PUBLIC FORUM/TOWN HALL INSURANCE/BANKS REGULATORY REFORM - TO LEARN FROM BUSINESSES AND INDUSTRY EXPERTS WHICH REGULATIONS ARE THE LEAST USEFUL, LEAST COST-EFFECTIVE, AND, THEREFORE, SHOULD BE ELIMINATED

Excess Line Association of New York 8 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 SENATOR GALLIVAN: I am Senator Pat Gallivan, 2 and we are very thrilled to welcome everybody to 3 what is, I think our sixth or seventh regulatory 4 reform hearing. 5 We are traveling across the state, conducting 6 industry-specific hearings in a goal of changing 7 what New York -- I'm sorry, a U.S. Chamber of 8 Commerce report indicated: New York is 50th out of 9 50 states, the worst business environment in the 10 country. 11 We know taxes are a problem and, separately, 12 we are trying to deal with that. 13 We have a bipartisan group that is going 14 across the state conducting tax-reform hearings, and 15 in the Senate we are very pleased to now hear the 16 Governor putting together a tax-reform commission, 17 so, hopefully, we can have some progress in that 18 area next year. 19 But we are here to try to deal with that 20 other part of it that creates impediments to 21 business, that slows growth in the state, that 22 prevents people from staying here in certain cases, 23 wanting to be here in other cases, and the 24 regulations. 25 If you didn't know, we have over 140 pages -- 1 140,000, rather, pages of regulations in this state, 2 and it is our goal to try to do something about 3 that. 4 We are starting with a target of trying to 5 identify a minimum of a thousand of them, to publish 6 in a report probably by late November, early 7 December, which will become part of our legislative 8 agenda of the Senate Majority Coalition for next 9 year as we move forward. 10 Certainly, we won't be content with just a 11 thousand, but we have to start somewhere. 12 And what we're trying to do, by doing this in 13 an industry-specific manner, we are trying to drill 14 down. 15 We know that unemployment insurance, we know 16 worker's comp, we know of the Scaffold Law, are the 17 big things. I imagine we'll hear some of that 18 today. We've heard it at the other hearings. 19 But, we are trying to get down into each of 20 the different industries and enlist your help in 21 trying to identify things; the regulations that are 22 outdated, the regulations that make no sense, 23 antiquated, those where the costs greatly exceeds 24 the benefits. 25 So that's our purpose today, and we're very 1 happy that so many of you took the time out of your 2 day or to travel here to be part of this. 3 Senator Dave Valesky co-chairs this effort 4 with me. Senator Kathy Marchione is also part of 5 the panel traveling across the state. 6 Senator David Carlucci is not able to be 7 here; he might be a little bit later. 8 But that forms the basis of our Committee. 9 And today we're also joined by the Chair of 10 the Senate Insurance Committee, Senator Jim Seward. 11 So without further ado, I will pass it off to 12 my colleagues and then we'll get started for their 13 comments. 14 SENATOR VALESKY: Very good. 15 Thank you, Senator Gallivan. 16 Good morning, everybody. 17 My name is Senator David Valesky. 18 I represent 53rd Senate District, right in the 19 middle of the state; Madison County, parts of 20 Onondaga and Oneida county, including most of the 21 city of Syracuse. 22 I also serve as the Chairman of the 23 Senate Standing Committee on Commerce, 24 Small Business, and Economic Development; 25 And I'm also here as the Deputy Leader of the 1 Independent Democratic Conference. 2 And for those of you who may not be familiar 3 with that, the "IDC," as we're known, are 4 governing -- majority-governing partners with the 5 Senate Republican Conference in what I think has 6 been a very, very successful experiment in 7 bipartisan cooperation that we're seeing here in 8 Albany, and that we're not exactly seeing in 9 Washington these days. 10 So, as Senator Gallivan said, we're rapidly 11 coming to the end of this series of public hearings 12 across the state. We have two more to do, and then 13 we'll be preparing a report, and I'm sure several 14 recommendations that will both involve regulations 15 that are imposed by state agencies, and also looking 16 at legislation. 17 So, I anticipate we'll have a package ready 18 for action when the 2014 legislative session 19 commences in January. 20 I look forward to hearing from all of you. 21 Senator Marchione. 22 SENATOR MARCHIONE: Hi, I'm 23 Senator Kathy Marchione, and I represent the 24 43rd District, which is comprised of parts of 25 Saratoga, Rensselaer, Washington counties, and all 1 of Columbia County. 2 In addition to representing the 3 43rd District, I am the Chairman of the 4 Administrative Regulations Review Commission for the 5 Senate. 6 And it's interesting, when we've been 7 reviewing rules and regulations, the rules and 8 regulations of the state of New York, if you lay 9 them, 8 1/2-by-11 sheet of paper, go out to about 10 22 miles of regulations, and it's certainly a 11 massive financial burden to our economy and our 12 financial, in the financial sector in particular. 13 The purpose of the forum, as what you've 14 heard from Senator Gallivan and Senator, uhm, next 15 to me -- 16 Sorry, forgive me. 17 [Laughter.] 18 SENATOR MARCHIONE: -- Dave Valesky, is to 19 listen to the insurance and -- today, and the baking 20 industry. 21 And, you know, the goal of this forum has 22 never been to point fingers or blame at anyone. 23 It's the -- our one and only purpose here is 24 to listen and find real solutions. 25 So, I welcome your input and look forward to 1 it. 2 Thank you. 3 SENATOR SEWARD: Well, thank you very much. 4 I'm Senator Jim Seward, and I represent the 5 51st Senatorial District, which is a swath of all or 6 parts of nine counties. We stretch from the 7 Catskills over to the Finger Lakes, and up into the 8 Mohawk Valley as well, right in Central New York. 9 And I also, of course, chair the 10 Senate Insurance Committee. 11 And I just want to congratulate my colleagues 12 who have been traveling the state and taking 13 testimony in terms of regulatory reform, with an eye 14 toward modernizing and streamlining, and 15 eliminating, regulation in New York State. 16 No question, there is a direct correlation 17 between our regulatory climate and our economic and 18 business climate here in New York State. 19 And if we are truly going to get our economy 20 moving in our state, we've got to deal with this 21 overregulation, particularly when it relates to our 22 employers and the business community. 23 You know, I am very proud to say that we, as 24 New Yorkers, can be collectively proud of the fact 25 that, traditionally, New York State has been the 1 financial capital of the world. 2 If we don't modernize and streamline the 3 regulation of this key industry, we may very well 4 lose this title, which employs thousands and 5 thousands of New Yorkers and is so critical to our 6 economy. 7 Now, no question in my mind that industry 8 should not write their own regulations. That's the 9 function of the regulatory agencies. 10 But it is important that, in writing 11 regulations, the various departments, and in 12 particular, we're talking today about the 13 Department of Financial Services, should take input 14 from all of the various stakeholders, whether that 15 be legislators on behalf of their constituents, 16 industry, those out there in the field, and, of 17 course, the general public, and this has not always 18 been the case. 19 And I'm concerned about the overuse of 20 emergency regulations on the part of the department. 21 There's certainly a time for emergency 22 regulations at a time of an emergency, but, I think 23 this has been overused on the part of the 24 department, and it has, in fact, cut out that 25 opportunity for industry, public, and legislative 1 input in the regulatory-making process. 2 Hopefully, as a result of these hearings, we 3 will be able to refine that process and make that 4 more workable and reasonable and responsible, and 5 I think the end result would be better regulations. 6 You know, I would just note that, at the time 7 we created the Department of Financial Services, 8 bringing banking and insurance together, at the time 9 that was created, we put, as part of the mission 10 statement of the new department, some very important 11 words, and I would just like to quote from that 12 mission statement that we all enacted together, and 13 that was: 14 "To encourage, promote, and assist banking, 15 insurance, and other financial-services institution 16 to effectively and productively locate, operate, 17 employ, grow, remain, and expand in New York State, 18 to establish a modern system of regulation, 19 rule-making, and adjudication that is responsive to 20 the needs of the banking and insurance industries, 21 and to the needs of the state's consumers and 22 residents, and to promote, advance, and spur 23 economic development and job creation in New York." 24 That is out of the mission statement that the 25 Legislature and the Governor has given to the 1 Department of Financial Services, and we are here 2 today to see how we are doing in meeting that 3 mission statement. 4 And, obviously, we, as members of the Senate 5 and our Coalition in the Senate, we are eager to 6 work with the Administration, as well as our 7 colleagues in the Legislature, to, in fact, promote, 8 advance, and spur economic development and job 9 creation in New York. 10 And we can do that through regulatory reform; 11 modernizing and streamlining, and, changing whatever 12 statutes need changing in order to meet this 13 objective. 14 So I'm very excited to be part of this 15 effort. 16 SENATOR GALLIVAN: Thank you, Senator. 17 I neglected to mention where I'm from, and 18 why I'm here. 19 I'm from the western end of the state, south 20 of Buffalo, south of Rochester, cutting across 21 four different counties, and I serve as our 22 Deputy Conference Leader for Economic Development. 23 So that's what connects me to this; to my 24 comrades here, and this effort, which we are excited 25 about. 1 I think I neglected to mention that we are 2 dealing with those industries that fall under the 3 State Department of Financial Services. 4 We grouped it together that way because it 5 made sense to bring insurance, banking, and 6 financial services together. 7 So, that is our purpose today. 8 We have -- we will do our best to stay on 9 schedule. We're just a few minutes behind, but we 10 usually make it up along the way. 11 We've tried to allot 15 minutes for each of 12 the presenters. 13 If you have written testimony that we do not 14 have yet, you can give it to the good-looking guy 15 with the glasses over there and he'll get copies for 16 all of us. 17 And, if I could just mention, if you're more 18 comfortable reading your testimony, fine, but we 19 have the written testimony. 20 We'd much rather hear you talk about the 21 things that you're going through, instead of 22 reading, and sometimes that helps us move along out 23 of respect for everybody's schedule. 24 So we will start, if our first speakers are 25 here, I believe, Lou Coletti, who is the president 1 and CEO of the Building Trades Employers' 2 Association; 3 And, Chris Jaskiewicz -- I hope I pronounced 4 it right -- who is the chief operating officer of 5 Gotham Organization. 6 And that is right, you have -- all right, the 7 other two are not here. 8 You do have -- well, no -- we only had -- who 9 else do you have with you? 10 LOUIS COLETTI: Arthur Rubinstein. 11 SENATOR GALLIVAN: Do you have Arthur? 12 Yes, Arthur. 13 Arthur Rubinstein. 14 And -- is there -- Denise Richardson was 15 also? 16 LOUIS COLETTI: She's on her way. We'll just 17 start. 18 SENATOR GALLIVAN: Okay, then she can come up 19 right when she's ready. 20 All right. 21 Sorry about that, Arthur, I didn't realize 22 you were here. 23 ARTHUR RUBINSTEIN: That's quite all right. 24 CHRISTOPHER JASKIEWICZ: Would you like us, 25 Mr. Chairman, to follow the order -- 1 SENATOR GALLIVAN: You can go whatever -- 2 whenever you're ready, you can go right ahead. 3 CHRISTOPHER JASKIEWICZ: Okay. 4 My name is Christopher Jaskiewicz. I am the 5 co-chairman of the Greater New York City 6 Construction User Council, and chief operating 7 officer of Gotham Organization. 8 Thank you, Senators, for your time. 9 In 1885, New York passed a law which required 10 contractors to have proper scaffolding at 11 construction sites. This law is referred to as 12 "240." 13 Since 1885, much of 240 has been rendered 14 obsolete by thousands of rules enacted to protect 15 workers. 16 These rules and laws include the 17 Occupational Safety and Health Act, Department of 18 Building Rules, and Worker's Compensation laws. 19 Under worker's comp rules, if a New York 20 worker is injured at a construction site, the fault 21 of the worker is not questioned. All of his or her 22 medical expenses are covered. This includes all 23 emergency bills, all surgery bills, MRI costs, 24 diagnostic, and rehabilitation costs. 25 In addition, the worker's lost wages are 1 covered, which can be up to eight to nine hundred 2 dollars a week. 3 Also, in New York, unlike many other states, 4 the worker can sue the contractor and owner of the 5 construction site. 6 Unlike the protection that developers and 7 contractors have in other states, we are not seeking 8 protection from being sued by injured workers. 9 We are seeking reform of the portion of 240 10 that makes owners and contractors strictly liable 11 when we are sued. 12 The fair standard is comparative negligence. 13 When that worker sues us, if that worker 14 contributed to his or her own injury by not 15 following safety measures, we want the right to be 16 able to explain that to a jury or judge so that that 17 can be taken into account. 18 Making one party strictly liable in the 19 context of workplace safety is wrong, and is 20 contrary to the principles of safety because it 21 removes incentive for the other party to take 22 reasonable measures to be safe. 23 If the owner of the construction site is 24 going to be liable no matter what the worker does, 25 and if the worker's own negligence is not going to 1 be considered by a judge or a jury, that sets up the 2 system that is unfair and ripe for abuse. 3 That is exactly what we have in New York: a 4 system that is unfair, a system that is being 5 abused, a system that is costing New Yorkers 6 billions of dollars, and a system that is driving 7 hard-working business owners out of business. 8 The facts speak for themselves. 9 New York is the only state in the entire 10 United States that forces strict liability on its 11 construction contractors and developers. 12 If a worker is 90 percent at fault for his or 13 her injury, that worker not only gets medical 14 expenses and wages covered, that worker can sue, and 15 will likely sue, because the New York judge or jury 16 will hold the owner or contractor 100 percent 17 responsible. 18 The system has led to extreme abuse in 19 New York. 20 Workers who ignore safety training, or take 21 unsafe risks, or refuse to wear safety equipment, or 22 otherwise cause their own injuries, file claims for 23 millions of dollars with the assistance of select 24 law firms and doctors. 25 Personal-injury lawyers specializing in 1 240 claims, with their own network of doctors, hand 2 out business cards at construction sites because 3 these cases are so easy to win. As a result, 4 240 claims and settlements in the millions of 5 dollars are routine. 6 After years of being prevented from arguing 7 comparative negligence, most construction insurance 8 carriers have left the New York market. 9 Losses to carriers in New York are at least 10 twice as high as in other states. 11 With average 240 claims and settlements in 12 the range of 2 to 3 million dollars each, the 13 carriers that remained have doubled their rates due 14 to this law. 15 This means that insurance costs are twice as 16 high in New York as they are in neighboring 17 Connecticut and New Jersey. 18 It is widely acknowledged in our industry 19 that the extra charge that carriers apply in 20 New York to cover their increased exposure is 21 4 to 7 percent of the project cost. 22 That increased cost hurts private development 23 and public projects. 24 For a private apartment building in 25 New York City, right here, that costs $100 million 1 to build, this law adds at least $4 million to the 2 cost. 3 That means some projects don't get built, 4 which means less work for thousands of workers. 5 For projects that do get built, it means 6 higher rent prices, higher sale prices, and more 7 pressure on affordable-housing initiatives. 8 Even worse is the impact on public projects; 9 government agencies subject to this law as well, and 10 their insurance costs are impacted in the same way. 11 The math is easy: 12 If the New York annual state capital budget 13 is 200 billion, the 5 percent 240 surcharge on 14 taxpayers is $1 billion annually. 15 Legislators who care about small business 16 should reform this law. 17 When projects don't get built or when 18 insurance costs are too high for a company to pay, 19 small contractors, subcontractors, small developers, 20 and small building owners go out of business. 21 New York is the only state that forces strict 22 liability on its contractors and developers. 23 The last state that had a similar law is 24 Illinois. In 1995 it repealed its strict-liability 25 statute. Construction work went up, and workplace 1 injuries and fatalities went down. 2 For all of these reasons, 240 must be 3 reformed. 4 To quote the City of New York's memorandum in 5 support of the proposed legislation: 6 "Currently, even the most trivial violation 7 of 240 renders an owner or contractor absolutely 8 liable for plaintiff's damages. Unlike all other 9 areas of tort, almost, the owner or contractor 10 cannot ask a jury to consider plaintiff's relative 11 fault in the happening of the accident and 12 proportionally reduce recovery. This rule holds 13 even if the plaintiff is intoxicated or consciously 14 chooses to not utilize readily available safety 15 devices. New York is the only state that retains 16 such an imbalanced rule. The proposed legislation 17 strikes an equitable balance in addressing this 18 issue." 19 SENATOR GALLIVAN: Thank you. 20 I see some testimony here. 21 Are we all going to talk about the same 22 issue? 23 ARTHUR RUBINSTEIN: No, different element of 24 the same issue. 25 SENATOR GALLIVAN: Okay, why don't you go 1 ahead, and we'll reserve our questions -- or, we'll 2 wait until you're all finished. 3 All right, thank you. 4 ARTHUR RUBINSTEIN: Okay, good morning, 5 Senators. Thank you for this opportunity. 6 My name is Arthur Rubinstein. My company is 7 Skyline Steel Corporation. 8 And, you'll see a very impressive description 9 of my company, which, unfortunately, is incorrect. 10 That is not my company. It's another company 11 with the same name. 12 But I was very impressed. I hope you are, 13 also. 14 [Laughter.] 15 SENATOR GALLIVAN: Sorry about that. 16 ARTHUR RUBINSTEIN: I'm actually a mid-sized 17 specialty contractor doing steel stairs, railings, 18 and other metal products on construction sites. 19 I wanted to have the opportunity to give you 20 the experience that I've had over the past couple of 21 years, in terms of my costs and my difficulty in 22 obtaining insurance, due to the limited market of 23 insurers who are still willing to insure companies 24 like mine in New York State. 25 My record as a contractor is actually quite 1 good in terms of safety. We have what are called 2 "credits" on our worker's comp-experience 3 modifications, which means that we are better than 4 average in terms of the losses which our workers 5 experience, and the claims that exist. 6 Two years ago, I paid for my 7 general-liability program, a little over $52,000 a 8 year. 9 I just renewed my insurance on June 15th of 10 this year. 11 So, two years ago $52,000. 12 My premium currently is $277,000. 13 That is a 531 percent increase over two 14 years, despite the fact that there's no 15 negative-loss history. 16 A clearly related fact to that is, my broker, 17 who really scoured the marketplace, was able to 18 attract a grand total of one proposal for our 19 renewal insurance. 20 No other company was willing to quote us. 21 That's -- I can tell you, as somebody who's 22 been a contractor my entire working life, that's 23 very scary, because there is this one insurer who 24 stood between me and not having insurance, and 25 having to default on my contracts in the middle of 1 construction. 2 It's that much of a crisis, and we are 3 teetering on the edge to that degree. 4 In addition to the cost of the insurance, 5 I'm actually -- the coverage is actually quite 6 inferior to what I bought two years ago. 7 One significant fact is that, what's called 8 "completed-operations insurance," which insures us 9 if there's a problem that comes up after the 10 building is completed, is normally part of a 11 comprehensive general-liability policy. 12 And it is in my policy, as it is in, 13 virtually, any construction policy; however, there's 14 a limitation. 15 The current policy, it does not cover 16 completed operations for projects which were covered 17 under what's called a "wrap-up," which is either an 18 owner-controlled program or a contractor-controlled 19 program, and the bulk of my work comes under these 20 programs. 21 So, I actually do not have insurance today if 22 there is a claim on one of these projects which 23 represent the bulk of my program. 24 After these projects are finished, or after 25 prior projects were finished, if there were a claim 1 today, I'm uninsured. 2 And this is not a problem which is unique to 3 me. This is being experienced throughout the 4 specialty-contractor industry by all of my peers -- 5 or many of my peers; certainly those in high -- what 6 are called "higher-risk trades," where their workers 7 generally work on a scaffold, on a ladder, and are 8 subject to falls that come under the provisions of 9 240/241. 10 We've actually -- for this one problem, we've 11 been in discussion, through our trade associations, 12 with the Department of Insurance, now succeeded by 13 the Department of Financial Services, asking them to 14 mandate that these wrap-up programs provide 15 completed-operations insurance for a minimum of 16 10 years. 17 We've been in dialogue with them over this 18 issue now for five years, and it hasn't been 19 resolved. 20 So, the completed operations under the 21 wrap-ups generally last two, three years for many of 22 them. We're then uninsured after that because we 23 can't buy the insurance. 24 When you look at all of this, you could say 25 that, if a contractor -- if I or a contractor like 1 me were to be given a mental-health test as to why 2 they're still in business, I don't think we'd pass. 3 But I love what I do. 4 I hope that some of these situations are -- 5 as bad as they are, are temporary, and that we can 6 look forward to continuing to thrive in 7 New York State, as opposed to considering whether we 8 really want to keep doing this and have these risks. 9 Thank you for your time. 10 DENISE RICHARDSON: Hi, I apologize. 11 SENATOR GALLIVAN: Good morning, and welcome. 12 DENISE RICHARDSON: Good morning. 13 SENATOR GALLIVAN: Perfect timing. 14 DENISE RICHARDSON: So sorry. 15 Denise Richardson, managing director of the 16 General Contractors Association. 17 My colleagues and I spent a lot of time 18 comparing our testimonies, so I won't be telling you 19 a lot of a different story than what you've already 20 heard, but I just want to emphasize that what we're 21 talking about is not a situation that will lead to a 22 lax of safety standards or creating any less of a 23 safe workforce or safe work practices than, 24 certainly, the unionized construction industry that 25 I represent or that my colleagues represent pay 1 attention to every day. 2 So as you look at the need for reform in the 3 Scaffold Law, please remember that this is not about 4 decreasing safety standards at all. 5 It is about creating fairness in a process 6 that will lead to cost reductions for all taxpayers, 7 and it is about making certain that when an accident 8 happens, there is a full and thorough investigation 9 where all of the facts leading to that accident come 10 out, because one of the most important things for us 11 to do as an industry is to learn from unfortunate 12 situations and to establish best practices to 13 prevent accidents from happening in the future. 14 And the standards under which we work now 15 with the Scaffold Law prevent a full and thorough 16 investigation because the immediate reaction is, 17 "How much will the contractor pay?" 18 The contractor is absolutely liable, and it's 19 just a matter of settling the case. 20 So to a certain extent, the existing 21 conditions in the Scaffold Law, frankly, are 22 creating a hardship for contractors to learn best 23 practices and to adopt best practices, because 24 there's not an opportunity for a full and thorough 25 investigation. 1 Also, I want to emphasize that, for small and 2 mid-sized contractors, particularly minority- and 3 women-owned businesses, their inability to get 4 insurance or to afford insurance prevents them from 5 working on many public projects. 6 And the goal of the MWBE programs is to use 7 government contracting to help those businesses 8 grow; and, yet, the Scaffold Law prevents those very 9 same businesses from having an opportunity to work 10 on those projects because, under the state's own 11 regulations, which are appropriate, a contractor 12 that cannot get insurance cannot work on a public 13 project. 14 So it is critical that this law be reformed 15 so that all parts of the government can work in the 16 best interests of both the industries and the 17 taxpayers. 18 Thank you. 19 SENATOR GALLIVAN: Thank you. 20 LOUIS COLETTI: Well, Senators, thank you 21 very much for the opportunity to speak this morning. 22 And thank you for taking the time to do what 23 you're doing, and going around the state in order to 24 find out what kind of issues are important in terms 25 of improving the climate for economic development. 1 And I really appreciate that. 2 My name is Louis Coletti. I'm the president 3 of the Building Trades Employers' Association. 4 We're an organization that represents 5 28 different union-contractor associations, and over 6 2,000 union companies, and we employ over 7 120,000 people, including the 100,000 members of the 8 building-trades unions. 9 You've heard much of the argument, so I'm 10 just going to go to a particular issue that Denise 11 brought up, that's very critical; and that is, 12 how do you grow minority and women businesses? 