N.Y. Regulator Talks About Insurance Markets, 2014 Agenda

A top official from New York State’s Department of Financial Services (DFS) recently spoke about the state’s property/casualty insurance markets, 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 in a panel discussion, held at the Insurance Information Institute’s P/C Insurance Joint Industry Forum on Jan. 14.

On New York State’s Sandy losses, Easton observed that 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.

From the regulators’ vantage point, the markets remain very competitive. 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 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. “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.”

Easton also said that in private workers’ comp, 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’ comp coverage, which is not optimal, he observed.

And from a political standpoint, New York regulators continue to grapple with the lack of availability of certain coverages like construction liability for big public works projects and other big construction jobs. Easton said these coverages are 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.

Another area DFS is working on is telematics and the focus on user-based insurance. “In fact, we have been reaching out to a number of companies, inviting filings,” he commented. Easton said his department is bullish about user-based auto insurance programs.

This year, New York regulators will also be focused on supporting the Terrorism Risk Insurance Act (TRIA) reauthorization. The current TRIA program will expire on Dec. 31, 2014, unless Congress intervenes.

DFS Superintendent Benjamin Lawsky, who chairs National Association of Insurance Commissioners’ Terrorism Insurance Implementation Working Group, has supported making TRIA permanent.

“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.

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.

In terms of possible adjustments to the program, Easton said cyber deserves a closer look. “I think we would like to see including cyber as a risk that TRIA ends up addressing,” he said.

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 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 reports starting in 2015.

Another topic Easton spoke about is data security. In 2013, DFS sent out cyber security surveys to major banks as well as to the 10 largest P/C, life and health insurers. “We are going company by company on the insurance side, inviting each company in to talk about the survey results. This is going to be an area that you are going to see continued work by DFS in 2014,” he said.