THOMPSON ISSUES “HIGHWAY ROBBERY: THE HIGH COST OF AUTOMOBILE INSURANCE IN NEW YORK”

Comptroller demands insurance industry reduce premiums
by at least $1.5 billion

Auto insurance companies are profiting at unprecedented levels from New York drivers who are spending more on insurance premiums while the industry pays out less in claims, according to a new report by Comptroller William C. Thompson, Jr.

Thompson’s report, “Highway Robbery: The High Cost of Automobile Insurance in New York,” reveals that premiums in New York have ballooned even as insurance companies’ losses (claims payouts) dropped.

“Car insurance premiums are driving New York City drivers into a financial ditch,” Thompson said. “Insurance companies are deriving record profitability at the expense of New York City drivers. The auto insurance industry needs to put the brakes on these increases, and take immediate steps to reduce premiums by at least $1.5 billion.”

In a letter, Thompson called on Governor-elect Eliot Spitzer to address the impact of “unjustifiably high” rates on New Yorkers. “These onerous rates – and the notable absence of a justifiable reason for them – are simply unconscionable,” he wrote.

Auto insurers reported $10.5 billion in earned premiums in New York in 2005, a jump of nearly 29 percent from $8.2 billion in 2000. Meanwhile, during the same period, incurred losses plummeted by more than 20 percent, from $6.4 billion to $5.1 billion.

Source for premiums and loss ratios used to calculate percentages: National Association of Insurance Commissioners

In contrast, premiums increased 33.8 percent nationally, moderately faster than New York, yet losses increased 12.9 percent nationally.

From 2000 to 2005, the loss ratio (the amount of each insurance premium dollar that goes to pay claims) in New York fell from 78.3 percent to 48.4 percent of premiums, according to the National Association of Insurance Commissioners (NAIC). This means that in 2005 only 48.4 cents of each premium dollar was paid to policyholders, a nearly 30 percentage point drop from 2000. The 2005 New York loss ratio was the lowest in the nation and was 11.8 percentage points below the nationwide loss ratio of 60.2 percent.

New York automobile insurers’ high levels of profitability also are demonstrated by their extraordinary return on net worth, the main indicator of insurance company profitability reported by the NAIC. In 2004, industry net worth was 18.6 percent in New York, the highest return in New York since at least 1990. Comparatively, in 2004, the national return on net worth was 13.2 percent, which was also well above its historical range.

Thompson’s report shows that since 2001, New York’s status as one of the most expensive states to insure an automobile has been reinforced by statewide premium increases that were substantially greater than the inflation rate and exceeded 40 percent in some areas for some major insurers.

In 2006, the average of the representative premiums published in the Insurance Department’s annual Consumers Guide to Automobile Insurance for the State’s four largest insurers for minimal, required coverage for a 35-year old male exceeded $1,500 in Urban (southern) Bronx and Brooklyn. Since 2001, in the Urban Bronx insurance rating territory, this amount increased 51.2% and in Brooklyn it went up 24.5%.  (Average was computed using 2005 premiums for Allstate because the Consumers Guide substituted a different Allstate subsidiary in 2006.)

“An insurer’s profitability is based on its premiums, losses, expenses, and investment income,” Thompson said in the report. “In the last three years, the automobile insurance industry has become very profitable in New York, largely because premiums continued to climb even as losses moderated and declined. The result has been declining loss ratios and historically very high profitability.”

Thompson made the following recommendations to address the problem:

• Auto insurers should lower their overall New York premiums by at least 15 percent, or about $1.5 billion per year. Insurers did modestly lower rates after 2004, but the total savings is only about $500 million a year.

• Municipalities should be allowed to petition the Insurance Department for rate reductions.

• To help consumers shop for lower cost auto insurance, the Insurance Department’s annual consumer guide should provide a comprehensive list of pricing information. Similarly, insurers should be required to publish their loss ratios according to a uniformly defined rating territory, thereby providing New York drivers with a means to track comparative costs.

• New York State should create an Office of the Insurance Consumer Advocate within the Department of Insurance. This office would represent insurance consumer interests at the Insurance Department.

“For too long, auto insurance companies have been price-gouging New Yorkers,” Thompson said. “Rising premiums are becoming cost prohibitive and squeezing New Yorkers even more as they struggle to pay their rent, food, gas and other necessities. A reduction in premiums is the right direction so that drivers can afford to stay on the road.”

You can view the report and letter at: www.comptroller.nyc.gov.

THOMPSON JOINS RALLY TO PROTECT AFFORDABLE HOUSING

Comptroller William C. Thompson, Jr. continued his fight for affordable housing last month by joining with other elected leaders and residents of Lakeview Apartments at a rally in Manhattan to condemn the growing practice of converting buildings in the Mitchell-Lama housing program to market rate.

The Mitchell-Lama program has for decades provided affordable housing for low- and middle-income residents across New York. Since 2004, close to 13 thousand units have left the Mitchell-Lama program in New York City.

Speaking at the rally, Thompson said, “To the many thousands of hardworking New Yorkers who live in Mitchell-Lama apartments, we send a message today: we hear you, we’re with you, and we’re on your side.”

One out of every four New Yorkers pays more than half of their income in rent, noted Thompson, who argued that “there is no more crucial issue before us than maintaining an adequate stock of quality, affordable housing.”

THOMPSON CO-HOSTS CONSUMER BANKING DAY

Comptroller Thompson’s Consumer Banking Day, held last month in Brooklyn, was a great success. About 100 people attended workshops on several aspects of personal finance, including how to establish and maintain credit, how to avoid predatory lenders, and how to finance a college education. This program, co-hosted by Assemblymen Darryl C. Towns and Karim Camara and Senator Carl Andrews, was designed to help New Yorkers improve their knowledge of personal finance.

“Whether you are looking to finance your college education or you are saving for your retirement, the importance of financial planning can never be overlooked,” said Thompson, who is seeking to host events like these throughout the City.

“We must do everything in our power to ensure that all New Yorkers have access to the financial information necessary to achieve their dreams,” said Thompson.