Joint Public Hearing: To Analyze All Aspects of the Property/Casualty and Liability Insurance Markets for Residential Properties in New York, and to Consider Legislative and Policy Changes to Promote Access and Affordability for All Property Owners and the Long-Term Stability of Insurance Markets

SENATOR KAVANAGH:Okay, good morning, everyone and welcome to this joint public hearing on insurance for residential properties throughout New York State.

I am State Senator Brian Kavanagh. I chair the Committee on Housing Construction and Community Development, and this is a joint hearing of the Insurance Committee -- the Housing Committee, which I chair, and the Insurance Committee, chaired by Senator Bailey, who you will hear from in a moment, and Senator Skoufis, chairing the Investigations and Government Operations Committee who is in the room.

Elvis has left the room, but Senator Bailey has arrived.

We also have a number of senators with us, including currently our ranker, Senator O'Mara is the ranker of the Investigations and Government Operations Committee. And Senators Nathalia Fernandez and Andrew Gounardes who are members of the committees here. And we do expect that we will be joined by Pam Helming, who is the ranking member of the Insurance Committee.

So I thank everybody for their collaboration and also the many staffers of the Senate, including my own staff, who have worked very hard to prepare us for today.

The scope of this hearing, as I mentioned, is insurance products that are necessary for residential property throughout the state. So that includes single-family homes, multi-family buildings, co-ops, condos, rentals.

It does not specifically include buildings that are exclusively commercial, other than maybe some substantial overlap between the insurance issues in commercial and residential. And we are here to examine an issue that really has been something that many of our constituents bring to us very frequently.

The premiums for insuring homes and other residential properties have been increasing, in some cases very dramatically increasing, doubling and tripling in short periods of time. And at the same time, we have reports of reduced coverage, even though policies may be more costly, greater out-of-pocket deductibles, and in some cases, people who are previously insured, who are losing access to their coverage without adequate explanation.

So, you know, this raises, obviously, concerns for individual homeowners in their ability to maintain and secure what is often their most valuable asset. But it also has become an issue for our ability to produce and maintain affordable housing, including multi-family housing throughout the state.

So, you know, as we know, there are also extreme weather events around the country that have dramatically destabilized markets in some parts of the country. There are reports along the Gulf Coast and in California and in Colorado and in Florida of circumstances where whole communities are losing coverage. So we are very cognizant of that and the extreme weather driven by climate change that is driving a lot of those circumstances.

So, because of all of that, we basically have undertaken an investigatory process that started in August with the chairs of the two other committees and the Housing Committee.

We began by basically querying various insurers, sending very specific questionnaires to retrieve data and documents from them and also began a dialogue with the superintendent of DFS whom we are very happy to have with us as our first witness this morning, and basically the goal being to understand and document the problem and generate solutions that could be enacted either through legislation or through other reforms, regulatory reforms or other reforms that we can enact here in the State of New York.

We expect to hear from a very diverse range of witnesses today. There is also a lot of written testimony that has already been posted, including from some who were not able to testify in person.

So again, we are developing a very robust record here.

We are, I should note, still in conversations seeking testimony from certain large insurers who will not be testifying today, but we hope to continue to build that record over time.

So I think I'll hold off on going through the timing. It's going to be very tight timing today to get through many witnesses so we are not all here tomorrow morning.

But maybe before I do that, I'll begin and invite Senator Bailey to give some opening remarks.

SENATOR BAILEY:If the mic -- oh, it's on.

Good morning, everybody. Again, thank you for coming. Senator Kavanagh laid out the reasons why we are here. And I think that they're apparent to you and your family, your friends, yourself, anybody that you know, the cost of insurance has risen. Period. Whether it be auto, which is not the subject matter focus of this -- home, life, everything has gone up.

And I just want to make sure that as the Chair of the Insurance Committee, I want to state very clearly, you know, unequivocally for the record that this is not an attack on the industry.

As legislators, it is our job, 300,000 plus people elect all of us to represent them. And they come to -- each and every one of -- and I'm going to take the liberty and say each and every one of us on this stage, the dais, has fielded a great number of questions as to why is my insurance going up. "My insurance is going up at such a rate that I cannot afford it. What can you do about it? "

Now as legislators, our job is to create policies that protect and support New Yorkers, and this hearing is in furtherance of that.

We're going to be asking a lot of questions, gathering a lot of data and hopefully coming up with some good solutions so that we can move forward and figure out what's ailing us.

It has been no secret that the price of insurance has gone up, like I said earlier, but what that also comes with is it creates schisms in many different ways. It creates people that have to make other choices in their life if they don't pay their insurance.

And there is a domino effect in many households; especially older folks who are holding on to their property and even if their mortgage is paid off, they still have to pay that insurance and it's affecting their quality of life because we know SNAP benefits just came back online.

Every little cent counts, and we are going get down to the dollars and cents.

I just want to thank, most importantly, each of our staffs, myself, Senator Skoufis and Senator Kavanagh have done incredible work in gathering data, being persistent to stakeholders.

I just want to make sure that -- sometimes we save staff for the end, but we have to thank you at the beginning and thank you for the work that you have done to make sure that we have gotten here.

It is going to take an effort from all of us, and I'm going to ask you for your patience in advance for today. There are a lot of people here. A lot of people that want to testify, and I'm hopeful that we can adhere to the time.

We have a time clock, you know, I'm speaking a little bit past my time.

We have a time clock, and I would hope that those who are testifying would adhere to the time so that everybody that has come here on this wonderful Tuesday morning gets an opportunity to speak their mind and their voice and that we can have an answer for everybody: The tenant, the homeowner, the insurer, the regulator, the legislator.

So I just want to say thank you for coming. And I want to kick it to my good friend and the Chair of the -- I just say Investigations, Skouf; the Investigations Committee, Senator James Skoufis.

SENATOR SKOUFIS:Thanks very much, Senator Bailey, and thank you, Senator Kavanagh. Thank you all for being here.

Good morning. I, there at the beginning of my remarks as well, I want to underscore something that Senator Bailey and Senator Kavanagh mentioned at the start here, which is that a lot, a lot, a lot of work has been put into this investigative process by all of our staffs, including central staff, and this is just the latest, sort of mile marker in our process here this hearing.

So thank you all for being here and thanks in advance to the individuals who are going to be testifying.

So, with the cost of virtually every aspect of life for New Yorkers going up, the purpose of today's hearing is to look at the many contributing factors in the lack of both affordability of and access to insurance in the residential space.

According to a report by one of the trade associations we'll actually hear from later today, "Despite heavy catastrophic losses in 2025, including the costliest wildfires on record, the U.S. property and casualty industry recorded its best mid-year underwriting gains in nearly 20 years."

But as I expect, we'll see throughout the course of today's proceedings, this equation isn't working for everyday New Yorkers.

Today's hearing, as I mentioned, follows months of investigative work as Senator Kavanagh outlined in his remarks and several common themes have emerged to date.

1. That property owners, regardless of a spotless claims history or any fault of their own are seeing their premiums dramatically escalate in recent years.

Second: That regulators are often lacking the data needed to robustly evaluate and monitor the impact of insurance trends on consumers.

Third: That the modifications homeowners and property owners are encouraged to make in the face of severe climate threats are not resulting in lower premiums or meaningful savings.

Fourth: That many are boxed out of the voluntary insurance market; again, through no fault of their own and forced to pay even more with insurers of last resort.

Fifth: That, in fact, countless New Yorkers are foregoing property insurance all together.

And lastly: That the loss experience carriers endure in other states may well be influencing their rate setting here in New York.

These are just a handful of factors among many others our committees are looking at as we seek to develop a comprehensive understanding of the health of New York's residential insurance industry. And today we look forward to identifying, not just the problems facing insurance consumers, but the legislative and regulatory opportunities ahead of us as we work to change course.

In the coming months, we'll publish our investigative report which will include the committee's recommendations ahead of the 2026 legislative session and look forward to a robust conversation today.

Thanks very much.

SENATOR KAVANAGH:So again, some housekeeping here.

We have about 30 witnesses scheduled to speak in person today and senators here who have some questions and a few additional ones who have joined us, so we are going to try to adhere to a very strict timeline to get through the day and make sure everybody has an opportunity to speak.

So as is our custom, we will give the superintendent and the heads of public agencies 10 minutes for their oral remarks here, and other witnesses will have 5 minutes for their remarks.

Then after each panel of witnesses, there will be a Q&A period during which chairs will have 10 minutes for questions, rankers will have 7 minutes for questions and other members will have 5 minutes. And if we go to a second round of questions on a given panel, chairs will have 7 minutes, rankers will have 5 minutes and other committee members will have 3 minutes.

For those who heard lots of numbers and didn't commit them to memory just now, there is a time clock, which I believe the witnesses as well as the senators, can see, and we are going to try to, you know, get everyone to adhere to that today.

And just to note: As I mentioned earlier, there is written testimony. We actually started posting written testimony for this hearing at the end of last week.

So we have everyone's written testimony; even those who are testifying in person today, and so please as witnesses, please feel free to highlight the key points of your written testimony with an understanding that the committee and the staff -- the committees and the staff will thoroughly consider everything you have to say.

So without further ado, I think I'll turn it over to Senator Skoufis.

SENATOR SKOUFIS:We will be, as a matter of practice today, we will be swearing in all of the individuals providing testimony.

So Acting Superintendent, if you could raise your right hand for me.

Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

SUPERINTENDENT ASROW:I do.

SENATOR SKOUFIS:Thanks very much.

The floor is yours.

SUPERINTENDENT ASROW:Thank you so much.

Good morning, Chairs Bailey, Kavanagh, and Skoufis; Ranking Members Helming, Martins, and O’Mara; and distinguished Members of the Senate Committees on Insurance; Housing Construction, and Community Development; and Investigations and Government Operations.

My name is Kaitlin Asrow, and I serve as the Acting Superintendent of the New York State Department of Financial Services (DFS).

Thank you for the opportunity to address you today on today’s hearings on the cost and availability of residential property insurance in New York.

I also want to thank Governor Hochul for trusting me to lead DFS into its next chapter.

Across the nation as was stated, homeowners' insurance markets are facing extreme uncertainty and rising risks.

Nationwide, the total number of claims has increased by almost 50 percent, and the severity or cost of the claims has almost doubled as well.

These figures are leading to rising rates across the country.

A recent report from the Consumer Federation of America found that nationwide from 2021 to 2024, premiums for a typical homeowner increased by an average of 24 percent.

Public reporting has highlighted particularly acute challenges in states like California and Florida where insurers have exited the market.

This topic is deeply personal for me. I grew up in a rural farming community in northern California, population of under 500. The median household income there is $50,000, half the average household of California. It is place where neighbors rely on each other and a single event impacts everyone.

I was recently there visiting family this summer and heard the community phone tree go off. The residential insurer for the town was not renewing policies. An insurer no one knew had coming in and was giving residents hours to sign contracts at huge rate increases, but it was their only option for coverage.

My hometown and much of California is faced with both the disruption and fear of carriers leaving or non-renewing and unbearable rate increases.

We must find the balance between affordability and access here in New York, and I appreciate coming together today to do just that.

There are a number of factors that are driving market instability nationwide: Increasing frequency and severity of catastrophes due to climate change, rising costs of materials and repairs driven by inflation, a tightening re-insurance market and the effects of social inflation.

Severe weather events have become more frequent and more costly and are cited as the leading factors stressing the homeowners' insurance market. An increasing number of natural disaster events per year now exceed $1 billion in damages.

For New York specifically, more than 78 percent of the population live in coastal areas of the state, meaning that a higher percentage of New York in particular are vulnerable to weather events. And additionally, in recent years, the cost to repair and rebuild homes has been impacted by inflation, supply chain disruptions, worker shortages and rising wages.

According to the federal insurance office between 2020 and 2023, the replacement cost for property and casualty-related losses increased by an average of percent. These increasing costs are ultimately reflected in premiums.

Rising property values also represent upward pressure on replacement costs and therefore rates. Property values have risen 1.7 percent across the U.S. over the past year, but here in New York over the same period, it has risen by 3.8 percent.

Within the insurance industry, insurers often manage the risk by purchasing reinsurance against the losses they have agreed to cover. This enables insurers to write more policy than if they retained all risks themselves.

Since 2017, the overall cost of catastrophic reinsurance has nearly doubled.

There are also non-economic factors increasing insurance claims payout and loss ratios including more frequent litigation and larger jury awards. These costs are ultimately passed on to property owners in the form of higher insurance premiums.

We have seen the impact on policyholders when states fail to strike the right balance or act quickly enough to address market challenges.

Carriers withdraw, consumers lose access to coverage and the cost of available coverage goes up; further, as fewer options remain in the market.

Here in New York, the market remains comparatively stable, thanks in part to DFS' strong regulatory framework.

A 2024 "New York Times" piece highlighted that while personal residential property insurance is increasing by double digits across the U.S., in states with robust regulatory frameworks like New York, property owners are charged much lower rates when measuring the cost of their premium as a share of their overall home value.

Looking at trends over time from '21 to '24, New York personal residential property rates increases here in New York were about half of the national average.

New York also remains below the national average for residential property premiums.

Additionally, New York's personal residential property insurance non-renewal rates are among the lowest in the country.

New York also has unique risks compared to other markets across the U.S. The metropolitan area here has the highest population density in the country.

This means that insurers are concerned about correlated losses, where an event can significantly impact more policyholders and have higher losses than similar events in less populated areas.

New York also has the oldest owner occupied homes in the U.S., which typically means more costly repairs when they are needed.

While these factors would typically push rates higher for consumers, we have kept them stable in New York as described previously.

At DFS, we aim to maintain a stable and competitive insurance market in order to enable dependable insurance coverage at affordable rates for New Yorkers.

State law requires DFS to review insurance rates to ensure that they're not excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers.

While residential property insurance rates are not subject to DFS' prior approval but rather to the standard of file and use, insurers typically wait for DFS' approval on these rates before implementing.

New Yorkers who cannot find insurance coverage for their properties in the private market can obtain coverage from the State's property insurer of last resort, the New York Property Insurance Underwriting Association for NYPIUA, which DFS also oversees.

NYPIUA's policies tend to be more expensive and can provide less coverage than standard homeowners policy.

Insurers of last resort are designed to be a temporary safety net and are not equipped to manage a significant expansion of policyholders if insurers withdraw from New York in substantial numbers.

State insurance regulators are limited in their ability to directly or unilaterally address the cost drivers I've discussed today, but most, including DFS, try to balance insurer solvency and therefore presence in the state, with affordability for policyholders.

There are no easy fixes to these complex issues, which is why I appreciate you making this a priority.

Ultimately, solutions will require action from a diverse set of stakeholders across local, state and federal government, as well as the private sector.

DFS has sought to address these challenges through a series of actions.

At a macro level, in 2021, the department issued guidance to insurers on how to manage their material, financial, and operational risks associated with climate change.

Insurers are expected to integrate the financial risks from climate change into their governance frameworks and risk management strategies.

Within residential property policies, DFS also issued guidance in 2024, reminding insurers of their obligation to provide discounts to homeowners who install storm shutters and hurricane resistant glass, and encouraging insurers to offer discounts for the installation of additional loss mitigation devices.

Further, thanks to the great work of you and your colleagues and the Governor, the 2025 budget included legislation drafted by DFS that helps to address the increasing costs of insurance for affordable housing developments; which typically purchased bundled commercial property and liability insurance policies.

The department continues to explore solutions to address market challenges and affordability.

DFS is analyzing how to effectively incorporate climate and catastrophic data into filings to better model credible and actuarially sound loss projections considering increasing frequent and severe climate events.

We are also developing a summary and outreach plan to outline all available insurance discounts and help New Yorkers better understand potential cost saving avenues on their homeowners policies.

In closing, I will say that the first meeting I convened when I assumed this role focused on addressing the cost and availability of insureds in New York.

In the six weeks since then, I have had countless conversations about the topic. Myself and the committed staff of DFS will work within our authority to navigate these issues and partner with all of you to find sustainable solutions to affordability and access for New Yorkers.

Thank you for giving DFS the opportunity to testify before you today and I look forward to continuing to work together. ///

SENATOR BAILEY:Thank you, Acting Superintendent. Thank you for testifying, and thank you to the Governor and the executive team for permitting you to testify.

And I want to thank outgoing Superintendent Harris for all of her excellent work. We worked very well together.

Just a couple of questions because I know my colleagues have a lot of questions.

Top line. Intra-agency stuff, right? You have been at the agency for a while but you've just assumed the top role.

If you are looking at the landscape of the biggest problems or what the overall outlay of the market is right now, what would you say that it is?

SUPERINTENDENT ASROW:So you know, I think those three factors, I'm not sure which is kind of the highest among the three factors but as I mentioned, climate.

Climate risk is the primary factor I would say that is discussed within our agency and with the market.

I think in New York, over the past 5 years, severe events have tripled in their frequency.

The next item is this kind of macroeconomic pressure.

Inflation, building costs, supply chain disruptions, cost of labor increasing and I believe the New York State Comptroller has indicated that repair and building costs have outpaced inflation here in New York and continue to do so. And those are just structural changes, and then the social inflation issue.

I believe New York is second per capita in kind of nuclear verdicts in that space.

So those are the three issues we are very much focused on.

SENATOR BAILEY:Intra-agency stuff, you know, we have had conversations, we have had conversations with prior Superintendent Harris about some of the staffing challenges that DFS has faced.

Would you say that some of those challenges, while not an aptitude, only in number, just for the record, would lead to an inability to fill certain positions that may have an effect on the agency's ability to carry out the work that it should?

SUPERINTENDENT ASROW:I appreciate the question.

No, I do not believe that, you know, the staffing challenges that DFS has undergone for a number of years are leading to us loosening or changing our regulation.

And I think that bears out, and again the consistency we see in the market in terms of carriers not leaving, rates remain below average for the United States.

That being said, we understand it is very significant for consumers and we are monitoring that and working with all of you.

You know, the staffing challenges hit my staff hardest, right? And they feel it by needing to do more with less resources.

And so we have been very appreciative of your support and the executive chamber support to build up our staffing over the past few years, but we are digging out of a hole, and that's going to continue for sometime.

So we very much appreciate the collaboration. We are continuing to talk to the executive chamber about our needs.

I'm very focused on cross training. Focused on kind of early entry staff and how do we train them through a path to recreate resiliency in the agency.

Again, that will make sure we keep the head count.

We keep that retention while we continue to do the work.

SENATOR BAILEY:Certainly.

I want to make sure I make very clear that the lack of, in number, is not for the lack of skill. You have quite capable staff. I just want to make sure I underline and put a finer point on that.

So what can we do as legislators? I know that there is proposed legislation, program bills that come to us.

We have a couple of months until the legislative session begins in January. Are there things that are top of mind at the agency that you can think about giving us to think about, to introduce, that may help tamp down some of the issues and concerns that we are obviously having in the market with insurance?

SUPERINTENDENT ASROW:So I appreciate that.

I will defer to kind of the wisdom of the legislature on, you know, what bills that you would propose, and we are here to work with you on any of those.

You know, technical assistance, and understanding kind of the not-good effects or the unintended impacts is I think where we are strongest.

SENATOR BAILEY:Certainly.

And I think the word of the day is going to be affordability. I think all of us are going to touch on that.

And I know that you are not going to be able to specifically opine about a specific piece of legislation that would create affordability. But are there certain market conditions, certain societal conditions, are there things that we can help you and that the agency can help us with achieving so that we can try to make things more affordable?

SUPERINTENDENT ASROW:Yeah, what I will point to at a broad level is something that we have been very focused on and that is resiliency.

I think where we have more resilient buildings, where we have more resilient communities, then it's a win-win.

Consumers, New Yorkers are not experiencing the actual loss event, which again is very disruptive. They don't want to go and then seek out insurance.

Insurer's costs are also going down. They don't have to bear those losses. They're able to underwrite more specifically and set their rates on that assurance.

So DFS in particular has focused on resiliency, so in statute as I mentioned in my opening remarks, we do require discounts for consumers on the use of storm shutters, shatterproof glass, things like this.

And then we have encouraged a lot of optional discounts that insurers can give and we think that benefits both, right?

We are increasing the resiliency of the actual homes and consumers are seeing reduction in costs.

And so that's where I have asked the team to pull together a rubric of all available discounts in New York to provide to consumers so they can take advantage of that and increase their resiliency.

SENATOR BAILEY:Certainly.

You said suggest. Is there a possibility for us to go beyond suggesting?

In such an economic crisis, is there a method where there is regulatory or legislative, in your opinion, that we can compel certain carriers, if there is a discount that can possibly be available to a consumer, that they should tender it? Even if they just have to apply and check a box.

Is there something that you believe that we can do to, I guess, go much more towards compulsory?

I know we don't like the word mandate sometimes in the insurance business. That's not a great word. But is there something that we can do to try to make sure that they're offering -- and if it's already in a publicly available discount, is there something that we can do to make sure that it is widely advertised, widely known and widely disseminated.

SUPERINTENDENT ASROW:I appreciate that. And that's where I'm focused, to make sure that what is available today is very available to consumers so they are taking advantage.

So I would very much appreciate partnering with you on how do we get the information about these discounts out there that already exist.

As I said, there is precedent in the law for a mandated discount on kind of hurricane resistant shutters and shatterproof glass and again then optional discounts that we strongly encourage.

And I will say in our most recent survey, approximately 98 percent of insurers that we surveyed are offering the optional discounts for resiliency measures.

So happy to continue to partner with you on what more we can do there.

SENATOR BAILEY:Certainly.

Again, we want to make sure the companies remain solvent but the solvency of someone's home is very much more important to me and my colleagues.

And I thank you for your time and I will cede to my colleagues. Thank you.

SENATOR KAVANAGH:Thank you.

Thank you for your testimony. It's hard to argue with someone who defers to the wisdom of the legislature. What are we supposed to say to that.

But just, can you -- you mentioned, you know, the effects of climate change and extreme weather events around the country and here in New York.

Can you just talk a little bit more about how risks of -- the growing risk of extreme weather is priced into insurance from your perspective at this point.

SUPERINTENDENT ASROW:Yeah, absolutely.

So how rate setting functions is that carriers and then DFS, as the oversight layer on rates, will look at their historic losses in an area and their kind of projected out losses, claims and then losses in that same space and then set premiums to account for that.

You know, again, as I mentioned, in statute, there is a requirement that we consider the solvency and the adequacy of such rates to maintain the insurers in New York. So we do expect a slight profit on that.

Again, we make sure that it is reasonable and justified in all cases.

So in terms of climate, you know, catastrophic events are less predictable. They're more severe. And so a lot of the actuarial science is based on kind of standard losses that they've seen year over year and they can more adequately predict.

So what is happening with insurers is they're not able to kind of account for potential large losses and appropriately set those premiums.

So something that we are looking into that we know is available and being used in other states is catastrophic kind of climate modeling.

So we have a climate division in DFS that we stood up that's focused specifically on how do we think about that.

That being said, my background is in technology and, you know, models have significant lift.

So they can help account for that large variation in catastrophes that insurers from the actuarial side are not used to predicting but they can also have large variations.

So small data changes can have large changes that we want to make sure we understand and we want to make sure those models are appropriately testing so they're not having adverse effects.

So that's something that we are exploring, but it's just harder to model catastrophes.

SENATOR KAVANAGH:And am I correct in understanding that so far, those more sophisticated models are not directly a part of the pricing or the review and approval of rates; is that right?

SUPERINTENDENT ASROW:We are currently exploring how they might be used in rates.

SENATOR KAVANAGH:And to the extent insurance companies are using models, are they submitting descriptions of those models?

I understand they're not actually submitting the models themselves in a manner that DFS can review; is that right?

SUPERINTENDENT ASROW:So, you know, typically models, and again, we are still exploring both with insurers and our own teams, you know, the use of these models and their rate setting and then our review.

So what we have been doing is talking to other states about their process in particular and one thing that they have expressed is a challenge is a lot of times these models are considered proprietary so it's very challenging to kind of unpack the model and understand some of the predictive mechanisms.

So again, that's something we are talking to other states to learn from, learning from the industry and learning from advocates.

SENATOR KAVANAGH:But aren't insurance companies already using some proprietary practices for pricing?

Like they don't necessarily share with their competitors how they're pricing policies at this point, right?

SUPERINTENDENT ASROW:So, you know, the overall rate filings are public.

So I'll differentiate underwriting approaches versus rate filing.

So the underwriting methods are not required to be reviewed by DFS in statute that we can go in and review them through examinations and yes, typically also in the banking space, right, an underwriting method is likely proprietary so they can assess the risks of individuals and whether to write them.

Rate setting, we do review that. Again, obviously we keep that confidential amongst other insurers.

Again, our mandate is to not be detrimental to competition so we have to keep that confidential.

SENATOR KAVANAGH:Right, but if insurance companies were to sort of take some leap into a new method that involves some very sophisticated models, presumably in order to properly regulate that, DFS would want access to the models themselves?

SUPERINTENDENT ASROW:Yeah, so, you know, if they were to -- again, we are in the early days with our companies and exploring whether they're using these models and how they're using these models.

So I will say yes, if they're using them, we will review with them their approach.

But, you know, I think how deep we are going to unpack the models themselves versus, again, a lot of the work that I have done in my prior role is really about the governance structure around models: How do we make sure we understand the data that's going into them, how do we make sure we understand the models are tested, the right committees in place, again, to make sure there aren't unfair and discriminatory practices coming out of those models.

So a lot of what we would focus on is the governance around them.

SENATOR KAVANAGH:Okay, you are currently mandating through regulation, discounts for shutters and shatterproof glass.

Does DFS set the sort of the amount of those discounts?

SUPERINTENDENT ASROW:So we have worked with the insurers to understand.

We see that the discounts are approximately 3 to 6 percent for those so we don't -- different kind of factors come in, and we do approve kind of the overall classification. So a discount.

And then insurers, depending again, on their risks and kind of the specific data and loss history, so it's not a very specific percentage that's implemented by DFS.

They propose kind of a range, and then we approve that general classification.

SENATOR KAVANAGH:Are you approving the sort of pricing -- well, the amount of discounts, or other discounts they're offering for safety and mitigation?

SUPERINTENDENT ASROW:Yeah, so when we receive a filing, we are kind of reviewing their methods, their actual actuarial methods, and again, how they're taking in loss data, how they're taking in expense data to propose a percentage, a percentage discount or a percentage premium.

And, yes, then we are kind of approving that premium.

Did that answer your question?

SENATOR KAVANAGH:Yeah.

And I think I know the answer to this but just for the record, we have been -- the state has been investing a lot and localities have been investing a lot and private property owners have been investing a lot in kind of mitigation for storm risk and other extreme weather risk that sort of goes beyond the bounds of a particular property, you know, improvements and drainage and, you know, all kinds of barriers to damage that might occur to individual properties, but is done at the community level.

Are there currently any discounts associated with those kinds of mitigation?

SUPERINTENDENT ASROW:So not at the kind of overall community level.

I will say DFS is very supportive of kind of community investment and resiliency measures to my previous kind of comment, right, resiliency is very aligned with both consumer and New Yorkers' interests in terms of not having that loss experience in the first place.

And then, you know, our expectation is that investment -- first, it will encourage more carriers to write in a space, again, increasing competition, hopefully bringing down costs.

Also we do hope that those will show up in rates over time.

That being said, we don't have a specific classification in front of us because it's all kind of historic data.

So, again, we look at historic losses and so then we would expect to have the resiliency measures that are being invested in today, to show up in rates over time.

SENATOR KAVANAGH:Will you be able to provide -- you mentioned you are gathering all the potential discounts. Is that -- I assume that's a work in progress. But will you be able to provide for the committees here, kind of a list of current discounts that you think insurers are offering?

SUPERINTENDENT ASROW:Yes, I hope to be able to do that.

SENATOR KAVANAGH:We'd appreciate that.

Shifting gears a little bit. Talking about kind of non-weather-related damages. I think we are going to hear a lot about liability insurance, which, as much as climate change and, you know, increases in those kinds of losses have been significant.

A lot of what we have been told and what some of the written testimony has indicated is that there is been a really dramatic increase in premiums for liability insurance and in some cases policies doubling and tripling without an explanation that is at least adequate from the perspective of the property owner.

I mean, just can you talk -- is that something that DFS is observing?

SUPERINTENDENT ASROW:Yeah, so, you know, in conversations with our related entities, we absolutely see kind of social inflation and again, higher jury awards, more litigation being a driver on the liability side.

So, you know, like the other kind of factors, we do see those increases.

SENATOR KAVANAGH:So if I'm a property owner and my insurance company proposes to double my rate, my premium, sort of how does that get -- how does DFS' approval process relate with that decision about what is an acceptable premium for me to pay?

SUPERINTENDENT ASROW:So how it works is a carrier kind of will, whatever cadence in the property and casualty, there is not kind of a set cadence, right?

In health, for example, we might have a set cadence in which premiums will be reviewed. Property and casualty, it's when policies are renewed.

So an insurer will come to us, and they'll submit a rate filing, so a request to change their premiums.

This could be to offer a discount.

This could be to increase their premiums or to decrease their premiums.

So, again, then we would take that information in with our actuaries and review the methods, the factors that went into that; you know, again, making sure that everything is fair in terms of -- that rates are not excessive.

The rates they're posing are not excessive but also that the rates are adequate to maintain the solvency of the insurer and again, as we prepare for potential losses, we expect there has to be some amount of solvency and surplus there.

We look for unfair discriminatory practices and then we will many times change the rate.

So we say that, you know, we think that our indicated range is lower or different.

And so then they will have to go back and refile and then that would become effective.

SENATOR KAVANAGH:My time is up.

I will reserve that that's an unusually aggressive alarm. I like that.

I may want to come back for another round, but thank you.

Do we have other senators?

SENATOR SKOUFIS:I have a few questions.

Thank you, Acting Superintendent. Thank you for being here.

Thanks for your early and very responsive work and it has been great working with your predecessor. It was great working with your predecessor as well.

I'm going to jump around a little bit here. I want to start with does DFS track the number and types of claims that occur in this space?

SUPERINTENDENT ASROW:We do not get -- thank you for the question. We do not get claims level data.

SENATOR SKOUFIS:Is that something you think you should start tracking?

SUPERINTENDENT ASROW:I am happy to work all of you on how we would use such data.

I will say from kind of a consumer advocacy and privacy background and just kind of resources, right, that is very sensitive data that is very voluminous data so I would want to think carefully about the purpose for its use and how we could work together to make sure it is impactful for consumers.

SENATOR SKOUFIS:Do you, when you are reviewing rate applications, do you get that information as part of the application process?

SUPERINTENDENT ASROW:We do not review claims level data in the rate filing process.

Again, we are looking at overall expenses.

We are looking at overall projected losses based on historic losses.

We are looking at then the relevant income that would offset to ensure, again, an adequate rate.

And then other factors that are coming into the filing, again, making sure there is not unfairly discriminatory practices.

SENATOR SKOUFIS:My understanding is that there is somewhere in the vicinity of 1100, 1200 property insurance carriers that do business in New York.

Is that accurate?

SUPERINTENDENT ASROW:So I will -- I appreciate the question. I will have to get back to you on the exact number.

But one thing I will say about the overall carriers, so distinguishing the kind of the number of carriers against policies written.

I will say there's about -- the last count in 2024, 3.4 million policies written on the homeowners side and 1.1 million in 2022 on the co-op and condo side.

On the overall number of carriers, what I will say is it has stayed consistent.

So again, that's a positive metric for us. And then I also ask the team to review turnover.

Even if we have the same overall number, are we seeing different carriers and the number stays the same.

So we see low turnover, which, again, mitigates kind of disruption for consumers who have policies non-renewed.

So low turnover and consistent carriers right now.

SENATOR SKOUFIS:It has been reported that that is roughly the number but if could you come back and confirm one way or the other.

Assuming that that number, that ballpark is accurate, seems like a lot of carriers.

It seems as though a lot of folks want to do business in New York, and at least from a profitability standpoint, if that business opportunity did not exist, you would not see over 1,000 carriers doing work here.

Do you have any sense of how -- again, assuming that number is correct -- how that number compares with other states?

I've heard Florida, for example, has below 50, below even 30 or 40 carriers doing business in the state.

Any sense of how the 1100 roughly number compares?

SUPERINTENDENT ASROW:I, again, I apologize.

I don't have that data but will come back to you on kind of our total number of carriers and then how it compares to other states.

What I will say is, again, from kind of my early days in early review of this, it's very specific kind of the insurers that are domiciled here in New York versus kind of the overarching parent company, which might have many carriers under its umbrella.

And that might include, again, a property and casualty that specialized in auto or in homeowners and so these are each distinct carriers.

Someone who will only specialize in homeowners but is under the same umbrella.

So we will differentiate that for you.

SENATOR SKOUFIS:Understood and thank you.

In that same vain and following up on just how profitable this work is for the carriers, you had referenced in your opening testimony, a May 2024 "New York Times" article.

I don't know if it's the same exact article or a similar article around that exact same time but in May of 2024, there was a "Times" story that -- and we've discussed this a little bit -- that broke down state by state, how the industry, the homeowners' insurance industry is fairing in each state.

They looked at the prior 10 years, and every state had a bar graph and indicated whether the industry was losing or profiting in that state in each of the prior 10 years.

And so, you know, a lot of states -- and I'll give you a few examples here -- if you look at this graphic, a lot of states, they were up and down.

California, for example, obviously the biggest state in the country, the industry lost money writing insurance for homeowners' policies in six of the prior 10 years, and that was not uncommon.

You had a lot of states, especially in the midwest in the middle of the country where they were losing money in 4 or 5, 6, of the prior 10 years.

Then you get to New York, and this is the bar graph.

Every single year, 10 straight years, very, very healthy profits without exception.

And so that raises two questions in my mind. And we've talked about at least one of these a little bit, but I want to get into both of them.

First, the first question is are rates too high in New York?

As DFS is getting applications and approving rates, this tells me that, you know, maybe rates are a little bit too high.

Do you think that rates are too high in New York?

SUPERINTENDENT ASROW:I appreciate the question and the details.

Right now, again, I think it is on a carrier by carrier basis that we have to review.

Again, our mandate is to look at that carrier and balance their specific solvency and in addition to that, right, the affordability for consumers.

In our analysis, we find New York profitability or kind of net return on the income that they're generating to be about average against other eastern seaboard states and about average, again, with our other high population states.

So we do monitor this for, again, ensuring that carriers remain in the market.

So happy to continue to work with you on how we see and kind of how we view profitability and what more we could do there.

That being said, I'm concerned, again, for my own personal background on carriers leaving the market as we have seen in California and the strain on our New Yorkers if they can't access policies.

And again, the less carriers here, then it is going to be detrimental to overall competition, again, another prong of my mandate. Meaning that that then will drive prices higher for a different reason, right?

We don't have sufficient competition.

So we do look at profitability. We are very conscious of it given the affordability crisis overall, given how consumers are feeling and we are trying to strike that balance.

I will say, knock on wood, luckily, the kind of rate of catastrophic losses, which, again, can be a crater, what you see in California on profitability, have not happened really to the same extent since "Sandy" in 2012.

So while like overall climate events are increasing, overall losses are increasing, that big one is what will wipe out profitability year over year.

So, again, I think our job is to keep the market stable and hope that that big one doesn't come.

SENATOR SKOUFIS:Certainly I think we would all agree that we don't want to see what has happened in California happen here with carriers fleeing the state.

And look, it stands to reason based on just this snippet of data when you are losing money in six of the prior 10 years, and a couple of those years are massive, massive losses for the industry, that stands to reason why, you know, they would pick up and leave.

But when looking at New York's information here, there is nothing that suggests it's anything but very profitable for the industry and that's why I think, again, assuming that number is correct, you see 1100 or 1200 carriers doing business here.

The other question that this raises for me that we've talked a little bit about in the past, is are we in New York subsidizing the losses that are occurring in other states?

And by we, I mean policyholders.

I know that there is statute that is supposed to protect against that, but no doubt if a carrier was interested in trying to cross subsidize, they wouldn't put that explicitly in their rate application.

They would embed it in their rate application.

And so can you give, with 2 minutes left here, can you give us a sense of how DFS is able to parse out?

Is there something funny happening in this rate application whereby New Yorkers are expected, from the applicant's point of view, expected to cross subsidize wildfire losses in California, flood losses in Florida and these other catastrophic events that are happening in other states?

SUPERINTENDENT ASROW:Absolutely. I appreciate the question.

So, in the rate filing, I will say the documents we receive are voluminous and our actuaries go through them in detail.

For example, the checklist of documents that we receive is publicly available and goes into quite a lot of detail.

So as you noted, New York carriers cannot bring in cost from -- direct costs from other states.

So, they present to us and we confirm that the expenses that they are projecting are only New York-based expenses from that carrier, again, domiciled here or active here.

We make sure that the projected losses are only based on New York losses.

Even reinsurance, which is a key expense, it has to be proportioned out for the specific risk to New York.

So we do look at that, and it's a very important part of our rate review process.

That being said, you know, the overall --

SENATOR SKOUFIS:Can I interject because I only have 30 seconds.

I appreciate you're trying to parse out exactly the New York losses, these are the New York expenditures.

If you don't have claims level data, how are you able to verify that that information is New York exclusive?

SUPERINTENDENT ASROW:So, you know, the actual expenses for the New York carrier, for example, their reinsurance costs, their cost of staff, those are specific, right?

We get that data and so we are able to look at that.

And again, the projected losses and how they're considering that at a macro level, we are able to look at that.

Again, happy to work with you on kind of overall how we can use claims level data.

SENATOR SKOUFIS:Thank you.

SENATOR GOUNARDES:Thank you very much, Senator Mayer, for letting me cut ahead quickly. I have to take my little one to a doctor appointment soon.

I have a couple of very quick questions, Commissioner.

First, you mentioned in response, I think, to Senator Bailey's question or Senator Kavanagh's question that sometimes the insurance carrier will come and ask for a decrease.

When was the last time a carrier came and asked for a rate decrease?

SUPERINTENDENT ASROW:I will have to get back to you -- I appreciate the question -- on the specifics of the last time a carrier in the homeowner space came back for a decrease.

SENATOR GOUNARDES:Ballpark, last 10 years, last 15 years?

SUPERINTENDENT ASROW:I apologize.

SENATOR GOUNARDES:Has it ever happened?

SUPERINTENDENT ASROW:I'm six weeks in, so I will have to come back on the data on that.

SENATOR GOUNARDES:Okay.

Well, I think based on Senator Skoufis' chart, I think it would be hard to believe if it's happened any time in the last 10 years.

I just find it hard to believe that carriers would willingly come to us and say we want to make less money.

My second question is, going back to some of your discussion with Senator Kavanagh around the data sharing, and the formulas and the modeling and whatever.

It feels to me like the frustration that many of us are reflecting from our constituents is that they don't understand why their insurance is going up.

It seems like a black box.

And when you have proprietary modeling that's based on data that no one else can see, not even the regulator who is going to look under the hood and make sure everything makes sense, it's actually an invitation for uncertainty and it's an invitation to make things up.

So why should we allow, if we are trying to promote a healthy and competitive insurance market, why shouldn't we allow, you, as the regulator, to have access to that proprietary data so that you can look under the hood and provide an independent analysis as to whether or not this formula actually makes sense and is not designed to gouge consumers?

We do that at the federal level. Companies have to disclose confidential data to federal regulators for different industries.

How can we trust that -- or how can you trust that what you are being asked to evaluate is actually legit if it is a black box?

SUPERINTENDENT ASROW:I appreciate the question.

I'll differentiate kind of climate modeling, which again, is --

SENATOR GOUNARDES:The actuarial model, not just climate, everything.

SUPERINTENDENT ASROW:So that's where I was going.

So actuarial modeling, you know, as a science has a long history and we do work closely with the standard setting body, that is kind of, you know, where actuaries go and get trained.

We are very familiar with kind of new actuarial standards as they come out, right? There are rate setting organizations. There's a lot of strong kind of work and academics beyond actuarial sciences, which, again, we have our own actuaries who do that and test it.

In terms of overall consumer awareness about actuarial science and what goes into that, again, my focus is on consumer transparency and how can we communicate that.

SENATOR GOUNARDES:But if the model is proprietary and we are going to trust industry's word that we can't look under the hood, how are we providing transparency?

I don't think we actually are getting to the root of the problem here, which is people don't understand why their rates are going up. We have a list of factors. Numbers are going into a formula but no one sees what the formula is.

And you said in response to Senator Kavanagh that the regulator doesn't get to see what the formula is.

So how do we know that the formula is a legitimate formula?

SUPERINTENDENT ASROW:To clarify, for rate setting, we do see the formula. For rate setting, we do have, again, the factors.

How much expenses are they putting in?

What is their projected loss?

What is their projected kind of income that they need to maintain a surplus for a large loss event?

So we get all of that data on the rate setting which is required by statute. So we do have that data. We look at it.

The specific pieces on the modeling, you know, climate risk models are new proprietary methods that we are exploring but again, to this point we are not comfortable yet and we are still exploring it because again, we don't understand how the data is being used, what is going into it.

So again, that's our -- we echo your concerns in terms of caution on black box models.

The rate setting models, we do use on the actuarial side.

And then as I mentioned, statute does not have us go in on the underwriting side, which is distinct on whether a consumer will get a policy, distinct from premiums and natural cost of the policy.

SENATOR GOUNARDES:Got you.

Thank you.

In response to Senator Skoufis' question when you were looking at the New York data and claims data and historical data on all these rate settings, are you evaluating just the home and property data?

Many carriers have multiple lines of business. They operate in New York. They might provide auto. They might provide life. They might provide residential.

Are you looking at specifically that line of business for the homeowners' insurance or are you looking at the totality of the company's portfolio here in New York when you are evaluating that data?

SUPERINTENDENT ASROW:So we look -- I appreciate the question.

We look on a carrier by carrier basis which typically these entities split out. So they will have an auto carrier, they will have a homeowners carrier.

Typically it's multi-peril in terms of what they're insuring, so that will include kind of fire as well as liability, so we don't differentiate that. But it's on a carrier by carrier basis, if that answers your question on the rates that we look at.

SENATOR GOUNARDES:A little bit.

And then my last question is, it's my sense, and I would love to be proven wrong, that many of these insurance companies collect all these premiums and then they go and they have investment vehicles for private equity, venture, real estate, et cetera. And that insurance is actually not their primary line of business.

Do you agree with that assessment, and are there things we can do to not allow our constituents' premiums to be fuel for private equity investments?

SUPERINTENDENT ASROW:Yeah, should I -- is it okay?

SENATOR GOUNARDES:Yes or no.

Just say yes.

SUPERINTENDENT ASROW:As a regulator, there always is, you know, an explanation, so I appreciate the question.

So I will say we do expect income from our insurance to come from the underwriting business itself.

Sometimes it's not profitable on the underwriting side, but that is, again, kind of premiums and against losses out and the differential there.

And then again, you know, that premium that is initially collected is used to invest.

And then the income there is, again, we are also incorporating that to measure the profit.

So that investment income also comes into our calculation in terms of maintaining adequate rates and not excessive.

SENATOR GOUNARDES:Thank you.

SENATOR KAVANAGH:Senator O'Mara.

SENATOR O'MARA:Thank you, Chairman.

Thank you superintendent for being with us today and your short time in your tenure as superintendent. Congratulations on that. I look forward to working with you going forward with that.

I certainly appreciate your sharing where you grew up in Cedarville, California as I represent the district of seven counties largely rural, agricultural in the Finger Lakes Southern Tier region of the state.

And while our home prices, most would consider very reasonable for the State of New York.

As you mentioned in your testimony, our median household incomes are much lower as well. So the cost of these insurance increases may have even a greater impact on these lower income households that we have in rural New York State. And while, you know, my district, unfortunately doesn't have any coastal territory, we do have a lot of hills and steep hills; steep slopes.

And with the increase in microburst storms that we've seen, with heavy downpours producing large amounts of rain in short periods of time and just inundating the creeks and the rivers that flow through the communities, we have seen certainly repetitive incidents in communities in just a few years with devastation. So that has an impact there.

So I appreciate your having that background and that understanding there.

We have talked a little bit about it but maybe you can expand a little more on it.

We have certainly seen in other states, that more coastal states -- Florida, California -- that have had I guess what we would call the larger widespread disasters, as opposed to more acute microburst things or straight line wind storms that we've seen in my area.

What are we learning from these other states that now have a shortage of carriers providing this insurance, which is really driving up the rates and certainly anecdotally hear a lot of stories of people just foregoing insurance on their properties and taking that risk on themselves.

What are we learning from states like Florida and California and the loss of these carriers?

SUPERINTENDENT ASROW:I appreciate the question and your background as well, Senator.

So, you know, we coordinate very closely with the NAIC who I believe will join you today and as well and to learn from their experiences and understand kind of the pressures that those carriers faces, what regulators there did.

So I will say kind of, again, we are going back to that balancing act that we have to do in terms of affordability and access.

And, you know, just given what you indicated in terms of your region, I will note, as I said, overall, you know, New York's premiums continue to be below the national average. That being said, we know consumers are feeling it. But I ask the team to disaggregate the data a little bit more.

And I will say for homes that have a replacement cost or a coverage amount under $400,000, we are 23 percent below the national average.

So in particular for these homes with lower premium coverage, we -- or overall coverage, we are doing a good job again in keeping it affordable for consumers and we will continue to coordinate with other states.

SENATOR O'MARA:Thank you for that.

Talked a little bit about discounts, some being mandated, some being optional. What seems to work and doesn't work in that area?

I mean, are the carriers allowed to come up with -- you say there is option 1. So they're allowed to come up their own -- on their own without needing permission from the state?

SUPERINTENDENT ASROW:I appreciate the question.

So, yes. A carrier can come to us. It has to be actuarially sound, it cannot be unfairly discriminatory but they can present a new discount to us that does have to come to us as another rate filing.

So if they want to put in a discount for smoke detectors or burglary alarms, or whatever it might be, they come to us and we review that.

I have asked the team in particular to prioritize filings for consumer discounts in our overall list of filings to make sure consumers see those right away and then I hope to combine that with an overall transparency push for consumers to understand what those discounts are.

SENATOR O'MARA:Again, with your background coming from a rural farming community, as I represent a lot of, there seems to be inadequate options for farmers for incidents of crop loss due to these weather conditions.

What insight do you have on that, and what maybe are you able to look at in New York to provide some better options for the agricultural community to protect against crop loss?

SUPERINTENDENT ASROW:I appreciate that question.

So, you know, at this point in my tenure, I haven't dug into that specific issue but I would love to work with you more on it and we can circle back and understand what we can do together.

SENATOR O'MARA:Okay. Great.

Thank you and while I also appreciate your willingness to defer to the wisdom of the legislature, that, in my experience, oftentimes ends up in a veto.

So, you know, I would encourage a strong working relationship with the legislature, certainly your department comes up with program bills that go through, usually the chairs of the committees for those. But a give and take and just saying, as we see from so many departments, sorry we don't comment on pending legislation. That's the executive. So we don't often get direction and answers on that and would rather have a working relationship to come up with a product and legislation that is acceptable and works rather than just having to get a veto at the end of the session and having to start all over again working it up the next year.

So I would encourage that type of a working relationship going forward.

SUPERINTENDENT ASROW:I appreciate that and absolutely, we will coordinate.

SENATOR BAILEY:Senator Fernandez.

SENATOR FERNANDEZ:Thank you so much. You mentioned in your testimony about the climate change, and I don't want to talk about climate change. I come from a coastal community. So every rain storm does have a dramatic effect on my neighborhoods here.

In 2013, we launched the New York City Community Insurance Pilot Program. Could you speak on that at all? It is a New York City initiative. But any information on it?

SUPERINTENDENT ASROW:I appreciate that.

I'm not familiar with that, which I apologize. Again, I'll make sure to understand more and we can get back to you.

SENATOR FERNANDEZ:Okay.

Touching on insurance premiums on residential buildings, we all know they're going up, and it was identified and Governor Hochul announced a new guidance, I believe in -- or last year, prohibiting insurers from asking about or making coverage decisions based on Section 8 status.

Have we seen changes since she implemented this new guidance? Is there any data to show how much they were raising insurance premiums based on the number of Section 8 tenants? And why is that even a factor in consideration?

SUPERINTENDENT ASROW:I appreciate the question.

I know that DFS, before my tenure here as Acting, worked very hard and appreciate the partnership on that legislation.

So, you know, we are monitoring for the use of that factor in rate setting, and again, that is now prohibited. So we are ensuring that it is not a factor moving forward.

In terms of kind of, you know -- because, again, it was potentially permissible before, we don't have the kind of before and after comparison but we are happy to kind of coordinate and understand that a little more.