13 In New York City, probably -- and what is the 14 impact of the Scaffold Law? 15 Illinois, which was the only other state in 16 the nation that used to have, and repealed, their 17 Scaffold Law, over a five-year or six-year period, 18 found it increased -- it decreased insurance costs, 19 it increased the number of jobs, so much so, that 20 when an effort was made to reintroduce the bill, 21 organized labor opposed it; and it created new 22 construction jobs. 23 The real crisis we have, is my organization 24 has really worked very hard in helping to grow 25 minority and women businesses. 1 Competition is good. 2 We have the New York City School Construction 3 Authority, which probably has the preeminent 4 MWBE program for the last 20 years in this country. 5 They have recently sent out a letter to all 6 of their contractors, indicating to them that they 7 may, in fact, be requiring contractors, MWBE and 8 others, to provide their own general-liability 9 insurance, effective January 1st, because their 10 three-year premium is coming to an end. 11 They have gone out and solicited other bids. 12 I believe, at best, they may have gotten one, 13 and that was with extreme prodding. 14 The -- from what I hear, the cost of the 15 premium has more than -- gone up more than 16 100 percent, to the point where, if they were paying 17 $300 million for three years, that number is 18 anywhere from five to eight hundred million dollars 19 for the next three years. 20 Think about how many schools we can build. 21 They're trying to determine what to do with 22 existing jobs. 23 What are they going to do with new jobs? 24 What happens to those contractors who are on 25 the job, who, when they put their bid in, did not 1 include the cost of insurance because they were 2 covered by an owner-controlled wrap-up program? 3 Now, the SCA, over the last 10 years, to give 4 you a sense of how strong their MWBE program is, 5 they've awarded over $2.7 billion in construction 6 contract awards over the 10 years to over 7 800 minority- and women-owned businesses. 8 Without amending the Scaffold Law, and, 9 again, I think you've heard this morning, the 10 amendment we're seeking is -- and I guess it's one 11 of the basic premises of the American jurisprudence 12 system, is that everybody deserves their day court, 13 except if you're an owner or contractor under the 14 Scaffolding Law. 15 You have no opportunity; you go to court, the 16 judge determines it's a 240/241 case, it proceeds to 17 next stage, which is, basically, the insurers get 18 together and we all decide, Well, how do we settle 19 this case? Because we cannot provide any 20 information to a jury in cases where there might 21 have been some negligence on the worker's behalf. 22 This does not impact workers' rights one 23 iota. 24 What it does, is it gives us an opportunity 25 to present information, for a jury to make their own 1 independent determination as to the culpability of 2 the contractor and the employee in any injury case. 3 I was at an MWBE conference last week, and a 4 woman-owned contractor stood up, and she said to a 5 crowd of about 100 people, she does about 85 percent 6 her work with the New York City School Construction 7 Authority. 8 And the cost of her general-liability 9 premium, in the other 15 percent of the work, was 10 about $75,000 a year. 11 Based on the notice she got from the 12 School Construction Authority, she went out into the 13 market and asked for a quote. 14 She got one, $780,000. 15 If we don't have reform, and have it this 16 year, those MWBE contractors are out of business. 17 They can neither afford to pay the premiums that you 18 heard Chris and Denise and Arthur talk about, nor 19 will they get it. 20 You know, one of the things I hear -- and 21 I heard you this morning, we're not looking to 22 assess blame -- but I think those who oppose reform, 23 I've heard them say, Well, your problem's really 24 with the insurance companies. 25 Well, if the problem's really with the 1 insurance company, and they're making so much money, 2 why -- there used to be seven, eight, or 3 nine companies that would write general-liability 4 insurance. 5 They've all left the market. 6 If they're making so much money, I would 7 think you'd have 50 companies come in and say, Let's 8 go to New York, let's make some money. 9 They will not write general-liability 10 insurance. 11 And while it's a problem for the entire 12 industry, I can tell you it will devastate the 13 state's MWBE program across the board. 14 But the SCA is struggling, because they're up 15 first. Their OSA policy ends December 31st. 16 What are they going to do? 17 Are they going to pay a $500 million premium 18 and build 30 less schools? 19 Are they going to then require all 20 contractors to provide their own insurance; thus, 21 reducing the participation of MWBE firms? 22 It's a real tough position to be in. 23 And as I said, they're out publicly. They've 24 written the letters to all the contractors. 25 To give you a comparison: 1 The New York City School Construction 2 Authority, and this is last year's OSA premium, was 3 $300 million for 3 years; about a $1.7 billion 4 capital program. 5 The New Jersey School Construction Authority, 6 which doesn't have 240/241, has the same size 7 capital program, their premium for three years was 8 $75 million. 9 So the problem is now; it's today. The 10 implications are just incredibly dramatic. 11 And we ask that you will take back to Albany 12 the need for reform, because, as you go out on your 13 tour of finding out facts about what's going to 14 keep, continue the economic growth of this state, 15 strong, this bill has got to be -- reform of this 16 bill has to be on the top of the priority list. 17 Again, thank you very much. 18 SENATOR GALLIVAN: Amen. 19 I know -- I know -- I'll speak for myself: 20 There's need for reform in this area. 21 We've been working on it for a while. 22 I'm not sure if you're aware, and we've 23 actually sponsored legislation. It's S111, if you 24 wanted to look it up, and it's to introduce, not 25 repeal it like Illinois did -- 1 LOUIS COLETTI: That's all right. 2 SENATOR GALLIVAN: -- but something very 3 reasonable, but to level the playing field. 4 I think Denise you had talked about fairness 5 in the process. 6 In my view, this is the only thing that 7 enters our criminal or civil justice system where 8 both sides don't get a say. 9 And I'm paraphrasing, when you have a judge 10 in a case -- and I'm sure, you may be familiar what 11 the case is -- say something to the effect, to the 12 injured person who said, "It was my fault, I wasn't 13 paying attention," the judge said something to the 14 effect, The fact that it's your fault is irrelevant, 15 that isn't -- that's just not right. 16 But in any event, I understand everything 17 you're saying, and I personally appreciate the 18 testimony. 19 We have a group, your organizations may be 20 part of it, I'm not sure. 21 LOUIS COLETTI: Yes, the Alliance. 22 SENATOR GALLIVAN: And if you are not, would 23 you just talk to Zach -- 24 LOUIS COLETTI: Okay. 25 SENATOR GALLIVAN: -- to make sure that we 1 get you to be a part of it. 2 There are numerous groups, and we are working 3 very hard. 4 I mean, you bring up some of the different 5 things that I think, as we move forward into next 6 legislative session, the MWBE issue is very 7 significant, the New York City schools are very 8 significant. 9 And what I'm seeing, is that there are 10 different people paying attention to this now, that 11 were not likely at all to support amendments to that 12 240/241 in the past. 13 So I'm very optimistic and hopeful that we 14 can do something. 15 I have a question, though. 16 Denise, you had talked about a -- what has 17 come up, when people have opposed this, we generally 18 have two groups: 19 One is the group that's interested in 20 litigation, that immediately talks about how the 21 world is going to end if we're going to change this; 22 The other group are the workers. 23 And when you talk individually with some 24 workers, and you explain what we're trying to 25 accomplish, they agree about the fairness, when you 1 talk about the Illinois experience, and the fact 2 that when people wanted to introduce it, that 3 organized labor said No, no, we like what's going on 4 now with the increased jobs, better safety, lower 5 rates; things of that nature. 6 When you talk individually with people, after 7 they get past that initial aversion, just because 8 that's always been the traditional position, they're 9 very reasonable. 10 But the concern, of course, is worker safety. 11 And two things you brought up, and anybody 12 can answer: 13 You mentioned, Denise, something to the 14 effect, that contractors, not unwilling -- unwilling 15 or unable, or the law prevents them, from learning 16 and adopting best practices. 17 I mean, can you just talk further about that? 18 I'm not quite sure that I understand, 19 because, if -- in trying to defend it, if I say, 20 "Hey, we've got these owners of companies, they 21 don't want to lose their shirt, they want to get 22 work." 23 And my presumption is, that if there's a set 24 of rules, they should be following it, providing the 25 safety equipment, providing the training, and so on, 1 or else, of course, that would be found out in 2 court, even in comparative negligence. 3 But could you just talk a little bit further 4 about -- I mean, is that not happening now, the 5 learning and adopting best practices? 6 DENISE RICHARDSON: What happens now is that, 7 if there's an accident on a job, a contractor will 8 do a safety investigation on their own and document 9 what happened. 10 But typically in the past what would happen 11 is, is that the insurance company would send in 12 their own team of investigators to do a thorough 13 analysis of everything that happened leading up to 14 that accident. 15 One of the things that we have found over the 16 years, and, particularly, I would say in the last 17 five or six years, is that the emphasis has become, 18 "Let's just settle the case," because there's no 19 point investigating the cause of the accident 20 because you're liable no matter what. 21 So we're losing the opportunity to get a 22 third-party look at what happened, and to be able to 23 say, "These are the things you should be doing, 24 going forward," because the rush is to just settle 25 the case and move on. 1 And it's something that we've talked to the 2 insurance companies about, in terms of improving 3 their investigation and helping us document what's 4 happening, but the emphasis now is, not so much on 5 what has happened to prevent this from happening in 6 the future, but, let's just settle the case and move 7 on, because you're guilty no matter what. 8 That's where the problem is. 9 SENATOR GALLIVAN: So the third-party look 10 then, in the full and thorough investigation that 11 you spoke of, which was going to be my other 12 question, that would be the insurance company? 13 DENISE RICHARDSON: That has been the 14 practice. Usually they will bring in a safety 15 consultant to do an analysis of the job. 16 But one of the criticisms that our own 17 members have had in dealing with their own insurance 18 companies, is when something has happened, there 19 is -- there's an immediate rush to judgment because 20 of the Scaffold Law: Well, the contractor is 21 guilty, so let's just move on to settle the case and 22 to get beyond this; as opposed to looking at what we 23 could be doing in the future to prevent it. 24 And so from our perspective, we're losing the 25 ability of that very thorough third-party look at 1 what happened to help us prevent things from 2 happening in the future. 3 Which I think, if we had a situation where we 4 were looking at a comparative-negligence standard, 5 where we really need to take the accident apart and 6 understand what happened, we would gain a body of 7 knowledge that would allow us to improve our safety 8 training, or to allow us to put procedures into 9 place, that would prevent this from happening in the 10 future. 11 CHRISTOPHER JASKIEWICZ: And if I could add 12 to that, the other third party that's critical is 13 the judge, and assessing the incident. 14 Right now it's a completely unrealistic 15 assessment of what happened, and what led to that 16 accident. 17 When I said that a worker could cause -- 18 could be 95 percent the cause of his own accident -- 19 SENATOR GALLIVAN: It's irrelevant. 20 CHRISTOPHER JASKIEWICZ: -- the 21 owner-contractor is 100 percent liable. 22 That unrealistically changes the culture, the 23 safety culture, on job sites. 24 And if you have judges that are allowed to go 25 in and study the comparative negligence, and find 1 out if the worker ignored his training and didn't 2 tie-off, that will lead to positive consequences in 3 the safety environment at these jobs. 4 It's human nature. 5 It's totally consistent with the principles 6 of safety, to have everyone buy in and be 7 accountable. 8 That's what we're missing. 9 SENATOR GALLIVAN: In all likelihood -- for 10 the sake of time, I will stop with my questions now. 11 I could on for a long, long time. 12 We will likely, in our proposed legislation, 13 hold hearings in January specifically on 240/241. 14 And if we do, we're hoping that you can be a 15 part of it. 16 But if you would just make sure that you stop 17 and talk with Zach, to make sure that you're on our 18 list with all of that. 19 SENATOR VALESKY: Not a question, just a 20 comment, really. 21 Thank you very much for your testimony. 22 You might be interested to know that, 23 wherever we have been in the state, and on whatever 24 topic the hearing was focused on, whether it was 25 general small business issues or construction or 1 manufacturing or agriculture, this issue has come up 2 at every single hearing. 3 You're probably not surprised to hear that. 4 So, as Senator Gallivan said, there's no 5 question that more work will be done as we head into 6 the new session, and we appreciate your testimony. 7 SENATOR MARCHIONE: Is it the Scaffold Law 8 alone that's causing all of these difficulties for 9 you? 10 If I were to look in New Jersey, are you 11 telling me that the insurance companies who used to 12 write insurance here are still all writing there; 13 that this is the sole issue as to why they're not 14 writing here in New York? 15 LOUIS COLETTI: Yes. 16 What the insurance companies are telling us, 17 and this is the irony of it, is when they take a 18 look at our companies' loss record, in 19 New York City, we have a very good safety record. 20 That's a factor. 21 What they're looking at more and more, that 22 focuses completely on 240 and 241, is the size of 23 the judgments that are coming in at a 24 240/241 hearing; and they're getting larger and 25 larger. 1 They're getting -- the judges are broadening 2 their definition in cases. 3 So, when an insurer is calculating what your 4 premium is going to be, they take all of that into 5 consideration. 6 So if you have a good safety record, which 7 I would guarantee most of our companies do, it's 8 almost irrelevant. 9 CHRISTOPHER JASKIEWICZ: If you -- if an 10 identical case happens in New York and happens in 11 New Jersey, in New Jersey you can litigate the 12 worker's negligence. 13 Here, you can't do it; hands are tied. 14 It goes right -- there's two parts to trials: 15 One part is liability, the other part is damages. 16 In New York, these go right to the damages 17 phase. There's no litigating the liability. 18 That's the difference. 19 SENATOR SEWARD: Following up on 20 Senator Marchione's question regarding the 21 comparison with New Jersey, you know, the one thing 22 that disturbs me every time I come down to the city, 23 I look across the Hudson and see that skyline of 24 New Jersey; it's growing and growing and growing. 25 And that's a number of factors, but too much 1 of our financial-services industry is in New Jersey, 2 and I guess it's easier to build that skyline over 3 in Jersey than it is here. 4 You know, when it comes to this issue, and 5 I would echo what Senator Gallivan said, I also am a 6 co-sponsor on legislation to bring reform to 7 240/241; and, thus far, it's been a tough hill to 8 climb in the Legislature. 9 In terms of the Senate, there's some 10 cross-jurisdiction here. 11 When we talk about 240/241, those are 12 sections of the Labor Law, and even though there are 13 huge insurance implications, in terms of the costs 14 of the general-liability insurance, and even the 15 availability of it, this -- because it -- because 16 the Labor Law comes under our Labor Committee in the 17 Senate, not the Insurance Committee. 18 I wish it was under the Insurance Committee. 19 But, obviously, they're a cross-jurisdiction 20 there, and as we proceed on this issue, we're going 21 to have to bring Labor Committee and the 22 Insurance Committee, as well as this 23 Regulatory Reform group, together, to look for some 24 real changes. 25 You know, we do not need to, it seems to me, 1 you know, reinvent the wheel here. We just look at 2 other states. 3 You mentioned the Illinois experience, and 4 that was total repeal over there. 5 But, you saw the availability go up and the 6 price go down, in terms of the insurance coverage on 7 these jobs. 8 And I presume that that has led to an 9 expansion, if not an explosion, of the construction 10 in that particular state. 11 And we want and need that here. 12 And I-- we are going to need, as we proceed 13 on this issue, the help and support and advocacy on 14 the part of the Governor here. 15 And I think that the impact, I know there was 16 some announcements just last week, in terms of 17 women- and minority-owned businesses, and trying to 18 increase the amount of activity in that area. 19 This issue plays, as you pointed out in your 20 testimony, a very, very important factor in that. 21 It's hindering the growth of women- and 22 minority-owned businesses in our state, at least in 23 the construction area. 24 So, that's something that we hope will get 25 the attention of the Governor as we proceed on this 1 issue, as well as the impact on the great need for 2 improvements on the physical plant of the 3 New York City School District. 4 So, those are very important factors as we go 5 forward here, that you brought out in your 6 testimony. 7 I had one question for Mr. Rubinstein. 8 You mentioned -- are you involved with a 9 proceeding at the Department of Financial Services, 10 or discussions there? 11 ARTHUR RUBINSTEIN: Yes. 12 SENATOR SEWARD: You said have not -- could 13 you briefly elaborate on that a bit on where -- 14 ARTHUR RUBINSTEIN: Yes, we have been in 15 discussions, as I said, five years ago, with the 16 Department of Insurance, asking them to mandate a 17 10-year completed-operations minimum requirement on 18 owner-provided or contractor-provided insurance 19 programs, because we, typically, in our own 20 insurance programs, those jobs are excluded from 21 coverage. 22 So once the contractor- or owner-provided 23 insurance, the wrap-up, once the completed 24 operations under that program expires, and they're 25 typically two, three, four years, our policy 1 specifically exclude coverage on those projects, so 2 we are left uninsured. 3 And we're asking the department to mandate 4 that the insurers writing those programs provide a 5 minimum of 10 years of completed-operations 6 insurance. 7 SENATOR SEWARD: So that would cover anything 8 that may -- 9 ARTHUR RUBINSTEIN: Happen in the future. 10 SENATOR SEWARD: -- happen in the future in 11 that 10-year period? 12 ARTHUR RUBINSTEIN: Right. 13 SENATOR SEWARD: Okay. 14 Well, we will take a look at that, that 15 aspect of the issue. 16 ARTHUR RUBINSTEIN: Okay, good. 17 I would just like to point out one thing, if 18 I may take one more moment? 19 I want to make sure we've made crystal clear, 20 that if we are successful and if we get a 21 comparative-negligence standard, as opposed to what 22 we have today, if a worker is at fault and, 23 ultimately, he doesn't collect on a litigation 24 because he's found to be at fault, I want to make 25 crystal clear that that doesn't impact, in any way, 1 his protections under worker's compensation, where 2 he will get his medical expenses covered, he will 3 get a weekly payment for his living expenses, while 4 he is unable to work, totally independent of any of 5 this, and you're not leaving workers destitute or 6 without wherewithal if this were to be changed. 7 They have that protection; that's unchanged. 8 SENATOR SEWARD: Yeah, no question, there is 9 a perception in the organized-labor community that 10 this strict liability is necessary to, number one, 11 create the strong incentive for the employer to 12 create that safe workplace, and also, then, you 13 know, the benefits that would come from any injury 14 that occurred. 15 So that's -- you know, that's what we need, 16 to take steps as we go down this road of reform, to 17 overcome what I would consider to be misconceptions. 18 LOUIS COLETTI: If I may, just in closing, 19 just so -- based on your comments, Senator, just so 20 you know, we are, and have been, for a long time, in 21 direct conversations with the Governor's Office on 22 this issue, as well as having meetings with 23 organized labor. 24 And, perhaps, even meeting with the trial 25 attorneys. We're not sure of that. 1 But, this is a campaign -- and the minority 2 community. 3 I was at the state's conference last week, 4 basically telling them the message that we talked 5 about here, which is, they're out of business, and 6 they need to get on the phone with their elected 7 officials in the Minority Caucus and their own 8 districts, and tell them how important this issue is 9 for their own businesses. 10 DENISE RICHARDSON: If I could just add 11 something? 12 At the same time that we're going to be 13 looking at changes in the Scaffold Law, the 14 Legislature will also be looking at the DOT capital 15 program, the MTA capital program. 16 We've seen our insurance costs go from, 17 basically, 2 to 4 percent of a total project cost, 18 to 8 to 12 percent. 19 If you can reform the law and bring the 20 insurance costs back into that 2 to 4 percent level, 21 you have just given more money to both the DOT and 22 the MTA capital programs, and to the projects in 23 your districts, without having to find any other 24 revenue source. 25 So this really is a factor in the overall 1 cost of projects. 2 And I urge you to look at that, and 3 understand that this is an opportunity for the State 4 to save money, and also to create new opportunities 5 for so many of the projects that desperately need to 6 get done around the state. 7 SENATOR GALLIVAN: Is it your opinion that 8 that increase in costs is solely because of 240/241? 9 DENISE RICHARDSON: Yes, we've seen it in our 10 insurance premiums. 11 Our members -- we have 240 members, and we 12 did a survey, and our members' insurance costs over 13 the past 10 years have increased, anywhere between 14 300 and 1,000 percent, and it's due to Scaffold Law 15 claims. 16 CHRISTOPHER JASKIEWICZ: There's no question, 17 these claims are coming in at -- for 3, 4, 5 million 18 dollars. 19 It's easy money. 20 It's easy money for the plaintiffs' lawyers; 21 it's easy moneys for the workers. 22 SENATOR GALLIVAN: Get it. 23 All right, thank you very much. 24 CHRISTOPHER JASKIEWICZ: Thank you. 25 SENATOR SEWARD: Thank you very much. 1 SENATOR GALLIVAN: Marc Craw, who's the 2 vice president of the New York Insurance 3 Association. 4 When you're ready, Marc. 5 Thanks for being here. 6 MARC CRAW: Good morning. 7 Thank you very much, Senator Seward, 8 Senator Gallivan, Senator Valesky, and 9 Senator Marchione. 10 As mentioned, I am Marc Craw, vice president 11 of the New York Insurance Association, known as 12 "NYIA." 13 NYIA is the state trade association that has 14 represented the property and casualty insurance 15 industry in New York State for over 130 years. 16 Our membership is broad and diverse, 17 consisting of stock, mutual, and cooperative 18 insurance companies writing in every corner of 19 New York State. 20 NYIA's member companies write over 21 $12 billion in premium in New York State yearly. 22 On behalf of NYIA, we wish to thank you for 23 the opportunity to address you regarding the serious 24 need for regulatory reform in the property and 25 casualty insurance sector. 1 Properly done, this reform could go a long 2 way toward truly making New York open for business 3 and lead to the thriving economy that benefits all 4 New Yorkers. 5 I'm merely going to provide a summary of my 6 written testimony. You can refer to that for 7 details on the proposals, and I refer you to that 8 testimony. 9 The regulations I will briefly touch on in my 10 remarks are those we have identified as imposing 11 unnecessary, burdensome, and/or excessive costs on 12 property and casualty insurance companies. 13 The first regulation that we see should be 14 eliminated, or at the very least, substantially 15 revised, is Regulation 30 of 11, New York 16 compilation of rules and regulations. 17 This regulation governs the uniform 18 classification of expenses for rate-making purposes. 19 We submit that statistical organizations, 20 such as the Insurance Services Office, already do 21 determine standards for the uniform classification 22 of expenses, and our members can use these. 23 Our primary issue with Regulation 30, a 24 regulation, I might add, that was enacted in 1948, 25 shortly after World War II, is to mandate that 1 insurers perform elaborate and detailed time studies 2 to verify the allocation percentages an insurer 3 conducts to allocate expenses to various insurance 4 product lines, and three major categories of 5 underwriting, claims adjustment, and investment 6 expense. 7 Today there are numerous rate organizations, 8 and insurers can deviate quite substantially, either 9 up or down, from bureau rates. 10 Insurers have a vested interest in seeking to 11 price their product appropriately; therefore, we 12 would submit there's no need for elaborate time 13 studies in most cases, and would respectfully submit 14 that this regulation should be repealed. 15 Another area that our members frequently 16 encounter, that can lead to frustration and 17 time-consuming expenditures, is the 18 financial-examination process. 19 New York State domestic and -- property and 20 casualty insurance companies have to undergo a 21 financial examination every three to five years. 22 While we fully recognize the usefulness of 23 these exams, we strongly believe that the exams 24 should focus strictly on financial matters only with 25 an eye towards solvency, and not stray into other 1 areas. 2 These unnecessary requests that can be 3 incurred during the financial-exam process 4 substantially burdens the insurers who actually pay 5 for the examination expenses. 6 An examiner will come to their home office 7 and spend time there, going through the examination 8 process. 9 We would submit that an overarching broad 10 principle for financial examinations should be to 11 keep in mind that the intent behind these exams is 12 to review the reliability of the assets and 13 liabilities reported by the insurance company at the 14 date of examination. 