HOUSING, CONSTRUCTION AND COMMUNITY DEVELOPMENT

1 BEFORE THE NEW YORK STATE SENATE STANDING COMMITTEE ON HOUSING, CONSTRUCTION & COMMUNITY 2 DEVELOPMENT AND 3 STANDING COMMITTEE ON INVESTIGATIONS & GOVERNMENT OPERATIONS 4 AND STANDING COMMITTEE ON INSURANCE 5 ---------------------------------------------------- 6 JOINT PUBLIC HEARING: 7 TO ANALYZE ALL ASPECTS OF THE PROPERTY/CASUALTY AND LIABILITY INSURANCE MARKETS FOR RESIDENTIAL 8 PROPERTIES IN NEW YORK, AND TO CONSIDER LEGISLATIVE AND POLICY CHANGES TO PROMOTE ACCESS AND 9 AFFORDABILITY FOR ALL PROPERTY OWNERS AND THE LONG-TERM STABILITY OF INSURANCE MARKETS 10 ---------------------------------------------------- 11 Location: Hearing Room 250 12 250 Broadway, 19th Floor New York, New York 10007 13 Date: November 18, 2025 14 Time: 10:00 a.m. 15 PRESIDING: 16 Senator Brian Kavanagh, Chairman NYS Senate Standing Committee on Housing, 17 Construction & Community Development 18 Senator James Skoufis, Chairman NYS Senate Standing Committee on 19 Investigations and Government Operations 20 Senator Jamaal Bailey, Chairman NYS Senate Standing Committee on Insurance 21 SENATE MEMBERS PRESENT: 22 Senator Pamela Helming (RM) 23 Standing Committee on Insurance 24 Senator Thomas F. O'Mara (RM) Standing Committee on Investigations and 25 Government Operations 2 1 SENATE MEMBERS PRESENT (continued): 2 Senator Nathalia Fernandez 3 Senator Andrew Gournardes 4 Senator Brian Kavanagh 5 Senator Jack M. Martins 6 7 ALSO PRESENT: 8 Former Senator Diane Savino 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 SPEAKERS: PAGE QUESTIONS 2 PANEL 1: 17 27 3 Kaitlin Asrow 4 Acting Superintendent NYS Department of Financial Services 5 PANEL 2: 90 103 6 Erin Collins 7 Senior Vice President of State & Policy Affairs 8 National Association of Mutual Insurance Companies 9 Robert Gordon 10 Senior Vice President, Policy, Research & International 11 American Property Casualty Insurance Association 12 Cassandra Anderson 13 President New York Insurance Association 14 PANEL 3: 174 180 15 Ahmed Tigani 16 Acting Commissioner Lucy Joffee 17 Deputy Commissioner for Policy and Strategy 18 NYC Department of Housing Preservation & Development 19 PANEL 4: 206 210 20 Andrew Finkelstein 21 President New York State Trial Lawyers 22 Association 23 24 25 4 1 SPEAKERS (continued): PAGE QUESTIONS 2 PANEL 5: 224 230 3 Robert P. Hartwig, Ph.D., CPCU 4 Clinical Associate Professor, Finance Department; Director, Center for 5 Risk and Uncertainty Management University of South Carolina 6 Darla Moore School of Business 7 PANEL 6: 266 282 8 Carlina Rivera President & CEO 9 New York State Association for Affordable Housing 10 Wilson Kimball 11 Executive Director New York State Public Housing Authority 12 Directors Association 13 Perry Perlmutter President & CEO 14 Services for the Underserved 15 Rebecca Zangen Chief Policy Officer 16 Supportive Housing Network of New York 17 PANEL 7: 313 326 18 Kathleen Irwin Policy Director 19 New York Apartment Association 20 Tim Foley CEO and Executive Vice President 21 The Building & Realty Institute of the Hudson Valley 22 Ann Korchak 23 President Small Property Owners of New York 24 25 5 1 SPEAKERS (continued): PAGE QUESTIONS 2 PANEL 10: 347 369 3 Iyla Shornstein 4 Political Director Center for Climate Integrity 5 Elizabeth Derbes 6 Director, Financial Regulation & Climate Risk 7 Natural Resources Defense Council 8 Dave Jones (via remote) Director, Climate Risk Initiative 9 Center for Law, Energy & Environmental (CLEE) 10 University of California, Berkeley School of Law 11 Jordan Haedtler (via remote) 12 Climate Financial Strategist Climate Cabinet Action 13 PANEL 8: 381 400 14 Patrick Boyle 15 Senior Director, Policy & Communications 16 Enterprise Community Partners 17 Rachel Fee Executive Director 18 New York Housing Conference 19 Emily Klein Assistant Vice President, 20 Deputy Director for Policy and Public Affairs 21 The Community Preservation Corporation 22 PANEL 9: 381 400 23 John Crotty President 24 Milford Street Association Insurance Company 25 6 1 SPEAKERS (continued): PAGE QUESTIONS 2 PANEL 11: 425 442 3 Kevin Wolfe 4 Deputy Director for Advocacy and Public Affairs 5 Center for NYC Neighborhoods 6 Mary Ann Rothman Executive Director 7 Council of New York Cooperatives and Condominiums (CNYC, Inc.) 8 Sara Enright 9 Senior Director of Safety and Sustainability 10 Consumer Reports 11 Monroe Shannon Program Manager, Insurance and 12 Resiliency Services Neighborhood Housing Services of NYC 13 PANEL 12: 452 466 14 Travis Wattie 15 Assistant Vice President of Government Relations 16 Big I New York 17 Bradford J. Lachut Director, Government and 18 Industry Affairs Professional Insurance Agents of NY 19 Joseph Culver 20 Executive Director & Chief Operating Officer 21 New York Mortgage Bankers Association 22 23 24 25 7 1 SENATOR KAVANAGH: Okay, good morning, 2 everyone and welcome to this joint public hearing on 3 insurance for residential properties throughout 4 New York State. 5 I am State Senator Brian Kavanagh. I chair 6 the Committee on Housing Construction and Community 7 Development, and this is a joint hearing of the 8 Insurance Committee -- the Housing Committee, which 9 I chair, and the Insurance Committee, chaired by 10 Senator Bailey, who you will hear from in a moment, 11 and Senator Skoufis, chairing the Investigations and 12 Government Operations Committee who is in the room. 13 Elvis has left the room, but Senator Bailey 14 has arrived. 15 We also have a number of senators with us, 16 including currently our ranker, Senator O'Mara is 17 the ranker of the Investigations and Government 18 Operations Committee. And Senators Nathalia 19 Fernandez and Andrew Gounardes who are members of 20 the committees here. And we do expect that we will 21 be joined by Pam Helming, who is the ranking member 22 of the Insurance Committee. 23 So I thank everybody for their collaboration 24 and also the many staffers of the Senate, including 25 my own staff, who have worked very hard to prepare 8 1 us for today. 2 The scope of this hearing, as I mentioned, is 3 insurance products that are necessary for 4 residential property throughout the state. So that 5 includes single-family homes, multi-family 6 buildings, co-ops, condos, rentals. 7 It does not specifically include buildings 8 that are exclusively commercial, other than maybe 9 some substantial overlap between the insurance 10 issues in commercial and residential. And we are 11 here to examine an issue that really has been 12 something that many of our constituents bring to us 13 very frequently. 14 The premiums for insuring homes and other 15 residential properties have been increasing, in some 16 cases very dramatically increasing, doubling and 17 tripling in short periods of time. And at the same 18 time, we have reports of reduced coverage, even 19 though policies may be more costly, greater 20 out-of-pocket deductibles, and in some cases, people 21 who are previously insured, who are losing access to 22 their coverage without adequate explanation. 23 So, you know, this raises, obviously, 24 concerns for individual homeowners in their ability 25 to maintain and secure what is often their most 9 1 valuable asset. But it also has become an issue for 2 our ability to produce and maintain affordable 3 housing, including multi-family housing throughout 4 the state. 5 So, you know, as we know, there are also 6 extreme weather events around the country that have 7 dramatically destabilized markets in some parts of 8 the country. There are reports along the Gulf Coast 9 and in California and in Colorado and in Florida of 10 circumstances where whole communities are losing 11 coverage. So we are very cognizant of that and the 12 extreme weather driven by climate change that is 13 driving a lot of those circumstances. 14 So, because of all of that, we basically have 15 undertaken an investigatory process that started in 16 August with the chairs of the two other committees 17 and the Housing Committee. 18 We began by basically querying various 19 insurers, sending very specific questionnaires to 20 retrieve data and documents from them and also began 21 a dialogue with the superintendent of DFS whom we 22 are very happy to have with us as our first witness 23 this morning, and basically the goal being to 24 understand and document the problem and generate 25 solutions that could be enacted either through 10 1 legislation or through other reforms, regulatory 2 reforms or other reforms that we can enact here in 3 the State of New York. 4 We expect to hear from a very diverse range 5 of witnesses today. There is also a lot of written 6 testimony that has already been posted, including 7 from some who were not able to testify in person. 8 So again, we are developing a very robust 9 record here. 10 We are, I should note, still in conversations 11 seeking testimony from certain large insurers who 12 will not be testifying today, but we hope to 13 continue to build that record over time. 14 So I think I'll hold off on going through the 15 timing. It's going to be very tight timing today to 16 get through many witnesses so we are not all here 17 tomorrow morning. 18 But maybe before I do that, I'll begin and 19 invite Senator Bailey to give some opening remarks. 20 SENATOR BAILEY: If the mic -- oh, it's on. 21 Good morning, everybody. Again, thank you 22 for coming. Senator Kavanagh laid out the reasons 23 why we are here. And I think that they're apparent 24 to you and your family, your friends, yourself, 25 anybody that you know, the cost of insurance has 11 1 risen. Period. Whether it be auto, which is not 2 the subject matter focus of this -- home, life, 3 everything has gone up. 4 And I just want to make sure that as the 5 Chair of the Insurance Committee, I want to state 6 very clearly, you know, unequivocally for the record 7 that this is not an attack on the industry. 8 As legislators, it is our job, 300,000 plus 9 people elect all of us to represent them. And they 10 come to -- each and every one of -- and I'm going to 11 take the liberty and say each and every one of us on 12 this stage, the dais, has fielded a great number of 13 questions as to why is my insurance going up. "My 14 insurance is going up at such a rate that I cannot 15 afford it. What can you do about it? " 16 Now as legislators, our job is to create 17 policies that protect and support New Yorkers, and 18 this hearing is in furtherance of that. 19 We're going to be asking a lot of questions, 20 gathering a lot of data and hopefully coming up with 21 some good solutions so that we can move forward and 22 figure out what's ailing us. 23 It has been no secret that the price of 24 insurance has gone up, like I said earlier, but what 25 that also comes with is it creates schisms in many 12 1 different ways. It creates people that have to make 2 other choices in their life if they don't pay their 3 insurance. 4 And there is a domino effect in many 5 households; especially older folks who are holding 6 on to their property and even if their mortgage is 7 paid off, they still have to pay that insurance and 8 it's affecting their quality of life because we know 9 SNAP benefits just came back online. 10 Every little cent counts, and we are going 11 get down to the dollars and cents. 12 I just want to thank, most importantly, each 13 of our staffs, myself, Senator Skoufis and Senator 14 Kavanagh have done incredible work in gathering 15 data, being persistent to stakeholders. 16 I just want to make sure that -- sometimes we 17 save staff for the end, but we have to thank you at 18 the beginning and thank you for the work that you 19 have done to make sure that we have gotten here. 20 It is going to take an effort from all of us, 21 and I'm going to ask you for your patience in 22 advance for today. There are a lot of people here. 23 A lot of people that want to testify, and I'm 24 hopeful that we can adhere to the time. 25 We have a time clock, you know, I'm speaking 13 1 a little bit past my time. 2 We have a time clock, and I would hope that 3 those who are testifying would adhere to the time so 4 that everybody that has come here on this wonderful 5 Tuesday morning gets an opportunity to speak their 6 mind and their voice and that we can have an answer 7 for everybody: The tenant, the homeowner, the 8 insurer, the regulator, the legislator. 9 So I just want to say thank you for coming. 10 And I want to kick it to my good friend and the 11 Chair of the -- I just say Investigations, Skouf; 12 the Investigations Committee, Senator James Skoufis. 13 SENATOR SKOUFIS: Thanks very much, Senator 14 Bailey, and thank you, Senator Kavanagh. Thank you 15 all for being here. 16 Good morning. I, there at the beginning of 17 my remarks as well, I want to underscore something 18 that Senator Bailey and Senator Kavanagh mentioned 19 at the start here, which is that a lot, a lot, a lot 20 of work has been put into this investigative process 21 by all of our staffs, including central staff, and 22 this is just the latest, sort of mile marker in our 23 process here this hearing. 24 So thank you all for being here and thanks in 25 advance to the individuals who are going to be 14 1 testifying. 2 So, with the cost of virtually every aspect 3 of life for New Yorkers going up, the purpose of 4 today's hearing is to look at the many contributing 5 factors in the lack of both affordability of and 6 access to insurance in the residential space. 7 According to a report by one of the trade 8 associations we'll actually hear from later today, 9 "Despite heavy catastrophic losses in 2025, 10 including the costliest wildfires on record, the 11 U.S. property and casualty industry recorded its 12 best mid-year underwriting gains in nearly 13 20 years." 14 But as I expect, we'll see throughout the 15 course of today's proceedings, this equation isn't 16 working for everyday New Yorkers. 17 Today's hearing, as I mentioned, follows 18 months of investigative work as Senator Kavanagh 19 outlined in his remarks and several common themes 20 have emerged to date. 21 1. That property owners, regardless of a 22 spotless claims history or any fault of their own 23 are seeing their premiums dramatically escalate in 24 recent years. 25 Second: That regulators are often lacking 15 1 the data needed to robustly evaluate and monitor the 2 impact of insurance trends on consumers. 3 Third: That the modifications homeowners and 4 property owners are encouraged to make in the face 5 of severe climate threats are not resulting in lower 6 premiums or meaningful savings. 7 Fourth: That many are boxed out of the 8 voluntary insurance market; again, through no fault 9 of their own and forced to pay even more with 10 insurers of last resort. 11 Fifth: That, in fact, countless New Yorkers 12 are foregoing property insurance all together. 13 And lastly: That the loss experience 14 carriers endure in other states may well be 15 influencing their rate setting here in New York. 16 These are just a handful of factors among 17 many others our committees are looking at as we seek 18 to develop a comprehensive understanding of the 19 health of New York's residential insurance industry. 20 And today we look forward to identifying, not just 21 the problems facing insurance consumers, but the 22 legislative and regulatory opportunities ahead of us 23 as we work to change course. 24 In the coming months, we'll publish our 25 investigative report which will include the 16 1 committee's recommendations ahead of the 2026 2 legislative session and look forward to a robust 3 conversation today. 4 Thanks very much. 5 SENATOR KAVANAGH: So again, some 6 housekeeping here. 7 We have about 30 witnesses scheduled to speak 8 in person today and senators here who have some 9 questions and a few additional ones who have joined 10 us, so we are going to try to adhere to a very 11 strict timeline to get through the day and make sure 12 everybody has an opportunity to speak. 13 So as is our custom, we will give the 14 superintendent and the heads of public agencies 15 10 minutes for their oral remarks here, and other 16 witnesses will have 5 minutes for their remarks. 17 Then after each panel of witnesses, there 18 will be a Q&A period during which chairs will have 19 10 minutes for questions, rankers will have 20 7 minutes for questions and other members will have 21 5 minutes. And if we go to a second round of 22 questions on a given panel, chairs will have 23 7 minutes, rankers will have 5 minutes and other 24 committee members will have 3 minutes. 25 For those who heard lots of numbers and 17 1 didn't commit them to memory just now, there is a 2 time clock, which I believe the witnesses as well as 3 the senators, can see, and we are going to try to, 4 you know, get everyone to adhere to that today. 5 And just to note: As I mentioned earlier, 6 there is written testimony. We actually started 7 posting written testimony for this hearing at the 8 end of last week. 9 So we have everyone's written testimony; even 10 those who are testifying in person today, and so 11 please as witnesses, please feel free to highlight 12 the key points of your written testimony with an 13 understanding that the committee and the staff -- 14 the committees and the staff will thoroughly 15 consider everything you have to say. 16 So without further ado, I think I'll turn it 17 over to Senator Skoufis. 18 SENATOR SKOUFIS: We will be, as a matter of 19 practice today, we will be swearing in all of the 20 individuals providing testimony. 21 So Acting Superintendent, if you could raise 22 your right hand for me. 23 Do you solemnly swear that you will tell the 24 truth, the whole truth and nothing but the truth? 25 SUPERINTENDENT ASROW: I do. 18 1 SENATOR SKOUFIS: Thanks very much. 2 The floor is yours. 3 SUPERINTENDENT ASROW: Thank you so much. 4 Good morning, Chairs Bailey, Kavanagh, and 5 Skoufis; Ranking Members Helming, Martins, and 6 O’Mara; and distinguished Members of the Senate 7 Committees on Insurance; Housing Construction, and 8 Community Development; and Investigations and 9 Government Operations. 10 My name is Kaitlin Asrow, and I serve as the 11 Acting Superintendent of the New York State 12 Department of Financial Services (DFS). 13 Thank you for the opportunity to address you 14 today on today’s hearings on the cost and 15 availability of residential property insurance in 16 New York. 17 I also want to thank Governor Hochul for 18 trusting me to lead DFS into its next chapter. 19 Across the nation as was stated, homeowners' 20 insurance markets are facing extreme uncertainty and 21 rising risks. 22 Nationwide, the total number of claims has 23 increased by almost 50 percent, and the severity or 24 cost of the claims has almost doubled as well. 25 These figures are leading to rising rates 19 1 across the country. 2 A recent report from the Consumer Federation 3 of America found that nationwide from 2021 to 2024, 4 premiums for a typical homeowner increased by an 5 average of 24 percent. 6 Public reporting has highlighted particularly 7 acute challenges in states like California and 8 Florida where insurers have exited the market. 9 This topic is deeply personal for me. I grew 10 up in a rural farming community in northern 11 California, population of under 500. The median 12 household income there is $50,000, half the average 13 household of California. It is place where 14 neighbors rely on each other and a single event 15 impacts everyone. 16 I was recently there visiting family this 17 summer and heard the community phone tree go off. 18 The residential insurer for the town was not 19 renewing policies. An insurer no one knew had 20 coming in and was giving residents hours to sign 21 contracts at huge rate increases, but it was their 22 only option for coverage. 