We are aware and conscious of the reports of affordable housing continuing to have premiums increase.

We haven't gotten direct complaints about that but we are available and to work with the housing authorities to understand what they're requiring and how to handle this.

SENATOR FERNANDEZ:Okay. Well, that seems just -- I mean, obviously we know the governor put this new guidance and it is direct discrimination but are there any ways for residents to report discrimination based on their Section 8 status right now?

SUPERINTENDENT ASROW:Absolutely.

So we have a consumer assistance unit, and I would strongly encourage all of your constituents to use that.

That's a direct way for consumers, policyholders to communicate with DFS and then we make sure that insurers are following up.

And then it gives us an opportunity, again, to flag that for an examination to go in and understand more deeply what's going on beyond our rate setting authority.

SENATOR FERNANDEZ:So since it's guidance, do we know if they're asking the Section 8 tenants?

SUPERINTENDENT ASROW:My understanding is that it is law. So it's in statute that Section 8 status is a prohibited factor so it cannot be used.

SENATOR FERNANDEZ:What is the penalty enforcement if they do?

SUPERINTENDENT ASROW:So we would not approve their rate. So they would not be able to charge that premium and we would then, yes, we have enforcement authorities.

We can go in and do an investigation if we found that they violated that and they would have penalties associated with it.

SENATOR FERNANDEZ:Thank you.

I yield my time.

SENATOR BAILEY:I think each of us are going to take a brief second round, and Acting Superintendent, we thank you for your time.

I just want to dovetail off something that Senator Fernandez just talked about, about discrimination and we know insurance is the only inherently discriminatory thing, you know, that we have there, but certain discriminatory things are beyond the pale.

Have you seen even -- there was legislation that myself and Senator Kavanagh, also Senator Skoufis did about discrimination in insurance and property holders.

Have you noticed in the last 2 years since it has been enacted, if there is a difference in coverage of subsidized housing or different types of housing in addition to, you know, regular residential?

Have more companies failed to tender policies to those types -- to that type of housing? Have you noticed that?

SUPERINTENDENT ASROW:So we are aware and happy to work with you -- I appreciate the question -- in more detail on this data.

The one thing I will flag is this comes under commercial property insurance, given that it is more than four units typically. So we have noticed a slight decrease that we are monitoring for that.

And then, you know, in terms of the increase in what is going on, again, we are available to work with the housing authorities and all of you to dig into this more.

SENATOR BAILEY:Excellent. I know we are getting back to the discounts again, and I know it seems like rather perfunctory but I think it really is important.

In your practice, in the DFS' practice, do discounts have to be offered uniformly through a carrier?

For example, in Senator O'Mara's district and my district, if Allstate is tendering -- just to use one company, top of the alphabet, just for the record, that came to my mind -- not attacking any carriers, you know, we get in trouble when we name names here. But if somebody that has that company, in my district and Senator O'Mara's district, would that policyholder be offered the same discounts, provided that it's the same single-family home for owner-occupied use? Is that -- would that be accurate?

SUPERINTENDENT ASROW:So, I appreciate the question.

So I think of this as kind of a series of layers, the approvals that we make in terms of classification.

So, there might be a classification on a type of property, you know, whether it's side boarding or whatever it may be, and then if further classification indicates a discount for a smoke detector.

So, yes, when we are approving a premium or a rate that is including a discount, it's specific. So it's 3 percent for having a smoke detector, but an individual policyholder might feel that differently because their home has a side board versus wood or whatever it might be, and that indicates a different kind of classification and change in their rate.

So, again, a policyholder will not have one to one of 3 percent and see that -- so 3 percent will stay constant -- I apologize.

But, you know, how the policyholder feels it in their premium will vary because of all those other factors on their property.

SENATOR BAILEY:I just want to make sure because I come from the Bronx, New York. And a lot of the times, areas like the Bronx -- and specifically the Bronx -- had been, in the past, red lined and have experienced unfair discrimination.

And I'm not saying it is happening in the form of the discounts but, I just want Bronxites and Mount Vernonites -- I represent both areas -- to be able to have the same discounts in any of my colleagues' areas, and I understand that it may be based upon how the housing stock is built.

But if housing stock is built differently by area, these row houses that happen on East Chester Road in the Bronx may be different than East Chester Road in East Chester, New York, right? So I just want to make sure that we are figuring out a way to make sure everybody is able to get as close to the same type of discount.

I guess a good question for you -- and this is more of a consumer friendly question -- is a lot of people may not have adequate coverage on their home.

How does a New Yorker, a homeowner, property owner, how can they ensure it?

Can DFS aid homeowners in determining whether they have adequate coverage?

SUPERINTENDENT ASROW:I appreciate the question.

One thing I will just flag from the prior conversation is red lining is prohibited.

So, you know, we do look at that in rate setting and ensure, you know, geographies that are based on kind of race and ethnic background are not used in rate setting.

And then, again, those discounts should be applied overall with taking the policyholder's other factors into consideration.

In terms of, you know, how an individual would have adequate kind of coverage on their home, I will say, you know, DFS, again, doesn't look at that kind of policyholder data, that level of data.

And it would be quite challenging for us to kind of go in and make independent determinations given, again, the specialty of the insurance market to do that work on a policyholder by policyholder basis.

That being said, I am committed to transparency for consumers.

And something, as I said, I'm interested in is enumerating discounts, enumerating opportunities.

So I would love to partner and understand how do we communicate to consumers what is adequate coverage for them in a way that they can then go and work with their insurers on what that is.

But again, you know, I don't think it's DFS' place to go and do the work of the insurer.

SENATOR BAILEY:Certainly. I'm not saying it is. I just want to make sure that because constituents routinely come to us, and they have a covered loss. And they come to us and they say well, my policy limits were x, y and x. I didn't know. And they're short $50,000 and that they have to rob Peter to pay Paul because they didn't know, and nobody made them aware.

So I'm wondering, as you said, I think we can look into that, but I just want to put a fine point on that as a consumer thing.

Last question related to the data and the proprietary information conversation. And I know that there is a black box on certain things and that DFS has access to certain proprietary information.

When it comes to, by geography, by area, by rate setting, by zip code, is there a way for us to have a conversation about something that is commonly known as geo-fencing?

Does DFS have a way or an opinion on geo-fencing certain areas, specifically to the amount of risk that may be in a certain area as opposed to the whole zip code?

10466 where I live, down the block may be a different risk and up the block may be a different risk.

Is there an opinion on the idea and practice of geo-fencing?

SUPERINTENDENT ASROW:I appreciate the question and happy to work with you on this.

As I said, the geography that we are thinking about is first, again, prohibition to red lining. So, making sure that is not coming into the rate setting process.

In addition to that, they do have kind of territory geography classifications. I will say those tend to be at a broader kind of borough level. Not even as specific as zip codes sometimes. And I think what we have seen is that is kind of an operational necessity, again, to kind of have their portfolio be a little bit more kind of granular.

But, you know, opportunities to work with carriers and have that be narrower or more specific, again, not coming into conflict with red lining is something I'm happy to explore.

SENATOR BAILEY:Certainly. I appreciate your time. Thank you.

SENATOR GOUNARDES:A couple of quick additional questions, Superintendent.

First, to drill down on another piece of this discount conversation.

One of the concerns I have is it's all great if these discounts exist, but they only are really consequential if policyholders know they exist.

And so I'm curious, you know, for the policyholder who changes out their roof to a more resilient roof or installs the carbon monoxide detectors and there are discounts available with their carrier. Maybe they don't know about them.

Is there anything that DFS does to ensure that carriers are properly, in a very forward facing manner, communicating these discounts to their policyholders?

SUPERINTENDENT ASROW:I appreciate that question and I think I'm very much aligned on asking the same thing when I came into this seat.

So I think my first step is just making sure that we have an adequate count of all of those discounts for all of you and for ourselves.

And then, you know, I will say there are a number of vehicles that we do have at DFS, right, we ensure that the files, the forms, the process when a consumer comes in in terms of appropriate communication.

So we review all of those forms and we have avenues where we could request other forms, have a conversation with carriers on how they're communicating the discounts to consumers.

SENATOR GOUNARDES:I guess my question is, if you are working with a broker, no doubt when you are having that conversation with the broker, the broker is very well versed, is -- I would like to think, knowledgeable vis-a-vis the discounts available and can directly communicate those discounts with their client. But especially if you are not going through a broker, how do you know?

Short of actually picking up the phone or maybe digging through, you know, 17 different links on the carrier's website, that maybe there is some list somewhere embedded; how is one supposed to know what discounts are available?

SUPERINTENDENT ASROW:I appreciate that, and that's a question that I'm working on answering.

So what I want to do is understand -- and again, I know that the majority of the carriers are offering the optional discount so I think that's the next step and I'm happy to partner with you.

DFS is happy to partner on really understanding how that is being communicated to consumers, both from the DFS side and from the carrier side.

SENATOR GOUNARDES:Are there any regs or statute that speaks to how these discounts are supposed to be communicated? Or is it completely left up to the carrier?

SUPERINTENDENT ASROW:I will defer. I'm not sure about the discounts specifically but I know there is much in statute about kind of how, again, we are communicating with the policyholders in terms of the filings, the disclosures that have to be made to them.

So I will have my team go into the law and understand kind of within those disclosure requirements and in the form requirements that policyholders have to receive, is there anything specific on discounts.

SENATOR GOUNARDES:Great. Thank you.

The only other question I have, you touched very briefly on file and use in your opening remarks. This is a conversation -- or this is a topic we have discussed a little bit about.

Given how especially uncommon the uptake is for carriers, taking advantage of file and use, do you have an opinion as to whether we should just do away with that option for carriers as they apply for rate increases?

SUPERINTENDENT ASROW:I appreciate the question.

So we have not seen carriers move without our explicit approval on their rate. So as I said, it is file and use in name only currently.

SENATOR GOUNARDES:Okay. Thank you.

SENATOR KAVANAGH:Thank you. A couple questions.

First I just want to note we have been joined by former Senator Diane Savino is in the room and also Tom O'Mara was mentioning about working with the governor's office.

We are also ably but quietly -- the governor is ably but quietly represented here in the room as well, so we appreciate the partnership with the executive.

A couple of questions. First, maybe just a bit of a speed round on potential policy changes we might make.

First, CRA, as we know, applies affirmative obligations to various financial institutions to redress -- to provide redress for the fact that we had many years of red lining and other bad behavior including in some neighborhoods I represent on the lower east side.

Is CRA a potential model for increasing the kind of affirmative obligations of insurers who want to do business here to ensure that they are, you know, meeting the needs of communities that might otherwise struggle to get insurance?

SUPERINTENDENT ASROW:I appreciate the question, and happy to, I think, work with you on exploring that issue.

I will say because DFS is the joint kind of banking and insurance side, we have a lot of experience and I think technical understanding of CRA on the banking side.

So happy to work with you on thinking through that.

SENATOR KAVANAGH:So at least there is a potentially promising idea there. Is that...

SUPERINTENDENT ASROW:I defer.

SENATOR KAVANAGH:You'll defer to the legislature on that. We appreciate that.

There's other ideas. There has been talk about, you know, we have had a lot of conversation about reinsurance, which is less directly regulated by you, but it's a tool that insurers are using to spread their risk.

I have wondered whether that may be a mechanism by which New Yorkers are paying for the cost of damage in other places because reinsurers are setting rates across many jurisdictions I gather, and without as much regulation.

Is that a fair statement?

SUPERINTENDENT ASROW:Yeah, so appreciate the kind of highlight on reinsurance. As you said, it does cover national kind of carriers, and it is a way to spread that risk in the insurance market.

As I said, previously, I believe in the expense kind of category that we look at, a reassurance line item has to be broken out.

So again, only the reassurance cost that are being used to cover New York risk are included in that rate filing. That being said, I think I mentioned the cost of reinsurance overall has doubled.

So that base cost, I agree, on an indirect way has to incorporate kind of the national footprint.

SENATOR KAVANAGH:They're pricing in damage that is occurring in other markets. Okay.

SUPERINTENDENT ASROW:Yes.

SENATOR KAVANAGH:Okay. There has been talk -- and I think we might hear some testimony today about the possibility of the state creating some kind of a state-backed, sort of reinsurance facility. Is that something that you've explored, or is that an idea that might be worth exploring?

SUPERINTENDENT ASROW:I will, again, as I said, I appreciate that, you know, these issues require, I think action across our areas of the legislature, the executive chamber and the regulators.

I think that's a space where, again, I'll defer to you all as lawmakers and the Governor on how to, whether to create that, but we stand ready to advise and to implement.

SENATOR KAVANAGH:Okay. And something less hypothetical, we have, already, some captive insurance entities here in New York. We'll hear from at least one of them today.

Can you talk about how that, you know, from your perspective, how does DFS interact with regulating that and to what extent do you think that might be a promising solution for -- and it has been particularly proposed for affordable multi-family housing and other housing that the government is playing a substantial role already in subsidizing.

SUPERINTENDENT ASROW:Thank you for that question.

We are very aware of captive. It's a form of self-insurance, and there are a number of models out there. And, you know, DFS does register a number of captives in this state.

You know, we have a different kind of regulatory approach because, again, it's self-insurance.

So what we have found, a few things to highlight from our experience with captives.

One, of course, they can bring down costs. The profit that is coming from the insurance entity can be put back into reduced premiums.

I will say for New York, the requirement to form a captive has a pretty high net worth so over 100 million, I believe.

So we do see captives more frequently kind of domiciled in Vermont, for example, where there is a lower net worth requirement.

We do feel in New York that self-insurance, it is essential to have the consumer protection of a high net worth to incorporate kind of the potential for losses. Because I will say, with self-insurance, with captives, we don't have the guarantee fund, which, again, is backstopping insurers here in New York.

So if an insurer becomes insolvent, we do have those funds as a last resort to make sure claims are paid, so a captive would not have that opportunity.

That being said, we are looking and having conversations with other states on these models and happy to continue to speak on it.

SENATOR KAVANAGH:I would just note that HCR, there are housing agencies in here. But there is a Notice of Funding availability right now for $5 million to facilitate affordable housing providers buying into existing captives. So that is a topic percent think we will be discussing on an ongoing basis.

Just briefly with 2 minutes, back to the question of liability.

I just observed that one person's nuclear verdict is another person's justice served. But can you just talk a little bit about -- does DFS have the data to certify or, you know, approve rates based on a conclusion that they are actuarially justified based on changes in the landscape, what you are calling social inflation, including litigation results?

SUPERINTENDENT ASROW:Yeah, so I think from the aspect of social inflation, you know, we do see that incorporated into the projected expenses and costs of companies. And, you know, again, that -- those projections are based on their historic data, so that's something that we can't refute.

And again, we go in and make sure that that data is sound. We think about the credibility of that data. So we are not kind of just taking the data on face value. We are digging into kind of the voracity of the data.

But again, as I said, kind of the nuclear verdicts, the rising kind of jury awards, those are historic data points now that are incorporated into rates.

SENATOR KAVANAGH:And they're based exclusively on New York data?

SUPERINTENDENT ASROW:Yes.

SENATOR KAVANAGH:Just again, this is I think going to be an ongoing theme today, but it is perplexing to see liability rates double.

I mean, it's just, you know, we have talked about high jury awards in certain places for many years. And you know, for decades.

So I think that's something we are going to continue to want to discuss how the data that you have relates to that and how you are approving those rate increases.

There is one question -- one more question: Do you have specific -- to the extent they're getting rates on liability policies, obviously some people are buying policies that include their home and also auto and all of that.

Do you have the data and do the applications break out the cost of potential liability for home insurance versus auto insurance and other products that might be bundled together?

SUPERINTENDENT ASROW:So, typically -- so I'll have to get back to you on kind of bundling auto and home in particular.

I would say in homeowners we -- typically the vast majority of policies are multi-peril, so they're including kind of liability and casualty as well as kind of property damage but then the rates and the discounts we set are for that specific carrier and that line.

SENATOR KAVANAGH:So if I'm a homeowner and I don't own a car, I might -- might my rates go up because of an increase in auto in claims against auto insurance?

SUPERINTENDENT ASROW:So I will say, you know, happy to kind of dig into this, but no, those again, should be separate rates that aren't coming into play.

I will have to get back on kind of the bundling discounts that are available. But, yeah.

SENATOR KAVANAGH:My time is up. Thank you very much.

SENATOR SKOUFIS:All set? Good?

And you are good.

SUPERINTENDENT ASROW:Thank you.

I appreciate the time.

SENATOR KAVANAGH:Next up we have Erin Collins and Robert Gordon and Cassandra Anderson will have introductions as they testify but come on up.

SENATOR BAILEY:For those observing, the panel style may be a little different from what we've observed, just so that for those of you who are watching their first hearing, each individual on the panel will have their requisite time to be able to testify. But the time that we have to ask the questions does not multiply per person, just so that everybody understands. We still have the same amount that we had but they have the time that they can testify.

And we are joined by Ms. Collins, Ms. Anderson, and Mr. Gordon.

And is there an order that would you like to go in? Senator Skoufis, actually before we --

SENATOR SKOUFIS:It is important to note, we are running, at least in terms of our internal sort of template or outline here, we are running a half hour ahead of schedule. And so I'm going to underscore triply Senator Bailey's point that he just made.

But in the meantime, if you could all please raise your right hand.

Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

[Witnesses are sworn.]

SENATOR SKOUFIS:Thank you.

CASSANDRA ANDERSON:Senator Bailey, Senator Skoufis, Senator Kavanagh and the other distinguished members of the Senate, I'm Cassandra Anderson, president of the New York Insurance Association.

NYIA is the state trade association that has represented the property and casualty industry in New York for more than 140 years.

NYIA's membership is broad and diverse, consisting of stock, mutual and cooperative insurance companies writing in every county of New York State.

We represent companies from Main Street to Wall Street and work collectively to promote a healthy and sustainable property and casualty insurance market for all of New York.

Thank you for the opportunity to address you regarding the cost and availability of residential property insurance in the state.

First and foremost, it is important to talk about the relationship between affordability and availability, as affordability cannot be achieved without focusing on availability.

Insurance companies exist to serve our policyholders, and NYIA shares the same concerns as the Senate regarding the cost of insurance in New York.

The only way to make insurance more affordable is to make it more available, by concentrating on the real cost drivers that exist.

Carriers must be able to adequately not only take on risk, but to soundly continue to write that business in the state.

In NYIA's written testimony we have shared a wide range of information about what is driving the cost of insurance and propose solutions to address those rising costs.

There are numerous challenges in today's residential property market including the difficult litigation environment, pervasive fraud, the increase in the severity and frequency of extreme weather, aging infrastructure and higher material costs.

The challenges are multifaceted and correspondingly require multifaceted legislative and regulatory solutions.

Some of these solutions are long-term in nature and others would be strong first steps to a more robust marketplace.

On a broad level, these solutions center on building resiliently to create stronger structures and to improve public infrastructure; supporting loss mitigation efforts and taking advantage of technology to create early detection of risks.

Modernizing the regulatory environment and increasing regulatory capacity because it is essential for legislators and regulators to take steps for companies to be more responsive to market conditions and their policyholders.

Combating fraud by providing companies and law enforcement with a greater ability to prevent, deter and fight the growing issue, and critically addressing expansive and abusive litigation that has grown exponentially in recent years when New York was already known as one of the most litigious states in the nation.

NYIA values the opportunity to share our viewpoint on behalf of our membership and appreciates your consideration of the recommendations we are offering to improve the marketplace.

We are seeing the experience in other states and want to avoid an availability crisis, which includes not taking actions that will only hinder the market further.

Instead, we urge New York public policymakers to put measures in place that only improve the health of the market.

The focus needs to be on keeping the market stable, encouraging greater availability and in turn, greater affordability.

Thank you.

ROBERT GORDON:Mr. Chairman, senators, thank you for the opportunity to testify today.

I'm Robert Gordon, I'm the Senior Vice President for the American Property Casualty Insurance Association (APCIA), which represents about two-thirds of the home, auto and business insurance industry, including about 581 insurers in New York.

We recognize housing affordability is at record lows, and over the last 5 years, New York home prices have increased 58 percent. Utility rates have increased nearly 41 percent. Property taxes are now median of closing in on $6,000 per home and rebuilding costs have increased by 41 percent.

So all of these costs are going up significantly. We understand that challenge. And housing affordability is also impacted by insurance costs.

Fortunately for New Yorkers, as the Department of Financial Services underscored, homeowners insurance rates are significantly lower in New York than they are nationwide.

And the rate increases over the last 5 years in New York have been about half of the rate increases across the nation.

But while homeowners rate increases have been significantly lower than average, what we have seen is the catastrophic weather risks have very significantly escalated. So the number of catastrophic weather events in New York in 2024 increased tenfold from 5 years ago.

In the last 5 years alone, New York experienced $31 billion plus catastrophic events, that compares to an average of .7 events in the 1980s annually. Most of those losses were catastrophic wind events, which are generally covered by homeowners' insurance.

In fact, the Federal Emergency Management Agency, FEMA, ranked New York among the highest disaster risk states and weather modelers predict the catastrophic hurricane hitting New York would cause over $100 billion in insured losses.

We estimate that would wipe out roughly 69 years of return on net worth.

If the climate continues to warm two degrees, expected loss in New York would increase by 64 percent. That's putting at risk over two million New York homes.

"Hurricane Sandy" crashed into New York in 2012 causing over $19 billion of losses. That, by the way, was just one year before that "New York Times" graph. So maybe if you go back a year, it looks a little different.

When the next "Sandy" hits, it's going to be much, much, much more severe.

Also, the unusual regulatory burdens and delays in New York, they add further risk.

Most New York businesses can adjust prices daily but changing rates here up or down can require several years because you have to identify and document the loss trends. You have to file them with the DFS. Might take over a year for that review process and then you have to wait for the policies to roll over, so that can take another year.

So you are always a couple years behind trying to catch up to the escalation in weather losses and inflation.

And additionally, homeowners insurers are generally prohibited from non-renewing coverage for 3 years.

So that means not only do you have the significant lag time where you are trying to catch up, you can't reprice your products quickly and you can't pull back from the market quickly, so you are stuck on those risk exposures that can be very dangerous.

Also in addition to the catastrophic weather risks, New York now has the costliest legal system in the country. The litigation costs are 67 percent higher than country wide. That significantly increases losses in most of the lines.

So in sum, the homeowners' insurance rates in New York, lower than country wide average, increasing less than country wide but the rates do reflect the extreme escalation of costs in New York from inflation, building labor expenses, climate change, legal costs, regulatory costs.

And frankly, you know, New York has been lucky. But we are going to get that next "Hurricane Sandy" and that's what insurance companies have to prepare for.

I do want to express some initial concerns about Senate Bill 8583. We just got the bill yesterday. We do hope to work with all of you on that.

But New York already has some of the most costly and burdensome insurance regulations in the nation. The current rate review process is among the slowest in the country. And a lot of those mandates are choking off competition and creating some market friction.

You are saying well, there are some areas where insurers are pulling out. That shows the markets aren't as profitable as you might think. Again, particularly because those catastrophic risks are so high when that big event is going to hit.

We are, though, committed to working with policymakers on solutions.

We fund the Institute for Business and Home Safety. IBHS developed safety standards and building codes to mitigate weather risks.

The IBHS fortified building codes against wind were found in a recent study after "Hurricane Sally" in Alabama to lower losses by roughly 70 percent.

We also support the efforts to fully staff the DFS to reduced review delays and we do support a number of litigation reforms, including addressing the Scaffold Act and establishing reasonable caps on non-economic damages.

And we, again, thank you for your commitment to addressing these issues.

ERIN COLLINS:Thank you to the respective chairs and to all the senators here.

My name is Erin Collins. I'm from the National Association of Mutual Insurance Companies. Thank you very much for the invitation to be here.

NAMIC is made up of more than 1300 member companies across the U.S. We are proud to say that we have the very smallest insurers in the country and some of the very largest and a lot of folks in between.

I want to start by saying that insurers are incentivized to have a strong and stable insurance market and drive towards those outcomes, and those competitive forces benefit consumers as well.

So, insurers are incentivized to serve those consumers to the best of their ability, and as you have heard already today, incentivized and required to be accurate in that process.

I'm hopeful that I can offer, not only some commentary on pressures against the property and casualty market today, but also some proposed solutions.

I think we see, in the P&C market across the country and New York is no exception to that, four key pressure areas.

One is extreme weather as you've heard.

Second, are economic factors which I will talk a little bit about like inflation.

Third, is legal system abuse, as there has been some discussion of already.

And the fourth factor, which we see in some spaces, particularly in states where there are policies that don't get at the true cost drivers, we see regulatory friction that can slow the process even more than the natural filing process that we see in the P&C market.

So zeroing in on that first pressure of weather, there has been some discussion already today about increase and frequency in severity which I concur with.

But I want to point to another pressure point there on severity, which is the recovering process. The cost to repair and recover has gone up dramatically. So data suggests that since 2019, repair costs have gone up 35 to 45 percent.

So if you use that math, a house that cost $300,000 to build in 2019, would now cost north of $400,000 to replace.

Those are all things that have to be contemplated in the premium in terms of the expected loss costs as we look at frequency and severity changing.

The path to address those things, as you have heard, is through mitigation and resiliency.

So I would encourage a review and strengthening of building codes through IBHS and fortified science that can help both residential and commercial properties to harden and harden at scale with community strategies.

Really, the only way to address these things is to bend the loss curve down.

Insurance is complex at times in its science but simple in its foundation, which is insurers through solvency have to have and take very seriously the responsibility to have enough premium and collect enough premium to pay and satisfy the promises that they've made to consumers.

The second key area I would note for New York in particular, is legal system abuse.

As of 2024, according to the U.S. Chamber, New York ranks second in total tort cost per household at over $7,000 compared to the national average of around $4,000.

It was made mentioned earlier what has changed in the casualty market. And it is just that.

The litigation, both in terms of, we heard a focus on nuclear verdicts, but also in process and presence of litigation has gone up.

So I would draw all of you directly to the advent in growth of the litigation financing business, which has reached $25 billion in 2025 and is projected to be over $60 billion in the next decade.

Additionally, strategies to address fraud, which has really blossomed, unfortunately in New York and other places. It's a massive drain on the market and hurts law abiding consumers in addition to the market.

So I would suggest strengthening insurers' ability to identify fraud, using technology and other means of investigation, and to build investment and interest in the state in prosecution of fraud.

You know, I think all of these things, again, mark a way to bend loss curves down and improve New York's insurance market even more so than it stands today.

So thank you again for the time today and we look forward to working with you moving forward.

SENATOR BAILEY:I want to thank everybody for testifying and thank you for not just reading off the paper.

It's very helpful when you are able to articulate that and it saves us all time, time I'm taking up by rearticulating that.

I just wanted to go with what you said, Ms. Collins, about fraud. I want to make sure we get it for the record.

I know you each spoke about it on a basic level, but can you tell us exactly how fraud affects the cost of premium?

What percentage increases based upon fraud, and can you get to some specifics about what you want us to do about fraud legislatively?

ERIN COLLINS:Sure. I will speak generally and then happy to follow up with some more specificity.

But, you know, recent studies have shown that there is more than $300 billion a year nationwide in the area of insurance fraud.

I think that those things inherently drive claims costs up, but also operational costs to fully investigate.

And, you know, it is unaided by, you know, further legal system challenges where expert testimony requirements have not been improved over time.

And so where fraud may have been proven by, you know, the standard of what an expert is in the legal sense, is now taking three, four, five experts to examine and prove that fraud. And all those things, through the duty to defend, add costs to the system.

So you are talking about not just, you know, a system in which fraud occurs to draw a claim, but in an effort to launch litigation.

So I think, in terms of your second question of what can be done there, I think working with DFS and the industry to understand fraud identification techniques and how technology can improve upon those things, really encouraging throughout investigation.

And then we've seen success in states that incentivize law enforcement to get more deeply involved, especially in the prosecution of fraud.

So we look forward to working with you on any of those.

CASSANDRA ANDERSON:I have some specific ideas, too.

Staged construction site accidents have really grown to be pervasive in addition to the slip and falls.

And there is legislation that has been introduced in the Senate by Senator Comrie that would help to be able to get at that issue.

In addition we see that a lot of contractors are very reputable. Not all are, unfortunately, and we see a lot of schemes built around that.

We are going to be bringing forward loss mitigation legislation to combat loss mitigation scams.

Those are just two examples homeowners are taken advantage of in those instances and we are happy to talk with you about it further.

But there is a lot that can be done in the fraud space to give us the appropriate tools, along with law enforcement. Those are just two examples.

ROBERT GORDON:We, too, would support the legislation to make staged accidents a felony. That would be helpful.

SENATOR BAILEY:Certainly.

I guess I have a question about -- I want to expand upon the question for fraud because you mentioned staged auto accidents and we talked about like different lines, not necessarily having a factor.

But in this case you are saying that the fraud that occurs in other lines of insurance has an effect on the homeowners policies.

CASSANDRA ANDERSON:It's staged construction site accidents so it has to do with when buildings are being constructed.

Staged auto accidents are also an issue that would affect the auto line.

SENATOR BAILEY:And it's staged construction accidents for single-family homes or owner-occupied homes like we're speaking about today or is it staged construction accidents for any type of dwelling?

CASSANDRA ANDERSON:It can be staged construction site or staged accident on a construction site for any type of building that is being built but we are seeing it, you know, in relation to large buildings in New York City.

SENATOR BAILEY:I just wanted to be sure.

CASSANDRA ANDERSON:What I will say, too, on the fraud piece, you know, if a building is in a deteriorated state, what happens is that not only is there increased liability but also those buildings tend to be targeted by those that are looking to commit the fraud.

So there is a connection there that is very strong, unfortunately.

SENATOR BAILEY:Ms. Collins, you mentioned the use of technology. And I am certainly someone who sometimes falls behind the times of technology but I believe in the advent of it.

Can that same technological, you know, expertise that you wish to assert in the area of fraud, can that be used in terms of the way that you set data?

Superintendent Asrow -- Acting Superintendent Asrow mentioned that sometimes data is used by borough-wide data opposed to zip code data.

Can any of you shine a light on how your companies or your member companies, are utilizing data to create the risk or set rates? Like is it by zip code? Is it simply by borough? Is it by a section?

Can you talk a little bit about that and how we can use technology maybe to hone in a little bit more?

ERIN COLLINS:I certainly can.

I would say this: The tools in the industry vary based on both complexity of the product, but also individual companies themselves.

But generally speaking, the goal is to use the most precise information available to a particular risk.

So I think industry uses both information that is reported to them by the applicant, as well as data from a variety of sources to try to get to as specific information as possible to understand the risks.

So I know that's not specific to your question about zip codes but it is --

SENATOR BAILEY:It fits in.

ROBERT GORDON:A lot of the data insurers are using has gotten much more granular than the zip codes.

So I have seen, for example, I visited Cotality a few weeks ago, used to be CoreLogic, and they have records -- they form the backbone of the MLS database used by the realtors.

And they have records on every single roof in the condition, the tax records, the contracting records, they know the age of the building.

So you can look very specifically at what the risks are in that building.

And one of the societal benefits about that is it sends appropriate risk signals. So as consumers make improvements to those buildings, those get reflected in the data and reflected in the rates and the insurance is -- sort of accurately reflects those risks.

SENATOR BAILEY:With those -- with that -- I really want to talk more about zip codes, right?

In certain areas in New York City, there are certain things happening in certain parts of the zip code that are not happening in other parts of the zip code.

Is the data -- is the rate setting based upon that one factor, or is it based upon the totality of circumstances?

How are we setting the rates?

CASSANDRA ANDERSON:Risk-based pricing is based, as Robert said, on a variety of factors related to that risk.

So even if the territory is broader, that's only one factor of what is going into the rate setting process.

The condition of that structure is a very large part of what that looks like, and insurance companies are trying to be as precise as Erin said and as accurate as they can be but there still might be a broader territory rating.

It's not where they're targeting certain zip codes or certain areas of certain zip codes or not, to my knowledge.

SENATOR BAILEY:How are you using crime data or crime statistics to factor into the rate setting?

CASSANDRA ANDERSON:We do pay often on those types of losses. So that is one factor that can be considered.

If safety is an issue and -- you know, with a certain property, then that is something that would be considered as far as insurance and what that looks like.

SENATOR BAILEY:How often is that data? For example, NYPD gives CompStat reports monthly, right? You may not be -- you are not able to set rates monthly. I'm well aware of your limitations.

But what I'm saying is like how often are rates reviewed based upon changing data, whether they be about crime, the state of the roof or the other things?

How often are you or your member companies looking to update the data?

I mean update the rates based upon new data that they get in.

ROBERT GORDON:Those are generally going to be every time you do a new filing with the department.

So, depending on how often you want to have to go through that -- jump through that hoop, it may be every year. It may be every couple of years. Can be more frequent, but, again, it has to be part of the filing.

So it's going to be a long process to get that new data through.

ERIN COLLINS:I think we like to make sure we have the most accurate rates possible.

But as the superintendent indicated, resources and capacity are an issue right now at DFS, and that's something we really want to work with all of you on as well, along with DFS.

SENATOR BAILEY:You said that the rate of -- excuse me -- that litigation costs are going up 67 percent?

ROBERT GORDON:They're 67 percent higher in New York than country wide.

In fact, what is interesting, is there a lot of media focus right now on the unsustainability of climate change.

Actually, the liability costs and losses nationwide are higher than the catastrophic weather losses and it's increasing more rapidly.

So things like the other liability: Commercial liability, all the commercial goods being distributed, those insurance costs and losses are going up very, very rapidly because increasing litigations costs, nuclear verdicts and so forth.

SENATOR BAILEY:Okay. So that 67 percent, that's --

ROBERT GORDON:New York is a more expensive market.

SENATOR BAILEY:And you have empirical data to back that up.

ROBERT GORDON:Yes.

SENATOR BAILEY:And where does that data come from?

ROBERT GORDON:That comes from a number of resources, but a lot of it is from S&P and from what gets reported to the regulators.

We have data on construction costs in New York from a number of sources. A lot of vendors produce this information. We made a lot of it available in the report. We are happy to provide additional information.

SENATOR BAILEY:And I want to say thank you for the pre-meeting and the conversations that we have had.

This is obviously our task, and we want to thank you for your conversation. Look, this is not intended to be adversarial. We want to get to the bottom of this. Our constituents are hurting.

Your businesses, we need the insurance companies to remain solvent, so we have to find that middle ground.

I would add, as a final point, about Senator Kavanagh mentioned at the opening, that there are certain member companies that are not here to testify individually and we'd hope that at some point in the future we will be able to hear from the member companies directly.

Thank you.

SENATOR SKOUFIS:Again, thank you for being here.

Thanks for your testimony as well as your conversation leading up to the testimony.

I'm going to jump around a little bit and have a few questions. But first, sort of top line, if you can help me reconcile something. I am an insurance lay person. I am a humble public servant.

I am having a difficult, challenging time reconciling how on one side of the coin you are all talking about how we have enormous climate risk in this country.

We have the oldest building stock in the country. We have, I think the word that was used, choking regulations here in New York State. Exponentially -- and I'm going to circle back on this -- an exponential increase in litigation in recent years.

As I mentioned before, healthy, steady profits, at least within the homeowners' insurance policy space.

And yet, on the flip side of the coin, you mentioned how our premiums are below the national average and our increases are below the national average.

How in the world can all of those things be true?

ROBERT GORDON:Senator, the first issue is the catastrophic risk.

So for example, if you look at earthquake insurance, earthquake insurance appears to have a much higher rate of return on net worth. But that's because you have to collect a lot of years of premium for when that big one hits. And it's the same thing on the homeowners line.

New York is one of the top two most vulnerable to 100 billion-dollar plus event.

Our analysis that would wipe out 69 years of return on net worth for the homeowners line. So you have to charge enough to be able to be solvent and pay those claims. And that's what the New York DFS looks at.

They also look to see well, how much are insurers essentially charging and getting return on net worth in neighboring areas with similar risks.

And what you see is New York is right between New Jersey and Connecticut. So within a half percent of each of those.

So it's very standard, and it's part of the overall New York property casualty market actually being under averaged profitability, but you have to charge enough for the catastrophic risk exposure.

SENATOR BAILEY:So is what I'm hearing amidst that response, that baked into the rates and baked into this bar graph are future "Sandys," are future catastrophic events.

"Sandy" was, what, a 500-year storm, a 100-year storm, what was it characterized as, do you recall?

ROBERT GORDON:It was actually a super storm. It wasn't even categorized technically as a hurricane.

But we know the next "Sandy," from all the weather modeling, is going to be a lot worse in New York.

SENATOR SKOUFIS:But are rates and are those profit margins baked into them is what you are talking about?

Is that what I'm hearing?

ROBERT GORDON:That's a significant part of the rate is reflecting the catastrophic --

SENATOR SKOUFIS:So what happens if in the next 20 years there isn't a catastrophic "Superstorm Sandy"-level event? Do my constituents get a refund?

ROBERT GORDON:And what happens if there are three of them in the next 10 years?

SENATOR SKOUFIS:Answer my question first.

ROBERT GORDON:That's the way the insurance industry works is they have to collect enough money whether there is one event in the next 5 years or 10 events.

SENATOR SKOUFIS:You are collecting for a hypothetical prospective possible event. What if it doesn't come?

ROBERT GORDON:But it is actuarially based and that's what the New York DFS looks like.

SENATOR SKOUFIS:I understand.

ERIN COLLINS:And if we don't collect enough, then the insurance company won't be there to pay the claims, which that is the greatest obligation that we have.

SENATOR SKOUFIS:But presumably you are doing this, not just in New York, you do this in every state.

You try and actuarially predict for future catastrophic events and bake into those rates. And yet, in so many states we don't see what is happening in New York.

In so many states, your industry is losing money more than it's actually profiting.

Why, in New York, are we not seeing that ebb and flow?

ROBERT GORDON:Actually in New York, the overall property casualty return on net worth is lower than the average.

There are some lines that reflect the catastrophic risk exposure where again insurers are having to protect themselves against that...

SENATOR SKOUFIS:This data speaks to homeowners' insurance policies so let's talk with that.

Why aren't we seeing the ebb and flow, the up and down, the losses and profiting in other states here in New York?

ROBERT GORDON:Because in a state like Florida, what you are seeing is the hurricanes come in every few years.

In New York, you are not getting that "Hurricane Ian" every couple of years, but when it does come, it is going to be huge and that's where, again, New York is -- whether it's FEMA doing it or whether it's the risk modelers, New York is one of the most catastrophic exposed states and is second most likely to get that $200 billion event $100 billion insured loss --

SENATOR SKOUFIS:Even if we get that $200 billion event, I assume -- correct me if I'm wrong -- that the next filing, after that event, you are going to be going to DFS and seeking an enormous rate hike.

Is that a fair assumption?

ROBERT GORDON:I think it depends on what the estimated risk is in the future.

You can't say -- you can't make up for the past losses. You can't say, gosh, we lost a lot of money on this last hurricane so we have to triple rates. New York DFS is going to say, what is your projected losses -- expected losses in the future.

SENATOR SKOUFIS:You can say right here under oath that following a catastrophic event like that, you are not going to see a particularly large rate application submitted to DFS, your members?

ERIN COLLINS:What we would say with certainty is that any filing that's filed with DFS, either before or after a storm, has to be actuarially accurate and forward looking.

SENATOR SKOUFIS:So the answer to my question is yes from all of you. You can commit to that.

That what I just described will not happen in a subsequent rate hike.

CASSANDRA ANDERSON:Well, depends on what the future risk looks like.

So if the models say that that could happen again, I can't say to you with certainty that there may not be an adjustment.

But I think it's important that we look at this from the perspective of it's always based on what that future risk looks like.

SENATOR SKOUFIS:So it sounds like legally, maybe you can't look backwards and recapture for losses that had just happened a year prior, a year and a half prior from a catastrophic event.

But if that event happens, then in your next rate application, you will tell DFS, your members will tell DFS that well, this just happened and so it's probably going to happen more often now.

That's why we need a 10 percent or 15 percent increase.

CASSANDRA ANDERSON:Well, the New York City comptroller said it is happening more often now.

So I think what we are seeing is that there's more and more studies coming out where the risk gets greater and greater.

So I'm not saying that that one scenario is going to tell that we are already seeing even state bodies, state officials, saying that we're seeing greater risks related to extreme weather and climate.

ROBERT GORDON:What we have seen in California, where the state suppressed the homeowners' insurance rates, is then when you did get a record wildfire this year in January, a majority of the homeowners insurers have pulled back from the marketplace.

And so now...

SENATOR SKOUFIS:How many carriers do they have left in California?

ROBERT GORDON:They have a number of carriers, but I'm only aware of four that are open to writing new homeowners coverage in the wildfire prone areas.

And of those four, most of them are only writing if you have essentially the IBHS wildfire prepared standard.

So there is very limited coverage and that has caused an explosion into the bare bones government residual marketplace and the --

SENATOR SKOUFIS:I don't dispute any of that and all of that tracks with my understanding.

So four at least in those wildfire prone areas that we are talking about. How many carriers do business in this line here in New York?

CASSANDRA ANDERSON:Homeowners?

SENATOR SKOUFIS:Yes.

Property and casualty.

CASSANDRA ANDERSON:Less than 100 -- to my recollection -- well, property and casualty as a whole I think just over 200.

Again, I'm doing this off the top of my head, but as far as groups of companies, there are less than 100 that rate homeowners -- there may be multiple companies that are part of those groups.

SENATOR SKOUFIS:The "Times Union" reports the number is in excess of 1,000 and so there is clearly some discrepancy there.

But even if it is 200 --

CASSANDRA ANDERSON:A thousand regulated entities by DFS?

SENATOR SKOUFIS:That's what the "Times Union" reports.

CASSANDRA ANDERSON:That could be agencies. That could be other types of entities.

That doesn't mean it's insurance companies only who are underwriting the risk.

SENATOR SKOUFIS:Let's even take your 200 number, just a nice rounded number.

That is literally, if I'm doing the math correctly, 50 times the number of carriers that exist in California.

So clearly carriers are looking at New York as a profitable space to do business. Otherwise, there wouldn't be 50 times as many carriers.

Am I wrong to read it that way?

ERIN COLLINS:I think the comparison was how many insurers are writing new business currently?

So I think that there are a multitude of companies that still write in California. There are a multitude of companies that write right here in New York.

As Cassandra noted, you know, the groups often consist of multiple companies that file into that group structure all regulated by DFS.

Here is what I know to be true about the insurance industry.

They want to write insurance.

They absolutely want to write insurance.

They want to write in more places for more types of coverage and have done so over the course of several hundred years now to the highest rate that we've seen in an industry, and they want to continue to grow and expand in that area.

If we are to continue to do that and be able to do that and remain solvent, I would say that the best path forward to that is to focus on resiliency and mitigation to help bend that loss curve down.

And I refer to that both in physical resiliency and mitigation and also resiliency from the casualty line.

So addressing those cost drivers as well. That will incentivize more competition and for the companies that are all writing here in New York, to write more of it. And so I would suggest a focus on those areas.

SENATOR SKOUFIS:I have a couple more but I'll come back for a second round.

Thank you.

SENATOR KAVANAGH:Thanks.

Again, thank you all for your testimony and for your ongoing discussions that we have been having.

I want to just start with liability and the notion that there is legal system abuse going on.

How do you know that fraud is pervasive in New York?

And how do you know that it is growing?

ERIN COLLINS:I was referring to some industry and independent research that shows or estimates fraud at over $300 billion nationwide.

Happy to provide that study to the committee. I think that that comes from a variety of sources. Obviously it's very difficult to --

SENATOR KAVANAGH:Sorry to interrupt.

Just to make my question more pointed.

Does anybody on this panel have evidence that fraud is pervasive in New York and that fraud is growing in New York?

CASSANDRA ANDERSON:I think what even law enforcement are seeing and what we have documented video evidence of, it is pervasive, and it is growing.

We see where -- and it goes back to no fault auto insurance. There was a playbook that was used to stage accidents and that's -- for a while.

Now we see where it is also with staging the construction site accidents. That didn't exist, you know, a few years ago.

I don't know how exactly how many years when it started. But we are seeing where the schemes are changing.

The schemes are growing, and they're looking to go after different lines in different ways.

SENATOR KAVANAGH:Again, I don't mean to interrupt.

I want to try to stick to property, you know, auto insurance and their other insurance. It was actually a separate -- there's been a separate conversation about auto insurance going on in the legislature.

I just want to focus on property. I have seen some videos that have been provided by property owners.

I have not seen any evidence that legal system abuse or fraud are either pervasive or increasing in New York, and that's after numerous conversations with insurers, with folks like yourselves with property owners.

I've seen, you know -- one thing is when you have video, it's presumably the availability of video evidence has increased as cameras have become pervasive.

Cameras, of course, are a good way of demonstrating that you shouldn't pay a claim as much as they might be an opportunity to demonstrate that something that is compensable happened.

We are trying to understand, not just whether New York is high or low relative to other states, but how things are changing.

Why we are seeing a doubling of liability rates that are imperiling our ability to provide affordable housing across the state?

And so I'm concerned that there is a lot of talk about this but not a lot of evidence, and so again, is there any evidence of rates that -- of an increase in the number of circumstances where fraud is proven to have occurred?

ROBERT GORDON:Senator, I'll comment on the legal system abuse overall.

We do have a lot of evidence that the litigation costs in New York are not only higher than average, but they have been getting worse. And we are seeing, for example, bodily injury claims, 6.6 times worse than the national average.

Second worse nuclear verdicts, 67 percent higher costs, as Erin said, about $7,000 cost per household. So we have a lot of evidence that --

SENATOR KAVANAGH:That costs are growing.

ROBERT GORDON:That the litigation costs in New York are growing, are significant and are growing.

SENATOR KAVANAGH:We know we live in a country where large industry associations of all kinds, not singling out insurance, have made a great effort to diminish the access to courts, so people have the access to federal courts that people have, the access to class-action causes, the access to courts in various states.

So just again, I happen to have been involved in an actual nuclear verdict, it was a nuclear contamination case. I was working with a law firm on the plaintiff's side many years ago, and the size of that verdict struck people as justice, not excessiveness.

I just -- understanding that your costs are going up for litigation -- and we would like to see as much data you have on that.

I think it's important to distinguish the question of whether costs are going up from whether there is abuse and whether there is fraud.

Do you pay claims that you know to be fraudulent?

CASSANDRA ANDERSON:We look to fight the fraud and to be able to determine what is fraud.

Obviously fraud is not something where it's completely clear cut. We don't always have the appropriate tools.

What I will say, too, on what you are asking about, as far as whether we've seen increase in justice.

We don't always have a good sense, for example, we don't always know when third-party litigation funding is part of a case. And that is driving verdicts in a lot of ways.

We have heard case after case where the settlement could be hundreds of thousands of dollars.

And by the time the litigation funding company and the attorneys take their piece of it, the claimant, who even seems to go through unnecessary surgeries to be able to drive up that number, is left with just a mere thousands of dollars.

So I think that is important to understand in the context of justice.

SENATOR KAVANAGH:How many instances of proven insurance fraud could you point these committees to?

ERIN COLLINS:When you say proven insurance fraud, I assume you mean in a court of law.

SENATOR KAVANAGH:I mean, again, we just had testimony that people are getting unnecessary surgery in order to get increased payments.

We all hear those things. They may occur.

CASSANDRA ANDERSON:I can give you links to the cases, especially through the Southern District.

SENATOR KAVANAGH:Again, with great respect and we really appreciate this conversation.

Is there data that demonstrates that fraud -- I mean, again, the assertion was that these costs are increasing exponentially and that that is driven in a substantial way by fraud and abuse.

Is there evidence that fraud and abuse have increased exponentially in New York?

ROBERT GORDON:So Senator, we can also provide to you data provided from LexisNexis showing that as attorney involvement in some of these cases has increased, people surveyed indicate that the attorneys are directing them to get more and more medical treatment so that it essentially builds up the case value.

SENATOR KAVANAGH:And your assertion is that that is bad advice from their attorneys?

ROBERT GORDON:It appears to be clearly geared towards maximizing the damages rather than actually providing needed medical treatment is what the survey suggests.

SENATOR KAVANAGH:Whatever evidence you have that people are getting medical treatment that is not -- that doctors are providing medical treatment violating the oaths they take and their role as doctors, at the behest of their attorneys and that that is pervasive and growing, we would like to see that.

Again, I want to emphasize that we believe that these things occur.

Any human behavior occurs across different, you know, situations.

