update on New York’s No-Fault Fraud andamp; Abuse Problem New York Alliance Against Insurance Fraud Insurance Fraud Briefing Albany, NY March 25, 2003 Robert P. Hartwig, Ph.D., CPCU, Senior Vice President andamp; Chief Economist Insurance Information Institute  110 William Street  New York, NY 10038 Tel: (212) 346-5520  Fax: (212) 732-1916  bobh@iii.org  www.iii.org


Insurance Fraud in the U.S. Costs Billions!: Insurance Fraud in the U.S. Costs Billions! Total Fraud Costs = $96.2 Billion Source: Conning andamp; Co.


Comparative Statistics: PIP Claims Costs: Comparative Statistics: PIP Claims Costs


Growth in Total PIPClaims Costs*: Growth in Total PIP Claims Costs* *Change in 'pure premium' Source: Insurance Information Institute from ISO Fast Track Data PIP Claims Costs PIP Costs in New York are growing faster than in any other no-fault state—by far . Four Quarters Ending 2000:3rd


Growth in Total PIPClaims Costs*: Growth in Total PIP Claims Costs* *Change in 'pure premium' Source: Insurance Information Institute from ISO Fast Track Data PIP Claims Costs PIP Costs in New York grew faster than in any other no-fault state—by far . Four Quarters Ending 2000:4th


Growth in Total PIPClaims Costs*: Growth in Total PIP Claims Costs* *Change in 'pure premium' Source: Insurance Information Institute from ISO Fast Track Data PIP Claims Costs Growth NY’s PIP Costs slowed significantly during the first half of 2001. Four Quarters Ending 2001:2nd


Growth in Total PIPClaims Costs*: Growth in Total PIP Claims Costs* *Change in 'pure premium' Source: Insurance Information Institute from ISO Fast Track Data PIP Claims Costs Growth NY’s PIP Costs are began to rise again after slowing during late 2001, early 2002 Four Quarters Ending 2002:3rd


Private Passenger Auto:6 Least Profitable States, 2000(Profit as a % of Direct Premium Earned): Private Passenger Auto: 6 Least Profitable States, 2000 (Profit as a % of Direct Premium Earned) Source: NAIC; Insurance Information Institute NY ranked 44th in terms of profitability in 2000 FL ranked 48th


Return on Net WorthPrivate Passenger Auto (%), : Return on Net Worth Private Passenger Auto (%), Source: NAIC. 1991-2000


PIP Fraud and Abuse in New York State: PIP Fraud and Abuse in New York State


Change in PIP Loss Costs:New York vs. US:1987-2000*: *Through 4 quarters ending 2000:3rd. Source: American Insurance Association/ISO FastTrack; Insurance Information Institute Change in PIP Loss Costs: New York vs. US:1987-2000* By 2000, growth in New York PIP loss costs were more than twice (121%) the national average.


Change in PIP Loss Costs:New York vs. US:1993-2002*: *Through 4 quarters ending 2002:3rd. Source: American Insurance Association/ISO FastTrack; Insurance Information Institute Change in PIP Loss Costs: New York vs. US:1993-2002* In 2002:III, cumulative growth in New York PIP loss costs were nearly twice (+89% above) the national average.


Personal Injury Protection Paid Claim Frequency: Personal Injury Protection Paid Claim Frequency Source: Insurance Information Institute and Insurance Services Office. PIP frequency was 42% above the US average


Personal Injury Protection Paid Claim Frequency: Personal Injury Protection Paid Claim Frequency Source: Insurance Information Institute and Insurance Services Office. PIP frequency is 19% above the US average


Change in NY Personal Injury Protection Paid Claim Frequency*: Change in NY Personal Injury Protection Paid Claim Frequency* * Average over four previous quarters. Source: Insurance Services Office, Insurance Information Institute. PIP frequency has fallen steadily since early 2001, but…


Change in NY Personal Injury Protection Average Loss (Severity)*: Change in NY Personal Injury Protection Average Loss (Severity)* PIP severity is rising at double-digit rates again after a brief lull, more than offsetting lower frequency * Average over four previous quarters. Source: Insurance Services Office, Insurance Information Institute.