23 My hometown and much of California is faced 24 with both the disruption and fear of carriers 25 leaving or non-renewing and unbearable rate 20 1 increases. 2 We must find the balance between 3 affordability and access here in New York, and I 4 appreciate coming together today to do just that. 5 There are a number of factors that are 6 driving market instability nationwide: Increasing 7 frequency and severity of catastrophes due to 8 climate change, rising costs of materials and 9 repairs driven by inflation, a tightening 10 re-insurance market and the effects of social 11 inflation. 12 Severe weather events have become more 13 frequent and more costly and are cited as the 14 leading factors stressing the homeowners' insurance 15 market. An increasing number of natural disaster 16 events per year now exceed $1 billion in damages. 17 For New York specifically, more than 18 78 percent of the population live in coastal areas 19 of the state, meaning that a higher percentage of 20 New York in particular are vulnerable to weather 21 events. And additionally, in recent years, the cost 22 to repair and rebuild homes has been impacted by 23 inflation, supply chain disruptions, worker 24 shortages and rising wages. 25 According to the federal insurance office 21 1 between 2020 and 2023, the replacement cost for 2 property and casualty-related losses increased by an 3 average of percent. These increasing costs are 4 ultimately reflected in premiums. 5 Rising property values also represent upward 6 pressure on replacement costs and therefore rates. 7 Property values have risen 1.7 percent across the 8 U.S. over the past year, but here in New York over 9 the same period, it has risen by 3.8 percent. 10 Within the insurance industry, insurers often 11 manage the risk by purchasing reinsurance against 12 the losses they have agreed to cover. This enables 13 insurers to write more policy than if they retained 14 all risks themselves. 15 Since 2017, the overall cost of catastrophic 16 reinsurance has nearly doubled. 17 There are also non-economic factors 18 increasing insurance claims payout and loss ratios 19 including more frequent litigation and larger jury 20 awards. These costs are ultimately passed on to 21 property owners in the form of higher insurance 22 premiums. 23 We have seen the impact on policyholders when 24 states fail to strike the right balance or act 25 quickly enough to address market challenges. 22 1 Carriers withdraw, consumers lose access to 2 coverage and the cost of available coverage goes up; 3 further, as fewer options remain in the market. 4 Here in New York, the market remains 5 comparatively stable, thanks in part to DFS' strong 6 regulatory framework. 7 A 2024 "New York Times" piece highlighted 8 that while personal residential property insurance 9 is increasing by double digits across the U.S., in 10 states with robust regulatory frameworks like 11 New York, property owners are charged much lower 12 rates when measuring the cost of their premium as a 13 share of their overall home value. 14 Looking at trends over time from '21 to '24, 15 New York personal residential property rates 16 increases here in New York were about half of the 17 national average. 18 New York also remains below the national 19 average for residential property premiums. 20 Additionally, New York's personal residential 21 property insurance non-renewal rates are among the 22 lowest in the country. 23 New York also has unique risks compared to 24 other markets across the U.S. The metropolitan area 25 here has the highest population density in the 23 1 country. 2 This means that insurers are concerned about 3 correlated losses, where an event can significantly 4 impact more policyholders and have higher losses 5 than similar events in less populated areas. 6 New York also has the oldest owner occupied 7 homes in the U.S., which typically means more costly 8 repairs when they are needed. 9 While these factors would typically push 10 rates higher for consumers, we have kept them stable 11 in New York as described previously. 12 At DFS, we aim to maintain a stable and 13 competitive insurance market in order to enable 14 dependable insurance coverage at affordable rates 15 for New Yorkers. 16 State law requires DFS to review insurance 17 rates to ensure that they're not excessive, 18 inadequate, unfairly discriminatory, destructive of 19 competition or detrimental to the solvency of 20 insurers. 21 While residential property insurance rates 22 are not subject to DFS' prior approval but rather to 23 the standard of file and use, insurers typically 24 wait for DFS' approval on these rates before 25 implementing. 24 1 New Yorkers who cannot find insurance 2 coverage for their properties in the private market 3 can obtain coverage from the State's property 4 insurer of last resort, the New York Property 5 Insurance Underwriting Association for NYPIUA, which 6 DFS also oversees. 7 NYPIUA's policies tend to be more expensive 8 and can provide less coverage than standard 9 homeowners policy. 10 Insurers of last resort are designed to be a 11 temporary safety net and are not equipped to manage 12 a significant expansion of policyholders if insurers 13 withdraw from New York in substantial numbers. 14 State insurance regulators are limited in 15 their ability to directly or unilaterally address 16 the cost drivers I've discussed today, but most, 17 including DFS, try to balance insurer solvency and 18 therefore presence in the state, with affordability 19 for policyholders. 20 There are no easy fixes to these complex 21 issues, which is why I appreciate you making this a 22 priority. 23 Ultimately, solutions will require action 24 from a diverse set of stakeholders across local, 25 state and federal government, as well as the private 25 1 sector. 2 DFS has sought to address these challenges 3 through a series of actions. 4 At a macro level, in 2021, the department 5 issued guidance to insurers on how to manage their 6 material, financial, and operational risks 7 associated with climate change. 8 Insurers are expected to integrate the 9 financial risks from climate change into their 10 governance frameworks and risk management 11 strategies. 12 Within residential property policies, DFS 13 also issued guidance in 2024, reminding insurers of 14 their obligation to provide discounts to homeowners 15 who install storm shutters and hurricane resistant 16 glass, and encouraging insurers to offer discounts 17 for the installation of additional loss mitigation 18 devices. 19 Further, thanks to the great work of you and 20 your colleagues and the Governor, the 2025 budget 21 included legislation drafted by DFS that helps to 22 address the increasing costs of insurance for 23 affordable housing developments; which typically 24 purchased bundled commercial property and liability 25 insurance policies. 26 1 The department continues to explore solutions 2 to address market challenges and affordability. 3 DFS is analyzing how to effectively 4 incorporate climate and catastrophic data into 5 filings to better model credible and actuarially 6 sound loss projections considering increasing 7 frequent and severe climate events. 8 We are also developing a summary and outreach 9 plan to outline all available insurance discounts 10 and help New Yorkers better understand potential 11 cost saving avenues on their homeowners policies. 12 In closing, I will say that the first meeting 13 I convened when I assumed this role focused on 14 addressing the cost and availability of insureds in 15 New York. 16 In the six weeks since then, I have had 17 countless conversations about the topic. Myself and 18 the committed staff of DFS will work within our 19 authority to navigate these issues and partner with 20 all of you to find sustainable solutions to 21 affordability and access for New Yorkers. 22 Thank you for giving DFS the opportunity to 23 testify before you today and I look forward to 24 continuing to work together. 25 /// 27 1 SENATOR BAILEY: Thank you, Acting 2 Superintendent. Thank you for testifying, and thank 3 you to the Governor and the executive team for 4 permitting you to testify. 5 And I want to thank outgoing Superintendent 6 Harris for all of her excellent work. We worked 7 very well together. 8 Just a couple of questions because I know my 9 colleagues have a lot of questions. 10 Top line. Intra-agency stuff, right? You 11 have been at the agency for a while but you've just 12 assumed the top role. 13 If you are looking at the landscape of the 14 biggest problems or what the overall outlay of the 15 market is right now, what would you say that it is? 16 SUPERINTENDENT ASROW: So you know, I think 17 those three factors, I'm not sure which is kind of 18 the highest among the three factors but as I 19 mentioned, climate. 20 Climate risk is the primary factor I would 21 say that is discussed within our agency and with the 22 market. 23 I think in New York, over the past 5 years, 24 severe events have tripled in their frequency. 25 The next item is this kind of macroeconomic 28 1 pressure. 2 Inflation, building costs, supply chain 3 disruptions, cost of labor increasing and I believe 4 the New York State Comptroller has indicated that 5 repair and building costs have outpaced inflation 6 here in New York and continue to do so. And those 7 are just structural changes, and then the social 8 inflation issue. 9 I believe New York is second per capita in 10 kind of nuclear verdicts in that space. 11 So those are the three issues we are very 12 much focused on. 13 SENATOR BAILEY: Intra-agency stuff, you 14 know, we have had conversations, we have had 15 conversations with prior Superintendent Harris about 16 some of the staffing challenges that DFS has faced. 17 Would you say that some of those challenges, 18 while not an aptitude, only in number, just for the 19 record, would lead to an inability to fill certain 20 positions that may have an effect on the agency's 21 ability to carry out the work that it should? 22 SUPERINTENDENT ASROW: I appreciate the 23 question. 24 No, I do not believe that, you know, the 25 staffing challenges that DFS has undergone for a 29 1 number of years are leading to us loosening or 2 changing our regulation. 3 And I think that bears out, and again the 4 consistency we see in the market in terms of 5 carriers not leaving, rates remain below average for 6 the United States. 7 That being said, we understand it is very 8 significant for consumers and we are monitoring that 9 and working with all of you. 10 You know, the staffing challenges hit my 11 staff hardest, right? And they feel it by needing 12 to do more with less resources. 13 And so we have been very appreciative of your 14 support and the executive chamber support to build 15 up our staffing over the past few years, but we are 16 digging out of a hole, and that's going to continue 17 for sometime. 18 So we very much appreciate the collaboration. 19 We are continuing to talk to the executive chamber 20 about our needs. 21 I'm very focused on cross training. Focused 22 on kind of early entry staff and how do we train 23 them through a path to recreate resiliency in the 24 agency. 25 Again, that will make sure we keep the head 30 1 count. 2 We keep that retention while we continue to 3 do the work. 4 SENATOR BAILEY: Certainly. 5 I want to make sure I make very clear that 6 the lack of, in number, is not for the lack of 7 skill. You have quite capable staff. I just want 8 to make sure I underline and put a finer point on 9 that. 10 So what can we do as legislators? I know 11 that there is proposed legislation, program bills 12 that come to us. 13 We have a couple of months until the 14 legislative session begins in January. Are there 15 things that are top of mind at the agency that you 16 can think about giving us to think about, to 17 introduce, that may help tamp down some of the 18 issues and concerns that we are obviously having in 19 the market with insurance? 20 SUPERINTENDENT ASROW: So I appreciate that. 21 I will defer to kind of the wisdom of the 22 legislature on, you know, what bills that you would 23 propose, and we are here to work with you on any of 24 those. 25 You know, technical assistance, and 31 1 understanding kind of the not-good effects or the 2 unintended impacts is I think where we are 3 strongest. 4 SENATOR BAILEY: Certainly. 5 And I think the word of the day is going to 6 be affordability. I think all of us are going to 7 touch on that. 8 And I know that you are not going to be able 9 to specifically opine about a specific piece of 10 legislation that would create affordability. But 11 are there certain market conditions, certain 12 societal conditions, are there things that we can 13 help you and that the agency can help us with 14 achieving so that we can try to make things more 15 affordable? 16 SUPERINTENDENT ASROW: Yeah, what I will 17 point to at a broad level is something that we have 18 been very focused on and that is resiliency. 19 I think where we have more resilient 20 buildings, where we have more resilient communities, 21 then it's a win-win. 22 Consumers, New Yorkers are not experiencing 23 the actual loss event, which again is very 24 disruptive. They don't want to go and then seek out 25 insurance. 32 1 Insurer's costs are also going down. They 2 don't have to bear those losses. They're able to 3 underwrite more specifically and set their rates on 4 that assurance. 5 So DFS in particular has focused on 6 resiliency, so in statute as I mentioned in my 7 opening remarks, we do require discounts for 8 consumers on the use of storm shutters, shatterproof 9 glass, things like this. 10 And then we have encouraged a lot of optional 11 discounts that insurers can give and we think that 12 benefits both, right? 13 We are increasing the resiliency of the 14 actual homes and consumers are seeing reduction in 15 costs. 16 And so that's where I have asked the team to 17 pull together a rubric of all available discounts in 18 New York to provide to consumers so they can take 19 advantage of that and increase their resiliency. 20 SENATOR BAILEY: Certainly. 21 You said suggest. Is there a possibility for 22 us to go beyond suggesting? 23 In such an economic crisis, is there a method 24 where there is regulatory or legislative, in your 25 opinion, that we can compel certain carriers, if 33 1 there is a discount that can possibly be available 2 to a consumer, that they should tender it? Even if 3 they just have to apply and check a box. 4 Is there something that you believe that we 5 can do to, I guess, go much more towards compulsory? 6 I know we don't like the word mandate 7 sometimes in the insurance business. That's not a 8 great word. But is there something that we can do 9 to try to make sure that they're offering -- and if 10 it's already in a publicly available discount, is 11 there something that we can do to make sure that it 12 is widely advertised, widely known and widely 13 disseminated. 14 SUPERINTENDENT ASROW: I appreciate that. 15 And that's where I'm focused, to make sure that what 16 is available today is very available to consumers so 17 they are taking advantage. 18 So I would very much appreciate partnering 19 with you on how do we get the information about 20 these discounts out there that already exist. 21 As I said, there is precedent in the law for 22 a mandated discount on kind of hurricane resistant 23 shutters and shatterproof glass and again then 24 optional discounts that we strongly encourage. 25 And I will say in our most recent survey, 34 1 approximately 98 percent of insurers that we 2 surveyed are offering the optional discounts for 3 resiliency measures. 4 So happy to continue to partner with you on 5 what more we can do there. 6 SENATOR BAILEY: Certainly. 7 Again, we want to make sure the companies 8 remain solvent but the solvency of someone's home is 9 very much more important to me and my colleagues. 10 And I thank you for your time and I will cede 11 to my colleagues. Thank you. 12 SENATOR KAVANAGH: Thank you. 13 Thank you for your testimony. It's hard to 14 argue with someone who defers to the wisdom of the 15 legislature. What are we supposed to say to that. 16 But just, can you -- you mentioned, you know, 17 the effects of climate change and extreme weather 18 events around the country and here in New York. 19 Can you just talk a little bit more about how 20 risks of -- the growing risk of extreme weather is 21 priced into insurance from your perspective at this 22 point. 23 SUPERINTENDENT ASROW: Yeah, absolutely. 24 So how rate setting functions is that 25 carriers and then DFS, as the oversight layer on 35 1 rates, will look at their historic losses in an area 2 and their kind of projected out losses, claims and 3 then losses in that same space and then set premiums 4 to account for that. 5 You know, again, as I mentioned, in statute, 6 there is a requirement that we consider the solvency 7 and the adequacy of such rates to maintain the 8 insurers in New York. So we do expect a slight 9 profit on that. 10 Again, we make sure that it is reasonable and 11 justified in all cases. 12 So in terms of climate, you know, 13 catastrophic events are less predictable. They're 14 more severe. And so a lot of the actuarial science 15 is based on kind of standard losses that they've 16 seen year over year and they can more adequately 17 predict. 18 So what is happening with insurers is they're 19 not able to kind of account for potential large 20 losses and appropriately set those premiums. 21 So something that we are looking into that we 22 know is available and being used in other states is 23 catastrophic kind of climate modeling. 24 So we have a climate division in DFS that we 25 stood up that's focused specifically on how do we 36 1 think about that. 2 That being said, my background is in 3 technology and, you know, models have significant 4 lift. 5 So they can help account for that large 6 variation in catastrophes that insurers from the 7 actuarial side are not used to predicting but they 8 can also have large variations. 9 So small data changes can have large changes 10 that we want to make sure we understand and we want 11 to make sure those models are appropriately testing 12 so they're not having adverse effects. 13 So that's something that we are exploring, 14 but it's just harder to model catastrophes. 15 SENATOR KAVANAGH: And am I correct in 16 understanding that so far, those more sophisticated 17 models are not directly a part of the pricing or the 18 review and approval of rates; is that right? 19 SUPERINTENDENT ASROW: We are currently 20 exploring how they might be used in rates. 21 SENATOR KAVANAGH: And to the extent 22 insurance companies are using models, are they 23 submitting descriptions of those models? 24 I understand they're not actually submitting 25 the models themselves in a manner that DFS can 37 1 review; is that right? 2 SUPERINTENDENT ASROW: So, you know, 3 typically models, and again, we are still exploring 4 both with insurers and our own teams, you know, the 5 use of these models and their rate setting and then 6 our review. 7 So what we have been doing is talking to 8 other states about their process in particular and 9 one thing that they have expressed is a challenge is 10 a lot of times these models are considered 11 proprietary so it's very challenging to kind of 12 unpack the model and understand some of the 13 predictive mechanisms. 14 So again, that's something we are talking to 15 other states to learn from, learning from the 16 industry and learning from advocates. 17 SENATOR KAVANAGH: But aren't insurance 18 companies already using some proprietary practices 19 for pricing? 20 Like they don't necessarily share with their 21 competitors how they're pricing policies at this 22 point, right? 23 SUPERINTENDENT ASROW: So, you know, the 24 overall rate filings are public. 