The idea that that is causing this enormous problem for us as we try to provide affordable housing for people is something that we would not just like to assume is happening based on anecdotal evidence. But some harder evidence that those things are occurring.

Again, I have not seen that evidence yet and I haven't heard it today but that does not mean it does not exist. And obviously we'll have an opportunity to follow up.

I want to shift gears to the questions of insurance costs and particularly what a couple of you mentioned, which is the question of whether people get discounts for engaging in -- sorry, whether the insurance system and the building codes and all the other systems that we run, are encouraging appropriate behavior to minimize risk.

We heard the superintendent say that they are gathering, kind of data that might be presentable to customers and to the public about discounts that are available.

Not someone on this panel, but when we were having some meetings in advance of this hearing, I had an insurance industry executive tell me that the fortified group system is working very well because they got a fortified group and they called their insurance company and the insurance company said yes there is indeed a discount and they got the discount.

And in my mind, you know, the fact that you're an insurance executive and you have to pick up the phone and ask, inquire whether there is a discount, suggests to me that maybe the system is not as kind of seamless or smooth as it ought to be.

Are insurance companies being transparent about discounts that are available?

Is there a place we can go to figure out what discounts each company is offering and how much the discount is and what behavior would get you the discount?

ROBERT GORDON:Senator, there is one additional piece to this.

So APCIA and our members, we have been having a lot of conversations with the realtors and the builders and the lenders and we have included the NAIC and others in those conversations.

One of the things that has come up is the real teachable moment when consumers are going care about this and listen to it.

It's actually not when they're talking to their insurer, it's when they're talking to the builder or when they're talking to the realtor.

That's one of the things we are in the process of doing is getting more granular information to the realtors, to the builders so that they can make better informed, better empowered decisions at the right moment.

SENATOR KAVANAGH:And again, there is a lot changing in this space and we would like to work with you on that.

But for existing homeowners, if the behavior we are trying to incentive is providing a different kind of roof when you need to replace a roof, I think it's incumbent on all of us and on the industry to make sure that...

CASSANDRA ANDERSON:I know there are a lot of education efforts, and the New York Insurance Association certainly is part of that. I think others in the industry are as well.

I will say with fortified, it's important that we recognize there are actually five roofs currently in New York State that are fortified.

So as the program hopefully builds, I think we will see much more in that space.

SENATOR KAVANAGH:My time is up.

Thank you. I'll probably come back.

SENATOR O'MARA:Thank you for being here. Appreciate your testimony.

We have talked a lot about fraud here and nuclear verdicts. Nuclear verdicts is a new term to me, and I have been a litigator throughout my career. Is that different than what, I guess, I would traditionally call a runaway verdict?

ROBERT GORDON:It's usually verdicts that are $10 million or more defined as nuclear verdicts. Now we are also talking about thermonuclear verdicts that are $100 million plus.

SENATOR O'MARA:And is the fraud, in your opinion, is this fraud that you speak of, the cause of these nuclear verdicts or is there a correlation there?

ROBERT GORDON:So one of the really interesting cases out there is in the early 90s, you had the woman who spilled McDonald's hot coffee on herself and it was $2.7 million award. It was economics and punitives.

This year you had a delivery man who spilled Starbucks hot tea on himself and instead of $2.7 million, it was $50 million and it was entirely non-economic pain and suffering.

So they didn't even put into the record the evidence on the cost of the economic damages. And so it's not necessarily an issue of fraud per se other than, you know, how you try and frame this for the jury.

But when the costs of spilling some hot liquid on yourself, which is something that is going to happen a lot in society, when it goes up from 2.7 million to 50 million, that is going to create more cost for insurers, more costs for consumers.

SENATOR O'MARA:So are you saying then that the laws in New York are inadequate as to how to deal with an excessive verdict?

And do you have recommendations on what New York should be looking at and how to provide maybe better appellate review of these types of verdicts that you are talking of.

ROBERT GORDON:Yes. I think consumers want a legal system that is fair, timely, reasonably and efficient but our system is not really any of those.

So you have a small number of people who are getting these mega awards. You are not having a lot more people accessing justice. And it ends up creating a lot of additional costs.

So we do think legislation to make staged accidents a felony would help.

Reasonable limits on non-economic damage.

I know there is legislation already from third party litigation financing regulation.

We think disclosure would help enforce that.

So there are a lot of solutions that can bring New York costs back in line with the country.

SENATOR O'MARA:Along those lines, what specifically have you seen other states have done that have had an impact on this?

ROBERT GORDON:Well, I think the best example is Florida.

Florida had some of the worst litigation costs in the nation. They enacted some very significant reform, and their homeowners rates this last year have been the lowest increase in the nation.

They have been only 1 percent, which is, post-inflation, a real drop. So we know that reforms can help.

That was things like assignment of benefit --

SENATOR O'MARA:What reforms were they?

ROBERT GORDON:One of the biggest one was assignment of benefits reform.

Also there was some peculiar attorney fee one way payments in Florida that were addressed; a number of others.

We are happy to sort of give you a table of all of the reforms.

We think non-economic damages making those reasonable is one of the most important things.

Again, you look at the Starbucks case. Spilling hot tea in your lap. Is that 50 million and then how many spills are you going to get and how much is that going to cost consumers ultimately.

SENATOR O'MARA:Okay, well, this is kind of off the topic of what we are here for today on property insurance I suppose so I'll change the subject at this point.

So, with the issues of reinsurance, captive insurance, how is it that we, in New York, are not bearing some of the burden of other state's catastrophes and the rate setting in New York?

ROBERT GORDON:I think first of all, Senator, is the New York Department of Financial Services said they do not allow it.

No state would allow it. It's against state law. It's against actuarially practices.

And frankly, insurers are not going to want to put more resources in a state where they're losing money and take it from a state where they're making money.

So that's not going to happen in the marketplace. So, it's not something insurers are allowed to do, nor would they want to.

CASSANDRA ANDERSON:Risk-based pricing -- cost optimization runs completely counter to risk-based pricing.

We want to accurately determine the risk of a specific -- writing a specific policy. And that is how we operate.

Those are the -- not only does DFS certainly prohibit it, but on top of that, that's the actuarially standards that we use.

ROBERT GORDON:If one insurer raised their rates to try and make up for losses in another state, then they would lose market share to other insurers.

Not every insurer does business in, say, New York and California. So --

SENATOR O'MARA:Doesn't the reinsurance market goes across state lines?

ROBERT GORDON:The reinsurance market is global.

So yes, the amount of reinsurance capital can fluctuate based on events.

But again, they're going to be looking at future risk and there is competition in the reinsurance market so if one company got hit, for example, from losses in California, they tried to raise their rates significantly, they would just get outbid by other reinsurers.

ERIN COLLINS:One important note in the reinsurance space and a trend to note is that reinsurers, they're not immune from any of these dynamics we have talked about today.

It's a way for the industry to write and have more capital in a state. But also terms of reinsurance have been trending such that companies are holding more capital or more retention.

So more claims are happening at the direct carrier level before reaching the reinsurance layer.

SENATOR O'MARA:Do you have any -- the minute I have left, do you have any specific recommendations for us in New York to avoid what's happened -- we talked about in Florida, California, other states where there has been a real reduction in the number of carriers out there?

You generally mentioned don't take actions that hinder insurance and take actions that, you know, help provide the insurance.

What specifics do you have other than saying DFS, don't take actions that hinder our ability to provide this?

ERIN COLLINS:I think looking to joint strategies between the industry and regulation to bend the loss curve down through resiliency.

You know, New York has been helpful in terms of categorization -- not just of discounts -- but also resiliency measures, carriers that offer mitigation techniques like water sensors or things of that nature to consumers, to monitor their own risk in their home.

So I think things like that have been beneficial. But I think the strongest step forward would be to address some of the litigation changes.

And to your note, there are a lot of possibilities there. And we are happy to follow up with sort of a list of suggested reforms.

But I would suggest starting there as Florida has done.

SENATOR O'MARA:Thank you.

SENATOR SKOUFIS:Senator Fernandez.

SENATOR FERNANDEZ:Thank you.

All this talk of lawsuits and the data and what we know. Is all this data collected on your own or is there any peer reviewed studies that you are looking into, too, to support these claims?

CASSANDRA ANDERSON:What I will say, too, and Robert, you can certainly expand further, it is not just insurance that is reporting on the litigation.

New York City has more than a billion dollars in litigation annually is what they have reported.

The city is largely self-insured and that's what they are reporting as far as their own litigation. Just the municipality itself. Not the amount of litigation in the city. But that is how much they are paying the city in litigation costs.

Just the settlements, is my understanding, is more than a billion dollars annually.

So I think that's important to know that it's not just an insurance-specific statistics that we are even talking about.

SENATOR FERNANDEZ:What is the timeline for these settlements, for them to get determined, when they're first filed?

CASSANDRA ANDERSON:I think it was Robert that said about the length of the court process right now, the judicial process, is quite lengthy. And that's because of, you know, the delays that exist.

It's not, you know, with -- the courts are very burdened in trying to work through that. It's challenging for everyone.

ROBERT GORDON:One of the things that I think is very important that we are trying to work on with the regulators, a lot of people don't know, a lot of consumer policyholders don't know, if you have a complaint, you can go to the regulator and they'll help you navigate that complaint.

And what is good about that is the regulator doesn't take 40 percent or a third of your compensation.

And so I think one of the things we need to do better as an industry -- and we are trying to talk to our regulators about it is letting people know of the existing system that is designed to serve them without taking any compensation.

SENATOR FERNANDEZ:Okay.

Ms. Collins, you said before that you want to give insurance. You want to make sure people are covered.

I mentioned before I represent a coastal community and from "Sandy" to "Ida" to every storm, it always happens, oh I don't have insurance. Okay, let's try to get you flood insurance for the next time. They won't give it to me. Why?

Why is it so hard for coastal communities that literally are on the border of where the zoning is to be able to get flooding insurance when we see and know that it's a continual problem?

ERIN COLLINS:Flood is a peril that is written through the National Flood Insurance Program and is certainly available.

SENATOR FERNANDEZ:There is nothing we can do at a state level?

ERIN COLLINS:I think the biggest challenge with flood insurance -- and the NFIP would hopefully reiterate this -- is the lack of take up rate.

People just don't buy it.

I think it would serve communities well to push information about the flood insurance program and the exposure that individual consumers may have in that space and how they can purchase that policy. And certainly any agent can direct them to that information as well.

And, you know, I have personal knowledge of carriers when they're asked about a flood insurance policy.

If they don't -- many of them do a write-your-own program in collaboration with the National Flood Insurance Program but they certainly have that information available for a consumer.

CASSANDRA ANDERSON:And just to clarify, the National Flood Insurance Program is a program of the federal government. So that is how flood is largely provided.

And the way that those policies are written, the way that the claims process works, that is all through how the federal government has structured it.

SENATOR FERNANDEZ:The federal government is a little unreliable so I want to know how we can do it on the state right now.

ROBERT GORDON:Senator, if I may, the flood exposure is by far and away the biggest protection gap for New York consumers. Only 3 percent of homeowners in New York have flood insurance.

There is both federal insurance available and private insurance available.

But not only is flood the most common peril, it's particularly an extreme risk for New York when you look at the catastrophic maps.

And formerly that risk was mostly from storm surge but now because of the changes in climate, we are seeing a lot more flash flooding and that causes -- they call it pluvial flooding -- but it's basically you get these short heavy rains and the storm drains in New York City and elsewhere are not designed to absorb that much water.

So you get flooding and that's not covered in the standard homeowners policy.

And, again, there is federal insurance available. There is private flood insurance available but only 3 percent of the people have it.

That is a rapidly escalating risk that people are vulnerable for.

CASSANDRA ANDERSON:We talked about resilient buildings but also making the public infrastructure, particularly in New York City -- I'm not saying it is the only municipality but I know and seeing the experience here trying to improve that public infrastructure is going to be very important moving forward.

SENATOR FERNANDEZ:We know that is part of the problem, too.

But in the last few years, a number of insurance companies have withdrawn from New York insurance -- the market for a number of reasons. I'm not sure if we said all of them.

But as some of the surviving companies, what are you doing to ensure that insurance and therefore homeownership remains affordable in this competitive market?

ROBERT GORDON:I really think it goes back, Senator, to resiliency.

As we have all said on this panel, insurers -- some insurers have been withdrawing or pulling back because of the enormous aggregation of risk that is escalating with the climate change.

So they know that big one is going to hit and a lot of them just don't have the kind of capital to allocate for that escalating exposure.

We can bend the cost curve.

We can make it safer with more resiliency.

We have the standards.

They have been proven effective.

We need to get those to the builders.

We need to get them to consumers early in the process.

We need to create incentive programs whether it's tax incentives or grants.

Or we see a lot of credit unions now offering HELOC loans for mitigation.

Lots of solutions we are working on but we have to get people more resilient to make them safe and reduce their costs.

ERIN COLLINS:Senator, if I could connect one more dot there.

This is an area where accurate risk-based pricing really assists the market.

So I mention how insurance companies really want to write insurance. Well, to the extent in this part of the state over here, I can be as accurate as possible through risk-based pricing.

That leaves me capital available to write property in other parts of the state where risk may be higher.

So the ability to write more insurance in more places, and for different risk profiles is directly impacted by the ability to use the most accurate tools in the market at the time.

SENATOR FERNANDEZ:Thank you.

SENATOR BAILEY:Round two.

Senator Skoufis will start us off.

SENATOR SKOUFIS:Thank you, Senator Bailey.

First, Mr. Gordon, the Starbucks $50 million payout that you referenced before, what state was that award granted in?

ROBERT GORDON:I don't remember, Senator.

I wasn't using that as a New York specific example.

Just an example how the cost -- it's not just fraud it's the escalation of the cost --

SENATOR SKOUFIS:I just wanted the record to reflect that that did not occur in New York. It occurred in California.

My first question is what percent of claims would you all characterize as being fraudulent?

We've talked a lot about fraud. And I echo a lot of what Senator Kavanagh mentioned, where there is clearly a lot of anecdotal evidence. I have yet to see any harder evidence.

I'm trying to get an understanding -- we all are -- of just how pervasive this is.

In your estimation, what percent of claims are fraudulent?

CASSANDRA ANDERSON:The New York State Department of Financial Services issues a report every year on fraud. So that is one indicator.

Fraud is something that is not always easy to identify.

And as I mentioned, it's hard to be able to tell when there are certain elements of it.

On the litigation side with their pre-litigation funding, because there is not the transparency in discovery, we are not always aware of what the role is there as well.

SENATOR SKOUFIS:Understood. This is strictly an opinion question I'm asking.

Is it 1 percent, 5 percent, 10 percent?

CASSANDRA ANDERSON:I wouldn't want to speculate. I can't say with absolute certainly in this moment so I want to get back to you.

But the National Insurance Crime Bureau works very closely with law enforcement and there are some statistics there as well and we are happy to get back to you on this.

But I do think the issue with fraud is, you know, we have individual state -- excuse me, investigative units with special investigative units in our companies.

We, you know, engage in all sorts of different efforts to fight fraud but it is something that you are not always going to be able to determine every piece of fraud, which is why we are trying to strengthen the laws and get closer and closer to be able to determine all the fraud that exists and try to address it better.

SENATOR SKOUFIS:I don't think you are going to find any disagreement from anyone up here or our colleagues that fraud does, on some level, exist.

And we want to do whatever we can to try and rein it in as you have described.

But clearly you have all thought about the issue of fraud and understandably so.

You must have some opinion as to ballpark how pervasive it is in New York or at least nationally.

Is it a fraction of 1 percent? Is it 1 percent? Is it double digits? Ballpark?

ERIN COLLINS:Senator, we are going to have to get back to you because candidly I feel like I might underestimate the amount.

SENATOR SKOUFIS:What is a conservative estimate?

What is your most very conservative estimate?

ERIN COLLINS:We'll commit to the following up.

But let me give you a practical application of how I think this is pervasive in New York and in other places.

SENATOR SKOUFIS:I have a few other questions.

I don't think I'll get an answer to that question so I'll move on. I'll ask another sort of percent question.

Whatever that denominator is that you are going get back to us with that represents the percent of claims that you believe are fraudulent, what percent of those claims actually wind up in court?

ROBERT GORDON:Senator, I think there is a little bit of a disconnect.

We are not just talking about fraudulent insurance claims, but rather the whole realm of fraud committed against businesses that insurance ends up having to pay for.

SENATOR SKOUFIS:I understand that, but I'm specifically asking about claims.

So what percent of the fraudulent claims -- you are going to get back to us with what you think that percent is -- what percent of those claims wind up in court?

ERIN COLLINS:You mean criminal court?

SENATOR SKOUFIS:No, I do not mean criminal court.

ERIN COLLINS:Again, we'll follow up with more information.

But I think a lot of fraud ends in litigation. Whether or not that ends in a court, is a different situation.

I think part of the challenge --

SENATOR SKOUFIS:That's really what I mean. What percent winds up in litigation?

ERIN COLLINS:I think it's a lot. I think it's very high.

SENATOR SKOUFIS:Three quarters? Almost 1 percent. Almost all of them?

ERIN COLLINS:I don't have those figure percent available. Obviously, that would be largely circumstantial.

But I think anecdotally speaking, what we see from the SIU units Cassandra mentioned and from how litigation trends, what we see is a lot of litigation is filed in cases where there is suspected fraud and then it moves into, you know, the legal standard of how those two entities interact.

I think the exposure for that case on the litigation side because of this legal system abuse --

SENATOR SKOUFIS:So I'm getting to that piece.

This is sort of a three-step question here.

So, is it safe to say a majority ends in litigation?

A majority of the claims you suspect as fraudulent end in litigation? I think the words you used was it is very high. I'm trying to understand what that means.

Is it at least a majority or can you not, with confidence, even say that?

ERIN COLLINS:I can't with confidence give you a number.

What I can tell you is that we have seen both an anecdotal and some independent research from, you know, these antifraud organizations.

SENATOR SKOUFIS:Okay.

So you can't even say that at least half, more than half of these claims you believe are fraudulent -- whatever number that is -- winds up in litigation and being challenged.

That raises a whole series of additional questions in my mind.

ERIN COLLINS:I'll answer it this way.

We have seen a drastically increasing -- and I will get you the number -- drastically increasing number of cases that involve retention of an attorney and filing of litigation even prior to communication with the insurance companies.

SENATOR SKOUFIS:Understood. I'd love to see those numbers. We would all love to see those numbers.

I have another question and I'm almost out of time. I apologize.

Now, whatever that number is, that second percent, what percent of those claims that wind up in litigation ultimately see a verdict, not a settlement?

CASSANDRA ANDERSON:We are still trying to establish the first numbers and I think that that's the challenge, trying to --

SENATOR SKOUFIS:Give me a sense, just a sense. Is it a tiny -- is it a fraction of 1 percent?

CASSANDRA ANDERSON:Part of the issue is to prove fraud is not always easy.

So how much do we suspect versus how much there is to whole scheme versus an element.

There is a lot of variation.

SENATOR SKOUFIS:No doubt but if you don't even see it through the process, it strikes me as odd that this is such an enormous concern on your end.

My concern is that whatever number of claims are actually fraudulent, you all make a determination that is just easier to sort of bake that into your next rate application instead of seeing it through to a verdict and fighting it and creating case law.

That's my concern because that takes time and energy and costs.

It's just easier, we'll add a couple points to our next application.

So I would love to see those number when you do circle back.

CASSANDRA ANDERSON:We are happy to provide more information about all of what we do to fight fraud.

SENATOR BAILEY:I have a second round of questions and I want to start off with where Mr. Gordon left off with Senator O'Mara.

You talked about the side of nuclear verdict. Nuclear verdict is a definition of is it just $10 million more? It has nothing do with the portion of possible loss.

So even if the losses were 9.99 million, we refer to it as a nuclear verdict if it is exactly $10 million?

ROBERT GORDON:If it is 10 million or more, then it's a nuclear verdict.

SENATOR BAILEY:So the nomenclature has nothing to do with the excessive nature above the laws, it's just the number of the dollar amount?

ROBERT GORDON:The issue is just how much it is increasing cost for society.

You can argue with each case whether it's reasonable or not but what we are seeing, again, is spilling hot liquid on your lap went up from 2.7 million to 50 million, those costs get added into the costs of all sorts of consumer products ultimately.

SENATOR BAILEY:I agree with that assessment.

I just want to make sure that we are clear about not painting a broad brush because when one hears the phrase "nuclear verdict," it sounds as if it's well beyond the, you know, any loss.

And if somebody's reasonable losses were 9.9 million, that nuclear verdict is not nuclear.

It is just -- it is on par.

ROBERT GORDON:Although what we are seeing is the driving factor appears to be the non-economic damages.

So it's not that the economic losses have scaled up as much in terms of, you know, the cost of a knee injury or a back injury, but rather what the jury decides or a judge decides is an appropriate pain and suffering award.

And for whatever reason in society, those numbers have escalated very significantly and so it's taking more money out of the system.

SENATOR BAILEY:I think that's a number of -- factor of things that are not the subject matter of this hearing about how people are feeling about the world in general, how they want to give someone else a break so to speak.

If we could talk about juries and jury pools at a different time.

And I believe in representation. The people should be represented. I'm sick and tired of the top dog law, commercials on the radio just like you are. But I do believe that people deserve fair and adequate representation.

So I think that we should get more data around what these litigation costs are so we can have a concrete conversation together. Because I understand how you are seeing it.

But on the other side, you wouldn't want to send somebody into a court unrepresented going as a Pro Se litigant for a possible loss of $50 million. The two are not -- we want to make sure that that's happening properly.

ROBERT GORDON:But I think the key there, Senator, is we're not seeing more people getting justice.

We are just seeing a small number of these very high verdicts that then drive up costs broadly in society.

SENATOR BAILEY:I would love for us to have that data.

To that point, we talked about factors, I want to talk about solutions. Let's talk about solutions.

From the relative -- from the perspective of each of your associations, what are the solutions?

What are the tangible takeaways that we can walk into session, at the state level in January, and have a reasonable conversation about doing something about it.

I want to talk about solutions.

ROBERT GORDON:I think, overall, we have all talked about resiliency is the most important solution.

It's building codes, mitigation incentives: Whether those are grants, loans, waiver of fees, tax credits, encouraging free inspections.

A lot of states have had success with all of those.

Infrastructure is important, education, having more risk disclosures. Those can be targeted.

You can say all right, for affordable housing we are going to create more mitigation incentives to help affordable housing.

That's really the key long-term to bending the cost curve and making housing more affordable.

SENATOR BAILEY:Anyone else?

CASSANDRA ANDERSON:Certainly modernizing the regulatory environment and making sure that DFS has the regulatory capacity.

There is a bill for them to be able to use consultants, to be able to get through that process.

Loss mitigation efforts. Insurance is very involved in this space. But it's very hard for us to be able to engage with our policyholders and to be able to give them the tools or to provide them with the service that would go with detecting fires, for example.

There are devices that will do that. Water sensors, as Erin mentioned earlier. Something we really want to see more and more of.

I've talked about third-party litigation funding and to be able to address the transparency and discovery that needs to happen.

There's a lot in the litigation space.

We talked about, not only capping non-economic damages in a reasonable way, but potentially capping attorneys fees. I certainly think that that's something that could be discussed as well.

So we are happy to have a conversation on a wide range. That's just a sampling of things we would be happy to talk about.

SENATOR BAILEY:Ms. Collins.

ERIN COLLINS:I would agree with all those things.

I would also add this, and I think this is in part an answer to Senator Skoufis, your question about fraud and the resolution of the court cases. So I want to make sure that there is a distinction.

When we are talking about a civil case, it would be, you know, one party versus another party and a finding of liability.

And it's either a go or no go. And that's what is reported about that case. That's not a finding of fraud.

So, I think a positive thing for us to look at here, and to your point, is to incentivize and empower law enforcement to really go after and investigate fraud and then prosecute it.

And so I think, you know, in terms of measures that are actionable that you can do in states, and we are very anxious to continue this conversation, states that have seen higher conviction and interest from law enforcement and insurance fraud have seen some of those loss curves bend down.

SENATOR BAILEY:Those of my colleagues who know me from coded committee days know that I do not believe in incarceration as a societal method of improving people's lives at large.

But I'm always happy to have a conversation about making sure that people who are bad actors and are proven to be bad actors -- the proof is in the proof, not proof is in the pudding -- and making sure that those folks are held accountable.

And the last thing I'll say is this: Mr. Gordon, you mentioned previously that the non-tendering of policy takes roughly 3 years.

If a policy is not going to be tendered, it takes about 3 years.

Was that something that you said earlier?

ROBERT GORDON:So there is a general prohibition on non-renewals after the -- that lasts for 3 years.

So that's one of the things insurers have to worry about is you know that inflation is increasing.

You know climate losses are increasing. But it's going to take you a couple of years potentially to get a rate increase through the system.

And at the end of that approval, you have to wait for the policy, 12-month policy to renew.

So if you can't reprice it quickly and you can't non-renew, then you are very exposed to those increasing losses. And that's one of the friction points in New York.

SENATOR BAILEY:Thank you for that clarification.

As I close, I look forward to having many conversations about this and consumer awareness.

I'll just make this point, like I said to DFS, maybe they're not as -- maybe your hands are not as tied as the regulators are.

I would implore you to please make sure that the policyholders within the State of New York have the information about all of the discounts and things that they possibly may have.

My time is up. Thank you.

CASSANDRA ANDERSON:I will say we have a thank goodness for insurance website that provides a lot of tips and information.

Our goal is to increase financial literacy and we welcome working with all of you in that space.

SENATOR BAILEY:Thank you very much.

SENATOR KAVANAGH:For the record, we all thank goodness for insurance.

Just a couple of followup questions.

First of all, so you mentioned litigation costs.

Do you have data that distinguishes the cost of litigating, the cost of your attorneys and investigations versus the cost of paying out claims or settlements after that are litigated?

ROBERT GORDON:We have what is called the defense cost and containment expense ratio, where essentially they look at your -- how much you are spending on lawyers in the system and then as a percentage of your payout and that's something that we track generally nationwide. And we can get that on a state by state basis.

SENATOR KAVANAGH:I think I followed that.

You have data for how much is spent on lawyers and the cost of actually engaging in the litigation versus what gets paid out at the end?

ROBERT GORDON:Yes.

And that's one of the concerns is the amount of money society is paying on -- the legal system is increasing and the U.S. is an outlier in the world in terms of how much we spend.

SENATOR KAVANAGH:We are also an outlier in the world in not having people have their medical costs covered when they are injured.

So the McDonald's case, it's odd -- I was a law student in a foreign country in 1997 and the case happened in 1994.

It's all lawyers and law students from outside the U.S. wanted to talk about at the time.

But my understanding of the case is that somebody was injured and had $20,000 in medical bills and McDonald's flatly refused to pay anything and so then it went to court and resulted in a verdict that was something in today's dollars as 5 or $6 million.

But we digress.

Do you have data the extent to which the assertion of the insurance company in litigation was about the claim being falsified or fraudulent in some way versus a dispute about how much to pay?

Like, if my home -- presumably if my roof is ripped off by a storm, you are not going to assert that there was a fraudulent storm.

But you might say we don't owe you as much as you think, you know, as much as you are trying to claim for the roof versus a situation where you are asserting that the claim itself was defective or false in some way?

ROBERT GORDON:I have not seen a national database on that. There may be some individual insurers who track that. We would have to go back.

SENATOR KAVANAGH:I know this has been a bit contentious here.

We really are trying to get to the bottom of what is actually known because if we are going to act on this, we need to understand the dynamic.

Shifting gears a bit. Robert, you mentioned a number of ways we might incentivize to people to engage in behavior that would reduce harm to people, reduce property damage, reduce risk. None of those incentives involve discounts from insurers.

And your list -- I'm not saying that that may have been an oversight -- but I mean, insurers are engaging in discounting in this.

Is it in your view, all of you, would it be useful to have a more systematic approach to make sure that all the people we talked about -- we talked about contractors and property owners and agents -- are aware of the behaviors that diminish risk and are incentivized to diminish those risks by actual reductions in premiums?

ROBERT GORDON:So that information is generally available through the IBHS website.

But what we have been talking with the builders and realtors and others about doing is trying to help them with essentially more cost benefit analysis; how much of those different techniques in different states going to help, not only save money with insurance but reduce losses, protect people and enhance resale value.

So we are trying to package that together with some education. So this is a project we are all working on together.

SENATOR KAVANAGH:We would very much like that.

CASSANDRA ANDERSON:We are happy to discuss what discounts would look like.

As I mentioned before, there are currently five fortified roofs in the entire state of New York so fortified hasn't even come here yet.

How we determine the discounts is if there is actuarial significance.

So we need to see what that looks like in New York State.

We believe in the science but we need to be able to determine what that would look like in the state.

We are actively working with state agencies right now to bring fortified to the state and to encourage it, and I think the insurance industry will be more than happy to continue to be part of that conversation.

SENATOR KAVANAGH:Fortified is obviously a newer -- it does seems from other states there's some evidence that it's effective and I think there have been some studies that have noted reduced costs both to insurers and in terms of deductibles.

Some of the things you mentioned -- Sandra, I think you mentioned this before -- much more routine technology that is not about, you know, climate disaster and other extreme weather but just more routine disasters in individual homes.

Some of these technologies have been around for quite sometime.

Water sensors to make sure you don't have a catastrophic pipe burst. Fire guards, fire detectors, smoke detectors.

Again, is there a systematic approach within the industry to determining whether a discount should occur for the presence of those things?

Cameras, by the way, for litigation we mentioned before. Presumably if there are cameras present, that might diminish the risk you are going to make a payout on that property.

I mean, how do you price and -- how do you price those things and how do we explain what appears to be quite different approaches by different insurers to those, you know, those features that have been around for a long time?

CASSANDRA ANDERSON:Again, each insurer is figuring out what that meaning is for them.

They're coming up with an actuarially analysis -- an actuarial analysis, what that looks like.

What I will say, though, is we actually, as an insurance industry, are very interested in increasing the amount of devices that people have; whether it's water sensors, and it's very difficult for us to even provide that device to a policyholder.

We have to file for it right now as it stands.

We have actually sought legislation when trying to work with DFS to increase or to create more flexibility so insurance companies can offer those types of devices to their policyholders before we can even get to the discount part of the whole equation.

But we like to be more engaged with our policyholders in that space and carriers would welcome that flexibility.

SENATOR KAVANAGH:We would like to engage and just to note -- I'm not going to have time to explain this -- but it is perplexing that, I mean actuarial science should not vary that widely from, you know, if you are talking about whether a, you know, a water sensor is likely to diminish risk.

Presumably there is quite a bit of data on that at this point in the industry.

It is perplexing that, you know, discounts are offered by some companies and not others for some features and not others.

So I think this is an issue we're going to want to explore on an ongoing basis.

One more question. Do any of your associations dispute that climate change is driven by, at least substantially, by human activity on this planet?

ERIN COLLINS:I think in terms of our association, what we are focused on is the response to climate change and extreme weather and how to mitigate against it.

SENATOR KAVANAGH:Your association is not sure whether climate change is caused by, you know, increased greenhouses in the environment?

ERIN COLLINS:What I'm saying is that we don't have a position on that as that is not our area of expertise.

What is our area of expertise is how to harden ourselves against extreme weather.

We can recognize the pattern of change in the weather, but we don't employ scientists for causes and I'm not -- as a trade association, that is not our area of expertise.

SENATOR KAVANAGH:I'm aware that I am over time here.

But just to be clear, you don't -- for example, if the federal government pulls back on policy that is likely to dramatically increase the greenhouse gas content of the atmosphere, you don't consider whether that will increase the likelihood of bad weather events?

ERIN COLLINS:Senator, I'm happy to give you my personal opinion.

SENATOR KAVANAGH:No, I'm not asking for your personal opinion.

Again, I'm surprised; I thought this was a throw away question.

CASSANDRA ANDERSON:I think what Erin is saying and it's important to recognize, is we look at it from the effect on the extreme weather.

The industry doesn't have experts who are engaged in how that occurs. I'm not disputing it.

I'm just saying that we have our area of expertise and we stay in that lane.

SENATOR KAVANAGH:Again, I'm very surprised if your industry is taking -- if your organization is taking a position that you don't assess whether policy and industrial activity are increasing or decreasing the amount of greenhouse gases in the environment and whether that is likely to lead to greater or lesser risk, I think -- I mean, that strikes me a policy that would constitute putting your head in the sand.

Again, I wasn't trying -- this wasn't a gotcha.

ERIN COLLINS:Senator, if the question is do you dispute it, the answer is no.

SENATOR KAVANAGH:So again, maybe I asked or phrased the questions incorrectly.

And I do want to wrap here, but you, as an industry, your associations and your companies, assess the likely increase in greenhouse gases in the environment based on human activity as a factor that will have an effect on risk, on future risk.

Is that a fair statement?

ERIN COLLINS:I think so.

SENATOR KAVANAGH:Okay. All right. I'm over time so I will leave it there. But thank you for -- and a follow-up.

Thank you.

SENATOR FERNANDEZ:Very quick, out of curiosity, because rates are going up, we are paying more, the average person is not getting paid more.

The members of your -- well, your members, their executive pay, has that gone up in recent years or down?

ERIN COLLINS:We don't track payment. What I would say is this: Every insurance company has a Board of Directors that is representative of their policyholders.

And they establish their, you know, overhead for all levels of operation to be substantial representation of their policyholders and their needs in order to remain competitive in the market and deliver the best products.

SENATOR FERNANDEZ:Okay.

ROBERT GORDON:Senator, I can give you a couple of quick data points.

For the top 350 public firms, the realized compensation averaged nearly $23 million last year.

Average property casualty CEO compensation was under $10 million and there were only four to five property casualty CEOs who had compensation exceeding that average, most of which are CEOs of global companies.

SENATOR FERNANDEZ:I'm glad you had that information. Thank you.

I yield my time.

SENATOR KAVANAGH:I think that wraps up.

Again, thank you all for your testimony, for all the information you provided and including written, and we look forward to a continued conversation. We appreciate you.

We are going to take a 5-minute break before the next panel, literally only 5 minutes. So at 1:11 we will reconvene.

Thank you all.

(The hearing stands in recess.)

So at 1:11 we will reconvene. Thank you all.

(The hearing resumes.)

SENATOR SKOUFIS:All right. We are going to get back to it here.

Welcome to the Acting Commissioner and Deputy Commissioner. Appreciate you both being here.

Before we get to your testimony, if we can swear you in, please raise your right hand.

Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

COMMISSIONER AHMED TIGANI:I do.

SENATOR SKOUFIS:Great, thank you. Please proceed.

COMMISSIONER AHMED TIGANI:Good afternoon, Chair Bailey, Chair Skoufis, Chair Kavanagh, members of the Senate Committee on Insurance, the Standing Committee on Investigations and Government Operations and the Standing Committee on Housing, Construction and Community Development.

My name is Ahmed Tigani. I'm the Acting Commissioner of the New York City Department of Housing Preservation and Development.

I'm testifying alongside my colleague Lucy Joffe, Deputy Commissioner for Policy and Strategy.

Thank you for the opportunity to testify today on the impact of insurance markets in preserving and developing affordable housing for New Yorkers.

HPD’s mission is to promote quality and affordability in the city's housing, and diversity and strength in the city’s neighborhoods.

In service of that mission, we dedicate significant time and resources to studying the housing market, examining indicators that place at risk our ability to create and sustain New York’s housing market and neighborhood vitality.

Unfortunately, the current challenges are abundant: Supply chain and labor shortages, elevated interest rates and operating costs, federal uncertainty, and persistent rent arrears since the pandemic.

Each of these conditions has the capacity to harm building viability individually; collectively, they can create havoc on the market.

Tenants themselves have not been immune and are also struggling to keep up with costs.

We collectively need to commit to protecting homes, and this is critical for both the occupants and the owner’s well-being.

One way to do so is to examine the regulatory and administrative burdens that weigh on our housing stock, as well as focus on lowering the cost of operating existing housing to keep buildings stable without significant rent increases.

Among the various rising costs, we see a particularly disturbing trend in the cost of insurance, and we are not the only ones sounding an alarm.

For many in the housing sector, these trends present a complex and growing problem for our housing preservation efforts.

For public agencies focused on maximizing resources to make impactful, sizable, and efficient investments, these costs, including insurance, are one factor that is diminishing the stability and the building health we strive to achieve.

We work carefully with development partners to structure loan packages and financing that balance public policy goals -- such as aging-in-place improvements and homeless set-asides -- while still ensuring that buildings are self-sufficient and that existing projects can be recapitalized to meet new needs and maintain stronger fiscal foundations.

Meanwhile, escalation of insurance costs have made those guardrails much more difficult to maintain.

Some of the ways this has been evident include: Seeing insurance premiums are generally -- seeing that they are generally increasing rapidly, while coverage is decreasing or can be difficult to find; estimates suggest recent average annual increases around 25 percent for existing affordable housing and 100 percent over the last four-year period.

Among the list of rising costs, insurance has been the biggest increase for many housing providers.

Housing providers report finding limited options and rapidly growing premiums, indicating particular challenges with recent pricing of liability insurance.

While we know that rising insurance costs are a national problem, liability insurance appears to be a comparatively bigger challenge in New York.

Insurance costs are uneven across the market and across HPD’s portfolio, with significant variation between projects, even for those in the same loan program.

As insurance costs rise, it costs HPD more to build and preserve each new home, reducing our impact.

And when costs increase for buildings already in HPD’s portfolio, those buildings can struggle to meet their monthly obligations and can experience significant instability.

While we have the most direct involvement with buildings in HPD’s portfolio, increases even nearing these levels are risky and destabilizing for our entire housing market.

HPD maintains insurance requirements for preservation, new construction, and our Mitchell Lama projects and developments.

These include comprehensive property and liability coverage during the property’s operating period.

Simply put, buildings cannot operate and we cannot create and preserve affordable housing if that housing is not insured.

This steep and rapid cost escalation not only strains HPD’s ability to build, renovate, and finance, it also places existing affordable housing under serious financial strain and becomes a growing threat to affordability.

These conditions impact owners, tenants, and communities, and the harm is increasing.

We thank the State Senate for taking up this issue, including by passing legislation in the FY25 budget prohibiting insurance carriers from discriminating against affordable housing with steep penalties for failure to comply.

We hope, though, this is only the first of many interventions to stem this tide.

We look forward to answering your questions today and continuing to partner with you to identify solutions to this pressing issue.

SENATOR SKOUFIS:Senator Fernandez is going to lead us off.

SENATOR FERNANDEZ:Thank you so much. You ended off with the anti-discriminatory laws that we implemented. How are you seeing that being affected? Like, are we seeing the intention happening or not?

COMMISSIONER AHMED TIGANI:I know that once the bill was passed, there was a great amount of interest from the housing sector and those who were working with us in our project loan packaging, both in new construction and preservation, there was a lot of education work that we did in our individual conversations, so we made sure that at least the sector and the industry was well informed.

In our conversations with DFS -- and I'm sorry I wasn't here this morning to hear their testimony -- we understand that they are still, you know, looking and evaluating what impact this is having on the provider side.

There has been some information out there about national trends that show, sort of stabilizing. But we are still seeing, I guess in our portfolio, increase in liability.

SENATOR FERNANDEZ:Are we seeing our enforcement working?

COMMISSIONER AHMED TIGANI:At this point, insurance costs are continuing to increase in our portfolio. Like I said, we are seeing a lot -- we are concerned about the rise in our liability insurance particularly.

And we are still worried about how this impacts our costs.

We have talked to -- there are different attorneys and representatives in the legal world that are looking to see --

SENATOR FERNANDEZ:Have any penalties been paid?

COMMISSIONER AHMED TIGANI:Again, I would defer to DFS as to whether that.

HPD is, in many cases, like other housing operators, we are a provider, right?

We are funding projects and then we are looking at the underwriting and we are trying to make sure that they are out there competing for their best options.

The fact that our developers are not seeing best options are the reason why we are concerned and we are pushing for more tools to see that insurance premiums are brought down.

SENATOR FERNANDEZ:Okay, because I do hear from property owners, developers that they are seeing terrible options.

COMMISSIONER AHMED TIGANI:Yeah.

SENATOR FERNANDEZ:I want to switch to a new program. I brought it up earlier, the New York City Community Insurance Pilot Program. This was created in '23 in response to the storm surges that have happened and the damage to communities and for insurance that won't give flood coverage. This is a pilot program to help pay for immediate repairs.

But, in '23 and '24, we haven't had a big enough storm, that to my knowledge, these payments haven't gone to anybody.

Could you speak about this program and if you see it going into effect? And what criteria of a storm and damage do we need to have for people to be able to get some funds?

COMMISSIONER AHMED TIGANI:So there is a number of different pilots around climate resiliency and flood response that don't operate through HPD.

I can talk to our colleagues at the Mayor's Office of Climate and Environmental Justice and get back to you with answers about that program.

I will say proactively, what we have been trying to do over the last couple of years is design projects from the start, which, through our new construction work, so that they're flood resilient, that they're climate resilient.

In our preservation work, we had the opportunity to get about $800,000 of federal money where we are looking at about eight or nine different Mitchell-Lama campuses.

And doing technical assistance reviews so that we can map out new construction -- I mean, new capital improvements so that they can make improvements in the building using capital dollars and hopefully use that to bring down insurance costs.

We also have a pilot out in Howard Beach with one to four-family homes.

SENATOR FERNANDEZ:Has there been a successful building that insurance costs have gone down because of your assistance?

COMMISSIONER AHMED TIGANI:Where we are seeing the ability to control for costs, really comes from the fact that there are a number of different ways that people are out there competing for insurance, whether it's through bulk purchasing or being part of the existing captive options.

We are seeing there are developers -- particularly those who have an economy of scale, a larger footprint -- able to compete and get better rates. But it's not uniform. It's not a general market solution. The general market issue is that we are seeing premiums increase. But individually, either because of scale of your building, your participation --

SENATOR FERNANDEZ:That's an oxymoron that we are seeing solutions because premiums increase.

COMMISSIONER AHMED TIGANI:We are seeing solutions because of the scale of your building, because of the fact that you participate in either a national or local captives, because you are using the ability to ensure among a group that is also the providers of that housing, like the captive discussion. They're able to control and make different decisions about the premiums that they're charging. So one of the -- a lot of the conversation over the last couple of years --

SENATOR FERNANDEZ:Okay, a decision as to why they're putting certain premiums -- they're making decisions as to what premiums they're giving. And I mentioned it before that Section 8 tenants is a reason why premiums tend to go very high. And to the discrimination laws that we've seen, again, I've heard many times that it is still happening.

COMMISSIONER AHMED TIGANI:So I think the misinformation about buildings that rent to individuals who have vouchers, which is something that is disastrous for HPD, we oversee 43,000 households, nearly 8200 individuals, who benefit from and contribute to the city in an incredible way. And they're able to live in New York City because of housing vouchers.

So we are aggressively pushing to make sure that they're protected, not only by making sure the buildings that they are in have financing if they're available, but as they bring those issues about insurance to them, we are in a position where we have to fund those insurance premiums higher, making it less possible to use that money to do more projects or we are bringing that information to our state partners since insurance is regulated at the state level and the federal level and not the city level.

DEP. COMMISSIONER LUCY JOFFE:If I could add.

We share your concern about the impacts of discrimination on insurance, not just for the buildings that are within our portfolio or generally. So, you know, I think nothing that we are saying is disagreeing with that point.

We would certainly expect, based on our experience -- we don't enforce any discrimination laws, but we work closely with partners at the city level who do. Oftentimes, we are looking for two different effects.

One is the change in behavior that happens just as a result of the passing of the law if people fear enforcement. And then there is the actual enforcement itself.

The second one can take longer in our experience.

So while we are not able to talk about today, speak to whatever enforcement has happened because we are not necessarily directly involved, though we remain open and willing to work with anyone who is interested, we see that is what is happening.

SENATOR FERNANDEZ:Increases are happening based on voucher number and buildings.

DEP. COMMISSIONER LUCY JOFFE:So what we are seeing is a range of factors that we see are driving them and we are definitely concerned about the way that discrimination is impacting playing into that. So we are hoping that the law that you all passed will help us deal with that piece. And that that is hopefully happening now and will continue to grow as the law really takes hold and lawyers and other folks figure out how to really best capitalize on the law.

And then we are also hoping that we can work together to find solutions to the other parts of the other challenges that we are seeing. We are hearing from building owners like you that are also driving up costs so we think it is going to need to be a multipronged approach.

SENATOR FERNANDEZ:Thank you. Thank you for the time.

SENATOR KAVANAGH:Thank you, Senator Fernandez. And thank you both for testifying and for -- HPD is really a remarkable institution, having such a large and sophisticated agency at the city level, it really is a blessing for New Yorkers and we appreciate all the work you do and your time here today and your testimony.

I just first just want to highlight something you said and make sure I understand it. You are saying that over a four-year period, the cost -- the average cost of insurance over an entire portfolio of affordable housing doubled?

COMMISSIONER AHMED TIGANI:So some of the factors that we are seeing in terms of numbers over the last couple of years, so since 2020, estimates for increases in new buildings have been around 15 percent annually, while in existing buildings, we have seen about 25 percent annual increase. This is based on a number of different things.

But specifically, you know, we are requiring -- we have to require comprehensive insurance on our buildings to make sure that they're protected. And as we start seeing that come in through the loan packaging process, we are noticing and we are recognizing its impact since it's taking money that otherwise would go to build more affordable housing.

SENATOR KAVANAGH:Right. But it's a doubling of costs. Do you have any indication of the extent to which that is driven? I mean, a lot of these buildings are probably insured as sort of packages of different insurances bundled together.

But do you have any indication of how much of that is driven by increases in concern about liability, which we have been discussing this morning, and increases and concern about replacement costs and extreme weather and those things?

COMMISSIONER AHMED TIGANI:We don't have that break down for you. We can see what information we can put together.

But generally speaking, we have tried to recognize that in the standards that we have set and we have seen a total increase in that period around 94 percent.

And then also when we talked to our lenders who are also looking for that information, we are comparing notes with them.

So right now, from the -- and again, because there are five or six different models of insurance that we see our providers use, it gets a little bit hard to do apples to apples. So we are taking the best information that we have to set our baseline standard.

And then when we look at where they're having difficulty finding that insurance and where the costs have been the highest, it has been around liability insurance.

DEP. COMMISSIONER LUCY JOFFE:These estimates are not a measure of changes within our portfolio. They're how we are -- we are underwriting projects how we are seeing other folks report on that. And there is very wide variation between buildings even within the same program.

So certainly there are going to be some buildings that don't have significant increases of this amount and some for whom it has been even larger.

SENATOR KAVANAGH:Do you, as an agency with kind of a bird's eye view of lots of different projects going on, you mentioned a couple of times that there is sort of variations from one building to another, even within the same program, which means presumably they're broadly speaking the same kinds of housing. They're multifamily, rental, being funded in a particular way.

Do you see different outcomes when property owners are getting insurance that are kind of hard to explain? Or do you see, well, this one is higher and it's easier to understand why that's higher and this one is lower?

COMMISSIONER AHMED TIGANI:I think in situations where we see a strong property management framework; where there is a risk assessment process in place, where the building is kept in strong and good state of working order.

And again, going to the idea where there are collaborations, portfolio-wide economies of scale, we are seeing those factors contribute positively to getting, you know, better quotes and better insurance offerings.

It's really -- it's really about the state -- you know, state of the building that we are seeing opportunities to save money on insurance.

SENATOR KAVANAGH:But in terms of the overall -- like the cost drivers are presumably not because all those factors you just mentioned. Those factors are ways of mitigating otherwise increasing costs. You are not suggesting that buildings have gotten worse on those measures over the...

COMMISSIONER AHMED TIGANI:No, no, I'm suggesting there are two pieces.

We are concerned about information, both anecdotal and research that is done that's impacting the affordable housing portfolio or the larger housing market, where as the Senator suggested, there is affordable housing connection to it.

And then we are looking through our processing of either new construction or preservation projects, we are looking at the factors that contribute to the quotes that our providers are getting.

And we are seeing that we do have a wide variety of projects from supportive to multifamily to HDFC co-op, et cetera.

And these baseline factors about property management, risk assessment, condition of building, that all feeds into their ability to get quotes in their particular work streams.

SENATOR KAVANAGH:I mentioned earlier in this hearing -- I think you weren't in the room yet -- but that the state has taken a step to encourage captive insurance, basically smaller -- I mean, we have been aware there are very large housing providers that are kind of effectively self-insuring, but we have a notice of funding availability out on the street that this HDR has put out to allocate $5 million that was in last year's budget to subsidize companies in joining captives.

