Creating a healthy and robust property and casualty insurance market place in New York

Adrienne Harris was nominated by Gov. Kathy Hochul in 2022 as superintendent of the state Department of Financial Services. DFS oversees and regulates financial agencies and institutions throughout the state including thousands of banks, insurance companies, mortgage originators, and foreign bank branches and fiduciary organizations. Harris sat down with City & State Editor-in-Chief Ralph R. Ortega for a conversation at this week's NY P&C Insurance Summit in Albany, presented by Big I New York and NY First, to discuss her agency’s role in making sure the state is a more welcoming place for the insurance industry, its focus on the property and casualty space, and more. 

This interview has been edited for length and clarity. 

Superintendent, all eyes are on California and the number of individuals who do not have insurance coverage and in the standard market, right? What can we learn from that to be sure that it doesn't happen in New York? 

Yeah, absolutely. Well, first, I know everybody's hearts go out to the folks in California who are experiencing this latest tragedy. That state has been hit so hard, as have others across the country. So we are always thinking of them. I think this group will know well, I mean, some of the phenomena that have happened in California have to do mainly with rate setting and the fact that the state held rates so low, for so long. It wasn't really based on actuarial science. What you had, and it's been, especially in the last few years, insurers leaving the market in California, leaving the market in Florida, and so it's left people without coverage. And I think where some of these states are headed is a world where, if you are very, very wealthy, you have a $20 million home, right? You will get coverage. But if you have a $300,000 home you won't be able to afford or access coverage. 

But this really is, this is not just a California or Florida issue. We're seeing this across the country, frankly, in states that you don't expect if you think about coastal states and climate issues that they're experiencing. But Oklahoma's had some of the highest increases across the country because of the climate effects that they're experiencing. Nebraska and Illinois too. So it really is a nationwide issue that I think we're all facing as regulators, as people in industry and as consumers certainly. 

So how does the DFS work with the industry to understand P&C emerging risks (like cyber security liability for businesses) and emerging actuarial models to protect New York families and businesses? 

The team really does a tremendous job scrubbing requests that we get from industry, the law requires us to separate so that they are adequate, not excessive and not unfairly discriminatory. And this is really a balancing act. Our responsibility is to make sure we have safe, sound solvent companies in the market and that people want to be here in New York to do business.  But  we also want to keep insurance affordable for consumers. And so it really is a very challenging rebalancing act. We have wonderful teams of actuaries across all the lines of insurance that we regulate, that look over the rate requests and really rely not on ideology, not on politics, but on actuarial science to set the rates. And so that's I think a very important consumer protection because the best thing we can do is make sure that there are companies here in the market that have the money to pay claims when they come to you. 

But of course, you know, when we think about homeowners, we're thinking about climate change. We're thinking about the reinsurance market in Europe. We're thinking about inflation and where interest rates were and what that meant for replacement costs and labor costs, these are all things that we have to take into account. But then, as you noted, there are a number of others that we're thinking about, aside from just homeowners or auto, for you mentioned cyber security. 

We have nation-leading regulation on cyber security here in New York. It was originally put into place in 2017 by the DFS, and then that regulation became the model for other states around the country. It became the basis for the national model law that the National Association of Insurance Commissioners then used and has become law in dozens of other states across the country. And then we just recently amended our cybersecurity regulation at the end of 2023 because the time between 2017 and 2023 in cybersecurity years is an eternity. So that regulation really needed to be updated to take account of things like ransomware, to revisit the exemptions that existed in the original regulation. 

Originally, small businesses were exempted from multi-factor authentication requirements. For instance, because in 2017 MFA was expensive and cumbersome. Fast forward to 2023, you can get an MFA tool for free. So even if you are a very small brokerage, that is a tool that you should be taking advantage of. So it made sense to remove that particular exemption as we thought about tailoring the regulation so that it can be useful to our globally systemic institutions on the one hand, and our very small companies that we oversee on the other. 

But we are always thinking about evolving risk in the space and on cybersecurity. We just recently issued guidance around artificial intelligence and cybersecurity, both how AI is impacting the threat vectors and the ability of people to perpetrate cyber crimes. Gone are the days where massive cyber attacks can only be or created by nation states. AI has really made it possible for a single actor to perpetrate really serious cyber crimes from his or her garage, but it's also made more robust defense mechanisms possible, and so for us, we really try to use all of our regulatory tools to continue to highlight risks and protect consumers.

Superintendent, I wanted to ask, what are the goals of the DFS as it relates to the property and casualty market? 