25 So I'll differentiate underwriting approaches 38 1 versus rate filing. 2 So the underwriting methods are not required 3 to be reviewed by DFS in statute that we can go in 4 and review them through examinations and yes, 5 typically also in the banking space, right, an 6 underwriting method is likely proprietary so they 7 can assess the risks of individuals and whether to 8 write them. 9 Rate setting, we do review that. Again, 10 obviously we keep that confidential amongst other 11 insurers. 12 Again, our mandate is to not be detrimental 13 to competition so we have to keep that confidential. 14 SENATOR KAVANAGH: Right, but if insurance 15 companies were to sort of take some leap into a new 16 method that involves some very sophisticated models, 17 presumably in order to properly regulate that, DFS 18 would want access to the models themselves? 19 SUPERINTENDENT ASROW: Yeah, so, you know, if 20 they were to -- again, we are in the early days with 21 our companies and exploring whether they're using 22 these models and how they're using these models. 23 So I will say yes, if they're using them, we 24 will review with them their approach. 25 But, you know, I think how deep we are going 39 1 to unpack the models themselves versus, again, a lot 2 of the work that I have done in my prior role is 3 really about the governance structure around models: 4 How do we make sure we understand the data that's 5 going into them, how do we make sure we understand 6 the models are tested, the right committees in 7 place, again, to make sure there aren't unfair and 8 discriminatory practices coming out of those models. 9 So a lot of what we would focus on is the 10 governance around them. 11 SENATOR KAVANAGH: Okay, you are currently 12 mandating through regulation, discounts for shutters 13 and shatterproof glass. 14 Does DFS set the sort of the amount of those 15 discounts? 16 SUPERINTENDENT ASROW: So we have worked with 17 the insurers to understand. 18 We see that the discounts are approximately 19 3 to 6 percent for those so we don't -- different 20 kind of factors come in, and we do approve kind of 21 the overall classification. So a discount. 22 And then insurers, depending again, on their 23 risks and kind of the specific data and loss 24 history, so it's not a very specific percentage 25 that's implemented by DFS. 40 1 They propose kind of a range, and then we 2 approve that general classification. 3 SENATOR KAVANAGH: Are you approving the sort 4 of pricing -- well, the amount of discounts, or 5 other discounts they're offering for safety and 6 mitigation? 7 SUPERINTENDENT ASROW: Yeah, so when we 8 receive a filing, we are kind of reviewing their 9 methods, their actual actuarial methods, and again, 10 how they're taking in loss data, how they're taking 11 in expense data to propose a percentage, a 12 percentage discount or a percentage premium. 13 And, yes, then we are kind of approving that 14 premium. 15 Did that answer your question? 16 SENATOR KAVANAGH: Yeah. 17 And I think I know the answer to this but 18 just for the record, we have been -- the state has 19 been investing a lot and localities have been 20 investing a lot and private property owners have 21 been investing a lot in kind of mitigation for storm 22 risk and other extreme weather risk that sort of 23 goes beyond the bounds of a particular property, you 24 know, improvements and drainage and, you know, all 25 kinds of barriers to damage that might occur to 41 1 individual properties, but is done at the community 2 level. 3 Are there currently any discounts associated 4 with those kinds of mitigation? 5 SUPERINTENDENT ASROW: So not at the kind of 6 overall community level. 7 I will say DFS is very supportive of kind of 8 community investment and resiliency measures to my 9 previous kind of comment, right, resiliency is very 10 aligned with both consumer and New Yorkers' 11 interests in terms of not having that loss 12 experience in the first place. 13 And then, you know, our expectation is that 14 investment -- first, it will encourage more carriers 15 to write in a space, again, increasing competition, 16 hopefully bringing down costs. 17 Also we do hope that those will show up in 18 rates over time. 19 That being said, we don't have a specific 20 classification in front of us because it's all kind 21 of historic data. 22 So, again, we look at historic losses and so 23 then we would expect to have the resiliency measures 24 that are being invested in today, to show up in 25 rates over time. 42 1 SENATOR KAVANAGH: Will you be able to 2 provide -- you mentioned you are gathering all the 3 potential discounts. Is that -- I assume that's a 4 work in progress. But will you be able to provide 5 for the committees here, kind of a list of current 6 discounts that you think insurers are offering? 7 SUPERINTENDENT ASROW: Yes, I hope to be able 8 to do that. 9 SENATOR KAVANAGH: We'd appreciate that. 10 Shifting gears a little bit. Talking about 11 kind of non-weather-related damages. I think we are 12 going to hear a lot about liability insurance, 13 which, as much as climate change and, you know, 14 increases in those kinds of losses have been 15 significant. 16 A lot of what we have been told and what some 17 of the written testimony has indicated is that there 18 is been a really dramatic increase in premiums for 19 liability insurance and in some cases policies 20 doubling and tripling without an explanation that is 21 at least adequate from the perspective of the 22 property owner. 23 I mean, just can you talk -- is that 24 something that DFS is observing? 25 SUPERINTENDENT ASROW: Yeah, so, you know, in 43 1 conversations with our related entities, we 2 absolutely see kind of social inflation and again, 3 higher jury awards, more litigation being a driver 4 on the liability side. 5 So, you know, like the other kind of factors, 6 we do see those increases. 7 SENATOR KAVANAGH: So if I'm a property owner 8 and my insurance company proposes to double my rate, 9 my premium, sort of how does that get -- how does 10 DFS' approval process relate with that decision 11 about what is an acceptable premium for me to pay? 12 SUPERINTENDENT ASROW: So how it works is a 13 carrier kind of will, whatever cadence in the 14 property and casualty, there is not kind of a set 15 cadence, right? 16 In health, for example, we might have a set 17 cadence in which premiums will be reviewed. 18 Property and casualty, it's when policies are 19 renewed. 20 So an insurer will come to us, and they'll 21 submit a rate filing, so a request to change their 22 premiums. 23 This could be to offer a discount. 24 This could be to increase their premiums or 25 to decrease their premiums. 44 1 So, again, then we would take that 2 information in with our actuaries and review the 3 methods, the factors that went into that; you know, 4 again, making sure that everything is fair in terms 5 of -- that rates are not excessive. 6 The rates they're posing are not excessive 7 but also that the rates are adequate to maintain the 8 solvency of the insurer and again, as we prepare for 9 potential losses, we expect there has to be some 10 amount of solvency and surplus there. 11 We look for unfair discriminatory practices 12 and then we will many times change the rate. 13 So we say that, you know, we think that our 14 indicated range is lower or different. 15 And so then they will have to go back and 16 refile and then that would become effective. 17 SENATOR KAVANAGH: My time is up. 18 I will reserve that that's an unusually 19 aggressive alarm. I like that. 20 I may want to come back for another round, 21 but thank you. 22 Do we have other senators? 23 SENATOR SKOUFIS: I have a few questions. 24 Thank you, Acting Superintendent. Thank you 25 for being here. 45 1 Thanks for your early and very responsive 2 work and it has been great working with your 3 predecessor. It was great working with your 4 predecessor as well. 5 I'm going to jump around a little bit here. 6 I want to start with does DFS track the number and 7 types of claims that occur in this space? 8 SUPERINTENDENT ASROW: We do not get -- thank 9 you for the question. We do not get claims level 10 data. 11 SENATOR SKOUFIS: Is that something you think 12 you should start tracking? 13 SUPERINTENDENT ASROW: I am happy to work all 14 of you on how we would use such data. 15 I will say from kind of a consumer advocacy 16 and privacy background and just kind of resources, 17 right, that is very sensitive data that is very 18 voluminous data so I would want to think carefully 19 about the purpose for its use and how we could work 20 together to make sure it is impactful for consumers. 21 SENATOR SKOUFIS: Do you, when you are 22 reviewing rate applications, do you get that 23 information as part of the application process? 24 SUPERINTENDENT ASROW: We do not review 25 claims level data in the rate filing process. 46 1 Again, we are looking at overall expenses. 2 We are looking at overall projected losses 3 based on historic losses. 4 We are looking at then the relevant income 5 that would offset to ensure, again, an adequate 6 rate. 7 And then other factors that are coming into 8 the filing, again, making sure there is not unfairly 9 discriminatory practices. 10 SENATOR SKOUFIS: My understanding is that 11 there is somewhere in the vicinity of 1100, 1200 12 property insurance carriers that do business in 13 New York. 14 Is that accurate? 15 SUPERINTENDENT ASROW: So I will -- I 16 appreciate the question. I will have to get back to 17 you on the exact number. 18 But one thing I will say about the overall 19 carriers, so distinguishing the kind of the number 20 of carriers against policies written. 21 I will say there's about -- the last count in 22 2024, 3.4 million policies written on the homeowners 23 side and 1.1 million in 2022 on the co-op and condo 24 side. 25 On the overall number of carriers, what I 47 1 will say is it has stayed consistent. 2 So again, that's a positive metric for us. 3 And then I also ask the team to review turnover. 4 Even if we have the same overall number, are 5 we seeing different carriers and the number stays 6 the same. 7 So we see low turnover, which, again, 8 mitigates kind of disruption for consumers who have 9 policies non-renewed. 10 So low turnover and consistent carriers right 11 now. 12 SENATOR SKOUFIS: It has been reported that 13 that is roughly the number but if could you come 14 back and confirm one way or the other. 15 Assuming that that number, that ballpark is 16 accurate, seems like a lot of carriers. 17 It seems as though a lot of folks want to do 18 business in New York, and at least from a 19 profitability standpoint, if that business 20 opportunity did not exist, you would not see over 21 1,000 carriers doing work here. 22 Do you have any sense of how -- again, 23 assuming that number is correct -- how that number 24 compares with other states? 25 I've heard Florida, for example, has below 48 1 50, below even 30 or 40 carriers doing business in 2 the state. 3 Any sense of how the 1100 roughly number 4 compares? 5 SUPERINTENDENT ASROW: I, again, I apologize. 6 I don't have that data but will come back to 7 you on kind of our total number of carriers and then 8 how it compares to other states. 9 What I will say is, again, from kind of my 10 early days in early review of this, it's very 11 specific kind of the insurers that are domiciled 12 here in New York versus kind of the overarching 13 parent company, which might have many carriers under 14 its umbrella. 15 And that might include, again, a property and 16 casualty that specialized in auto or in homeowners 17 and so these are each distinct carriers. 18 Someone who will only specialize in 19 homeowners but is under the same umbrella. 20 So we will differentiate that for you. 21 SENATOR SKOUFIS: Understood and thank you. 22 In that same vain and following up on just 23 how profitable this work is for the carriers, you 24 had referenced in your opening testimony, a May 2024 25 "New York Times" article. 49 1 I don't know if it's the same exact article 2 or a similar article around that exact same time but 3 in May of 2024, there was a "Times" story that -- 4 and we've discussed this a little bit -- that broke 5 down state by state, how the industry, the 6 homeowners' insurance industry is fairing in each 7 state. 8 They looked at the prior 10 years, and every 9 state had a bar graph and indicated whether the 10 industry was losing or profiting in that state in 11 each of the prior 10 years. 12 And so, you know, a lot of states -- and I'll 13 give you a few examples here -- if you look at this 14 graphic, a lot of states, they were up and down. 15 California, for example, obviously the 16 biggest state in the country, the industry lost 17 money writing insurance for homeowners' policies in 18 six of the prior 10 years, and that was not 19 uncommon. 20 You had a lot of states, especially in the 21 midwest in the middle of the country where they were 22 losing money in 4 or 5, 6, of the prior 10 years. 23 Then you get to New York, and this is the bar 24 graph. 25 Every single year, 10 straight years, very, 50 1 very healthy profits without exception. 2 And so that raises two questions in my mind. 3 And we've talked about at least one of these a 4 little bit, but I want to get into both of them. 5 First, the first question is are rates too 6 high in New York? 7 As DFS is getting applications and approving 8 rates, this tells me that, you know, maybe rates are 9 a little bit too high. 10 Do you think that rates are too high in 11 New York? 12 SUPERINTENDENT ASROW: I appreciate the 13 question and the details. 14 Right now, again, I think it is on a carrier 15 by carrier basis that we have to review. 16 Again, our mandate is to look at that carrier 17 and balance their specific solvency and in addition 18 to that, right, the affordability for consumers. 19 In our analysis, we find New York 20 profitability or kind of net return on the income 21 that they're generating to be about average against 22 other eastern seaboard states and about average, 23 again, with our other high population states. 24 So we do monitor this for, again, ensuring 25 that carriers remain in the market. 51 1 So happy to continue to work with you on how 2 we see and kind of how we view profitability and 3 what more we could do there. 4 That being said, I'm concerned, again, for my 5 own personal background on carriers leaving the 6 market as we have seen in California and the strain 7 on our New Yorkers if they can't access policies. 8 And again, the less carriers here, then it is 9 going to be detrimental to overall competition, 10 again, another prong of my mandate. Meaning that 11 that then will drive prices higher for a different 12 reason, right? 13 We don't have sufficient competition. 14 So we do look at profitability. We are very 15 conscious of it given the affordability crisis 16 overall, given how consumers are feeling and we are 17 trying to strike that balance. 18 I will say, knock on wood, luckily, the kind 19 of rate of catastrophic losses, which, again, can be 20 a crater, what you see in California on 21 profitability, have not happened really to the same 22 extent since "Sandy" in 2012. 23 So while like overall climate events are 24 increasing, overall losses are increasing, that big 25 one is what will wipe out profitability year over 52 1 year. 2 So, again, I think our job is to keep the 3 market stable and hope that that big one doesn't 4 come. 5 SENATOR SKOUFIS: Certainly I think we would 6 all agree that we don't want to see what has 7 happened in California happen here with carriers 8 fleeing the state. 9 And look, it stands to reason based on just 10 this snippet of data when you are losing money in 11 six of the prior 10 years, and a couple of those 12 years are massive, massive losses for the industry, 13 that stands to reason why, you know, they would pick 14 up and leave. 15 But when looking at New York's information 16 here, there is nothing that suggests it's anything 17 but very profitable for the industry and that's why 18 I think, again, assuming that number is correct, you 19 see 1100 or 1200 carriers doing business here. 20 The other question that this raises for me 21 that we've talked a little bit about in the past, is 22 are we in New York subsidizing the losses that are 23 occurring in other states? 24 And by we, I mean policyholders. 25 I know that there is statute that is supposed 53 1 to protect against that, but no doubt if a carrier 2 was interested in trying to cross subsidize, they 3 wouldn't put that explicitly in their rate 4 application. 5 They would embed it in their rate 6 application. 7 And so can you give, with 2 minutes left 8 here, can you give us a sense of how DFS is able to 9 parse out? 10 Is there something funny happening in this 11 rate application whereby New Yorkers are expected, 12 from the applicant's point of view, expected to 13 cross subsidize wildfire losses in California, flood 14 losses in Florida and these other catastrophic 15 events that are happening in other states? 16 SUPERINTENDENT ASROW: Absolutely. 17 I appreciate the question. 18 So, in the rate filing, I will say the 19 documents we receive are voluminous and our 20 actuaries go through them in detail. 21 For example, the checklist of documents that 22 we receive is publicly available and goes into quite 23 a lot of detail. 24 So as you noted, New York carriers cannot 25 bring in cost from -- direct costs from other 54 1 states. 2 So, they present to us and we confirm that 3 the expenses that they are projecting are only 4 New York-based expenses from that carrier, again, 5 domiciled here or active here. 6 We make sure that the projected losses are 7 only based on New York losses. 8 Even reinsurance, which is a key expense, it 9 has to be proportioned out for the specific risk to 10 New York. 11 So we do look at that, and it's a very 12 important part of our rate review process. 13 That being said, you know, the overall -- 14 SENATOR SKOUFIS: Can I interject because 15 I only have 30 seconds. 16 I appreciate you're trying to parse out 17 exactly the New York losses, these are the New York 18 expenditures. 19 If you don't have claims level data, how are 20 you able to verify that that information is New York 21 exclusive? 22 SUPERINTENDENT ASROW: So, you know, the 23 actual expenses for the New York carrier, for 24 example, their reinsurance costs, their cost of 25 staff, those are specific, right? 55 1 We get that data and so we are able to look 2 at that. 3 And again, the projected losses and how 4 they're considering that at a macro level, we are 5 able to look at that. 6 Again, happy to work with you on kind of 7 overall how we can use claims level data. 8 SENATOR SKOUFIS: Thank you. 9 SENATOR GOUNARDES: Thank you very much, 10 Senator Mayer, for letting me cut ahead quickly. I 11 have to take my little one to a doctor appointment 12 soon. 13 I have a couple of very quick questions, 14 Commissioner. 15 First, you mentioned in response, I think, to 16 Senator Bailey's question or Senator Kavanagh's 17 question that sometimes the insurance carrier will 18 come and ask for a decrease. 19 When was the last time a carrier came and 20 asked for a rate decrease? 21 SUPERINTENDENT ASROW: I will have to get 22 back to you -- I appreciate the question -- on the 23 specifics of the last time a carrier in the 24 homeowner space came back for a decrease. 25 SENATOR GOUNARDES: Ballpark, last 10 years, 56 1 last 15 years? 2 SUPERINTENDENT ASROW: I apologize. 3 SENATOR GOUNARDES: Has it ever happened? 4 SUPERINTENDENT ASROW: I'm six weeks in, so I 5 will have to come back on the data on that. 6 SENATOR GOUNARDES: Okay. 7 Well, I think based on Senator Skoufis' 8 chart, I think it would be hard to believe if it's 9 happened any time in the last 10 years. 