Can you just talk about your perspective on how captive insurance operators might play a role in the affordable housing sector?

COMMISSIONER AHMED TIGANI:I think one thing -- one top line highlight is that with some of the ones that we've seen in particular, it involves the individuals who are also providing the housing that is being built and being maintained and preserved.

They have firsthand knowledge as operators of that housing, they have history with that housing, to talk about what the situation day to day is and what the outcomes are of situations that occur.

So that firsthand knowledge is unique to them and they're able to really move forward with that.

We are open and very interested in seeing as many different ideas that can be tested or explored to see what will drive down the ability to save on insurance premiums; particularly in our housing stock, you know, and our affordable housing stock.

I think some of the things that we have seen come up as questions about viability is getting that initial capital investment, making sure that the pool is large enough in order to deal with things that come up or maintain the costs of administratively making that continue, the technical expertise that is required.

Again HPD, we are not insurance experts, but in talking to those who have formed them or looking to form them, and members of the insurance community, that technical expertise is key, being able to assess what the future is and make sure that they're solvent. And then there is the idea of how do you approach different housing stock types.

And so how do you approach, you know, sort of general market versus supportive housing project, Mitchell-Lama projects have other standards and requirements. Their formation might be different. And so ensuring that we have different types is important. Making sure that we have different types that are available and can match up with the different types of housing that we organize and create in New York State, also important.

SENATOR KAVANAGH:You mentioned requirements that you have as part of underwriting. For instance, HPD and HTC have -- basically are requiring insurance to secure the asset that you are financing against.

Is there -- I mean, presumably those have to be adjusted as replacement costs go up and other factors. But has there been any recent change in kind of the way you think about those requirements? Like, have those requirements become more stringent? Or is there any aspect of that that might be driving changes in cost of insurance?

COMMISSIONER AHMED TIGANI:I think first and foremost, like many people, we are concerned about the rising impact of climate change and want to make sure that our buildings are secure for that.

The leading angle on that is making sure that we are addressing it through any capital rehab work that we do and doing the examination as part of our discussions with them.

Sustainability, energy efficiency, all of these factor in to the larger operating costs and management of these buildings.

So, you know, while not directly related to insurance, there is this bigger picture of just making sure our stock can maintain the operating costs that they're enduring now; which we note here in testimony and we have talked about before, we are seeing operating costs increase across the board.

So by trying to maintain and solve for in other areas, it allows us to free up the cash flow that may need to go to increasing insurance premiums.

But on the insurance premium side, we are definitely concerned about things like climate change; however, property insurance, general liability, worker's comp, you know, flood coverage, disability benefits, all of that remains the same.

And we do absolutely evaluate regularly whether the management and operating standards we set for projects that are coming in and gets approved can meet that standard.

DEP. COMMISSIONER LUCY JOFFE:We have not made any changes in recent years so we can't trace that to a general cause here.

SENATOR KAVANAGH:Time is up. Thank you, both.

SENATOR BAILEY:Thank you very much. I want to thank you for your testimony and for your time. I want to start from the year 2022. I don't know if either of you were in your roles or with the administration but I want to say that this was a catalyst in the way that I started thinking about this as a problem.

Tracey Towers, which is an HPD Mitchell-Lama, had a significant insurance increase of roughly what I recall to be 500 percent. That insurance increase priced a lot of residents, even out of Tracey Towers, which is supposed to be affordable housing. It's a beacon of affordability in the borough of the Bronx. And that priced a lot of people out because they were no longer able to live there.

When things like that happen, there becomes a societal domino effect of unfortunate things. I don't want to make it too dramatic, but of unfortunate things. Back to what HPD's role is in this. R.Y. Management is the management company at Tracey Towers, I've had good relationships with them. This is not to target them specifically but what is the relationship between the management companies that are subcontracted under some of these Mitchell-Lamas -- and you mentioned some of the formations are different -- how can we figure out like, if risks are coming down the pike, and we possibly have seen that they may see this as a major increase, what can we do to be responsive as opposed to reactive like in the event of the next Tracey Towers' 500 percent increase?

I know that was a lot and was a really nebulous question. I can narrow it if you want.

COMMISSIONER AHMED TIGANI:No, no, it's the right question, Senator.

So, we have our housing supervision team that has multiple parts but one of which does maintain a -- sort of an asset manager, which each of the city oversight -- overseeing Mitchell-Lama properties. They're the ones who would be talking with R.Y. or any property manager about what is coming up down the pike. We have both annual information that we collect.

But there is also specifically ongoing discussions about the state of their property. Often they are looking at maybe meeting the obligation of a local law, like local law 11 or local law 97. Or they have a board because they're a co-op and they see that they want to advance capital improvements. So then they come in to start discussing that with our preservation and finance team.

And in those conversations, we are looking at their operating costs now, we look at the past and we project what they might look like in the future because their vendors are giving them estimates about what increases might look like.

So there is a proactive point in where we are asking questions about their ability to meet their obligations on their local law requirements.

There is a point -- I wouldn't call it reactive, but where they're coming to us because they're planning proactively and need financial assistance from the city in order to plan for those repairs.

And then there is reactive ways, where there are issues that come up, maybe brought by an elected official. Or you are talking to them because you are providing reso-a or you're providing funding for a project.

And then we package that into something and say if the elected official wants to give money, we want to be able to come in and do a real full substantial scope, how do we work with you?

That said, on the insurance piece, I think that's something where we regularly recommend to our property managers and the owners of these buildings, if you are seeing issues, please come to us.

We want to have a productive discussion about all the tools that are on the table so that both them and the tenants that they're trying to serve are not caught by surprise.

SENATOR BAILEY:I know you said that you are not insurance experts, so I'm not going to ask you to specifically opine on the very specific granular data. But I will ask the question about -- and I'm going to use the Tracey Towers example again.

It was said that the increase was based upon certain statistics of certain risks that became higher than not in that area. And we are wondering, you know, does HPD take a position on how these insurance companies are assessing risks?

Because if you specifically look at Tracey Towers, it's two hospitals, you know, DeWitt Clinton High School, Lehman College and the Bronx Science High School where lots of trouble happens, right, and wondering, this area is not a bad area, but yet the conversation was that risk was significantly increased.

Is there a position that you are having about how these insurance companies are arriving at the manner in which they are assessing risk for HPD properties?

DEP. COMMISSIONER LUCY JOFFE:To your point -- or you said it for us. We are not experts. We are also looking at the patterns across our portfolio and attempting to try to derive what is going on.

You know, the Commissioner talked a lot about what we can do to help when it happens. I think we are actually coming to a similar conclusion that you are, which is we don't know how to explain and would defer to other people about how to explain why the increases are happening.

What we are best able to say is this is an unsustainable place. It is very hard for us to do our jobs. It's very hard for the management companies, the owners, the impacts are trickling down to the residents and the occupants so long as this is happening.

So we would defer to others who have testified so far today as to why, what the factors are. But there has been a number of questions -- and we are not able to explain it as sort of the regular course of, you know, because this and this is happening.

COMMISSIONER AHMED TIGANI:The only thing I would add is that we have made clear that we are available to talk with entities in the insurance world or our partners at the state level about how we work and support our buildings so that they're safe, that they are running well. And that they are in a condition that warrant being able to work with them to come up with reasonable expectations and solutions.

So that's something that HPD is very interested in continuing that conversation.

SENATOR BAILEY:And we're speaking about affordability, again, the topic du jour of the day.

Mitchell-Lama and other housing stock like that, it's supposed to be the beacon of affordability. And when Mitchell-Lama housing becomes unaffordable, we are having a larger societal problem.

But about, not just the coverage of that, it's fair to say that HPD's portfolio does include certain Section 8 tenants. Is that fair to say?

COMMISSIONER AHMED TIGANI:We oversee about 43,000 federal vouchers. 38,000 of those federal vouchers are specifically housing choice vouchers, which is normally referred to as Section 8.

SENATOR BAILEY:So with that Section 8 or those types of housing, are you seeing insurers pulling out of those markets greater? Because we are talking about declination of insurance. Less people are looking to cover certain places in other areas.

Are you seeing that they're coming out -- that they're pulling out of that type of housing stock more often than not or is it equal across the board? If people are pulling out of the market, they're pulling out of the market, or is it happening more in lower income areas?

COMMISSIONER AHMED TIGANI:We are seeing general difficulty with being able to access insurance options. And a lot of our housing -- a lot of housing in HPD's portfolio is both a combination of subsidized buildings with city or federal resources and vouchers.

So, you know, I can say that the folks who are coming to us, either who are in our portfolio and trying to re-up and extend their loans, or individuals who are coming to us as part of projects who want to come and be part of an HPD loan process, both are seeing issues with availability, with pricing.

And it's not so much that Section 8 is the factor, but we are talking more generally in the housing stock but particularly affordable housing.

SENATOR BAILEY:The reason I'm stating these things is simply for the record. When people come to us with certain complaints and we're reading in the media about certain complaints, it's important that we elevate these conversations.

Just, these are not accusations that anybody is a bad actor but when people bring us stuff, it's irresponsible if we don't bring it to those, especially those in municipal government.

I guess the last thing I will say is this. As you continue to strategize and look towards and continue to look towards and do the great work that you are doing, are there any state level conversations that you would like us to be having that we can work in complement with the city that -- legislatively or otherwise?

COMMISSIONER AHMED TIGANI:I would say there are a couple of things. Our continued collaboration and I would say this in any room, you know, the HCR Commissioner and the entire team works hand in hand with us to make sure that we have resources, either tax credits or capital, so that we are investing in these buildings. The stronger we make our existing portfolio, the better they can withstand any of these issues that come up.

So continuing to be -- and the Senate and the Assembly and the Governor's support of over a billion dollars in housing funds, actually is going to connect directly to what we are talking about here and help us moving forward.

So more of that support is always great. And then as far as the legislation that we are seeing here, I think across the board we are very interested in seeing if there are different alternative methods that either create new pathways to better premium options, better quotes. Or if there are other things we can do with the standard way.

So we are interested in talking about all the options that are on the table. We defer to our colleagues at the state level, especially about the mechanics of the insurance industry.

But as far as an operator and funder of housing, we would like to be in the conversation on all of these.

SENATOR BAILEY:Thank you, Commissioner and Deputy Commissioner.

Senator Kavanagh.

SENATOR KAVANAGH:In recognition of your time and your staff's excellent work reminding us that you have other things to do today, I think I'll forego the opportunity to ask another round of questions. But just again, thank you for your testimony and for all that you do. And we will be in touch about some of the followup. Thank you.

COMMISSIONER AHMED TIGANI:Thank you guys for the opportunity.

SENATOR KAVANAGH:Andrew Finkelstein is next.

SENATOR SKOUFIS:Thanks for joining us, Mr. Finkelstein. Can I swear you in?

ANDREW FINKELSTEIN:Sure.

SENATOR SKOUFIS:Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

ANDREW FINKELSTEIN:I do.

SENATOR SKOUFIS:Thanks very much. Go right ahead.

ANDREW FINKELSTEIN:Chair Bailey, Skoufis, Kavanagh and members of the committee, thank you for the opportunity to testify today. My name is Andrew Finkelstein. I'm president of the New York State Trial Lawyers Association.

NYSTLA represents New Yorkers injured through unsafe property conditions; tenants, workers and community members, who rely on property owners liability insurance to obtain the protection and compensation those policies are meant to provide.

Residential insurance is prohibitively expensive in New York because the system rewards delay, secrecy and profit sharing instead of protecting policyholders. At the same time, industry profits have never been higher. The property and casualty insurance industry earned $88 billion in 2023, it's most profitable year of all time, even as insurance executives claimed the sky was falling and insurance companies jacked up rates with these great profits.

In addition, AM Best reports that 2024 saw profitability continue to surge with net income reaching $130 billion in the first quarter of the year -- 148 percent increase, putting the industry on pace to shatter 2023 records. The major driver of this imbalance is the rise of illusory insurance. These policies look like insurance on paper but offer little or no useable protection in practice.

Families pay premium believing they're covered, yet when they need the insurance company, they evaporate and deny the claim. The result is simple: New Yorkers think they are insured, but when disaster strikes, they find out they are effectively on their own.

Trial lawyers see this reality every day, particularly in affordable housing communities that are hit first and hardest by climate disasters. These households take two or three times longer to recover from storms, are twice as likely to suffer heat-related harm, and are more likely to be underinsured when catastrophe strikes.

To address these failures today, I'll focus on three ways New York State can help affordability of insurance.

First, sunlight. Sunlight laws are essential because New York cannot fix or regulate what it cannot see. We heard today from the Chair of DFS. She specifically said they do not get claim level data to rely on any increases. When she is blinded as to what she is attempting to regulate, she cannot properly regulate. And it's the industry that is withholding that information. So if the legislature was -- had the wisdom to actually put true sunshine laws in place, we would be able to see why they claim these premium increases without what appears to be justification.

Secondly, New York urgently needs a strong bad faith law, because it would protect policyholders and significantly reduce the burdens on our court. Today when an insurer wrongfully delays or denies legitimate claims, the only consequence is that they may eventually have to pay what they owed from the start. The structure rewards delay and encourages denials that individual homeowners and affordable housing providers cannot afford to fight. And when a property owner is wrongly denied coverage, the ripple effects extend further. Injured New Yorkers lose their only source of recovery, their medical care does not disappear, it only shifts to Medicaid and public hospitals. That means taxpayers bear the cost that should have been paid by the insurers who collected premiums specifically for those losses. The state has a direct financial interest in ensuring coverage is honored and enacting bad faith law.

And third, New York must confront fraud wherever it occurs, including widespread often hidden fraud committed by the insurers themselves. NYSTLA is unequivocal. Fraudulent claims by anyone is unacceptable. But we cannot ignore the documented misconduct within the industry.

After "Sandy," for example, multiple insurers were sanctioned for manipulating engineering reports to understate their own insured losses or deny claims entirely. These practices mislead policyholders, distort pricing, destabilize the market. We have heard very quickly a lot about fraudulent claims without any support or data. I'm here to tell you there are far more fraudulent defenses that are put forth than any fraudulent claims that are brought.

In closing, insurance is a promise. A promise that when disasters strike or when someone is injured, the protection paid for will be there. But a promise requires transparency, enforceability and honesty.

I commend the committee for examining the true cost drivers behind rising premiums, by ensuring transparency, enacting a real bad faith law and scrutinizing misconduct wherever it occurs, New York can restore fairness and stability to its insurance markets.

Thank you for the opportunity to present and I welcome any questions you have.

SENATOR SKOUFIS:Thank you, Mr. Finkelstein. You alluded to it. I think it's fair to say that we were all non-plussed with the lack of data that was provided by one of the previous panels, the association, the trade associations.

I'm curious, they made a lot of assertions about how litigation has quote unquote exponentially increased. Spoke a lot about nuclear payouts. I'm wondering, they clearly didn't have the data at, sort of, their finger tips. We will see if they have the data at all, as they circle back.

Does NYSTLA have any data that speaks to the volume of cases that have moved in this policy area, in the property and casualty insurance?

Do you want to just generally respond to those assertions that we heard before?

ANDREW FINKELSTEIN:Well, first, I want to put context in the, frankly, flippant phrase of nuclear verdicts. They define a nuclear verdict as something in excess of $10 million. But what we did not hear is how much is actually paid on that claim.

And what we did not hear is why did a jury have to decide that. And most importantly, let's not ever overlook the fact that six individuals from our community sat and heard all of the evidence and determined that that was fair and appropriate.

But what we also did not hear, importantly, is that the structure in New York provides that the trial court judge reduces those verdicts and the appellate court judge reduces those verdicts.

But the most important comment about nuclear verdicts and why it has no impact on the cost of insurance is because at no point in time in New York do insurance companies ever pay more than the policy that they wrote.

So if there is a million dollars of insurance and there was a nuclear verdict of whatever number, $15 million, as they define it, doesn't affect the insurance company in any way because that is a policy of only a million dollars of which they would have to pay; which they chose not to pay, to avoid a trial.

And most importantly, that's for premiums they've collected for 6, 7, 8 years previously. It's not forward-looking, it's rear-looking. So the whole disinformation related to nuclear verdicts is just that: Disinformation.

With respect to the quantity of cases moving forward, the challenge is that the insurance companies often require, and for a settlement to occur, confidentiality. So we don't have access to the information to provide you.

I would love to be able to provide it all to you, but they, in fact, create the cloud of secrecy in their resolutions so as to then hide it from the DFS and come in and, frankly, all I heard today was, I remember when my kids were little and they were like there is a monster in the closet, there is a monster in the closet. And I would say what does the monster look like? Oh, I don't know. There is a monster there though and I'm really afraid. I would open the door and there is no monster there. Until they show me the monster and the numbers, I can't accept any of it.

SENATOR SKOUFIS:So you talked about sunshine or sunlight before. Do you think that should extend to doing away with these confidentiality agreements?

No doubt in a non-identifiable way for the policyholder, but do you think we should legislatively take action on that?

ANDREW FINKELSTEIN:I do. The only party that is advantaged through confidentiality is the insurance company. There is no reason why a person who brings a claim ever seeks confidentiality.

It's always a part of a settlement that's required when it is required. In order to resolve this case, we must have confidentiality. Well, who are they hiding that result from? They're not hiding it from their shareholders. They're hiding it from DFS. And they're hiding it from other community members so they don't see how somebody else was fairly compensated.

SENATOR SKOUFIS:You raised an interesting point about the defensive fraud, the fraud, alleged fraud on the side of the insurers. But I do want to drill down on to the extent that it occurs, the fraud that does happen by policyholders with claims. They clearly did not want to opine.

I'm curious if you would like to opine on what percent of claims you believe are ultimately fraudulent.

ANDREW FINKELSTEIN:This is not supported by anything other than my personal experience and I'm happy to share it. I am an attorney 34 years now, doing exclusively this type of work. Everybody in my association does this type of work and we work on what is called a contingency. We are only successful if we -- we only get a legal fee if we are successful. If we are not successful, we do not get a legal fee.

I, personally, do not know an attorney who brings forward claims that don't have merit and are fraudulent. Now, can I suggest that in any structure where the net outcome is money, that there is not some element of fraud? I personally have not seen it, but I will accept that some of it exists. But if I had to venture a guess as to a percentage, less than one half of 1 percent.

SENATOR SKOUFIS:Okay. That's more than what we got from the other panel, so I appreciate that. Now, of, sort of, the pool of claims that leads to litigation, what percent of that pool, litigated claims, winds up moving to a trial and has a verdict rendered? Ballpark.

ANDREW FINKELSTEIN:Here, too, I would, in my personal experience and the attorneys I know, I would suggest it's one half of 1 percent of cases actually go to a verdict.

SENATOR SKOUFIS:Why do you think the insurance companies settle 99 plus percent of those litigated claims?

ANDREW FINKELSTEIN:Well, I think it's the business model. And it's the business model that I call the 5Ds, which is deny, delay, defend, defraud and disinform. That's the business model that I have experienced of insurance companies.

So part of the deny is they are holding, in reserves, anything that they ultimately would pay out. And the longer that they can extend the litigation, the more they earn on their reserves. That's exactly what happens.

So if they put in -- I will define them as fraudulent defenses that then require motions and delays the litigation, rather than handle the case properly up front -- because the defense lawyers know, the vast majority of them, they know what the ultimate outcome will be but they also know that their job is, you know, is to delay that case. So that's the litigation problem that we have.

Now that would go away in large part -- certainly not entirely -- if we had some teeth to a bad faith law.

Because all of that is acting in bad faith in delaying meritorious cases.

SENATOR SKOUFIS:And how many states have a bad faith law?

ANDREW FINKELSTEIN:I don't know in total.

I didn't do that study but I know more than 20.

SENATOR SKOUFIS:So roughly at least half?

ANDREW FINKELSTEIN:Yes.

SENATOR SKOUFIS:In those states, do you have a sense -- I assume the way it works is if an insurer is found to have been acting in bad faith, there is some sizeable financial penalty. Is that generally how it works?

ANDREW FINKELSTEIN:This is generally how it works. The claimant puts forth in clear unambiguous terms, why the case has merit, why the case should be resolved now and why it's worth in excess of the policy amount. In every state that has bad faith, they then give the insurance company an opportunity to comply. It's not an automatic we just say you are in bad faith. They have been given the opportunity to comply.

If they choose to not comply, and they're wrong, they're then on the hook for anything in excess, and would have exposure to those nuclear verdicts.

SENATOR SKOUFIS:So in your experience in these other states, does having a bad faith law deter the bad faith? Or do we wind up with outcomes where there are just an enormous volume of penalties for bad faith?

ANDREW FINKELSTEIN:It deters the bad faith.

SENATOR SKOUFIS:It does.

ANDREW FINKELSTEIN:Absolutely. And then those cases resolve as they should, timely.

SENATOR SKOUFIS:And in those states that have more recently adopted bad faith laws, do you have any sense as to what the impact on premiums have been in those states?

ANDREW FINKELSTEIN:I don't but I can try to find that out.

SENATOR SKOUFIS:All right. Great, thank you.

SENATOR BAILEY:Thank you, Mr. Finkelstein for your testimony. Just a couple of brief questions. I just want to underline a finer point about what you said about the willingness of an attorney to bring a fraudulent claim. Would that be a disbarrable offense? If someone knowingly and intentionally filed a false claim, is that attorney -- could that attorney be brought before the grievance committee and be disbarred?

ANDREW FINKELSTEIN:Right, they would lose their license if they knowingly filed a fraudulent claim.

SENATOR BAILEY:I just want to set the foundation for that because that's important to know that while fraud does occur, that, one, to risk their livelihood on setting a fraudulent claim doesn't seem like it's the smartest thing to do. And bad faith laws you just mentioned --

ANDREW FINKELSTEIN:And I just want to follow up on that --

SENATOR BAILEY:Sure.

ANDREW FINKELSTEIN:-- because there was some testimony, well, these claims have been brought. They've all been dismissed. Every claim where there was these theory of fraudulent claims, they -- and where the attorney was involved, they have been litigated and dismissed.

SENATOR BAILEY:I bring that up, not as an attack on the insurance companies but as an attorney myself knowing that I know what Rule 1.1 is, you know. And you have to make sure you comport yourself like a lawyer at all times and that's grounds for disbarment.

I want to talk about the bad faith laws again that Senator Skoufis was talking about. Roughly 20 states may have it. Could you talk to us about what you think operationally it would do in New York?

From what you described, it seems like it operates like a de facto motion for summary judgment. But if you could describe what you would want the bad faith law to look like in New York State.

ANDREW FINKELSTEIN:I would want it to require a notice provision by the claimant, the attorney, a clear delineation as to why the damages are far in excess of the policy limits. That bad faith triggers once liability is generally secure. We are a comparative liability state. We need not have 100 percent liability. So even if the liability is generally secure, and the damages are far in excess of the policy limits, it's clearly communicated. Then there is a 30-day window to review and decide. And the insurance company has to own that decision. Right now there is no teeth to that. They can just say we deny, we delay and we are going to defend. And there are no consequences for that.

When they know those are cases that should be resolved and ultimately we know when we show up for jury selection they pay the policy.

And the only person who suffered is the injured claimant and the insured, the policyholder who has gone through many sleepless nights, worried and concerned that their insurance company is not protecting them the way that they paid the policy premium for them to do so.

SENATOR BAILEY:Let's switch gears a little bit. While it was necessarily stated -- it might have been mentioned briefly -- the concept of tort reform is something that is brought to us as legislators and me, as the chair of the Insurance Committee, quite frequently as a way to possibly defray costs, as a way to lower costs for policyholders.

Can you talk to me about the association's thought process on what tort reform -- would that lead to that type of declination of a premium or what would that do in general in your opinion?

ANDREW FINKELSTEIN:All it would do is take away individual's rights without any proven benefit because they -- there is no sunshine laws, right? I'll give you a perfect example. We heard a little comment about construction and labor law 240. Several years ago there was a study that was done by the Empire Center for Public Policy where there was a discussion as to whether or not 240 was the reason why construction insurance premiums were high.

And the DFS was involved in an investigation and when they asked the insurers -- and I'm going to quote directly from our FOIL response. When they asked insurers, can you identify your claims that you have paid 240 claims out on to justify it, their response is no company tracks the requested individual features. We receive no meaningful response to the questions requesting comparison to other jurisdictions.

So again, I'll just refer to my monster in the closet that 240 and these construction liability costs are out of control without any justification or support.

So to answer your question specifically, the suggestion of tort reform just means taking away individual rights to the benefit of insurance companies.

SENATOR BAILEY:I think it's important to put a finer point on that and what it would mean from the trial lawyer perspective, not just the insurance company perspective. I think that your testimony to Senator Skoufis' questions I think have been sufficient to me, so I will defer the rest of my time.

Senator Kavanagh.

SENATOR KAVANAGH:Thank you.

My colleagues have asked both Senator Bailey who is a lawyer and Senator Skoufis who sometimes plays one, and I'm a recovering lawyer myself. But I think we've covered a lot of ground and your testimony was very clear and helpful.

I want to raise just one issue that was raised earlier, which is there were a couple of allusions in testimony earlier to the notion that litigation financing is something that incentivizes bad behavior on the part of lawyers -- plaintiffs lawyers, property owners making claims. Do you have a perspective on, you know, sort of organizations that finance litigation in advance?

ANDREW FINKELSTEIN:I do.

First, there is a current bill that the Senate has passed, the Assembly has passed and we are waiting, hopefully the Governor will sign, that is supported by NYSTLA; which caps litigation funding at 25 percent of any recovery, requires regulation of the entities and I think it will go a long way to regulating the industry.

But the position related to litigation financing is one that it is -- and the reason why insurance companies don't like it is because it levels the playing field. It gives -- when somebody has suffered a catastrophic or traumatic event and they can't work, and they have medical bills coming in, and they have no resources to pay their rent, pay their insurance coverage, they are left with no choice but to borrow against a future recovery. And this industry, the litigation finance, gives people a bridge to get from the catastrophic event to the resolution.

Now we would never need the litigation finance company if insurance companies did what is embedded in their policy premiums, which is to act in good faith. Having litigated against insurance companies for 34 years, I have yet to see that.

So now the necessity of these litigation companies, to give the bridge for injured people to get from the event to the resolution, I will just define it as a necessary evil.

SENATOR KAVANAGH:I think, again, with great appreciation for your testimony, but I think given the passage of time here we will wrap up. Thank you so much.

ANDREW FINKELSTEIN:Thank you.

SENATOR KAVANAGH:So next up we have Robert Hartwig.

SENATOR SKOUFIS:If you wouldn't mind raising your right hand.

Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

PROFESSOR HARTWIG:I do.

SENATOR SKOUFIS:Thanks very much.

PROFESSOR HARTWIG:Thank you. Good afternoon, Mr. Chairman and Senators and thank you very much for the opportunity to testify before the committee today. My name is Robert Hartwig and I'm a Professor of Risk Management Insurance and Finance at the University of South Carolina. But prior to joining the university, I spent 23 years in the property casualty insurance and reinsurance worlds, mostly right here in Manhattan as the president and economist of the Insurance Information Institute.

So I'm going to speak to you about some of the drivers of residential property insurance costs and more or less from the perspective of an economist here, which I am.

So for the purposes of this testimony, I will be focusing on four principle factors driving costs and thus premiums upward in recent years, inflation, demographics, climate risk and a bit about legal system abuse.

First on inflation. Inflation in the aftermath of the COVID-19 pandemic surged to a 40-year high. And inflation, as experienced by property insurers, however, was materially higher than the general level of inflation.

From January 2020 through mid 2025, the cost of construction materials rose 45 percent, nearly double the 24 percent increase in the overall Consumer Price Index over the same period. Likewise the cost of residential construction trade services was up 42 percent.

And more broadly, home values here in New York State are up 94 percent over the past decade and the trajectory of home insurance premiums logically tracks the increasing costs of the homes themselves. And you will see this in Exhibits 1 and 2.

In fact, you will see sharp increases even for some of the most mundane of construction materials: Plastic pipes up almost 100 percent compared to about 24 percent for the CPI overall.

Now tariffs are the latest in terms of adding cost pressures and builders point to the 10 percent tariff on lumber, 50 percent tariffs on steel, aluminum, copper products, as particular challenges. And the National Association of Home Builders estimates that a new home nowadays would cost nearly $11,000 more to build than it would prior to the tariffs.

And the National Association of Home Builders also makes clear that current immigration policy threatens to increase home prices. They're very clear about that.

Now in terms of population and urbanization and such. Since 1970, the U.S. population has increased by 65 percent and rising population leads directly to the accumulation of property values and property asset values and increases concentrations of risk in vulnerable areas.

And while New York State's population growth has been much slower over the past half century than most south -- in states in the south and west, the same fundamental demographic principles apply.

New York's exposure to climate risk accumulated over the course of centuries is enormous. New York is the nations's fourth most populous state and New York City remains by far the nation's most populous city. It is also the most densely populated city in the country by far.

Thus what New York State lacks in terms of the frequency of exposure to extreme climate events, it makes up for in the aggregate value of exposed property, which is highly concentrated in the state's most vulnerable areas.

Now, along those lines, recent models -- and I think you heard of this in some earlier testimony -- recent models suggest that a category 3 hurricane making land fall in Queens or Long Beach, New York, could result in a loss -- insured losses exceeding $100 billion with 40 to $50 billion in insured losses in areas for a similar event out on Long Island.

Now, you will see that in Exhibit 3, in my testimony, you will see it's a vivid illustration of the economic toll of climate-driven risks in New York as the number of billion-dollar events that have affected New York State has been increasing rapidly. Reinsurance costs are another important driver of property insurance premiums. And that is displayed in Exhibit 4, where you can see that the price of reinsurance is very sensitive to the frequency but especially to the severity of catastrophe losses. And that impacts every insurer in every state.

On the issue of litigation, and legal system abuse, we've heard quite a bit about this but this is certainly a cost driver. It is an element in driving property insurance upward.

According to the U.S. Chamber of Commerce, liability costs associated with homeowners' insurance policies increased at a 5.1 percent annual clip in recent years.

And multi-unit dwellings which carry liability insurance coverage, usually with much higher limits of course, in 2024 insurers writing commercial multi-peril liability policies paid out nearly $115 in claims and expenses for every $100 they earned in premiums.

Now let me talk to you about some market forces that are at work in New York State. In terms of residual market shares, markets of last resort. Legal system abuse and fraud brought Florida's homeowners' insurance markets to the brink of collapse in 2022. And in California an archaic regulatory structure made offering private insurance coverage amid rising wildfire risk economically unfeasible.

So consequently, the population of each state's residual market grew rapidly, doubling or tripling in size.

But in stark contrast to Florida and California, New York's markets of last resort accounted for a shrinking share of the property insurance market.

New York's favorable residual market experience in recent years compared to other large states and the nation as a whole indicate the property insurance market conditions in the state are relatively stable.

Just one more point on this. In terms of another, I would call it sort of success story in New York, data on homeowners' insurance non-renewal rates also highlight the relative stability of New York's property insurance markets.

Not only are non-renewal rates in New York a fraction of those in troubled states like Florida and California, but they are consistently about half the non-renewal rate for the country overall and the average non-renewal rate in New York from 2018 to 2023 was 0.49 percent, which implies that approximately 99.5 percent of homeowners' insurance policies in the state were renewed each year.

I will simply conclude there. My time has elapsed. I would be happy to answer any questions that you have. Thank you very much.

SENATOR BAILEY:Thank you, Dr. Hartwig, I appreciate your testimony. Just a couple of questions.

First question I guess I will start where you left off briefly about the excess markets so to speak, right?

PROFESSOR HARTWIG:Residual market.

SENATOR BAILEY:Residual market. Are you referring to the excess market in New York State?

PROFESSOR HARTWIG:No, I'm not. I'm talking about the market of last resort for property insurance. So excess, in my interpretation of it, would be for high-level liability claims, unusual sorts of risks like that, which have to be insured outside the so-called admitted market.

SENATOR BAILEY:I just wanted to make sure because I want to talk about, like, whether DFS -- because DFS does not regulate the excess market.

PROFESSOR HARTWIG:That's a different market.

SENATOR BAILEY:So I was wondering if there was a correlation with that.

PROFESSOR HARTWIG:They are completely different.

SENATOR BAILEY:I'll ask you the question about the -- the fraud question that we've asked I think everybody here.

Do you have requisite data that would show us that fraud is a significant cost driver? And if so, where does that data come from?

PROFESSOR HARTWIG:No, I do not. During my time here in New York State when I was president of the Insurance Information Institute, I did work coincidently on some fraud issues here in New York. We really dug into the issues. They were with respect to no fault auto insurance very, very specifically.

And we have very, very hard numbers associated with that that measured in the hundreds of millions of dollars in terms of the fraud that was associated with that. We were able to determine that through very hard work working with the largest automobile insurance companies in this state, digging into thousands and thousands of individual claims.

We were able to essentially map networks between what we would call crooked medical providers, gangs or rings that were actually orchestrating these sorts of accidents. And they were doing it for payment. There were attorneys who were associated with them.

And we would put this all together and essentially hand this on a silver platter to district attorneys for prosecution.

SENATOR BAILEY:I believe I found my question that I'm going to be asking to everyone, so everyone please be forewarned.

The tort reform question. What is your opinion on the tort reform question? And does it, is it a significant cost driver of insurance rates in the State of New York? And I'll -- let me just ask the question first.

PROFESSOR HARTWIG:Right.

So the tort environment in every state is idiosyncratic, okay, because many of the laws which govern the tort environment arise or originate in state legislature.

So, but I would say that many in cases, in most states, in fact there is probably some role for tort reform; for example, we can think of very reasonable reforms such as caps on non-economic damage awards; all right? The sky should not be the limit on those sorts of things.

We've heard different things about approaches towards third-party litigation funding. For instance, the insurance industry is pushing towards mandatory disclosure there. Is there some reason why judges and juries should not know that a third party potentially stands to profit off the misfortune of another individual? It fundamentally violates the principle of what we call insurable interests in an insurance policy.

So there are some -- and these are completely disinterested third parties who, again are there purely for the profit motive, which you have to ask yourself. That doesn't quite -- if you are a member of a jury, that's probably going to put a bad taste in your mouth when you think about that.

But, yes, so in each and every state, we can think about a way that tort reform could improve the availability and affordability of various types of insurance coverage.

I was recently involved in efforts in liquor liability reform, okay, in another state because it's a huge problem there. Restaurants were actually closing down as a result of that. And so you know, some sort of compromise was reached in the state legislature that got us, I would say, part way there.

So every single state has an issue that needs to be addressed, could probably benefit from. But ultimately the focus is what can you do to contain or drive down the costs of certain types of insurance and make it more available to whatever segment of the insurance buying population is affected?

So I mention in one state it's restaurant owners. In another state it might be property owners. In another state it might be doctors, okay? Every single, you know, sector of the economy is going to have an issue that they might feel that might be able to be addressed through tort reform.

SENATOR BAILEY:And so based upon that answer there, would that encapsulate what your section on litigation and legal system abuse was on page 8 of your testimony?

PROFESSOR HARTWIG:Let me just take a quick look here. What I did here is I simply focused a bit on the residential property element here. So I didn't talk about commercial auto or doctors or anything or liquor liability or anything here. So, yes. I looked to see, well, okay. Your typical homeowners policy, renters policy, they contain a liability element to them. Your typical homeowners policy, renters policies actually includes $100,000 of liability coverage.

Many people don't know that but it's actually part of the sort of multi-peril package that you are buying when you have these policies. And if you look at the underlying increases associated with costs there, you will see it is about 5 percent a year. That isn't enormous in -- so this is for homeowners, all right?

Where the problem really begins is when we are talking about commercial liability policies. And there we have more significant issues. Why? Because the pockets are deeper, they're much, much deeper. Oftentimes a million or multiple millions of dollars of limits are potentially at stake there.

So it's not surprising that, you know, deep pockets are a greater attraction.

SENATOR BAILEY:Certainly. Are there any suggestions that you have in terms of New York specific -- and I know your expertise is more vast than just this state -- but are there New York specific ideas or thoughts that you may have, things that the state legislature can do to assist in achieving this goal?

PROFESSOR HARTWIG:There are a couple.

Let me get back to this idea of looking at non-economic damages again. I mean, that is a significant problem across the country. I don't know the magnitude of it specifically here in New York State. But I can be quite certain that that's going to be an element of it.

I should also suggest that in terms of the prior -- you know, when you heard the panel from the insurance industry speak earlier and you asked them for suggestions about things they could do in terms of improving availability and affordability of insurance in this state, they talked about investing in mitigation and resilience and these sorts of things.

I have never heard in my life a solution to affordability and availability that involved encouraging more lawsuits. Okay? That's what we just heard. We just heard that. Pass a bad faith law, you get more litigation and that is going to somehow solve availability and affordability issues in this state?

I don't believe it. I don't think anybody believes that. I think that proceeding very, very carefully in the state legislature with advice like that, I would certainly caution.

But I do think that if you were to solicit, from insurers, where they believe, and also from property owners themselves, where they believe they are seeing the most, in terms of their exposure and their vulnerability to these types of lawsuits.

Because remember, ultimately, yes, you are talking about rising insurance rates. But the reason why the insurance rates are rising, whether it's on the property dimension or whether it's on the liability dimension, is because of the underlying claim activity.

It is the property owner that is being sued here, it is not the insurer that is being sued. It's the insurer is very much kind of a messenger of this risk. And the insurer is attempting to try to manage this risk in a way that will lead to the best of outcomes for all parties that are involved here, but particularly their policyholder. So it's a complex issue. And like I say, it's very, very idiosyncratic.

But I do believe that you would be able to quite quickly find from property owners themselves what they believe to be the leading issues that are driving this.

You discussed this with their insurers and I think from that you can develop real solutions that can meaningfully contain the costs.

SENATOR BAILEY:The final question I have for you -- and thank you for that answer -- is based upon your expertise -- and you have a lot of great data in here, very prospective forward looking.

I'm going to ask you -- and I'm not going to ask you to have a crystal ball but I want to ask you kind of a crystal ball-like question.

If this continues to happen and insurers continue to pull out of markets and people are not able to tender policies on places, are we going to have certain zones, certain areas, certain neighborhoods in our communities that will be, for all intents and purposes, inhabitable because people will not be able to get the proper coverage, the proper insurance on their homes? Is that something that we can foresee in the next 15, 20, 30 years?

PROFESSOR HARTWIG:You know, right now in New York State, again, particularly compared to other states, you don't really see it here, okay?

Are there periods in time when coverage becomes more or less available and the terms and conditions on which that coverage is offered may be more stringent or more lax than others, absolutely.

But right now, particularly in the residential property insurance market in New York State, you are actually performing better than many other states.

When you look -- again, as I already mentioned -- states like Florida and California, you are the fourth largest state.

Those are two of the three other largest ones and Texas is the other.

Your markets are performing in some ways better than those by -- in terms of whether I look at non-renewal rates or whether I look at the size of the residual markets.

What you don't have here is literally in the State of Florida, you had hundreds of thousands -- in fact more than a million at some point in 2023, I believe, the State of Florida became the largest home insurer in the state, superceding companies like State Farm and so forth. That's not where you want to be. So you are doing something right here already.

SENATOR BAILEY:Thank you, Dr. Hartwig.

Senator Skoufis?

SENATOR SKOUFIS:Thank you, Senator Bailey. Thank you, Dr. Hartwig for your testimony. I want to ask you a few questions, versions of which I've asked prior panels.

The first -- and I don't know if you were here at the start of the hearing, but there was a "New York Times" article from May of last year that looked state by state, prior 10 years, specifically at the homeowners' insurance space and how the industry was fairing in each of those states in each of the past 10 years.

Here is a sampling of some other states around the country. And you can see, you know, the bar graphs, they ebb and they flow.

In California, for example, the industry lost money in six of the past 10 years. But that's not an outlier. North Dakota, seven of the past 10 years they lost money. Many, many states, they've lost money, 4, 5, 6 of the past 10 years.

This is the New York bar graph. What is your immediate reaction to this?

PROFESSOR HARTWIG:I love it. I love it. I love to see that New York State homeowners' insurance business is consistently profitable. And you reap the benefits of that every day. 99.5 percent of your policyholders are getting renewed every year. It's not like that in Florida.

In fact, in the data you see in my testimony, in Florida, for instance, the most recent number is about 3 percent are non-renewed. In California, it's closer to 2 percent are non-renewed. So you are like one-fourth, one-sixth of those numbers.

And part of the reason why --

SENATOR SKOUFIS:It also explains why there are exponentially more carriers in New York than some of those other states you just rattled off.

PROFESSOR HARTWIG:So you should have more competition. You have fewer market disruptions in terms of people being non-renewed.

SENATOR SKOUFIS:No question.

PROFESSOR HARTWIG:People will have, not the chance of four insurers, but 40 insurers potentially who are willing to underwrite their business. That's a wonderful story to be able to sell.

I think sometimes it's hard to -- you can look at the problems in a particular market. We could have a hearing about why this market is good as well.

SENATOR SKOUFIS:So you have no concern whatsoever that the DFS, that regulators are approving excessive rates?

PROFESSOR HARTWIG:No, I don't and here's why.

I believe the data that appeared in "The New York Times" showed the last 10 years or so of data, okay? When we think about the major whether related risks that New York is vulnerable to -- let's think of, again, the cat 3 storm, barreling into Long Island or God forbid into New York City.

We are talking about events that don't necessarily occur on a decade by decade time scale. I can pull out points in history where it looks like the State of Florida homeowners' insurance market is wildly -- is wildly profitable. Same thing in Louisiana.

But even in those states, you can go a decade, 15 years, without a major loss and then you have it, okay, and then it occurs. So it's not a matter of if. It's just a matter of when.

Even in this hearing notice, it concedes that we here in New York State, you here in New York State are more vulnerable than ever to these sorts of events. So it's a matter of being prepared.

And so insurers wake up every morning -- and this is what I tell my students -- I say -- and I'm sure this doesn't help recruit people to the industry --

SENATOR SKOUFIS:I have a number of other questions.

PROFESSOR HARTWIG:They wake up every morning as today is a potential dooms day. And I worked down at the World Trade -- near the World Trade Center site on September 11, 2001. I was there. I watched one of those dooms days with my own eyes. And I watched insurers pay $35 billion for that event, an event that they hadn't even planned for, okay?

So that's the sorts of things that -- that's what is lying behind those numbers that you see right there.

SENATOR SKOUFIS:Thank you for that response. What percept of claims do you feel are fraudulent?

PROFESSOR HARTWIG:It's a small number. It's a small number. I don't have a specific number.

SENATOR SKOUFIS:The rhetoric from the trade association panel would suggest that it's not a small number.

PROFESSOR HARTWIG:I think they may have been referring to the fact that it's probably pervasive, but it doesn't necessarily mean that it's anywhere near the majority of claims, okay? Most people are honest.

SENATOR SKOUFIS:Do you have an opinion as to ballpark? Are we talking a fraction of 1 percent, 1 percent?

PROFESSOR HARTWIG:I know that from my experience in the New York no fault issue, it was a low single digits number.

But those actual claim numbers were very, very large when they actually did occur. And that fraud was actually orchestrated and there was organized crime involved in that.

SENATOR SKOUFIS:So the insurance panel, they were uncomfortable stating that they felt half of those, or at least half of those allegedly fraudulent claims actually went to litigation.

But putting that aside, the pool of claims that are in litigation, why, in your opinion, why do so, so, so few of them actually go to trial and receive a verdict?

PROFESSOR HARTWIG:Well --

SENATOR SKOUFIS:If the insurers are so adamant that there is pervasive fraud; that this pool that I'm talking about is riddled with fraud, why aren't they going to trial and proving that they're fraudulent?

PROFESSOR HARTWIG:So you are talking about taking cases to trial that are specifically related to fraud as opposed to going to trial for some other reason.

SENATOR SKOUFIS:Yes.

PROFESSOR HARTWIG:As we all know, litigation is a very long and very expensive and very uncertain process, whether it's related to fraud or whether it's related to other things.

SENATOR SKOUFIS:Wouldn't you agree that if you are settling 99.5 percent of these allegedly fraudulent claims, that is an incentive for others to bring similar claims?

Whereas if you are actually going to trial and the payout is zero, if there is actually fraud associated, then people aren't going to bring those fraudulent claims, don't you think?

PROFESSOR HARTWIG:What I know from my experience, say for instance, working in the New York fraud situation, for instance, is that the threshold, okay, to prove the fraud in a court is a very, very, very high bar, okay?

In my case, where we were referring cases for criminal prosecution, I mentioned that we had to bring these cases on a silver platter to the DA.

SENATOR SKOUFIS:Well, that's criminal and it should be a higher bar than what we are talking about.

PROFESSOR HARTWIG:Right. But it's still going to be an uncertain process, okay? And so I think that's largely the reason behind it.

You know, what is the magnitude of the fraud? Is it a few thousand dollars or is it 30, 40, 50, or $100,000? It depends on what type of cases we're talking about here.

But it's a pervasive problem, in an aggregate it's an expensive problem. It's also illegal. But it is very difficult to observe. No one raises their hand and says hey, I'm committing insurance fraud. So it's difficult to observe and it's very, very costly to root out and even more costly to prosecute.

I would say that is the -- that would be the ultimate, if we could bring everyone who we suspected of fraud, ultimately charge them criminally, in a way that would be expeditious but there is just no way to actually do that in reality.

SENATOR SKOUFIS:Do you think that some insurers prefer to settle, even if they have a very high level of certainty that there is fraud just simply because it's easier to setter, it's less time consuming to settle?

And by the way, you can just bake those settlements into your next rate application.

PROFESSOR HARTWIG:I'm not involved in those discussions so I can't really say. I would say that insurers do their best to identify and to root out the fraud, even before you get to the point where, you know, you are thinking about a trial, insurers are working to identify fraud.

For instance, there is a lot of hope that new technologies will help insurers identify fraud, you know, more readily than in the past. And that potentially could help lower the costs associated with that as well. But it's a problem. But it is one element of everything we have been talking about here today but I would not say that it is the major driver associated with the availability and affordability issues across the country in terms of property insurance.

SENATOR SKOUFIS:Okay, fair enough. We heard a little bit from NYSTLA about confidentiality agreements. I'm curious if you have a position on whether the legislature should take some action to either make it more difficult or impossible to enter into confidentiality agreements as it relates to settlements and payouts in this space.

PROFESSOR HARTWIG:I would say I have not really thought about that issue at all. It's not specifically an economic issue, which is where I would say my expertise is. So I couldn't really comment on that.

SENATOR SKOUFIS:Okay. You suggested in one of your answers to Senator Bailey's questioning, that adopting a bad faith law would lead to an increased volume of cases being brought in this space. Why do you think that?

PROFESSOR HARTWIG:Well, typically in a bad faith situation -- I don't know what the law would be here in New York State -- but oftentimes it might be something like the plaintiff would receive triple damages or something like this in that particular case, so it clearly creates an incentive to try to gin up these cases on the part of trial lawyers.

They have a greater economic incentive to try to convert a case into one where they could potentially make a bad --

SENATOR SKOUFIS:Do insurers have an incentive to delay cases?

PROFESSOR HARTWIG:No, they do not. There are -- in all 50 states there are already laws that require insurers to adhere to I think very, very stringent rules and regulations with respect to treating everyone in a fair and expeditious manner with respect to claims.

And if there is -- if it seems that there is any failure to do so or an insurer seems to be falling short in that respect, the DFS, the regulator in any state, has the right and the ability to go in and conduct, for instance, a market conduct exam, which would allow it to go through individual claims files and see, is there something systematic going on here?

Is an insurer dragging its feet with a specific type of claim or is there taking a long time to try to settle or whatever it is.

The DFS has every single bit of authority that it needs today --

SENATOR SKOUFIS:Have they ever engaged in that kind of practice?

PROFESSOR HARTWIG:I don't know if DFS has specifically. But I do know that regulators around the country do engage in market conduct exams from time to time and some of those involve claims handling practices.

But by and large, you don't hear a lot about this being a problem, okay? Insurers are settling the claims fairly and expeditiously for the vast, vast majority of policyholders, even after very complex events like major hurricanes.

SENATOR SKOUFIS:Thanks very much.

SENATOR KAVANAGH:Thank you. I am enjoying going third because lots of great questions are being asked and covered. I also understand you have a plane to catch back to South Carolina. So just a few questions here.

First -- so, first of all, thank you for your testimony and for being here.

PROFESSOR HARTWIG:My pleasure.

SENATOR KAVANAGH:You very succinctly articulated a lot of the factors that are going into increasing insurance costs to address extreme weather events and other events that might be driven by climate change.

I want to just -- I want to just continue a little bit of the conversation about liability.