Our job is to make sure we have safe, sound, solvent institutions, that we're creating a robust and competitive marketplace here in New York. Also that consumers have quality, affordable products that they can access easily and regularly, and that those products are not predatory and that they suit their needs. So part of that is on the rate setting side, on the financial analysis side, and making sure that our companies have proper reserves so that they can pay claims, that they're reserving appropriately for future claims, so that they are safe and sound institutions, but keeping rates as low as we possibly can for consumers, making sure that insurance companies are paying claims in a timely manner, and they're complying with with our laws more more generally. And so really for us, it’s striking that balance, but I am a firm believer that you can protect consumers and markets and have a robust marketplace at the same time. I think often in financial regulation, those policy objectives are presented and mutually exclusive. I just don't believe that's true. 

I'm glad you mentioned that because we really want to understand is how is the state making it more inviting for this part of the industry, with three insurance carriers leaving the market in 2024 and several losing their financial ratings. What can be done to help the DFS be more effective in the marketplace, make New York a more insurance friendly state? 

I think you have to be careful. There's lots of reasons why people might decide to leave a market. It's not necessarily the business environment. We've seen some very small carriers decide to leave. We've seen lots of M&A activity, right? And so when you talk about a carrier leaving the state. I think we have to ask ourselves, are they just not doing business in New York, but doing business somewhere else? Are they ceasing to do business at all, which is the case with some of the carriers who have left New York, or have they been acquired and so they no longer exist as a standalone corporate entity, but those policies are still available to New Yorkers?

So I think precision here is important. We work very closely with insurers, again, to make sure that this is a place they want to do business. And if you see it, you know in the rate that unlike California, where the rates were held artificially low, here we do a robust actuarial analysis. Now it doesn't mean insurance always gets what they ask for. In fact, they usually don't get everything that they are asking for, but the commitment from DFS is that the decisions we make on rates, for instance, are based in actuarial science and not ideology or political expediency. That makes our job tougher. People often complain about the conservatism of the reserving required. Consider New York and it makes it so much harder to do business here. But again, part of our responsibility at DFS is to make sure that there is money at the end of the line they claim when they come due. And so if we don't think conservatively about reserving requirements, how can we ensure that that's that that's going to be the case. 

But since I've come in, over the last three years, I think we've been much more engaged with industry. I mean, we had a issue in the life insurance space, in particular, with I think what's known as a “special considerations letter,” which was sort of the bane of everyone's existence. The industry hated it. My team hated it. Wasn't pleasing anybody. And so we put together a working group to say, let's think about not only the substance of the requirements here, but the timing of when it's issued; how we arrive at the substance of the special considerations letter requirements. And we spent a good nine months in the working group making some changes, again, not only to the substance, but to the process. You know, frankly, at the end of the day, I think we've done our job as well. Everybody's maybe a little unhappy.

And in achieving those goals, do you have all the tools and resources you need to achieve it? You will never hear a regulator say they have all the tools and resources they need anywhere in the world. But it's certainly true from DFS, I am very, very grateful to the governor and to our partners in the Legislature, state Sen. Jamaal Bailey, Sen. David Weprin. We were able to get the department fully funded for the first time in its history. A few years ago, thanks to our partners in government, that meant that we could really start hiring the way we needed to. And at the end of last year, we actually just passed the 1,000 person mark. We've now hired an additional 550 team members and promoted over 400 members of the staff.

But it's still just a drop in the bucket based on historical staffing shortages. But I will say, and I think the industry has really noticed this, we also had tremendous backlogs in filings due to the staffing shortages. I'm a firm believer in “measure what matters.” We started measuring how long it was taking us to clear filings, and so now the teams have to report to me on a monthly basis how many aged filings they have, how many have cleared, how many have become aged. And in the two years since we put that process in place, we've cleared over 30,000 aged filings in the department. So I think this year, especially on the insurance side, we will get back to zero, so to speak. There really shouldn't have any aged filings in our pipeline by the middle of the year. But that said, my health team, for instance, is half the size it was 10 years ago, when we know that health insurance concerns are front-of-mind for all New Yorkers. Mental health and substance use disorder issues are front of mind. I need a health team that is fighting. We're constantly trying to recruit actuaries, financial analysts, accountants. So as much progress as we've had in the hiring and promoting, we still have a long way to go.

Sticks versus carrots. Are there any incentives you are working on to keep insurers in New York and entice new carriers to come to the state? 