15 Just as an example, Department of Financial 16 Services -- "DFS" we refer to it -- financial 17 examiners have requested and spent substantial time 18 reviewing an insurer's board minutes; insurance 19 policies purchased by the company; expense 20 classifications, which goes to Regulation 30 that 21 I mentioned previously; employee benefits; privacy 22 compliance; and other non-financial items. 23 These items we respectfully submit should not 24 be the subject of inquiry during a financial 25 examination. 1 Instead, the department, DFS, has the full 2 authority and power to look at these matters in a 3 market-conduct exam. 4 So we would respectfully say that the 5 financial-exam process should be streamlined to only 6 deal with financial matters. That would actually 7 save domestic property and casualty insurance 8 companies time and expense. 9 A third area that we think could use some 10 streamlining and reform is the current regulations 11 for -- called "Regulation 79." 12 This is the photo-inspection regulation, and 13 implements the New York Photo-Inspection Law. 14 Just briefly, to summarize, this law requires 15 auto insurance consumers to obtain a photo 16 inspection from their auto-insurance carrier of a 17 new vehicle they obtained. 18 We believe this no longer serves a useful 19 purpose and could be modified to reflect modern 20 realities. 21 When the law was first enacted in 1977, there 22 was rampant auto fraud that could only be curbed by 23 physically inspecting vehicles to ensure phantom 24 vehicles were not being used to make fraudulent 25 claims. 1 However, since 1977, there have been several 2 developments to combat fraud. 3 For instance, there are sophisticated 4 databases that weren't present in 1977, 5 Uniform Salvage Disposal laws, and insurance 6 companies with large special investigation units, or 7 "SIUs," that exclusively work on auto-insurance 8 fraud issues. 9 This makes commission of a phantom vehicle 10 fraud almost impossible today. 11 We would suggest the following amendments: 12 First, broaden the ability of insurers to 13 wave the mandatory inspection requirement for an 14 additional and/or replacement vehicle. 15 Second, extend the time periods for 16 inspection, which would be a benefit to the 17 consumer, and, extend the time that the coverage may 18 be automatically provided for a replacement vehicle. 19 Our third amendment, we suggest eliminating 20 the requirement that the auto-insurance consumer be 21 notified of the inspection either in person or by 22 telephone, but still require the requirement that 23 the insurer furnish the consumer with inspection 24 site or sites. 25 This change would allow the regulation to fit 1 current practices, where many consumers no longer 2 engage in verbal contact with either an insurance 3 company or the agent; rather, they go online, and an 4 electronic footprint is placed in the insurance file 5 for documentation purposes, so we believe that, 6 still, providing notice of the inspection site 7 should be sufficient. 8 Another area that we see could be improved in 9 the regulatory process involves insurance-market 10 availability surveys. 11 This arose out of the liability-insurance 12 crisis in the 1980s, when it appeared that 13 commercial liability insurance for certain types of 14 risks were unavailable at any price. 15 As a result, the insurance department -- 16 then-Insurance Department, through Circular Letter 3 17 of 1986, and now continued by Circular Letter 32 of 18 2001, began a yearly survey of insurance 19 availability. 20 This survey requires insurers to provide, in 21 a detailed format, a list of all the insurance 22 markets where they provide coverage. 23 Although the survey was designed to be 24 temporary, it has remained in place. 25 We would submit there's no need for this 1 availability survey anymore, as there are more than 2 adequate markets for most insurance products today, 3 excepting what we just heard regarding Scaffold Law. 4 DFS would retain the ability to act through 5 Section 308 data calls if they begin to see an 6 availability problem, but we feel there's simply no 7 need for insurers to be burdened with completion of 8 these surveys on a yearly basis. 9 We suggest Circular Letter 32 of 2001 be 10 withdrawn. 11 Another regulatory issue that we see 12 occasionally arise is DFS's use of emergency 13 regulations in circumstances where it is not 14 warranted. 15 Just one example, DFS adopted emergency 16 regulation earlier this year to institute a 17 mediation program for policyholders impacted by 18 "Superstorm Sandy." 19 While we have no quibble whatsoever with the 20 regulation, a month later, DFS had to provide a 21 detailed clarification regarding interpretation of 22 the emergency regulation, and the third-party entity 23 charged with administering the mediation program was 24 not ready to begin the program until the middle of 25 April. 1 This was beyond the 45-day comment period 2 that would have been required if the DFS had gone 3 through the ordinary regulation-adoption process. 4 Turning next to another regulation we feel 5 could be modified, and would help greatly, there's a 6 regulatory requirement imposed by DFS in the 7 continuing-education field for those licensed in 8 New York. 9 In brief, all continuing-education 10 applications must include a "wet," or original, 11 signature. 12 In this time of electronic signatures, this 13 requirement is anachronistic and should be 14 eliminated. 15 We believe that providing and securing 16 documents with an original signature is a needless 17 expenditure of time and attention for all those 18 involved in insurance continuing education in the 19 state, and we would suggest allowing these 20 applications to provide for an original signature or 21 a copy of a signature or an electronic signature. 22 The last regulation that we would cite in our 23 verbal testimony here -- and, again, I refer to our 24 written testimony for additional regulations -- is 25 the Department of Transportation regulations that 1 prohibit company cars from using certain parkways in 2 New York State. 3 What we saw during "Superstorm Sandy," was 4 adjustors didn't have the ability to go on these 5 parkways because their company cars had a logo on 6 it. 7 Obviously, this is a problem for adjustors 8 who need to respond to reported claims in a timely 9 manner, so we believe that this could be either 10 repealed or modified. That would be a great help. 11 In conclusion, we believe the most important 12 thing to keep in mind regarding insurance 13 regulations is the need to ensure solvency, while 14 allowing the market to have enough regulatory leeway 15 to be innovative in serving its New York customers. 16 This approach would protect New York 17 consumers, while permitting all property and 18 casualty insurance companies doing business in 19 New York to thrive and prosper. 20 When that happens, we truly believe the 21 result is more business activity that leads to a 22 growing New York economy and the creation of more 23 New York jobs. 24 We believe adoption of our regulatory-relief 25 proposals would be in the best interests of a truly 1 thriving and prosperous New York. 2 Thank you. 3 I can take any questions you have at this 4 time. 5 SENATOR SEWARD: Thank you, Marc, for your 6 testimony. 7 And as you were speaking, I was reviewing 8 your written testimony, and I want to thank you and 9 the New York Insurance Association for just clearly 10 outlining some very specific regulations that -- 11 I think your overall theme is that they're -- that 12 either are outdated or duplicative and unnecessary? 13 MARC CRAW: Correct. 14 SENATOR SEWARD: Yeah, that would be as a 15 general theme, and so these kinds of specifics are 16 very, very helpful to the work of this group and -- 17 as we go forward. 18 A couple of questions for you. 19 You know, I'm told that DFS is, as other 20 state agencies have been asked to do by the 21 Executive, is going through sort of, what I describe 22 as, I guess, a self-review of their regulations. 23 Have you -- you, at the New York Insurance 24 Association, have you heard anything about this, or 25 have you been asked to be part of any kind of a 1 process with the department? 2 MARC CRAW: We have, Senator. 3 Yes, starting a couple years back with the 4 merger, DFS employed an outside entity -- I forget 5 offhand the name of the firm -- but, to review, top 6 to bottom, their processes and procedures. 7 They did invite us in, and other insurance 8 trade organizations, to submit input, and we did do 9 so. 10 The primary areas we talked about was rate 11 and form filings, which is always a very important 12 matter for our members. 13 As you know, many insurance products have to 14 be filed with the department, the policy rates and 15 forms, for approval. 16 And we have seen significant improvement in 17 that area, so that's one area where DFS has 18 definitely followed through on that. 19 In addition, the financial-examination 20 process, we did talk about during that process as 21 well. 22 So we're looking forward to seeing further 23 implementation and rollout of these improvements as 24 it goes forward. 25 SENATOR SEWARD: You consider that to be an 1 ongoing process? 2 MARC CRAW: Yes, I would. 3 SENATOR SEWARD: In this issue of 4 emergency -- the use of emergency regulatory 5 authority, you know, I mentioned that in my opening 6 remarks, and you commented as well. 7 Do you have any guidance for our effort in 8 the Senate, in terms of, do we need to have some 9 stipulations or standards in the law, you know, 10 regarding the use of emergency regulatory authority? 11 Or, have you given any thought at all in 12 terms of how we could best delineate for the DFS, or 13 any other department of state government, for that 14 matter, in terms of better guidance under the law in 15 terms of the appropriate use of emergency 16 regulations? 17 MARC CRAW: I'll confess, we haven't looked 18 specifically at that. 19 As you mentioned, it's a broad spectrum that 20 would apply to all state agencies. 21 I think we would look to, perhaps, more 22 review and oversight of when emergency regulations 23 are used, because I do think there needs to be some 24 flexibility, obviously, in the system. 25 But on the other hand, you need some 1 oversight in order to ensure that it doesn't become 2 an easy, kind of, fallback position, you know, where 3 you become unduly over-reliant on these emergency 4 regulations. 5 So we would be willing to work with the 6 Senate on that. 7 SENATOR SEWARD: Right, I was just going to 8 suggest that. 9 If you want to give us some -- some thoughts 10 that NYIA may have, and your member companies, in 11 terms of the best way to have appropriate use of 12 emergency regulatory power. 13 And just in conclusion, I would ask you to 14 comment on the -- shall we say, the state of the 15 market here in New York when it comes to P&C 16 (property and casualty) insurance market. 17 Generally, my impression is, that we have a 18 pretty robust market here; plenty of choices for the 19 consumer. 20 Unlike our previous discussion with the -- in 21 the construction area, because of the 22 Scaffolding Law and the general-liability insurance 23 rates, and, you know, availability being an issue 24 there, but primarily because of lack of 25 competition -- 1 MARC CRAW: Right. 2 SENATOR SEWARD: -- and people in the 3 market -- companies in the marketplace. 4 That's not the case when it comes to P&C. 5 There are plenty of companies who are 6 competing, you know, for the business of New York 7 consumers, and -- which -- which a competitive 8 marketplace, in my view, does take away the need for 9 some of these regulations that have been in place 10 since, perhaps, there was a different time in the 11 market, because if the consumer has plenty of 12 choices and options, both on coverages and price, 13 that serves as a way to kind of self-regulation on 14 the part of the consumer, in many cases. 15 Obviously, we need the department to keep an 16 eye on all of this, but, to make sure that is, in 17 fact, the case. 18 But, can you just give me your general 19 thoughts in terms of the condition of the 20 marketplace in New York and its impact on the 21 consumer? 22 MARC CRAW: Yes, thank you, Senator. 23 We would echo your comments, especially with 24 respect to the competitiveness of the property and 25 casualty insurance industry in New York. 1 New York is fortunate to see a truly 2 competitive market with over 300 market entrants 3 currently in the property and casualty insurance 4 sector, as a whole. 5 Obviously, you heard, on certain lines, such 6 as commercial liability with respect to contractors, 7 there is an issue, and we would definitely not 8 minimize that. 9 But in all the other lines, and in general, 10 auto insurance, homeowners, etc., there are plenty 11 of competitors in those markets, and they really are 12 serving the consumers in New York, and we think in a 13 very beneficial manner. 14 We think any reform of these regulations, as 15 we suggested, would even spur more competition and 16 innovation in providing insurance products to 17 consumers in the market, to the benefit of the 18 New York insurance customer. 19 SENATOR SEWARD: Would you include, add to 20 that list of benefits to the consumer, a possible 21 rate relief as well? 22 I mean, a cost-cutting? 23 I mean, if these regulations are expensive to 24 comply with -- 25 MARC CRAW: Right. 1 SENATOR SEWARD: -- and -- 2 MARC CRAW: We think, in time, given the 3 competitive market, it would work to, you know, help 4 in terms of rates. 5 It always -- rates look backward, as you well 6 know, look at loss history, so, you have to see how 7 it unwinds, but we think it would definitely rebound 8 to the benefit. 9 SENATOR SEWARD: Thank you. 10 SENATOR MARCHIONE: In part of your 11 testimony, and you talked about signs on vehicles, 12 the Department of Transportation, can't be on the 13 parkway, I'm not too familiar with this. 14 Are you saying that it doesn't have to do 15 with whether it's a truck or a car, but only has to 16 do with whether you have a corporate sign on your 17 vehicle? 18 MARC CRAW: Yes, Senator. 19 What it is, is, and I just didn't want to get 20 in depth, given time restraints, but, basically, 21 it's for an unrestricted vehicle already; i.e., 22 mostly a passenger car or sedan driving on certain 23 parkways, mainly in Westchester County, that they 24 cannot have a company logo or insignia on their 25 vehicle. 1 What we found is, that hinders, as I said, 2 our adjustors' ability to get to sites quickly. 3 So, we would ask for some type of relief in 4 that arena. 5 SENATOR SEWARD: Commercial vehicle, I guess. 6 MARC CRAW: But they can't be like a truck or 7 a vehicle over a certain size, no, that's, you 8 know -- 9 SENATOR MARCHIONE: A vehicle that has a 10 sign? 11 MARC CRAW: Yep. 12 SENATOR GALLIVAN: Well, a vehicle with 13 regular registration plates, as opposed to 14 commercial plates -- 15 MARC CRAW: Correct, correct. 16 SENATOR GALLIVAN: -- for an escort, with an 17 insignia? 18 MARC CRAW: With the insignia, exactly, 19 Senator. 20 SENATOR MARCHIONE: That's a county law, not 21 a state law? 22 MARC CRAW: No, that is a State Department of 23 Transportation regulation, but it applies within 24 certain areas. 25 SENATOR MARCHIONE: God, we must have not had 1 much to do that day. 2 God. 3 The other question I have is on your 4 continuing education that you spoke about. 5 This is education that people in the 6 insurance industry continue to take? 7 Is that what you're telling me; it's 8 education that they seek by -- 9 MARC CRAW: Yes. 10 SENATOR MARCHIONE: -- from -- 11 MARC CRAW: For instance, agents and brokers 12 have a continuing-education requirement. Every 13 couple of years, they have to have X number of hours 14 of continuing education and study. 15 SENATOR MARCHIONE: Are they able to take 16 that on the Internet now? 17 Is that what you're saying? 18 And the difference in the original signature 19 is -- 20 MARC CRAW: They are, but what it is more to 21 is, NYIA, we put on some educational programs, as to 22 the agents, the trade associations, and other 23 groups, and what we find is, it's very burdensome 24 and cumbersome at times to have to get the original 25 signature; whereas, in every other area, people use 1 an electronic signature even, or a copy signature. 2 SENATOR MARCHIONE: So you're getting the 3 signature from the broker? 4 MARC CRAW: Well, the instructor. 5 The instructor, yeah. 6 SENATOR MARCHIONE: Thank you. 7 SENATOR GALLIVAN: Thank you. Appreciate 8 your time. 9 SENATOR GALLIVAN: Dr. Sam, is it, 10 Unterricht? 11 DR. SAM UNTERRICHT: Yes, sir. 12 SENATOR GALLIVAN: Pronounced correctly, sir? 13 DR. SAM UNTERRICHT: Yes, sir. 14 SENATOR GALLIVAN: Great. 15 President of the Medical Society of the State 16 of New York. 17 And we appreciate you being here. 18 We also -- our first hearing actually had to 19 do with health and medical industry, in general, and 20 we had some representatives testify out in Buffalo a 21 couple weeks ago. 22 DR. SAM UNTERRICHT: Yes, Dr. Madejski. 23 SENATOR GALLIVAN: Yes, exactly. 24 DR. SAM UNTERRICHT: Yes. 25 SENATOR GALLIVAN: We appreciate you being 1 here. 2 DR. SAM UNTERRICHT: Thank you. 3 Thank you for inviting us. 4 SENATOR GALLIVAN: Whenever you're ready. 5 DR. SAM UNTERRICHT: Good morning, Senators. 6 My name is Sam Unterricht, M.D. I'm an 7 ophthalmologist from Brooklyn, and I'm president of 8 the Medical Society of the State of New York. 9 The society appreciates the opportunity to 10 testify on behalf of New York physicians regarding 11 the ever-increasing administrative and financial 12 burdens that we face in providing medical care to 13 our patients. 14 We look forward to working with you to lessen 15 these burdens. 16 You have my full written testimony so I'm 17 going to try to condense and paraphrase and -- 18 SENATOR GALLIVAN: Excuse me, just one 19 minute. I'm not make sure that we do. 20 Let me just make sure. 21 DR. SAM UNTERRICHT: I believe it was 22 submitted late yesterday. 23 SENATOR GALLIVAN: We don't have it right 24 here, but, we're checking. 25 Go ahead. 1 DR. SAM UNTERRICHT: We'll certainly make 2 sure that you have it. 3 SENATOR GALLIVAN: Okay, great. 4 DR. SAM UNTERRICHT: So we hope to work with 5 you to lessen all these administrative burdens and 6 financial burdens, and I'm going to try to condense 7 and paraphrase and expand on selected areas. 8 It's important to begin by reminding the 9 Committee that New York is a very difficult state to 10 provide medical care, as well as business, and, our 11 patients, your constituents, expect and deserve the 12 best possible medical care. 13 And, it's very difficult to do this now due, 14 to a variety of factors; the main one is the high 15 cost of medical-liability insurance. 16 In addition, insurance companies continually 17 deny and delay payment for the care that we deliver. 18 We also face the burdens that all other 19 businesses face: extremely high taxes, rising 20 overhead costs. 21 But in addition, there are many state 22 mandates that significantly add to the physicians' 23 burden and take away from the time that we have to 24 deliver patient care. 25 It has been said that the medical industry is 1 the most highly regulated other than the nuclear 2 industry, and I believe that this is true. 3 We need to address these problems if we are 4 to assure that an adequate health-care safety net is 5 available for all the patients in New York State, 6 and hundreds of thousands of more patients are being 7 added through the health-insurance exchanges now. 8 MSSNY recently conducted a survey of over 9 800 physicians in order to get their views on the 10 health-care system in New York State. 11 Over a third of the respondents indicated 12 that they are seriously considering retiring in the 13 next two years; 14 Over 37 percent indicated that they plan to 15 reduce the services that they deliver over the next 16 two years; 17 And 16 percent indicated they were strongly 18 considering leaving the state. 19 Only 35 percent would recommend to their 20 children or young relatives that they become 21 physicians; 22 And only 22 percent would recommend to their 23 medical students that they work in New York State. 24 These statistics are a frightening indictment 25 of our already fragile health-care system. 1 What does this mean, and what can we do about 2 it? 3 First, we need to reform New York's 4 medical-liability system. 5 Physicians in New York State, particularly 6 the ones in the downstate area, are paying 7 extraordinarily high liability premiums in order to 8 open their doors, and these premiums are among the 9 highest in the country; and in many cases, the very 10 highest in the country. 11 Some have argued that the insurance companies 12 were at fault, but, the Department of Financial 13 Services must approve all of these rates. 14 The situation is actually far worse than it 15 would seem, because, despite these astronomical 16 rates, there are several insurance companies in 17 New York that do not have adequate reserves, and 18 there are numerous hospitals that cannot afford to 19 purchase malpractice insurance and are self-insured. 20 This exposes the hospital to bankruptcy if a 21 large award is given, and, also, it exposes the 22 physicians and the patients to inadequate coverage. 23 How high are the malpractice rates? 24 For example, a neurosurgeon in Long Island 25 must pay an astonishing $331,000 for a single year 1 of malpractice coverage. 2 An OBG in Staten Island or the Bronx must pay 3 $192,000. 4 Other high-risk specialties, including 5 cardiac surgery, vascular surgery, reconstructive 6 surgery, bariatric surgery, routinely pay over 7 $100,000 a year just to open their doors. 8 The medical-liability payments in New York 9 far exceed any other states. 10 According to a recent report, over 11 $760 million in medical-liability payments were made 12 in New York in 2011. 13 That's 2 1/2 times what the second-highest 14 state, Pennsylvania, had; 15 And 3 1/2 times higher than California and 16 Florida. And California has about twice as many 17 citizens. 18 New York's per capita medical-liability 19 payment of $38.99 exceeds the second-highest state 20 and the third-highest state, and also Illinois by 21 about three times. 22 New York exceeds Texas and Wisconsin by over 23 10 times. 24 Faced with similar problems, many other 25 states have passed comprehensive medical-liability 1 reform laws, and these states have demonstrated 2 great success in reducing liability-insurance costs. 3 Since comprehensive reform was enacted in 4 Texas 10 years ago, 90 percent of Texas physicians 5 have had at least 30 percent reductions in their 6 premiums. 7 And over the last 10 years, 2,000 New York 8 physicians have moved to Texas. 9 That's 2,000 to Texas alone. Many others 10 have gone to other states. 11 It's noteworthy that, in Los Angeles, in a 12 litigious state, where a strong medical-liability 13 reform was enacted in the mid-'70s, OBGs pay less 14 than a quarter of the premium that OBGs in 15 Nassau and Suffolk pay. 16 Why should New York physicians and patients 17 should be at such a disadvantage is really a 18 mystery. 19 High liability costs also exact a large cost 20 on society at large, because health-insurance 21 premiums and taxes are elevated, and the cost of 22 doing medical care, in general, is elevated because 23 of defensive medicine. 24 Billions and billions of dollars are spent 25 each year on defensive medicine, with the ordering 1 of extra tests and consultations, and various 2 studies have shown that this is very significant. 3 Up to 30 percent of medical costs have been 4 estimated to be due to defensive medicine. 5 A few modest, positive steps have been taken 6 to address this problem, including the 7 Medical-Indemnity Fund passed by the Legislature in 8 2011; and an OCA demonstration project to facilitate 9 early negotiation of medical-liability claims. 10 While these are promising, these programs 11 have not yet produced any tangible premium relief. 12 We must do much more. 13 New York must follow the lead of many, many 14 other states who have passed legislation to bring 15 down the tremendous cost of medical-liability 16 insurance. 17 Some of these reforms include creating 18 alternative systems for resolving medical-liability 19 claims, such as medical courts, and a no-fault 20 system for neurologically impaired infants. 21 We must assure adequate funding for the 22 state-funded excess medical-liability insurance 23 program, and reduce the minimum coverage necessary 24 for obtaining this coverage. 25 We thank the Legislature for rejecting the 1 language proposed in the Governor's executive budget 2 last year -- this year, that would have cut the 3 funding, and limited the coverage to high-risk 4 specialties and only those accepting Medicaid. 5 We need to exact reforms that address some of 6 many flaws in New York's litigation process which 7 promote a very lengthy litigation. 8 For example: 9 We need to identify and assure the quality of 10 expert witnesses; 11 We need to identify the physician that 12 supplies the Certificate of Need -- Certificate of 13 Merit that allows the case to go forward; 14 We need to set reasonable limits on certain 15 non-economic damages, which have been enacted in 16 30 other states -- over 30 other states; 17 Immunizing statements of apology or regret 18 would help; 19 And, immunity for physicians providing 20 pro bono care. 21 Physicians are willing to consider any and 22 all tactics that would reduce liability costs. 23 We need to prevent the expansion of liability 24 because, despite the high cost of insurance, there 25 are those that are pursuing legislation to increase 1 these costs. 2 We urge you to strenuously oppose, as we do, 3 any measures to expand medical liability. 4 For example: 5 There's legislation that would create a 6 date-of-discovery rule; 7 There's legislation that would expand 8 wrongful death and permit pain and suffering in 9 wrongful death; 10 Legislation that would permit the awarding of 11 prejudgment interests on tort claims; 12 Legislation that would eliminate the current 13 statutory limitation on attorney contingency fees in 14 medical-liability cases; 15 And, legislation that would prohibit 16 ex parte interview by defense counsel of the 17 plaintiff's treating physicians. 18 Any one of these would have a calamitous 19 effect on premiums. They vary from 10 to 20 53 percent, each, increase in medical-liability 21 premiums. 22 So, any of these would be calamitous. 23 We need to simplify the administrative 24 burdens that are created by insurance companies. 25 We strongly support legislation or regulation 1 to create administrative simplicity in the 2 submission of claims to facilitate -- and also to 3 facilitate requests for needed patient care. 4 We're deluged by requests for authorizations 5 for care and medical-necessity determinations. 6 And greater uniformity would produce 7 tremendous savings in the health-care system. 