So you said -- if I understood your testimony when you were speaking with Senator Skoufis correctly -- you were saying that you do not believe that fraudulent claims and how they're being handled could be a primary driver of really large increases in liability insurance costs; is that right?

PROFESSOR HARTWIG:I would say that is not the principal driver associated with it.

SENATOR KAVANAGH:So this is -- I think you were here for some of the testimony earlier -- but this is one of these things that I think is still mystifying.

We had HPD come and testify, which, again they're responsible for many thousands of -- they're involved in developing housing but they're also involved in overseeing very large amounts of affordable housing. We are going to hear other people, I think, who have submitted written testimony and will testify to this effect. But we are seeing very large increases in liability insurance, in many cases doubling over the course of 3 or 4 years. And we are seeing that in the affordable housing sector.

We are seeing it in the -- you know, we are going to have folks testifying from the for-profit sector that they're seeing similar phenomena.

Are you aware of any explanation of what might cause those rates to double in the course of a four-year period, from, you know, 2019-20 through...

PROFESSOR HARTWIG:Right. So what you are experiencing in New York is not unique, unfortunately. And it's not confined to property liability insurance either. We see it in commercial auto insurance. We see it in medical professional liability. We see it in a variety of other areas. And so that is part of this phenomena that I heard in earlier testimony referred to as social inflation. And sometimes that's used as a synonym for legal system abuse.

But what it does illustrate is the fact that there is a social element to it in the sense that, in society today, for a variety of reasons, we see plaintiffs -- we see plaintiffs being viewed more sympathetically in the eyes of juries, for instance. There is an increased propensity to sue. And part of that is due to what is record amounts of spending on legal services advertising.

You literally can't go down the road in most parts of the country without seeing numerous trial lawyer billboards and advertisements and social media, TV radio or these sorts of things.

So we are surrounded by it everywhere that we are. So in many ways, it has been normalized. And I would say that, unfortunately, what has happened here is that many people have come to believe that if you are involved in an automobile accident or you are in a slip and fall, that your first call shouldn't be to your insurer, to file a claim, it ought to be to the guy on the most recent billboard that you saw.

That's problematic because what is going to happen there is, even if you are successful, a chunk of that, 30 to 40 percent of that is going to wind up going in the pockets of the lawyer.

That process is likely going to take longer. There are more frictions in that system than if you just kind of go direct.

Now are there times when someone might need some legal assistance and some redress in that matter? Sure. No one is not saying that.

But the problem is, is that we've added a frictional cost into the system. And the incentives on that part, on that element that have been added to kind of throw the spaghetti against the wall and see what sticks but also go for the sky is the limit sort of a situation.

I'll tell you another area we are seeing it. For instance, we have heard about liability costs rising for affordable housing and we've seen it everywhere else. We see other insurers that offer what is called commercial umbrella coverage.

That is the type of liability coverage that actually sits at a high level on top of the liability coverage that you might have on a residential structure, or that you might have on motor vehicles that you operate for a business. That part of the business, too, is actually being hit very hard.

Those -- that is actually the line of commercial insurance today that is seeing the largest increases of all others. And what that says to me is that we are seeing the complete penetration, through the liability limits that many organizations carry, like affordable housing, and like anybody else, and into those, what we would typically think of non-working layers, layers of insurance that are not normally dinged. That is something that is adding to costs as well.

So it is a societal issue. And it's -- it's one that is very, very difficult to address. Like I said, essentially, it has been normalized in culture.

I think it's somewhat consistent with some populous sentiments today as well that the big guy is against you. You should go after him, you should punish him. Generally people don't make the connection between the fact that, you know, if there is $100 million award against the pharmaceutical company or a $50 million award against Starbucks, or a $5 million award against a local hospital, that that ultimately raises the price of housing and raises the cost of medical care or raises the cost of everything that you service and commodity and good that you buy.

And there have been various efforts to try to quantify this. You hear New York State, I think you heard a number about a so called tort tax of about $7,000 per household. Nationally that number is about $4,000 per household. You can argue about what the number might be, but it does very much function like an albatross around the neck of the economy. It's a dead weight loss.

SENATOR KAVANAGH:Thank you for the thorough answer. But is there a reason to think that that -- that those factors would cause a doubling of the cost of this in a 4-year period? Like social change generally takes longer...

PROFESSOR HARTWIG:If you take about 20 percent per year compounded, and you also -- you heard some testimony earlier that these trends most likely began before that. So the insurers began to observe these trends. They record these trends. They analyze these trends. They make new rates with these trends.

So what happens is, is the insurer is automatically 2 to 3 years behind the curve when these things begin. And so it's going to take a number of years for them to catch up.

SENATOR KAVANAGH:And are you aware -- we've talked about this and you were asked this a little bit by one of my colleagues a minute ago -- but hard data on the extent to which these phenomena are driving.

We talked about how DFS doesn't -- they may have the ability to investigate particular market behavior, but generally when they're reviewing rates, they're not actually looking at claim data and other things. Are you aware of data sets that would demonstrate --

PROFESSOR HARTWIG:Let me give you one I'm familiar with. Commercial auto is one of the most problematic areas here. Auto insurance bought by businesses, right? And it has a gigantic target on its back literally. Even the billboards down the highway advertise for you to file a claim against truckers and so forth.

So what is happened here, insurers have many, many years of data and they have a good sense of how much these claims are typically going to occur and actuaries at the companies will make adjustments based on ordinary economic inflation and these sorts of things and any inherent trends that were in the data generally speaking.

Now, in the last decade or so, we begin to see numbers that can't be explained by actual historical inflation trends or the inflation that we are seeing today.

And so what we are seeing is that insurers are having to pay more on these claims than they expect. So they have to set aside a reserve for these claims.

The claims ultimately cost far more than the reserves so they can observe the fact that the reserves are inadequate by a certain amount.

So an exact number, a specific number is that the latest actuarial analysis and commercial auto is that this kind of social inflation is costing about $8 billion a year.

SENATOR KAVANAGH:It has been interesting to me that whenever we talk about this, the insurance industry or experts who have spent time in the insurance industry, that we immediately go to other kinds of insurance and, you know, McDonald's getting coffee spilled in your lap. Are you aware of data about this trend specifically as it relates to property insurance?

PROFESSOR HARTWIG:Right. So in my testimony, I did cite, I think a commercial multi-peril liability component in that the most recent year, 2024, insurers paid out about $115 for every $100 they earned in premium.

SENATOR KAVANAGH:And multi-peril was by definition something that a property owner would have that covers many --

PROFESSOR HARTWIG:The liability component of it. So it's kind of like your homeowners policy which is the liability piece. This is just the liability piece of the equivalent for a business, right? It was about $110 being paid out for every $100 they earned in 2023.

In fact, there has not been a break even number in that type of insurance since 2016, I believe.

SENATOR KAVANAGH:That's nationwide.

PROFESSOR HARTWIG:That's a nationwide number.

SENATOR KAVANAGH:Are you aware of any comparable data at the state level?

PROFESSOR HARTWIG:I don't have that at my fingertips.

I would have to check on that.

SENATOR KAVANAGH:We're running out of time but if you would, I would appreciate it. And again, I appreciate you taking the time and testifying far from home today, your former home.

PROFESSOR HARTWIG:My students are glad I'm not there right now.

SENATOR KAVANAGH:Again, I will end there, but thank you very much.

PROFESSOR HARTWIG:Thank you.

SENATOR BAILEY:Thank you, Dr. Hartwig.

SENATOR SKOUFIS:I would love to ask a followup, if I can -- well, two, actually.

First, and again, thank you for your testimony. The $115 - $100 sort of dichotomy that you have referenced a couple of times, how much on average does an insurer make on the investment side with that $100 they collect in premiums?

PROFESSOR HARTWIG:Depends on the year. Depends on interest rates.

SENATOR SKOUFIS:Give me a sense.

PROFESSOR HARTWIG:Let me give you a sense, I think in typical years over the past decade, somewhere around 6 to 8 percent on that.

SENATOR SKOUFIS:And how much of --

PROFESSOR HARTWIG:Now mind you, I should qualify here. It depends on the type of insurance as well. Some types of insurance, the money may be invested for a longer period of time than other types of insurance. In property insurance, it's typically shorter than it would be in something like workers' compensation insurance.

SENATOR SKOUFIS:And roughly on average, what percent of an insurer's profit is made up of the investment side of the ledger?

PROFESSOR HARTWIG:Well, you know, that's not quite an easy question to answer because sometimes there might be no profit at all in a given year and in some years there might be profit both generated from the investment income side as well as from the underwriting side, from the sale of the insurance itself. It will vary extensively.

In a year, when an insurer has, for instance, where it pays out pretty much exactly what it takes in, you could argue in that case that -- and apart from some other accounting issues that can happen -- that all of it's profit in that year was generated by its investment side of the equation, okay?

In a year when the insurer is paying out $115 for every $100 it took in in premium, even if you assume they earned 8 percent, they still recorded a loss in that type of insurance.

So what is earned on the investment income component is independent of what is earned on the underwriting component. The investment income component can potentially be the only source of profit in some years. And in some years, it can offset a net loss to some extent.

SENATOR SKOUFIS:Got it. My last question.

I'd love for you to respond -- I would like to give you the opportunity to respond to something that the trial lawyers, the president of the Trial Lawyers Association mentioned.

And that is that he almost sort of diminished the consequence as it relates to escalating premiums of these nuclear payouts, because if you have a $15 million payout or settlement, or verdict, I guess, as rare as those may be, but your policy is for, you know, capped at a million dollars in liability, then the insurer is not liable for the other 14, the subsequent $14 million of that $15 million payout, according to them. And so why -- are they wrong?

PROFESSOR HARTWIG:Yes, they're wrong.

SENATOR SKOUFIS:Explain your perspective.

PROFESSOR HARTWIG:The reason why they're wrong is because typically when we are talking about large commercial risks, there are many insurers, numerous insurers on that liability program.

There might be one insurer that has the first million and then there's another insurer that has the next two million and a third insurer that has the next two million and that will take you up to $5 million. That might be the total limits that that particular entity has purchased.

So it winds up frequently or it winds in what we call the excess layers, okay?

This is the high level liability coverage that sits above a commercial property policy but also simultaneously sits above your commercial auto policy.

So very often, yes, the primary insurers limit might be exhausted in one of these cases, but some part of the residual, the remaining amount is going to be absorbed by one or more additional insurers.

SENATOR SKOUFIS:How common is that?

PROFESSOR HARTWIG:Very common.

SENATOR SKOUFIS:Roughly how common?

PROFESSOR HARTWIG:It depends on the size of the enterprise. So if we are talking about a large, a large commercial enterprise, it would be virtually 100 percent.

SENATOR SKOUFIS:We are talking residential here. Give me a sense of you have a large multi-family building here in Manhattan, and there is a slip and fall. How often are there multiple policies associated with that property?

PROFESSOR HARTWIG:I would say it would be frequent for there to be multiple insurers on a single liability program.

SENATOR SKOUFIS:Okay.

PROFESSOR HARTWIG:And/or for there to be a commercial umbrella policy sitting above the primary policy.

SENATOR SKOUFIS:Is it fair to say that, absent multiple insurers, that the trial lawyer's point stands that this is not a driver of premiums, given that, again, using the same example for that $15 million payout, insurers are only liable for $1 million of the 15 and so why are we talking about nuclear payouts.

PROFESSOR HARTWIG:What you are seeing here is -- so we have a million dollars. Suppose that if we went 10 years ago and there was only a 5 percent chance, a 10 percent that you would exhaust or $1 million limit.

Now here we are in 2025 and there is an 80 percent chance you are going to exhaust your $1 million limit. That alone is going to drive up rates. Exhausting your million dollar limits didn't used to be the norm, okay? Now it is. So instead of that being a rarity, it's a common event.

And so whether we are talking about one million or two million, the probability of reaching somewhere higher --

SENATOR SKOUFIS:Regardless of how common it is, if you don't have that multiple policy scenario that you outlined, why is it relevant?

PROFESSOR HARTWIG:Because you are exhausting the limits more frequently than you did in the past. 10 years ago if I were an owner of a condo complex here in New York City, it would be maybe a rarity to see a million dollar claim, maybe one out of 100 claims might wind up in the million dollar area, maybe even less than that. If this year it's 5 percent, that's an enormous difference from an actuarial perspective. That's an enormous difference.

SENATOR SKOUFIS:So you are arguing that the relevance is whether it's a half million coming in versus a million. Not relevant whether it's above a million.

PROFESSOR HARTWIG:That part is going to be relevant, too, because you can see why policyholders are going to want to carry more coverage if the probability of exhausting your $1 million limit is much higher today than it was 10 years ago.

If I'm their insurance broker and I'm looking at the data and I say 10 years ago, you know what, there was a 1 percent chance you would exhaust your million dollar limit, today it's a 5 percent chance.

My recommendation as the broker is going to be you're going to want to raise your limits.

SENATOR SKOUFIS:Okay, thank you.

SENATOR BAILEY:I'm all set.

Dr. Hartwig, safe travels.

SENATOR SKOUFIS:Go catch your flight. Thanks for your time.

PROFESSOR HARTWIG:My pleasure, thank you.

SENATOR SKOUFIS:Next up we'll have Panel 6, affordable housing providers. We have the Honorable Carlina Rivera who is now president and CEO of NYSAFAH; Wilson Kimball, Executive Director of the state's Public Housing Authority Directors Association; Perry Perlmutter, President and CEO of Services for the UnderServed; and Rebecca Zangen, Chief Policy Officer for Supportive Housing Network of New York.

If you could all raise your right hand for me, please. Do you solemnly swear to tell the truth, the whole truth and nothing but the truth?

(All were sworn.)

You are excused and someone else can provide testimony.

CARLINA RIVERA:Thank you, Chairs for your graciousness and members of the committee for the opportunity to testify. I'm Carlina Rivera, recovering councilwoman, but now president and CEO, proudly of the New York State Association for Affordable Housing, representing the owners, developers and managers of affordable rental housing as well as insurance brokers across New York State.

Affordable housing providers in every region are raising the same alarm. Insurance costs have escalated to crisis levels, threatening both new development and the long-term stability of existing affordable housing. Premiums are rising rapidly. Coverage is harder to secure. And operating budgets are being stretched past the breaking point. I'll give you one example.

Kennedy Plaza Apartments in Utica, recently their insurance policy was not renewed. The 292-unit family housing complex was able to secure coverage from only one carrier, which offered reduced protection at a premium that was 44 percent higher, rising from approximately $168,000 from 2022 to 2023, to $298,000 for 2025 to 2026. The per unit cost jumped from $575 to $1019. To cover the increased premiums, the owner has been forced to draw down reserve funds that will likely be exhausted by next year and Kennedy Plaza is working with HCR to find a resolution and clearly there are more stories like this statewide.

Kennedy Plaza is, of course, just one of the many affordable housing properties struggling to secure coverage in an unregulated market. Additional data percent attached to my written testimony that illustrates the scale of this challenge and gives more background to this example.

Unfortunately, this pattern is consistent statewide. A 2022 HCR DFS report documented a 43 percent average increase in insurance costs between 2019 and 2021. And a 2024 New York housing conference report -- you will hear from them later -- report shows that per unit premiums are doubling from $869 to $1,770. Today insurance can account for as much as 22 percent of monthly rent in a typical LIHTC apartment, a low income housing tax credit.

Combined with declining rent collection rates and rising repair costs, many properties are now facing shrinking net operating income, depleted reserves, deferred maintenance and, in some cases, negative cash flow. Key drivers include high litigation costs, inflated settlements and construction inflation, all factors you have heard about at length today.

And to address these challenges, NYSOFA has met with various stakeholders including the New York Insurance Association and we recommend six initiatives, six proposals.

1: Create a safe housing incentive program. Offer insurance premium discounts to developments that provide brief tenant-focused safety courses covering fire safety, water damage prevention, slip and fall risk and renters insurance education.

2: Create a New York State insurance investment program, incentivize insurers to serve affordable housing in underserved communities through a public rating system. Rewarding high performing companies with regulatory and contracting benefits.

3: Establish an affordable housing reinsurance trust. Establish a state administered program to share catastrophic or high layer losses, stabilize the market, attract more insurers and lower premiums.

4: Expand and codify the risk reduction and insurance affordability pilot program. Increase funding to $25 million, broaden eligibility to include for-profit developers, and in addition to supporting participation in captives, fund risk mitigation measures such as water sensors, cameras and slip and fall prevention to reduce claims exposure and insurance costs.

Finally, I'll say 5. Here is the fifth one.

Affordable housing relief fund. Expand a housing program created as part of the City of Yes to provide targeted financial support for preserving and maintaining existing affordable housing statewide.

This fund would offer grants or low interest loans for emergency repairs, compliance upgrades and critical operating shortfalls that threaten property viability. While it would not address the insurance cost drivers discussed above, it would help stabilize existing projects as we work toward long-term solutions. And the details for this program have been introduced in a bill by Senator Kavanagh, and Assembly member Rosenthal.

And lastly NYSOFA supports Senator Kavanagh's newly introduced bill 8583A, which would require insurers to provide critical data to DFS and offer premium discounts for property owners who undertake meaningful mitigation measures.

Together, these actions would reduce risks, stabilize the insurance market, protect existing affordable housing and support New York's long-term housing goals.

With that I take any questions that you might have.

WILSON KIMBALL:Good afternoon. I come before you today to raise the alarm on the escalating cost of insurance for public housing authorities across New York State. This is a major issue crippling --

SENATOR KAVANAGH:Can you just for the record identify yourself?

WILSON KIMBALL:Sure. Wilson Kimball from NYSPHADA. I'm also Executive Director of the Yonkers Housing Authority.

SENATOR KAVANAGH:Thank you.

WILSON KIMBALL:Thank you, Senator Kavanagh.

This is a major issue crippling our public housing authorities. NYSPHADA along with many of our valued partners in the affordable housing movement, including NYSAFAH, Enterprise and the New York Housing Conference meet regularly to discuss possible solutions to mitigate the highs cost of property, casualty and liability insurance.

There are many factors contributing to the high cost of insurance, and we applaud the legislature for taking a hard look at this issue. Over the last couple of years, NYSPHADA has surveyed our members and openly engaged them in the challenges of finding, procuring and paying for insurance. Many of our authorities have seen nearly 40 percent increase in insurance costs. (Please the graph attached.)

In Yonkers, for instance, our insurance on our biggest development went from $800,000 to $1.2M in one year. We were very encouraged that the state budget included funding for technical assistance for affordable housing developers who are interested in undertaking risk mitigation to lower their insurance premiums. To that end, we will be collaborating with partners to secure funding through New York State’s Risk Reduction and Insurance Affordability Pilot, which will assist non-profit affordable housing providers who want to join captives.

In addition, we are partnering with NYSAFAH and other industry partners to seek capital funding to purchase equipment and other resources, which will mitigate the risks of natural disasters and safety issues like FireAvert and security cameras.

NYSPHADA is very grateful to the legislature and the Executive for the incredible financial support in the past several budget cycles to help modernize and rehabilitate our aging facilities, including last year’s $75 million for upstate capital improvements.

Over the last several years, 30 to 40 of our members have utilized this funding to pursue modernization projects. We are expecting more housing authorities to pursue major upgrades through Rental Assistance Demonstration (RAD) projects in the coming years.

However, the high cost of insurance has drained the coffers of New York State Housing Authorities. That is why we are asking New York State to implement new policies and laws which will help housing authorities continue to build safe and quality housing for New York’s low-income families.

PERRY PERLMUTTER:Good afternoon, thank you, Senators, for having me here today. I'm Perry Perlmutter, president and CEO of Services for the UnderServed or S:US.

S:US is a leading not-for-profit working to end homelessness in New York City. Housing is our core mission. We operate thousands of units of permanent supportive and affordable housing across Brooklyn, Queens, Manhattan and the Bronx, for New Yorkers with serious mental illness, intellectual and developmental disabilities, substance use challenges, veterans, and formerly homeless families. On any given night, S:US provides housing and shelter for more than 5200 New Yorkers.

For the people we serve, housing is healthcare and prevention. When housing fails, costs don't disappear. They shift into emergency rooms, shelters, policing and hospitalizations.

The cost of insurance has grown dramatically for us. 3 years ago S:US paid under $6 million a year for property and casualty insurance. Today we are paying over $16 million, with lower liability limits. We have had to turn to non-admitted carriers and patched together coverage from multiple insurers just to meet lender requirements.

Independent analysis have shown insurance is now the fastest growing operating cost in affordable housing, growing faster than utilities and maintenance and more than doubling in just the last few years. S:US already has about $4 million in unrecoverable costs due to the high cost of property and casualty insurance. Dollars we cannot put into staff, services or repairs.

We can't pass these costs along in rent to extremely low income tenants. So the only leavers are cuts, deferring maintenance, delaying renovations, reducing programming or, in worst cases, contemplating selling buildings just to get out from under insurance costs. These are huge risks.

If insurance is unaffordable or unavailable, buildings become financially inviolable and sometimes uninsurable. That means fewer safe stable units for people with complex needs.

Nationwide, similar pressures have already contributed to losses in supportive housing units, even as homelessness rises. We are deeply concerned that New York could see the same pattern.

As I mentioned, our tenants are people with serious mental illness, developmental disabilities, trauma histories and chronic health conditions. If a building closes or a project never gets built, they cannot easily relocate. They fall back into shelters, hospitals or the street. So this is not just about line items in a budget. It's about whether thousands of vulnerable New Yorkers can keep their homes.

Insurers have pulled back sharply from multifamily and supportive housing. We have seen that directly where insurers have pulled out of the city. Cutting liability limits, for example, dropping excess coverage from $100 million to $50 million. Our limits are lower but they have been cut dramatically also. Providers are being treated as higher risk, simply because they serve low income or voucher tenants, even though state law now explicitly bans this kind of discrimination. The result is fragmented. High cost market that resembles modern red lining, affordable and supportive housing.

I have a few suggestions for the legislature, potential policy solutions.

First: We need transparencies. Bills like a-0196 would require Annual Reporting on availability, pricing and terms of insurance for multifamily and social service providers. Data will help identify where insurers are pulling back, where pricing is discriminatory, and what targeted solutions are needed.

Secondly: We urge to establish a state-run excess liability insurance fund for affordable supportive housing and social service providers, attaching above the $1 million/$3 million aggregate primary limit. Premiums would be based on actuarial losses, not inflated by profit margins of 150 to 300 percent that insurers take. This fund would provide the high limit umbrella coverage lenders require as private markets retreat.

Third: Support the creation and scaling of non-profit insurance pools, captives and reciprocals that let providers ban together. The state can help you about ceding a statewide non-profit captive. I know there was some money in the budget last year, connecting us with existing municipal or public pools and providing technical assistance so smaller non-profits can participate.

Fourth: Fully enforce New York's updated insurance law 3462 which prohibits charging higher rates or denying coverage.

I'll just finish. If we don't act now, we will see more deferred maintenance, stalled projects and potentially the loss of supportive housing units just when New Yorkers need them most.

Thank you so much for the opportunity to testify today.

REBECCA ZANGEN:Good afternoon. Thank you, Chairs for this urgently needed hearing. My name is Rebecca Zangen. I'm the Chief Policy Officer of the Supportive Housing Network of New York. We are a membership organization representing 200 non-profits that develop, own and operate supportive housing statewide, including S:US.

You are going to hear in my testimony a lot of what my colleagues have already testified to so I'll try to keep it high level. I just want to note that, as you all know very well, supportive housing is deeply affordable housing with embedded social services for formerly homeless households. As of May 2025, there were 64,000 units of supportive housing across every county in the state with nearly 5,000 additional under construction and 53 percent of these are located in subsidized affordable multi-family residences.

Supportive housing is one of our state's strongest tools to address homelessness, reduce costly reliance on shelters, emergency rooms, hospitals and jails and ensure long-term housing stability for some of our neighbors with the most complex challenges.

New York City and state are each approximately 10 years into their own 15-year initiatives to develop a collective total of 35,000 new units. New York State has a separate goal to preserve 3,000 units of supportive housing over 5 years.

But today, the ability of non-profits to develop, to operate and preserve this housing is in jeopardy due to rapid destabilizing increases in insurance. You've heard a lot about the rising costs, the limits, in terms of coverage and higher deductibles. That's also something our members are experiencing. I just want to say that is happening to our members, large and small, those that are in urban and rural communities, and also to brand new buildings and buildings that are decades old. You have heard about some of the increases to premiums. And I would say that the supportive housing community's experience really tracks that of the larger affordable housing community and you have heard the statistics.

The last network survey that we did of our members was in 2021. But we found an average 44 percent premium increase in just one year.

I would say in supportive housing, unexpected increases in operating costs, pull resources away from vital services that make the model so effective. Staff salaries and retention, case manage many ratios and robust on-site services are all put at risk which can impact tenant stability. Across New York, non-profit and affordable housing owners are facing operating deficits, deferred maintenance and capital deterioration, cuts to essential services, borrowing at high interest rates to coverage insurance gaps and the risk of selling buildings to stay solvent.

I also want to mention that since the early 1980s, the state has invested billions of dollars into creating supportive housing residences, transforming lives and communities and creating jobs. Risking that now and paying more annually to provide temporary shelter or emergency services would be a tragic outcome.

We appreciate the legislature and the Governor's early work to address this crisis.

The DFS HCR affordable housing and insurance report confirmed that carriers were asking discriminatory underwriting questions about subsidized housing leading to the 2024 statutory ban on discriminatory practices. And last year's budget set aside $5 million to help non-profit owners join group insurance captives, which is an important first step, but it's just that. A first step.

The scale and urgency of this crisis require a more comprehensive multipronged strategy. The network's recommendations again are in line with a lot of our colleagues and rather than go into detail, I'll just name kind of the five categories that we would recommend action in.

The first is improving transparency and data access. The second is funding and incentivizing risk mitigation upgrades. The third is addressing New York's liability environment. And just to mention a little bit more about this... a five-year pilot creating an affordable housing carve-out from the strict liability provisions of the Scaffold Law that would allow DFS and policymakers to evaluate the impact on pricing and carrier participation as well as mandate disclosure of third-party litigation funding to increase transparency.

The fourth area is provide short-term relief and long-term risk sharing. And the fifth is to rigorously enforce the antidiscrimination protections that are already in place.

With that, I will wrap up and we welcome your questions.

SENATOR BAILEY:I just want to say thank you for all of your service. And I want to say to my friend, the former -- always honorable but the former Council Member, we miss your service in the city but NYSAFAH has certainly gained an incredible ally. And I want to thank you for all the work that you do and I want to address something from the top. I think Mr. Perlmutter mentioned it mostly. What you are doing in housing has a domino effect on society. When constituents come to all of our offices, if they have a housing issue, it's never just a housing issue. It is always a totality of circumstances that stems from a lack of safe and secure housing.

So I just want to thank you for recognizing that and we are censoring people first in what we do. I know we talk about a lot of money and a lot of lawsuits, and a lot of this and a lot of that but we are censoring people in the conversation and I'm glad that we have been able to bring that back to a point of gravity.

Before I get to the question that you know I'm going to ask. I already tee'd it up for you, you now I'm going to ask it, I want to ask you a couple more questions.

You mentioned that there is less growth. Do you have -- I don't know -- you have a lot of data. I don't know if this is parsed through yet, but if you don't have it, could you get data that can show what the percentage loss growth in developing affordable housing is that specifically related to insurance? Is there a way to put that in a bucket?

PERRY PERLMUTTER:We could get some data from S:US, just us, I mean, maybe we could work to put it through network?

REBECCA ZANGEN:It's a bit hard to quantify, but there could be a way to look at the increased insurance costs and what that does to the per unit cost of developing affordable and supportive housing. And of course since we have a limited pool of subsidy to develop those increased cost of developing minimize how many units we can do.

SENATOR BAILEY:I know there is no specific factor that triggers this that triggers that. I understand that. But I'm trying to get a handle on it because I want to be able to be able to prove things by data. And I think as Mr. Finkelstein earlier mentioned, I don't want to talk about the monsters in the closet. I want us to be able to use things that are quantifiable. And as such, I want to figure out if there is clearly a defined loss of growth in affordable housing that people need to survive that is specifically related to insurance, then we have to figure out a way to do that. I know causation isn't exact but we should be thinking about that data set if we can. Go right ahead, Ms. Zangen. I'm sorry.

REBECCA ZANGEN:Not at all. I think another thing to be aware of, and this may be where you are going with it, but in addition to that, it's on your existing portfolio, if you are in a situation with negative cash flow, on a building that you already operate, you are much less likely to want to develop more.

PERRY PERLMUTTER:That's what we are facing. Like I said, we have $4 million excess insurance that we have no place to recover it from. So that's really impacting the agency's ability to operate. So what we are really looking closely at, all other costs and how we can operate these types of buildings.

WILSON KIMBALL:And in Yonkers, that project that I mentioned where our insurance went from 800 to $1.2 million is also the development that lost its gas. So our tenants have been without stoves for over a year because we didn't have the money to bring in and go to electrification because we're tasked with the choice of a $30 million electrification or $100 million gas, return to gas. And we are having to make tough choices, including staffing choices, which are 456 Teamsters.

So it does exactly as you say. Have a trickle down effect.

SENATOR BAILEY:Certainly.

CARLINA RIVERA:And also I want to tell you with the example I gave Kennedy Plaza in Utica, there is actually a chart attached to my written testimony, where they really tried to break down how the insurance costs added overall to their operational cost and what that means for them. To really illustrate the scale of the problem.

SENATOR BAILEY:I've asked this of other folks and maybe you might have a different perspective. Not the tort reform question yet. You are dealing with supportive housing, deeply affordable housing, unhoused individuals, homeless housing. Have you seen where insurers are walking away from these areas specifically as opposed to others? Are you seeing that happening? Other folks are saying they're not seeing it. I just want to see is it happening from in your world view?

PERRY PERLMUTTER:In my world, yes.

We have seen it. We had an insurer, I believe 2 years ago walk away. My understanding was from all New York City risks like this. And we had to switch insurers, which we were already in a bad place. So, yes, we did see that happen. And they left New York City and they wouldn't insure us. So we are seeing that.

WILSON KIMBALL:And we've had one insurer -- well, our main insurer, which is HAI Group, tell us they won't ensure our new property, which is eight stories, because it's a high rise.

SENATOR BAILEY:You mentioned the state covering certain loss mitigation methods. Is that something that you think the state should be doing at large? Should it be on projects that there is a portion of state funding? I think each of you mentioned that in your testimony and I think it's a fair concept. But how do we get the state to assume -- I guess you are asking the state to assume some sort of risk, not exactly but you are asking the state to provide something that is a loss mitigation tool. Was would the metric be for that?

WILSON KIMBALL:Well, the two that I think of the most would be like a FireAvert type system because what we find is that most of the problems in our housing come from seniors who forget to turn off the stove or the oven. And so fire tends to be a very big driver in the damages area. But an even bigger driver is the water that then comes down through from the ceiling, the fire or sprinkler system to turn off those things. So FireAvert system would be fine. A pilot program is always better than trying to do a blanket program. Maybe that would be the best way to do it.

And then cameras, we have found, have been incredibly helpful for the slip and fall that really isn't a slip and fall where the person sees a hole and actually walks to the hole and falls into it. And we have had that camera, you know, footage, help us get out of that situation.

SENATOR BAILEY:So more of a direct infusion of capital or capital-like discretionary funds to your buildings to arm them with the necessary bells and whistles. Would that be a fair assessment?

WILSON KIMBALL:Yes.

PERRY PERLMUTTER:That would be helpful.

SENATOR BAILEY:And you mentioned the pilot program. So now we are getting to the tort reform question, your thoughts about tort reform. And you mentioned something -- and I will give you credit -- I have not yet heard, which is why you saw my -- which is why I was like I've always heard tort reform but I've never heard it piloted. Can you talk to me more about that pilot program that you are thinking about? And if I could hear from everybody if you so choose, about what your feelings are about what tort reform would possibly mean for rates and lowering things, so to speak.

CARLINA RIVERA:I think it's a bit of a rabbit hole, but we are trying to address some of the issues associated with the costs of affordable housing. I would say it sometimes detracts from the issue a bit but I know my colleagues have a lot to say about it.

PERRY PERLMUTTER:I think there should be some sort of tort reform. There are some runaway verdicts, you know, payouts that really that go into the excess layers, which is where I know someone just before us testified about that's where the big increases are.

So some sort of tort reform -- I'm not an expert in it -- would be helpful. I mean, people need to be paid for their losses when there are true losses. But it seems like insurance companies are willing to settle because they're worried about large jury verdicts in the city.

REBECCA ZANGEN:The notion of affordable housing carve-out that's a pilot that would be temporary would be one way to test what the impact actually would be. We hear from many experts in the field that this Scaffold Law is unique to New York State and certainly I am not an expert in this at all. And before 2 or 3 years ago, I had never heard of Scaffold Law or tort reform. These are things that I'm just scratching the surface and beginning to understand. But, given how much we hear from experts and from the insurance industry that this is the driver of costs, it seems that a modest pilot program, specifically carving out our industry that I think the state has invested the most in, that provides such a public good, that we need to make sure remains stable, could be a way to test what really is the impact and how can we, you know, move forward.

WILSON KIMBALL:And I think having a sunset would help bring on board other members of the legislature who might have doubts about whether there is an impact. I think one of the things I did not hear discussed today is the replacement cost of affordable housing, and that tends to be from our insurance providers, carriers since one of the driving forces of insurance and maybe the dirty little secret in New York State is that our affordable housing in Westchester cost about $950,000 a unit for a one bedroom to build. That's an incredible cost. And therefore the replacement cost and the insurance cost on that is very high.

SENATOR BAILEY:As the proud representative of Mount Vernon, I understand the dual jurisdictions issues that we often have and how it's not uniform across the board.

Crystal ball. Same question I asked before. Based upon these possible pullouts and possible areas that you are doing, if something isn't done, whatever that something is -- are there areas in New York City where people are living right now that need the most help that could be theoretically uninhabitable because of insurance costs?

PERRY PERLMUTTER:We are in difficult neighborhoods and if we were forced -- if it got to the point where we were forced not to be able to offer affordable housing, or supportive housing, yes, that could be an issue.

I mean, we are not there. Luckily we are financially strong, but this is really stressing S:US. I can speak for us.

SENATOR BAILEY:I appreciate that. Anything else before we go to Senator Skoufis? Thank you for your time.

SENATOR SKOUFIS:Yes, thank you all for your time. I don't have too many questions beyond what Senator Bailey asked.

But I want to probe one thing, Ms. Kimball you touched on it a little bit ago.

Now doubt all of you deploy and utilize, I would imagine, robust security systems, cctv systems. There has been a lot made about fraud today by other panels. And I'm curious, how often do you see it happening within your portfolios?

PERRY PERLMUTTER:In terms of fraudulent claims?

SENATOR SKOUFIS:Yes.

PERRY PERLMUTTER:What I see more are like claims without real merit and that they actually drive up costs. I'm not sure -- there is probably some fraud but I think more like without merit that force us to defend them and it actually adds a lot of costs. And a lot of times it's a business decision, just like it is for the insurance companies, it's a business decision for us. Do we want to litigate or do we want to settle earlier? So I think there are a lot of cases --

SENATOR SKOUFIS:And are you making that call or is your carrier making that call?

PERRY PERLMUTTER:Generally it's the carrier unless it is within the deductible. Generally it's the carrier.

SENATOR SKOUFIS:And you cited I think you were paying $6 million several years ago and now it's up to $16 million, you mentioned.

PERRY PERLMUTTER:16, yeah.

SENATOR SKOUFIS:Did your previous carrier cite any of this fraud as one of the reasons they either pulled out or the new carrier why the policy is so expensive?

PERRY PERLMUTTER:No, they didn't cite fraud, no.

SENATOR SKOUFIS:What did they cite?

PERRY PERLMUTTER:Our claims. The claims that we paid and they do -- they do their actuarial analysis. To me, it seems like we are paying a lot in their profits as opposed to our losses.

SENATOR SKOUFIS:What I'm getting at with these questions is I'm curious -- and you touched on it a little bit ago, Mr. Perlmutter -- I wonder if you have seen your carrier settle claims that you feel they should not have settled.

PERRY PERLMUTTER:100 percent.

CARLINA RIVERA:The membership brings that up consistently, yes.

WILSON KIMBALL:Yes, but it's not like the million dollar claims, at least in my experience. It will be a $200,000 claim, which then our attorney says is worth $6,000, but the insurance company wants us to settle for whatever because they understand that the time in court with the lawyer and my time and taking depositions and blah blah blah is going to be so much more expensive than whatever the settlement is. So I mean, in that case, that's the most appalling and galling, as a CEO, when you are told that this case is worth x and they want x times 200,000, right?

PERRY PERLMUTTER:We've seen the same thing and it's very difficult. It's frustrating at times where we see cases without merit and they're settling for two, 3, $400,000 and it really, it ends up in our loss experience and that causes the premiums to go up dramatically because it's not just one time. We are not just paying for the loss. We are paying two to three times the amount...

SENATOR SKOUFIS:I want to get back to your point before or the question and answer before, which is do you ultimately have final say as the policyholder as to whether they settle or whether they go to trial?

PERRY PERLMUTTER:No, we don't.

SENATOR SKOUFIS:You don't.

PERRY PERLMUTTER:The only time we do but not in the property and casualty is our employment law where the first 100,000 is ours. Otherwise we really don't.

SENATOR SKOUFIS:But it sounds like for all of you, there are numerous instances where, if you did have sort of that final arbitration, you had veto power, you would have compelled your carrier to take something to trial.

PERRY PERLMUTTER:Yes.

WILSON KIMBALL:Yes, because as you I think raised earlier, you don't want to send a message to the public that suing a housing authority is a good idea or a lucrative idea. So we want to fight these tenaciously, especially when we know we are right. But that's where the confidentiality clause comes in. It does help housing authorities to not have all the settlements bandied about, especially settlements that we didn't want ourselves, that we took.

SENATOR SKOUFIS:And do you imagine that the reason why carriers do this is just it's easier?

WILSON KIMBALL:I think it's the bean counting, right? It's a cost benefit analysis of the cost of a deposition, the cost of a time away for staff, the staff of whatever goes into a lawsuit. I'm a recovering attorney, also, so, yes, it's all that.

SENATOR SKOUFIS:Is that short-term thinking? Because as you mentioned, as I mention the earlier, I would imagine that if a carrier was taking these types of cases to trial, and were winning verdicts or dismissing these cases, I would imagine there would probably be fewer fraudulent cases brought forward, no?

WILSON KIMBALL:You know, I don't know.

SENATOR SKOUFIS:Which would save the carrier money.

WILSON KIMBALL:You know, they have a broader portfolio experience, like our carrier is national, so they would know what goes on. I mean, I do think our insurance in New York is on the rise also because we are covering states like California and Florida, that have had epic, epic weather-related losses. I mean, if you look at the statistics from the HAI Group, New York has had none of the major catastrophic weather events the last couple of years that drive costs in insurance.

I mean, it's kind of shocking because we had "Sandy." But subsequent to that, we haven't been the ones driving the weather-related costs.

SENATOR SKOUFIS:They're adamant, for the record, because I share your suspicion. They're adamant that that cross subsidization is not happening but I share your suspicion. Go ahead. You were going to say something, sir?

PERRY PERLMUTTER:Sometimes when you leave a carrier, they want to close out the claims so they'll settle them really easily and we have had to jump around because we were, you know, one of the carriers left New York City. So we have seen that even worse where they just want to settle whatever is sitting on their books and they close them out, which is really frustrating for us because it still does sit in our loss history.

SENATOR SKOUFIS:I imagine you all work with peers in other states. Are there any other states where the policyholder does have final say as to whether a case is brought to trial?

PERRY PERLMUTTER:I don't know.

SENATOR SKOUFIS:Does that mechanism exist anywhere?

CARLINA RIVERA:I try to speak to colleagues and allies in like New Jersey, Connecticut, mostly tristate area, Pennsylvania. I haven't really found that.

SENATOR SKOUFIS:Because it is strange. You are paying the premium.

PERRY PERLMUTTER:Well, there are policies where you can have the ability, but if you lose, then you have to pay up. You have to pay some of the loss. So we don't have that type of policy. But there is like a hammer clause I think in some policies. We don't have that ability.

SENATOR SKOUFIS:You mentioned, Ms. Kimball, that you support these confidentiality agreements and sort of the concept?

WILSON KIMBALL:Yes, because we have seen different individuals who have sued the housing authority try to compare notes, well, she got or he got or I should get. And so the less information that is in the public domain, the better for us, I would say.

SENATOR SKOUFIS:What if they were non-identifiable, they were disclosed but you couldn't identify, they were redacted or through some other means, you couldn't identify the names, address, et cetera, but we at least had the data in the public how many claims, how many payouts.

WILSON KIMBALL:Okay.

SENATOR SKOUFIS:That's something you think would address your concern?

WILSON KIMBALL:I think there is always a way to meet in the middle, right? It should never be too far left or too far right. There is always an idea in the middle that is probably the right answer, like a pilot with a sunset.

CARLINA RIVERA:Transparency.

WILSON KIMBALL:Transparency to the extent possible.

SENATOR SKOUFIS:Thank you all.

SENATOR KAVANAGH:Thank you. And let me just begin by saying however much Senator Bailey misses Carlina Rivera and her service, we miss her more on the lower east side, as my neighbor and friend. But it's great to see you here. We have bequeathed you to the statewide role now.

CARLINA RIVERA:Thank you for having me.

SENATOR KAVANAGH:I'm going to ask a smattering of questions on sort of components of each of your testimony.

So I just want to start with this idea of a public excess liability fund. Are any of you aware of a model that currently exists where a government is sort of stepping in and creating that kind of structure in other states or other jurisdictions?

PERRY PERLMUTTER:I know there was in New York, a medical indemnity fund for babies born with disabilities. That originally it was supposed to be funded by hospitals in the state. I know that the fund didn't do so well many, many years later. But if it was funded correctly, I know New York State did have that fund. And so what we are proposing is an excess liability. And everybody who joins would pay an actuarial amount but just for the losses and not for a profit. So I know that that worked for a number of years, many years in New York and now I think it's, for whatever reason, I don't know the details.

SENATOR KAVANAGH:If I'm not mistaken, you have some experience in the insurance industry.

PERRY PERLMUTTER:I worked in insurance, yeah, yeah, yeah.

SENATOR KAVANAGH:Any examples in the property space that you are aware of?

PERRY PERLMUTTER:What's that?

SENATOR KAVANAGH:The medical indemnity fund is helpful as an analogous situation, but are you aware of any instances of somebody trying that in excess in the property --

PERRY PERLMUTTER:I don't know. I'm not sure.

SENATOR KAVANAGH:Okay.

A couple of you testified about the incentive program we created or the subsidy program we created for people to join captives. It's a $5 million fund in last year's budget. There is a notice of funding availability that is out, I think due the first week of December. I think at least one of your testimonies suggested $25 million would be a number that would be appropriate for that. Just -- I mean, can you talk a little bit about the interest among affordable housing providers in joining that kind of mechanism.

PERRY PERLMUTTER:I could talk to it a little bit. I would be interested. I'm doing a little research on captives, reciprocals in the state. And there is definitely interest among many non-profit and affordable housing providers. I could tell you for sure because as I've done a little research and trying to put something together, a lot of providers say they're interested.

SENATOR KAVANAGH:So you think there would be demand.

CARLINA RIVERA:I was going to agree with that. We brought up $25 million in terms of our discussion with our membership. We want organizations to create their own captives or self-insurance mechanisms. I mentioned some of the things that they would be able to do. Fund risk mitigation measures like water sensors, cameras, slip and fall prevention. That's all to reduce operating costs and insurance claims. This has come up multiple times. It was certainly something that was featured in recent campaigns, Millford Street specifically, but other organizations are doing it, too. One of our members, L & M has created their own captive. They're a bit different. They have 18,000 units that they can start with. But putting it to scale and having state support, I think, would make a difference. It really trickles down to the reinsurance sort of level, but it's a start in the right direction.

SENATOR KAVANAGH:And we have had conversations throughout the day about the kinds of actions that property owners can take to reduce risk and how that relates to insurance premium rates. And I want to get to a specific proposal in Carlina's testimony. But just more generally, to the extent you are in discussions with insurers, how clear is it to you what, sort of, what aspects of your property might result in discounts in premiums?

WILSON KIMBALL:Cameras seem to be a favorite for sure. There was a bill in Florida at one point where housing authorities would be exempted from sort of torts that were the result of mass shootings, if they did x, y and z, part of which included, you know, cameras, lighting, fencing et cetera, et cetera. So cameras are always very vital and important. We try to stay away from fencing.

SENATOR KAVANAGH:And I will refrain from commenting on other steps Florida could take to reduce the likeliness of mass shootings.

WILSON KIMBALL:Agreed.

SENATOR KAVANAGH:But in terms of your -- you mentioned a bunch of actors. Leak sensors that prevent -- our understanding is that a lot of catastrophic losses are about much more routine things than hurricanes and storms.

WILSON KIMBALL:Yes, fire and the resulting sprinkler system, which drenches multiple units and causes more damage, which I believe the insurance industry asked us to put in. So maybe they should rethink that.

SENATOR KAVANAGH:Right. To your knowledge, are there changes in the way properties are built or kind of features that seem sensible to be added that would reduce the risk of loss that are not currently resulting in premium discounts?

WILSON KIMBALL:We are building all passive house so that we can have everybody shelter in place should there be another catastrophic, you know, weather situation. There is even things as small as fire blankets and other things because fire extinguishers cause a lot of damage. It's small things like that, which might be the biggest improvement. So we are trying all that stuff.

CARLINA RIVERA:But that's a good question because -- and over the past few weeks, I have been obviously downstate is a place I have spent most of my time. But Albany, Schenectady, Troy, Rochester, Buffalo, Newburgh, Poughkeepsie, Syracuse, Utica, it all comes down to the same issue, this insurance idea. But they are trying things to add preventative measures inside homes. Whether or not any of that is being rewarded so to speak, that's a really good question and I'll try to get some details for you on particular things they're doing around stoves and fire suppression to see if it is as rewarding for the investment.

WILSON KIMBALL:The other thing that is lost that we are a medium sized housing authority, like 2800 units and 5,000 vouchers so we can afford cameras and we can afford these items and we can try to afford these. If you are looking at Herkimer, they have 248 units. They're not really in a position, although they need the cameras, to do that investment.

SENATOR KAVANAGH:I won't share with them that their local elected officials might consider doing that with discretionary funding as we frequently do on the lower east side. But no, it is an important point. And that, I mean that question, that's something we have been asking a lot of contacts is to what extent should we be subsidizing changes people can be making in property, especially to the extent it's publicly subsidized property anyway.

WILSON KIMBALL:The smaller the housing authority, the more they need your help.

SENATOR KAVANAGH:Right. But having said that, if we could close the loop and ensure that those short-term investments are then leading to longer term savings in insurance, it would probably be easier to justify.

PERRY PERLMUTTER:So just in general, I feel our insurance is based on our losses, no matter what we do. I mean, what we do will hopefully reduce losses and claims. But I don't see if I have, you know, whatever it is, that is to prevent fires or whatever it is, I don't see getting credit for that in my insurance premiums. Today, hopefully it will prevent losses.

REBECCA ZANGEN:I just want to raise perhaps there is a role for DFS in creating some standards around certain practices and, you know, actuarial data around which practices can create, you know, minimize risk and loss. And because I think a lot of our members do put a lot of these best practices into place and don't necessarily see a reduction in premium. I think there is a role for DFS to come in with some data and provide some standards around credits that insurers can give.

SENATOR KAVANAGH:I think that there have been a couple of features that DFS has gone out and encouraged insurers through regulations to do but it is pretty limited so far. We heard from the superintendent earlier that they are -- the agency is attempting to kind of catalog the various things that, you know, might be appropriate for discounts and what different insurers are doing, but I think that this is an area we want to have a continuing conversation.

Carlina, in your testimony you mentioned the possibility of discounts for kind of more behavioral changes. Like training people, tenants on fire safety and avoiding the risk. Can you talk a little about that.

CARLINA RIVERA:What we are calling safe housing courses. So it would be the Safe Housing Incentive Program. And that's to receive insurance premium discounts for offering these courses. So the idea would be that tenants -- or we're looking at property owners, because I realize that tenant compliance can always be an issue. But it is to include fire safety and extinguisher basics. I know we are trying to get away from that. But preventing water damage and reporting leaks, reducing trip and fall hazards. Understanding basic lease terms. Responsible use of appliances and utility, renter insurance education. These are all ideas where, you know, as we are discussing insurance, I mean things like defensive driving for car insurance, not the perfect example. I realize that. But it's how do we try to share some of the responsibility and be collective on this effort. And in exchange, an insurer would reduce liability and/or property premiums for participating development. So it's an idea we have that we are working on in coalition and we obviously would really love to hear constructive criticism.