10 I just find it hard to believe that carriers 11 would willingly come to us and say we want to make 12 less money. 13 My second question is, going back to some of 14 your discussion with Senator Kavanagh around the 15 data sharing, and the formulas and the modeling and 16 whatever. 17 It feels to me like the frustration that many 18 of us are reflecting from our constituents is that 19 they don't understand why their insurance is going 20 up. 21 It seems like a black box. 22 And when you have proprietary modeling that's 23 based on data that no one else can see, not even the 24 regulator who is going to look under the hood and 25 make sure everything makes sense, it's actually an 57 1 invitation for uncertainty and it's an invitation to 2 make things up. 3 So why should we allow, if we are trying to 4 promote a healthy and competitive insurance market, 5 why shouldn't we allow, you, as the regulator, to 6 have access to that proprietary data so that you can 7 look under the hood and provide an independent 8 analysis as to whether or not this formula actually 9 makes sense and is not designed to gouge consumers? 10 We do that at the federal level. Companies 11 have to disclose confidential data to federal 12 regulators for different industries. 13 How can we trust that -- or how can you trust 14 that what you are being asked to evaluate is 15 actually legit if it is a black box? 16 SUPERINTENDENT ASROW: I appreciate the 17 question. 18 I'll differentiate kind of climate modeling, 19 which again, is -- 20 SENATOR GOUNARDES: The actuarial model, not 21 just climate, everything. 22 SUPERINTENDENT ASROW: So that's where I was 23 going. 24 So actuarial modeling, you know, as a science 25 has a long history and we do work closely with the 58 1 standard setting body, that is kind of, you know, 2 where actuaries go and get trained. 3 We are very familiar with kind of new 4 actuarial standards as they come out, right? There 5 are rate setting organizations. There's a lot of 6 strong kind of work and academics beyond actuarial 7 sciences, which, again, we have our own actuaries 8 who do that and test it. 9 In terms of overall consumer awareness about 10 actuarial science and what goes into that, again, my 11 focus is on consumer transparency and how can we 12 communicate that. 13 SENATOR GOUNARDES: But if the model is 14 proprietary and we are going to trust industry's 15 word that we can't look under the hood, how are we 16 providing transparency? 17 I don't think we actually are getting to the 18 root of the problem here, which is people don't 19 understand why their rates are going up. We have a 20 list of factors. Numbers are going into a formula 21 but no one sees what the formula is. 22 And you said in response to Senator Kavanagh 23 that the regulator doesn't get to see what the 24 formula is. 25 So how do we know that the formula is a 59 1 legitimate formula? 2 SUPERINTENDENT ASROW: To clarify, for rate 3 setting, we do see the formula. For rate setting, 4 we do have, again, the factors. 5 How much expenses are they putting in? 6 What is their projected loss? 7 What is their projected kind of income that 8 they need to maintain a surplus for a large loss 9 event? 10 So we get all of that data on the rate 11 setting which is required by statute. So we do have 12 that data. We look at it. 13 The specific pieces on the modeling, you 14 know, climate risk models are new proprietary 15 methods that we are exploring but again, to this 16 point we are not comfortable yet and we are still 17 exploring it because again, we don't understand how 18 the data is being used, what is going into it. 19 So again, that's our -- we echo your concerns 20 in terms of caution on black box models. 21 The rate setting models, we do use on the 22 actuarial side. 23 And then as I mentioned, statute does not 24 have us go in on the underwriting side, which is 25 distinct on whether a consumer will get a policy, 60 1 distinct from premiums and natural cost of the 2 policy. 3 SENATOR GOUNARDES: Got you. 4 Thank you. 5 In response to Senator Skoufis' question when 6 you were looking at the New York data and claims 7 data and historical data on all these rate settings, 8 are you evaluating just the home and property data? 9 Many carriers have multiple lines of 10 business. They operate in New York. They might 11 provide auto. They might provide life. They might 12 provide residential. 13 Are you looking at specifically that line of 14 business for the homeowners' insurance or are you 15 looking at the totality of the company's portfolio 16 here in New York when you are evaluating that data? 17 SUPERINTENDENT ASROW: So we look -- I 18 appreciate the question. 19 We look on a carrier by carrier basis which 20 typically these entities split out. So they will 21 have an auto carrier, they will have a homeowners 22 carrier. 23 Typically it's multi-peril in terms of what 24 they're insuring, so that will include kind of fire 25 as well as liability, so we don't differentiate 61 1 that. But it's on a carrier by carrier basis, if 2 that answers your question on the rates that we look 3 at. 4 SENATOR GOUNARDES: A little bit. 5 And then my last question is, it's my sense, 6 and I would love to be proven wrong, that many of 7 these insurance companies collect all these premiums 8 and then they go and they have investment vehicles 9 for private equity, venture, real estate, et cetera. 10 And that insurance is actually not their primary 11 line of business. 12 Do you agree with that assessment, and are 13 there things we can do to not allow our 14 constituents' premiums to be fuel for private equity 15 investments? 16 SUPERINTENDENT ASROW: Yeah, should I -- is 17 it okay? 18 SENATOR GOUNARDES: Yes or no. 19 Just say yes. 20 SUPERINTENDENT ASROW: As a regulator, there 21 always is, you know, an explanation, so I appreciate 22 the question. 23 So I will say we do expect income from our 24 insurance to come from the underwriting business 25 itself. 62 1 Sometimes it's not profitable on the 2 underwriting side, but that is, again, kind of 3 premiums and against losses out and the differential 4 there. 5 And then again, you know, that premium that 6 is initially collected is used to invest. 7 And then the income there is, again, we are 8 also incorporating that to measure the profit. 9 So that investment income also comes into our 10 calculation in terms of maintaining adequate rates 11 and not excessive. 12 SENATOR GOUNARDES: Thank you. 13 SENATOR KAVANAGH: Senator O'Mara. 14 SENATOR O'MARA: Thank you, Chairman. 15 Thank you superintendent for being with us 16 today and your short time in your tenure as 17 superintendent. Congratulations on that. I look 18 forward to working with you going forward with that. 19 I certainly appreciate your sharing where you 20 grew up in Cedarville, California as I represent the 21 district of seven counties largely rural, 22 agricultural in the Finger Lakes Southern Tier 23 region of the state. 24 And while our home prices, most would 25 consider very reasonable for the State of New York. 63 1 As you mentioned in your testimony, our 2 median household incomes are much lower as well. So 3 the cost of these insurance increases may have even 4 a greater impact on these lower income households 5 that we have in rural New York State. And while, 6 you know, my district, unfortunately doesn't have 7 any coastal territory, we do have a lot of hills and 8 steep hills; steep slopes. 9 And with the increase in microburst storms 10 that we've seen, with heavy downpours producing 11 large amounts of rain in short periods of time and 12 just inundating the creeks and the rivers that flow 13 through the communities, we have seen certainly 14 repetitive incidents in communities in just a few 15 years with devastation. So that has an impact 16 there. 17 So I appreciate your having that background 18 and that understanding there. 19 We have talked a little bit about it but 20 maybe you can expand a little more on it. 21 We have certainly seen in other states, that 22 more coastal states -- Florida, California -- that 23 have had I guess what we would call the larger 24 widespread disasters, as opposed to more acute 25 microburst things or straight line wind storms that 64 1 we've seen in my area. 2 What are we learning from these other states 3 that now have a shortage of carriers providing this 4 insurance, which is really driving up the rates and 5 certainly anecdotally hear a lot of stories of 6 people just foregoing insurance on their properties 7 and taking that risk on themselves. 8 What are we learning from states like Florida 9 and California and the loss of these carriers? 10 SUPERINTENDENT ASROW: I appreciate the 11 question and your background as well, Senator. 12 So, you know, we coordinate very closely with 13 the NAIC who I believe will join you today and as 14 well and to learn from their experiences and 15 understand kind of the pressures that those carriers 16 faces, what regulators there did. 17 So I will say kind of, again, we are going 18 back to that balancing act that we have to do in 19 terms of affordability and access. 20 And, you know, just given what you indicated 21 in terms of your region, I will note, as I said, 22 overall, you know, New York's premiums continue to 23 be below the national average. That being said, we 24 know consumers are feeling it. But I ask the team 25 to disaggregate the data a little bit more. 65 1 And I will say for homes that have a 2 replacement cost or a coverage amount under 3 $400,000, we are 23 percent below the national 4 average. 5 So in particular for these homes with lower 6 premium coverage, we -- or overall coverage, we are 7 doing a good job again in keeping it affordable for 8 consumers and we will continue to coordinate with 9 other states. 10 SENATOR O'MARA: Thank you for that. 11 Talked a little bit about discounts, some 12 being mandated, some being optional. What seems to 13 work and doesn't work in that area? 14 I mean, are the carriers allowed to come up 15 with -- you say there is option 1. So they're 16 allowed to come up their own -- on their own without 17 needing permission from the state? 18 SUPERINTENDENT ASROW: I appreciate the 19 question. 20 So, yes. A carrier can come to us. It has 21 to be actuarially sound, it cannot be unfairly 22 discriminatory but they can present a new discount 23 to us that does have to come to us as another rate 24 filing. 25 So if they want to put in a discount for 66 1 smoke detectors or burglary alarms, or whatever it 2 might be, they come to us and we review that. 3 I have asked the team in particular to 4 prioritize filings for consumer discounts in our 5 overall list of filings to make sure consumers see 6 those right away and then I hope to combine that 7 with an overall transparency push for consumers to 8 understand what those discounts are. 9 SENATOR O'MARA: Again, with your background 10 coming from a rural farming community, as I 11 represent a lot of, there seems to be inadequate 12 options for farmers for incidents of crop loss due 13 to these weather conditions. 14 What insight do you have on that, and what 15 maybe are you able to look at in New York to provide 16 some better options for the agricultural community 17 to protect against crop loss? 18 SUPERINTENDENT ASROW: I appreciate that 19 question. 20 So, you know, at this point in my tenure, I 21 haven't dug into that specific issue but I would 22 love to work with you more on it and we can circle 23 back and understand what we can do together. 24 SENATOR O'MARA: Okay. Great. 25 Thank you and while I also appreciate your 67 1 willingness to defer to the wisdom of the 2 legislature, that, in my experience, oftentimes ends 3 up in a veto. 4 So, you know, I would encourage a strong 5 working relationship with the legislature, certainly 6 your department comes up with program bills that go 7 through, usually the chairs of the committees for 8 those. But a give and take and just saying, as we 9 see from so many departments, sorry we don't comment 10 on pending legislation. That's the executive. So 11 we don't often get direction and answers on that and 12 would rather have a working relationship to come up 13 with a product and legislation that is acceptable 14 and works rather than just having to get a veto at 15 the end of the session and having to start all over 16 again working it up the next year. 17 So I would encourage that type of a working 18 relationship going forward. 19 SUPERINTENDENT ASROW: I appreciate that and 20 absolutely, we will coordinate. 21 SENATOR BAILEY: Senator Fernandez. 22 SENATOR FERNANDEZ: Thank you so much. You 23 mentioned in your testimony about the climate 24 change, and I don't want to talk about climate 25 change. I come from a coastal community. So every 68 1 rain storm does have a dramatic effect on my 2 neighborhoods here. 3 In 2013, we launched the New York City 4 Community Insurance Pilot Program. Could you speak 5 on that at all? It is a New York City initiative. 6 But any information on it? 7 SUPERINTENDENT ASROW: I appreciate that. 8 I'm not familiar with that, which I 9 apologize. Again, I'll make sure to understand more 10 and we can get back to you. 11 SENATOR FERNANDEZ: Okay. 12 Touching on insurance premiums on residential 13 buildings, we all know they're going up, and it was 14 identified and Governor Hochul announced a new 15 guidance, I believe in -- or last year, prohibiting 16 insurers from asking about or making coverage 17 decisions based on Section 8 status. 18 Have we seen changes since she implemented 19 this new guidance? Is there any data to show how 20 much they were raising insurance premiums based on 21 the number of Section 8 tenants? And why is that 22 even a factor in consideration? 23 SUPERINTENDENT ASROW: I appreciate the 24 question. 25 I know that DFS, before my tenure here as 69 1 Acting, worked very hard and appreciate the 2 partnership on that legislation. 3 So, you know, we are monitoring for the use 4 of that factor in rate setting, and again, that is 5 now prohibited. So we are ensuring that it is not a 6 factor moving forward. 7 In terms of kind of, you know -- because, 8 again, it was potentially permissible before, we 9 don't have the kind of before and after comparison 10 but we are happy to kind of coordinate and 11 understand that a little more. 12 We are aware and conscious of the reports of 13 affordable housing continuing to have premiums 14 increase. 15 We haven't gotten direct complaints about 16 that but we are available and to work with the 17 housing authorities to understand what they're 18 requiring and how to handle this. 19 SENATOR FERNANDEZ: Okay. Well, that seems 20 just -- I mean, obviously we know the governor put 21 this new guidance and it is direct discrimination 22 but are there any ways for residents to report 23 discrimination based on their Section 8 status right 24 now? 25 SUPERINTENDENT ASROW: Absolutely. 70 1 So we have a consumer assistance unit, and I 2 would strongly encourage all of your constituents to 3 use that. 4 That's a direct way for consumers, 5 policyholders to communicate with DFS and then we 6 make sure that insurers are following up. 7 And then it gives us an opportunity, again, 8 to flag that for an examination to go in and 9 understand more deeply what's going on beyond our 10 rate setting authority. 11 SENATOR FERNANDEZ: So since it's guidance, 12 do we know if they're asking the Section 8 tenants? 13 SUPERINTENDENT ASROW: My understanding is 14 that it is law. So it's in statute that Section 8 15 status is a prohibited factor so it cannot be used. 16 SENATOR FERNANDEZ: What is the penalty 17 enforcement if they do? 18 SUPERINTENDENT ASROW: So we would not 19 approve their rate. So they would not be able to 20 charge that premium and we would then, yes, we have 21 enforcement authorities. 22 We can go in and do an investigation if we 23 found that they violated that and they would have 24 penalties associated with it. 25 SENATOR FERNANDEZ: Thank you. 71 1 I yield my time. 2 SENATOR BAILEY: I think each of us are going 3 to take a brief second round, and Acting 4 Superintendent, we thank you for your time. 5 I just want to dovetail off something that 6 Senator Fernandez just talked about, about 7 discrimination and we know insurance is the only 8 inherently discriminatory thing, you know, that we 9 have there, but certain discriminatory things are 10 beyond the pale. 11 Have you seen even -- there was legislation 12 that myself and Senator Kavanagh, also Senator 13 Skoufis did about discrimination in insurance and 14 property holders. 15 Have you noticed in the last 2 years since it 16 has been enacted, if there is a difference in 17 coverage of subsidized housing or different types of 18 housing in addition to, you know, regular 19 residential? 20 Have more companies failed to tender policies 21 to those types -- to that type of housing? Have you 22 noticed that? 23 SUPERINTENDENT ASROW: So we are aware and 24 happy to work with you -- I appreciate the 25 question -- in more detail on this data. 72 1 The one thing I will flag is this comes under 2 commercial property insurance, given that it is more 3 than four units typically. So we have noticed a 4 slight decrease that we are monitoring for that. 5 And then, you know, in terms of the increase 6 in what is going on, again, we are available to work 7 with the housing authorities and all of you to dig 8 into this more. 9 SENATOR BAILEY: Excellent. I know we are 10 getting back to the discounts again, and I know it 11 seems like rather perfunctory but I think it really 12 is important. 13 In your practice, in the DFS' practice, do 14 discounts have to be offered uniformly through a 15 carrier? 16 For example, in Senator O'Mara's district and 17 my district, if Allstate is tendering -- just to use 18 one company, top of the alphabet, just for the 19 record, that came to my mind -- not attacking any 20 carriers, you know, we get in trouble when we name 21 names here. But if somebody that has that company, 22 in my district and Senator O'Mara's district, would 23 that policyholder be offered the same discounts, 24 provided that it's the same single-family home for 25 owner-occupied use? Is that -- would that be 73 1 accurate? 2 SUPERINTENDENT ASROW: So, I appreciate the 3 question. 4 So I think of this as kind of a series of 5 layers, the approvals that we make in terms of 6 classification. 7 So, there might be a classification on a type 8 of property, you know, whether it's side boarding or 9 whatever it may be, and then if further 10 classification indicates a discount for a smoke 11 detector. 12 So, yes, when we are approving a premium or a 13 rate that is including a discount, it's specific. 14 So it's 3 percent for having a smoke detector, but 15 an individual policyholder might feel that 16 differently because their home has a side board 17 versus wood or whatever it might be, and that 18 indicates a different kind of classification and 19 change in their rate. 20 So, again, a policyholder will not have one 21 to one of 3 percent and see that -- so 3 percent 22 will stay constant -- I apologize. 23 But, you know, how the policyholder feels it 24 in their premium will vary because of all those 25 other factors on their property. 74 1 SENATOR BAILEY: I just want to make sure 2 because I come from the Bronx, New York. And a lot 3 of the times, areas like the Bronx -- and 4 specifically the Bronx -- had been, in the past, red 5 lined and have experienced unfair discrimination. 6 And I'm not saying it is happening in the 7 form of the discounts but, I just want Bronxites and 8 Mount Vernonites -- I represent both areas -- to be 9 able to have the same discounts in any of my 10 colleagues' areas, and I understand that it may be 11 based upon how the housing stock is built. 