8 A study showed that physicians are spending 9 about three weeks, each, annually, on administrative 10 tasks required by health plans, with a cumulative 11 cost of $31 billion, and a per-physician cost of 12 $70,000. 13 We would support the following reforms: 14 That claim forms to Medicaid, worker's comp, 15 no-fault, and commercial health insurance should be 16 uniform. 17 Right now they each have their own forms, 18 their own rules, it's very complex, and it takes a 19 lot of time to fill these forms out, and a lot of 20 staff as well. 21 In 2010, worker's comp created a new form 22 that was so complex, that an avalanche of physicians 23 just left the entire system. 24 Fortunately, they came to their senses and 25 they're reforming their forms. 1 And we would ask that all the insurance 2 companies and all the agencies adopt a standard 3 form. 4 Also, we're asking for a standard -- for a 5 law mandating the use of a uniform 6 prior-authorization form for prescriptions and for 7 medical care. 8 Again, all of these are different now, and 9 we're deluged now with all the insurance companies 10 asking for prior authorization for medicines that 11 last year were covered without any problem. 12 We need to reject any new mandates. 13 Physicians are swamped with costly mandates 14 from the State that interfere with our timely and 15 quality patient care, and drive up the cost of 16 health care. 17 We opposed a proposal that's being considered 18 by the State Public Health and Health Planning 19 Council that would require physicians to participate 20 in a Certificate of Need program if they wished to 21 perform certain medical procedures. 22 We should be reducing the Certificate of 23 Need. 24 The Department of Justice and other agencies 25 have said that the Certificate of Need program is 1 anticompetitive and raises the cost of medical care. 2 And we agree with that. 3 It disadvantages small providers, because the 4 cost of doing a Certificate of Need is so great that 5 it eliminates the small providers from the playing 6 field, and only large providers, large groups, and 7 hospitals can do Certificate of Need. 8 We oppose proposals that would mandate 9 physicians to adopt the interoperable electronic 10 medical-record system and participate in SHIN-NY as 11 a condition of practicing. 12 And we oppose legislation that would mandate 13 course-specific continuing medical education; for 14 example, pain-management courses. 15 Physicians should be able to choose the 16 courses that they need and that are appropriate for 17 their practices. 18 Again, the Medical Society appreciates your 19 efforts to identify ways to reduce administrative 20 burdens in the delivery of health care, and, we hope 21 that the physicians and patients are in a better 22 position to enjoy quality and timely health care in 23 the future. 24 I would be happy to answer any questions that 25 you have. 1 SENATOR GALLIVAN: Thank you. 2 I only have one question. 3 You made reference to reforms in California 4 and Texas, and maybe other states that I missed. 5 Was there any other things that they may have 6 done that was not included in your testimony with 7 your recommendations? 8 Reforms in other states, not included in all 9 the things that you have gone through, if you know? 10 DR. SAM UNTERRICHT: There were 30 -- there 11 are over 30 other states have had a cap on liability 12 for non-economic damages. 13 Many other states have had comprehensive 14 reforms, which include that, and a variety of other 15 reforms. 16 We can get you details on what's been going 17 on in other states. 18 SENATOR GALLIVAN: No, we're able to look 19 that up. 20 The question crossed my mind right when you 21 made reference to the other states, and then, of 22 course, you went into detail with your 23 recommendations. 24 I was wondering if they were one and the 25 same, but we can follow up on that. 1 Thank you. 2 Senators? 3 Senator Seward? 4 SENATOR SEWARD: Yeah, I would just make a 5 brief comment or two to your testimony. 6 I think -- number one, I think your clear 7 message is, do no harm, or do no further harm, in 8 terms of additional, either legislatively or through 9 the regulatory process, in terms of aggravating, 10 number one, medical-liability insurance rates, which 11 are a serious problem, and, also, just the cost and 12 difficulty of rendering medical care in 13 New York State. 14 Do no harm, I think, is a good way to 15 summarize much of your testimony. 16 And, with the -- in terms of some reform, 17 we're basically talking about tort reform here, 18 would you say? 19 DR. SAM UNTERRICHT: Yes, medical-liability 20 tort reform. 21 SENATOR SEWARD: Has a direct impact there, 22 because of the fact that the lack of serious tort 23 reform has -- is reflected in high medical-liability 24 rates? 25 DR. SAM UNTERRICHT: Yes, that's true. 1 SENATOR SEWARD: Insurance rates; that's a 2 given. 3 And, now, with the effort a couple years ago 4 with the -- I forget the exact fund that was set up 5 in terms of the neurologically impaired infants, you 6 see no -- you and your members have seen no impact 7 at all there? 8 DR. SAM UNTERRICHT: No. 9 The rates for neurosurgeons have gone up. 10 And for OBGs, of course. 11 There really has been no significant benefit 12 in premium rates. 13 SENATOR SEWARD: I see. 14 And I think your testimony, on terms of more 15 uniformity in terms of the forms that are required, 16 that I think would streamline the process 17 considerably in terms of making claims? 18 DR. SAM UNTERRICHT: Yeah, the administrative 19 burden is very high. Most physicians need about 20 four employees for each physician in order to do all 21 the paperwork, and it's a tremendous burden. 22 SENATOR SEWARD: They're not at the side of 23 the patient; they're at a desk? 24 DR. SAM UNTERRICHT: They're at a desk, just 25 getting authorizations, and filling out forms, and 1 calling insurance companies. 2 And, yeah, it's a big administrative burden. 3 SENATOR SEWARD: I know whenever I tour the 4 hospitals in my area, I know there are a lot of 5 people with "RN" on their name tag which are nowhere 6 near patients. They're also at desks, filling out 7 papers, primarily for, I guess, the State Health 8 Department. 9 Well, thank you very much. 10 SENATOR GALLIVAN: I actually do have one 11 other question. 12 You spoke at the beginning of your testimony 13 about delayed insurance payments. 14 Those might not have been the exact words, 15 but, payments for services from insurance companies. 16 Can you elaborate? 17 DR. SAM UNTERRICHT: Yes, insurance companies 18 are extremely clever and active in coming up with 19 ways to delay payments and deny payments. 20 They each have their own rules. 21 They follow Medicare rules when it's 22 convenient for them, and then they come up with 23 their own rules whenever they want to. 24 So every company has a different set of rules 25 as far as, which conditions they'll cover, which 1 diagnosis codes they'll cover, which procedures 2 they'll pay for, what bundle -- what procedures they 3 bundle. 4 So, you know, they always have gotchas that 5 they're constantly changing, you know, so that a 6 procedure that was covered one year, next year is 7 not covered, or the next week is not covered. 8 They -- each patient's contract also has all 9 sorts of different rules and regulations and 10 gotchas, which they can change constantly. 11 The patient may have, once a year, that they 12 can change coverage; 13 Whereas, the insurance company can change the 14 rules anytime, and they do, so that, all of a 15 sudden, a procedure is no longer covered; or it 16 suddenly requires prior authorization or permission 17 or a referral form. 18 It's endless. 19 You know, once you learn how they handle one 20 problem, they come up with another way to cause 21 delays and denials. 22 SENATOR GALLIVAN: Well, I recognize this 23 might -- this is likely cumbersome. 24 I mean, do you have the ability to say that, 25 I am not going to deal with any patients who have 1 insurance from Insurance Company A? 2 DR. SAM UNTERRICHT: Theoretically, the 3 physician has that ability, but, in actual fact they 4 really don't, because in almost every county in the 5 state, there are one or two insurance companies that 6 have the market, and, they have the lock on that 7 particular area, having 25, 40, 50, 60, 70 percent 8 of all the patients in a given area, so that if the 9 physician says, "Well, I'm not going to participate 10 in your company," they say, Okay, take it or leave 11 it. The guy down the street is going to take our 12 patients, and you can take the remaining 20 percent 13 of the patients. 14 So, really and truly, physicians don't have 15 any say. 16 We don't have the ability to competitively 17 bargain with any of these insurance companies. 18 Right now it's against the law. 19 We're trying to get collective negotiation in 20 New York, and that would be a great way to level the 21 playing field. 22 SENATOR GALLIVAN: Yeah, we're familiar with 23 that there's some proposed legislation. I forget 24 the number, but, we're aware of that. 25 SENATOR VALESKY: I think it actually passed 1 in the Senate at least once. 2 SENATOR GALLIVAN: Has it passed in the 3 Senate? 4 SENATOR VALESKY: At least once. 5 SENATOR GALLIVAN: Are you guys good? 6 SENATOR VALESKY: Just one, quick. I wasn't 7 going to have a question, but just a quick point 8 here, if you could, and if you don't have it now, 9 that's fine. 10 One of your recommendations, where you're 11 talking about enacting reforms to address some of 12 the flaws in the litigation process: 13 Point Number 5: Immunity for physicians 14 providing pro bono care. 15 If you could just get us some information as 16 to whether that's becoming -- physicians providing 17 pro bono care is becoming more common. 18 And if -- what, if anything, other states 19 have done on this issue. 20 I'm asking because of a local situation in my 21 hometown, actually, but I am curious to know from 22 your perspective, any information that you have on 23 that particular item. 24 DR. SAM UNTERRICHT: We would be happy to, 25 because a lot of physicians do provide pro bono 1 care, and there are many retired physicians who 2 would love to provide pro bono care, but they can't 3 get malpractice coverage. 4 SENATOR GALLIVAN: Thank you, sir. 5 DR. SAM UNTERRICHT: Thank you, Senators. 6 SENATOR GALLIVAN: Paul, I don't even want to 7 try your last name. I'm sorry. 8 PAUL MACIELAK: It's a Polish name, you 9 should know it. 10 SENATOR GALLIVAN: How do you pronounce it? 11 PAUL MACIELAK: Macielak. 12 SENATOR GALLIVAN: Paul Macielak, New York 13 Health Plan Association. 14 Thank you, Paul. 15 When you are ready. 16 PAUL MACIELAK: Senators, thank you for the 17 opportunity to appear. 18 I represent the Health Plan Association, 19 umbrella trade association for the health plans in 20 the state. 21 We represent national carriers like Aetna and 22 United; regional plans like Independent Health, 23 BlueShield of Western New York, MVP, CDPHP. 24 We represent almost all of the prepaid health 25 plans; the government program plans like 1 HealthFirst, Infinity HealthCare, MetroPlus, and a 2 number of the managed long-term-care plans that are 3 very front and center right now, in terms of some of 4 the new Medicaid reform efforts. 5 Unlike my brethren in the life and 6 P&C sectors, the health-insurance sector has, in a 7 way, gone through some regulatory and statutory 8 reform as a part of implementation of the 9 Affordable Care Act. 10 The federal government having set various 11 standards for the implementation of the exchanges, 12 New York had to come into compliance in how to align 13 its state statutes and regulations with the federal 14 rules. 15 As a result, in this past year's budget, you 16 adopted a number of statutory changes which affected 17 statutes and regulations, things that we had haggled 18 about with the agencies for any number of years. 19 So I'll give you two quick examples. 20 HMOs had very restrictive cost-sharing, and 21 we would say, Geez, they're competing against 22 insurance companies, not HMO-licensed companies, but 23 insurance companies that had more flexibility in 24 cost-sharing, and how were we supposed to design 25 products for small businesses with these restrictive 1 settings? 2 The Health Department took a very narrow 3 position in terms of co-pays and cost-sharing, and 4 it was hard for those HMOs to compete; therefore, 5 HMO enrollment in the state was declining over the 6 last few years. 7 Lo and behold, the ACA comes into effect. 8 We now go to set up our state exchange, and 9 the State realizes it needs to level the playing 10 field so HMOs and health-insurance plans can compete 11 on an equal field, and those rules got changed. 12 So, now, HMOs have more flexibility in their 13 co-pay and cost-sharing design. 14 Similarly, there was a reg called "Reg 146," 15 that was a big risk-adjustment program that plans 16 had to deal with in terms of the old DOI, and now 17 DFS. 18 And, for years, I mean, we dealt with it. It 19 became very cumbersome, time-consuming, costly, and 20 every few years, we'd go through a big go-round, 21 trying to resolve how a payment would be made, and 22 then everybody would say, We're going to change the 23 regulation, going forward; update it. 24 We never did; we'd go on to the next crisis. 25 Well, the ACA solved that one for us, too, 1 because we've now moved to a federal methodology, 2 cleaner and simpler, so Reg 146 is going to be 3 phased out. 4 It doesn't mean that there still aren't 5 regulations that we need to look at in terms of 6 reform. 7 So what I would posit for all of you is: 8 Section 52.42(e), which deals with broker 9 compensation for HMOs. 10 Today that is capped at a 4 percent level of 11 compensation. 12 Insurance-licensed entities have no cap in 13 terms of their broker-agent compensation. 14 There's also rules and definitions that go to 15 supplemental compensation, the definition of 16 "services" when you're computing, you know, those 17 commissions, and, there's a difference between the 18 HMO broker and the insurance company rules. 19 So, we had testified about this back in 2008. 20 The old DOI and the AG had a hearing on 21 broker compensation and all these rules, and we had 22 made the pitch: Level the playing field. Either 23 cap everybody at the 4 percent, same definitions, or 24 uncap them and use the same set of definitions. 25 2008. 1 We're sitting here today, still not changed. 2 So we would say, that is something that 3 should be looked at in terms of a regulatory change. 4 Second proposal deals with Part 98. That's 5 the regulation for Medicaid-managed care plans. 6 Today, a Medicaid-managed care plan that 7 might subcontract with another entity, like a 8 Magellan Health or ValueOptions, to do behavioral 9 health services, those agreements are subject to 10 what's called a "management-services review." 11 It's like a full review by the Department of 12 Health on that agreement. 13 But there also is a character and competence 14 review, and there also is a requirement that this 15 vendor get a utilization-review state certification. 16 So you have to go through, like, three 17 separate processes for every one of these kind of 18 contracts. 19 The backlog today is anywhere from six months 20 to a year for one of these contracts to work its way 21 through the process. 22 In particular, the character and competence 23 component of it for a big company, like a 24 ValueOptions or an OptimumHealth, that operate in 25 20 or 30 other states, require them to go back to 1 those 20 or 30 other states to get documentation in 2 original form and submit it to the Health Department 3 for that to be accepted for their character and 4 competence to operate here in New York State. 5 The character-and-competence staff of DOH, on 6 my information and belief, consists of one person; 7 so one person is responsible for reviewing all the 8 agreements in terms of character and competence and 9 going through all the process. 10 They don't have sufficient staff to meet with 11 what the requirements are of the regulations that 12 they've imposed on the plans. 13 That delay is causing problems for plan 14 operation in terms of delivering service in 15 New York State. 16 So we would propose either, you know, 17 additional staffing, or come up with alternative 18 regulatory processes, so that character and 19 competence, you could have a submission by the 20 applicant; you could have it under penalty of 21 perjury; you could have post-approval audits, if you 22 will; you could attach penalties to, you know, any 23 discrepancies that you found; but there are 24 alternative solutions to the current process. 25 Third issue I wanted to raise deals, once 1 again, with that Part 98 Reg, and that deals with 2 reserves. 3 So, today, for government programs, like 4 Medicaid-managed care, Medicaid Advantage, 5 Family Health Plus, the reserve level is set at 6 7.5 percent for premiums. 7 However, for managed long-term care and 8 PACE plans and Medicaid Advantage Plus plans, the 9 reserve level is set at 5 percent, not 7 1/2. 10 Yet, if you go over to the commercial side of 11 the equation for commercial health plans and for 12 Medicare, the reserve level is 11 1/2 percent. 13 So we've got, like, three different levels of 14 reserves that plans are trying to meet in terms of 15 functioning here in New York. 16 Now, why this is a problem that's about to 17 come to a head, is that New York are looking to move 18 our dual-eligible population. It's older people 19 that are in nursing homes, also have Medicare 20 services, are trying to blend those programs 21 together. 22 So Medicare's got an 11 1/2 percent reserve 23 level, the person -- the Medicaid person in the 24 nursing home is going to be dealing with a 5 percent 25 reserve level, and we need to figure out some sort 1 of a rational agreed-upon level for the reserves for 2 that particular program, in particular. 3 Tied in with that, and Senator Seward would 4 be aware of it, the NAIC has a model regulation for 5 reserves. It's called "risk-based capital." 6 That's something that's been kicking around 7 for a number of years. 8 And, rather than the state's current 9 statutory 11 1/2 percent, we think that we ought to 10 be looking at NAIC risk-based model. It's more 11 flexible, its more modern, probably better 12 accommodates what's happening with health-insurance 13 companies and their various licenses. 14 So that's what we would offer there. 15 Final program I want to address is the 16 Health Insurance Antifraud Advertising program. 17 I think Pete Garnett might have been with the 18 Insurance Committee in the Assembly when it was 19 adopted, and I think it was modeled, or thought of 20 to model, after the auto-insurance 21 advertising-program antifraud effort. 22 So it required plans to develop an 23 advertising program, submit it to the State for an 24 approval; then to expend the money, run the plan; 25 then do filings with the State thereafter in terms 1 of what the result was. 2 As it applies to the health-insurance sector, 3 I mean, what's happened over the years is, the plans 4 have ultimately gotten together, and it's almost 5 like an aggregation of the plan monies. A third 6 party is used to purchase the advertising. 7 It's pretty innocuous. 8 There really isn't, in our belief, any 9 perceived value or any perceived result of the ads 10 that have been run. 11 So we would recommend that that be, 12 basically, eliminated. 13 Whatever the funding was from that could be 14 put into, you know, planned fraud efforts in terms 15 of their SIU units internally, and in working either 16 with the Office of the Medicaid Inspector General or 17 with the SF in terms of fraud and abuse billings. 18 Final point I would want to raise, is that -- 19 no. 20 While there are a number of regulations, 21 there are also, from the various agencies, guidance, 22 in terms of implementing programs, or, the use of 23 circular letters. 24 I know a couple of prior speakers mentioned 25 them. 1 There's also what's known as "desk-drawer" 2 rules that are utilized by the Department of 3 Financial Services. 4 And those all have an impact as well on 5 what's happening in the marketplace. 6 A simple example you're all gonna be aware of 7 today, in terms of coach guidance, is the early 8 intervention program, which there's been a lot of 9 turmoil about. 10 That got adopted in last year's budget, and 11 it was implemented with a fiscal intermediatory. 12 The State Department of Health ruled out 13 their program. 14 There was no regulation, no emergency 15 regulation. There was no opportunity for public 16 comment. There was no plan input into what came 17 out. 18 And what ultimately came out requires health 19 plans to pay the provider and send a separate 20 remittance back to this fiscal intermediary. 21 Well, health-plan IT systems haven't been 22 designed for it. They do not have the ability, as 23 we sit here, to do that, but nobody ever talked to 24 the plans. There was no ability to do it; hence you 25 have, you know, providers not getting paid on the 1 EI side because the remittances haven't been, you 2 know, calculated correctly. 3 There's also been a conflict with DFS rules, 4 in terms of non-par providers, in terms of what 5 happens to those checks, and, what the rules are at 6 DFS versus what DOH was rolling out. 7 It doesn't appear there was a lot of 8 coordination between those two agencies, even on 9 that rollout. 10 But that I just offer as an example of 11 guidance that sort of runs below the regulatory 12 radar screen. 13 So I guess, in conclusion, I would say, you 14 know, the ACA did force regulatory reform already as 15 it applies to the health-insurance sector. 16 There still is a need for some review of 17 existing regs, and we offered a couple of 18 suggestions there. 19 And as importantly, I would say be aware of, 20 you know, the guidance and Circular Letter-approach 21 that are still used by agencies in implementing 22 various programs. 23 Thank you. 24 25 1 SENATOR SEWARD: Yeah, just a couple of 2 points for you, Paul. 3 You know, you've offered some very good 4 specifics here in terms of items that needed -- that 5 continue to need attention. 6 The -- I would like your thoughts regarding, 7 Dr. Unterricht had mentioned about the more uniform 8 claim forms as being a benefit to the providers of 9 care, you know, in terms of making their claims. 10 What is -- what's your thoughts in terms of 11 about a more uniform claim-form process in the 12 state? 13 PAUL MACIELAK: I don't want to contradict 14 the doctor, but, the uniform prior-auth form for 15 pharmacy I think that was alluded to, that has been 16 adopted. That was a state requirement. We worked 17 with the Health Department. 18 And for pharmacy, a uniform 19 prior-authorization form has been adopted. 20 In terms of his comment about plans being 21 clever, in terms of coming up with different rules 22 and gotchas to avoid payment, I mean, to that end, 23 as you're aware, I mean, the Prompt Pay Law, you 24 know, clearly acts as the backstop there, in terms 25 of making sure that it's a clean claim, and that it 1 is paid within either 30 or 45 days. 2 So in both of those regards, I mean, I think 3 the system has already moved forward. 4 His comment about, you know, a couple of 5 plans, your ability to say no to a health plan, you 6 know, if you don't like the rules, to that end, 7 I would just point out that, in terms of market 8 share, the ACA and the implementation of the 9 exchanges have brought a number of additional health 10 plans into the marketplace, so there are now more 11 plans competing for business. 12 So -- and as a part of that competition, 13 they're trying to get doctors into their networks, 14 because the state has network-adequacy rules, and 15 also to appeal to consumers. 16 So there is pressure on plans to try and 17 accommodate physicians, to get them into the 18 network, and come up with rules or systems that keep 19 them happy, if you will, to participate with them, 20 and then to use that as a selling point with the 21 consuming public. 22 SENATOR SEWARD: Now, as you point out, there 23 are some -- some claim forms have been -- have 24 become more uniform. 25 Are there still others that out there that 1 could be made more uniform? 2 PAUL MACIELAK: I don't think it's really as 3 much the claim form itself. It's more of what 4 are -- what are -- might be rules surrounding it, 5 and that goes to, you know, sort of the market and 6 market innovation. 7 So you have, you know, whether it's bundling, 8 or whether it's medical-necessity review, etc., 9 while, the physicians, everybody wants a 10 cookie-cutter one set of rules, you can have that 11 today with, be it Medicare or Medicaid. 12 The problem with that is, is that nobody's 13 got the best mousetrap, as we sit here. 14 And, you, as well as us, try and develop 15 innovative products or innovative approaches to 16 avoid, you know, unnecessary testing, duplicative 17 testing, abuse of billing, you know, all those types 18 of things. 19 And that's what plans spend a lot of time on, 20 trying to come up with to be most efficient and 21 become, you know, most cost-effective. 22 So that I think is some of the innovation 23 that you still want to have happen. 24 I mean, part of the whole state move today, 25 to move from Medicaid fee-for-service to 1 Medicaid-managed care, is to have plans do some 2 things that the State wasn't able to do, because the 3 plans can be more efficient, more effective, in 4 terms of trying to rout out waste or fraud or get 5 better bang for the buck. 6 So that I think is some of the conflict, or 7 tension, that's going to exist. 8 SENATOR SEWARD: Just one final question: 9 In terms of the prior-approval process that 10 was done by statute, what, 2009 or '10, and, do you 11 have any thoughts in terms of the implementation of 12 that, or any kind of regulatory issues surrounding 13 the prior-approval process in New York? 14 PAUL MACIELAK: Yeah, going back to its 15 original adoption, I mean, our problem with it is, 16 is that it leaves to the superintendent, like, total 17 unfettered discretion in terms of determining what's 18 equal to best interests for the public, or for the 19 people of the state of New York. 20 So while there is, you know, a requirement 21 that you have a medical-loss ratio, and that you pay 22 82 cents on the dollar for medical care, and, you 23 know, no more than 18 cents for administrative, 24 profit, taxes, all of that, and, you have a back-end 25 formula as well to say, If you don't hit those 1 numbers, you've got to rebate that money back to the 2 consuming public, that acts as sort of a formula to 3 ensure that the rate is going to be the right rate, 4 you know, going forward. 5 You still have this total discretion, so no 6 matter what we submit, the superintendent's got the 7 ability to say, the rate's too high. You know, we 8 want to lower the rate. 9 So, you know, it's our view that, you know, 10 the State could move to either, you know, the 11 formula determination of what the rate is, or, 12 alternatively, at least put some construct or some, 13 you know, some constraint in terms of that 14 unfettered discretion in terms of the 15 superintendent. 