SENATOR BAILEY:Just want to refollow that. That's an incredible idea. Would that potential idea be predicated upon the tenant, the management company, the association? Because you know, like there are different levels of liability and responsibility. And so like if you get a tenant to go, you get 5 percent. If you get the tenant and the management company to you, you get 10 percent. You get everybody to go, you get 15 percent, just throwing it out there. Like I'm curious because now my interest is peaked about some sort of like program like that. I'm just wondering like how would a program like that look in your eyes.

CARLINA RIVERA:I appreciate your interest because I knew once I said defensive driving, that people start paying attention and it's only because I have been on that side, that I think, how can I explain this in a way to get people's attention. When gas goes up, you see it at the pump, right? When eggs go up, you see it at the checkout. When insurance goes up, it doesn't exactly show up on your itemized receipt. So how are we creating some sort of action or idea or innovation. And so when we brought this to the Insurance Association, among many, many other stakeholders, maybe the tenant is not the person. Maybe it's the property owner. But we are trying to figure out how you take an idea that has existed for a long time that has seemingly worked and apply that to residential properties. So, you know, we are working it out and we are conferring with our partners.

WILSON KIMBALL:Other members from across the country incentivize tenants with gift cards or whatever for reporting leaks because really an unreported leak is so much worse on the third day than it was on the first day. So calling into the emergency call center and reporting leaks or, you know, fires or whatever they might be seeing, and some of our tenants are doing it for free because they enjoy calling us and reporting on things that are happening in our yard.

But that is an excellent program. And our staff currently takes a Know Before program which is all online. And it's everything from fire prevention, to sexual harassment prevention, to a number of other classes. It can all be done online through our insurance carrier.

SENATOR BAILEY:Everybody operates based on incentive, right? Like there is no person in this world that is not incentivized by something. If you are hungry, you are incentivized to go find some food, right, it can be as basic as that. So I think incentivizing people to be better actors. We know we can't legislate kindness but if we can figure out how to get people to be better actors, that may be able to keep things in a better state of repair. I like that. I would love to flesh it out a little bit further. Sorry to interrupt.

SENATOR KAVANAGH:If you are done, just a couple of quick followup.

First, just for NYSPHADA particularly, there is this HAI Group insurance mechanism. Can you talk a little bit about that?

WILSON KIMBALL:HAI is a Housing Authority Insurance Group.

It's out of Connecticut. It started off as a captive and is now probably the largest insurer of affordable housing across the country.

SENATOR KAVANAGH:To what extent are members in New York participating in that?

WILSON KIMBALL:I don't know what percentage of our members are in HAI. I believe it is a large portion of our members.

And they do incentivize us by having us take these Know Before classes online. My entire staff has to take it, from the maintenance workers to the white collar Teamsters. And also they do incentivize us for having like no slips and falls. We get incentives for having a good quarter. That kind of thing.

SENATOR KAVANAGH:And that covers, in sort of the insurance that is required by HUD for public housing to have; is that right?

WILSON KIMBALL:It came up and was created by a number of people who had formerly been at HUD.

SENATOR KAVANAGH:If you have that product, are you also seeking insurance in addition to that?

WILSON KIMBALL:Depending on how your RAD deal works, it could be. One of our partners in our RAD deal is L & M. They're in their own captive and one of our other partners is the Community Builders because these are RAD deals and I believe they might be in their own captive as well. So it kind of depends on the mix and match.

With the community partners, we are relying on their insurance for this eight-story building. Since when we did talk HAI, they said they don't insure high rises, having been in Manhattan for many years before I went to Yonkers, I don't consider an eight stories a high rise but in any event, that's where we are.

SENATOR KAVANAGH:That is very helpful. I am going to wrap just because I have various opportunities to talk with all of you in various context. But to appreciate your testimony, all the work you do to make sure we have affordable housing available throughout the state. And just to note, a couple of you cited a-9016 which is a transparency in reporting bill. Just to note, there will be a revised and more comprehensive version of that that will be kind of same as that bill soon. So we would like feedback on that as we go forward. But thank you.

CARLINA RIVERA:I just want to say to you all thank you because this is not an easy topic and we all have been working on this for many, many years.

And just the last anecdote is that while I was in Utica, one of the property owners said that liability insurance is going up for snow plowing. And when they asked their vendor why, they said because your block has affordable housing, for snow plowing. So it's unfortunately, it feels like a modern day red lining and I know neighborhoods are disproportionately affected so thank you for taking on this topic and for the time and thoughtfulness you brought to it.

SENATOR BAILEY:Thank you all.

SENATOR SKOUFIS:Moving right along, Panel 7, Property Owners Associations; Kathleen Irwin Policy Director of the New York Apartment Association; Tim Foley, CEO and Executive Vice President of the Building & Realty Institute of the Hudson Valley, BRI; and Ann Korchak, president of the Small Property Owners of New York.

While folks are shuffling a little bit. If I could swear you all in if you are ready for that.

Please raise your right hand. Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

(Witnesses sworn.)

SENATOR SKOUFIS:Thanks very much. Who will be going first? Whoever it is, take it away.

KATHLEEN IRWIN:Thank you, Chairs and members of the Housing Insurance and Investigations Committees for the opportunity to testify. My name is Kathleen Irwin and I'm a policy director with the New York Apartment Association.

Our members own and operate more than 400,000 units of pre-1974 rent stabilized housing, a critical and endangered segment of the city's housing stock.

Today we face an insurance crisis that threatens the viability of rent stabilized housing both privately owned and non-profit. To capture the impact of this crisis, we conducted a member survey in October of 2025 of over 60,000 units of housing.

Our survey data shows that total insurance costs including property, liability and umbrella coverage rose 113 percent citywide in just 5-years from annual average of $703 per unit in 2020 to $1501 in 2024. Premiums in the Bronx and northern Manhattan specifically rose 134 percent during that same period with some buildings paying more than $3300 per unit per year.

Rent guidelines per data show a 52 percent increase in the share of costs consumed by insurance from 5.4 percent of total operating costs in 2019 to 8.2 percent in 2023. Our survey also found that 87 percent of owners have been forced to take on more risk through higher deductibles or cutting back on coverage.

In one case, a portfolio of 100 to 500 units had to increase their per property deductible from 5,000 up to $25,000. At the same time, their per unit annual premiums climbed from $901 in 2019 to $1602 in 2025.

Another member with fewer than 100 units increased their deductible from $10,000 to $50,000 and cut umbrella coverage back from $5 million to $1 million. Still their annual per unit premiums grew from $1140 in 2022 to $2334 in 2025. It's important to note that this acceptance of risk is not reflected in the costs submitted to the Rent Guidelines Board even though higher risk creates the possibility of major unexpected expenses. Considering premium costs alone obscures the depth of the insurance crisis.

Equally troubling, the majority of survey respondents reported being denied insurance coverage. 74 percent of owners with fewer than 100 units and all survey respondents with portfolios over 5,000 units had experienced denial of coverage.

Common insurer explanations reported in the survey included refused to insure rent stabilized housing, refused to cover Bronx buildings, or carriers stopped writing multifamily coverage in New York City. Liability costs and fraud further compound this problem.

According to the national insurance crime bureau, New York City ranks number 1 in the U.S. for questionable slip and fall claims. Fraudulent claims have become routine, often involving staged accidents, exaggerated injuries or false claims of building negligence when people behave irresponsibly. In one example claim, security video captured a person descending the stairs, distracted by their phone and not holding the railing who then fell and brought a claim alleging the stairs were defective.

According to our survey, 70 percent of owners with video evidence disproving a slip and fall claim still saw insurers settle rather than fight. Faced with the prospect of drawn out investigations, litigation and the risk of jury awards more than eight times higher than the national average, insurers choose to save themselves money by settling despite the evidence.

This practice drives up premiums while rewarding bad actors. This dynamic especially harms tenants in buildings with rent stabilized units. Fraudulent claimants and their attorneys profit, insurers protect themselves through higher rates or leaving the marketplace and owners are left observing massive cost increases.

This is reflected in higher rents and building with market units but in fully stabilized buildings, premium costs increases cannot be offset. Every dollar diverted to inflated insurance costs is a dollar that cannot be spent on maintenance, safety upgrades or energy efficiency.

We urge the committees gathered to act.

First: Create a state-backed reinsurance program to stabilize premiums for affordable and rent regulated housing. This intervention would bring in more competition by protecting insurers, moderating their risk exposure and lowering rates.

Secondly: We encourage the state to pursue targeted tort reform that would rebalance the current liability landscape while maintaining the core intent of those protections. Regardless of how robustly the state works to support the insurance market, the current liability environment leaves insurers and building owners extremely exposed to fraud and abuse. So as long as it is a lucrative practice to bring suspect fact patterns and inflated claims, bad actors will enrich themselves at the expense of New York City's rent stabilized housing and tenants.

The New York Apartment Association also remains committed to collaborating with any elected official working towards real solutions on this issue. Without insurance reform, we risk losing the very buildings that keep New York affordable for working families.

Thank you for your attention and for your commitment to protecting New York's housing.

TIM FOLEY:Good afternoon, Chairs. Thank you so much for convening this very important hearing and a special note of appreciation to your respective staffs for such thorough and organized preparation.

My name is Tim Foley. I'm the CEO and of the Building & Realty Institute of the Hudson Valley. We represent home builders, developers, property owners and managing agents across Westchester, Rockland and Putnam Counties covering everything from affordable housing to co-ops and condos.

And no matter where we look in the insurance market for residential housing, the story is the same: Sticker shock. We have seen double digit renewal increases across the board for the last 2-years. In extreme cases, particularly for high limit umbrella liability policies, increases have reached as high as 100 to 200 percent. Although it is true across the board, there is no doubt that older housing stock has been hit the hardest, including co-ops, rent stabilized buildings and subsidized affordable housing.

And the data tells a devastating story. Westchester rent stabilized property owners reported a 22.5 percent insurance increase over the last 2-years. Nassau saw 25.1 percent and Rockland experienced a staggering 67.2 percent. The New York Housing Conference found that insuring an affordable apartment now costs $1770. According to their numbers, 103 percent increase from just 4-years ago.

ANHD stated in their most recent report insurance has been the fastest growing expense category with double digit annual increases in multiple years, while Enterprise Community Partners reported insurance has risen 110 percent since 2017, more than double any other expense.

The national causes of this surge in costs are clear. Climate change has driven an increase in damage related to extreme weather events. Nationally, catastrophic claims rose 32 percent between 2019 and 2022. Replacement and repair costs have soared over this timeframe; first due to the pandemic supply chain disruptions, then due to inflation and now tariffs on building materials.

The reinsurance market is, as you have heard, is fundamentally broken. Many carriers have withdrawn entirely from high risk markets including New York, leaving property owners with higher costs and worse coverage.

While the state has taken important steps to crackdown on insurance discrimination, we need more comprehensive action to protect our oldest most affordable and most likely to be financially distressed properties. We respectfully urge you to consider four policy solutions.

First: As many have said, we need a state excess liability fund, a public or state-backed reinsurance program. The reinsurance market is broken for older housing stock and affordable housing and a state-backed safety net could immediately reduce risk, lower costs and improve terms for both subsidized and naturally occurring affordable housing. This could be limited to financially distressed properties or it could be a broader pool. Though of course the broader the better to stabilize costs for both the insurers and taxpayers.

Second: We strongly recommend regulations or incentives for longer term insurance contracts specifically for affordable and financially distressed properties to make them viable.

These properties face predictable restrained income year over year, but unpredictable expenses. Insurance used to be one of the more modest and stable cost increases but that world is gone.

The next best thing is longer term contracts that provide some predictability and some planning with more years between major rate shocks.

And third: New York should reduce insurance premiums for climate resilient construction through discounts and other incentives. Since climate change and extreme weather are the primary drivers of the rise in premiums we see today, we should offer relief to property owners who build or renovate to modern energy efficient codes and higher resilient standards.

There is a model in existing law Chapter 28 Article 23 Section 2346, already allows premium reductions for hurricane resistant windows and doors. We can expand this to reward properties meeting standards like HUD Green and Resilient Retrofit Program, the National Green Building Standard or Fortified Standard. This would provide cost relief while at least minorly addressing some of these root causes.

Fourth: We need increased transparency through increased reporting requirements. While the trends are clear, the exact mechanisms insurers use to balance risk and cost remain opaque. A public reinsurance actor would provide valuable transparency but additional reporting or requirements similar to what NYSIF workers' compensation safety groups provide would improve our ability to manage future changes and crises.

We appreciate the opportunity to share our perspective and commend your willingness to tackle a problem that is worsening the financial outlook for our most affordable housing options in the midst of a severe affordable housing shortage. Thank you.

ANN KORCHAK:My name is Ann Korchak and I serve as the board president for SPONY, the Small Property Owners of New York. We are an all volunteer organization of small rental building owners, which means we have firsthand experience with the rising costs and shrinking coverage.

Insurance is one of the largest expenses we face, second only to property taxes. It's an expense that we cannot delay and one where we can easily find a more affordable option.

Earlier this year we did a survey of our members and that showed that insurance costs were increasing about 37 percent for small buildings under 11 units. The increase was slightly lower for the larger buildings. My own family's experience reflects this. Our combined total insurance cost for commercial and liability coverage for a 10-unit building on the upper west side has increased 43 percent in recent years.

This steepest increase was for the liability, which we saw a 95 percent increase. In the past, we paid as little as $56 a unit for liability coverage. And today it's more than a thousand dollars. Our liability coverage was once a fraction of our total insurance bill. It now exceeds our commercial package.

And while we once carried $100 million in umbrella liability, we can now only be given $15 million in coverage and our deductible has also doubled.

The drop in coverage isn't a choice. In the past we always had multiple offers when our insurance policy came up for renewal. Last year, the day before our policy expired, we had just one. Our long time insurer had dropped us. Getting that close to the expiration date was extremely nerve racking and the only offer was a three-year commercial package.

We hadn't seen that in many, many years. But it came with a twist. We had to pay all 3 years up front. It was this time last year because I was facing a huge tax bill coming in December, so we didn't have the cash on hand. And the only reason we were able to pay both our taxes on time and this insurance bill is because a long time contractor waited, like another 60 days for us to pay him the $20,000 bill for a job he had just done.

Just want to add a few other things. Yesterday I saw some comments, insurance related comments in a SPONY WhatsApp chat. One owner was attempting to negotiate a payment plan because the cost was so high, they couldn't afford it. Another was at housing court with a tenant who had not paid rent since June of 2023. It was $63,000 in rental arrears and this person has to pay a big insurance premium later this month. So cash is a problem when have you a $63,000 in rental arrears.

Another owner was denied a renewal for filing a claim that was covered by a sewer backup rider that the carrier had encouraged her to purchase six years prior. So when she used the rider, then she got her insurance canceled.

Several years ago I asked my broker why our costs were rising so quickly. And her answer was, you own a building in New York City. So you are in the construction business. And she is right. Buildings all over the city doing facade repairs, boiler replacements, electrification upgrades and just ordinary maintenance repairs. And every contractor who works in our buildings is also paying more for their insurance. And those costs come right back to us with higher construction costs.

We pay for this reality on both sides. Our own insurance coverage and then that extra charge from the contractors. I have learned one of the drivers of this is the large amount of personal injury litigation, including fraudulent claims and lawsuits. Insurance fraud is an area where perhaps the government could take action by prioritizing fraud prevention and enforcement, legislators can help reduce unnecessary claim costs, stabilize the insurance market and provide real relief for small property owners who supply much of New York's affordable housing. The city itself could also reduce risks especially around flooding by properly maintaining and regularly cleaning the sewers and catch basins. Of the 2024 DEP storm analysis outlines several concrete steps to improve drainage. We are paying very large water and sewer fees. We would like to make sure that that money is being used properly to help mitigate some of those problems.

High crime rates are another reason for rising costs or denied coverage. Another owner I know shared with me that she was told her policy would not be renewed because the crime score exceeds our threshold for acceptable risks established through our underwriting guidance. So lowering crime rates could also help property owners.

And I just thank you, you know, for including us here today. And appreciate, you know, anything you could do. We are on the front lines here and it's getting more and more difficult for us to cover our operating expenses.

SENATOR SKOUFIS:Thanks to each of you for your testimony. And you know, I think we all work with all of your organizations over the course of session and know that you are in the trenches and know that it is difficult and your insight today, and generally, is really appreciated. I want to ask a question that I asked the previous panel. Your members, I imagine the large majority of your members, use video surveillance, have cctv systems. And I'm curious to what extent are your members seeing claims without merit or even fraudulent claims caught on video but nevertheless -- and I think one of you mentioned it before -- how often are nevertheless your carriers, your members' carriers still settling those claims?

KATHLEEN IRWIN:We asked that specific question -- I don't know if I'm on. We asked that specific question in our survey. And for those who reported that they had had fraudulent claims, 70 percent of those with video, their insurers still chose to settle.

SENATOR SKOUFIS:And the other two of you?

TIM FOLEY:We don't have data on that. We certainly do have anecdotes because we cover a broad spectrum of housing; for example, some areas that are particularly crime ridden may be more inclined to have cameras than others.

We do certainly have anecdotes, particularly on new construction, where some of the surveillance cameras have caught fraudulent slip and falls. There was one video that I actually got to watch myself of a worker walking down an alley way who was unaware that there was a camera there and quite literally lying down as if to simulate a fall that had just transpired. There was pressure to settle that claim. I believe they did not, in that particular instance. But that is just one anecdote in that systematic data.

SENATOR SKOUFIS:How was that resolved, do you know?

TIM FOLEY:I believe ultimately, when they brought that specific video in, that particular plaintiff backed away. But I do know that there are many occasions where the insurers, again, as was previously testified through whatever bean counting they're doing, determined that the risk of going to trial, the risk of additional costs of going to trial, the legal costs of going to trial are greater than whatever is being asked for by the individual plaintiff.

ANN KORCHAK:I would just add that I know of no owner who has ever gone to trial.

SENATOR SKOUFIS:Not a single one?

ANN KORCHAK:Not a single one.

SENATOR SKOUFIS:How much of that do you think has to do with whatever actuary they're conducting or risk that you are referencing versus it just being easy to settle? And you don't have to use up personnel and bandwidth -- and yes, there is certainly a cost to seeing a case to trial. But at the end of the day, just settling, you just tuck that into your next rate application, no?

TIM FOLEY:Well, there are two factors that our members feel, which is that this is not an isolation. So any incident that is involving their insurance, whether it's directors and officers insurance within the co-op, whether it's something that is an alleged fair housing violation, so on and so forth. The pressure to settle is omnipresent no matter what channel of insurance you are particularly talking about. Particularly, you know, within certain ranges within costs. So it is no more remarkable in the context of the type of liability and construction insurance that we are talking about than it is in any other context. If there is a claim, they're looking at it.

But the second factor is that the number one determining factor between whether you will have a reasonable increase in your premiums or not is your claims history.

SENATOR SKOUFIS:Of course.

TIM FOLEY:So if there is any claim of any sort, the insured is so desperate to mitigate their losses, that even if they feel that there is some injustice, and often they do feel that quite strongly. They have done nothing wrong. They ought to go to trial, they also are very concerned about what is going to happen the next time they're up for renewal.

KATHLEEN IRWIN:I think, as far as our best understanding, it's more of a cost question than like a laziness question. I think it's more the risk-reward. Like if you spend all this money investigating, defending a claim, litigating a claim and even imagine that it still does get an award given against it, there is always the risk of that regardless of what the fact pattern is. All of that comes together to say at the end of the day, this is a nuisance. At the end of the day, we are going to settle. It costs less money to settle and that's what we are going to do.

SENATOR SKOUFIS:Do you think they're evaluating that risk properly? Obviously none of you are actuaries. I understand that. But as a lay person, my sense is that there is really no downside for the insurer to settle.

It sort of gets this situation off their plate, right? Whereas you absorb, your members absorb that downside because yes, it's not a payout. It's not a verdict. It's not, you know, a jury award, but that settlement still appears on your claims history and drives up your premiums, which again, then is to the benefit of the carrier we are talking about.

And so I don't want to make it seem as though I'm suggesting they're doing this because they're lazy, but in my mind, the risk equation is very different for the insured versus the insurer. There is very little downside for them. You absorb all that downside. You absorb that risk.

ANN KORCHAK:Right. And it's so frustrating because you are paying such high premiums and you know, so many people have video cameras now, right? So you know if somebody has made a fraudulent claim.

Like this story you just told about the guy laying down. You are paying for this coverage that never materializes because when they go and settle, you never have a chance to say, hey, my camera footage here is showing that what they're claiming is not what actually happened. And you just have to accept it. It's just because, right, the insurers have decided that that is the preferred way for them to go.

SENATOR SKOUFIS:I'm not nearly as familiar as likely Senator Bailey is with how the penal code speaks to insurance fraud, but I imagine there is some criminal conduct that is in our penal code having to do with insurance fraud like we are talking about. In your experience, have you ever seen anyone prosecuted for what you believed to be insurance fraud?

KATHLEEN IRWIN:I know we had a member who had enough cases that they were able to start looking at it as an organized kind of effort. I don't know that they were ultimately prosecuted and I think that was a capacity issue. But I think, too, what the point that you are bringing up is sort of leads me to two of the specific asks that we are sort of shopping around in the world of tort reform. And one of those being to make it easier to recover attorneys fees when building owners and insurers successfully, you know, beat back a fraudulent claim. Because right now they do not.

And also to broaden the set of circumstances that would entitle an insured to bring their own independent counsel, to basically override and say no, we are going to fight this because right now...

SENATOR SKOUFIS:Are there circumstances now that exist where you can do that?

KATHLEEN IRWIN:My understanding is you would have to sue your insurer.

That doesn't seem like a great option. Those are ideas we have. Because as you are bringing it up, the benefit --

SENATOR SKOUFIS:Do any other states do that, what you just suggested?

KATHLEEN IRWIN:I looked it up in the back when you asked before.

It doesn't seem that there is any state that gives that as a blanket entitlement but it is more case by case.

SENATOR SKOUFIS:And you think that both of those reforms would have a positive impact on premiums?

KATHLEEN IRWIN:Those are a couple of the ideas that we have.

SENATOR SKOUFIS:Okay. All right. Thank you.

SENATOR KAVANAGH:First of all, thank you all for your testimony and thank you for the hard work of managing real estate in this environment. We know it's not easy. I want to start by just talking about a little clarity by what we mean by fraud. Because we have two different examples from this panel. One is about somebody walking down the stairs and using their phone and maybe be being distracted and then falling and then asserting that the stairs are defective. And the other is somebody, you know, lying down and pretending to have fallen on the ground.

I do think that just conceptually those are pretty different things. Like when somebody is walking down the stairs -- if somebody is walking down defective stairs and falls and they're using their phone, the insurance company is entitled or the property owner is entitled to say well, it wasn't the defect in the stairs. It was the phone call and the distraction and vice versa.

I just -- I'm not sure that's what we usually think about when we think -- sort of a dispute about what was the actual cause, I think, is different than what the kind of fraud we have been talking about today where people are fabricating incidents or causes of things that happened.

So I just want to -- to the extent that I'm asking about fraud, I'm asking about the case where, you know -- and Ms. Irwin, we had some conversations with some of your members that were talking about people, you know, walking by a few times, checking the place out and then, you know, dropping on the sidewalk.

So, you know, as I think as I've said, I don't think there is anybody here or anywhere that I know of that wants to sort of support that kind of activity continuing.

In terms of reforms, we have had a lot of talk today about tort reform and with limited time, I want to ask you a couple of questions on it but I want to focus on some of the other ideas here.

First of all, the idea that somebody is -- an insurer is stating that they're refusing coverage because housing is rent stabilized. Do you have sort of specific documentation of that?

KATHLEEN IRWIN:The examples that I cited in my testimony were the ones that people were able to provide to us. Granted this is their reporting of what their insurer told them. I don't know if they kept or would be willing to provide, if it happened in writing or happened over the phone. But it wasn't, you know, three people who answered those three things. Those were common answers that we were hearing from our membership.

SENATOR KAVANAGH:Again, we are trying to, as much as possible, pin down, you know, evidence of behavior. So I mean, obviously anecdotes and verbal assertions are useful evidence. But if you had a notice from an insurance company that said we are declining because it's rent stabilized status. I think we would be very much interested in seeing that.

TIM FOLEY:If I can just answer. We have not had any particular documentation either for being rent stabilized or being a co-op or being otherwise subsidized affordable housing. The only thing that we are looking at ultimately is the impact. And when we look at those classes and where their increases are, there is a pattern of whether it is specifically targeted for them based on that factor or because they tend to be over buildings 50, 75 years old or because they're in Mount Vernon as opposed to Scarsdale.

At a certain point, you don't need a lot of brilliant deduction to figure out where the higher risk buildings are and they are certainly being priced accordingly.

SENATOR KAVANAGH:Again, we took pains a couple years ago to require an investigation of whether affordable housing per se was being discriminated against. There was a lot of anecdotal evidence that it was. We passed a law banning that. I am wondering why the New York Apartment Association today, which represents pretty much entirely rent stabilized landlords, why, among your recommendations, is that we restrict the ability of insurers to discriminate against rent stabilized housing? Is that something that -- do you think insurers ought to be allowed to discriminate against rent stabilized housing in making insurance decisions?

KATHLEEN IRWIN:I don't. No.

SENATOR KAVANAGH:Okay, I think we might want to consider whether, you know, rent stabilized housing is a prevalent form of housing, that's a lot more affordable than other housing. I think we'd probably consider whether there might be some categorical discrimination that's going on that we might want to consider. So we would like to follow up again. And again, specific evidence of it occurring.

To my challenge, the insurance industry did not significantly oppose our efforts to ban discrimination against affordable housing. So I think it would be an interesting question, what the position would be on something like that.

ANN KORCHAK:Oftentimes the non-renewal notification -- just a few short words. The one I read about the crime score was the lengthiest non-renewal message I've ever seen.

SENATOR KAVANAGH:Right. We have been talking to the regulator this morning. I mean, to the extent that they are providing model -- that insurers are providing models and saying this is how we are pricing things and this is how we are making decisions in the marketplace, specifying what factors they can and cannot consider, would seem to be, at least one thing we can try to get right. So I would like to follow up with you about that.

In terms of, again, I'll ask you all the question I asked before. Are you aware of any state-backed reinsurance mechanism -- or government-backed reinsurance mechanism in the property space that exists in other jurisdictions?

ANN KORCHAK:I'm not.

TIM FOLEY:I have not specifically seen it. It does come up in all the literature, which is why we made it part of our recommendations as well. From the Urban Institute on down, it seems to be the go-to methodology.

SENATOR KAVANAGH:And it's come up a lot today in a lot of the literature we have been reviewing during the course of this hearing.

Another question I asked previous panel of people managing property, but to the extent your insurers are offering discounts -- and I may mention, too, that are statutory or regulatory now, you know, the windows and the storm shutters -- but do you think that insurers of properties are transparent and sort of proactively informing property owners of what -- what aspects of their property or what behaviors might get them discounts on their premiums?

TIM FOLEY:We are seeing a lot of the reverse. The advice that we give to all of our members is, if upon renewal, they come up with a list of suggestions, those are not suggestions. Those are you absolutely have to do this or you will be non-renewed the next time it comes around. And that can vary from, as the previous panel was talking about, things that have to do with fire mitigation and other measures. That can be something as simple as we walked around your building and we saw three barbecues on three balconies in your 100-unit building. If those are here next year, you are getting non-renewed.

So there is a tremendous amount of negative feedback about the qualities and factors that you cannot have. What we do not at all have and this is part of the reason why we think this would be a productive step forward, is a sense of the types of discounts that could be applied in such a way that would actually get you benefit within -- that would move you in the right direction.

So we think in many ways, that's an untapped field. And to be perfectly honest, it solves a couple of different problems at the same time.

It creates a mechanism to make insurance a little bit more affordable. We are certainly nowhere near the level of incentives that we need to invest in retrofitting, particularly for energy efficiency or improved building codes or a whole host of other mitigating factors. It gives another tool within that tool box.

And oftentimes, again, if we are trying to move in the direction of making these more sustainable long-term, if something is more energy efficient, it will be more cost efficient over term. It's often hard to balance that long-term investment with the short-term expenses that are in front of people. This helps move us in that direction.

So because it does all three, it seems like a natural place to go.

SENATOR KAVANAGH:And just to be clear. Your proposal is that we expand the range of discounts that are available if people take certain actions that DFS or somebody else determines to be actuarially appropriate.

TIM FOLEY:Correct. My review of the law is that only for the hurricane glass. That is the only resiliency feature that is statutorily required to have DFS come up with an actuarially appropriate discount. We would trust DFS on this, obviously rather than, you know, to come up with a fair number for a lot of these other features as well.

ANN KORCHAK:One of the toughest things that a lot of small owners face is when you do get the renewal, the list of things you need to address at the building. Like you said, you gave the example of the barbecues, the most common one we see is sidewalk repair. And you know, that never comes on the cheap.

It's expensive to get a Mason to come in and, you know, you have to get the permit also from DOT and get all that. So in my case, I had that large three-year premium I had to pay up front and also a demand to replace some portions of the sidewalk.

SENATOR KAVANAGH:I just have a little bit of time left. But, Tim, you mentioned regulations to require longer term insurance contracts. Can you just talk about how that would work?

TIM FOLEY:Actually, that dovetails very well with Ann's anecdote. Where she was able to get the longer term rate lock but only with a pretty severe threshold that she had to meet in terms of payment up front. We know there are some insurance programs that might offer you, say, a two-year contract as opposed to a one-year contract.

Part of the reason why we saw such a huge increase in Rockland is their largest rent stabilized landlord did have one of those multiyear things and it came due and there was a huge increase as a direct result. But if it was spread out over a larger number of years, or if there was some way of accomplishing that without the negatives, we think that would help rate lock people.

They're doing the same thing with regard to utilities and a whole host of other things. So it's a common tactic to help mitigate some of the more unpredictable cost swings.

ANN KORCHAK:My three-year plan policy was actually a little bit lower than what I had paid last year. So I actually saw a bit of a decrease in 2024 from 2023. It was nominal, maybe $150, but it was -- but, you know, now I have a three-year rate lock.

SENATOR KAVANAGH:But in order to get that, you needed to pay up front for the three-year.

ANN KORCHAK:Correct.

SENATOR KAVANAGH:So you would be suggesting that through regulation or statute we effectively require insurers to all offer multiyear policies where the payments are spread out throughout the term.

TIM FOLEY:It is a little bit more sketchy but I think regulation is needed to figure out what is an appropriate tradeoff between the security of the rate lock, short of paying for the whole thing up front.

I'm sure there are some policies that could be developed that would make that a little bit more sustainable, particularly for smaller property owners.

SENATOR KAVANAGH:I'm past my time. So thank you all.

SENATOR BAILEY:Thank you very much. So, when you are batting third after these two guys there is not really too much else to say. So I'm not going to ask questions just to ask questions.

Senator Kavanagh did ask the tort reform question that you knew was coming.

I just want to point to something in your testimony as New York Apartment Association about specifically highlighting the Bronx and other Manhattan's premiums rose 134 percent with some buildings paying more than 3300 per apartment per year. I've asked this question I think to the last couple of panelists.

Do you see -- do you or anybody -- see that insurers are walking from certain types of neighborhoods at higher clips than other neighborhoods?

SUPERINTENDENT ASROW:Anecdotally, yes, we are seeing that.

TIM FOLEY:It is more complicated in Westchester because it would tend to be the entire region rather than a specific neighborhood. We are certainly seeing flight from affordability for sure, even if it is not named as such. We are not seeing quite as much migration from specific municipalities.

SENATOR BAILEY:Is there a way to parse that data out in Westchester? Is there a way we can collect data? Is that working with the county executive? Is it working with county legislators? Because as you know, I represent the City of Mount Vernon, and you mentioned that some of the higher loss risk buildings in the City of Mount Vernon as opposed to Scarsdale. This is the common AMI reference, the same AMI as in Scarsdale than it is in Mount Vernon, despite the incomes being vastly different.

Do you have an idea about data collection? Is that something that we can do at the state or should we be talking with our friends at the county level and how we can parse that data out better?

TIM FOLEY:We don't have specific statistics on it because you are right, we don't, generally speaking, have a large reservoir that would percent across different housing types. Part of the reason that we know is just from immediate similar to their owner surveys, from the immediate feedback from our members. And when it is multiple different types of housing -- so when we're talking to co-ops, as well as affordable housing, as well as rent stabilized in Mount Vernon and all three of them are seeing the same thing, that's how we know it's geographically inclined.

I don't believe that the county has any data collection that is going on within that regard. I would actually see if this was something that perhaps, through DFS or at the state level, we could start to look at particular types of communities versus others.

SENATOR BAILEY:Certainly. I'm not trying to make Ken do anymore work. Ken has a lot of work already.

TIM FOLEY:I don't think he has the data at his beck and call. I could be mistaken.

SENATOR BAILEY:I'm a big fan of our county executive doing great work there. I really don't have much else. Your testimony has been self-explanatory. I don't like to ask perfunctory questions. Thank you for your time and for your testimony.

TIM FOLEY:Thank you.

SENATOR SKOUFIS:All right. We are going to do some shuffling here of our panels. So due to some time constraints from folks on Panel 10, we are going to move them next. And then subsequent to Panel 10, we are going to merge Panels 8 and 9 together. So Panel 10 is next.

It is made up of Iyla Shornstein, Political Director, Center for Climate Integrity; Elizabeth Derbes, Director Financial Regulation & Climate Risk, Natural Resources Defense Council. And then we will be joined remotely by Dave Jones, Director Climate Risk Initiative, Center for Law, Energy & Environment at the University of California, Berkeley School of Law. And he is also the former insurance Commissioner of California. And last but not least, also joining remotely is Jordan Haedtler, Climate Financial Strategist at the Climate Cabinet Action.

Do we have our folks remotely?

We are going to swear everybody in, including the couple of folks remotely. So if everyone could please raise their right hand.

Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

(Witnesses are sworn.)

SENATOR SKOUFIS:Thank you very much. Who would like to go first?

SENATOR KAVANAGH:I think we will have these people go first and then the online and then questions for online and back pending any further questions for these folks. Technical reasons.

SENATOR SKOUFIS:Take it away.

IYLA SHORNSTEIN:Can you hear me okay? Hi, I'm Iyla Shornstein. Thank you so much for the opportunity to testify in front of your joint committees today. I'm the political director at the Center for Climate Integrity and we are a national non-profit that empowers communities and officials with the knowledge and the tools that they need to hold fossil fuel companies accountable for their deception and for the damage they've caused.

So I will be speaking from a slightly different perspective today.

And you know, has already been discussed here and from, I know, I think the first testimony today, the DFS acting director said the number one challenge right now is climate risk. So I'm going to speak a lot to the who-is-responsible part of that problem.

You know, there is a growing crisis. We don't have to mention it in detail again. But including here in New York, home insurance premiums are going up every year. Twice as fast as the rate of inflation. Another disturbing trend is that insurers are canceling people's policies and refusing to issue new ones, citing the risk of worsening extreme weather disasters, like, of course "Hurricane Ida," "Sandy," "Irene."

It's not just homeowners being impacted like we've heard. Landlords are paying more to insure their buildings and passing those costs on to renters in the form of higher rents. Rates are also rising for commercial properties, making it even more expensive to operate a small business. And all of this feeds into the growing affordability crisis facing so many New Yorkers today.

There is no mystery what is driving this. Insurance companies are having to pay out more and more money to policyholders due to damage from extreme weather disasters that are getting worse with each passing year.

There is also no mystery as who is at fault for these harms. Decades of scientific research has shown that fossil fuel pollution is warming the atmosphere and super charging deadly wildfires, floods and storms that are causing billions of dollars in economic damage.

The companies responsible for that pollution knew decades ago that their products could cause potentially catastrophic events. Those are their own words. But rather than change their business model, they engage in a decades-long campaign to deceive the public about the danger of fossil fuels in order to keep us hooked on them.

How is it fair that everyday New Yorkers are shouldering the cost of extreme weather disasters through higher insurance rates, while the companies that cause the problem pay nothing? While there has been a lot of good suggestions here today about how to treat the symptoms of the climate change driven insurance crisis, we are never going to bend the curve of -- we are never going to bend the curve of rising insurance costs without addressing the core driver of higher prices. Worsening climate disasters and extreme weather that big oil knew would be costly and destructive.

Senate Bill 8585, sponsored by Senator Kavanagh, would help keep home insurance affordable and available for New York residents by allowing the Attorney General to take the largest oil and gas companies to court to recover the costs stemming from an extreme weather disaster made worse by climate change. Money recovered through litigation could be used to bolster the New York Property Insurance Underwriting Association, which is the insurer of last resort for New Yorkers who can't get coverage on the private market.

The association currently covers over 22,000 homeowners, and represents almost $8 billion in property. Numbers that could quickly balloon following the next climate disaster. We have already seen this in states like Florida and California.

Following devastating hurricanes and wildfires, there have been massive spikes in the number of people who can't secure home insurance on the private market and must move to the insurer of last resort plans, AKA, the FAIR Plans. When FAIR Plans are threatened with insolvency, private insurers raise rates or impose surcharges on the rest of their policyholders in the state, raising the cost of insurance for everybody.

California's FAIR Plan is right now in the midst of raising its rates on the average policyholder by more than 35 percent. While the rest of the state's homeowners are covering the cost of a billion-dollar emergency bailout needed to keep the plan solvent following LA's wildfires.

While New York has not yet reached a California or Florida level of crisis, it is one "Hurricane Ida"-level storm away from having the same problem. Huge rate hikes across the state and insurers refusing to cover high-risk properties. According to insurance industry data, the New York metro area is the riskiest location in the country for financial damages from storm surges and hurricane winds.

Senate Bill 8585 is a commonsense step to address the growing polycrisis of climate change and affordability by ensuring that the state has every tool in the tool box available to protect New York families from massive insurance rate hikes in the coming years.

Instead of allowing the insurance crisis to be born on the backs of everyday people, it would empower the Attorney General to recover the costs of climate disasters from the at-fault companies that knowingly made them worse. There is clear precedent for third parties that cause insurance losses to be held financially accountable for them.

When you get rear ended in a traffic collision, your insurance company goes after the other driver in court. When utilities fail to maintain their power lines and ignite a wildfire that destroys communities, insurance companies take them to court.

This bill would empower the Attorney General to similarly hold the companies fueling climate disasters accountable and defend the interests of everyday New Yorkers following the next disasters. This bill is an important step to ensure that these companies share the financial burden of the climate disasters they know they are fueling. Thank you for the opportunity to testify today.

ELIZABETH DERBES:Thank you as well for the opportunity to provide information to the committees. My name is Elizabeth Derbes, I'm Director of Financial Regulation & Climate Risk at the Natural Resources Defense Council, an international non-profit environmental organization.

Since 1970 our lawyers, scientists and environmental specialists have worked to protect the world's natural resources, public health and environment.

To ensure that insurance remains available and affordable, policymakers and insurers must play a larger role in supporting and incentivizing risk reduction before damage from increasingly frequent and severe weather events can lead to insurance claims.

By promoting disaster resistant construction, land use standards and infrastructure improvements, insurers and state and local governments can reduce risks of property damage, displacement and long-term housing instability for policyholders.

As the committee members know, this issue has broader importance for New Yorkers. What happens when property insurance becomes unavailable or unaffordable? Mortgages, in turn, also can become unavailable as they depend on mortgage property being insured as Federal Reserve Chairman Jerome Powell told Congress earlier this year, if you fast forward 10 or 15 years, there are going to be regions of the country where you can't get a mortgage. If insurance is no longer available, other financial services will also become unavailable. Economic consequences can include increased mortgage defaults and foreclosures, declining property values and declining property tax revenues.

As you know, the crisis has already begun in states like California, Louisiana and Florida, where insurance companies have deemed many high risk properties to be uninsurable. This can lead to a downward spiral for state insurers of last resort or FAIR Plans as my colleague here mentioned.

Mounting losses from extreme weather events leave private insurers to retreat from high risk areas and raise premiums for everyone else. When private insurers decline to renew higher risk policyholders, many of those consumers are forced to move to the state created insurer of last resort or FAIR Plan. These are backed by the private insurers admitted in the state. The states mentioned have seen dramatic increases in FAIR Plan enrollment. Newly enrolled high-risk properties tend to incur more damage than the average property leading to increased claims against the FAIR Plan. These costs are often passed through to the private insurers that back the plan.

Where underwriting becomes less profitable, this can prompt private insurers to exit the state. When fewer private insurers remain to back the FAIR Plan, this further concentrates the costs of weather-related property damage in the plan.

The cycle continues. Growing enrollment at the FAIR Plan, rising costs passed through to private insurers, and further retreats from the state insurance market.

We thus feel that risk reduction and hazard mitigation are essential for FAIR Plans and insurance markets more broadly to operate sustainably. Our more detailed written submission references a report on studies showing how properties can be retrofitted for increased resilience to floods, hurricanes and high winds, earthquake and wildfire with analysis showing that the financial benefits of risk reduction efforts far outweigh the costs.

States are on the front lines of climate-related catastrophe preparedness and response and many states are introducing innovative programs to reduce physical exposure of housing through regulatory and financial incentives.

Some of these have been mentioned in other testimony today. These programs may be funded through general revenue or by contribution from insurers. They can offer cost sharing for physical upgrades to properties, and require insurers to account for these risk reductions in their underwriting models with premium discounts for upgraded properties. Several state insurance regulators have begun collaborating with private insurers to harden homes using certified consensus-based standards.

Among these, some of these have been mentioned, are the Strengthen Alabama Homes Program which uses the IBHS wind mitigation fortified roof standard that has retrofitted 17,000 homes in Alabama. There are additional fortified state grant programs in Louisiana and North Carolina for upgrading existing roofs to the fortified standard. Florida's My Safe Home Program, to protect homes against wind and hurricanes, which also requires that policyholders be offered discounted insurance rates if they have upgraded their homes. And California's Safe from Wildfires Initiative.

New York's Clean Water, Clean Air and Green Jobs Environmental Bond Act of 2022 authorized up to $4.2 billion in state-backed bonds to fund environmental and climate resilience projects statewide. It earmarks funds across four broad categories: Climate change mitigation, restoration and flood risk reduction, water quality infrastructure and land conservation and recreation, with at least 35 percent of its benefits directed to disadvantaged communities. New York must continue to accelerate these programs with an eye to avoiding the kind of insurability crisis that has arisen in other states. Insurance will not solve the climate crisis but it can provide a leaver to incentivize the protection of New York communities through more resilient building. This can reduce the vulnerability of homes and neighborhoods leading to safer communities, reduced financial strain on insurers and more affordable access to insurance. Thank you for the opportunity to testify.

SENATOR KAVANAGH:We will go to our online testimony now. Jordan, it seems like you just volunteered.

JORDAN HAEDTLER:Good afternoon, Chairs Bailey, Kavanagh and Skoufis. My name is Jordan Haedtler and I work on insurance policy at Climate Cabinet Action.

Climate change is making insurance less affordable and available throughout the country. Last week, my colleagues and I released a report with nine recommendations for state policymakers to better integrate climate risk into insurance regulation. I would like to highlight several areas where legislation introduced this week, s-8583, is responsive to those recommendations:

Number 1: We recommended that states should integrate climate resilience into insurance pricing and underwriting. Numerous studies have shown insurance becomes more cost effective with adoption of climate-resilient practices such as ecological forest management and ecological flood plain management. Those can bring down insurance losses substantially. Many expert organizations have recommended that climate adaptation measures be accounted for through insurers' pricing and underwriting practices.

Earlier this year, Colorado became the first state in the U.S. to act on this recommendation when it passed legislation requiring insurers to factor community and household mitigation measures into insurance modeling.

Passing similar legislation in New York can help foster healthier insurance markets. Homeowners want a clear picture of what mitigation steps will result in more affordable insurance. Compelling greater transparency and risk modeling and clarifying that hazard mitigation is a factor in that modeling will likely yield more responsible actions from governments, insurance companies, and policyholders alike.

Secondly: We recommended states should collect data to improve our understanding of how climate risk is affecting insurance markets. In January, the Federal Insurance Office published findings from a nationwide climate-related data collection on insurance markets. It is vital that data like this is collected on an ongoing basis and that that data is collected and made more granular and widely available. States can help with this and S-8583 would do exactly that.

This legislation specifically addresses one of the most critical gaps in this policy area: How the insurance crisis is impacting renters and hampering the development of more affordable housing.

A survey released in March by the Federal Reserve Bank of Minneapolis confirmed that insurance costs are causing stress for multifamily housing. We know this has been a challenge in New York, and in a 2022 report from New York DFS, confirmed that affordable housing owners were asked by insurance companies whether buildings contained subsidized or Section 8 units. The data compelled by s-8583 should shed light on what more can be done to support more affordable housing in the midst of our nationwide insurance crisis.

Finally, our report made a number of recommendations for states to reform their insurer of last resort programs. When the protection gap -- the difference between insured and uninsured losses -- grows, disaster recovery costs borne by governments, businesses and households go up and the economy as a whole can suffer. In order to fulfill the task of stabilizing insurance marks, we need to close the protection gap.

There are three major pieces to this puzzle:

First: There's the admitted market, where insurers licensed to do business in the state are subject to rate review and solvency regulations. Then there is the residual market, provided by the New York Property Insurance Association, and finally there is the non-admitted market, where surplus lines are not subject to the same regulatory and consumer protections as admitted market policies.

Climate change is placing pressure on all three pieces of this puzzle. The data collection that I mentioned before showed a 50 percent increase in the number of residual policies nationally from 2018-2022; however, the same data set showed that residual line coverage in the New York PIUA had declined over the same time period.

Although residual line growth can be a sign of an unhealthy insurance market, shrinking enrollment, like we have seen in the New York PIUA, can also be a bad development. When that happens, policyholders get pushed on to surplus lines or go without insurance entirely which can cause the protection gap to grow.

We have data confirming that New Yorkers are becoming more reliant on surplus lines. A recent paper from a Georgetown law professor found that surplus line growth nearly doubled between 2018 and 2022 and that New York has consistently ranked in the top four states for surplus line growth. To guard against this trend, better management of the New York PIUA is needed.

State insurers of last resort are often characterized as "State run" but they're typically operated with minimal governmental oversight. Because questions of how to close the protection gap and stabilize insurance markets in New York are fundamentally public policy questions, public officials should have a say in how they're decided. S-8583 helps fulfill that objective by increasing the number of public appointees serving on the board of the NYPIUA. I urge the New York Senate to support s-8583. Thank you.

SENATOR KAVANAGH:Thank you. Dave Jones.

DAVE JONES:First, let me see if you can hear me. Are you able to hear me? Terrific.

Well, Chairpersons, and members of the Senate Committee, thanks for the opportunity to testify. My name is Dave Jones. I'm the director of the Climate Risk Initiative of the Center for Law, Energy and the Environment. I served as California's Insurance Commissioner from 2011-2018.

Insurance is the canary in the coal mine for the climate crisis. And the canary is dying. Climate change is increasing the frequency and severity of natural catastrophes which, in turn, damage and destroy homes and businesses at an unprecedented level.

Globally and in the United States, insurance losses from climate driven natural catastrophes continue to climb astronomically. While climate driven catastrophes vary in severity and frequency across the United States, there is virtually no place in the United States that is not experiencing worsening weather-related events.

Insurers respond to increased losses in two ways:

First: They increase the price of insurance.

And second and contemporaneously: They reduce their exposure to losses by not renewing insurance policies and not writing new insurance policies.

U.S. insurers are doing both. In the last 3 years alone home insurance premiums on average rose 24 percent across the country and across the country insurers are not renewing home and small business owners property insurance and they're reducing the issuance of new insurance policies.

Now, there is no magic wand that we can wave or regulatory dial that we can turn to keep private insurance available in the long run in the face of rising global temperatures. We need to combat climate change itself, which requires a major transition away from burning fossil fuels and from other greenhouse gas emitting sectors of the economy. At the same time, states like New York can and should take a number of additional steps to help keep insurance available and affordable in the short and mid term.

First: One important policy solution to help keep insurance available is to hold the major oil and gas companies accountable for their emissions which contribute to the increased frequency and severity of weather-related disasters which are contributing to the increase in insurance company losses and causing insurers to raise rates and decline to write and renew insurance.