12 But if housing stock is built differently by 13 area, these row houses that happen on East Chester 14 Road in the Bronx may be different than East Chester 15 Road in East Chester, New York, right? So I just 16 want to make sure that we are figuring out a way to 17 make sure everybody is able to get as close to the 18 same type of discount. 19 I guess a good question for you -- and this 20 is more of a consumer friendly question -- is a lot 21 of people may not have adequate coverage on their 22 home. 23 How does a New Yorker, a homeowner, property 24 owner, how can they ensure it? 25 Can DFS aid homeowners in determining whether 75 1 they have adequate coverage? 2 SUPERINTENDENT ASROW: I appreciate the 3 question. 4 One thing I will just flag from the prior 5 conversation is red lining is prohibited. 6 So, you know, we do look at that in rate 7 setting and ensure, you know, geographies that are 8 based on kind of race and ethnic background are not 9 used in rate setting. 10 And then, again, those discounts should be 11 applied overall with taking the policyholder's other 12 factors into consideration. 13 In terms of, you know, how an individual 14 would have adequate kind of coverage on their home, 15 I will say, you know, DFS, again, doesn't look at 16 that kind of policyholder data, that level of data. 17 And it would be quite challenging for us to 18 kind of go in and make independent determinations 19 given, again, the specialty of the insurance market 20 to do that work on a policyholder by policyholder 21 basis. 22 That being said, I am committed to 23 transparency for consumers. 24 And something, as I said, I'm interested in 25 is enumerating discounts, enumerating opportunities. 76 1 So I would love to partner and understand how 2 do we communicate to consumers what is adequate 3 coverage for them in a way that they can then go and 4 work with their insurers on what that is. 5 But again, you know, I don't think it's DFS' 6 place to go and do the work of the insurer. 7 SENATOR BAILEY: Certainly. I'm not saying 8 it is. I just want to make sure that because 9 constituents routinely come to us, and they have a 10 covered loss. And they come to us and they say 11 well, my policy limits were x, y and x. I didn't 12 know. And they're short $50,000 and that they have 13 to rob Peter to pay Paul because they didn't know, 14 and nobody made them aware. 15 So I'm wondering, as you said, I think we can 16 look into that, but I just want to put a fine point 17 on that as a consumer thing. 18 Last question related to the data and the 19 proprietary information conversation. And I know 20 that there is a black box on certain things and that 21 DFS has access to certain proprietary information. 22 When it comes to, by geography, by area, by 23 rate setting, by zip code, is there a way for us to 24 have a conversation about something that is commonly 25 known as geo-fencing? 77 1 Does DFS have a way or an opinion on 2 geo-fencing certain areas, specifically to the 3 amount of risk that may be in a certain area as 4 opposed to the whole zip code? 5 10466 where I live, down the block may be a 6 different risk and up the block may be a different 7 risk. 8 Is there an opinion on the idea and practice 9 of geo-fencing? 10 SUPERINTENDENT ASROW: I appreciate the 11 question and happy to work with you on this. 12 As I said, the geography that we are thinking 13 about is first, again, prohibition to red lining. 14 So, making sure that is not coming into the rate 15 setting process. 16 In addition to that, they do have kind of 17 territory geography classifications. I will say 18 those tend to be at a broader kind of borough level. 19 Not even as specific as zip codes sometimes. And I 20 think what we have seen is that is kind of an 21 operational necessity, again, to kind of have their 22 portfolio be a little bit more kind of granular. 23 But, you know, opportunities to work with 24 carriers and have that be narrower or more specific, 25 again, not coming into conflict with red lining is 78 1 something I'm happy to explore. 2 SENATOR BAILEY: Certainly. I appreciate 3 your time. Thank you. 4 SENATOR GOUNARDES: A couple of quick 5 additional questions, Superintendent. 6 First, to drill down on another piece of this 7 discount conversation. 8 One of the concerns I have is it's all great 9 if these discounts exist, but they only are really 10 consequential if policyholders know they exist. 11 And so I'm curious, you know, for the 12 policyholder who changes out their roof to a more 13 resilient roof or installs the carbon monoxide 14 detectors and there are discounts available with 15 their carrier. Maybe they don't know about them. 16 Is there anything that DFS does to ensure 17 that carriers are properly, in a very forward facing 18 manner, communicating these discounts to their 19 policyholders? 20 SUPERINTENDENT ASROW: I appreciate that 21 question and I think I'm very much aligned on asking 22 the same thing when I came into this seat. 23 So I think my first step is just making sure 24 that we have an adequate count of all of those 25 discounts for all of you and for ourselves. 79 1 And then, you know, I will say there are a 2 number of vehicles that we do have at DFS, right, we 3 ensure that the files, the forms, the process when a 4 consumer comes in in terms of appropriate 5 communication. 6 So we review all of those forms and we have 7 avenues where we could request other forms, have a 8 conversation with carriers on how they're 9 communicating the discounts to consumers. 10 SENATOR GOUNARDES: I guess my question is, 11 if you are working with a broker, no doubt when you 12 are having that conversation with the broker, the 13 broker is very well versed, is -- I would like to 14 think, knowledgeable vis-a-vis the discounts 15 available and can directly communicate those 16 discounts with their client. But especially if you 17 are not going through a broker, how do you know? 18 Short of actually picking up the phone or 19 maybe digging through, you know, 17 different links 20 on the carrier's website, that maybe there is some 21 list somewhere embedded; how is one supposed to know 22 what discounts are available? 23 SUPERINTENDENT ASROW: I appreciate that, and 24 that's a question that I'm working on answering. 25 So what I want to do is understand -- and 80 1 again, I know that the majority of the carriers are 2 offering the optional discount so I think that's the 3 next step and I'm happy to partner with you. 4 DFS is happy to partner on really 5 understanding how that is being communicated to 6 consumers, both from the DFS side and from the 7 carrier side. 8 SENATOR GOUNARDES: Are there any regs or 9 statute that speaks to how these discounts are 10 supposed to be communicated? Or is it completely 11 left up to the carrier? 12 SUPERINTENDENT ASROW: I will defer. I'm not 13 sure about the discounts specifically but I know 14 there is much in statute about kind of how, again, 15 we are communicating with the policyholders in terms 16 of the filings, the disclosures that have to be made 17 to them. 18 So I will have my team go into the law and 19 understand kind of within those disclosure 20 requirements and in the form requirements that 21 policyholders have to receive, is there anything 22 specific on discounts. 23 SENATOR GOUNARDES: Great. Thank you. 24 The only other question I have, you touched 25 very briefly on file and use in your opening 81 1 remarks. This is a conversation -- or this is a 2 topic we have discussed a little bit about. 3 Given how especially uncommon the uptake is 4 for carriers, taking advantage of file and use, do 5 you have an opinion as to whether we should just do 6 away with that option for carriers as they apply for 7 rate increases? 8 SUPERINTENDENT ASROW: I appreciate the 9 question. 10 So we have not seen carriers move without our 11 explicit approval on their rate. So as I said, it 12 is file and use in name only currently. 13 SENATOR GOUNARDES: Okay. Thank you. 14 SENATOR KAVANAGH: Thank you. A couple 15 questions. 16 First I just want to note we have been joined 17 by former Senator Diane Savino is in the room and 18 also Tom O'Mara was mentioning about working with 19 the governor's office. 20 We are also ably but quietly -- the governor 21 is ably but quietly represented here in the room as 22 well, so we appreciate the partnership with the 23 executive. 24 A couple of questions. First, maybe just a 25 bit of a speed round on potential policy changes we 82 1 might make. 2 First, CRA, as we know, applies affirmative 3 obligations to various financial institutions to 4 redress -- to provide redress for the fact that we 5 had many years of red lining and other bad behavior 6 including in some neighborhoods I represent on the 7 lower east side. 8 Is CRA a potential model for increasing the 9 kind of affirmative obligations of insurers who want 10 to do business here to ensure that they are, you 11 know, meeting the needs of communities that might 12 otherwise struggle to get insurance? 13 SUPERINTENDENT ASROW: I appreciate the 14 question, and happy to, I think, work with you on 15 exploring that issue. 16 I will say because DFS is the joint kind of 17 banking and insurance side, we have a lot of 18 experience and I think technical understanding of 19 CRA on the banking side. 20 So happy to work with you on thinking through 21 that. 22 SENATOR KAVANAGH: So at least there is a 23 potentially promising idea there. Is that... 24 SUPERINTENDENT ASROW: I defer. 25 SENATOR KAVANAGH: You'll defer to the 83 1 legislature on that. We appreciate that. 2 There's other ideas. There has been talk 3 about, you know, we have had a lot of conversation 4 about reinsurance, which is less directly regulated 5 by you, but it's a tool that insurers are using to 6 spread their risk. 7 I have wondered whether that may be a 8 mechanism by which New Yorkers are paying for the 9 cost of damage in other places because reinsurers 10 are setting rates across many jurisdictions I 11 gather, and without as much regulation. 12 Is that a fair statement? 13 SUPERINTENDENT ASROW: Yeah, so appreciate 14 the kind of highlight on reinsurance. As you said, 15 it does cover national kind of carriers, and it is a 16 way to spread that risk in the insurance market. 17 As I said, previously, I believe in the 18 expense kind of category that we look at, a 19 reassurance line item has to be broken out. 20 So again, only the reassurance cost that are 21 being used to cover New York risk are included in 22 that rate filing. That being said, I think I 23 mentioned the cost of reinsurance overall has 24 doubled. 25 So that base cost, I agree, on an indirect 84 1 way has to incorporate kind of the national 2 footprint. 3 SENATOR KAVANAGH: They're pricing in damage 4 that is occurring in other markets. Okay. 5 SUPERINTENDENT ASROW: Yes. 6 SENATOR KAVANAGH: Okay. There has been 7 talk -- and I think we might hear some testimony 8 today about the possibility of the state creating 9 some kind of a state-backed, sort of reinsurance 10 facility. Is that something that you've explored, 11 or is that an idea that might be worth exploring? 12 SUPERINTENDENT ASROW: I will, again, as I 13 said, I appreciate that, you know, these issues 14 require, I think action across our areas of the 15 legislature, the executive chamber and the 16 regulators. 17 I think that's a space where, again, I'll 18 defer to you all as lawmakers and the Governor on 19 how to, whether to create that, but we stand ready 20 to advise and to implement. 21 SENATOR KAVANAGH: Okay. And something less 22 hypothetical, we have, already, some captive 23 insurance entities here in New York. We'll hear 24 from at least one of them today. 25 Can you talk about how that, you know, from 85 1 your perspective, how does DFS interact with 2 regulating that and to what extent do you think that 3 might be a promising solution for -- and it has been 4 particularly proposed for affordable multi-family 5 housing and other housing that the government is 6 playing a substantial role already in subsidizing. 7 SUPERINTENDENT ASROW: Thank you for that 8 question. 9 We are very aware of captive. It's a form of 10 self-insurance, and there are a number of models out 11 there. And, you know, DFS does register a number of 12 captives in this state. 13 You know, we have a different kind of 14 regulatory approach because, again, it's 15 self-insurance. 16 So what we have found, a few things to 17 highlight from our experience with captives. 18 One, of course, they can bring down costs. 19 The profit that is coming from the insurance entity 20 can be put back into reduced premiums. 21 I will say for New York, the requirement to 22 form a captive has a pretty high net worth so over 23 100 million, I believe. 24 So we do see captives more frequently kind of 25 domiciled in Vermont, for example, where there is a 86 1 lower net worth requirement. 2 We do feel in New York that self-insurance, 3 it is essential to have the consumer protection of a 4 high net worth to incorporate kind of the potential 5 for losses. Because I will say, with 6 self-insurance, with captives, we don't have the 7 guarantee fund, which, again, is backstopping 8 insurers here in New York. 9 So if an insurer becomes insolvent, we do 10 have those funds as a last resort to make sure 11 claims are paid, so a captive would not have that 12 opportunity. 13 That being said, we are looking and having 14 conversations with other states on these models and 15 happy to continue to speak on it. 16 SENATOR KAVANAGH: I would just note that 17 HCR, there are housing agencies in here. But there 18 is a Notice of Funding availability right now for 19 $5 million to facilitate affordable housing 20 providers buying into existing captives. So that is 21 a topic percent think we will be discussing on an 22 ongoing basis. 23 Just briefly with 2 minutes, back to the 24 question of liability. 25 I just observed that one person's nuclear 87 1 verdict is another person's justice served. But can 2 you just talk a little bit about -- does DFS have 3 the data to certify or, you know, approve rates 4 based on a conclusion that they are actuarially 5 justified based on changes in the landscape, what 6 you are calling social inflation, including 7 litigation results? 8 SUPERINTENDENT ASROW: Yeah, so I think from 9 the aspect of social inflation, you know, we do see 10 that incorporated into the projected expenses and 11 costs of companies. And, you know, again, that -- 12 those projections are based on their historic data, 13 so that's something that we can't refute. 14 And again, we go in and make sure that that 15 data is sound. We think about the credibility of 16 that data. So we are not kind of just taking the 17 data on face value. We are digging into kind of the 18 voracity of the data. 19 But again, as I said, kind of the nuclear 20 verdicts, the rising kind of jury awards, those are 21 historic data points now that are incorporated into 22 rates. 23 SENATOR KAVANAGH: And they're based 24 exclusively on New York data? 25 SUPERINTENDENT ASROW: Yes. 88 1 SENATOR KAVANAGH: Just again, this is I 2 think going to be an ongoing theme today, but it is 3 perplexing to see liability rates double. 4 I mean, it's just, you know, we have talked 5 about high jury awards in certain places for many 6 years. And you know, for decades. 7 So I think that's something we are going to 8 continue to want to discuss how the data that you 9 have relates to that and how you are approving those 10 rate increases. 11 There is one question -- one more question: 12 Do you have specific -- to the extent they're 13 getting rates on liability policies, obviously some 14 people are buying policies that include their home 15 and also auto and all of that. 16 Do you have the data and do the applications 17 break out the cost of potential liability for home 18 insurance versus auto insurance and other products 19 that might be bundled together? 20 SUPERINTENDENT ASROW: So, typically -- so 21 I'll have to get back to you on kind of bundling 22 auto and home in particular. 23 I would say in homeowners we -- typically the 24 vast majority of policies are multi-peril, so 25 they're including kind of liability and casualty as 89 1 well as kind of property damage but then the rates 2 and the discounts we set are for that specific 3 carrier and that line. 4 SENATOR KAVANAGH: So if I'm a homeowner and 5 I don't own a car, I might -- might my rates go up 6 because of an increase in auto in claims against 7 auto insurance? 8 SUPERINTENDENT ASROW: So I will say, you 9 know, happy to kind of dig into this, but no, those 10 again, should be separate rates that aren't coming 11 into play. 12 I will have to get back on kind of the 13 bundling discounts that are available. But, yeah. 14 SENATOR KAVANAGH: My time is up. Thank you 15 very much. 16 SENATOR SKOUFIS: All set? Good? 17 And you are good. 18 SUPERINTENDENT ASROW: Thank you. 19 I appreciate the time. 20 SENATOR KAVANAGH: Next up we have Erin 21 Collins and Robert Gordon and Cassandra Anderson 22 will have introductions as they testify but come on 23 up. 24 SENATOR BAILEY: For those observing, the 25 panel style may be a little different from what 90 1 we've observed, just so that for those of you who 2 are watching their first hearing, each individual on 3 the panel will have their requisite time to be able 4 to testify. But the time that we have to ask the 5 questions does not multiply per person, just so that 6 everybody understands. We still have the same 7 amount that we had but they have the time that they 8 can testify. 9 And we are joined by Ms. Collins, 10 Ms. Anderson, and Mr. Gordon. 11 And is there an order that would you like to 12 go in? Senator Skoufis, actually before we -- 13 SENATOR SKOUFIS: It is important to note, we 14 are running, at least in terms of our internal sort 15 of template or outline here, we are running a half 16 hour ahead of schedule. And so I'm going to 17 underscore triply Senator Bailey's point that he 18 just made. 19 But in the meantime, if you could all please 20 raise your right hand. 21 Do you solemnly swear that you will tell the 22 truth, the whole truth and nothing but the truth? 23 [Witnesses are sworn.] 24 SENATOR SKOUFIS: Thank you. 25 CASSANDRA ANDERSON: Senator Bailey, Senator 91 1 Skoufis, Senator Kavanagh and the other 2 distinguished members of the Senate, I'm Cassandra 3 Anderson, president of the New York Insurance 4 Association. 5 NYIA is the state trade association that has 6 represented the property and casualty industry in 7 New York for more than 140 years. 8 NYIA's membership is broad and diverse, 9 consisting of stock, mutual and cooperative 10 insurance companies writing in every county of 11 New York State. 12 We represent companies from Main Street to 13 Wall Street and work collectively to promote a 14 healthy and sustainable property and casualty 15 insurance market for all of New York. 16 Thank you for the opportunity to address you 17 regarding the cost and availability of residential 18 property insurance in the state. 19 First and foremost, it is important to talk 20 about the relationship between affordability and 21 availability, as affordability cannot be achieved 22 without focusing on availability. 23 Insurance companies exist to serve our 24 policyholders, and NYIA shares the same concerns as 25 the Senate regarding the cost of insurance in 92 1 New York. 2 The only way to make insurance more 3 affordable is to make it more available, by 4 concentrating on the real cost drivers that exist. 5 Carriers must be able to adequately not only 6 take on risk, but to soundly continue to write that 7 business in the state. 