A top official from New York State’s Department of Financial Services (DFS) recently spoke about the state’s property/casualty insurance market, calling it overall very good but “a bit more of a mixed bag” from a granular level. And it’s shaping up to be another very busy year for DFS, the official said.
From a regulatory standpoint — with a focus on solvency, availability and affordability — 2013 was a very good year, even though Superstorm Sandy obviously created significant losses, said Robert Easton, executive deputy superintendent of the insurance division at DFS. Easton spoke at the Insurance Information Institute’s Property/Casualty Insurance Joint Industry Forum last month.
On New York State’s Sandy losses, Easton said the private insurance market paid almost $6 billion in claims losses in New York, and that wasn’t even including flood coverage except in commercial instances.
“The fact of the matter is that $6 billion didn’t even really stress the industry, not even Tower — which has since experienced stress,” he said.
From the regulators’ vantage point, the markets remain very competitive — which is very good because that does drive down pricing and it’s good for consumers, he said.
To take one example, in New York’s auto insurance market, New York State’s assigned risk pool — the market of last resort — has depopulated to historically low levels, Easton noted.
In New York’s homeowners insurance market, New York regulators are always concerned about the availability of coverage on the coast of Long Island. Still, he said he is seeing an adequate amount of capacity, with some of the small new entrants still looking to enter the marketplace even post-Sandy.
“So generally speaking, it’s been very good. All that said, are there pockets of difficulty? Absolutely,” he told the forum attendees.
One area where things are not going so well is medical malpractice. “In New York, I think it’s fair to characterize the med-mal insurance market as broken and that would take a whole separate forum to discuss,” he said.
Easton also said that in private workers’ compensation, the market is good, but the market mechanism of last resort — the State Insurance Fund — has too great a market share from a regulatory vantage point. It’s probably anywhere from a third to 40 percent of the market writing private workers’ compensation coverage, which is not optimal, he said.
From a political standpoint, New York regulators continue to grapple with the lack of availability of certain coverages including construction liability for big public works projects and other big construction jobs. Easton said these coverages are very difficult to procure in the admitted market, in part because New York has a statutory regime that creates a strict liability standard for general contractors for height-related injuries and therefore the payouts tend to be very big and the insurers have shied away from that marketplace.
“So it’s overall very good, although as I said, if you drill down to more of a granular level, it gets a bit more of a mixed bag,” he commented.
2013 Was ‘Extraordinarily Busy’
Easton described 2013 as an extraordinarily busy year for DFS. “In 2013, obviously we were dealing a lot with Sandy. We were setting up the health insurance exchange. We were talking with colleagues at the NAIC in the life insurance space about principles-based reserving and the use of captive reinsurance vehicles,” he said.
DFS is currently working telematics and user-based insurance. “In fact, we have been reaching out to a number of companies, inviting filings,” he said. Easton said his department is optimistic about user-based auto insurance programs. Last December, DFS approved Esurance’s new “DriveSafe” telematics program designed to help prevent teens from texting while driving. The user-based auto insurance programs are an area where guidance and additional work will be coming out, he said.
Supporting TRIA Reauthorization
This year, New York regulators will also be focused on supporting the Terrorism Risk Insurance Act (TRIA) reauthorization. DFS Superintendent Benjamin Lawsky, who chairs the National Association of Insurance Commissioners (NAIC)’s Terrorism Insurance Implementation Working Group, has supported making TRIA permanent. In his letter to the Federal Insurance Office last September, Lawsky said DFS urges Congress to reauthorize TRIA and to make it permanent to help promote longer-term stability for commercial policyholders, lenders, builders and the businesses that operate in areas such as large cities that are most likely to suffer a terrorist attack. The current TRIA program will expire on Dec. 31, 2014, unless Congress intervenes.
“It matters so much to this state. But we also know that it can’t be regarded as just a New York state issue, and so we will be talking with state counterparts and federal officials to ensure that the program gets reauthorized in some form or fashion,” Easton said. “I expect we will continue to work on all levels to advocate for TRIA reauthorization.”
Easton acknowledged that as a matter of political reality, making the federal terrorism backstop permanent is highly unlikely to occur. “But our view is that if anybody should be taking one of the polar, extreme views, it is New York because of how important the program is,” he told the forum participants.
“We think it has been critical to insuring that there is sufficient capacity in the marketplace and that, without it, insurers would essentially not have the confidence to write those lower levels of programs in order to take advantage of the fact that TRIA is floating out there.”
In terms of possible adjustments to the program, Easton said cyber deserves a closer look. “I know we have spoken to some reinsurers about this. I think we would like to see including cyber as a risk that TRIA ends up addressing,” he said. “I think the cyber role is very different today than it was even 12 years ago, 13 years ago. And I think it makes sense to have a real discussion about including that in the kinds of risks that the program is intended to cover.”
Enterprise Risk Management
Additionally, DFS is in the midst of promulgating a regulation for the enterprise risk management (ERM) and the own risk and solvency assessment (ORSA). The proposed regulation 203 (11 NYCRR 82) would require that certain qualified insurance entities and insurers adopt a formal ERM function and file enterprise risk reports annually. The proposal would also require qualified insurers to conduct an own risk and solvency assessment and submit ORSA summary reports starting in 2015. “We will be working with P/C companies and really the entire insurance industry to ensure that ERM and ORSA reporting gets put into place in a timely, prompt fashion,” he said.
Data Security Survey
Easton said DFSis studying the insurance industry’s data security. “We actually have been looking at that very closely,” he said. In 2013, DFS sent out cyber security surveys to a number of major banks as well as to the 10 largest P/C, life and health insurers.
The surveys asked companies about what is being done in terms of cyber security for their businesses, Easton said. “We are in the midst of processing those survey results. Comparatively they are very interesting. You would think that the banking sector would be a little bit further along than the insurance sector but that isn’t always the case,” he said.
“We are right now actually going company by company on the insurance side, inviting each company in to talk about the survey results. And I think this is going to be an area that you are going to see continued work by DFS in 2014,” he said. Also last year, New York Gov. Andrew Cuomo convened a cyber security advisory board, which Superintendent Lawsky co-chairs. “So this will be something we will be keenly focused on because it is a subject of great importance to all of the companies we oversee,” Easton said.