16 SENATOR SEWARD: So you say there's maybe a 17 lack of regulation in that area, as far as, I mean, 18 what the rules are? 19 PAUL MACIELAK: Statutory oversight, yeah. 20 SENATOR SEWARD: Yeah, yeah, yeah, 21 interesting. 22 Okay, thank you. 23 Thank you very much. 24 SENATOR MARCHIONE: I just have one question. 25 Under -- you discussed reserves; you said 1 there were different levels of reserves. 2 How did we get to those different levels? 3 Is there a reason for that? 4 Is there a reason why there's a 5 7 1/2 percent, 5 percent and 11 percent? 6 PAUL MACIELAK: Some of it, it's historic in 7 terms to when programs started. 8 Some of it is -- well, I'll give you an 9 example. 10 I mean, some of it are for the government 11 programs, as an example. 12 So, the State is paying the health plan sort 13 of a premium, or the rate. And then the plan is 14 paying the providers, taking money for 15 administrative costs, and putting some money for the 16 reserves. 17 Well, when the state budgets are tight, and 18 the State is looking to constrain Medicaid spending, 19 they're looking to pay the health plans less for the 20 premium. 21 So one place you could squeeze down on how 22 much premium you're going to pay is, we'll lower the 23 reserve. 24 So instead of having an 11 1/2 percent 25 reserve for Medicaid-managed care, we'll have 1 7 1/2 percent. The state just saves, I don't know 2 how many millions of dollars. 3 For some of the other programs, they were new 4 programs, and when people started, people -- they 5 would set a lower reserve level because the 6 companies were just getting formed. It might have 7 been a new company, it didn't have that much money 8 in terms of what was coming in, in terms of setting 9 the reserves, so it was viewed as, okay, we'll start 10 here, and we'll look to ramp it up. 11 Well, the ramp-up, maybe, did not occur over 12 time. 13 SENATOR MARCHIONE: So it's not tied to 14 anything statistically? 15 We just pull these numbers out -- 16 PAUL MACIELAK: Some of -- yeah, some of the 17 numbers you couldn't find a great background or 18 rationale for it. 19 I mean, even the state commercial rate at 20 11 1/2 percent, I mean, that tracks back to the 21 insurance, I think it was the Article 42s were at 22 12 percent. 23 And that's how we started moving the HMOs, 24 and the PHSPs are supposed to move up to that 25 number. 1 That's why I raised the risk-based capital as 2 an alternative approach, because that, I think, has 3 been scientifically, or statistically, reviewed by 4 the insurance superintendents nationally, and they 5 came up with a model act. 6 SENATOR MARCHIONE: Thank you. 7 SENATOR GALLIVAN: Thank you very much. 8 PAUL MACIELAK: Thank you. 9 SENATOR GALLIVAN: Life Insurance Council of 10 New York, Thomas Workman, president & CEO. 11 When you're ready, Mr. Workman. 12 THOMAS WORKMAN: Good morning. 13 Pardon me. 14 I appreciate -- we appreciate this 15 opportunity to appear before you today. 16 LICONY is the trade organization representing 17 the life industry doing business in New York State. 18 Of the 69-member companies, 50 of them are 19 domiciled in New York and 19 are domiciled outside 20 New York. 21 These companies write a very large proportion 22 of the life, disability, long-term-care insurance 23 and annuities in New York, as well as across the 24 country. 25 I'm here today because LICONY has been 1 invited to provide you with its views regarding the 2 regulatory environment, including its views on 3 actions that can be taken to improve the business 4 climate so that LICONY members can grow their 5 businesses and provide more insurance protection and 6 financial security and independence for the citizens 7 of New York. 8 So, we appreciate your invitation. 9 The life-insurance industry makes major 10 economic contributions to New York and to the 11 United States. 12 We were struggling a bit to get numbers, for 13 certain, from the Department of Tax and Finance. 14 The last most-recent published they had was 15 2008, so we did a little projecting off of 2008 to 16 get a couple of these numbers. 17 We believe that approximately $140 million 18 was paid in taxes in '11, and $100 million -- hard 19 for us to believe -- 100 million in Section 206 20 assessments, and I'll address that a little bit 21 later in my remarks. 22 The life industry also had invested 23 $364 billion in New York State in 2011, and paid out 24 $26 billion in benefits and other payments to 25 New Yorkers. That's about $500 million a week. 1 The life industry has 30,000 employees, 2 approximately, in New York; and 75,000 agents that 3 sell their products. 4 While all those statistics are important, the 5 most important point, from our perspective, is that 6 New Yorkers need more life insurance, more 7 annuities, more long-term-care insurance, and more 8 disability-income insurance. 9 Accordingly, our state government should be 10 doing everything possible to make it easier for 11 New Yorkers to secure this critically important 12 protection. 13 It often seems that very few outside the 14 life industry comprehend the extraordinary 15 importance of life insurers and their products to 16 individual Americans, to their families, to their 17 businesses, and to our government, and, actually, to 18 our country as a whole. 19 I want to just digress for just a moment, go 20 off the text here, and just observe that, that as we 21 think about this, we, of course, naturally, in a 22 governmental context, there are individual issues: 23 There are regulatory issues. There are legislative 24 issues. There are problems that people identify and 25 want to deal with. 1 But oftentimes those, the trees, get in the 2 way of the forest; that is, there is a lack of 3 appreciation on the part of policymakers and 4 government officials, oftentimes in general, to 5 really appreciate the importance of more of our 6 citizens having more of this protection. 7 The more protection they have to take care of 8 the loss of a loved one, breadwinner in the family, 9 to assist a company to survive having lost a key 10 employee, the more of that coverage there is, the 11 less burden there is on the very government that 12 makes these rules and regulations. 13 So we believe that the overarching 14 consideration you need to have in mind is, What can 15 we do to help New Yorkers, more New Yorkers, have 16 this protection? 17 This protection is critically important. 18 It will enable children to go to school, to 19 college. It will pay mortgages and help the 20 surviving spouse to stay in the home. It helps the 21 business remain in business. 22 So, this is the overarching consideration. 23 I know I get a lot of, sort of, from my own 24 staff, they will often say, Well, don't you have 25 your rose-colored glasses on when you're saying that 1 you're waiting for the day when government officials 2 come to you and say, "How can we help you get more 3 of your product sold?" 4 Well, actually, the fact is, that does occur 5 on occasion, but, that's a key point. 6 And, so, when we're thinking about 7 regulating, when we're thinking about legislating, 8 let's think about the long-term effect, and let's 9 recognize that many people need this coverage that 10 don't have it, so we shouldn't be imposing 11 impediments to them getting it, and getting it 12 readily. 13 I do have a few suggestions outlined in my 14 testimony, three of which are in the form of 15 Senate bills as they exist today, but before 16 commenting on those, I want to just recognize that 17 we very much appreciate the fact that the Senate has 18 been one of the most effective segments of 19 New York State government in adopting legislation 20 that fosters more of this protection for 21 New Yorkers; so we appreciate that very much. 22 Also, one other preparatory remark, and that 23 is, that when we are putting together our 24 affirmative, legislative, and regulatory programs 25 each year, one of the -- another overarching points 1 that we have to think about is uniformity to the 2 extent possible across the country, because, quite 3 often, New York is the exception to a national rule. 4 And when that happens, that adds expense, it 5 adds operational burden, and it also has the effect 6 of making it a little harder for people who need the 7 protection to actually get it. 8 So, accordingly, oftentimes our proposals 9 center on NAIC; that is, the National Association of 10 Insurance Commissioners, model laws and regulations; 11 the National Conference of Insurance Legislators and 12 their model laws; because they oftentimes provide a 13 national standard. 14 Many of our members, to state it simply, 15 endure regulations in the state of New York, which 16 are more restrictive, expensive, and inconsistent 17 with the regulations in the other 49 states. 18 The three bills that I want to mention today 19 as examples of important steps that the Senate and 20 the Legislature can take, is adopting, first, an 21 amendment to New York Insurance Law that would 22 enable the use of the NAIC model-replacements 23 regulation. 24 Right now, we have language in existing law 25 that prevents that from happening. 1 The regulation we currently have is Reg 60. 2 Reg 60, by many, both as regulators and 3 legislators, have said it's broken, it doesn't work. 4 It requires a tremendous amount of 5 information to be provided to the consumer, and the 6 consumer is swimming in this information and does 7 little with it, and, actually, seldom fully 8 appreciates the real meaning of it. 9 So it's an antiquated, out-of-date 10 regulation, needs to go away, but it can't go away 11 unless this amendment is adopted to existing law. 12 So -- so that would be a major step forward, 13 just for, not only for our companies and agents, but 14 for the people who are buying the product. 15 Oftentimes the individual has to wait for 16 sometimes a month before they can complete the 17 transaction if they happen to be replacing an 18 existing product, and during that month, their 19 health condition can change; 20 Or, if it's an investment-type product, the 21 investment circumstances may change and be quite 22 unfavorable by the time they ultimately get the 23 product in place. 24 So for those reasons, this really needs to be 25 fixed. 1 Next is the adoption of the interstate 2 product -- Interstate Insurance Product Regulation 3 Compact. 4 This is a compact that has been adopted in 5 43 states. It provides a uniform, simple 6 policy-form approval process that provides 7 uniformity. 8 So, you have -- and, also, if New York were 9 to adopt this -- 10 And by the way, this legislation has passed 11 the Senate at least three times, maybe even four. 12 I've kind of lost track, so, we need to kind of work 13 on that other House. 14 -- but, nonetheless, it is something that, if 15 it passed, New York would automatically become a 16 member of the commission; and because of that, 17 New York would have a lot of influence over what 18 those standards ultimately would be. 19 And the truth is, that New York has 20 informally assisted the commission in some respects. 21 So, again, this is something that would be 22 very helpful. It would streamline, it would 23 simplify, and something that we hope that, 24 ultimately, can be accomplished so we can join the 25 other 43 of the other 50 -- of the other states. 1 Well, I guess if we could get it to 44, that 2 would be a good thing. 3 And then, thirdly, is the redomestication 4 law. 5 We have an interesting situation in New York. 6 We have half of the NAIC model 7 redomestication law. 8 We have the half that says -- that tells how 9 companies outside New York can redomesticate in to 10 New York, but we don't have the other half that 11 would enable a company to redomesticate out of 12 New York. 13 And as we often within LICONY refer to it, 14 it's kind of like Hotel California; you know, you 15 can check in, but you can't check out. 16 Now that, on its face, would make you think, 17 Gee, you know, I don't know if I want to support 18 legislation that would facilitate companies leaving 19 New York. 20 But, in fact, it's counterintuitive, because 21 what really it does, is it's saying to people who 22 are thinking about moving into New York, Hey, you're 23 not going to get stuck. This is an opportunity, 24 there's a business opportunity, to come to New York 25 and sell these products, make a bigger, better 1 marketplace for consumers, and then you don't have 2 to worry that you're going to be legally limited in 3 the future. 4 So, it actually is something that helps cause 5 more jobs, more business to come to New York, 6 because those companies will feel more at ease 7 taking the risk. 8 There is a reputation that New York has for 9 very onerous statutes and regulations and regulatory 10 environment, and so companies that are not sure are 11 going to stay out, unless they have some flexibility 12 going in. 13 So, we really hope that that, too, gets 14 serious consideration. 15 There is a fourth area, and that is something 16 that has been around for quite a while, and, in most 17 recent times, has been quite onerous for insurers, 18 all insurers; that is, domestic, property/casualty, 19 life, health, etc., and that is 206, or Section 206 20 assessments. 21 These are assessments that originally were 22 intended to be strictly for the purpose of funding 23 the regulator; in this case, the Department of 24 Financial Services, but in more recent times, it has 25 been expanded, and -- to fund other programs that 1 are unrelated to regulating insurance. 2 It becomes sort of an opportunity to gather 3 money from someone else that doesn't really have any 4 real relevance to the program you're interested in. 5 So -- or to put it more simply, insurers have 6 become a funding source. 7 There are other ways I could describe that, 8 but I'll just say, a funding source for programs 9 that are unrelated to insurance regulation, and as 10 that evolves, and grows, more and more expense. 11 So this year -- I'm sorry, in 2011, that 12 number had grown to $400 million in assessments, and 13 that is more than double what it was just a few 14 years ago. 15 Our companies, in one year, got a dramatic 16 doubling of this fee some years ago. 17 So, that is a problem, and we would hope in 18 the budgeting process that that will get serious 19 attention. 20 Finally, with respect to your inquiry about 21 the regulatory environment for life insurers in 22 New York, I begin by stating, unequivocally, that 23 the Department of Financial Services is filled with 24 highly talented executives and operating officials. 25 We appreciate their availability to meet with 1 LICONY and its members on, virtually, any and all 2 matters relating to the business of life insurers. 3 That said, it would be helpful to receive 4 prior notice of significant regulatory actions or 5 policies affecting life insurers, as that would 6 enable LICONY to provide meaningful, practical 7 comment before formal action is taken. 8 The adoption of regulations through emergency 9 promulgation and the use of Section 308, not just 10 for information gathering, but also to establish new 11 requirements, sometimes prevents the department from 12 receiving valuable input from the public and 13 industry before action is taken. 14 Accordingly, a change in regulatory practice 15 in this regard would be helpful in improving the 16 reputation of New York State among insurers; and, 17 thereby, making New York a more attractive place to 18 offer the protection that many, many New Yorkers 19 need badly. 20 Thank you very much for your time. 21 SENATOR GALLIVAN: Thank you. 22 I understand -- I only have one question, and 23 it actually has to do with right -- with the very 24 last part of your testimony. 25 I understand the concern about the emergency 1 promulgation of regulations. 2 I'm not familiar with Section 308. 3 I've not served on the Insurance Committee, 4 so this is the first I've heard of it. 5 Could you just expound on that? 6 THOMAS WORKMAN: Yes, well, I'm not sure how 7 much I can expound, but I'll give you my -- I'm 8 kidding. 9 I'm just -- 10 SENATOR GALLIVAN: For your concern about 11 being aware in advance, and then being able 12 [inaudible] relate to that. 13 THOMAS WORKMAN: No, I understand your point. 14 I'm being facetious. 15 No, Section 308 is a very important tool for 16 the department to gather information, and it's 17 terrific. I mean, it's really needed. 18 And, of course, what it essentially means is, 19 that the department can, virtually, ask almost any 20 question to a regulated entity and get the answer. 21 So that's a good thing. 22 There have been a couple of instances in 23 recent years where the Section 308 has gone a step 24 further to -- to establishing requirements. 25 And we don't believe that there is authority 1 in Section 308 for the department to impose 2 requirements. 3 There is -- 4 SENATOR GALLIVAN: Based on the information 5 that they gather, using Section 308? 6 I'm sorry to interrupt. 7 THOMAS WORKMAN: Correct. 8 SENATOR GALLIVAN: Okay. 9 THOMAS WORKMAN: Correct. 10 So we believe it is exclusively an 11 information-gathering tool, and so the point that 12 was made is, that if it is used to also impose 13 requirements, you know, we wake up in the morning 14 and see a 308, and, you know, we've had no 15 opportunity to talk with anyone about it, and, so, 16 once again, that presents a problem. 17 SENATOR GALLIVAN: Thank you. 18 Senator Seward? 19 SENATOR SEWARD: Just a couple of questions. 20 Number one -- well, the statement first. 21 I appreciate the endorsement of my 22 legislative program. 23 [Laughter.] 24 THOMAS WORKMAN: Indeed. 25 SENATOR SEWARD: The members on our -- the 1 members of our panel here have all joined me in 2 support of most of that program already in the 3 Senate. 4 In terms of the -- just a follow-up question 5 on the Section 308 discussion. 6 Now, when we get to that point of new 7 requirements, are they done -- are they imposed 8 through the emergency rule-making process, or just 9 new requirements? Or any process at all? 10 THOMAS WORKMAN: Yes, Senator, it's simply a 11 pronouncement. I mean, it's a statement of, Here's 12 the request. And sometimes included in the request 13 is, Here are things that you have to do. 14 So -- 15 SENATOR SEWARD: And leading on to the 16 emergency adoption of rules, you know, without the 17 normal public comment period and input, you know, 18 from various stakeholders, the -- I mean, the 19 current law regarding that is, that that can be done 20 for the preservation of the public health, safety, 21 or general welfare, in compliance with -- that 22 requirements with -- the requirements of 23 subdivision 1 of the section, which outlines the 24 whole process of rule-making, would be contrary to 25 the public interests. 1 Would you say that this language is too 2 general and too vague? 3 In other -- should we be looking for ways to 4 further define just what is an "emergency 5 situation"? 6 When emergency rules and regs would be 7 appropriate? 8 THOMAS WORKMAN: Senator, that's an 9 interesting question. 10 It, uhm -- probably more specificity would be 11 helpful. I think that's probably true. 12 I think if I were the regulator, I would want 13 to have as much running room as I can have. 14 But, yes, I think that that would be helpful, 15 uh-huh. 16 SENATOR SEWARD: I guess, getting back to the 17 Section 308, the new requirements, would it -- would 18 it be helpful just simply to give -- to have, you 19 know, more notice, you know, a period of time before 20 those so-called "requirements" were put in place, so 21 that there would be an opportunity for reaction and 22 discussion? 23 Is -- would that be an appropriate approach 24 there? 25 THOMAS WORKMAN: Yes, Senator, I think that 1 would help, and, it does occur on occasion. 2 There are occasions of that, but there are 3 also occasions when it is very much of an 4 after-the-fact situation. 5 SENATOR SEWARD: Well, I think anything we 6 can do to, you know, modernize and streamline the 7 regulatory process here in New York would help us 8 get beyond that, we used to call it the 9 "49-and-1 phenomenon," where, you know, there are 10 insurance products that are available in 49 states 11 but one, and that "one" being New York. 12 Obviously, you know, we -- you want to make 13 sure that insurance consumers here in our state are 14 properly protected. 15 But, on the other hand, the -- you know, 16 I think there are ways of doing that without having 17 our insurance consumers in New York missing out on 18 the opportunities that are -- for new products or 19 variations of products. 20 And, of course, with, you know, 50 of your 21 69 members of your Life Insurance Council of 22 New York are New York-based companies employing, you 23 know, thousands and thousands of New Yorkers, and 24 whenever we can ease their doing business in a 25 multitude of states, is certainly good for our 1 economy, because they are based here. 2 THOMAS WORKMAN: Yes, and, indeed, as 3 I mentioned in the first part of my testimony, and, 4 indeed, most important of all, it will provide more 5 protection; and more protection is a good thing. 6 SENATOR SEWARD: Absolutely. 7 And less strain on government services. 8 THOMAS WORKMAN: Right. 9 Correct. 10 SENATOR SEWARD: Programs. 11 Thank you. 12 SENATOR GALLIVAN: We're good. 13 THOMAS WORKMAN: Thank you all very much. 14 SENATOR GALLIVAN: Independent Insurance 15 Agents and Brokers of New York, Andrew Kaufman, 16 chair of the board. 17 ANDREW KAUFMAN: Thank you, Senators. 18 I want to thank you all for giving me the 19 opportunity to speak on behalf of the 20 Independent Insurance Agents and Brokers of 21 New York. 22 My name is Andy Kaufman. I'm chair of the 23 board of the Independent Insurance Agents and 24 Brokers of New York; or, "IIABNY," as we're referred 25 to. 1 I'm also president of Aurora, Incorporated, 2 insurance agency, located in Albany, New York, and 3 we provide property and casualty insurance to both 4 businesses and individuals. 5 There are several requirements that we 6 believe the Coalition could look into that impose 7 unnecessary costs and burdens on the industry. 8 Some of those have already been referenced a 9 bit today, and, so, I will not repeat what others 10 have said. 11 You also have a copy of my testimony as well, 12 so I will not repeat what you have in front of you, 13 so, I'll just try and hit those high points. 14 We have, actually, six items that we wanted 15 to bring up today; the first of those is 16 Regulation 194. 17 And for those of you that are aware, 18 I believe it is producer-compensation disclosure 19 which was passed in January of 2011. 20 When this was being proposed at the time, it 21 was our assertion that it was somewhat unnecessary 22 because most insurance consumers have an idea that 23 we do, in fact, get paid a commission, and that 24 their primary concern was probably what they paid 25 for an insurance policy. 1 Several years later now, we've -- been found 2 that that is, in fact, the case. 3 I can give you examples from my office. 4 We service thousands of policyholders, we've 5 never had a request. 6 Our association has done similar research. 7 And, it's come to bear that on only one or 8 two instances have insureds even requested 9 information. 10 And, the disclosure process is a two-step 11 process. Everyone that has an insurance application 12 gets notification that we do, in fact, get paid 13 commission, and is told in this letter that if they 14 want more information, they can do so. 15 But the recordkeeping, it's a three-year 16 recordkeeping process to keep all this there. 17 And it really -- because of some of the 18 vagaries in the regulation, we have to disclose 19 things if we are asked. 20 If one carrier were to buy us lunch or bring 21 in a box of doughnuts, these are things that we need 22 to track for a three-year period. 23 It does seems cumbersome and unnecessary. 24 And the fact that so few consumers are even 25 asking for this, it's our recommendation that we 1 would remove this regulation in its entirety. 2 The second area I wanted to bring up today 3 was continuing education, and it was brought up in a 4 slightly different manner earlier today. 5 We are not unlike a lot of other professions 6 where we do have continuing-education requirements, 7 and we are lucky that there are now, today, many 8 ways for us to pursue this. It's not just an 9 in-person classroom setting. They're offered online 10 and self-study. 11 Like a lot of other professions, we can take 12 advantage of self-study. Unfortunately, unlike 13 other professions, insurance producers have to take 14 an examination in the presence of a monitor that has 15 to be approved by the department. 16 So if I were to take a prerecorded online 17 course, I couldn't take the test then. I would have 18 to then go to a separate place, pay a fee of, let's 19 say, $75, to sit in this room. 20 And, to my knowledge, there's no other 21 profession that has this burden placed on them. 22 This rule is -- from what we're aware, it's 23 not found in the NYCRR or in statute, but these are 24 internal procedures within the department. 25 And for that reason we would ask, that if 1 there were a way to do so, we would remove this 2 requirement. 3 Another regulation that was brought up 4 earlier today was Regulation 79, and that's the 5 requirement that insurance companies conduct an 6 inspection of a vehicle before providing 7 physical-damage coverage to the car. 8 As we stated earlier, this regulation is over 9 35 years old and it was very well-intentioned at the 10 time. It was designed to prevent insurance fraud 11 and protect against insuring phantom vehicles. 12 But as was stated before, things are much 13 more sophisticated today. There is an 14 Insurance Crime Bureau database, there's CARFAX; 15 there are many different ways for insurance 16 companies to make sure that they are not victims of 17 fraud. 18 And, clearly, insurance carriers have the 19 motivation to make sure that they don't have fraud 20 perpetrated on them. 21 So, again, what we are asking is, just to 22 waive the requirement, make it an optional piece, 23 that insurance companies can determine what's in 24 their best interests, and what is the best way for 25 them to pursue potential fraud against them. 1 The next area that we want to discuss briefly 2 is the regulation that requires motorists to 3 actually carry a paper automobile-insurance ID card 4 as proof that they have automobile insurance. 5 Today is a little bit different than it was. 6 There are 28 states presently that allow you 7 to carry an electronic version of your card. It can 8 be on a smartphone, or some type of device like 9 this. 10 And our assertation [sic] is that it will 11 save law enforcement and the court system a lot of 12 money by, in fact, allowing people not to have this 13 piece of paper; or, if, in fact, someone is pulled 14 over and they can't produce the paper, but they do, 15 in fact, have auto insurance and they were to have 16 it somewhere else, that that other proof would 17 suffice. 