New York cracks down on insurance discrimination

Adrienne Harris has led the state Department of Financial Services since the state Senate confirmed her nomination in January 2022. After serving as Treasury Department senior adviser and White House economic adviser under President Barack Obama, Harris currently oversees more than 3,000 financial institutions, including more than 1,900 insurance companies that have $6.4 trillion in assets. This interview has been edited for length and clarity.

Were there any notable insurance-related laws that passed this year that your department is monitoring? Anything that you’ll be required to implement?

The department is proud to have helped advance and implement bold initiatives from the governor and the Legislature from the fiscal year 2024-25 budget, including eliminating cost-sharing for insulin and prohibiting insurance discrimination against Section 8 voucher recipients and affordable housing providers. DFS continues to work every day on these and other initiatives to build a more equitable, transparent and resilient financial system that serves all New Yorkers.

The latest state budget included a measure banning insurance carriers from discriminating against affordable housing properties. Does it fall to the Department of Financial Services to enforce that? 

The 2024 enacted budget amended the New York Insurance Law to prohibit insurance discrimination in affordable housing. Following the law’s passage, DFS issued a circular letter reminding insurers that they cannot make coverage decisions based on a property’s status as an affordable housing development or on the amount or source of a tenant’s income. New York Insurance Law explicitly prohibits unfair discrimination on the basis of protected characteristics, such as race, color, and creed, and DFS takes any allegations of unlawful discrimination seriously. If anyone believes they are experiencing unlawful discrimination, they should file a complaint with DFS on our website. This helps us investigate the facts, identify patterns or practices of misconduct, and take appropriate enforcement action. DFS continues to work with (the state Division of Housing and Community Renewal) and other stakeholders to monitor the affordable housing insurance market and investigate complaints.

How much pressure are insurers in New York under due to climate change and increasing frequency and severity of floods and other natural disasters? Are we seeing any insurers exiting the market? Are insurers raising rates significantly as a result? What are the key drivers putting stress on the homeowners insurance market in New York?

There are many factors stressing the homeowners insurance market across the United States, but the increase in frequency and severity of loss events due to climate change and a tightening reinsurance market are the primary drivers of rate increases.

Additional factors include macroeconomic pressures, (like) increased cost of supplies and repairs, supply chain problems, and some are unique to insurance (specifically social inflation of jury awards and legislation expanding exposure).

Fundamentally, however, the trends in the insurance market are driven by the continued worsening of our climate. Policy actions focused on the financial sector can only work to mitigate and slow those impacts. No solution to the long-term availability and affordability of homeowners insurance will replace addressing climate change directly and comprehensively.

Pursuant to New York Insurance Law, the department is responsible for reviewing each rate filing from an insurer to ensure rates are not excessive, inadequate or unfairly discriminatory. Protecting the solvency of insurers is a critical consumer protection, tied directly to accessibility and affordability. If an insurer becomes insolvent because of inadequate rates, it cannot pay claims. If the insurer cannot pay claims, policyholders cannot be compensated for any harm they may suffer.

The department is collaborating with public and private stakeholders to identify actions that can stabilize the market and prevent problems like those seen in other states.

What actions has the department taken to address risk from climate change?

New York has the opportunity to address the impact of climate change on homeowners insurance before we are in the crisis happening in other coastal states. By establishing a standalone climate division in 2021, DFS has made sure to dedicate resources to help tackle these challenges.

The department has been proactive in addressing the risks posed by climate change through several key initiatives. The department issued first-in-the-nation guidance to insurance companies in November 2021, setting supervisory expectations that insurers operating in the state assess and manage their climate-related financial risk within existing risk management frameworks. To encourage homeowners to invest in loss mitigation, DFS recently issued guidance promoting the development of insurance discounts for such efforts.

DFS is also an active participant in several national and international supervisory initiatives to share best practices and help the global insurance industry meet the challenges posed by climate change. DFS insurance and climate leaders are involved in the National Association of Insurance Commissioners’ Climate & Resiliency Task Force and the Network of Central Banks and Supervisors for Greening the Financial System.

DFS looks forward to continued engagement with the Legislature; federal, state, and local agencies; the insurance and banking industries; community leaders; and homeowners to identify potential policy actions that the public and private sector can take to mitigate the impact of climate change on the homeowners insurance market.

Over the past year, has the department received complaints related to disaster claims and have any of those resulted in investigations into companies’ behavior?DFS’ Consumer Assistance Unit investigates and informally mediates complaints against regulated entities and individuals as well as complaints concerning other financial products and services. The department will continue to take appropriate action against any entities violating New York Insurance Law.In addition to returning more than $600 million to New Yorkers in restitution through recoveries and enforcement actions over the last three years, and surpassing annual records in both 2022 and 2023, we’ve taken a proactive approach to protecting consumers by implementing new laws, proposing new regulations and amending existing ones, and issuing regulatory guidance.