The writ of subrogation, as was testified to earlier, exists in all insurance contracts and under state law. Insurers have the right to bring suits against third parties whose actions or inactions cause damage or injury to the insured policyholders, which, in turn, causes the insurance company to pay the policyholder.

Incentivizing or requiring private insurers in FAIR Plans in residual markets, like the New York Property Insurance Underwriting Association, to pursue subrogation claims against fossil fuel companies, who are creating a new cause of action and enabling them to recover insurance losses from fossil fuel companies who help stabilize insurance markets. And states should also enact legislation authorizing their Attorneys General to bring these claims against fossil fuel companies to recover insurers losses when private insurers decline to bring suit after some reasonable period of time.

New York Senate Bill s-8585, sponsored by Senator Kavanagh, does exactly that. It establishes a right for insurers through the New York Property Insurance Underwriters Association and the Attorney General to recover from major oil and gas companies for insurance losses resulting from major climatic disasters.

In addition, and currently, insurers in the United States are investing over half a trillion dollars in the fossil fuel industry whose emissions are creating an existential challenges for the home and business property insurance market. Globally, 28 major property and casualty insurers collect $11.3 billion annually in premiums from insuring the fossil fuel industry.

Insurers should end their support through investments in insurance for the very industry that poses a critical threat to their ability to write insurance. Such a move would be far from symbolic. A recent study found that insurers restricting coverage for coal enterprises contributed to a reduction in coal production and burning with essentially no financial impact on the insurers.

States should enact legislation to require insurers to transition from insuring and investing in the fossil fuel industry.

The Insurer Communities Act, New York Senate Bill S-186A, sponsored by Senator Brad Hoylman-Sigal, would do exactly that, by requiring insurers in New York to transition from investments in and writing insurance for the fossil fuel industry.

The third policy recommendation I make is that New York should enact laws to require insurers to account for the risk reduction benefits of mitigation in their pricing and underwriting. As Jordan testified to, there is substantial empirical and scientific evidence and a broad-based consensus that adaptation and resilience measures taken at the property, community and landscape scale can reduce the risk and magnitude of lost from climate-driven perils.

The Insurance Business Institute for Business and Home Safety, the empirical research arm of the property and casualty insurers, has developed standards for home which reduced the risk of loss due to wildfire, hail, wind and rain. Community and landscape scale resilience measures, including forest management used to prescribe fire and thinning to reduce wildfire risk and nature-based solutions to river and coastal flooding, also reduce the risk of loss.

However, insurers across the United States are not taking these property, community and landscape scale risk mitigation measures into account and the computer models they use for pricing and deciding whether to write or renew home and small business property insurance, which is extremely frustrating for homeowners, small business property owners, communities and states like New York, which are making investments in adaptation resilience.

As Jordan just testified to, just this past year, the State of Colorado grew tired of waiting for insurers to account for risk reduction measures in their pricing and underwriting models and took action. With the support of Colorado Insurance Commissioner Mike Conway, the state enacted HB-25-1182, which requires insurers in Colorado to account for property, community and landscape scale mitigation and the computer models they use to set prices and to decide whether to write or renew insurance. This is the most important property insurance law to be enacted this year and should serve as a model for other states.

New York's Senate Bill 8585 -- 8583A sponsored by Senator Kavanagh, does exactly this by requiring the models used by insurers in New York to take into account property and community level mitigation measures and requires those models to be provided to the New York Department of Financial Services for review. This bill makes sure that investments made by homeowners, business owners and state are taken into account in insurance pricing and underwriting.

Thanks for the opportunity to testify and I submitted more comprehensive remarks in writing.

SENATOR KAVANAGH:Thank you both. Thank you all four of you, including our in-person testimony.

We are going to, for technical reasons, we're going to address any questions that people on the panel have to the online. And if you have further answers in response to the questions we've asked these folks, you will have an opportunity to answer and also make direct additional questions to the in-person witnesses.

So just first, can you -- there are a lot of different mechanisms that states, including New York, have been using to kind of assign the risk and the damage that results from climate change to the fossil fuel industry that caused it, including, you know, we passed the Climate Super Fund Act last year.

Can you talk about why the insurance system is, among various options, there is also just straight out litigation saying, you know, companies have cost to states and they should pay for it. Can you talk about why embedding these kinds of provisions in the insurance system makes particularly good sense?

DAVE JONES:Yes. So the important steps that New York has taken, either through legislation or through litigation to hold the oil and gas industry accountable, are important and are extremely helpful. But they don't go to the losses that insurance companies are incurring as a result of these climate-driven natural catastrophes. And as a result, while laudable, those efforts are not going to contribute to stabilizing the insurance market and helping to reduce the acceleration of rates and reduce the acceleration of non-renewals.

So insurance companies do have a right to bring lawsuits against third parties whose actions or inactions cause them damages, as Iyla testified to, but they're not doing so.

And so I think the policy challenge then for policymakers such as yourselves, is to enact legislation that encourages them to do so, but in the event they don't do so, confers on the Attorney General, the ability to bring those lawsuits, if the insurers are disinclined to do so.

And that's the most direct way of making sure that there is some ability to recover from the very industries whose emissions are a major driver of these losses. Some portion of the losses, which can then go towards reducing the acceleration of rates and reducing the tendency to non-renew or not write new insurance.

SENATOR KAVANAGH:And for either of you. As we've noted, subrogation is a concept that is not new in insurance law or contract law, but is there -- has there been a reluctance in the past by insurance companies to use subrogation in other context, like one of the witnesses in the room mentioned, or is the reluctance particularly around, kind of, weather and climate events?

DAVE JONES:There has been no reluctance to bring subrogation claims in other context. So if you recall, health insurers brought subrogation claims against big opioid for health insurance payments associated with opioid addiction treatment. Health insurers brought subrogation claims against big tobacco for health insurance payments associated with respiratory illness treatment. And property and casualty insurers have brought subrogation claims against utilities whose equipment started wildfires or caused other damages. In 2018, the campfire was started by the California utility Pacific Gas & Electric and subrogation claims were brought to recover 11 billion of the $12.6 billion paid out by insurers for the campfire which destroyed about 18,000 structures. So there has been no lack of appetite to bring subrogation claims in other context. It's just not happening in this context.

And so, I think that's why there is a need for state law to further encourage, incentivize or create a clear pathway for insurers to bring these claims, to create duties on the insurers of last resort, the FAIR Plans and residual markets, which are state created entities to bring these claims.

And also to empower your Attorneys General to bring the claims in the event that the insurers are not bringing the claims.

SENATOR KAVANAGH:And just shifting gears a little bit. On the issue of activities that or aspects of property that can be retrofitted or installed, that reduce risk, you know, as you note, there are some states that have begun to mandate that. We have a couple of mandates in New York around shatterproof glass and storm shutters and we have been talking, including through proposed legislation, about expanding that. We had our superintendent earlier today talking about an effort that is currently underway with DFS to kind of catalog the different incentives that are offered and the discounts that are offered by various companies and kind of play a greater role in ensuring that property owners and policyholders are aware of those.

Are you aware of, from your work, you know, reviewing insurance systems in other states -- aware of any state that does that particularly well that makes sure that policyholders or property owners have clear information about what discounts are being offered?

DAVE JONES:Well, I think the best example of this is the law that was recently passed in Colorado that will both require more transparency, as well as requiring the computer models themselves to account for property level, community level and landscape scale mitigation both in pricing and in underwriting.

Now there are some states that have also implemented discounts. California has a discount for home hardening and defensible space and for being in a firewise community related to the wildfire peril. Alabama has a mandated discount for the fortified home standard associated with wind and a couple of other states have also, you know, moved down the road of discounts.

Discounts are terrific, but what you also want, is you want to make sure that the models that are used to decide whether to write and renew insurance also account for the mitigation measures. Because getting a discount is great, but if the insurer won't write or renew the insurance for you because the risk score model they're using doesn't account for mitigation, then the discount is meaningless.

And even within the context of discounts, because in most states -- and I think this is true in New York as well -- when insurers file their rates, they basically come forward with a base rate. But they're also entitled to provide for what is called rate segmentation or rate relativities across different classes of exposure based on risk. And they do that based on models. So while the discount might be offered, it's not necessarily the case that the discount is fully capturing the risk reduction benefit that would be afforded if the models accounted for it and if the rate relativities were required to account for it, too.

So even in the context of pricing, getting it into the models is, you know, a supplement to and an additional benefit in addition to the discount. But really you want it in both and that's what Colorado has done and that's what you are proposing in your legislation, in both the models for underwriting and for pricing. The models used to decide whether to write and renew and to price have to take into account property, community and landscape scale mitigation.

SENATOR KAVANAGH:I think I will end there asking questions of all of you because we are very tight on time. Let me just ask Jordan if you have anything else to add to any of the questions we have discussed so far.

JORDAN HAEDTLER:I will answer two quick additions to everything Dave went over. First on the second question that you asked.

Colorado was investing hundreds of millions of dollars in mitigation. And Boulder County alone was spending $9 million annually to make communities safer from wildfires. But Coloradans were not really seeing the benefits of that in a more affordable or accessible insurance market and Coloradans were paying nearly $2,000 above the national average.

That's why county governments and even some rural counties were some of the strongest advocates for making this change.

We also heard, to your point, there aren't really states that catalog those discounts well, although I would also add that community-level investments go a lot further than individual fortification measures. And we need to be incentivizing those by governments more than ever, especially in the wake of this federal retreat that we are seeing.

But what we heard throughout the process of passing the bill in Colorado was that homeowners really weren't getting the information that they needed to take the mitigation steps that they wanted to take. And that in some cases, they were seeing that their neighbors wildfire risk score was vastly different from theirs, even though they obviously lived in the same neighborhood and in some cases had made very similar steps to harden their home. So that's why more transparency in these models is crucial.

And then to go back to the very first question that you asked, I would say that the biggest reason why we're seeing climate risk serve as the key channel -- or insurance, rather, serving as the key channel spreading climate risk throughout the financial system, is that insurance companies are massive institutional investors. They're some of the biggest players in corporate muni bond markets, et cetera, which make them hugely interconnected to the rest of the financial systems. So that's why it's really crucial to incorporate climate risk management into their role as players in the economy.

And so a plug also to the Insure Our Communities Act which Dave mentioned which has also been introduced in New York because insurance -- the insurance industry has known about the risks that climate change poses for decades. About as long as the fossil fuel industry has. And really has not pared back their investments and underwriting in fossil fuels. And the Insure Our Communities Act would require insurance companies to adopt science-based targets for how they're -- how they're involved in both the underwriting and investment side.

SENATOR KAVANAGH:I don't know if you guys can see the clock. My time is up. So I think Senator Skoufis is good. So I think we have no further questions for our online participants. But thank you for appearing remotely and thank you for all the work you are doing around the country on these issues. We appreciate it.

So I guess this technically counts as Kavanagh overtime now. But just let me just start with the few questions on the table if you just want to...

ELIZABETH DERBES:I wanted to add that, to your question about states that are doing it particularly well -- and I don't have the details to hand -- but your excellent staff may already have them or we are happy to look into it for you. But I think North Carolina's FAIR Plan has been kind of a leader in a number of these things. And I thought I would just offer a gloss, too, that with respect to the fortified roofs, I think they found that it was challenging to get uptake on discounts for new roofs because a new roof is still a big expense. And one program that they found successful is to offer, in their policies, an endorsement for a new roof once you lose your roof. So at the point that you need to replace your roof, and you have an insurance payout, at that point, you get the financial support to put in a fortified roof and they have found that quite successful.

SENATOR KAVANAGH:Great.

IYLA SHORNSTEIN:To the question about, sort of, inferring if there is some precedent for insurers to bring claims against other responsible parties, why have they not yet brought claims against fossil fuel producers. And I would never, you know, pretend to speak for the insurers themselves but I think this is probably a little bit of a simple case of follow the money. It has been reported that the insurance industry has over half a trillion dollars invested in fossil fuels. So I think if we follow the money trail, we might get some answers there, too.

SENATOR KAVANAGH:They might be suing themselves. Interesting. Just -- you mentioned Elizabeth you mentioned the Florida -- I forget happy homes or something.

ELIZABETH DERBES:Florida, yes, My Safe Home.

SENATOR KAVANAGH:That's why they don't let me name things. That was something that was enacted by the Florida State legislature?

ELIZABETH DERBES:Yes. My understanding is it requires insurance companies who operate in Florida to offer policyholders a discount on their wind insurance rates if they have upgraded their homes to the standard.

SENATOR KAVANAGH:So just to note, this isn't happening just in places where we have, you know, otherwise a strong commitment and climate and other...

ELIZABETH DERBES:Yes.

SENATOR KAVANAGH:Again, I appreciate all of your testimony and expertise and we have lots of written material including your testimony today. But I think we'll end here since I'm, you know, into my overtime. But, again, thank you very much for your input and for all your testimony and thank you to our online folks as well.

SENATOR SKOUFIS:So next up we have our consolidated super panel, 8 and 9. Housing policy organizations, made up of Patrick Boyle, Senior Director Policies and Communications at Enterprise Community Partners; Rachel Fee, Executive Director of the New York Housing Conference; Emily Klein, Assistant Vice President, Deputy Director for Policy and Public Affairs at the Community Preservation Corporation.

And from Panel 9, John Crotty, President of Milford Street Association Insurance Company.

Thank you all for joining us. Once you get settled, I will swear you all in. All the placards are set. Nice to see all of you. If you could please raise your right hands for me.

Do you solemnly swear that you'll tell the truth, the whole truth, and nothing but the truth?

(Witnesses sworn.)

SENATOR SKOUFIS:Thank you very much. Who wants to bat leadoff here? Take it away.

PATRICK BOYLE:Thank you so much. My name is Patrick Boyle and I'm the Senior Director Policy Communications for the New York Office of Enterprise Community Partners. Since our New York office opened in 1987, we have committed more than $5.7 billion in equity loans and grants to affordable housing and community organizations to create or preserve nearly 84,000 affordable homes across New York State. On behalf of Enterprise, we would like to thank the Chairs for holding this important hearing and for the opportunity to testify today.

Over the past 2-years, Enterprise has been leading a diverse working group focused on insurance challenges and affordable housing. The group is made up of affordable housing developers and owners operators, brokers, policy and advocacy organizations and risk management experts. We organized this group because we have seen firsthand the crisis in multifamily insurance in the realm of affordable housing.

What was once considered a predictable and steady project expense has seen rapid escalations in price. Brokers working to get bids on insurance policies for projects are getting fewer and fewer responses. Projects are being dropped at renewal and carriers willing to write policies for affordable housing are insisting on higher deductibles and more exclusions than what they're willing to cover.

What we have learned over the 2 years of convening this working group is that for an issue as complex as multifamily insurance, there is no single solution.

The state must advance a package of solutions percent achieve better data and transparency, reduce runaway cost drivers on the liability front, bolster insurance participation in low income communities and fund risk mitigation measures while ensuring that these measures are credited by insurance carriers.

A little bit about the data and the impact. Last month, Enterprise released an important report on expense challenges in affordable housing. We combined our asset management portfolios with our counterparts at the National Equity Fund, LISC, leading to a data set of 428, 100 percent affordable housing projects and over 37,000 affordable units statewide. We assessed these projects' expenses and financial performance from 2017 to 2024.

The results were pretty striking. A lot of what we have heard from other panelists today. Insurance costs have risen 110 percent overall on the 100 percent affordable portfolio since 2017. And along with other rising expenses, reduced income on the rent collection side, the major takeaway from this report was that 57 percent of the affordable housing projects that we study and that are under our asset management are running operating deficits or cash flowing negatively. So this is a major uptick over the years prior to the pandemic, driven kind of most centrally by that rapid increase in insurance alongside other challenges.

So this is what has led us to really be focus percent around insurance, as a number of the other panelists have said today from kind of coming from the affordable housing space, we are not insurance experts. We are newer to this issue. We're driven to the issue based on the fact that it has become so prominent and such a cost driver for us. But over these past few years of conversation, talking to people who are experts, talking to those in the affordable housing space and what they see, we wanted to propose some solutions, a lot of which have been highlighted by other groups in different ways.

We really need to improve data and transparency. That has been really clear throughout today. Regardless of the report that was released by DFS in 2022, and a number of other attempts to study this issue, we still have really fundamental questions that I think we have kind of heard threaded throughout today's testimony.

How much of the rise in insurance rates for multifamily housing is due to global factors like climate-related losses, versus tangible and sort of local factors to the project bases, like claims and losses. How do insurance rates for subsidized affordable housing compare with market rate multifamily housing in similar geographies and building profiles and what has been the impact of the 2024 change in the law banning insurance carriers from discriminating against affordable housing? How many complaints have been brought? How many enforcement actions have been taken? Has there been an expansion of the insurance carrier marketplace as a result?

So, you know, a lot more data is needed for us to be making the most sound policy decisions and in our testimony we call out some existing legislation on the Assembly side, which would do some of that.

We have heard a lot today about risk mitigation strategies. And we agree it's important to fund those and then to ensure that those risk mitigation strategies are credited by insurance companies.

So, you know, we've heard a lot from owners that are doing creative things around fire suppressants, water detection. The biggest drivers of losses on the property side, as well as things on the liability side. Investing in cameras, coverage, lighting, camera storage. So cameras that are storing data for longer periods of time that allow you to challenge claims.

Owners that do this, you know, report to us that they don't really see in a direct way that being credited by companies.

The rest of our testimony points to some of the other solutions that we highlight.

SENATOR SKOUFIS:Thank you very much.

We will definitely take a look at them. Next up, Ms. Fee. We'll go down the line.

RACHEL FEE:Hi, everybody. My name is Rachel Fee. I'm the Executive Director of the New York Housing Conference, an affordable housing policy and advocacy organization. Thank you for this opportunity to testify on this really important topic.

Much of my testimony aligns with Patrick. I'm a member of his working group. Also have been working with CPC and John Crotty for the past couple of years. So maybe I'll emphasize more on why this issue is so important and some of the, you know, solutions I think we have agreement on.

Data shows that about half of affordable housing nearly is -- buildings in New York City are experiencing operating deficits where rents are not covering expenses, including insurance costs. Policy interventions are required to prevent these buildings from defaulting on their loans. So there is a lot at risk if we are not solving this problem.

In 2024, we released a policy brief. The alarming risk of rising insurance costs for affordable housing, it was referenced many times by other witnesses today. And we showed that that brief examined property and liability insurance data from 18 partners covering 130,000 units of affordable housing and mixed income housing. We found that costs have skyrocketed while coverage has decreased. This was particularly true for affordable housing units where premiums increased 103 percent between 2019 and 2023.

Rising insurance rates impact a building's cash flow. Our data shows that costs have increased on average by 900 per unit over the last 4-years, decreasing cash flow by about 60 percent in a 100-unit building that we modeled. If left unchecked, skyrocketing premiums will make rental housing even more unaffordable for New Yorkers and put the existing affordable housing at financial risk. I would argue it is already at risk when half of the buildings are running operating deficits.

For new affordable housing development, and this came up from a question from Senator Bailey earlier, we found that rising insurance costs are being absorbed by higher subsidy rates at initial underwriting. So this 900 increase per unit that we had calculated over a four-year period, translates into $10,700 of additional subsidy for each new construction of affordable housing unit. So the City of New York or the state housing program, they are subsidizing these rising costs. And then once the buildings are operating, building operators cannot keep up with the rising costs that they were underwritten to, which are, you know, these increases are far beyond the 3 percent in expenses anticipated of total cost growth each year. So that poses a significant policy problem.

I also want to point out it's impacting how we are addressing the preservation of affordable housing. One of our non-profit partners in the Bronx, leading on preservation for 40 years -- this is like the work that they do -- they said that they are reluctant to take on another preservation project with code violations, an existing occupied building in need of rehab work because it will impact their insurance rates. And they just can't afford it. So what does that mean for housing quality in our city and the preservation of housing in distress?

So we support policy interventions, a package like Patrick said. We don't think it's one thing that is going to fix this. We are supportive of immediate relief through an affordable housing relief fund. Thank you to Senator Bailey and Assembly Member Torres for that. We also support more transparency and accountability around data collection. Two bills in the Assembly that were already mentioned. We also support an exemption of affordable housing from Scaffold Law and we are also interested in how tort reform can fit into this picture.

You know, some of these short-term measures of relief, if they don't come fix the structural problems we have, we still have the same problem. We also are supportive of disclosing Third Party Litigation Funding. Getting to some of the advertising that was discussed earlier, as well. And we think generally this market needs to be more competitive and more attractive to insurance companies, so that we have more competition and pricing can come down. We are supportive of risk share models, excess liability fund. We are also supportive of public investment in Milford Street insurance captive for affordable housing and... we'll hear more solutions but I think a package of solutions is what we are interested in.

SENATOR SKOUFIS:Thank you, Ms. Klein.

EMILY KLEIN:Thank you, Senators Bailey, Kavanagh and Skoufis for convening this hearing and providing the opportunity to speak today. My name is Emily Klein. I'm the assistant Vice President and Deputy Director for Policy and Public Affairs at the Community Preservation Corporation, a 51-year-old non-profit community development finance institution that has invested over $16 billion to finance the creation and preservation of 275,000 units of housing through our lending and investing platforms.

As has been mentioned many times today, according to a 2022 study by the New York State Department of Financial Services, the U.S. insurance market has experienced a significant hardening in recent years, characterized by an increased demand for insurance, fewer coverage options and steady and significant rate increases. Through CPC's annual survey of borrowers expenses, we clearly see the dynamic playing out across the properties that we finance in New York State.

Our most recent survey collected 2024 expenses from 12,650 rent stabilized units in New York City. Since 2020, insurance has risen 61 percent cumulatively, reaching an average cost of $1636 per unit in 2024 with a 23 percent jump from 2022 to 2023 alone. This escalation has been particularly acute in the Bronx, where premium amounts per unit average $200 greater than the other boroughs. Similarly, buildings in our servicing portfolio in New York State, excluding New York City, have seen a 76 percent increase in insurance costs from 2020 to 2024, reaching an average of $1005 per unit in 2024. Both upstate and downstate, insurance costs now account for 16 percent of the total per unit expenses.

There are numerous factors that contribute to the cost and availability of insurance in a given geography which make it hard to holistically diagnose the causes of this problem.

Influencing factors can include both legitimate challenges, like climate change and price inflation, and other more intangible and potentially nefarious factors like Third Party Litigation Funding, insurance provider withdrawal, burdensome regulatory environments and intractable discrimination. These factors combined have led to the unchecked escalation of insurance costs throughout New York State and specifically in parts of New York City.

Without regulatory frameworks, like the Community Reinvestment Act which requires financial institutions to invest across geographies regardless of a community's financial strength, insurance providers have no mandate to provide coverage equitably across communities. If they determine a state, city, neighborhood, block or building too risky for any reason, they can charge exorbitant rates or refuse to provide coverage all together. And since multifamily buildings are required to have insurance nonetheless, remaining providers can charge high rates because there is no competition. These compounding inequities leave the most vulnerable with the least comprehensive and most costly protection.

In light of the challenges of continuous cost escalation and the growing consensus around the need for tactical policy responses, we recommend exploring the following solutions:

First: Reward risk mitigation with premium relief. Similar to how car insurance rewards good driving behavior by lowering premiums as mentioned earlier by NYSAFAH, the state should encourage insurance providers to factor risk mitigation efforts into pricing and offer lower premiums contingent upon certain risk mitigation efforts.

Second: Require disclosure of Third Party Litigation Funding, or TPLF. TPLF allows third parties such as hedge funds and other financiers to provide funding for a plaintiff's case in exchange for a percentage of the settlement or judgment. While this practice is relatively new in the U.S., TPLF is already impacting the insurance industry, enabling prolonged legal battles and increasing the frequency and size of very large or "Nuclear verdicts" which then drive up premiums.

Disclosure of and data on TPLF should be required in New York so that relevant oversight bodies can dimension, monitor, and if needed, interrupt the impact of this practice.

Third: Create a Scaffold Law carve-out for affordable housing. New York State's regulatory environment around risk and liability is incredibly complex with entrenched parties on all sides that make comprehensive reform difficult. In the absence of such state tort reform, the state should explore avenues for a Scaffold Law carve-out for affordable housing projects.

And lastly: Explore public insurance program for affordable housing. Similar to how the National Flood Insurance Program has stepped in to provide insurance to properties that would otherwise struggle to find sufficient and affordable coverage, so, too, can New York State step in to create a publicly funded property insurance program. We recommend the state undertake a feasibility study to assess the role, cost and potential impacts of a public insurance program for affordable multifamily housing.

These recommendations and others shared today provide pathways to better understanding the drivers and impacts of the insurance cost escalation and will be essential to inform the solutions. Thank you for the opportunity to testify and I'm happy to answer any questions.

SENATOR SKOUFIS:Perfect timing.

Last but not least, Mr. Crotty.

JOHN CROTTY:Thank you all for having me here. And I can say it is a great honor to testify with these people on this panel. They have all been very helpful in what has been a long and arduous thing. Their support has meant a lot to me and to the effort in general. So it's fitting that we are all here together. Thank you all very much for having us here.

The issue here will determine whether affordable housing in New York remains economically viable and will shape our shared priorities for the years ahead.

We started the Milford Street Association to confront what is the single biggest operational threat to affordable housing. Insurance costs driven by unimaginable and increasingly aggressive liability environment.

If affordable housing is a priority, then we must confront this issue directly and with full clarity. Affordable housing relies on slow rents and relatively stable expenses. Yet across the board, expenses have increased. Insurance has grown far beyond the pace of rental increases.

They have absorbed the entire operating margins. A few years ago, as you have heard before, insurance for an affordable building cost about $500 a unit. You are now at 1500 plus a unit, and you've heard stories significantly higher than that. It's about 21 percent per year. If you look at the Rent Guidelines Board, which is a largely unpolitical document, and put those increases in, you will see the number is closer to 540 percent.

That's not me telling you. It's the preocc (sic). Right?

Milford came about as a creation of a number of operators sitting around and complaining. We are very good at it. So just ask me any issue and we'll tell you what is wrong with it. But at this point, it was really kind of a traumatic experience for all of us and we were looking forward and not understanding what the future was going to look like.

So we took this all and we went to Dick Ravitch, who is one of the great New Yorkers of all time and said Dick, we have this problem. And in typical Dick fashion, he said, boy, you know, that sounds tough. Prove it.

So what we did was we got our losses together. We went out to an actuary and gave them our losses. A world-renowned actuary in New Jersey. And they came back and said you are paying more than you should.

We took that information as proof of the hypothesis. And went out to create this captive. It was created in a certain way to address a certain need, namely affordable housing. So we built partnerships with regulators, brokers, actuaries, accountants, politicians, thought leaders, whoever would listen and put this group together. And something government probably should have done and frankly that was my first instinct because I didn't really want to do this but was to go to HFA and say this is something you should do. And some old colleagues there said you should go do it. I said, okay, well, you know, I'm going to. And when I do, you better help. And they have come through on that somewhat.

But the city and state, as you already know, have invested more than $3 billion a year every year for the last 20 plus years in this. I don't know what the total size of the investment is. Someone at OMB could tell you. It exceeds $100 billion.

But if we don't get this under control, we will have wasted all that money. And we are seeing it happen now. You have heard from a variety of other operators. The spikes in premium, the need for capital repairs that are going unfunded and a variety of other issues associated with spending an ever increasing amount of your budget on insurance.

I also shared with you, Senators, today, we teamed up with an AI company, and that AI company took every claim and case in the New York State system and produced some really meaningful data. In there you will see the aggregation of the data by category and by court. And what you will notice in there, is that on the third or fourth page -- I forget which -- using an estimate of about $50,000 a case, we have at least $4 billion worth of liability to manage. That's just a fact. You want to say 50,000 is wrong. The trial lawyers were here. They can come up with a number. You can go ask them. But you know, it's a number. I don't think it's a bad number.

As part of running Milford, we have now gotten to see a lot of loss runs from different carriers. We only do affordable. So we've gotten some trends and understood some stuff.

So the combination of the data you have in front of you, some of the other data we put together, clearly highlight the problem and what is needed to sort of do it. You have heard a lot of good suggestions here today. Most of them I agree with. I think they make a lot sense. But the key driver of this cost is really what we end up paying for what we do.

And you have to think about what that means. Tort reform is a big word. But the practical execution of it is really significant. I talk a little bit as well in here about third party financing, which is also big. You will notice in your packet that I gave you, there is some data around that and some impacts of what happened, two different court cases, two moments I would like to share with you. I can tell my time is getting short here.

Government has been somewhat supportive. Governor Hochul has given the captive $2 million which I was hoping to say was executed by here. It wasn't. But it will be shortly. And Mayor-Elect Mamdani has also talked quite a bit about working with groups like Milford and we are very excited about that because we are right. People have mistaken over time that somehow this is my thing or our thing. We created it as an open-ended association captive so call could participate. This is not a John Crotty problem. I have many, this is not only one of them; however, the industry really has to deal with this. And we are going to need your help to come up with a comprehensive solution that will not only work today but work going forward that we are in a major pickle. And there is not a very easy way out of it. So with that, I'll thank you.

SENATOR SKOUFIS:Thank you very much, Mr. Crotty. I will kick things off and I want to kick things off by not speaking about a John Crotty problem but a John Crotty solution. How much is your captive saving you and your colleagues?

JOHN CROTTY:That's a hard question to answer. Up front -- the best way to answer it is this and I'll explain why.

Figure the P&L, the profit motivation on insurers is north of probably 35 percent. The reason I say that, is the structure of insurance is finance.

The broker is good for about 10 percent. The regional broker, the sort of the larger wholesaler is good for 7. That's 17. And then the insurance company, the people writing the paper, you know, they want 10 to 15 to 20 percent.

So off the bat, you are sort of at a number of about 20 percent. But that would be only half of the story because in a captive, you pay money in for year one. There is a three-year liability period that extends after that initial period, where a claim can be brought. At the end of that period, you can assess, within the captive, what has been spent based on that first year's worth of premium.

If there is an example of no claims, and they paid $100 in, you could probably apply a large majority of that $100 to the fourth year renewal and then I could answer more accurately what are you saving.

Up front 15 to 20 percent. Overall, could be as high as 50 and 60. We just don't know.

SENATOR SKOUFIS:Those are big numbers.

JOHN CROTTY:They're meaningful. It is stability to the operator and it is why I have put in all this time and others have put in all this time to get to this point. We're not going to survive without a significantly better solution.

SENATOR SKOUFIS:I know we put a couple of -- and you mentioned it -- a couple of dollars with HCR to sort of, and I think it's out for bid right now.

SENATOR KAVANAGH:Two different things.

JOHN CROTTY:There are two numbers. ESDC voted upon and gave us $2 million for the captive.

SENATOR SKOUFIS:That's separate from what I'm talking about.

JOHN CROTTY:Separate, yes.

SENATOR SKOUFIS:So why haven't we seen more captives? These are big numbers. Is it just that it's really hard to do? And if that is the case, what can we do as legislators to make it less hard to do?

JOHN CROTTY:So, you know, I read sometimes, mostly I listen to books on tape. And one of the great stories I've read is, you know, Martin Luther King wrote this speech called The But If. And it's about the young boys when they got killed down there and he was talking about their faith. And towards the end of it, he gives a speech about how you have to stand up for what's right. And what is going on. We run an affordable housing company. We have done some very difficult projects. As someone was saying earlier -- I think it was Rachel -- but forgive me if it wasn't. Operators that go in to take broken properties will not look at new stuff because they can't afford the liability. We weren't that smart. We had no idea and it might not have been that big an issue at that time.

But I will tell you, because we were willing to do that, amongst the things we've saved, up in the Bronx quite a bit, one of which is the birthplace of hip-hop, which have been lost to history if not for us going in and doing something about it. And it has been a very meaningful development.

So the long-winded answer is, if you see a problem and you think you have the capacity to fix it, you should do it. And you should do it no matter what the cost.

SENATOR SKOUFIS:Were there statutory barriers, were there regulatory barriers that we should be looking at?

JOHN CROTTY:Yes. Statutory, regulatory, systematic, people wise, overall mentality.

SENATOR SKOUFIS:In the interest of time, can you follow up with us and identify what those barriers are that we can try and address?

JOHN CROTTY:100 percent. That would be great.

SENATOR SKOUFIS:For all of you, I suppose, a lot has been talked about regarding discounts today and whether we should require them, whether carriers are offering them. I remain very concerned that there are many, many discounts that are available that people have no idea know exist. And I'm curious, your members, your peers, can you give me a sense of what your sense is regarding their awareness of discounts that do exist with some of the common carriers that your members are policyholders of?

PATRICK BOYLE:Yes. I think one thing that has been clear to us in our conversation with affordable housing owners, is a lot depends on the strength of your relationship with your broker, the capacity you have to really dedicate time and effort into kind of studying your own insurance and what benefits might be available to you. And a lot of affordable housing owners are so strapped in their time and in their resources that I think they lack the capacity to kind of be able to do that research.

We had not understood that there were a lot of existing -- or really any significant existing discounts out there. We have known -- I've seen the checklist on the single-family homeowner side.

For multifamily, I understood it to be a much sort of shorter list of kind of DFS mandated actions on discounts. And to the extent that there are others out there that might depend on the carrier, it probably would depend a lot on the relationship owners have with their brokers and their ability to chase that down. But anything to bring those more out into the open would be great.

RACHEL FEE:We interviewed 18 different affordable housing owner and operators, and many of them reported that they were required to increase in investment in risk mitigation efforts, just to get a renewal policy. So we have not heard of, you know, do x, y and z and you get a 20 percent discount. It's there are no other market options and this is what you need to do just to renew.

JOHN CROTTY:It's worth noting the process. When you drive down the street and you go by a gas station, if they don't produce the pricing at the front of it, there are laws against that. They say hey, you want this level of fuel, this much a gallon. Insurance thinks that is a joke because what they do is, quite often, the broker -- you only are allowed one broker. A broker of record. It's a signed document. Without that signed document, you can't get bidding, you can't get pricing. So when the singular broker goes out to shop for you, you are then beholden to that broker with what they come back with.

As they come back, which they often do, usually not with the best news over the last five or six years, they will come back to you with a number. You generally have between 48 to 72 hours to bind it. And that is where you are at. You are not allowed to shop that offer. The broker will or will not have done that for you.

So the existence of discounts that may or may not be available, has, in our experience, not really been part of the process. And that's not a lack of understanding. That is a process that will not allow that to occur.

SENATOR SKOUFIS:Got it. Last question that I've got. If any of you have maybe 30 or 40-second opinions on bad faith laws. I'm curious, do you all feel that it would help unclog the court system, it would move things more quickly? It would have, even if on the margins, positive impact on premiums or do you think it induces more folks to bring weak cases and claims and would make the situation worse?

JOHN CROTTY:I'm not exactly sure what the law means. But I did share with you and I don't know if my colleagues have seen this. You know, New York City on premises of slip and fall cases has something north of 50,000 cases plus. If you put an aggregate in there of 50 -- and you can argue that that is a good or bad number. I'm not saying it's either. I think it's probably about right. If you want to say it's more or less, okay, fine. It's about $3.8 billion worth of stuff to offset.

SENATOR SKOUFIS:Let me ask you on that, though, do you feel it has the length of time to resolve these cases, which it sounds like a large majority of them are settlements, does that have a deleterious impact on premiums?

JOHN CROTTY:The length of time to settle a case?

SENATOR SKOUFIS:Yes.

JOHN CROTTY:Yes, it's not a debate.

SENATOR SKOUFIS:So does bad faith help with that?

JOHN CROTTY:I'm not 100 percent sure what you mean by bad faith. I just don't know. What do you mean?

SENATOR SKOUFIS:It was discussed on a couple of panels. But in effect, as I understand it as it has been explained, if you can demonstrate that an insurer is effectively delaying the resolution of a case and is dragging their feet, and whereas they wind up settling 18 months down the road. They could have settled a month down the road. Then there is a financial penalty levied against the insurer.

JOHN CROTTY:I mean, there is no penalty against the insurer ever. It is always against the affordable housing operator. The insurer is nothing but a...

SENATOR SKOUFIS:The argument is that this kind of law would compel the insurer to not be in court litigating for 18 months, 24 months and it would be resolved much, much quicker.

JOHN CROTTY:I think that would be helpful but I'm not entirely sure who would be to blame for that. You know, the third party litigation guys, they're more than happy with collecting what is an 88 percent guaranteed return by lending you money well below what the settlement is going to be and waiting it out because the longer time goes on, the more money they make.

So, you know, I don't have a solid answer for you. But there is a lot of people making money on that delay. And all of it is being paid by the affordable housing provider.

SENATOR SKOUFIS:The insurers, too. They invest the money during those 18 months that they're not paying it out.

JOHN CROTTY:No, they're not. I don't know how much they're making -- yes, the cash that they would otherwise pay out is getting a 6 percent return. But when they get hit, it's not 6 percent they're worried about, right?

SENATOR SKOUFIS:Okay, thank you.

SENATOR BAILEY:I just want to say a couple of things. I want to do it while Senator Skoufis is still here, I'm going to do something out of the Senator Skoufis book and I'm going to illustrate how important this graphic is and I'm a Bronxite through and through. And each of the 62 counties in this great state are special. But I am from one. And when I see that, the amount of premium in the Bronx, in a borough where -- that contains the poorest congressional district. They always talk about how bad it is, that lowest wages, that the premiums are higher. And so I am asking -- I'm going to ask the same question, a two-part question. Despite what has been said about, you know, hey, it's people aren't walking away. In your estimation, in the units that you operate and the things that you have seen, especially you, John, are conditions different based upon communities? And as far as what kind of insurance is tendered and are insurers pulling out of the market, away from property owners?

EMILY KLEIN:I think that the data we provided helps to paint that picture. As much as possible, we like to rely on the facts that we see. CPC has very strong underwriting standards for the projects that we lend to, and that does not vary, depending on the borough.

Those are standard across our portfolio. And when we then disaggregate our expense data and see that in actuality, these expenses across properties that generally speaking should all be of a similar quality are -- insurance is on average $200 higher in one borough than the others and increasing rapidly in a way that departs from the other boroughs, that leaves us with some questions about is there something different happening based on geography. I think we have heard a lot of anecdotal expresses of that. I think it is really hard to quantify because this is a really complicated world of insurance and place-based decision making. But I think the data that we provided suggests that there is a real problem and it is worse in certain areas of the city than others.

SENATOR BAILEY:I know it's not exactly apples to apples but is it fair to say that in this chart that you have provided, that I could make the logical assumption -- and it is an assumption, I will admit -- that you are speaking about the same property types, like let's say a three-bedroom, single-family owner occupied home, just for, in each borough. And that same exact residence, square footage, to a degree, location, building type, all of these different things, it's more expensive to insure that building in the Bronx than it is these other counties?

EMILY KLEIN:I think that's correct. I think it's important to look as well at, you know, these are all multifamily affordable buildings so that's sort of our baseline. We have also broken that data down by building size and building age, which are two other factors that I think we do see impacting certain expense lines. But those didn't actually draw as much of a conclusion as the borough data did.

SENATOR BAILEY:Look, I'm not pointing fingers without data. Making accusations that are threadbare do no one good. But I will say that things like this illuminate what my constituents are feeling.

I want to ask a question about tort reform. And I know that it was touched on briefly by each of you. What measures -- like we have heard pilot programs. We've heard get rid of the Scaffold Law. What would help each of you in your estimation, in what a tort reform change would look like?

PATRICK BOYLE:What's attractive about piloting some changes to things like the Scaffold Law or other kind of liability laws, is it allows you to kind of study the impact in a controlled way between this set of housing versus another set of housing and kind of see what the impacts are of changes you make and, you know, Scaffold Law, liability law, it goes beyond, you know, affordable housing. And these are major issues of consideration of businesses are very impacted. There was just an article on bars and restaurants and they can't afford insurance. So this is way beyond housing.

But, you know, we are here speaking for affordable housing. So any changes we can make that would, you know, have a sunset provision, we are not committing to it forever but it would allow us to study the impacts of it is -- I think is an attractive approach.

And then on the Third Party Litigation Funding, this is something new. Everything we have heard about it is kind of very anecdotal. There are groups calling attention to this kind of new player in the, sort of, litigation realm. So, again, just more transparency, more data to kind of understand what is going on. Seems like a reasonable first step in terms of, you know, how is this impacting court cases? How is this impacting affordable housing? Are these funding mechanisms in affordable or multifamily housing at a disproportionate rate to other types of things that they look to fund. So just kind of understanding the issue better seems like kind of a reasonable first step.

SENATOR BAILEY:Anyone else?

JOHN CROTTY:I have a document put together on suggestions to do it. My only fear with sharing it is, I would like it to be a little more collaborative. When we pass tort reform in New York City back when Brian or Senator Kavanagh was a top aide to hopefully the borough president for life or almost borough president for life, Gail.

We did tort reform in '03. Remember this? It was a long, long time ago. And we had great lawyers there who were able to carve the city out of that piece and knock down a pretty significant cost element for the city. There are suggestions, they are good. I would rather if we had a little bit more of a group focusing in to make sure that they work for everyone. In my mind, you would want to do affordable right now.

You know, the labor unions have a lot to say about this. At JFK, they have a PLA for work. The unions do, to guarantee the rate. As part of that rate, what they were able to get -- and you should ask them about this -- is a very deliberate specific set of accident claims, doctors that are not allowed, procedures to be followed for all accidents. The amount of savings from that, I'm told from them, anecdotally and again ask them, is about 7 percent on $6 billion. So you could do the math of what that is worth to them, right?

And so, you know, there is a lot of ways to sort of look at this problem. I have a couple suggestions. But I do think it would be better, from a broader group, sort of opining on it. You know, just try to create these answers and they're not quite perfect until a couple people beat them up, right?

SENATOR BAILEY:Last question I have as the shot clock expires is, I see the information about the claims. And this is something maybe to think about. Should there be a special part in the courts -- should we have a conversation with the OCA about these specific types of cases so that the docket can be possibly streamlined? Is that something that has been -- just spit balling as I looked at your data, John.

JOHN CROTTY:I'm not a lawyer. You can talk to the lawyers to figure out what does and doesn't make sense. Those boys got their own ecosystem up there that they sort of exist in. I know -- I could tell you what the problem is and I think I've tried to do that. The solution could look a couple different ways. But if we don't change it, I could also, with some level of accuracy, predict the future.

SENATOR BAILEY:Thank you. Senator Kavanagh.

SENATOR KAVANAGH:Thank you. This panel has been substantially the John Crotty show. We appreciate...

JOHN CROTTY:It shouldn't be. I have to tell you, Patrick and Rachel have been so critical, and CPC generally in doing this. I wasn't kidding when I said that before. It really has been a group effort. We would be almost nowhere without Rachel. And she has to put up with me so --

SENATOR KAVANAGH:Which I personally know from experience is challenging. I just would remind you not to tell Brad Hoylman-Sigal who is the borough president for life.

Just a question and I'm aware that there is a lot of collaborative efforts that has gone into your work and this is a panel of people who have really a singular role in, you know, our housing system, studying it, maintaining it, building it. So each of your organizations really plays a fantastic role.

Can you just, back to, like, stepping back from this, we have had a long day here. We have a few more panels.

But just talk about the significance of insurance, escalating insurance costs as a threat to our ability to do what we need to do in housing.

RACHEL FEE:Our analysis shows that $148 of rent for an affordable housing tenant is going towards insurance. $148. Think about the average income --

SENATOR KAVANAGH:Per month.

RACHEL FEE:Per month, all of the families trying to leave shelter with a city voucher because they cannot afford rent and $148 is going towards insurance in that building.

And that rate keeps going up and keeps going up. And is threatening the viability of our affordable housing stock right now. So action is imperative. It's urgent. It's also impacting our city and state housing plans. So we know we have a supply shortage. And our estimates show that almost $11,000 dollars per unit in capital subsidy has been added just being over the four-year period where insurance costs spiked.

So if the city for their new construction program is investing $150,000, right? 10 has been added just because of insurance costs, subsidizing those higher costs of carrying that building.

So that means that every year, as costs go up, we are building fewer affordable housing units. It's a larger share of rent. And it is not sustainable for our existing stock. So thank you for the opportunity to testify today and your attention to the issue. We really do think it is an urgent one that is impacting renters across the state.

EMILY KLEIN:And just to speak a little bit to the quality of existing housing. CPC put out a data brief that opened up our books to explore the expense data coming out of our rent stabilized stock here in New York City last May. And in that document, we talk about how expenses across the -- so cumulative, the full expense budget -- we show an increase of 22 percent from 2020 to 2024.

But within that 22 percent, the budget line for insurance is up, as I said before, that increase is in the 60 percent. So that is by far the largest driver by expense line in that stack of expenses. And the only expense line that we see that has gone down is repair and maintenance. So when we see year over year over year expenses being driven higher and higher, in large part due to insurance costs, where building owners are making their -- their ends meet is by skimping on what they can, what they don't have to pay. And a lot of times that comes down to building maintenance and repairs. And so ultimately, as that continues year over year, you see quality of housing fall and much needed repairs go undone.

And that ultimately trickles down to the quality of housing that tenants in these units have to then experience.

We see this as part of a holistic issue that really trickles down to affect housing quality.

PATRICK BOYLE:I agree with all of that and they really summarized well.

I think the longer that this becomes a problem and we see these distress indicators in affordable housing continue to grow, that's just going to be a ballooning problem and groups are going to be coming in with bigger and bigger asks that are more along the lines of bailouts and capital needs to preserve and sort of maintain the stock we have when we need to be preserving but also keeping the momentum on building.

SENATOR KAVANAGH:This was set at 5 and it should have been 10. I have been denied 5 minutes by my own people.

JOHN CROTTY:One thing I would add, I agree, the city and state do not have the money to pay for what's coming if they don't fix it. There is just not enough subsidy to correct the issue. So the question really just becomes who is going to do with less? And I think we are here to tell you that affordable housing on its current trajectory is over. Not hyperbole. Reality. And the trial lawyers can tell you a lot of stuff. And other people could tell you a lot of things. But you now have some facts in front of you as to what exists.

SENATOR KAVANAGH:Obviously this effort -- is an attempt...

JOHN CROTTY:I thanked you at the beginning. I meant it.

SENATOR KAVANAGH:And we haven't even discussed your hot sauce, your side career in hot sauce.

JOHN CROTTY:One hearing at a time.

SENATOR KAVANAGH:Can you just, in response to Senator Skoufis, you alluded to this, but we heard from the superintendent, that some, you know, in some cases, captives are set up under the laws of other states and then working here, which isn't necessarily, you know, a problem from our perspective. But are there -- I mean, are there sort of obstacles you can highlight for beyond more people joining and paying and, again, we're trying to subsidize that. But are there obstacles you can highlight about how to expand your particular model?

JOHN CROTTY:Do you remember going to the butcher back in the day? It doesn't exist anymore. But the proverbial thumb on the scale.

The City and State of New York finance this stuff. And they take certain opinions about what they can and can't insist on. And others seemingly, they say they can't do. It is nonsensical. They can insist on who is working on the project, color, creed and race. They can insist on materials and not lack of materials. And then when it comes to insurance, they're complete free market operators. It's nonsense. They could encourage participation in a captive in a number of ways.

In another world, this should be theirs. One logical reason why it's not is you would want to keep that liability away from -- you don't want the pot of gold to exist. That is the problem. It is not optimal to set up in another state. It's been difficult. Of course it would have been impossible to do what we are doing in this state. And I have a lot of questions about what is going on at DFS. If you'll recall, with Stiverson town, there was a provision that previously HCR had taken as it related to J-51. Turned out that was drawn up by a staffer inside. No one really knew what was going on. And when challenged in the court, it looked very different than the reality they had been posing.

My only point to you is if you think no one knows anything about housing, no one knows anything about insurance, especially as it relates to state law. It's very complex. It's arcane and people aren't engaged with it.

SENATOR KAVANAGH:I followed that analogy. One thing we have heard -- we have heard anecdotes that some people are being discouraged from -- your enterprise doesn't cover the full range of property insurance, at least at the moment. We have heard stories of property owners being discouraged from joining captive by other insurers by saying well, if you join that, we won't give you insurance for other purposes.

JOHN CROTTY:Correct.

SENATOR KAVANAGH:That would seem like legally questionable behavior but can you talk a little bit about to the extent that might be happening.

JOHN CROTTY:That is absolutely happened. Look, we are new. So we are clear, it is owned by the members and the insureds. It is not owned by an individual. It is set up for the benefit of affordable housing. There is a two-step test to becoming a member. You have to be financed by the city, state or federal government and have a regulatory agreement. We think that covers the universe we want it to cover. We have been around for about a year and a couple of months. So it's a little bit new and there has been buy in.