Change in NY Personal Injury Protection Claim Frequency & Average Loss*: Change in NY Personal Injury Protection Claim Frequency andamp; Average Loss* PIP frequency and severity were falling by the 2nd half of 2001; now diverging * Average over four previous quarters. Source: Insurance Services Office, Insurance Information Institute.


Slide18: New York Other No-Fault States* * Excluding Michigan Average PIP Claim PIP Claim Severity 1995-2000: New York vs. United States Source: Fast Track Monitoring System, Fourth Quarter 2000 Report


Slide19: New York Other No-Fault States Average PIP Claim PIP Claim Severity 1995-2002: New York vs. United States Source: Fast Track Monitoring System, Third Quarter 2002 Report The average PIP claim in NY is $1,555 or 23% above the US average


Impact on Cost of Auto Insurance in New York State: Impact on Cost of Auto Insurance in New York State


Projected Average Auto Insurance Expenditure in NY State Assuming (March 2003 Est.): Projected Average Auto Insurance Expenditure in NY State Assuming (March 2003 Est.) Source: Insurance Information Institute


Projected Per Vehicle Average Cost of No-Fault Auto Insurance Fraud, (March 2003 Est.): Projected Per Vehicle Average Cost of No-Fault Auto Insurance Fraud, (March 2003 Est.) Source: Insurance Information Institute Cost per Vehicle Decrease in PIP claim frequency andamp; severity in latter half of 2001 (amplified by 9/11 effect) Administrative reforms High-profile crackdowns NY’s PIP Fraud tax is $46/vehicle and rising sharply!


Annual Cost of No-Fault Auto Insurance Fraud in NY, (March 2003 Est.): Annual Cost of No-Fault Auto Insurance Fraud in NY, (March 2003 Est.) Source: Insurance Information Institute $ Millions No-fault fraud will cost drivers in NY state $432 million in 2003, or $1.2 million per day.


Cumulative Cost of No-Fault Auto Insurance Fraud in NY, (March 2003 Est.): Cumulative Cost of No-Fault Auto Insurance Fraud in NY, (March 2003 Est.) Source: Insurance Information Institute $ Millions No-fault fraud has cost NY insurers and policyholder more than $1 billion dollars so far through 2002.


No-Fault Fraud Statistics in New York State: No-Fault Fraud Statistics in New York State


New York Insurance Fraud Reports, 1995 - 2002: New York Insurance Fraud Reports, 1995 - 2002 Source: New York Department of Insurance; Insurance Information Institute.


New York Insurance Fraud Reports, 1995 - 2002: New York Insurance Fraud Reports, 1995 - 2002 Source: New York Department of Insurance; Insurance Information Institute.


New York Insurance Fraud Reports, 1995 - 2002: New York Insurance Fraud Reports, 1995 - 2002 Source: New York Department of Insurance; Insurance Information Institute.


Composition of Fraud Reports, 1995 vs. 2001: Composition of Fraud Reports, 1995 vs. 2001 2001 1995 Source: New York Department of Insurance; Insurance Information Institute.


Composition of Fraud Reports, 2001 vs. 2002: Composition of Fraud Reports, 2001 vs. 2002 2002 2001 Source: New York Department of Insurance; Insurance Information Institute.


No-Fault Fraud: A Growing Problem: 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


Insurance Information Institute On-Line: Insurance Information Institute On-Line


Projected Average Auto Insurance Expenditure in NY State Assuming No Meaningful Reform(Jan. 2002 Est.): Projected Average Auto Insurance Expenditure in NY State Assuming No Meaningful Reform (Jan. 2002 Est.) Source: Insurance Information Institute


Projected Average Cost of No-Fault Auto Insurance Fraud in NY State Assuming No Meaningful Reform (Jan. 2002 Est.): Projected Average Cost of No-Fault Auto Insurance Fraud in NY State Assuming No Meaningful Reform (Jan. 2002 Est.) Source: Insurance Information Institute Cost per Vehicle