18 And, so, we're suggesting that the 19 DMV Regulation 32.9 be amended, to allow for the 20 option, at least, of an electronic insurance 21 ID card. 22 The largest item, and one that has been on 23 our agenda for a long, long time, and was brought up 24 by the first group of speakers, are 25 Sections 240 and 241 of the Labor Law. 1 Some might think it's counterintuitive for an 2 insurance agent to want to see lower prices in the 3 marketplace, because we do get paid a commission, 4 but I can tell you that those that pay high premiums 5 are the lucky ones, because there are so few 6 insurance carriers that are willing to write 7 insurance coverage in New York State. 8 We represent, in our office, between 20 and 9 30 insurance carriers, and it's so difficult to find 10 a carrier that's willing to write it. 11 If you are a very, very large entity, you at 12 least have a chance because there's enough premium 13 there that an insurance carrier might take a look, 14 but most of the insurance carriers out there will 15 not write it. 16 And the effect that that really has, is the 17 small- to medium-sized business owner in 18 New York State just can't secure insurance coverage. 19 And I can tell you firsthand, we've seen a 20 lot of clients that went out of business because 21 they either can't afford the premiums or they can't 22 secure coverage. 23 And, while it was a tighter marketplace a few 24 years ago, it's even more so now. 25 I know that this Coalition has sponsored a 1 bill. 2 If we can't do away with those laws, 3 certainly, the comparative-negligence standard 4 that's been suggested, I think, is a real solution, 5 as was pointed out earlier, so, we stand firmly 6 behind that position. 7 The last area we wanted to bring up, it's 8 another antiquated insurance law that we are still 9 trying to figure out what benefit it has today, and 10 it deals with advertising requirements. 11 This law requires that an insurance company, 12 in an advertisement, display the insurance company's 13 full name, the city and the town and village of its 14 principal address. 15 And when we refer to insurer, we can mention 16 price. 17 So, for example, as an agency, if I want to 18 place an ad that says we represent a particular 19 company, we have to tell them where the company is 20 based out of, even though it's not really relevant 21 in today's society. Most insurance carriers have 22 branch offices in multiple locations, and the home 23 office doesn't bear much relevance whatsoever. 24 It seems that consumers, again, will be more 25 concerned with what's local. 1 So, Senator Seward has sponsored a bill, it's 2 S3064, that would repeal this requirement that 3 producer advertisements display an insurer's full 4 name and principal office location. 5 So we thank you for that. 6 Those are the issues that we had today. 7 I want to thank you again for the 8 opportunity, and if there are any questions, I would 9 be happy to answer. 10 SENATOR GALLIVAN: Any questions? 11 SENATOR SEWARD: Yes, just a couple of 12 questions for you. 13 First of all, I want to know in which 14 community did you grow up? 15 ANDREW KAUFMAN: Cortland, New York, Senator. 16 SENATOR SEWARD: There you go, very good. 17 That's part of my district. 18 ANDREW KAUFMAN: A wonderful district. 19 [Laughter.] 20 SENATOR SEWARD: Absolutely. 21 Andrew's father was the superintendent of the 22 schools there for many years, and a friend of mine. 23 We miss him a great deal. 24 Back to the issue at hand, in terms of the 25 Reg 194, on the -- you know, the 1 compensation-disclosure provision, I would hate to 2 ask you to, shall we say, negotiate against yourself 3 here, but, short of a full repeal of that, is there 4 anything that we could advocate, that would make it 5 more workable or reasonable for all concerned? 6 ANDREW KAUFMAN: Well, you know, as 7 I mentioned, there are two pieces to this. 8 The first piece is this general piece of 9 paper that goes out, that in essence says, that we 10 are an insurance agent that receives compensation in 11 the form of commission, and if you want to know 12 more, you can ask us. 13 And that, in and of itself, is a pretty easy 14 thing. 15 You know, we think of it in terms of all 16 these pieces of paper that go out that no one really 17 responds to. 18 SENATOR SEWARD: Yeah, there's plenty of 19 paper -- 20 ANDREW KAUFMAN: And many trees that are dead 21 in Upstate New York [unintelligible]. 22 So, that's a concern. 23 You know, it's more the burden of going 24 through the process, and the -- I would say, useless 25 paper, because so few people respond to it. 1 The second piece, and this is where it's a 2 bit difficult, because it is vague in terms of our 3 compensation, every carrier pays us a commission. 4 Those are reasonably close, but there are 5 contingency commissions paid at the end of the year, 6 and those are all very different with each of our 7 carriers. They change from time to time, and many 8 times it's a guess on our part. And, you know, some 9 carriers do other things for us. 10 So the vagaries, I think, of that piece make 11 it difficult. 12 And, again, the three-year recordkeeping 13 requirement on that piece as well. 14 I think the law, the intention was to, you 15 know, again, be transparent, and I think that's a 16 valuable piece. 17 But what we found in practical form, is that 18 people just don't seem to be concerned, and I think 19 they recognize that we get paid a commission, and 20 I think sometimes they might be surprised we don't 21 get as much as they think we do, when all said and 22 done. 23 But I -- you know, perhaps, to your point, if 24 there's a way to eliminate some of the vagaries, in 25 terms of what this compensation piece is, perhaps 1 that might be something, but, I'm not sure that that 2 really eliminates the issue. 3 SENATOR SEWARD: Well, what you're saying is, 4 then, there's -- there's so many variables in terms 5 of what the compensation may be, depending on the -- 6 how good a year there was, and -- 7 ANDREW KAUFMAN: And -- 8 SENATOR SEWARD: -- experience -- 9 ANDREW KAUFMAN: Exactly. 10 It's a bit of a guess because you're trying 11 to forecast what might happen at the end of the 12 year. 13 And, again, you know, we've been told that, 14 well, the department might not be as concerned with 15 some of these other little pieces. 16 But, no one wants to take the chance of being 17 caught, because the fines are significant as well, 18 and I think that's the other piece that we were 19 concerned about at the beginning, is -- is the group 20 of folks that passed it we had some comfort level 21 with, but forecast this years down the road, are 22 those folks going to look at it the same way, 23 perhaps, as the other people did? 24 SENATOR SEWARD: Well, perhaps, just letting 25 the consumer know that -- you know, that you are 1 working on a commission basis, and let it go at 2 that, perhaps. 3 Because, you know, as a practical matter, 4 the -- I think -- I agree with you, the consumer is 5 more interested in: What's the bottom line? And if 6 I don't like that bottom line, as long as we have a 7 robust market in New York, I can go down the street 8 and maybe I can find a better bottom line. 9 ANDREW KAUFMAN: It happens every day, yes. 10 SENATOR SEWARD: Yeah, yeah. 11 And I think that, in itself, I think is -- 12 you know, is really what the consumer is looking 13 for, is the best deal possible with the coverage 14 that they need. 15 And, you know, how you arrive at that bottom 16 line is -- I don't know that there's concern. 17 But, you know, I think, certainly, letting 18 them know that, you know, their -- the agent's 19 working on a commission, you know, is -- is -- 20 I think it's pertinent, perhaps. I think most 21 people assume that anyway, but, if they're getting 22 that in front of them, perhaps we ought to just 23 leave it at that. 24 ANDREW KAUFMAN: Okay. Yeah, very good. 25 SENATOR GALLIVAN: Thank you. 1 ANDREW KAUFMAN: Thank you, Senators. 2 SENATOR GALLIVAN: Gary Henning, 3 American Insurance Association. 4 GARY HENNING: Good afternoon, Senators. 5 SENATOR GALLIVAN: Good afternoon, Gary. 6 GARY HENNING: My name is Gary Henning. 7 I'm the vice president of the Northeast Region of 8 the American Insurance Association. 9 "AIA," as we're known as, is a national trade 10 association of property/casualty insurers. 11 More than 300 companies, our members, 12 collectively write 8.2 billion in premium in 13 New York State, represents a little less than 14 a quarter of all the New York market. 15 And our companies write insurance for 16 homeowners, drivers, small businesses, big 17 businesses; so, we write, pretty much, every type of 18 property/casualty insurance. 19 And I'd like to thank the Coalition for the 20 opportunity to discuss insurance regulatory reform. 21 It seems most -- many of my issues have 22 already been addressed by some of the others, so, 23 you have my written testimony. I'll just go through 24 this pretty quickly then, maybe point out some 25 different nuances, what have you. 1 Okay, first, I'll start with the insurance 2 ID cards. 3 The -- we won't -- we would also like to be 4 able to produce those electronically. That seems to 5 be the trend in other states. It just makes sense. 6 I mean, you know, you pull out your 7 smartphone and it's right there, rather than 8 fumbling through the glove compartment, the used 9 gum, old Lotto ticket. If it's on your smartphone, 10 you know where it is. 11 And it's a very -- the regulation, 12 15 NYCRR 32.9, I mean, it's very specific that it 13 has to -- you know, it has to be on a piece of 14 paper. 15 There's no reason that it has to be on the 16 piece of paper, so we think this is low-hanging 17 fruit, if you will. 18 Insurance Regulation 79, the photo-inspection 19 reg, this has been touched upon numerous times 20 already. 21 One thing I would like to point -- emphasize, 22 point out, I think the argument -- we would like to 23 see it optional. If companies think it makes sense, 24 let them use it. 25 The argument -- the only argument against 1 that could be, Well, we need to mandate this because 2 it's good for the consumer. The insurers, even if 3 they don't want to, need to do this because it will 4 prevent insurance fraud. 5 That's really the only argument you can come 6 up with it being optional. 7 However, I can tell you, my companies -- not 8 all of them, I know of several of my companies will 9 take -- have the pictures taken, have the reports 10 taken, and then they just warehouse it and never 11 look at it again, because these things are 12 completely useless to them. 13 So with the onset of all -- with the onset of 14 the -- you know, the claims databases that the 15 companies have access to, the DMV records, these 16 Reg 79 reports really serve no purpose other than to 17 inconvenience the driver and cost money for the 18 insurance companies. 19 So we would recommend that Regulation 79 be 20 amended so that it's optional. And if the 21 department doesn't want to do it, we would urge -- 22 I know there's legislation out there that would make 23 it optional. 24 So, either way would be fine. 25 Moving on, I will just touch upon no-fault -- 1 automobile no-fault insurance, Regulation 68. 2 I don't want -- this is -- these are 3 little -- little niggling things which are really 4 annoying, but present the opportunity for various 5 "gotcha" situations, either in regulatory, or more 6 importantly, in civil litigation. 7 So I think these are very important. 8 Even though they're not huge issues, they can 9 start costing money when -- once you get into the 10 adversarial context of no-fault. 11 For example, the first -- my first example, 12 there's a requirement of denial -- "denial of 13 economic loss" claims has to be sent in duplicate. 14 I've been told by companies' no-fault counsel 15 that they've had -- they've had defenses thrown out 16 because they can't prove that it was sent in 17 duplicate. They can prove they got it, but they 18 can't prove it was sent in duplicate. 19 Another one, I love this one, one regulation 20 requires that a specific form be printed on 21 buff-colored paper. 22 No one follows that regulation, but, again, 23 it just points out, you know, that there are a lot 24 of silly -- silly little things that need to be 25 fixed. 1 One thing within -- throughout the regulation 2 that we would urge that you focus on and push with 3 the DFS, is wherever you see the word "mail," 4 replace it with the word "send," because when it 5 says "mail," you're talking U.S. Postal Service 6 snail-mail. 7 So, you'll have regulations -- requirements 8 within Reg 68, where the attorneys for both sides 9 are required to mail things back and forth. 10 That just doesn't make sense in the age of 11 e-mail. It just doesn't make sense. 12 And, you know, now you can do the proof that 13 the e-mail was read, you know, with the Outlook, so 14 there's really, you know, no reason that you need to 15 have "mail" rather than "send." 16 One last thing in no-fault, a little bit more 17 substantive: There's a rule, and this is on my 18 fourth page, B -- 11 NYCR [sic] 65-39B, this 19 affect -- this deals with the insurer's ability to 20 negotiate interest on a -- overdue on a settlement. 21 In all the other contexts of settlements, 22 insurance law, what will happen, is that the lawyers 23 for both sides will say: 24 Okay, here, you know, the settlement's X. 25 We'll give you this much interest. 1 They say, Well, okay, with that settlement, 2 we want a little more interest. 3 But, they'll just come to a number. They'll 4 figure out the number, and you can go up and down 5 with the settlement number, with the interest, but 6 there's negotiation allowed. 7 The regulation requires -- requires 2 percent 8 monthly, no negotiation. That's 24 percent 9 annually. 10 And that is a disincentive to settle these 11 cases, because if I -- if I can settle -- if I can 12 settle a case and pay 10 percent interest on it, 13 I might be willing to do that, but, I might want to 14 take the chance in court if I have to pay 24 percent 15 interest on it. 16 So, we don't -- we don't think -- you know, 17 we don't think there's a -- I think public policy -- 18 put it this way, public policy would be better 19 served if the insurers were allowed to negotiate on 20 that. 21 Moving on, this one, a little bit esoteric. 22 I'll let you read it, but, there's a basic -- a 23 basic principle I want to raise here. 24 It's dealing with two insurance regulations, 25 107 and 110, duty to defend in liability policies. 1 The context, I guess, is, basically, in a 2 liability policy, when you buy a liability policy, 3 if you're sued, the insurance -- the insurance 4 company is required to pay for your legal defense 5 when you're sued. 6 Okay? 7 And generally what will happen, in many of 8 the policies, particularly the ones for homeowners, 9 auto, small business, the insurance company not only 10 has to pay, but they have to provide the duty to 11 defend. They actually hire the counsel, they will 12 go to court for you. 13 So, pretty much, your defense is in the 14 insurance company's hands. 15 However, with some sophisticated insureds, 16 let's say, a Fortune 500 company, they would prefer 17 to retain this duty to defend with themselves. 18 So, if their board gets sued, the insurance 19 company would pay, but the corporation would be -- 20 the board would be able to pick its own lawyers and 21 actively manage its own defense. They would rather 22 have the fate in their legal counsel's hand rather 23 than the insurer's legal counsel's hand. 24 Remember that the insurer is still paying for 25 the legal defense, it's just a question of who 1 manages it; who has the actual duty to defend. 2 And everything was fine, up until about 2008, 3 when the Insurance Department came up with an 4 opinion, saying that, in liability policies, 5 insurers were no long able to transfer or allow the 6 transfer of that duty to defend to the policyholder, 7 and they stopped approving forms with that provision 8 it in. 9 So basically what you had is the 10 Insurance Department saying, No, you don't know 11 what's best for you. The insurance company should 12 provide the duty to defend. 13 This one, it has hampered innovation. It 14 goes against what other states do, and, it really 15 doesn't make a whole lot of sense. 16 To their credit, we're trying to work with 17 the department on this. We've been working with 18 them for quite a while on it, but this is one 19 I really think that needs to be looked at because, 20 again, it -- it's -- it's actually having the State, 21 through DFS, telling a Fortune 500 company, We know 22 what's better for you than you do; and that's 23 problematic. 24 Okay, Insurance Regulation 168: Actually 25 this one is going -- is -- I think it was just put 1 out in the -- today's -- today's State Register for 2 comment, adopted on an emergency basis, but also put 3 out for comment to be officially adopted. 4 This is the confidentiality for 5 domestic-violence victims. 6 While property/casualty insurers understand 7 and have no problem protecting the confidentiality 8 of domestic-violence victims, this regulation -- I'm 9 sorry, the law was clearly aimed at health insurers 10 and health insurance. 11 And through what I think is a misguided 12 reading of the statute, DFS is applying some of 13 these domestic-violence confidentiality protocols 14 and rules to property/casualty insurers, and it 15 just -- it really doesn't make a whole lot of sense. 16 For example, companies have to set up 17 protocols for confidentiality of a domestic-violence 18 victim, all insurers. 19 So one of my insurers, FM Global, sells 20 nothing but commercial-property insurance to 21 large -- I mean, large commercial -- they're one of 22 the largest commercial-property insurers in the 23 world. They insure -- you know, I think they 24 insure, like, 30 Rock, to buildings like that. 25 According to this reg, they have to have a 1 notice on their website saying, "If you're a victim 2 of domestic violence, please call this number." 3 Now, in and of itself, the requirement, you 4 know, okay, someone has to go in and change the 5 coding, but, they're a State-regulated industry, so, 6 okay, you have one state doing its own thing that 7 may be silly, no one's gonna look at. 8 But we get very concerned when you have 9 states doing state-specific notices. 10 You multiply that by 50, and then what was a 11 niggling problem became a huge problem. 12 So if there's -- I mean, I don't -- we don't 13 understand how insurer -- property/casualty 14 insurers -- this regulation would be helpful for 15 property/casualty insurers. 16 I mean, if -- I can understand with health 17 insurance, the abused spouse is still getting health 18 insurance from the abuser's insurance, but, I don't 19 know how that would work in auto or home. 20 Maybe no-fault; no-fault medical claims, and 21 we would be fill willing to work with the department 22 on that. 23 But, to have a whole new set of requirements, 24 confidentiality protocols, a notice requirement, 25 just doesn't seem to make sense -- make sense for 1 us -- to us. 2 And then, finally, I'll mention this, this 3 was brought up before, the use of insurer names in 4 advertisements. 5 We have a little bit different take. 6 I think there's a specific -- there's a 7 specific section in law that deals with agents. 8 There's specific regulations that deal with 9 life insurers and health insurers. 10 We get pulled in because they have a 11 desk-drawer rule saying we should be treated like 12 everyone else. 13 And the rule is -- I think the rule is kind 14 of silly, frankly. 15 The rule -- what they have told us is that -- 16 and they issued an opinion in 2008, which still 17 stands -- that you cannot use the trade name of the 18 insurance group. You have to use the specific names 19 of the companies that are selling the insurance. 20 So, for example, Travelers; you couldn't put 21 an advertisement with "Travelers." You would have 22 to put every corporate entity of Travelers that is 23 actually selling insurance in New York State, along 24 with their addresses. 25 So, you would have to put: Travelers 1 Casualty Insurety [sic] Company, Travelers Home and 2 Marine Insurance Company, Travelers Property 3 Casualty Insurance Company. 4 A twist on this, St. Paul's Fire and 5 Indemnity, which is one of their companies, but 6 which has no name connection, people wouldn't 7 connect St. Paul's with Travelers. 8 So, not only is it cumbersome, I mean, you 9 know, you start getting with some of these bigger 10 companies that have 30 subs, the advertisement is 11 going to be half small print with all the names 12 being listed. 13 And then you're gonna have companies which 14 people will say, That's not Travelers, that's 15 St. Paul. 16 Well, no, it's Travelers. 17 So it gets -- it's a waste of resources for 18 the company, and it's a -- it can be confusing to 19 the consumer. 20 So we would argue that there's -- there's 21 a -- they have an interesting reading of the 22 statute. They're saying it calls attention to an 23 unauthorized insurer, and -- which is why it's not 24 allowed by Section 2122 of the Insurance Law. 25 And they're saying an -- it's doing an 1 insurance business, and since that trade name is not 2 a registered insurer, they're doing a business -- an 3 insurance business by advertising that trade name; 4 and, therefore, it's not allowed. 5 It's really an interesting reading of the 6 law. 7 We think it makes no sense, and to benefit -- 8 benefits no one, so we would urge that this go onto 9 your list, and, hopefully, once it's on that list, 10 they see it, they'll drop the opposition to the use 11 of trade names in advertisements. 12 That's it for me for now. 13 As I said, you have my testimony. I go -- 14 written testimony goes into everything a little more 15 fully. 16 I'd like to thank -- thank all of you for 17 your time, listening to our concerns regarding 18 regulatory reform. 19 SENATOR SEWARD: Well, thank you very much, 20 Gary, for your testimony. 21 You know, we had a discussion with 22 Mr. Kaufman, on behalf of the agents, on that 23 comp -- disclosure of compensation issue. 24 In terms of your member companies, and so on, 25 from the companies' side, do you see any -- any need 1 to change and -- or roll that back or repeal it? 2 GARY HENNING: What, the compensation? 3 SENATOR SEWARD: Yeah, the disclosure issue, 4 is there any impact in terms of the companies' side? 5 GARY HENNING: Well, we -- let me say, we 6 agree with the agents that it doesn't make sense. 7 However, as it doesn't impact us, because we 8 pay them what we pay them. 9 The disclosure is all on their side. 10 So, yeah, we think we would be -- we would 11 have no problems with changing, but it doesn't 12 affect us, day to day; the regulation. 13 SENATOR SEWARD: And just, finally, you know, 14 the -- in terms of the department, DFS, in terms of 15 any kind of self-review or -- in terms of 16 regulation -- their own regulations, are you 17 involved at all in that? 18 GARY HENNING: Yes, I mean, to their credit, 19 they have -- they have been looked -- since the 20 merger, they have been looking at the regulations. 21 I think it's fair to say it's gotten better, 22 at least from -- at least with me, about notice. 23 I mean, there's still times, I mean, 24 especially during "Sandy," but I guess that's 25 somewhat understandable, but, when something -- 1 I think Mr. Workman was bringing up, something will 2 pop without any advanced notice. 3 That happened a bit earlier on in the tenure 4 of the new agency, and we squawked quite a bit, and, 5 they have made an effort to give us some advanced 6 notice -- some more advanced notice, I should say. 7 So, we would always like more, but, it's 8 going in the right direction. 9 SENATOR SEWARD: Thank you. 10 SENATOR MARCHIONE: I just have one question. 11 We've heard two different people now talk 12 about the auto physical-damage -- 13 GARY HENNING: Yes. 14 SENATOR MARCHIONE: -- coverage, and not 15 having a need. 16 You don't feel a need to have a picture of 17 that vehicle? 18 I thought it was more of a protection for 19 yourself than it was for the -- 20 GARY HENNING: I would have thought so, too, 21 but after listening -- I'm not an expert on all 22 these databases, but, apparently, you know, you 23 can -- with all these databases, you can check out 24 when the car -- when the car had an accident. 25 What -- you know, the -- the claims report, what was 1 the damage? Was it fixed? 2 So, again, I'm not a claims expert. 3 I just -- my guys said they don't look at it because 4 they can get whatever they need from all the 5 databases. 6 SENATOR MARCHIONE: Well, you know, if 7 I backed up and hit a tree in my own house, and you 8 didn't have an accident report, you don't have 9 anything, so, you know, and then I said, you know, 10 that just happened. 11 And it maybe happened previous. 12 You know what I'm saying? 13 I don't -- you know, if somebody -- if 14 I bought it, and there was a -- somebody hit it 15 already, but they didn't -- it wasn't a reportable 16 accident, I buy it the way it is and I might tell 17 you there's something wrong with it. 18 You know, how do you know? 19 I mean, you're now responsible for me, and 20 I -- you know, it may have been damaged previously. 21 GARY HENNING: Okay, I'm sorry, I'm not 22 following the -- 23 SENATOR MARCHIONE: If I bought a car from 24 someone and it was already damaged, but it wasn't a 25 reportable incident, just damaged, and I now come 1 in, I buy it, and you don't take a picture of it, 2 and then I tell you that I did this and I want you 3 to take care of it. 4 GARY HENNING: To fix it? 5 SENATOR MARCHIONE: That's why I always 6 thought it was a protection for the insurance 7 companies. 8 GARY HENNING: So there would be no accident 9 report of it? 10 SENATOR MARCHIONE: No. 11 You know, at least that's what I thought. 12 You know, all the times that people have 13 taken pictures of my car, I thought it was more for 14 your protection. 15 You know -- 16 GARY HENNING: All I can tell you, maybe 17 theres' some instances like you say, but, my guys 18 say they don't use the pictures. 19 SENATOR MARCHIONE: Okay. 20 GARY HENNING: They use the databases. They 21 use the discretion of the agents. 22 Most -- maybe it's a little different for my 23 mix of companies. 24 My companies -- I'm thinking through this 25 here. 1 I think almost -- almost all of my companies 2 use the independent agent -- Independent Agent 3 Distribution System, so, we rely on the agents when 4 they're selling -- when they're selling the 5 insurance as well, to weed out some of those type of 6 incidents -- incidences. 