If you'll recall, the Bible provides a decent analogy. I think it was 12 pieces of silver that Judas got, right? It happens. And, you know, it happens with others as well, and so, you know, you have to get through that. And then you have to, you know, figure out how to appeal to everyone. It's still a small operation. What I am really excited about is the governor has given us a couple million dollars. This is REFI. I'm not kidding when I say the people at this table have been very informative -- sorry about that. Very informative and helpful in making this a reality. They have pitched in in a variety of ways.

We are here individually I guess but I feel very collective with them because of it. So it's day by day. It's block and tackle. Mayor-Elect Mamdani has talked about Milford excessively. We look forward to working with him about it. So, you know, nothing is perfect right away, and it takes a little bit to get there and there has been some limitations. But as it keeps growing, I think the odds of making it a work all solution for affordable housing is where it ends up.

The CPC's origins really kind of point to a little bit of what should be practical. I don't know if you remember this, but CPC came out of the Tax Reform Act of '84, '86 was it? And no one really knew what to do with those tax credits. They wanted to invest in the inner city but they didn't want any of the tag with it. So CPC gets created because it's not Chase. Rockefeller was a big fan. He wanted it to go away from him but to exist.

Liability is not unlike that. No one wants the liability but they want this vehicle to exist, which is why it was created the way it was, is to make sure that everyone could have a seat at the table. We think it's important. And it will be a strength, not a weakness.

SENATOR KAVANAGH:And I think we'll leave it there. Thank you all for all your work and your testimony tonight.

So next up we have a panel of Kevin Wolfe, Rebecca Poole, Sara Enright and Monroe Shannon.

Do you want to do the swearing in? In the absence of Senator Skoufis, our official bailiff, raise your right hand.

Do you swear to tell the truth, the whole truth and nothing but the truth to the best of your ability?

(Witnesses sworn.)

SENATOR KAVANAGH:First of all, I just want to express some appreciation for your being here at this late hour. It was a long hearing and we had many different constraints, various people testifying. So we appreciate you are here at this late hour and your perspective is very important to us. So I don't know if you have an order that is preferable.

MARY ANN ROTHMAN:My name is Mary Ann Rothman, and it is actually my colleague Rebecca Poole who has done the work on this and who should be testifying tonight. But we had a class to give tonight, so I'm the pinch-hitter. And I thank you three Senators, first of all, for holding this hearing, and secondly for moving it along so nicely. I left at 3:00 when you were on Panel 6, and I came back in time for this.

I'm Executive Director of the Council of New York Cooperatives and Condominiums and we enormously appreciate the opportunity to participate in this hearing, and in future discussions on actions New York State can take to strengthen the residential property insurance market percent address the specific hardships facing cooperatives and condominiums.

Our organization was formed in the mid 90s, as a not-for-profit membership organization designed to provide education, advocacy and information to and for housing cooperatives and later for condominiums. We instruct boards on best practices. We hold regular evening classes, which is where Rebecca is tonight; host an all day annual conference, which was three weeks ago, our 45th; prepares an annual comparative study of operating costs that analyzes the major expenses of over 1,000 cooperatives and condominiums; shares pertinent information and advocates on behalf of co-ops, condos and their homeowners.

Co-op and condo homeowners span the full economic spectrum. They include first-time buyers, established professionals, municipal workers, seniors on fixed incomes and disabled homeowners. In total, there are over 750,000 co-operative and condominium apartments in New York City, which provide a home to over 1.4 million, New Yorkers.

Regardless of location and homeowner demographic, each homeowner's apartment generally represents their largest investment, expense, liability, asset and their home. For most New York City residents, co-operatives and condominiums provide the only affordable route to sustainable homeownership. According to the New York City comptroller's March 2024 spotlight on New York City homeownership housing market, co-ops and condos made up 99.1 percent of all homes available for sale in the city, with an asking price below $400,000. Co-ops were 84 percent of all homes available for sale between 400 and $$800,000.

If New York City is to continue attracting and holding first-time homeowners, it's essential that co-ops and condos remain viable options. It's not enough to ensure homes are affordable at the point of purchase. They must remain so over the course of the life of each homeowner. But long-term affordability is in decline.

Co-ops, condos and their managing agents have self-reported annual insurance increases ranging from 15 percent to over 300 percent annually. In addition to an excessive number of non-renewals, an expansive list of demands that carriers are making to place insurance and reduced coverage.

Further, aggressive risk subrogation and insurance requirements have limited the pool of available vendors and increased the cost of performing both major capital work and more minor building repairs and maintenance. Across New York, co-operative and condominium homeowners are suffering.

Foremost among concerns expressed by co-op and condo boards, is the increase in non-renewals. Based on the notices of non-renewals shared with our organization, co-ops and condos have been denied continuing coverage due to potential litigation and slip and fall concerns; apartment-to-apartment water leaks; refusal to ban lithium ion battery e-mobility devices; failure of existing buildings to meet new building codes. May I go on a bit?

SENATOR KAVANAGH:A short bit, if you would.

MARY ANN ROTHMAN:Okay. Some statistics that I think you will be happy with. Well, you won't be happy with them but they're specific. Those co-ops and condos that are lucky enough to receive renewals face impossible premium hikes. Here is a sampling of data provided to CNYC. A Bronx co-op with 141 units saw its insurance increase from $174,000 per year to $595,000 per year. That 242 percent increase will cost each homeowner $2985 a year.

A small self-managed Brooklyn co-op, with 31 units saw its insurance increase from $26,000 per year to $43,000. This 65 percent increase will cost each homeowner $548 more per year.

Another Brooklyn co-op saw premiums rise from $629,369 per year to $1394 --

SENATOR KAVANAGH:Ms. Rothman, these are very interesting stats but I am going to have to ask you to wrap up.

MARY ANN ROTHMAN:That was last one.

SENATOR KAVANAGH:I appreciate it because we do have one more panel that has been even more patient than this panel. So thank you. Mr. Shannon.

MONROE SHANNON:Good evening. Thank you for the opportunity to testify on behalf of Tonya Ores, CEO of Neighborhood Housing Services of New York City. My name is Monroe Shannon. I'm the program manager for Insurance and Resiliency Services at NHS NYC.

For 43 years, NHS in New York City has promoted and preserved affordable homeownership for low and moderate income New Yorkers. Each year, we reach more than 50,000 people across all five boroughs through our home buyer workshops, homeowner education and community outreach.

In our direct programming, which includes home repair programs, foreclosure prevention, and insurance and resiliency counseling, we work closely with thousands of homeowners to help them access and maintain stable and secure housing. Through workshops and one-on-one counseling, we have assisted dozens of homeowners this year with insurance-related problems.

We are regularly seeing sharp premium increases, in some cases thousands of dollars. Non-renewals unless homeowners make repairs they cannot afford, difficulty in finding insurers willing to cover older homes, reduced coverage of higher deductibles as costs climb.

More homeowners consider going uninsured once their mortgage is paid off. For low and modest income homeowners, particularly seniors, these pressures are creating real instability. Some are stretching already thin budgets, others are reducing coverage or facing the risk of losing their homes if insurance becomes unaffordable.

I have two recent examples to illustrate this reality. A two-family homeowner in Brooklyn had gone more than 10 years without homeowners insurance. When she applied for repair grants, she learned she needed coverage but feared the cost. We helped her compare five quotes and understand her options. She ultimately secured a policy within her budget and is now better protected.

The second is Ms. L, another homeowner who received notice that her premium would rise by more than $2,000. Living on a fixed income and recovering from surgery, she feared she could not afford this increase along with her mortgage payments. After reviewing her policy with us, she was able to return to her insurer and negotiate, not just avoiding to 2,000 increase but reducing her premium by more than $250, all while maintaining robust coverage. We are seeing situations like this regularly across New York City.

As you consider policy responses, we urge you to focus on the needs of small, low and moderate income homeowners who are struggling to stay insured. We respectfully ask that you.

1: Support solutions that help small homeowners remain insured, including assistance for repairs and upgrades, required for coverage.

Second: Strengthen consumer protections around non-renewals, excessive premium increases and ensure driven repair demands.

And third: Support the non-profits that provide direct homeowner services who play a critical role in helping families understand their options and avoid financial harm.

These supports are essential to keeping families safely housed.

Thank you for the opportunity to testify. NHS of New York City stands ready to work with you to protect small homeowners, particularly low and moderate income families so that they can maintain safe, stable and properly insured homes in every neighborhood across our city. I welcome questions. Thank you.

SENATOR KAVANAGH:Thank you.

SARA ENRIGHT:Good evening, Senators. My name is Sara Enright, I'm Senior Director of Safety and Sustainability with Consumer Reports. We are a non-profit non-partisan organization based up here in Yonkers, New York; where we employ hundreds of people who test products, report findings and advocate for consumer rights. For nearly 90 years we have worked side-by-side by consumers to create a fair and just marketplace for all. As part of our safety sustainability and financial fairness advocacy work, we represent consumers who are navigating the insurance -- the homeowners insurance system. A system that, as we have heard today, has become increasingly unstable as premium costs rise.

We commend this legislature's joint investigation into the residential insurance market and are here to underline the concerns of consumers, urging reforms that safeguard, not only affordability, but also transparency and fairness for all policyholders. We encourage insurers also to partner more closely with the communities that they serve to strengthen household preparedness and resilience for extreme weather events; steps that can further reduce risks and stabilize the market, controlling costs over time.

In 2024, directly following the devastation of "Hurricane Helene" in North Carolina, we heard a wave of consumer complaints about the rising cost of insurance and the lack of availability of sufficient insurance. We collected nearly 600 consumer stories nationwide about premium hikes, cancellations and coverage denials. And since, we have engaged over 50,000 consumers around the country who have engaged with us to co-create a Bill of Rights as well as to petition the home insurance industry to do better.

As noted by this joint investigation, we are concerned that in New York, homeowners have faced average premium increases of over $1000 since 2020, far above the national average, which is particularly challenging for low income households. And nearly half a million New Yorkers are now completely uninsured and going it alone. This crisis extends beyond homeowners. Renters face higher costs as landlords are passing premium increases on. And first-time homebuyers are locked out of their mortgages where insurers have withdrawn from high risk areas or are raising the premiums.

Just a few examples from your constituents here in New York. Linda, a Manhattan co-op owner saw her premium jump 60 percent in 2-years despite making no claims and experiencing no disasters.

"Helene," who lives in a flood zone community fears she cannot shop for better insurance for fear that she will lose her current coverage permanently.

Robert, from Upstate New York reports he hasn't filed any claims in the last 10 years he has owned his home but has seen his premiums rise by 300 percent in that time.

And Beth, a new homeowner in Endwell, New York, fears that she is locked in with her insurer because of her roof's age.

She has been told that she is unable to switch providers without investing in a full replacement despite making repairs that have extended her current roof's life.

Consumer Reports investigations show that these are not isolated cases but are part of a national pattern. Steep, unexplained rate increases, inadequate notice before cancellations or hikes, fear of losing affordable coverage even among responsible homeowners.

Many of these harms can be addressed through stronger state regulations that require insurer transparency, fairness and accountability in rate setting, renewals and claims, while also supporting community resilience.

These principles are reflected in the Consumer Reports Homeowners' Insurance Bill of Rights developed this year with input from insurance experts, academics and homeowners nationwide. We outline nine essential protections every policyholder should have. When applying for insurance, we believe policyholders should be able to receive a clear, plain language explanation of what is and is not covered before they purchase or are renewed. They should have the right to know which risk factors are used to determine eligibility and set their rates; to have fair access to coverage, based on property risk and not their finances. While covered, they should have the right to adequate notice before cancellations, non-renewals or steep premium hikes giving them the chance to shop around and find other coverage.

They should have meaningful incentives for homeowners who take steps to harden their homes; protections against cancellations or non-renewals in the aftermath of declared states of emergency. And when making a claim, they should have the freedom to make inquiries of their home insurance providers or to make inquiries that result in no payout without being penalized.

Prompt, full and fair claim payments with accountability for delays. And finally, immediate financial assistance for emergency housing and essential needs after a disaster with limited paperwork requirements.

Since the release in October, over 43,000 consumers have signed our petition urging major insurers to adopt these protections and to restore fairness to the marketplace. New York State has long led the nation in consumer protection and by advancing the principles of the homeowners insurance Bill of Rights, we believe we can help residents make more informed decisions about where they live and what coverage they need and ensure they understand how to best protect their homes, their most valuable assets and hold insurers accountable to their promises through clear enforceable standards.

Thank you for the opportunity to testify.

KEVIN WOLFE:Good evening. And thank you to Chair Bailey and thank you, Chair Kavanagh, for the opportunity to testify on this very important subject of property insurance premiums and the impact, the adverse impact that the increases have been having on New York's homeowners in particular.

My name is Kevin Wolfe. I'm with the Center for New York City Neighborhoods and we are one of the largest homeowner service non-profits in New York City. We promote and protect affordable homeownership, particularly for middle and working class families in this state. Since 2008, we have co-anchored the Homeowner Protection Program, which I know both of you have supported and have been huge champions of. That's assisted over 380,000 percent avoid foreclosure and it's preserved $10 billion in equity and wealth in the State of New York.

percent across the state are facing steep increases in insurance premiums. Not only that, they're facing shrinking coverage options and cancellations, which may cause them to lose coverage all together. A growing number of insurers are leaving high risk areas of the state and are raising premiums. And these increases are having a direct impact on the stability of housing in this state. Analysis from the Americans for Financial Reform found that for every $100-dollar increase in an insurance premium, the homeowner becomes 5 percent more likely to experience mortgage delinquency.

When families are stretched thin, rising insurance premiums can be the tipping point into a crisis. In addition, when controlling for property characteristics, and geographic hazards, homeowners with sub-prime credit pay roughly 30 percent more for homeowners insurance than those with super-prime credit. This disparity compounds the financial strain for families with the least ability to pay the increased expenditures.

Through the homeowner protection network, we are seeing more homeowners push towards foreclosure because they cannot absorb the increase in insurance cost.

I want to just move on briefly to the climate-driven disasters, which are now a major driver of mortgage distress. Flooding in both coastal and inland is the leading driver of climate foreclosure risk. And we saw this firsthand in "Hurricane Sandy" and "Ida" and "Tropical Storm Henry" and when many of the homes outside the FEMA flood zone suffered severe damage, and they did not have the adequate insurance coverage.

We see that about 7 percent of homeowners in this state do not carry insurance at all. And roughly a third of those live in majority black zip codes in the state. So what we are seeing is that some of the most vulnerable families are exposed to climate disasters and it deepens the racial disparities in homeowner stability that are present already.

Outdated FEMA maps, which is obviously a federal issue, they have intensified the problems and many of the areas that are currently labeled as low risk would qualify as high risk due to an increase in sea level rise, as well as an increase in intense rainfall. Obviously, we would like to see the federal government modernize those maps.

To fill the gaps from the federal government and lack of action, we have piloted what is called the Flood Recovery Fund, which is the first in the nation model that uses a parametric insurance policy to deliver fast and unrestricted cash grants to low to moderate homeowners after severe rainfall and flooding. This model eliminates the adjustor process which can be slow and allows families to make repairs immediately, strengthening financial resilience and climate resilience as well as reducing foreclosure risks. It also demonstrates how there can be an innovative public and private partnership that can close the affordability gaps in climate vulnerable communities.

I did want to also mention that we applaud the work of the legislature of the Senate and Governor Hochul and the $50 million -- providing $50 million for the climate resilient retrofit program which supports low to moderate income homeowners with climate-related repairs. And through our partnership with HCR, we are helping homeowners strengthen their properties from future disasters.

To craft effective policy from our standpoint, one of the most important things we feel we need is clear and transparent statewide data specific to one to four-family homeowners. And I just have one more line and I will be done. So specific to one to four-family homeowners. We commend HCR for collecting the data for multifamily buildings and we encourage expanding this approach to smaller homeowners.

I would also like to mention that we support the Insurer Communities Act and thank Senator Skoufis -- I know he had to run -- for sponsoring that legislation.

So those are those items. The last thing that I would like to mention is that we are at a critical moment. We are seeing rising premiums. We are seeing climate become even greater, a greater risk. And we are seeing hundreds of thousands of -- tens of thousands of homeowners destabilize due to this. So we would like to see both the legislature and the governor prioritize transparency and data as well as strengthen investments in resiliency, in order to ensure that homeowners in this state are able to weather the rising cost and preserve their homeownership.

So I thank you for the opportunity to testify and welcome your questions.

SENATOR KAVANAGH:Thank you.

SENATOR BAILEY:I want to thank you all for your testimony and I want to start where you left off, Mr. Wolfe. My district are those majority black homeowners in the northeast Bronx and the City of Mount Vernon who come to the office and I will redact the name but they willingly know that they don't have the requisite coverage. But they're afraid of losing that generational wealth because it's the only chance that they have of being able to pass something down to their children. So they take that risk. And these are things that we should be trying to figure out.

I'm very much open to these solutions. I have a question for you and everybody on the panel. Excuse me.

Based upon the rise, the increase in insurance, do you believe that homeownership has been disincentivized? Are New Yorkers more willing to get rid of that asset and go do the reverse migration back to North Carolina as opposed to keeping that asset in their family? Are you seeing that happen in your respective areas?

KEVIN WOLFE:I can say that it is a major disincentive. There has been an increase of cost of living generally, so insurance and property taxes. One of the things that we see about insurance is that because it's lender driven usually, the lenders are requiring the homeowners to have some form of property insurance. Those who have paid off their homes, those who have that generational wealth that has been in the family, it's an expense that they can drop. No one is requiring it. And so it's less of a displacement pressure but then at the same time, what we are seeing is that for those homeowners, including in the Bronx, who thought, hey, we're not at risk, you know, from things like flooding, when that catastrophe does strike, they're very vulnerable. They don't have access to capital to make those repairs and they don't have that insurance coverage.

And so that is one of those drivers into foreclosure because now they're in a situation where the home is dilapidated, maybe they're not able to live in it and then that may drive them, displace them from the state all together.

SENATOR BAILEY:Mr. Shannon.

MONROE SHANNON:Insurance is definitely affecting affordable housing, not just from a renter perspective, but from homeownership as well.

Entering the market, margins are extremely tight in terms of affordability, but we have an aging community, an aging housing -- so two pieces. You got to maintain your home. You know, and that's part of insurance coverage and the cost of that. But then the cost of increased insurance coverage. So that idea of moving to another market, while maybe the housing is newer, and requires less maintenance and investment. Insurance costs are cheaper because of various factors.

So it makes it less attractive to pass that property on, especially if maintenance has been an issue if insuring that property is an issue. And we won't get into the whole conversation about having the conversation about the property and transferring that generational wealth. So that's another piece. But the insurance cost and restrictions makes it less attractive.

SENATOR BAILEY:Did you have something on that point, Ms. Rothman?

MARY ANN ROTHMAN:A very important point. There is a full gamut of economic ability within most co-ops because some people who bought years ago are now seniors on fixed incomes and every time there is more money that has to be sent, every time the board has to raise the maintenance, they have to worry about those people who may not any longer be able to afford to live in the co-op that has been their home since forever or since a good long time.

So we are tremendously concerned about the new families coming in who think that they're going to be fine, but compliance costs get them. And then most particularly, the long-term residents.

MONROE SHANNON:I just want to add. Dealing with a client and where we are with rainfall and changing flood maps, that the need for flood insurance, even in areas that are not coastal, that may not show up on our current flood maps as high to moderate risk, the reality is that risk is everywhere. We saw, back on October 30, you know, Flat Bush, Fulton Avenue and areas in Queens suffered a tremendous loss due to flood. People can no longer use historical information to make decisions.

We have to use information that we, as persons in the industry, can educate. Education has been a big conversation, not only about weather-related coverage, but also understanding your coverage limits and understanding the pages beyond your declarations page. What is on those other 17 pages? What is excluded? What isn't excluded? The importance of shopping around.

And I won't take up any more time, but the market has changed. People, for 30 years, never really concerned themselves with their insurance. They did business with the same person. They never filed a claim. They thought they were fine. The only reason why they took a look at that policy is because last year they saw it go up by $100. This year it went up by $1,000 and it's like, what is going on. I didn't file a claim. Nothing has changed. That's where the inquiry about insurance and the instability and the marketplace comes about.

SENATOR BAILEY:You really dovetailed nicely into my next question which was going to be about policy limits. And do your organizations counsel people on whether their policy limits are appropriate?

MONROE SHANNON:Yes. It's a huge piece. I won't take up any more time. But people use price as a decision making -- as a part of their decision making.

And that is challenging because it usually leads to being underinsured and not properly covered. It could also be that you are over insured and your dwelling coverage, which drives your other coverage limits, drives the cost of your premium being higher than it needs to be and your insurance is excessive. So also dealing with what is included and what is excluded from your coverage. So shopping around, and not just focusing on price, but all of those components: Exclusions, inclusions, dwelling coverage, and the whole gamut.

SENATOR BAILEY:That's very helpful. So I know that there is 30 days to cancel the policy in New York by state law. But I think you as well as Ms. Enright mentioned something happening where the cancellation of policies and people that need to be able to make the requisite repairs before a policy is not renewed. How much time, in your collective expertise -- anybody can answer this -- is a homeowner given to cure a defect that could potentially result in a non-renewal? How often -- does it vary? Is it context specific?

MONROE SHANNON:I just want to say it's not just people who have long-term policies. I've seen people that get a new policy, and because the property is inspected, which is -- happens more -- it happens more now because insurance companies don't want to take on existing risk. So even if you have successfully gotten a new policy, I have seen that cancellation notices come 30 days or so after you have received a new policy. So it's a challenge for existing policyholders and it's also policyholders that are newly acquiring policies because of the restrictions on the risk that insurance companies are willing to take on.

Roofs, handrails, cracks in sidewalks, so on and so forth, which is real. But it affects those margins.

SARA ENRIGHT:Thank you, and obviously this is -- it varies state by state. We've seen some states have as low as 10 days requirement for insurers to inform their policyholders that they're canceling, up to I think California requires 75 days. We estimate about 60 days would be an appropriate amount of time for people to be able to contest, and to also review and request information from their insurers about why they have been dropped and have the opportunity to have that dialogue and remediate if possible.

SENATOR BAILEY:Along with the information that you provided about the consumer Bill of Rights and how we can have a conversation about how do we figure out to -- figure out how we can have a constructive conversation about that being in a legislative form where that can make a difference.

Last thing I'll say is this: I not just represent Wakefield and Mount Vernon, I live in Wakefield. And I have seen my neighbors leave because they can no longer afford the water bill, the possible tax liens and the insurance there. My overarching concern is not necessarily just with the insurance companies. It's about what we're doing to stop people from remaining in their homes and it is about the person inside the home as opposed to the societal impact -- and the societal impact.

So I just want to thank you all for helping homeowners who often feel, at the margins they feel ignored and they feel like they're not valued. And I want to thank you for helping them out.

Senator Kavanagh.

SENATOR KAVANAGH:Thank you. I think I will be relatively brief given the late hour here. But a couple of particular questions. First, Kevin Wolfe, you described this flood insurance product parametric insurance policy, which sounded too good to be true, right? The flood happens and people get paid and everybody is, you know, happy and adjustors don't have to step in. Can you just describe -- that was -- I think it was done in part in cooperation with the City of New York, the mayor's office. And was there -- did you -- you created a product in collaboration with a private insurer. How did that work?

KEVIN WOLFE:We got grant funding to do it. So, we created the product, and essentially the insurance is against an unforeseen event happening. So if there is a flood, if there is a hurricane, then the way that it worked, is the sponsor would give us a payment when that happened. And it could be up to a million dollars or as low as $50,000. And then what we would do is that the homeowners that were in that coverage zone, we would give them bonds in order to -- whatever the damage was, in order for them to repair that damage to their homes. So it was really a pilot project and designed to say here is a model for how to provide insurance for areas that may be at risk, but then that risk is a little bit unknown, given, you know, we don't have a lot of the data that we need from FEMA and so on and so forth.

SENATOR KAVANAGH:And that, so far, I guess my understanding is that maybe there haven't been catastrophic events in that area yet; is that right?

KEVIN WOLFE:No. Yeah, in the areas that we are covering, no, we have not had an opportunity to receive a grant and then distribute it out to the homeowners.

SENATOR KAVANAGH:I see. But it's an interesting -- certainly interesting model.

Ms. Enright, so your Bill of Rights, which we have had a little opportunity to talk about, but my understanding is that it is sort of -- it's your assessment of the rights people ought to have. It's not necessarily proposed as a sort of regulatory package that could be adopted per se, but to the extent that we are looking at either encouraging our state regulators to require sort of a stronger set of rights for property owners or, perhaps, statutorily doing so, would you be available to sort of bring your organization's experience to bear on that and make recommendations about how we might structure some of those obligations?

SARA ENRIGHT:I would be very happy to work with you all on this.

SENATOR KAVANAGH:We are interested in having those conversations.

I think, even though I have great interest in what all of you have said today, I think I will wrap it up there just because again we have one more panel that is very patiently waiting. Again, thank you. We will be in touch with each of you and really do appreciate your patience and all the work you do all year round as well as your testimony today.

Our final panel of the evening, we have Lisa Lounsbury, Bradford Lachut, and Joseph Culver.

Thank you. I appreciate that.

SENATOR BAILEY:I will take Senator Skoufis' final swearing in role for the evening.

If you could please raise your right hand. Do you solemnly swear that you will tell the truth, the whole truth and nothing but the truth?

(Witnesses sworn.)

SENATOR BAILEY:Thank you very much.

You may begin in the order that you wish to begin in. Maybe we can start with Travis.

TRAVIS WATTIE:Fantastic. Much to your disappointment, I am not Lisa Lounsbury, president and CEO of Big I New York. She was unable to be here today and sends her regards. I'm Travis Wattie, AVP of Government Relations at Big I New York. Big I New York represents independent insurance agents and brokers across the state.

So rather than read the oral testimony, let me just share some top line thoughts this evening. So, for starters, I don't have some of the hard data that we have been talking about with respect to fraud and litigation challenges, et cetera. There is a lot of that out there that you all have seen, that we've seen. But what I do have is the perspective and feedback that I get from our 1500-member agencies across New York State, agents and brokers and the 13,000 plus employees.

And when I talk to them, what I hear from them on a daily basis is about the challenges in the insurance marketplace. As they sit down with their customers, with your constituents, dare I say literally 24/7, it is a demanding job that really never ends, especially when there are claims and there are opportunities and need for those agents to be there to support their customers. What I hear from them is that it's tough out there, as you know. It's challenging to find coverage at times, and then, of course, the affordability challenges are something that everyone in this room and all New Yorkers, I think, are feeling at the moment.

What I heard today is that I think there is strong agreement around many of the elements that are putting upward pressure on rates. Climate, labor, materials, supply chain challenges. Those are affecting New York State. I would argue that those same challenges are felt in probably every single state at the moment. So carriers are confronting that across their lines of business and then the states that they operate in. What I think is different though and what I hear specifically from our New York members -- and I do have the privilege of serving other states, and so I kind of get that northeast perspective -- the anecdotal examples of fraud and settling cases that shouldn't be settled, where they see that there's something not quite right with a claim, something not quite right with perhaps a labor law claim where, gee, that person shouldn't have even been on that work site. It was their day off. What happened there? And so these are the anecdotal evidence that I'm getting from my members and I think that's being confirmed in many of the reports that are out there and news stories.

And so the other thing that I see, that I hear from my members is that when they hear from their carrier partners, that there is brand new fancy products in 49 states and not in New York. And I'll talk in a moment about some of the challenges at DFS. They also come to me and say, look what is happening in this state where they had some major tort reform, where they had some challenges in their legal system. They addressed it. And now they're actually talking about rate reductions in some states. Why not New York is what they ask me.

We are seeing carriers that are excluding New York in coverage for their customers in surrounding states. Why is that? And so let me give just the top line points.

Labor law. We heard a lot about it today. It's 140-year-old law that severely restricts someone's ability to defend themselves. Imagine restricting an ability to defend yourself in any other context and I think there would be outrage.

TPLF, Third Party Litigation Funding. I'm glad you are sitting because I'm going to agree with our friend at the Trial Lawyers Association and I would say that yes, sunlight is the best option there. It's the disinfectant we need on Third Party Litigation Funding. Thank you to the state legislature for passing important guard rails on TPLF. We missed a little piece there, which is the disclosure, during litigation during proceedings in discovery. We can still change that. That bill is not yet been sent to the governor. So that is something -- that's the sunlight we need on Third Party Litigation Funding to really put the cherry on top of that important bill.

Fraud. Regardless of the frequency, whether it's one or 10,000 times someone is committing fraud, it's wrong. It needs to stop, and we should give people the tools and resources to stop.

And finally Department of Financial Services, we know there are challenges there. We have been supportive, Senator Bailey, of the DFS consultant bill. Thank you for carrying that. And we want to continue to work with them to get them the resources and support they need to move rate filings through and put new products through and help right the course.

BRADFORD LACHUT:Yeah, so I will do the same. I won't read my entire testimony because you've already seen it and you've heard a lot of it. I really appreciate you guys putting us at the end.

It's like a concert. Right, the headliner at the end, like the headliners. Don't tell DFS that.

SENATOR KAVANAGH:You're the rebuttal.

BRADFORD LACHUT:I would ditto literally everything that Travis said I think is absolutely right. But I do want to mention what a lot of other groups have mentioned and that is risk mitigation.

Ultimately people want to be protected not just compensated. Even the best insurance policies cannot replace the loss of a home or belongings or that sense of safety that you have. So everything that we are talking about is great but it's not going to keep people safer. So anything that we can do to do that I think is beneficial.

You know, too many New Yorkers right now, especially in coastal urban communities, as you've heard, are facing skyrocketing premiums and shrinking coverage.

So, you know, if we could concentrate on risk reduction, one real world example, many insurers are reluctant to write or renew homes with roofs over 20 years. We hear that all the time. I'm sure Travis can relate. All the time from members. All the time.

One response would be to mandate insurance carriers to cover those roofs but that's going to have an impact, right? Increased premiums, perhaps reduction in participation. If we incentivize a program to make safer homes, make safer roofs, that not only leaves people safer but reduces rates as well.

We already have programs like that in the state. So this is not a matter of creating something out of old cloth. It's a matter of taking something we already have and amending it to add new protections.

With that, I'll end. You have heard a lot of everything I've said so in the interest of time, thank you very much.

JOSEPH CULVER:My name is Joe Culver, I'm the Executive Director and Chief Operating Officer of the New York Mortgage Bankers Association.

Appreciate the opportunity to testify today. I'm also a 45-year veteran of the residential mortgage banking industry here in New York. I have held management and senior management positions with banks, in addition to the role of leading the New York Mortgage Bankers since 2024.

The MBA is a 108 corporate member association. We represent both lenders and non-lenders across all facets of the industry, including title insurance, private mortgage insurance and then today's topics, which are property and casualty insurance. The market dynamics in New York and across the U.S. in the past 3 years, as you all know, we have seen a once in a 40-year dynamic. 1981, interest rates were 18 percent. 2021, they hit 2.75 percent on a 30-year fixed rate mortgage. And then have popped back up into the 6 percent range.

Quite an interesting time for anyone that was a homeowner during that time period as well. The cost of homeownership has also been impacted by the continuous influences impacting affordability and that includes property and casualty insurance. Borrowers applying for residential mortgage quickly learn the term PITI, right -- principal, interest, taxes and insurances -- which is one of the key components that we make sure there is proper coverage for both the lender and the borrower as the homeowner. New York, here as you know is very specific with the market dynamics, mostly one to four family owner occupied and rental properties in Upstate New York, and then the dynamics that you have Downstate here with a large number of co-ops, condos and apartments. They all require various insurance coverage and risk. Private insurers write most of the homeowners business, as you know. And there has been a lot of talk today about FAIR Plan insurance and also properties that individuals, unfortunately, cannot find insurance for.

The drivers of the affordability, again, which you have heard a lot today, climate and catastrophic risk. You have heard about the reinsurance mortgage volatility that is happening not only here in New York, but the United States and around the world. Inflation and replacement costs, construction labor also a big piece that I don't think anybody has really felt yet but we know we are going to is the tariff component that comes into play obviously for the cost of construction, right? We are going to all learn more about that over the next several years.

So how do we balance the risk pricing with affordability? The insurers strive for access for broad availability, for affordability, for risk sensitivity, for market stability and then equity and transparency. And protect consumers from some of these unfair practices and the educational components that I think you have heard a lot about today, that should be happening much more than they do in the industry.

Three quick things. We have a short, medium and long-term recommendation that we have put out there for the short-term, establish time-limited state subsidies or vouchers for low and moderate income homeowners in the areas have a means testing and a phase down of that over a potentially three to five-year period.

And the medium term, state-backed reinsurance or partial risk sharing pool. And I know, Senator, you were asking some questions about it. I have noted that here as well.

The recently authorized, I think it was either a year or 2-years ago for the parametric options in insurance law. We think that could be very important. Extend and establish that public reinsurance facility or parametric reinsurance backstop here in New York. Formalize building level mitigation, crediting whether it's elevation, wind proofing, retrofitting, create low cost grants for resilient upgrades, targeting those vulnerable households in your market areas. This could be achieved, we think, through coordination with the New York State DFS, with housing agencies that have spoken here today, utility companies as well can integrate mitigation metrics into some of these premium calculations.

And then longer term, raise the minimum building standards in some of the high risk areas near the waterfronts, right? Require resilience measures for new construction, align some of the mortgage underwriting also with the insurance availability that is out there.

And then access for the publicly available high resolution hazard maps. And again to the education, require mandatory disclosure at sale to ensure the borrowers truly understand those additional eight pages of what is included, excluded, all those different things that impact it.

So just to wrap it up quickly. Many of today's market pressures originate from these risks that you have heard about. Climate, cost construction, tariffs, global markets with reinsurance. So the key to sustain affordability requires reducing any physical risk, right? Land mitigation, diversifying insurance and large targeted financial help for the vulnerable households. And I will wrap up with that. Thank you, gentlemen.

SENATOR BAILEY:So I just want to thank you for your patience, first and foremost. No, no, you have been here for quite a long time, and you have been absorbing the rest of the testimony and I do -- I know this is a long arduous day. I just want to really legitimately thank you for sticking around and listening.

So with that being said, I don't have a lot of questions, but because you are at the end, you have heard a lot of conversation about the insurance industry and about things from a number of different folks. I just want to give you the opportunity, if you would like to respond to anything -- and I don't mean this like a rap battle or anything like that. I don't want this to go back and forth. Though if you want to rap, it's 7:00 and the people that are watching, you know, my constituents are watching channel 116 right now. This is like, you know, they are watching right now.

But in all seriousness, if there is a rebuttal that you would like to have, just something that has been articulated throughout the day, I would just like to give you the opportunity to do so because you are the members of the industry and you have heard a lot. I just want to make sure that we have equal time and equal conversation. So if there is nothing, then great, but if there is something, I would like to hear it.

TRAVIS WATTIE:I will share some -- not a rebuttal but a lot of conversation about insurance discounts today. Good conversation. It would be interesting to see what the department has on file in terms of what discounts are out there, what discounts are allowable. I would say a few things. Insurance agents and brokers are really in that position -- and it was mentioned by a couple of panelists about having a strong working relationship with your broker. Very important, as we know, when you are protecting against loss in this environment and the amount of money we are talking about, work with your broker. Understand the products. I was maybe a little confused or concerned by some of the comments around just, well, we get the number and that's the premium and that's that. I'm not -- I don't think that's how this works. You have a relationship with your insurance broker. They can work with you on what are the available discounts? I would say that not having a claim is a pretty good incentive, without discounts. You really want to avoid having claims. We are risk managers. We are there to help prevent loss. But insurance is not a home warranty program.

Insurance is not a home maintenance program. It's not there to help you do things to -- that are not necessarily covered perils. Homeowners, building owners, should be incentivized to just keep their properties safe from loss generally. And if there are discounts that carriers see are significant in terms of reducing or preventing loss, then that's fantastic, and they should be working with the department to get those approved; working with their agents and brokers to make sure that the customers understand what those options look like.

BRADFORD LACHUT:I guess I'll just, one clarification, mention that New York law already provides 45 to 60 days for cancellation, not 30 days. Just to give you a heads up on that.

JOSEPH CULVER:Nothing additional for me but again, thank you for giving us this opportunity. As you said, we have been here a while. But our takeaways obviously are what we learn from the conversations, from the questions you asked of some of the different panelists and what we can take and share. So appreciate the opportunity very, very much and for you guys staying as late as you do.

SENATOR BAILEY:This is the job and we are happy to do it. I'll certainly pontificate a little bit further in my closing remarks but I do have, I guess, just one last question from my perspective.

Is there something that the legislature can do -- I've asked a number of different folks here -- that we can increase the overall information and knowledge that people have about insurance and what it does. I believe -- and Travis, I think you have heard me say this -- I think the two most fundamentally misunderstood things in America today are insurance and taxation. Everybody has to pay both of them. What can we do to make sure people understand insurance -- even if they don't agree with the policy, even if they don't agree with the rate, what can we do to make New Yorkers understand insurance law better?

BRADFORD LACHUT:Shameless promotion. Work with an agent or broker. Honestly, that's really helpful. A lot of people will go direct and they're only going to get the information that's in front of them on the computer screen. They're going to look at the limits and somebody earlier talked about price. Price sensitive. All right. That's the lowest price. That's what I'm going to get. But you don't realize what is not in that policy, right? You are getting what you pay for.

So working with an agent or broker doesn't cost a person anything and they're going to get all of that information that they don't really care about because nobody cares about insurance unless they're paying their premium, right? That's what I would say, totally self-interested but I think it would be hugely helpful.

SENATOR BAILEY:So if you are Nike, as a reversed check, you should be mindful of whether it's really a pair of Nikes or not. I'm guessing the conversation of you get what you pay for, as my grandparents would tell me, resonates very true. Rings true in the insurance business.

TRAVIS WATTIE:Senator, I would add, the State of New York is now -- and I don't know what the word is exactly but I do believe we are finally moving along in terms of requiring elements of financial literacy in our schools at various stages throughout middle school and high school. That's incredibly important, but it's incredibly important. And let's add in -- let's make sure that we are talking about insurance, particularly the basics, auto insurance, renters, homeowners, life insurance. Let's get that baked into the curriculum so that students are hearing about it from an early age.

SENATOR BAILEY:Thank you very much.

I appreciate your time. Senator Kavanagh.

SENATOR KAVANAGH:Just a couple of questions. And again, thank you again for being here still.

We are also going to ask anyone else who is here -- we don't know why you're still here but we are going to give an open mic opportunity to testify if you are still in the room in a minute but thank you all for being here.

I just want to clarify this question of discounts. I'm just going to lay out a perspective and get your reactions to it. So I don't know if you were here in the room when I mentioned earlier, but there was an insurance industry association executive who was, you know, meeting with us to be helpful and educate us as we were preparing for this.

And he works in a state that has, you know, discounts for roofs. And he said it works great, you know, I had my roof repaired and then I called them up and asked is there a discount and was told indeed there is a discount and he got a discount. And that struck me as, first of all, it's nice that that discount is available and he got it. But it strikes me as odd that as somebody that's actually in the insurance industry has to sort of wonder whether this thing that they're doing to diminish the vulnerability of their home is going provide them with a discount.

And it seems to me that those of us in government that are going to spend a great deal of public money in the near future on figuring out what -- and I chair the Committee on Housing, Construction and Community Development, which is residential -- it's about housing. But it's also about how everything is constructed and codes and all of that. But we are already spending a lot of money subsidizing resiliency improvements at the community level. We are spending at least $5 billion already authorized just in my district on coastal resiliency. And we are also going to spend a lot of money providing subsidies for people to improve conditions of their buildings. So in order to do that well, we are going to have to make choices about what is cost effective. What is likely if we invest in it, will it have a payoff in terms of reduced risk.

It seems to me DFS has to do the same thing with respect to any discount that is proposed by an insurer. And it seems, of course, insurers have to do that as well. If they're going to voluntarily give a discount, they only want to do it if it is likely to reduce payouts in the long run.

It seems to me that that analysis ought to be something that we are kind of doing collectively, kind of doing jointly. If an insurance company, if we are going to try to get them to do a discount for something and they're going to tell us that it's not actuarially sound, it seems like we should have the debate whether it's actuarially sound with DFS, with the regulators, with the insurers and with those of us who are going to have to subsidize some of this stuff, especially with affordable housing. And then make choices, and they're policy choices about how resources are going in.

All of that suggests to me that right now there are two kinds of discounts that you get more or less automatically in New York, from testimony from today. It seems to me that there are other, you know, fortified roofs. We were told there were only five of them anywhere in the state at the moment. That seems like we are behind the curve on that, given that convective storms are a thing here. Wouldn't it be logical to -- and I think the way Joe put it, formalize building level mitigation crediting in rate filings. But formalizing in rate filings and then formalize it for customers to say if you do x, you will get a discount. And you know, the pricing of the discount may vary depending on geography or other things.

But doesn't creating a much broader range of discounts, figure out which ones make sense and then effectively require them through regulation or statute? Doesn't that make some sense?

TRAVIS WATTIE:Let's remember that we talk a lot about competition in the insurance marketplace. And if you -- if a carrier decides that they found that doing x will reduce claims severity, and they decide that they're going to buy into that, and they want to offer a certain discount and get that approved in New York State, that may become a competitive advantage for that carrier and for those brokers and agents as they're talking with the customer and they say, hey, you know, we have these three options. But you know, we can do x with this carrier and get a discount. So I think -- I'm certain carriers will bristle at any sort of mandatory discounts.

I think we want to keep an open mind around freeing up that process with carriers and the department moving things along a little faster there and let the free market work.

SENATOR KAVANAGH:I agree about bristle but why as a public policymaker should I be hoping that the free market stumbles on to the right mix of incentives to prevent the destruction of people's homes, especially if the public is going to end up subsidizing the cost? Shouldn't we be -- first of all, New York is not going to operate in a vacuum. There are going to be best practices that are developing. We mentioned Florida has mandatory discounts for wind and Colorado for some things. Shouldn't we be trying to figure out what the best practices are and then -- again, we can have a debate about what the appropriate pricing of it is. And maybe we could have a system where insurers can vary in terms of how much of a discount they get based on their own actuary analysis.

But shouldn't we be trying to create a structure where incentivizing the best practices and incentivizing all property owners to minimize the harm that we know is coming as extreme weather gets worse?

BRADFORD LACHUT:I'll say, yes, I like what you said at the beginning there. A lot of what you said. But in terms of bringing everybody together at the beginning and having that conversation, right? Because I think that's really important. A lot of times you have these mandates, right? But if you have everybody together at the beginning talking about, okay, this makes sense, this doesn't make sense, that it makes it a little bit more palatable. At least in my mind. So, yes, I think we absolutely should bring everybody together to figure out what makes sense for everybody across the state.

SENATOR KAVANAGH:So the way we do that, since we are legislators, the way we do that is propose legislation and then get lots of input. And again, we also know DFS is looking at the question of discounts in a sort of hopefully holistic way. But again, I appreciate your perspective on that.

Do you think generally speaking, you know, customers are aware of kind of what behaviors might get them a discount and what might not?

BRADFORD LACHUT:I don't think as a general -- it kind of goes back to what we talked about earlier with insurance literacy. They're relying on a professional, if they have one, for that information.

SENATOR KAVANAGH:So maybe a greater need for education, public education and agents, as I heard.

BRADFORD LACHUT:Absolutely. And agents play a huge role in making sure that they get that information to their clients.

TRAVIS WATTIE:We are not alone in this -- whether it's insurance or whether it's in New York State, educating the public on products, services, opportunities. It is a challenge and I hear in other states, too, you know, around conversations like flood insurance. So it is not a unique challenge, but it's certainly one that I think from the agent/broker perspective -- and I don't mean to speak for Brad -- but I think we are both committed to educational opportunities for consumers. It is extremely important.

SENATOR KAVANAGH:Just one more question, Joseph. Just we've heard Jerome Powell being quoted as entire segments of the country potentially not being insurable, which means it will be difficult to borrow -- how concerned are you about insurance costs as a threat to the health of the mortgage markets?

JOSEPH CULVER:Well, it's an extremely important part, right, because not only lenders, right, want the insurance in place. They're going to force place the insurance if it's not there and available if the consumer doesn't pay for it.

So, you know, it's a component of the industry. It's a primary component, especially when you put it in perspective, as we all know, purchasing a home is the largest individual investment an individual is going to make. So why? Why would there be any discussion about not making sure, whatever the sacrifice has to be that your property is insured, knowing the climate change, knowing all these different things that are occurring, that certainly could have some effect on your property. The days of, you know, it's not going to happen to me, or I hope it doesn't -- that's part of the education piece that starts early on and making sure young children and young adults are aware, you know, whether you think you want this or not, this is not a want. This is a need. And there are certain needs in life that you have to prepare for, right? Put down that cup of $8 coffee and put that $8 over in another container to help save up for the needs that you have in life. So it goes back to that great comment about financial literacy for sure, Brian.

SENATOR KAVANAGH:Okay. Again, I think with great appreciation for both your patience and your, you know, your testimony which we also have in writing and I think I'll leave it there and also because my colleague has promised to pontificate a little bit and he is very good at that. So we will adjourn this panel but thank you very much.

SENATOR BAILEY:Thank you. So as we come to a close, I just want to thank everybody, everybody that came to testify, your voices are important. The greatest thing about democracy, I believe, is the ability to dissent respectfully. The more that we know that we don't know everything, the better we are at knowing things. And I think today's hearing was instructive of that. Everybody's perspective is valuable, albeit different, but valuable.

And we take those things to heart percents we go into a legislative session. And this was great cross training for budget season. And you know, we have been sitting here for a little bit. Now we are ready for budget season. We are ready to sit in the chairs and do the good work of the people that have sent us to do. I just want to thank all of the staff here today. Our legislative staff, central staff, STS building staff. Thank you for keeping the lights on literally and allowing us to be able to do this work. We often get the credit, we get the honorables, we get the titles, but you do a lot of the work and we sincerely thank you for all that you do to truly shape New York's policy.

I want to thank my predecessor Neil Breslin. The Celtics are coming on shortly so he is probably not watching, he's probably watching the Celtics. But I want to thank Neil for guiding me and thank you for your patience to the industry and everybody around it. You know I am not Neil. I have not been able to learn it just yet but I'm hopefully well on my way to doing so.

And to everybody that testified today and to my colleagues in government, most importantly I would say Senators Kavanagh and Skoufis, we have been speaking about this hearing for quite sometime and I'm glad we were able to do it. So I just want to send good wishes and wish you a happy Thanksgiving. Happy Hanukkah, Happy Festivus if you observe, a Merry Christmas, a Happy Kwanza, a Happy Boxing Day, for Caribbeans, Big up. Three Kings Day, Happy New Year.

And if you can just do one thing for me, do something nice for someone. We have spoken a lot about costs. Do something nice for someone. Doesn't cost you a dollar. Take care.

SENATOR KAVANAGH:I will follow that tough act by just, first of all, echoing the thanks. I want to thank Andrew Goldstein who just walked into the room for facilitating this. And also I want to note that we are only 2 minutes past the time we scheduled. I want to thank -- I'm actually not going to name the names of the many staffers that have worked so closely on this, maybe take the prerogative of saying thank you to Hally who has been sitting behind us all day who is our housing committee director, and Coco, my Deputy Chief of Staff, and Emily Fuentes of Senator Skoufis' staff since he is not here, not to mention your extraordinary work, and Emily Lang, Chief of Staff. And again, the central staffers of multiple committees and the finance committee who have been working very hard to process an enormous amount of information we have already gathered and will no doubt be processing the testimony and the information that was provided orally today. And just to say this is, as my colleague Senator Skoufis mentioned at the beginning of the day, this is another step in a process that began in August and will continue. We are going to be looking to craft, you know, solutions to some of the problems that have been addressed. And that will also involve, as I just mentioned, lots of discussion with all of the stakeholders about what works and what does not. There are some pending pieces of legislation that have been mentioned today. But, you know, all of that is going to be an ongoing process and we do hope ultimately to distill this into a report that will reflect a consensus of these three committees and hopefully allow us to move forward as a state.

Again, just thank you to everyone who has participated in this today. All the witnesses, even the ones that we had a little contentious back and forth on because that's part of the way we get to understand the truth. And again, this conversation is to be continued going forward.

But thank you all.

(Whereupon, the public hearing concluded, and adjourned.)