8 In NYIA's written testimony we have shared a 9 wide range of information about what is driving the 10 cost of insurance and propose solutions to address 11 those rising costs. 12 There are numerous challenges in today's 13 residential property market including the difficult 14 litigation environment, pervasive fraud, the 15 increase in the severity and frequency of extreme 16 weather, aging infrastructure and higher material 17 costs. 18 The challenges are multifaceted and 19 correspondingly require multifaceted legislative and 20 regulatory solutions. 21 Some of these solutions are long-term in 22 nature and others would be strong first steps to a 23 more robust marketplace. 24 On a broad level, these solutions center on 25 building resiliently to create stronger structures 93 1 and to improve public infrastructure; supporting 2 loss mitigation efforts and taking advantage of 3 technology to create early detection of risks. 4 Modernizing the regulatory environment and 5 increasing regulatory capacity because it is 6 essential for legislators and regulators to take 7 steps for companies to be more responsive to market 8 conditions and their policyholders. 9 Combating fraud by providing companies and 10 law enforcement with a greater ability to prevent, 11 deter and fight the growing issue, and critically 12 addressing expansive and abusive litigation that has 13 grown exponentially in recent years when New York 14 was already known as one of the most litigious 15 states in the nation. 16 NYIA values the opportunity to share our 17 viewpoint on behalf of our membership and 18 appreciates your consideration of the 19 recommendations we are offering to improve the 20 marketplace. 21 We are seeing the experience in other states 22 and want to avoid an availability crisis, which 23 includes not taking actions that will only hinder 24 the market further. 25 Instead, we urge New York public policymakers 94 1 to put measures in place that only improve the 2 health of the market. 3 The focus needs to be on keeping the market 4 stable, encouraging greater availability and in 5 turn, greater affordability. 6 Thank you. 7 ROBERT GORDON: Mr. Chairman, senators, 8 thank you for the opportunity to testify today. 9 I'm Robert Gordon, I'm the Senior Vice 10 President for the American Property Casualty 11 Insurance Association (APCIA), which represents 12 about two-thirds of the home, auto and business 13 insurance industry, including about 581 insurers in 14 New York. 15 We recognize housing affordability is at 16 record lows, and over the last 5 years, New York 17 home prices have increased 58 percent. Utility 18 rates have increased nearly 41 percent. Property 19 taxes are now median of closing in on $6,000 per 20 home and rebuilding costs have increased by 21 41 percent. 22 So all of these costs are going up 23 significantly. We understand that challenge. And 24 housing affordability is also impacted by insurance 25 costs. 95 1 Fortunately for New Yorkers, as the 2 Department of Financial Services underscored, 3 homeowners insurance rates are significantly lower 4 in New York than they are nationwide. 5 And the rate increases over the last 5 years 6 in New York have been about half of the rate 7 increases across the nation. 8 But while homeowners rate increases have been 9 significantly lower than average, what we have seen 10 is the catastrophic weather risks have very 11 significantly escalated. So the number of 12 catastrophic weather events in New York in 2024 13 increased tenfold from 5 years ago. 14 In the last 5 years alone, New York 15 experienced $31 billion plus catastrophic events, 16 that compares to an average of .7 events in the 17 1980s annually. Most of those losses were 18 catastrophic wind events, which are generally 19 covered by homeowners' insurance. 20 In fact, the Federal Emergency Management 21 Agency, FEMA, ranked New York among the highest 22 disaster risk states and weather modelers predict 23 the catastrophic hurricane hitting New York would 24 cause over $100 billion in insured losses. 25 We estimate that would wipe out roughly 96 1 69 years of return on net worth. 2 If the climate continues to warm two degrees, 3 expected loss in New York would increase by 4 64 percent. That's putting at risk over two million 5 New York homes. 6 "Hurricane Sandy" crashed into New York in 7 2012 causing over $19 billion of losses. That, by 8 the way, was just one year before that "New York 9 Times" graph. So maybe if you go back a year, it 10 looks a little different. 11 When the next "Sandy" hits, it's going to be 12 much, much, much more severe. 13 Also, the unusual regulatory burdens and 14 delays in New York, they add further risk. 15 Most New York businesses can adjust prices 16 daily but changing rates here up or down can require 17 several years because you have to identify and 18 document the loss trends. You have to file them 19 with the DFS. Might take over a year for that 20 review process and then you have to wait for the 21 policies to roll over, so that can take another 22 year. 23 So you are always a couple years behind 24 trying to catch up to the escalation in weather 25 losses and inflation. 97 1 And additionally, homeowners insurers are 2 generally prohibited from non-renewing coverage for 3 3 years. 4 So that means not only do you have the 5 significant lag time where you are trying to catch 6 up, you can't reprice your products quickly and you 7 can't pull back from the market quickly, so you are 8 stuck on those risk exposures that can be very 9 dangerous. 10 Also in addition to the catastrophic weather 11 risks, New York now has the costliest legal system 12 in the country. The litigation costs are 67 percent 13 higher than country wide. That significantly 14 increases losses in most of the lines. 15 So in sum, the homeowners' insurance rates in 16 New York, lower than country wide average, 17 increasing less than country wide but the rates do 18 reflect the extreme escalation of costs in New York 19 from inflation, building labor expenses, climate 20 change, legal costs, regulatory costs. 21 And frankly, you know, New York has been 22 lucky. But we are going to get that next 23 "Hurricane Sandy" and that's what insurance 24 companies have to prepare for. 25 I do want to express some initial concerns 98 1 about Senate Bill 8583. We just got the bill 2 yesterday. We do hope to work with all of you on 3 that. 4 But New York already has some of the most 5 costly and burdensome insurance regulations in the 6 nation. The current rate review process is among 7 the slowest in the country. And a lot of those 8 mandates are choking off competition and creating 9 some market friction. 10 You are saying well, there are some areas 11 where insurers are pulling out. That shows the 12 markets aren't as profitable as you might think. 13 Again, particularly because those catastrophic risks 14 are so high when that big event is going to hit. 15 We are, though, committed to working with 16 policymakers on solutions. 17 We fund the Institute for Business and Home 18 Safety. IBHS developed safety standards and 19 building codes to mitigate weather risks. 20 The IBHS fortified building codes against 21 wind were found in a recent study after 22 "Hurricane Sally" in Alabama to lower losses by 23 roughly 70 percent. 24 We also support the efforts to fully staff 25 the DFS to reduced review delays and we do support a 99 1 number of litigation reforms, including addressing 2 the Scaffold Act and establishing reasonable caps on 3 non-economic damages. 4 And we, again, thank you for your commitment 5 to addressing these issues. 6 ERIN COLLINS: Thank you to the respective 7 chairs and to all the senators here. 8 My name is Erin Collins. I'm from the 9 National Association of Mutual Insurance Companies. 10 Thank you very much for the invitation to be here. 11 NAMIC is made up of more than 1300 member 12 companies across the U.S. We are proud to say that 13 we have the very smallest insurers in the country 14 and some of the very largest and a lot of folks in 15 between. 16 I want to start by saying that insurers are 17 incentivized to have a strong and stable insurance 18 market and drive towards those outcomes, and those 19 competitive forces benefit consumers as well. 20 So, insurers are incentivized to serve those 21 consumers to the best of their ability, and as you 22 have heard already today, incentivized and required 23 to be accurate in that process. 24 I'm hopeful that I can offer, not only some 25 commentary on pressures against the property and 100 1 casualty market today, but also some proposed 2 solutions. 3 I think we see, in the P&C market across the 4 country and New York is no exception to that, four 5 key pressure areas. 6 One is extreme weather as you've heard. 7 Second, are economic factors which I will 8 talk a little bit about like inflation. 9 Third, is legal system abuse, as there has 10 been some discussion of already. 11 And the fourth factor, which we see in some 12 spaces, particularly in states where there are 13 policies that don't get at the true cost drivers, we 14 see regulatory friction that can slow the process 15 even more than the natural filing process that we 16 see in the P&C market. 17 So zeroing in on that first pressure of 18 weather, there has been some discussion already 19 today about increase and frequency in severity which 20 I concur with. 21 But I want to point to another pressure point 22 there on severity, which is the recovering process. 23 The cost to repair and recover has gone up 24 dramatically. So data suggests that since 2019, 25 repair costs have gone up 35 to 45 percent. 101 1 So if you use that math, a house that cost 2 $300,000 to build in 2019, would now cost north of 3 $400,000 to replace. 4 Those are all things that have to be 5 contemplated in the premium in terms of the expected 6 loss costs as we look at frequency and severity 7 changing. 8 The path to address those things, as you have 9 heard, is through mitigation and resiliency. 10 So I would encourage a review and 11 strengthening of building codes through IBHS and 12 fortified science that can help both residential and 13 commercial properties to harden and harden at scale 14 with community strategies. 15 Really, the only way to address these things 16 is to bend the loss curve down. 17 Insurance is complex at times in its science 18 but simple in its foundation, which is insurers 19 through solvency have to have and take very 20 seriously the responsibility to have enough premium 21 and collect enough premium to pay and satisfy the 22 promises that they've made to consumers. 23 The second key area I would note for New York 24 in particular, is legal system abuse. 25 As of 2024, according to the U.S. Chamber, 102 1 New York ranks second in total tort cost per 2 household at over $7,000 compared to the national 3 average of around $4,000. 4 It was made mentioned earlier what has 5 changed in the casualty market. And it is just 6 that. 7 The litigation, both in terms of, we heard a 8 focus on nuclear verdicts, but also in process and 9 presence of litigation has gone up. 10 So I would draw all of you directly to the 11 advent in growth of the litigation financing 12 business, which has reached $25 billion in 2025 and 13 is projected to be over $60 billion in the next 14 decade. 15 Additionally, strategies to address fraud, 16 which has really blossomed, unfortunately in 17 New York and other places. It's a massive drain on 18 the market and hurts law abiding consumers in 19 addition to the market. 20 So I would suggest strengthening insurers' 21 ability to identify fraud, using technology and 22 other means of investigation, and to build 23 investment and interest in the state in prosecution 24 of fraud. 25 You know, I think all of these things, again, 103 1 mark a way to bend loss curves down and improve 2 New York's insurance market even more so than it 3 stands today. 4 So thank you again for the time today and we 5 look forward to working with you moving forward. 6 SENATOR BAILEY: I want to thank everybody 7 for testifying and thank you for not just reading 8 off the paper. 9 It's very helpful when you are able to 10 articulate that and it saves us all time, time I'm 11 taking up by rearticulating that. 12 I just wanted to go with what you said, 13 Ms. Collins, about fraud. I want to make sure we 14 get it for the record. 15 I know you each spoke about it on a basic 16 level, but can you tell us exactly how fraud affects 17 the cost of premium? 18 What percentage increases based upon fraud, 19 and can you get to some specifics about what you 20 want us to do about fraud legislatively? 21 ERIN COLLINS: Sure. I will speak generally 22 and then happy to follow up with some more 23 specificity. 24 But, you know, recent studies have shown that 25 there is more than $300 billion a year nationwide in 104 1 the area of insurance fraud. 2 I think that those things inherently drive 3 claims costs up, but also operational costs to fully 4 investigate. 5 And, you know, it is unaided by, you know, 6 further legal system challenges where expert 7 testimony requirements have not been improved over 8 time. 9 And so where fraud may have been proven by, 10 you know, the standard of what an expert is in the 11 legal sense, is now taking three, four, five experts 12 to examine and prove that fraud. And all those 13 things, through the duty to defend, add costs to the 14 system. 15 So you are talking about not just, you know, 16 a system in which fraud occurs to draw a claim, but 17 in an effort to launch litigation. 18 So I think, in terms of your second question 19 of what can be done there, I think working with DFS 20 and the industry to understand fraud identification 21 techniques and how technology can improve upon those 22 things, really encouraging throughout investigation. 23 And then we've seen success in states that 24 incentivize law enforcement to get more deeply 25 involved, especially in the prosecution of fraud. 105 1 So we look forward to working with you on any 2 of those. 3 CASSANDRA ANDERSON: I have some specific 4 ideas, too. 5 Staged construction site accidents have 6 really grown to be pervasive in addition to the slip 7 and falls. 8 And there is legislation that has been 9 introduced in the Senate by Senator Comrie that 10 would help to be able to get at that issue. 11 In addition we see that a lot of contractors 12 are very reputable. Not all are, unfortunately, and 13 we see a lot of schemes built around that. 14 We are going to be bringing forward loss 15 mitigation legislation to combat loss mitigation 16 scams. 17 Those are just two examples homeowners are 18 taken advantage of in those instances and we are 19 happy to talk with you about it further. 20 But there is a lot that can be done in the 21 fraud space to give us the appropriate tools, along 22 with law enforcement. Those are just two examples. 23 ROBERT GORDON: We, too, would support the 24 legislation to make staged accidents a felony. That 25 would be helpful. 106 1 SENATOR BAILEY: Certainly. 2 I guess I have a question about -- I want to 3 expand upon the question for fraud because you 4 mentioned staged auto accidents and we talked about 5 like different lines, not necessarily having a 6 factor. 7 But in this case you are saying that the 8 fraud that occurs in other lines of insurance has an 9 effect on the homeowners policies. 10 CASSANDRA ANDERSON: It's staged construction 11 site accidents so it has to do with when buildings 12 are being constructed. 13 Staged auto accidents are also an issue that 14 would affect the auto line. 15 SENATOR BAILEY: And it's staged construction 16 accidents for single-family homes or owner-occupied 17 homes like we're speaking about today or is it 18 staged construction accidents for any type of 19 dwelling? 20 CASSANDRA ANDERSON: It can be staged 21 construction site or staged accident on a 22 construction site for any type of building that is 23 being built but we are seeing it, you know, in 24 relation to large buildings in New York City. 25 SENATOR BAILEY: I just wanted to be sure. 107 1 CASSANDRA ANDERSON: What I will say, too, on 2 the fraud piece, you know, if a building is in a 3 deteriorated state, what happens is that not only is 4 there increased liability but also those buildings 5 tend to be targeted by those that are looking to 6 commit the fraud. 7 So there is a connection there that is very 8 strong, unfortunately. 9 SENATOR BAILEY: Ms. Collins, you mentioned 10 the use of technology. And I am certainly someone 11 who sometimes falls behind the times of technology 12 but I believe in the advent of it. 13 Can that same technological, you know, 14 expertise that you wish to assert in the area of 15 fraud, can that be used in terms of the way that you 16 set data? 17 Superintendent Asrow -- Acting Superintendent 18 Asrow mentioned that sometimes data is used by 19 borough-wide data opposed to zip code data. 20 Can any of you shine a light on how your 21 companies or your member companies, are utilizing 22 data to create the risk or set rates? Like is it by 23 zip code? Is it simply by borough? Is it by a 24 section? 25 Can you talk a little bit about that and how 108 1 we can use technology maybe to hone in a little bit 2 more? 3 ERIN COLLINS: I certainly can. 4 I would say this: The tools in the industry 5 vary based on both complexity of the product, but 6 also individual companies themselves. 7 But generally speaking, the goal is to use 8 the most precise information available to a 9 particular risk. 10 So I think industry uses both information 11 that is reported to them by the applicant, as well 12 as data from a variety of sources to try to get to 13 as specific information as possible to understand 14 the risks. 15 So I know that's not specific to your 16 question about zip codes but it is -- 17 SENATOR BAILEY: It fits in. 18 ROBERT GORDON: A lot of the data insurers 19 are using has gotten much more granular than the zip 20 codes. 21 So I have seen, for example, I visited 22 Cotality a few weeks ago, used to be CoreLogic, and 23 they have records -- they form the backbone of the 24 MLS database used by the realtors. 25 And they have records on every single roof in 109 1 the condition, the tax records, the contracting 2 records, they know the age of the building. 3 So you can look very specifically at what the 4 risks are in that building. 5 And one of the societal benefits about that 6 is it sends appropriate risk signals. So as 7 consumers make improvements to those buildings, 8 those get reflected in the data and reflected in the 9 rates and the insurance is -- sort of accurately 10 reflects those risks. 11 SENATOR BAILEY: With those -- with that -- I 12 really want to talk more about zip codes, right? 13 In certain areas in New York City, there are 14 certain things happening in certain parts of the zip 15 code that are not happening in other parts of the 16 zip code. 17 Is the data -- is the rate setting based upon 18 that one factor, or is it based upon the totality of 19 circumstances? 20 How are we setting the rates? 21 CASSANDRA ANDERSON: Risk-based pricing is 22 based, as Robert said, on a variety of factors 23 related to that risk. 24 So even if the territory is broader, that's 25 only one factor of what is going into the rate 110 1 setting process. 2 The condition of that structure is a very 3 large part of what that looks like, and insurance 4 companies are trying to be as precise as Erin said 5 and as accurate as they can be but there still might 6 be a broader territory rating. 7 It's not where they're targeting certain zip 8 codes or certain areas of certain zip codes or not, 9 to my knowledge. 10 SENATOR BAILEY: How are you using crime data 11 or crime statistics to factor into the rate setting? 