7 So you would come in and our agent would say, 8 "Well, you've got this damage," and they would tell 9 us. 10 So, maybe that's -- maybe it's different for 11 some of the other carriers, where -- 12 SENATOR MARCHIONE: Always my agent who takes 13 my photograph of the vehicle. 14 GARY HENNING: No, but what I'm saying is, so 15 if the agent is going to look at it, the agent -- we 16 wouldn't -- we wouldn't need a photograph. 17 What would happen is, the agent would -- 18 would -- when they're writing the insurance, would 19 tell us, Okay, this car is already damaged. 20 SENATOR MARCHIONE: Okay, so you want -- you 21 want to look, you just don't want to take a picture? 22 You -- you're saying the agent is still going 23 to look. 24 GARY HENNING: Well, the agent is going to -- 25 no, it's a little -- so what I -- the scenario I'm 1 envisioning, okay, is, you go to your agent's -- you 2 go to your agent's store and get insurance, and he's 3 just going to take a quick look at the car. 4 It's different than having to go -- go have 5 him take out the thing, or go to a third party, such 6 as CARCO, to look at it, if your agent is going -- 7 is not going to fill out the official report. 8 So, yeah, we don't -- we don't -- we don't 9 think the report is necessary. 10 The agent may not be the one that is doing 11 it. You may have to take it to CARCO, you know, 12 within I think -- I think it's five or seven days to 13 do that. 14 But, we're relying on our sales force to 15 alert us of any preexisting damage in those 16 situation. 17 SENATOR MARCHIONE: Thank you. 18 GARY HENNING: You're welcome. 19 SENATOR GALLIVAN: If I could follow up on 20 that, you may not know the answer to this: 21 Is there any data -- well, do you know when 22 this photo-inspection requirement came into being? 23 GARY HENNING: 1977. 24 SENATOR GALLIVAN: So is there any data to 25 suggest that that stopped insurance fraud? 1 If you know? 2 I'm just kind of curious, because I'm like 3 Senator Marchione, I would think of it more as a 4 thing that would protect the insurance companies, 5 and so it's interesting to hear the industry -- 6 GARY HENNING: I don't think you can say 7 it's -- you know, insurance fraud has -- since 1977, 8 phantom cars has dropped precipitously; therefore, 9 it's the -- it's because of the photo inspection, 10 because, at the same time, the industry was 11 developing, plus, include the accident -- I mean, 12 the claims databases which they use. 13 I don't know of any studies, 14 Senator Gallivan. 15 SENATOR GALLIVAN: Just curious, but, really, 16 I mean, you'd have to take it back further in time 17 and go, '75, '76, and then what took place -- 18 GARY HENNING: But what I'm saying is -- but 19 then I -- but then you would also have to overlay -- 20 SENATOR GALLIVAN: Of course. 21 GARY HENNING: -- where -- where -- when did 22 the -- what was the development of these claim 23 databases? 24 SENATOR GALLIVAN: I understand. I was just 25 a little bit more curious than anything else. 1 Thanks. 2 GARY HENNING: Let me just -- wait. 3 The thing that I point to is, right now, we 4 take these pictures, we have them, and they simply 5 warehouse them, because they provide -- if they have 6 to go out, and they're following the law and the 7 regulation now, they're taking these pictures and 8 taking the reports, they have this information -- 9 they have these reports already. 10 If they could be of any use, I don't know why 11 they wouldn't use them, because they have to do 12 them. 13 I mean, you could argue, oh, it's expensive, 14 but they're doing it now. 15 But I think the main point to me is, they're 16 not even using them. They're taking them and then 17 they're, basically, throwing them in the circular 18 file because they have no use, because of their 19 business -- you know, the databases they use. 20 SENATOR GALLIVAN: Understood. 21 My question has -- well, first of all, we 22 appreciate your testimony, and I know you're kind 23 of -- everybody couldn't see your face, but it was, 24 like, you were a little embarrassed when you were 25 talking about these nitpicky things, but I'll tell 1 you, we can't do anything about it if you didn't 2 bring it up. 3 So we do appreciate it, because those are the 4 things that we generally would not hear about in 5 Albany. 6 GARY HENNING: Thank you. 7 SENATOR GALLIVAN: So we appreciate that you 8 brought those smaller things up, because my 9 contention is, all those smaller things can add 10 up -- 11 GARY HENNING: Add up, yes. 12 SENATOR GALLIVAN: - have an impact. 13 My question has to do with your discussion of 14 duty to defend. 15 I have the concept and I understand it. 16 I've talked with some small businesses. 17 In my particular case, in dealing with the 18 people, it was in the area of different types of 19 professional services and liability insurance; not 20 any product, but they're providing some sort of 21 service, and they're sued by somebody. 22 In their liability policy, the duty to defend 23 was there. 24 The insurance company engages an attorney, 25 they pay for the attorney, they pay for the defense. 1 Then they settle the case, unbeknownst to 2 their insured, and the insured, that little 3 professional service agency, their premiums go up 4 because of that. 5 GARY HENNING: Yes. 6 SENATOR GALLIVAN: So if we back up in time, 7 and you were talking about more of those Fortune 500 8 companies, and they were allowed, essentially, to 9 choose their own lawyer and mount their own defense, 10 even though the insurance company, I'm assuming 11 approved, the insurance company still paid for it -- 12 GARY HENNING: Correct. 13 SENATOR GALLIVAN: -- could those Fortune 500 14 companies and their attorneys then make the decision 15 whether or not to settle or to fight the case, or 16 did they need the insurance company to sign off on 17 that? 18 GARY HENNING: There's a consultation. 19 It's -- I'd have to look back at the exact 20 law, but I know, in the real world, there's 21 consultation on -- between -- between the defense 22 team that you've chosen and the insurance carrier. 23 I don't think the insurance carrier even has 24 the -- when they have the duty to defend, can say, 25 We're shutting you off. 1 But let me check on that. 2 SENATOR GALLIVAN: I'm curious, and then the 3 question would follow: If that's an area that's 4 appropriate to take on, is it not also appropriate 5 for the consumer to ensure that they have some sort 6 of say in the settlement? 7 Because, ultimately, they pay for it in the 8 way of increased premiums if the insurance company 9 settles without their knowledge or without their 10 approval. 11 GARY HENNING: Let me look into it and get 12 back to you. 13 SENATOR GALLIVAN: [Unintelligible]. 14 And your feedback, or anybody else's. 15 You guys all set? 16 All right, thank you. 17 Alan Plafker, Professional Insurance Agents. 18 And as Alan is making his way up, if you'd 19 just give us a couple of minutes, they have to 20 change the tape. 21 We're set? 22 Okay, you don't have to wait, so, when you're 23 ready. 24 Did I pronounce your name right? 25 ALAN PLAFKER: Yes, thank you. 1 I have one extra copy. They're sending the 2 full -- 3 SENATOR GALLIVAN: Okay. 4 When you're ready. 5 ALAN PLAFKER: Okay. 6 Well, good morning -- good afternoon. 7 I thought it was going to be a morning thing. 8 SENATOR GALLIVAN: Us, too. 9 ALAN PLAFKER: Good afternoon, Senators, and 10 thank you for the opportunity to present the 11 testimony of the Professional Insurance Agents of 12 New York at this Insurance Regulatory Reform Forum. 13 My name is Alan Plafker, and I am president 14 of PIA New York. 15 And, I also have an agency in the 16 New York City-Long Island area. 17 PIA is a voluntary membership-based trade 18 association representing professional independent 19 property/casualty insurance agents and brokers. 20 We're your neighbors providing valuable 21 property/casualty insurance coverage to protect 22 homes, businesses, and automobiles for the citizens 23 of New York State. 24 A statewide organization, PIA serves member 25 insurance agencies doing business in every New York 1 community. In every city, every town, every 2 village, PIA members are small businesses that 3 employ more than 20,000 insurance professionals, 4 provide insurance for more than 5 2 million households, and 750,000 businesses, 6 governmental units, and other organizations. 7 PIA issues/protect insurance consumers. 8 Today I'd like to briefly talk about 9 four subject areas. 10 In the interest of time, I'll be brief in my 11 testimony, and I'll be available to answer questions 12 you may have and/or follow up with any additional 13 information you request. 14 My testimony today will center on the topics 15 of Scaffold Law reform, the standardization of 16 homeowners insurance hurricane-deductible triggers, 17 mandatory automobile photo inspections, and allowing 18 insurance agent and brokers' fiduciary accounts to 19 be held in credit unions. 20 You've already heard a lot of this already so 21 I will try and be very brief. 22 We applaud Senator Gallivan for his 23 sponsorship of the legislation, S111, reforming the 24 New York antiquated Scaffold Law. 25 As a member of the Lawsuit Reform Alliance of 1 New York, PIA has long advocated for changes to the 2 Labor Law's absolute-liability standard, and, we 3 urge the Legislature to enact the change and provide 4 relief to the state's businesses and property 5 owners. 6 High-cost lawsuits threaten to drive 7 construction companies and property owners out of 8 business, and people losing jobs, because of this 9 law, 240 and 241. 10 We've already heard a lot about it today, and 11 I understand also, on the Long Island forum, there's 12 was also a big topic. 13 So, I'll keep it very, very brief. 14 As we know, they've sky -- the skyrocketing 15 litigation over accidents at the work sites. 16 New York is the only state that maintains 17 this strict-liability standard for lawsuits, and the 18 state worker's compensation system already provides 19 the medical treatment, wage-loss benefits, 20 regardless of fault. 21 The proposal would allow property owners and 22 general contractors to mitigate their liability, and 23 we support that, and we urge the lawmakers to remove 24 this burden from the New York State business by 25 passing the Scaffold Law reform. 1 Second, we must standardize the coastal 2 homeowners-insurance hurricane deductible. 3 When, not if, a severe hurricane hits 4 New York coastal areas, it will reveal 5 inconsistencies that will cause a public outcry over 6 the lack of foresight by policymakers. 7 Hurricane-deductible triggers vary widely by 8 company. 9 This lack of standardization causes 10 neighboring homeowners who suffer equal damage from 11 a coastal storm to find out one homeowner has 12 coverage for the damage, and the other one does not. 13 Standardizing the trigger point at which the 14 insurer's windstorm deductible will apply will 15 protect consumers against this type of scenario, and 16 it needs to be done now. 17 The State Insurance Department proposed such 18 a regulation in 2010 to standardize these triggers. 19 And, recently, Benjamin Lawksy, 20 superintendent of the state's Department of 21 Financial Services said, that, "More uniformity 22 would help people compare offerings from competing 23 insurers. We must reform this regulation." 24 I live on Long Island, and I insure thousands 25 there, and I experienced the effects of "Sandy" 1 personally. 2 Thirdly, we must repeal the mandatory photo 3 inspections that cause policyholders to lose auto 4 physical-damage coverage. 5 We just spoke about that at length. 6 You know, I think I'm the fourth person to 7 comment on that. 8 You know, one of the things that I heard was, 9 there's a cost benefit to it; that even though it 10 does help insurers, for the few times that it might 11 possibly help something, the cost and the regulation 12 of enforcing it is very burdensome. 13 The other thing is, is that, under the 14 regulation, an insurance company can't pay a claim 15 if somebody hasn't gotten their photo inspection 16 done. 17 So even if it's a legitimate claim, it would 18 be against the regulation. 19 So that's a very good point I think that 20 wasn't brought out. 21 And there are -- numerous people have lost 22 coverage for damage to vehicles because it wasn't 23 performed, and even though they were reminded to get 24 it done, they just didn't get it done. 25 Sometimes the inspection station was closed; 1 They weren't available to take pictures; 2 Or sometimes they forgot. 3 So that's another aspect of why that should 4 be repealed. 5 And, finally, I also want to ensure that 6 insurance agents and brokers are able to maintain 7 fiduciary accounts in credit unions, that that 8 effect is preserved. 9 The Insurance Department has specifically 10 addressed, and previously concluded, that an 11 insurance agent or broker may maintain a premium 12 account in a federally insured credit union, 13 provided the credit union is located and authorized 14 to do business in New York State, and permitted by 15 its own regulators to hold premium accounts. 16 And that was an OGC opinion that -- that's on 17 record. 18 The restrictions on premium accounts are 19 imposed to ensure that agents and brokers, as 20 fiduciaries, protect their principals' funds to the 21 utmost degree. 22 The fact that the department previously 23 concluded that federally insured credit unions fall 24 within the term "bank" or "banks" duly authorized to 25 do business in the state, and satisfied the 1 federally insured requirement for premium accounts, 2 provided that they're located and authorized to do 3 business in New York State, and the regulator of the 4 credit union permits the holding of such accounts, 5 led the department to conclude it had no objection 6 to an insurance agent or broker to maintain that 7 account which is insured by NCUA, subject to the 8 aforementioned qualifications. 9 Respectfully, we see no compelling reason to 10 reverse that determination now, and request that 11 this action be preserved in any update of 12 Regulation 29. 13 I thank you for this opportunity, and would 14 be happy to any questions you have. 15 SENATOR VALESKY: Thank you, Alan. 16 Just a quick follow-up on your last point: 17 So, is there pressure -- 18 SENATOR SEWARD: Yeah, that was my question, 19 too. 20 SENATOR VALESKY: -- and if so, where is it 21 coming from, to reverse that determination? 22 ALAN PLAFKER: Okay, well, what happened is, 23 is there is an update. It's been presented many 24 times, an update of Regulation 29. 25 And, the update had many, many purposes: To 1 give more options to agents. Allow some outside 2 New York State banks to -- you know, to do business. 3 One of the things that they did was, they 4 took out the ability for an agent to use a 5 credit union with their premium account. 6 So we have been advocating. 7 We had a meeting with DFS, some discussions 8 about it. There are discussions about memberships 9 in credit unions, and when you can or can't. 10 But the bottom line is, we just don't want 11 that option out of it. We want to make sure that 12 the agents have that option, when it's permissible, 13 to use a credit union which may even be better 14 protection. 15 The banks have multiple locations. Insurance 16 companies have funds in banks, clients have funds in 17 the banks, and the limits of $250,000 would apply to 18 any one of those. 19 So, for instance, if an insurance company had 20 money in a bank, and we put our money in that bank, 21 we've now eliminated, you know, that federal 22 protection, so, it could really lend to more. 23 And we just want to preserve that option, not 24 that it would be, you know, so widely used and 25 convenient as to so many banks, but credit unions 1 have really been a great alternative to the public 2 and to businesses, you know, in this economy. 3 SENATOR SEWARD: Just one quick question. 4 I was going to seek clarification on that 5 Reg 29 as well, but you've answered that well. 6 Just to go back to our discussion with 7 Mr. Kaufman on the compensation disclosure, in PIA's 8 view, how is that going, and working? 9 And would you also like to see repeal and/or 10 changes there? 11 ALAN PLAFKER: We would certainly want to 12 eliminate anything that's burdensome that we feel is 13 unnecessary. 14 You know, we're following the laws. 15 It's so easy to make a mistake and have 16 violated a regulation which, in our experience, in 17 my office, and my other colleagues that I speak to, 18 nobody really has had somebody -- I shouldn't say 19 nobody -- very, very rarely has anybody ever asked 20 what the compensation is, and that whole disclosure 21 process is very burdensome, and hasn't really 22 accomplished anything, to our knowledge. 23 As a matter of fact, we have no control over 24 the premium and compensation relationship. 25 So when we do provide a policy, our 1 compensation usually has no bearing on the premium, 2 which is based on approved rates, so the rate for 3 that policy wouldn't change whether we made more or 4 less compensation. And, in most cases, it's a very 5 small difference from one agent to another. 6 So it really -- in my opinion, and PIA's 7 opinion, obviously, if we could eliminate it, that 8 would be great. 9 SENATOR SEWARD: Well, I guess the difficulty 10 with that is if you have to be -- even if the 11 consumer -- very, very rarely would a consumer or 12 client ask for the additional information, but the 13 difficulty is, you have to be ready to answer that 14 question, under the regulation -- 15 ALAN PLAFKER: Yes, but -- 16 SENATOR SEWARD: -- in that very rare 17 instance when it's asked. 18 ALAN PLAFKER: And, certainly, if there was a 19 regulation that said we must disclose it when asked, 20 if we refused to and we violated a regulation, 21 somebody would form a complaint with the Department 22 of Financial Services if we violated it. 23 So, the purpose of that whole disclosure, and 24 the process of providing it when asked, we've always 25 been open to be transparent. 1 If somebody asked, I think even as he said, 2 sometimes it's embarrassing how little we actually 3 make on the commission, so, it's not something that 4 we would have a problem to disclose. 5 SENATOR SEWARD: Thank you. 6 SENATOR GALLIVAN: Thank you. 7 ALAN PLAFKER: Thank you again. 8 SENATOR GALLIVAN: James Owens, president and 9 CEO, CARCO Group, Inc. 10 Are you going to talk about photo 11 inspections? 12 JAMES OWENS: I am. 13 [Laughter.] 14 SENATOR GALLIVAN: When you're ready. 15 JAMES OWENS: Thank you very much, Senators. 16 I appreciate being allowed to testify today. 17 Obviously, there's already been a lot of 18 commentary today about the photo-inspection program, 19 Regulation 79. 20 I'm the president and CEO of the company, 21 CARCO Group, that really administers the 22 photo-inspection program in New York, along with 23 several other states. 24 We're Long Island-based. We have about 25 250 people in our company; about 1600 sites across 1 New York State where we do the photo inspections. 2 And, of course, the idea behind that is to 3 provide a site that's reasonably close to people so 4 they can get the inspection done without too much 5 inconvenience. 6 In general, the program was originally 7 enacted to look for preexisting damage. 8 I know Senator Marchione talked about that 9 earlier. 10 There are other purposes to the program, too, 11 which have been mentioned earlier: phantom cars, 12 cloned cars, were also -- and a deterrent effect, 13 were important for the program. 14 Obviously, I've written comments, but I'm 15 going to make some additional statements based on 16 what's already occurred on the record. 17 We also have additional purposes for the 18 program now, too, where we've tuned the program to 19 look for "Sandy" cars, because, obviously, with a 20 quarter million cars that are flooded, that's one of 21 the few opportunities you get to see flood damage on 22 a car; and, we also make a regular note on the 23 inspection form of various features that might 24 affect safety, or indicate that the car could be 25 used in an unsafe manner, such as, you know, 1 after-market accessories, and things like that, and 2 it goes into underwriting. 3 The interesting thing that was discussed 4 earlier was this notion that databases and -- can 5 take the place of a physical inspection, and we beg 6 to differ with that point of view. 7 CARCO actually, this past year, did a study, 8 where we pulled database reports from CARFAX and 9 AutoCheck, and compared them against cars that we 10 found to be fraudulent, were submitted to the 11 National Insurance Crime Bureau. 12 And, in fact, we took 30 cars in that random 13 sample of cars we submitted to NICB, that were 14 determined to be stolen and recovered, in fact, and 15 22 out of those 30 had clear reports from both 16 CARFAX and AutoCheck. 17 And, unfortunately, that is the state of 18 affairs for most of the databases out there. 19 I know those databases very intimately. 20 CARCO also participates in the 21 National Motor Vehicle Title Information System. We 22 provide that to consumers as an additional product. 23 We also include that database in our 24 inspection, so when you run a regulatory inspection, 25 we also do an NMVTIS check as part of that, which 1 detects title-washing across state lines. 2 But given our knowledge of that database, we 3 also are painfully aware of the holes that still 4 exist in a lot of the databases. 5 I think a statement by -- earlier was, you 6 know, Can the databases catch all instances of 7 damage? 8 And the answer is no. 9 It depends on reporting, and reporting is 10 like Swiss cheese; sometimes it happens, and 11 sometimes it doesn't. 12 We still have problems with cars that are 13 totaled, that go across state lines and get 14 title-washed and end up on DMV records with clean 15 titles. 16 There was a mention that DMV databases are 17 better than they used to be. 18 Not too much. 19 In general, DMV still allows vehicle 20 identification numbers that don't balance to be put 21 on their books, because we get cars in at CARCO 22 where the VIN (the vehicle identification number) is 23 mathematically impossible; in other words, the check 24 digit doesn't match the -- what the numbers are 25 supposed to be, and this happens quite frequently. 1 The other thing about it, too, is that 2 there's this impression that CARCO inspects all the 3 cars; and, in fact, we only inspect 8 percent of the 4 number of cars insured in the state. 5 So, we don't inspect any new cars, we don't 6 inspect any cars where the insured's been with the 7 carrier for more than four years, and there are 8 other waivers that exist that -- essentially, the 9 program was tuned to only inspect those cars where 10 there was a high risk that there could be a 11 potential situation of fraud involved. 12 I wanted to provide some statistics, because 13 I think that there was a question earlier about the 14 effects of the program. 15 You have to go back to 1977, and the 16 two years after that, to really look at what the 17 program did, independent of other advances that have 18 happened in the industry which have also had an 19 effect in reducing our car-theft rates. 20 In 19 -- after the program was enacted in 21 '77, New York City -- or, New York State experienced 22 a 7 percent decrease in theft rates, while the 23 surrounding states saw increases of 36 percent, 24 18 percent, and 16 percent, for New Jersey, 25 Connecticut, and Pennsylvania, respectively. 1 So, essentially, it's the most clear-cut 2 case, where you can see that the program pushed 3 thieves out of New York and into the surrounding 4 areas. 5 Now what's happened since then is that, you 6 know, with electronic keys and better law 7 enforcement, and, yes, databases in certain 8 instances, better tracking of cars, better 9 surveillance, the overall theft rate in the 10 United States has gone down by -- drastically. 11 In fact, it's gone down by more than a factor 12 of 10 since the '70s, and it's pretty much, if you 13 look at the national statistics of 2011 and '12, it 14 looks likes it's leveled out; it's settled out about 15 230 thefts per 100,000 people in 2011 and '12. 16 New York State enjoys one of the lowest theft 17 rates in the country. 18 On a per capita basis, New York State has -- 19 enjoys 99.2 out of 100,000, which I think is the 20 fifth-best, in a per capita measurement, of all the 21 states. 22 Now, that's compared -- it's kind of like a 23 tale of two states. 24 You compare New York's rate, and then got 25 another urban, highly-developed state, very populace 1 California, and California's at the other end. They 2 are 389.6 per 100,000. 3 Now, it's hard to say that this program is 4 solely due to that, and it's not, but California 5 doesn't have a pre-insurance inspection program, and 6 New York does. 7 One of the things about car theft is that -- 8 which was a point was made earlier, is that many 9 casual -- you know, car-theft rates have gone down, 10 but I'll point out that, essentially, what's been 11 eliminated is the casual thief. 12 So the single thief that's gonna take a -- 13 you know, jam open the door and just steal the car 14 right there on the spot, as a casual theft, is 15 gone -- all but gone. 16 And, in fact, the only thing that remains, 17 really, are professional car thieves which operate 18 as part of car rings. 19 One of the things that CARCO does as part of 20 the inspection, we talked about photos, CARCO takes 21 a photograph in addition to the form that has to be 22 filled out, which is done electronically most of the 23 time now. 24 You have a -- pictures of each diagonal of 25 the car, and you also have a picture of the 1 EPA sticker. That's that little funny sticker in 2 the door jam that everyone probably -- you know, you 3 see it every once in a while, you don't know -- it's 4 got a bar code on it, and the numbers, and things 5 like that. 6 It turns out that sticker is very important. 7 And CARCO, in many instances, identifies 8 stolen car via scrutinizing that EPA sticker. 9 That -- the picture of that sticker is very 10 important for this program, because a lot of car 11 thieves, when they clone a car or they -- they'll 12 actually print off a new sticker and they'll paste 13 it -- or, remove the old one and paste a new one on 14 it with a different number on the car. 15 And, see, that's where the problems start, 16 because that's like a person assuming another 17 person's identity on a credit report. 18 When the wrong VIN is on the car, when 19 someone goes to run a report or a database check, 20 they're checking the wrong vehicle. 21 They're checking the vehicle that was stolen, 22 not the vehicle that's in front of them. 23 And, they're also insure -- 24 double-insuring -- they're insuring that vehicle, 25 but there's also a real vehicle that's -- that's 1 another vehicle that's got that same number on it. 2 And believe it or not, those cars get insured 3 all the time. 4 And so, you know, in this day and age, 5 where -- we talked about agents having some impact 6 on this -- 7 And, in fact, CARCO does have agents do 8 inspections. They're called "blindsides." 