What has your office been doing to address the use of artificial intelligence by insurance companies? 

DFS has been a leader this year in addressing the challenges and opportunities presented by artificial intelligence in the financial services industries. 

In July, we issued a circular letter to insurance companies, setting clear expectations for the use of AI in underwriting and pricing. This letter outlines how insurers should approach the integration of external data sources, AI systems and predictive models to ensure accountability and fairness.

In October, we issued formal guidance to our regulated entities on managing the cybersecurity risks associated with AI. This guidance provides strategies to address these risks and aligns with DFS’ cybersecurity regulation, offering a framework to help organizations protect their systems and data.DFS remains focused on monitoring AI’s use and development, taking action as needed to encourage innovation while protecting consumers and ensuring industry accountability.

Do you have any updates on the solvency or the future of the American Transit Insurance Co.? What could happen if the company does collapse?(American Transit Insurance Co.) continues to operate and DFS continues to work with the company as it seeks to address its financial condition and is engaging with policymakers and all stakeholders on a comprehensive plan to stabilize the insurance market, bring in new players, help drivers and protect all New Yorkers. The department is taking action to prepare for all contingencies including further regulatory action if and when appropriate.

Do states take the lead on insurance regulation, or is it addressed more on the federal level? How often do you interact with federal policymakers on insurance issues?

Historically, the insurance industry in the United States has been regulated almost exclusively by state governments. Under the state-based insurance regulatory system, each state operates independently to regulate their own insurance markets, typically through a state department of insurance or division of insurance.DFS regulates the activities of over 3,000 financial institutions with nearly $10 trillion in assets, including more than 1,300 banking and nonbank entities and more than 1,900 insurance companies. The department works regularly with our federal counterparts and stands ready to provide technical expertise as needed.The department also engages regularly with the National Association of Insurance Commissioners to collaborate with other state regulators and effectively regulate the insurance industry and protect consumers. In November, New York state received its five-year accreditation from the NAIC. The NAIC’s rigorous accreditation process confirms that DFS is upholding financial solvency standards for insurers, protecting New York state consumers and providing them with confidence in the industry, and preserving the stability of the insurance market.

Are there any highlights from DFS and your oversight of the insurance industry over the past year?While the department’s remit is vast, DFS is aligned to a single mission – to build an equitable, transparent and resilient financial system that benefits individuals and supports business.

Since I have joined DFS, we have adopted a data-driven approach to developing policy based on findings rather than ideology, leading through collaboration and engagement with all stakeholders.I have deepened the department’s focus on kitchen table issues and consumer restitution, ensuring that consumers have confidence in the financial products they use and the providers offering them. In addition to returning more than $600 million to New Yorkers in restitution through recoveries and enforcement actions over the last three years, pursuant to a settlement with DFS earlier this year, Gemini Trust Co. returned half a billion dollars and more than $2.18 billion in digital assets to customers in New York and around the world.

 The department has also promulgated 52 new regulations and issued 95 pieces of regulatory guidance in circular letters and industry letters to regulated entities. This year, DFS adopted new market conduct regulations for all pharmacy benefit managers operating in the state. This regulation will put an end to the industry’s opaque practices in New York, with the ultimate goal of lowering prescription drug costs, protecting access to life-saving drugs and supporting patients’ choice of pharmacies.

Since being given the authority to regulate pharmacy benefit managers by the Legislature and the governor in 2021, the department continues to develop nation-leading regulatory standards for pharmacy benefit managers. To date, DFS has hired over 25 experts who have completed the registration and licensure of all PBMs operating in the state. The new market conduct regulations are the third set of rules DFS has adopted to regulate PBMs, promoting transparency and leveling the playing field for New York’s pharmacies. In 2024 alone, the department helped pharmacies directly recoup over $960,000 for unfair audits and reimbursements policies by PBMs.

This year the department also was proud to help advance and implement two policies in the budget – eliminating cost-sharing for insulin and prohibiting insurance discrimination against Section 8 voucher recipients and affordable housing providers.

There are about 1.58 million New Yorkers living with diabetes today, a disproportionate number of which are low-income, New Yorkers of color. Existing health data has shown that 25% of those who use insulin have reduced their dose or stopped taking it all together due to costs. Studies have shown that removing financial barriers increases adherence to insulin treatments, thereby decreasing complications from diabetes and lowering overall health care costs.

The department was proud to help advance and implement increased affordability and availability of critical prescription drugs. New Yorkers no longer have to pay out-of-pocket costs for insulin, increasing adherence to treatments and improving the health of New Yorkers.

Secondly, the department has also issued guidance informing insurers that they are prohibited from inquiring about or making coverage decisions based on a property’s status as an affordable housing development or on the level or source of a tenant’s income within the building, such as government assistance. The DFS guidance follows legislation passed through the Budget to prohibit discrimination in insurance based on tenants’ source of income or the existence of affordable dwelling units within the building.