12 CASSANDRA ANDERSON: We do pay often on those 13 types of losses. So that is one factor that can be 14 considered. 15 If safety is an issue and -- you know, with a 16 certain property, then that is something that would 17 be considered as far as insurance and what that 18 looks like. 19 SENATOR BAILEY: How often is that data? For 20 example, NYPD gives CompStat reports monthly, right? 21 You may not be -- you are not able to set rates 22 monthly. I'm well aware of your limitations. 23 But what I'm saying is like how often are 24 rates reviewed based upon changing data, whether 25 they be about crime, the state of the roof or the 111 1 other things? 2 How often are you or your member companies 3 looking to update the data? 4 I mean update the rates based upon new data 5 that they get in. 6 ROBERT GORDON: Those are generally going to 7 be every time you do a new filing with the 8 department. 9 So, depending on how often you want to have 10 to go through that -- jump through that hoop, it may 11 be every year. It may be every couple of years. 12 Can be more frequent, but, again, it has to be part 13 of the filing. 14 So it's going to be a long process to get 15 that new data through. 16 ERIN COLLINS: I think we like to make sure 17 we have the most accurate rates possible. 18 But as the superintendent indicated, 19 resources and capacity are an issue right now at 20 DFS, and that's something we really want to work 21 with all of you on as well, along with DFS. 22 SENATOR BAILEY: You said that the rate of -- 23 excuse me -- that litigation costs are going up 24 67 percent? 25 ROBERT GORDON: They're 67 percent higher in 112 1 New York than country wide. 2 In fact, what is interesting, is there a lot 3 of media focus right now on the unsustainability of 4 climate change. 5 Actually, the liability costs and losses 6 nationwide are higher than the catastrophic weather 7 losses and it's increasing more rapidly. 8 So things like the other liability: 9 Commercial liability, all the commercial goods being 10 distributed, those insurance costs and losses are 11 going up very, very rapidly because increasing 12 litigations costs, nuclear verdicts and so forth. 13 SENATOR BAILEY: Okay. So that 67 percent, 14 that's -- 15 ROBERT GORDON: New York is a more expensive 16 market. 17 SENATOR BAILEY: And you have empirical data 18 to back that up. 19 ROBERT GORDON: Yes. 20 SENATOR BAILEY: And where does that data 21 come from? 22 ROBERT GORDON: That comes from a number of 23 resources, but a lot of it is from S&P and from what 24 gets reported to the regulators. 25 We have data on construction costs in 113 1 New York from a number of sources. A lot of vendors 2 produce this information. We made a lot of it 3 available in the report. We are happy to provide 4 additional information. 5 SENATOR BAILEY: And I want to say thank you 6 for the pre-meeting and the conversations that we 7 have had. 8 This is obviously our task, and we want to 9 thank you for your conversation. Look, this is not 10 intended to be adversarial. We want to get to the 11 bottom of this. Our constituents are hurting. 12 Your businesses, we need the insurance 13 companies to remain solvent, so we have to find that 14 middle ground. 15 I would add, as a final point, about Senator 16 Kavanagh mentioned at the opening, that there are 17 certain member companies that are not here to 18 testify individually and we'd hope that at some 19 point in the future we will be able to hear from the 20 member companies directly. 21 Thank you. 22 SENATOR SKOUFIS: Again, thank you for being 23 here. 24 Thanks for your testimony as well as your 25 conversation leading up to the testimony. 114 1 I'm going to jump around a little bit and 2 have a few questions. But first, sort of top line, 3 if you can help me reconcile something. I am an 4 insurance lay person. I am a humble public servant. 5 I am having a difficult, challenging time 6 reconciling how on one side of the coin you are all 7 talking about how we have enormous climate risk in 8 this country. 9 We have the oldest building stock in the 10 country. We have, I think the word that was used, 11 choking regulations here in New York State. 12 Exponentially -- and I'm going to circle back on 13 this -- an exponential increase in litigation in 14 recent years. 15 As I mentioned before, healthy, steady 16 profits, at least within the homeowners' insurance 17 policy space. 18 And yet, on the flip side of the coin, you 19 mentioned how our premiums are below the national 20 average and our increases are below the national 21 average. 22 How in the world can all of those things be 23 true? 24 ROBERT GORDON: Senator, the first issue is 25 the catastrophic risk. 115 1 So for example, if you look at earthquake 2 insurance, earthquake insurance appears to have a 3 much higher rate of return on net worth. But that's 4 because you have to collect a lot of years of 5 premium for when that big one hits. And it's the 6 same thing on the homeowners line. 7 New York is one of the top two most 8 vulnerable to 100 billion-dollar plus event. 9 Our analysis that would wipe out 69 years of 10 return on net worth for the homeowners line. So you 11 have to charge enough to be able to be solvent and 12 pay those claims. And that's what the New York DFS 13 looks at. 14 They also look to see well, how much are 15 insurers essentially charging and getting return on 16 net worth in neighboring areas with similar risks. 17 And what you see is New York is right between 18 New Jersey and Connecticut. So within a half 19 percent of each of those. 20 So it's very standard, and it's part of the 21 overall New York property casualty market actually 22 being under averaged profitability, but you have to 23 charge enough for the catastrophic risk exposure. 24 SENATOR BAILEY: So is what I'm 25 hearing amidst that response, that baked into the 116 1 rates and baked into this bar graph are future 2 "Sandys," are future catastrophic events. 3 "Sandy" was, what, a 500-year storm, a 4 100-year storm, what was it characterized as, do you 5 recall? 6 ROBERT GORDON: It was actually a super 7 storm. It wasn't even categorized technically as a 8 hurricane. 9 But we know the next "Sandy," from all the 10 weather modeling, is going to be a lot worse in 11 New York. 12 SENATOR SKOUFIS: But are rates and are those 13 profit margins baked into them is what you are 14 talking about? 15 Is that what I'm hearing? 16 ROBERT GORDON: That's a significant part of 17 the rate is reflecting the catastrophic -- 18 SENATOR SKOUFIS: So what happens if in the 19 next 20 years there isn't a catastrophic 20 "Superstorm Sandy"-level event? Do my constituents 21 get a refund? 22 ROBERT GORDON: And what happens if there are 23 three of them in the next 10 years? 24 SENATOR SKOUFIS: Answer my question first. 25 ROBERT GORDON: That's the way the insurance 117 1 industry works is they have to collect enough money 2 whether there is one event in the next 5 years or 3 10 events. 4 SENATOR SKOUFIS: You are collecting for a 5 hypothetical prospective possible event. What if it 6 doesn't come? 7 ROBERT GORDON: But it is actuarially based 8 and that's what the New York DFS looks like. 9 SENATOR SKOUFIS: I understand. 10 ERIN COLLINS: And if we don't collect 11 enough, then the insurance company won't be there to 12 pay the claims, which that is the greatest 13 obligation that we have. 14 SENATOR SKOUFIS: But presumably you are 15 doing this, not just in New York, you do this in 16 every state. 17 You try and actuarially predict for future 18 catastrophic events and bake into those rates. And 19 yet, in so many states we don't see what is 20 happening in New York. 21 In so many states, your industry is losing 22 money more than it's actually profiting. 23 Why, in New York, are we not seeing that ebb 24 and flow? 25 ROBERT GORDON: Actually in New York, the 118 1 overall property casualty return on net worth is 2 lower than the average. 3 There are some lines that reflect the 4 catastrophic risk exposure where again insurers are 5 having to protect themselves against that... 6 SENATOR SKOUFIS: This data speaks to 7 homeowners' insurance policies so let's talk with 8 that. 9 Why aren't we seeing the ebb and flow, the up 10 and down, the losses and profiting in other states 11 here in New York? 12 ROBERT GORDON: Because in a state like 13 Florida, what you are seeing is the hurricanes come 14 in every few years. 15 In New York, you are not getting that 16 "Hurricane Ian" every couple of years, but when it 17 does come, it is going to be huge and that's where, 18 again, New York is -- whether it's FEMA doing it or 19 whether it's the risk modelers, New York is one of 20 the most catastrophic exposed states and is second 21 most likely to get that $200 billion event $100 22 billion insured loss -- 23 SENATOR SKOUFIS: Even if we get that 24 $200 billion event, I assume -- correct me if I'm 25 wrong -- that the next filing, after that event, you 119 1 are going to be going to DFS and seeking an enormous 2 rate hike. 3 Is that a fair assumption? 4 ROBERT GORDON: I think it depends on what 5 the estimated risk is in the future. 6 You can't say -- you can't make up for the 7 past losses. You can't say, gosh, we lost a lot of 8 money on this last hurricane so we have to triple 9 rates. New York DFS is going to say, what is your 10 projected losses -- expected losses in the future. 11 SENATOR SKOUFIS: You can say right here 12 under oath that following a catastrophic event like 13 that, you are not going to see a particularly large 14 rate application submitted to DFS, your members? 15 ERIN COLLINS: What we would say with 16 certainty is that any filing that's filed with DFS, 17 either before or after a storm, has to be 18 actuarially accurate and forward looking. 19 SENATOR SKOUFIS: So the answer to my 20 question is yes from all of you. You can commit to 21 that. 22 That what I just described will not happen in 23 a subsequent rate hike. 24 CASSANDRA ANDERSON: Well, depends on what 25 the future risk looks like. 120 1 So if the models say that that could happen 2 again, I can't say to you with certainty that there 3 may not be an adjustment. 4 But I think it's important that we look at 5 this from the perspective of it's always based on 6 what that future risk looks like. 7 SENATOR SKOUFIS: So it sounds like legally, 8 maybe you can't look backwards and recapture for 9 losses that had just happened a year prior, a year 10 and a half prior from a catastrophic event. 11 But if that event happens, then in your next 12 rate application, you will tell DFS, your members 13 will tell DFS that well, this just happened and so 14 it's probably going to happen more often now. 15 That's why we need a 10 percent or 15 percent 16 increase. 17 CASSANDRA ANDERSON: Well, the New York City 18 comptroller said it is happening more often now. 19 So I think what we are seeing is that there's 20 more and more studies coming out where the risk gets 21 greater and greater. 22 So I'm not saying that that one scenario is 23 going to tell that we are already seeing even state 24 bodies, state officials, saying that we're seeing 25 greater risks related to extreme weather and 121 1 climate. 2 ROBERT GORDON: What we have seen in 3 California, where the state suppressed the 4 homeowners' insurance rates, is then when you did 5 get a record wildfire this year in January, a 6 majority of the homeowners insurers have pulled back 7 from the marketplace. 8 And so now... 9 SENATOR SKOUFIS: How many carriers do they 10 have left in California? 11 ROBERT GORDON: They have a number of 12 carriers, but I'm only aware of four that are open 13 to writing new homeowners coverage in the wildfire 14 prone areas. 15 And of those four, most of them are only 16 writing if you have essentially the IBHS wildfire 17 prepared standard. 18 So there is very limited coverage and that 19 has caused an explosion into the bare bones 20 government residual marketplace and the -- 21 SENATOR SKOUFIS: I don't dispute any of that 22 and all of that tracks with my understanding. 23 So four at least in those wildfire prone 24 areas that we are talking about. How many carriers 25 do business in this line here in New York? 122 1 CASSANDRA ANDERSON: Homeowners? 2 SENATOR SKOUFIS: Yes. 3 Property and casualty. 4 CASSANDRA ANDERSON: Less than 100 -- to my 5 recollection -- well, property and casualty as a 6 whole I think just over 200. 7 Again, I'm doing this off the top of my head, 8 but as far as groups of companies, there are less 9 than 100 that rate homeowners -- there may be 10 multiple companies that are part of those groups. 11 SENATOR SKOUFIS: The "Times Union" reports 12 the number is in excess of 1,000 and so there is 13 clearly some discrepancy there. 14 But even if it is 200 -- 15 CASSANDRA ANDERSON: A thousand regulated 16 entities by DFS? 17 SENATOR SKOUFIS: That's what the "Times 18 Union" reports. 19 CASSANDRA ANDERSON: That could be agencies. 20 That could be other types of entities. 21 That doesn't mean it's insurance companies 22 only who are underwriting the risk. 23 SENATOR SKOUFIS: Let's even take your 200 24 number, just a nice rounded number. 25 That is literally, if I'm doing the math 123 1 correctly, 50 times the number of carriers that 2 exist in California. 3 So clearly carriers are looking at New York 4 as a profitable space to do business. Otherwise, 5 there wouldn't be 50 times as many carriers. 6 Am I wrong to read it that way? 7 ERIN COLLINS: I think the comparison was how 8 many insurers are writing new business currently? 9 So I think that there are a multitude of 10 companies that still write in California. There are 11 a multitude of companies that write right here in 12 New York. 13 As Cassandra noted, you know, the groups 14 often consist of multiple companies that file into 15 that group structure all regulated by DFS. 16 Here is what I know to be true about the 17 insurance industry. 18 They want to write insurance. 19 They absolutely want to write insurance. 20 They want to write in more places for more 21 types of coverage and have done so over the course 22 of several hundred years now to the highest rate 23 that we've seen in an industry, and they want to 24 continue to grow and expand in that area. 25 If we are to continue to do that and be able 124 1 to do that and remain solvent, I would say that the 2 best path forward to that is to focus on resiliency 3 and mitigation to help bend that loss curve down. 4 And I refer to that both in physical 5 resiliency and mitigation and also resiliency from 6 the casualty line. 7 So addressing those cost drivers as well. 8 That will incentivize more competition and for the 9 companies that are all writing here in New York, to 10 write more of it. And so I would suggest a focus on 11 those areas. 12 SENATOR SKOUFIS: I have a couple more but 13 I'll come back for a second round. 14 Thank you. 15 SENATOR KAVANAGH: Thanks. 16 Again, thank you all for your testimony and 17 for your ongoing discussions that we have been 18 having. 19 I want to just start with liability and the 20 notion that there is legal system abuse going on. 21 How do you know that fraud is pervasive in 22 New York? 23 And how do you know that it is growing? 24 ERIN COLLINS: I was referring to some 25 industry and independent research that shows or 125 1 estimates fraud at over $300 billion nationwide. 2 Happy to provide that study to the committee. 3 I think that that comes from a variety of sources. 4 Obviously it's very difficult to -- 5 SENATOR KAVANAGH: Sorry to interrupt. 6 Just to make my question more pointed. 7 Does anybody on this panel have evidence that 8 fraud is pervasive in New York and that fraud is 9 growing in New York? 10 CASSANDRA ANDERSON: I think what even law 11 enforcement are seeing and what we have documented 12 video evidence of, it is pervasive, and it is 13 growing. 14 We see where -- and it goes back to no fault 15 auto insurance. There was a playbook that was used 16 to stage accidents and that's -- for a while. 17 Now we see where it is also with staging the 18 construction site accidents. That didn't exist, you 19 know, a few years ago. 20 I don't know how exactly how many years when 21 it started. But we are seeing where the schemes are 22 changing. 23 The schemes are growing, and they're looking 24 to go after different lines in different ways. 25 SENATOR KAVANAGH: Again, I don't mean to 126 1 interrupt. 2 I want to try to stick to property, you know, 3 auto insurance and their other insurance. It was 4 actually a separate -- there's been a separate 5 conversation about auto insurance going on in the 6 legislature. 7 I just want to focus on property. I have 8 seen some videos that have been provided by property 9 owners. 10 I have not seen any evidence that legal 11 system abuse or fraud are either pervasive or 12 increasing in New York, and that's after numerous 13 conversations with insurers, with folks like 14 yourselves with property owners. 15 I've seen, you know -- one thing is when you 16 have video, it's presumably the availability of 17 video evidence has increased as cameras have become 18 pervasive. 19 Cameras, of course, are a good way of 20 demonstrating that you shouldn't pay a claim as much 21 as they might be an opportunity to demonstrate that 22 something that is compensable happened. 23 We are trying to understand, not just whether 24 New York is high or low relative to other states, 25 but how things are changing. 127 1 Why we are seeing a doubling of liability 2 rates that are imperiling our ability to provide 3 affordable housing across the state? 4 And so I'm concerned that there is a lot of 5 talk about this but not a lot of evidence, and so 6 again, is there any evidence of rates that -- of an 7 increase in the number of circumstances where fraud 8 is proven to have occurred? 9 ROBERT GORDON: Senator, I'll comment on the 10 legal system abuse overall. 11 We do have a lot of evidence that the 12 litigation costs in New York are not only higher 13 than average, but they have been getting worse. And 14 we are seeing, for example, bodily injury claims, 15 6.6 times worse than the national average. 16 Second worse nuclear verdicts, 67 percent 17 higher costs, as Erin said, about $7,000 cost per 18 household. So we have a lot of evidence that -- 19 SENATOR KAVANAGH: That costs are growing. 20 ROBERT GORDON: That the litigation costs in 21 New York are growing, are significant and are 22 growing. 23 SENATOR KAVANAGH: We know we live in a 24 country where large industry associations of all 25 kinds, not singling out insurance, have made a great 128 1 effort to diminish the access to courts, so people 2 have the access to federal courts that people have, 3 the access to class-action causes, the access to 4 courts in various states. 5 So just again, I happen to have been involved 6 in an actual nuclear verdict, it was a nuclear 7 contamination case. I was working with a law firm 8 on the plaintiff's side many years ago, and the size 9 of that verdict struck people as justice, not 10 excessiveness. 11 I just -- understanding that your costs are 12 going up for litigation -- and we would like to see 13 as much data you have on that. 14 I think it's important to distinguish the 15 question of whether costs are going up from whether 16 there is abuse and whether there is fraud. 17 Do you pay claims that you know to be 18 fraudulent? 19 CASSANDRA ANDERSON: We look to fight the 20 fraud and to be able to determine what is fraud. 21 Obviously fraud is not something where it's 22 completely clear cut. We don't always have the 23 appropriate tools. 24 What I will say, too, on what you are asking 25 about, as far as whether we've seen increase in 129 1 justice. 