9 -- but, in fact, most -- or, much of the 10 underwriting that happens today is via direct 11 writing, so there is no agent involved. 12 And, in fact, without the inspection, 13 physically sighting the car, there -- you would be, 14 literally, underwriting a paper car because there's 15 no sighting of the car whatsoever. 16 And that's unusual, because other high-value 17 insurance usually requires some attestation of the 18 condition of it. 19 For example, if you were to buy -- if you 20 were to take out insurance on a very expensive ring 21 or jewelry, you have to provide pictures of that or 22 have some evidence of what the condition is for that 23 the material to the insurance company. 24 Same thing with home insurance; usually you 25 can't get home insurance without having a home 1 inspection. 2 So why is it that the second most expensive 3 thing that people buy should have its insurance 4 written, sight unseen, without any verification as 5 to its condition? 6 So, you know, to give you some statistics 7 about what we give, in terms of the NICB, we provide 8 about 100 cars annually out of our -- when we do our 9 inspections to NICB, which are candidates for being 10 stolen. 11 In other words, we've already looked at their 12 EPA stickers, and we've determined that there's 13 something wrong with them that indicates there's a 14 high probability the vehicle's been stolen. 15 Out of that, probably one-tenth of those are 16 identified as being associated with car rings. 17 The statistics show that, you know, when you 18 close down a car ring, it saves anywhere from a 19 1 1/2 million to 6 million dollars; and, so, you 20 know, just doing the math here, that's -- you know, 21 averaging that number, that's $30 million in 22 benefits that are occurring. 23 The entire program, by the way, costs about, 24 probably 12 million -- not even 12 -- it's probably 25 less than 10 million in New York State, and that 1 amounts to about a quarter; that's one -- that's 2 25 cents per policy renewal. 3 So, you know, the cost of the program, in 4 terms of, you know, what it means to the insurer 5 paying for it, is very low. 6 The return, in terms of what we find, in 7 terms of getting stolen cars back and stopping car 8 rings, is very high. 9 Law enforcement very strongly supports 10 Regulation 79. 11 I would encourage you to go talk to 12 law enforcement. 13 And the last thing I wanted to talk about in 14 relation to the -- to views on the regulation, we 15 strongly support modernization of Regulation 79. 16 In fact, we worked with the department for 17 what were called -- what was called the 18 "fourth amendment" to Regulation 79, which was, the 19 department was putting a lot of energy into that a 20 couple of years ago. 21 That energy sort of lessened once the law 22 that was talked about went in front of the Senate 23 and Assembly, to try and make the program optional. 24 But I would strongly encourage that the 25 department pursue those modifications with renewed 1 vigor, because I do -- I agree, in large part, with 2 what Mr. Craw said from the NIA, we can safely 3 increase the grace period, from 5 days, to even 4 10 to 14 days, without any significant impact in the 5 fraud-fighting aspects of the program. 6 And, in fact, many of the old mail-based or 7 paper-based notification requirements are completely 8 and hopelessly out of date; and, in fact, they don't 9 even agree with the way CARCO's conducting the 10 program today. 11 For example, CARCO -- and we've coordinated 12 this with a regulator -- but CARCO uses an IPhone or 13 Android to connect -- collect inspection forms at 14 many of our sites, so we've, largely, gotten rid of 15 the U.S. mail-based process and eliminated a lot of 16 the time delay, to reduce those issues where people 17 waited till the last minute and then their insurance 18 collision coverage gets canceled. 19 And we're gonna continue to -- we would like 20 to move completely to a paperless solution, across 21 the board, to address those types of concerns. 22 So, any way we can get the regulation to 23 align with a more twenty-first-century approach, 24 we're absolutely in favor of doing that. 25 But I did want to make the comment that we 1 don't agree with the notion of making the program 2 optional. 3 We believe that -- it's easy to talk about, 4 in competition with -- in auto insurance. 5 And competitive markets, they're great, but, 6 you know, but the auto-insurance market is not 7 perfect competition, because, number one, insurance 8 companies, by their very nature, they have to serve 9 two masters: they have to serve policyholders, but 10 they also have to serve their shareholders. 11 And, savings for auto -- when you're 12 competing, you can only -- the only variables that 13 you can use to adjust the competition -- the price 14 you're offering as your competitive product, are 15 those variables that you can control; in other 16 words, your costs, or the value you're delivering. 17 Unfortunately, costs -- car-theft rates are 18 not something that the insurance companies can 19 really control very well. 20 And, so, the problem with making a program 21 optional in this area, is you're setting up a 22 situation where the insurance companies might stop 23 doing the photo inspections, under the notion that 24 they might be able to maybe make it slightly more 25 convenient and save a tiny amount of money to the 1 consumer. 2 But the net effect of it is, it might remove 3 a very strong deterrent to keep car thieves from -- 4 out of operating in New York State, and it could 5 result in unintended consequences; namely, that 6 theft rates could start to go back up, and the very 7 thing that we're trying to prevent, which is 8 car-insurance rates from going back to high levels, 9 could actually occur. 10 And at the end of the day, the insurance 11 companies, you know, in that situation, would simply 12 raise rates to cover their costs; and that's not, at 13 the end of the day, in line with what consumers 14 would like. 15 So we have to balance -- you know, this 16 program exists in a nexus, where we're balancing the 17 concerns of insurance companies and agents, but we 18 also have to pay attention to what the consumers' 19 objectives are, which is to gain fair coverage at a 20 reasonable price. 21 And with that I'll close my comments and take 22 any questions. 23 24 25 1 SENATOR SEWARD: Just a quick question for 2 you, Mr. Owens: Would the formally using -- 3 permitting the use of these electronic devices, in 4 terms of taking the actual photos, would that reduce 5 costs in terms of, both, from the taking the picture 6 to the storage, and any other related costs? 7 JAMES OWENS: It does. It has a number of 8 beneficial effects in many different ways. 9 The first is, that it reduces our internal 10 costs, because there's a lot of labor involved at 11 CARCO in processing the paper forms. 12 We're not going to be able to totally 13 automate the process because, at the end of the day, 14 we have to have -- one of the values that CARCO 15 provides, is that we have very trained operators at 16 our headquarter sites that scrutinize those 17 EPA stickers. 18 But the plumbing, if you -- if we can 19 automate the plumbing, of getting that inspection to 20 CARCO with a -- you know, no U.S. mail, no dealing 21 with paper forms, that reduces the cost factor 22 tremendously, and CARCO can pass those cost-savings 23 on to the carriers, which then, in turn, gets passed 24 to the consumer, although, it's a quarter -- it 25 would go from a quarter to something less than a 1 quarter, it's still measurable. 2 But the biggest benefit -- I think the 3 biggest benefit, rather than the absolute lowering 4 in cost, is the benefit of time. 5 Right now, it takes about three to four days 6 for a paper form to make its way from one of the 7 1,600 sites that CARCO has across New York State. 8 And it varies, depending on where in the 9 state; about three or four days for that form to 10 make it through the U.S. mail to CARCO's 11 headquarters. 12 Now, the grace period is five days. 13 So if someone waits until the very last 14 minute and then they mail the paper form in, you can 15 see a situation where the person's coverage could be 16 canceled in that intervening period. 17 So, you know, we advocate attacking the 18 problem from two separate directions. 19 The first is, make the grace period longer to 20 give people more time, because it really doesn't 21 have a large impact on the fraud-fighting elements 22 of the program. 23 The second benefit is exactly what you were 24 alluding to; that once you make that 25 inspection-transmission electronic, it's 1 instantaneous. 2 So, as soon as that transmitter -- that 3 inspection is transmitted, CARCO gets it and we 4 process it. We provide an immediate receipt back to 5 the person, that the inspection has been 6 transmitted, which eliminates all the doubt that 7 exists in people's minds as to whether the 8 inspections, you know, made it to CARCO, and this -- 9 or, what's going to happen with that, and it allows 10 us to get that information back to the carriers as 11 quickly as possible. 12 The other thing I think it does is 13 increase -- increases the -- how -- that data is 14 updated in real time, Senator Seward, which, you 15 know, makes the data more valuable to carriers and 16 law enforcement. 17 One thing I didn't mention is that, you know, 18 insurance companies accessed our database over 19 3 million times last year, SIU units and claims 20 units, to look at the inspections. 21 So, insurance companies are using this 22 information. You know, they use it in various ways, 23 some more than others, but, you know, they use it. 24 And law enforcement uses it extensively, too. 25 I think it was accessed over 150,000 times by 1 law enforcement. 2 So, you know, the database is in use, but the 3 more real-time information we can get into that 4 database, the more valuable it is to the folks that 5 are using it, at the end of the day. 6 SENATOR SEWARD: One final follow-up: Would 7 the use of these electronic devices, would that 8 require an updating or change in the regulation? 9 JAMES OWENS: Technically, yes. 10 I mean, you can -- you know, we've gone to 11 the department and briefed them on -- on what we're 12 doing, and they were very pleased with the 13 approaches that we've taken, and it's a natural 14 extension of the department allowing us to use 15 web-based technology, and it's an earlier 16 reiteration where someone could use the web form to 17 fill out the inspection program. 18 But, really to align the regulation with what 19 we would like to do, and also remove that paper 20 notification requirement that was talked about 21 earlier by the NIA, we really need to get the 22 regulation modified to sort of align to the 23 twenty-first century. 24 And there's no reason why this entire 25 process -- notifications; site scheduling, because 1 people often go to one of the insurer's sites, and 2 we have integrations with those sites to provide the 3 nearest site to the person, to make it easy -- all 4 that should be completely electronic at this point. 5 There's really no reason for any of this 6 stuff to be on paper whatsoever, and we highly 7 advocate that that be done. 8 And I think if we do that, we can maintain 9 the fraud-fighting benefits of the program, while 10 minimizing the inconvenience to the insured. 11 SENATOR SEWARD: I guess we've come a long 12 way. I can remember, I guess, back in the late 13 '70s, somebody showing up with a Polaroid camera to 14 take a picture of a car I had purchased. 15 JAMES OWENS: I think CARCO, for a number of 16 years, kept Polaroid in business. We were probably 17 their last customer before they closed their doors. 18 Fortunately, now we have a -- you know, a 19 hot-site, you know, completely mirrored electronic 20 database that's instantaneous. 21 So, yeah, we have come a long way in the past 22 35 years. 23 Thank you. 24 SENATOR GALLIVAN: Can I ask you about that 25 subset of vehicles, just so I have the correct 1 understanding as to what the regulation is? 2 New vehicles do not require a photo? 3 JAMES OWENS: Technically, if you have a bill 4 of sale, they do not; but in practice, no new 5 vehicles ever get inspected. 6 SENATOR GALLIVAN: And vehicles that carry -- 7 where the owner carries liability insurance only? 8 JAMES OWENS: That's right, they don't need 9 to be inspected. 10 SENATOR GALLIVAN: So then every other used 11 car that has the comp or collision? 12 JAMES OWENS: Well, except, if you've been 13 with a carrier for more than four years -- 14 SENATOR GALLIVAN: Those are excluded? 15 JAMES OWENS: -- and you have an 16 additional -- you want to insure another car, you 17 won't need to be insured -- you won't need to have 18 an inspection. 19 SENATOR GALLIVAN: Because they trust you? 20 ALAN PLAFKER: Because the trust you. 21 The idea is, is that if you -- 22 SENATOR GALLIVAN: That's written into the 23 regulation? 24 JAMES OWENS: That's written into the 25 regulation already. 1 Now, the fourth amendment wanted to move that 2 from four years to two years, so they were going to 3 loosen that 10-year requirement slightly. 4 We think that's reasonable. 5 I mean, the idea is that -- you know, who are 6 we to say exactly what the break point is as to when 7 an insurance company can trust an individual? 8 That's a tough call. 9 But what we think is a dangerous thing, is to 10 make the program optional, because -- well, this was 11 done, by the way in Massachusetts. 12 And what happened in Massachusetts was, the 13 program collapsed. All the insurance companies just 14 stopped doing the inspections completely. 15 And so, you know, that's removing a deterrent 16 effect. 17 It's too soon to tell whether that's going to 18 result in an increase in theft rates, but theft 19 rates have already leveled out; and so one of the 20 things that we're trying to do, like, you know, 21 policing, you're trying to maintain those crime 22 rates low, we want to maintain theft rates low for 23 New York. 24 SENATOR GALLIVAN: Thank you. 25 JAMES OWENS: Thank you. 1 SENATOR GALLIVAN: And last but not least, 2 Excess Line Association of New York, Dan -- 3 Is it, Maher? 4 DANIEL MAHER: The Irish tell me it's Maher. 5 SENATOR GALLIVAN: -- Maher, just like the 6 athletic director at Canisius College, who you 7 probably don't know. That's how he pronounces it. 8 Thanks for being here. 9 When you're -- 10 And just, by the way, for anyone who's 11 keeping track, James Clyne is not here, from the 12 Leading Age of New York. He has submitted written 13 testimony. 14 When you're ready, Mr. Maher. 15 DANIEL MAHER: Thanks, very good. 16 I'm Daniel Maher. I'm the executive director 17 of the Excess Line Association of New York, which is 18 also known as "ELANY." 19 And I thank you, on behalf of my members, for 20 providing me this opportunity to make the following 21 brief remarks. 22 By way of background, ELANY is a 23 statutorily-created entity which exists to 24 facilitate and encourage compliance with the laws 25 regarding excess-line transactions. 1 The excess-line industry, also known as the 2 "surplus-lines industry," exists to underwrite 3 property and casualty insurance risks rejected by 4 licensed insurance companies. 5 Most excess-line risks have significant 6 volatility or greater exposure to loss. 7 Excess-line insurers cover distressed risks, 8 risks with a bad loss history, or new businesses 9 with no loss history, or new insurance products, 10 such as cyber-liability insurance. 11 By way of example, the excess-line industry 12 writes a significant amount of construction risks in 13 the state of New York. It also provides standalone 14 flood insurance, either excess of the National Flood 15 Insurance Program or for exposures that are 16 ineligible for the National Flood Insurance Program. 17 ELANY projects it will process approximately 18 220,000 excess-line transactions this year, 19 supported by approximately $3 billion in premium. 20 This will generate direct taxes of about 21 $100 million this year to New York State, while 22 supporting thousands of jobs directly and 23 indirectly. 24 Excess-line insurers are licensed in at least 25 one jurisdiction, but not by the State of New York. 1 New York permits financially-sound insurers 2 to be eligible to underwrite -- in New York to 3 underwrite excess-line risks. 4 Excess-line transactions are regulated by 5 duties imposed on specially-licensed brokers known 6 as "excess-line brokers." 7 These brokers have expressed legal duties to 8 (1) attempt to place risks first with 9 New York-licensed insurers before accessing any 10 excess-line market, and (2) to use due care in the 11 selection of a financially-sound, solvent, eligible 12 insurer. 13 Excess-line insurers consider risks rejected 14 by licensed insurers because they have what's known 15 as "freedom of rate and form." They can charge 16 rates commensurate with the greater exposures that 17 they insure and they can customize coverage, terms, 18 and conditions. 19 ELANY has three distinct proposals to amend 20 the regulations that affect excess-line 21 transactions. 22 Under Section 2118, as I noted before, an 23 excess-line broker must use due care in selecting 24 the unauthorized insurer from whom policies are 25 procured. 1 New York Insurance Reg 41 does not define 2 what "due care" is, but it does require the broker 3 to ascertain the insurer's financial stability and 4 capacity to support the business it underwrites, and 5 also to verify the insurer's claims practices are 6 satisfactory, and its management is trustworthy and 7 competent. 8 In support of all excess-line brokers, ELANY 9 has, for the past 25 years, analyzed and examined 10 excess-line insurers for financial solvency, and 11 other metrics, to verify that these insurers should 12 be eligible in New York. 13 ELANY publishes a list of those insurers and 14 maintains a financial database available to 15 excess-line brokers on each eligible insurer. 16 So ELANY's first recommendation, is that 17 Reg 41 be amended to state: That an excess-line 18 broker is presumed to have exercised due care when 19 it places coverage with any insurer listed by ELANY, 20 subsequent to ELANY's financial review and 21 examination. 22 This won't prohibit the excess-line broker 23 from placing insurance with other excess-line 24 insurers. It will just simply allow that broker to 25 have the presumption that they've used due care, due 1 to the efforts ELANY has made, on behalf of the 2 excess-line broker, in examining the financial 3 condition of the insurance carriers. 4 Our second item: 5 In order to place a risk with an excess-line 6 insurer, an excess-line broker must conduct what's 7 known as a "diligent search," which essentially 8 means the broker must approach three licensed 9 insurers whom the broker has reason to believe 10 writes this type of coverage or class of insurance. 11 The excess-line broker or a producing broker, 12 when there's two brokers involved in a transaction, 13 must provide 21 data elements in an affidavit for 14 each placement regarding the diligent search, 15 detailing various pieces of information about the 16 licensed and insurers that declined to write the 17 account. 18 That is quite burdensome and time-consuming, 19 and, frankly, a costly process on the brokers 20 involved. 21 We believe that the statistics attached to my 22 testimony show that a substantial percentage of 23 accounts renew every year. 24 Approximately 40 percent of all accounts 25 renew at least once, or maybe twice, in the 1 excess-line market. 2 And reason that is, is because the risk 3 profile of an account does not change, you know, 4 that substantially overnight. An account that is in 5 the excess-line market tends to stay there for a 6 couple of years. 7 So, ELANY's second proposal is, that the 8 diligent search made in year one in a placement be 9 deemed by Regulation 41 to be valid for 36 months. 10 In this manner, you're reducing the burden on 11 the brokers. You're recognizing that the -- that 12 the accounts do not move out of the marketplace 13 overnight. 14 They don't move usually after 12 months; they 15 move after 24 to 36 months. 16 Now, that would not -- this change would not 17 prevent a broker from moving the account back to the 18 licensed market if a licensed market became 19 available, but it would reduce the burden on 20 excess-line brokers and producing brokers, and allow 21 the broker to spend more time on customer-oriented 22 services. 23 The third proposal also relates to the 24 diligent search. 25 Medical-malpractice insurance is a major line 1 of business in most states for excess and surplus 2 lines, but not so much in New York. 3 New York's medical-malpractice market is very 4 limited. Only three licensed insurers write a 5 material volume of this business in New York. 6 There's also the residual market, the 7 Medical-Malpractice Insurance Pool, also known as 8 "MMIP," and various risk-retention groups, which are 9 exempt from most state insurance laws, write the 10 balance of this business in New York State. 11 Under the Insurance Law, an excess-line 12 broker cannot place primary medical-malpractice 13 insurance for a doctor, a dentist, or a general 14 hospital with an excess-line insurer unless MMIP, 15 the residual market, has rejected that risk. 16 MMIP has informed ELANY that it would reject 17 risks where the insured would prefer a excess-line 18 insurance policy, but is not empowered to do so. 19 It is our understanding that the 20 superintendent of Financial Services has the 21 authority to permit MMIP to reject risks by 22 consenting to an amendment to the Plan of Operation 23 of MMIP. 24 ELANY proposes, our third proposal, is that 25 ELANY would like MMIP's Plan of Operation to be 1 amended, to permit MMIP to reject the risk at the 2 request of the insured. 3 This will give the insured the broadest array 4 of available markets which can address things like 5 multi-state underwriting exposures, and other risk 6 exposures, that MMIP simply was not designed to or 7 equipped to handle. 8 The insured is in the best position to 9 determine whether MMIP or an excess-line insurer is 10 offering the best terms and conditions available. 11 So with that, I'll take any questions you 12 might have. 13 SENATOR SEWARD: Dan, just at the outset, 14 I just wanted to say that the -- we've always been, 15 in our Committee, supportive of ELANY (the Excess 16 Line Association) of New York, and all the member 17 brokers, because it keeps that business -- you keep 18 that business here in New York that otherwise -- 19 I mean, if insureds are -- have been rejected by 20 licensed insurance companies, that they could very 21 well go elsewhere in terms of their coverage, but 22 you keep them here -- you keep that business here in 23 New York. 24 DANIEL MAHER: I thank you for that, 25 Senator Seward. 1 SENATOR SEWARD: Just as a follow-up on the 2 medical-malpractice insurance coverage: 3 So, currently, excess-line brokers are not in 4 that business at all because of the fact you can't 5 get a rejection from MMIP? 6 Is that -- 7 DANIEL MAHER: That's correct with respect to 8 primary medical-malpractice coverage for doctors, 9 dentists, and general hospitals. 10 So, ELANY's members are a major player with 11 respect to placing such risks, as nursing-home risks 12 and other risks which have some medical-malpractice 13 exposures. 14 But you're right, they're precluded, 15 essentially, the way the reg currently, essentially, 16 blocks them from getting a rejection from MMIP, 17 which means the insureds are not being shown, 18 perhaps, in some cases, what might be their best 19 alternative for coverage. 20 SENATOR SEWARD: I see. 21 So by allowing that MMIP to reject, then that 22 would open the door for excess line to provide an 23 option? 24 DANIEL MAHER: That's correct, and it would 25 be at the insured's request, where the insured is 1 recognizing that they would like to see the 2 alternatives that might be available in the 3 excess-line market. 4 SENATOR SEWARD: You know, well, you want to 5 be -- you're getting a little bit more review of all 6 of this, but I think it's an interesting concept 7 that ought to be explored because of the, you know, 8 what's happening. 9 We heard testimony earlier from the -- that 10 the medical-malpractice area is a difficult area in 11 terms of coverage. 12 DANIEL MAHER: Very tough class of business. 13 SENATOR SEWARD: Yeah, but you'd like to be 14 in it? 15 DANIEL MAHER: That's what my members do. 16 SENATOR SEWARD: That's right, they take the 17 tough ones. 18 DANIEL MAHER: That's right. 19 [Laughter.] 20 SENATOR SEWARD: Well, your other 21 recommendations, I -- we appreciate your specific 22 recommendations, and we'll, obviously, consider 23 those. 24 Thank you. 25 DANIEL MAHER: Don't you want to ask me about 1 Reg 194? 2 SENATOR SEWARD: Okay, well, hey, let's do 3 that. 4 DANIEL MAHER: As long as I'm here? 5 SENATOR SEWARD: Yes, why not. 6 Yes. 7 DANIEL MAHER: We would support the repeal of 8 Reg 194. 9 When -- before it was promulgated, there was 10 testimony -- we essentially testified, that if I was 11 buying an appliance at Sears that was $1,000, and 12 the same appliance was $900 at Best Buy, am I going 13 to ask, you know, how much they're paying the 14 salesman? 15 You know, it appears, based on the testimony 16 before, insureds just are not availing themselves of 17 the right to request. 18 So, while the regs are often well-intended, 19 here's a reg that was put in place to protect 20 consumers, and the consumers are saying, We don't 21 really want the information. 22 So, I thought I would add that. 23 SENATOR SEWARD: Yes, I would note that the 24 push for that regulation came under a different -- a 25 previous administration, and it's continued. 1 But, obviously, that's an area I'm sure that 2 our group will take a close look at. 3 DANIEL MAHER: Well, thank you very much. 4 SENATOR GALLIVAN: Thank you, Mr. Maher. 5 DANIEL MAHER: Thank you for this 6 opportunity. 7 SENATOR GALLIVAN: For the record, we also 8 have written testimony submitted by the 9 New York Bankers Association, from Michael Smith, 10 president and CEO; 11 And, also, the New York State Land Title 12 Association, Robert Truber, who is the 13 executive director. 14 That will conclude our hearing today. 15 We appreciate everybody's input, those 16 remaining. 17 And we will look for a final report towards 18 the end of November. 19 Thank you, everybody. 20 (Whereupon, at approximately 1:55 p.m., 21 the public forum on Insurance/Banks Regulatory 22 Reform held before the New York State Senate 23 Majority Coalition concluded, and adjourned.) 24 ---oOo--- 25

Public Forum/Town Hall Insurance/Banks Regulatory Reform - To Learn from Businesses and Industry Experts Which Regulations Are the Least Useful, Least Cost-Effective, And, Therefore, Should Be Eliminated

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