Yeah, and I think the best thing we can do is wed the actuarial science into the law, which requires us to set rates in a way that are adequate, not excessive and not unfairly discriminatory, and that's what we do. This is why you don't see us having the issues of some other states in the country, because we don't hold rates artificially low. We kick the tires on requests, but our job is to be fair and call balls and strikes. We also really do engage. We did some guidance a year or so ago around discrimination in the life insurance space, because what we were finding through our examinations was that consumers that had the same risk in life insurance were getting wildly different prices for the same product based on who their broker was, and so we issued guidance to say where the risk is identical or similar. We expect pricing to follow suit so they are not discriminating against low and moderate-income consumers and consumers of color. I think what the industry has learned from this DFS, for the last few years, is that we are much more engaged with all of our stakeholders, that can we go where the data takes us.

I'm glad you’ve been talking about the last few years of your tenure. I was hoping you could walk us through a little bit more of some of the highlights and the challenges? 

I am incredibly proud of my tenure, we have gotten over $630 million in restitution back to New Yorkers. That's just money back in New Yorkers’ pockets. Every year we set records for restitution. Last year was obviously a leap year, so I told the team, we have no excuse to not set any record. We have a whole extra day to get more money back to consumers, and we've done that. We've issued 96 pieces of regulatory guidance. We've drafted or been in 54 regulations. We've brought 111 enforcement actions, including getting over $2 billion in digital currency back to consumers, not just in New York but around the world for an enforcement action we did. We cleared over 30,000 age filings. To say “the team is cooking with Crisco” is an understatement.

What would you advise for anyone trying to do business in this state, you know, given the current climate. And can you talk a little bit about dealing with fraud? 

I'll take those in in reverse order. I think fraud is top of everybody's mind. We know it drives costs way up for consumers. I think this is one area where investing quite a lot in DFS. We're doing more with our fraud team around data analytics. We have a wonderful group of fraud investigators that do tremendous detective work. We had 32% more investigations in 2023 than in 2022, more arrests, more convictions as we partner with law enforcement. Now, we're adding that technology layer so we can be smarter. 

I think it's really incumbent upon everybody. I mean, the industry has their requirements around fraud plans that we review, but industry has its own obligations in terms of moving out fraud, and it's partnering with regulators and law enforcement. So I think that's incredibly important in general. I have a rule for all of our regulated entity: Whether it's insurance, virtual currency, banking, student lending, any number of the things we covered, you always want to come to your regulator early and often. If we read about somebody in the press before we hear about it from you, we are always starting in a bad place. Whatever your plans are, you want to expand in the market. You want to think differently about your business. You're thinking about M&A activity. You have concerns about rates. You're seeing trends in the reinsurance market over in Europe. The more you have an open dialog with us, the better the relationship will be, and the better we can all sort of New Yorkers.

Are there certain trends that you'd like to highlight for this group and its particular focus on P&C going into 2025?

Everybody is cognizant of the climate effects that are impacting the P&C markets, whether it's homeowners or auto. I think there was a moment last year where we thought the reinsurance market would soften-out a little bit, and we would see some plateau in pricing there. I think with California and with a lot of changes in the geo political markets. And I'm not sure that reinsurance planning is going to happen the way we thought. So I think that expense is going to continue to go up, and that will drive prices more for individuals in the market as we look at rates in particular.  We've been really trying to grant great requests, because we want people in this market, and we want insurance companies to pay claims and be able to pay claims when they come due. 

I do think that we are counting on the industry to be fruitfully engaged in its role as predictors of the market, so that you're not coming to us with the same frequency for rate increases. We're really counting on you all and your resources, your modeling -  as much capability as you have. We rely on you to be thinking out into the future and not just sort of thinking one year at a time, especially because, you know, there are New Yorkers on the end of those policies that are really struggling to afford their day-to-day costs.

And one final question, a fun question, walk us through a typical day for you at DFS.

I wish there were a typical day, and it sort of depends on what's happening in the world. Ideally, I I'm a pretty early riser, somewhere between 4:30 a.m and 5:00 a.m., and I try to get a workout in before I get into work. But it really is, you know, balancing. I think, the operational excellence that we're trying to build at the DFS, making sure we can get through filing sufficiently, making sure we're hiring and promoting as appropriate, so that we have a modern-form regulator, thinking about particular regulatory issues, but also being a thought leader as we think about trends in insurance, banking, climate, cyber security, so that we can be a leader that is fitting of the financial capital of the world, and especially because we oversee so many multinational organizations.

We want to make policy in a way that allows other people to follow our examples, that we're not just doing right by New York and New Yorkers, but that we're setting an example for regulators around the world.