2 We don't always have a good sense, for 3 example, we don't always know when third-party 4 litigation funding is part of a case. And that is 5 driving verdicts in a lot of ways. 6 We have heard case after case where the 7 settlement could be hundreds of thousands of 8 dollars. 9 And by the time the litigation funding 10 company and the attorneys take their piece of it, 11 the claimant, who even seems to go through 12 unnecessary surgeries to be able to drive up that 13 number, is left with just a mere thousands of 14 dollars. 15 So I think that is important to understand in 16 the context of justice. 17 SENATOR KAVANAGH: How many instances of 18 proven insurance fraud could you point these 19 committees to? 20 ERIN COLLINS: When you say proven insurance 21 fraud, I assume you mean in a court of law. 22 SENATOR KAVANAGH: I mean, again, we just had 23 testimony that people are getting unnecessary 24 surgery in order to get increased payments. 25 We all hear those things. They may occur. 130 1 CASSANDRA ANDERSON: I can give you links to 2 the cases, especially through the Southern District. 3 SENATOR KAVANAGH: Again, with great respect 4 and we really appreciate this conversation. 5 Is there data that demonstrates that fraud -- 6 I mean, again, the assertion was that these costs 7 are increasing exponentially and that that is driven 8 in a substantial way by fraud and abuse. 9 Is there evidence that fraud and abuse have 10 increased exponentially in New York? 11 ROBERT GORDON: So Senator, we can also 12 provide to you data provided from LexisNexis showing 13 that as attorney involvement in some of these cases 14 has increased, people surveyed indicate that the 15 attorneys are directing them to get more and more 16 medical treatment so that it essentially builds up 17 the case value. 18 SENATOR KAVANAGH: And your assertion is that 19 that is bad advice from their attorneys? 20 ROBERT GORDON: It appears to be clearly 21 geared towards maximizing the damages rather than 22 actually providing needed medical treatment is what 23 the survey suggests. 24 SENATOR KAVANAGH: Whatever evidence you have 25 that people are getting medical treatment that is 131 1 not -- that doctors are providing medical treatment 2 violating the oaths they take and their role as 3 doctors, at the behest of their attorneys and that 4 that is pervasive and growing, we would like to see 5 that. 6 Again, I want to emphasize that we believe 7 that these things occur. 8 Any human behavior occurs across different, 9 you know, situations. 10 The idea that that is causing this enormous 11 problem for us as we try to provide affordable 12 housing for people is something that we would not 13 just like to assume is happening based on anecdotal 14 evidence. But some harder evidence that those 15 things are occurring. 16 Again, I have not seen that evidence yet and 17 I haven't heard it today but that does not mean it 18 does not exist. And obviously we'll have an 19 opportunity to follow up. 20 I want to shift gears to the questions of 21 insurance costs and particularly what a couple of 22 you mentioned, which is the question of whether 23 people get discounts for engaging in -- sorry, 24 whether the insurance system and the building codes 25 and all the other systems that we run, are 132 1 encouraging appropriate behavior to minimize risk. 2 We heard the superintendent say that they are 3 gathering, kind of data that might be presentable to 4 customers and to the public about discounts that are 5 available. 6 Not someone on this panel, but when we were 7 having some meetings in advance of this hearing, I 8 had an insurance industry executive tell me that the 9 fortified group system is working very well because 10 they got a fortified group and they called their 11 insurance company and the insurance company said yes 12 there is indeed a discount and they got the 13 discount. 14 And in my mind, you know, the fact that 15 you're an insurance executive and you have to pick 16 up the phone and ask, inquire whether there is a 17 discount, suggests to me that maybe the system is 18 not as kind of seamless or smooth as it ought to be. 19 Are insurance companies being transparent 20 about discounts that are available? 21 Is there a place we can go to figure out what 22 discounts each company is offering and how much the 23 discount is and what behavior would get you the 24 discount? 25 ROBERT GORDON: Senator, there is one 133 1 additional piece to this. 2 So APCIA and our members, we have been having 3 a lot of conversations with the realtors and the 4 builders and the lenders and we have included the 5 NAIC and others in those conversations. 6 One of the things that has come up is the 7 real teachable moment when consumers are going care 8 about this and listen to it. 9 It's actually not when they're talking to 10 their insurer, it's when they're talking to the 11 builder or when they're talking to the realtor. 12 That's one of the things we are in the 13 process of doing is getting more granular 14 information to the realtors, to the builders so that 15 they can make better informed, better empowered 16 decisions at the right moment. 17 SENATOR KAVANAGH: And again, there is a lot 18 changing in this space and we would like to work 19 with you on that. 20 But for existing homeowners, if the behavior 21 we are trying to incentive is providing a different 22 kind of roof when you need to replace a roof, I 23 think it's incumbent on all of us and on the 24 industry to make sure that... 25 CASSANDRA ANDERSON: I know there are a lot 134 1 of education efforts, and the New York Insurance 2 Association certainly is part of that. I think 3 others in the industry are as well. 4 I will say with fortified, it's important 5 that we recognize there are actually five roofs 6 currently in New York State that are fortified. 7 So as the program hopefully builds, I think 8 we will see much more in that space. 9 SENATOR KAVANAGH: My time is up. 10 Thank you. I'll probably come back. 11 SENATOR O'MARA: Thank you for being here. 12 Appreciate your testimony. 13 We have talked a lot about fraud here and 14 nuclear verdicts. Nuclear verdicts is a new term to 15 me, and I have been a litigator throughout my 16 career. Is that different than what, I guess, I 17 would traditionally call a runaway verdict? 18 ROBERT GORDON: It's usually verdicts that 19 are $10 million or more defined as nuclear verdicts. 20 Now we are also talking about thermonuclear verdicts 21 that are $100 million plus. 22 SENATOR O'MARA: And is the fraud, in your 23 opinion, is this fraud that you speak of, the cause 24 of these nuclear verdicts or is there a correlation 25 there? 135 1 ROBERT GORDON: So one of the really 2 interesting cases out there is in the early 90s, you 3 had the woman who spilled McDonald's hot coffee on 4 herself and it was $2.7 million award. It was 5 economics and punitives. 6 This year you had a delivery man who spilled 7 Starbucks hot tea on himself and instead of 8 $2.7 million, it was $50 million and it was entirely 9 non-economic pain and suffering. 10 So they didn't even put into the record the 11 evidence on the cost of the economic damages. And 12 so it's not necessarily an issue of fraud per se 13 other than, you know, how you try and frame this for 14 the jury. 15 But when the costs of spilling some hot 16 liquid on yourself, which is something that is going 17 to happen a lot in society, when it goes up from 18 2.7 million to 50 million, that is going to create 19 more cost for insurers, more costs for consumers. 20 SENATOR O'MARA: So are you saying then that 21 the laws in New York are inadequate as to how to 22 deal with an excessive verdict? 23 And do you have recommendations on what 24 New York should be looking at and how to provide 25 maybe better appellate review of these types of 136 1 verdicts that you are talking of. 2 ROBERT GORDON: Yes. I think consumers want 3 a legal system that is fair, timely, reasonably and 4 efficient but our system is not really any of those. 5 So you have a small number of people who are 6 getting these mega awards. You are not having a lot 7 more people accessing justice. And it ends up 8 creating a lot of additional costs. 9 So we do think legislation to make staged 10 accidents a felony would help. 11 Reasonable limits on non-economic damage. 12 I know there is legislation already from 13 third party litigation financing regulation. 14 We think disclosure would help enforce that. 15 So there are a lot of solutions that can 16 bring New York costs back in line with the country. 17 SENATOR O'MARA: Along those lines, what 18 specifically have you seen other states have done 19 that have had an impact on this? 20 ROBERT GORDON: Well, I think the best 21 example is Florida. 22 Florida had some of the worst litigation 23 costs in the nation. They enacted some very 24 significant reform, and their homeowners rates this 25 last year have been the lowest increase in the 137 1 nation. 2 They have been only 1 percent, which is, 3 post-inflation, a real drop. So we know that 4 reforms can help. 5 That was things like assignment of benefit -- 6 SENATOR O'MARA: What reforms were they? 7 ROBERT GORDON: One of the biggest one 8 was assignment of benefits reform. 9 Also there was some peculiar attorney fee one 10 way payments in Florida that were addressed; a 11 number of others. 12 We are happy to sort of give you a table of 13 all of the reforms. 14 We think non-economic damages making those 15 reasonable is one of the most important things. 16 Again, you look at the Starbucks case. 17 Spilling hot tea in your lap. Is that 50 million 18 and then how many spills are you going to get and 19 how much is that going to cost consumers ultimately. 20 SENATOR O'MARA: Okay, well, this is kind of 21 off the topic of what we are here for today on 22 property insurance I suppose so I'll change the 23 subject at this point. 24 So, with the issues of reinsurance, captive 25 insurance, how is it that we, in New York, are not 138 1 bearing some of the burden of other state's 2 catastrophes and the rate setting in New York? 3 ROBERT GORDON: I think first of all, 4 Senator, is the New York Department of Financial 5 Services said they do not allow it. 6 No state would allow it. It's against state 7 law. It's against actuarially practices. 8 And frankly, insurers are not going to want 9 to put more resources in a state where they're 10 losing money and take it from a state where they're 11 making money. 12 So that's not going to happen in the 13 marketplace. So, it's not something insurers are 14 allowed to do, nor would they want to. 15 CASSANDRA ANDERSON: Risk-based pricing -- 16 cost optimization runs completely counter to 17 risk-based pricing. 18 We want to accurately determine the risk of a 19 specific -- writing a specific policy. And that is 20 how we operate. 21 Those are the -- not only does DFS certainly 22 prohibit it, but on top of that, that's the 23 actuarially standards that we use. 24 ROBERT GORDON: If one insurer raised their 25 rates to try and make up for losses in another 139 1 state, then they would lose market share to other 2 insurers. 3 Not every insurer does business in, say, 4 New York and California. So -- 5 SENATOR O'MARA: Doesn't the reinsurance 6 market goes across state lines? 7 ROBERT GORDON: The reinsurance market is 8 global. 9 So yes, the amount of reinsurance capital can 10 fluctuate based on events. 11 But again, they're going to be looking at 12 future risk and there is competition in the 13 reinsurance market so if one company got hit, for 14 example, from losses in California, they tried to 15 raise their rates significantly, they would just get 16 outbid by other reinsurers. 17 ERIN COLLINS: One important note in the 18 reinsurance space and a trend to note is that 19 reinsurers, they're not immune from any of these 20 dynamics we have talked about today. 21 It's a way for the industry to write and have 22 more capital in a state. But also terms of 23 reinsurance have been trending such that companies 24 are holding more capital or more retention. 25 So more claims are happening at the direct 140 1 carrier level before reaching the reinsurance layer. 2 SENATOR O'MARA: Do you have any -- the 3 minute I have left, do you have any specific 4 recommendations for us in New York to avoid what's 5 happened -- we talked about in Florida, California, 6 other states where there has been a real reduction 7 in the number of carriers out there? 8 You generally mentioned don't take actions 9 that hinder insurance and take actions that, you 10 know, help provide the insurance. 11 What specifics do you have other than saying 12 DFS, don't take actions that hinder our ability to 13 provide this? 14 ERIN COLLINS: I think looking to joint 15 strategies between the industry and regulation to 16 bend the loss curve down through resiliency. 17 You know, New York has been helpful in terms 18 of categorization -- not just of discounts -- but 19 also resiliency measures, carriers that offer 20 mitigation techniques like water sensors or things 21 of that nature to consumers, to monitor their own 22 risk in their home. 23 So I think things like that have been 24 beneficial. But I think the strongest step forward 25 would be to address some of the litigation changes. 141 1 And to your note, there are a lot of 2 possibilities there. And we are happy to follow up 3 with sort of a list of suggested reforms. 4 But I would suggest starting there as Florida 5 has done. 6 SENATOR O'MARA: Thank you. 7 SENATOR SKOUFIS: Senator Fernandez. 8 SENATOR FERNANDEZ: Thank you. 9 All this talk of lawsuits and the data and 10 what we know. Is all this data collected on your 11 own or is there any peer reviewed studies that you 12 are looking into, too, to support these claims? 13 CASSANDRA ANDERSON: What I will say, too, 14 and Robert, you can certainly expand further, it is 15 not just insurance that is reporting on the 16 litigation. 17 New York City has more than a billion dollars 18 in litigation annually is what they have reported. 19 The city is largely self-insured and that's 20 what they are reporting as far as their own 21 litigation. Just the municipality itself. Not the 22 amount of litigation in the city. But that is how 23 much they are paying the city in litigation costs. 24 Just the settlements, is my understanding, is 25 more than a billion dollars annually. 142 1 So I think that's important to know that it's 2 not just an insurance-specific statistics that we 3 are even talking about. 4 SENATOR FERNANDEZ: What is the timeline for 5 these settlements, for them to get determined, when 6 they're first filed? 7 CASSANDRA ANDERSON: I think it was Robert 8 that said about the length of the court process 9 right now, the judicial process, is quite lengthy. 10 And that's because of, you know, the delays that 11 exist. 12 It's not, you know, with -- the courts are 13 very burdened in trying to work through that. It's 14 challenging for everyone. 15 ROBERT GORDON: One of the things that I 16 think is very important that we are trying to work 17 on with the regulators, a lot of people don't know, 18 a lot of consumer policyholders don't know, if you 19 have a complaint, you can go to the regulator and 20 they'll help you navigate that complaint. 21 And what is good about that is the regulator 22 doesn't take 40 percent or a third of your 23 compensation. 24 And so I think one of the things we need to 25 do better as an industry -- and we are trying to 143 1 talk to our regulators about it is letting people 2 know of the existing system that is designed to 3 serve them without taking any compensation. 4 SENATOR FERNANDEZ: Okay. 5 Ms. Collins, you said before that you want 6 to give insurance. You want to make sure people are 7 covered. 8 I mentioned before I represent a coastal 9 community and from "Sandy" to "Ida" to every storm, 10 it always happens, oh I don't have insurance. Okay, 11 let's try to get you flood insurance for the next 12 time. They won't give it to me. Why? 13 Why is it so hard for coastal communities 14 that literally are on the border of where the zoning 15 is to be able to get flooding insurance when we see 16 and know that it's a continual problem? 17 ERIN COLLINS: Flood is a peril that is 18 written through the National Flood Insurance Program 19 and is certainly available. 20 SENATOR FERNANDEZ: There is nothing we can 21 do at a state level? 22 ERIN COLLINS: I think the biggest challenge 23 with flood insurance -- and the NFIP would hopefully 24 reiterate this -- is the lack of take up rate. 25 People just don't buy it. 144 1 I think it would serve communities well to 2 push information about the flood insurance program 3 and the exposure that individual consumers may have 4 in that space and how they can purchase that policy. 5 And certainly any agent can direct them to that 6 information as well. 7 And, you know, I have personal knowledge of 8 carriers when they're asked about a flood insurance 9 policy. 10 If they don't -- many of them do a 11 write-your-own program in collaboration with the 12 National Flood Insurance Program but they certainly 13 have that information available for a consumer. 14 CASSANDRA ANDERSON: And just to clarify, the 15 National Flood Insurance Program is a program of the 16 federal government. So that is how flood is largely 17 provided. 18 And the way that those policies are written, 19 the way that the claims process works, that is all 20 through how the federal government has structured 21 it. 22 SENATOR FERNANDEZ: The federal government is 23 a little unreliable so I want to know how we can do 24 it on the state right now. 25 ROBERT GORDON: Senator, if I may, the flood 145 1 exposure is by far and away the biggest protection 2 gap for New York consumers. Only 3 percent of 3 homeowners in New York have flood insurance. 4 There is both federal insurance available and 5 private insurance available. 6 But not only is flood the most common peril, 7 it's particularly an extreme risk for New York when 8 you look at the catastrophic maps. 9 And formerly that risk was mostly from storm 10 surge but now because of the changes in climate, we 11 are seeing a lot more flash flooding and that 12 causes -- they call it pluvial flooding -- but it's 13 basically you get these short heavy rains and the 14 storm drains in New York City and elsewhere are not 15 designed to absorb that much water. 16 So you get flooding and that's not covered in 17 the standard homeowners policy. 18 And, again, there is federal insurance 19 available. There is private flood insurance 20 available but only 3 percent of the people have it. 21 That is a rapidly escalating risk that people 22 are vulnerable for. 23 CASSANDRA ANDERSON: We talked about 24 resilient buildings but also making the public 25 infrastructure, particularly in New York City -- I'm 146 1 not saying it is the only municipality but I know 2 and seeing the experience here trying to improve 3 that public infrastructure is going to be very 4 important moving forward. 5 SENATOR FERNANDEZ: We know that is part of 6 the problem, too. 7 But in the last few years, a number of 8 insurance companies have withdrawn from New York 9 insurance -- the market for a number of reasons. 10 I'm not sure if we said all of them. 11 But as some of the surviving companies, what 12 are you doing to ensure that insurance and therefore 13 homeownership remains affordable in this competitive 14 market? 15 ROBERT GORDON: I really think it goes back, 16 Senator, to resiliency. 17 As we have all said on this panel, 18 insurers -- some insurers have been withdrawing or 19 pulling back because of the enormous aggregation of 20 risk that is escalating with the climate change. 21 So they know that big one is going to hit and 22 a lot of them just don't have the kind of capital to 23 allocate for that escalating exposure. 24 We can bend the cost curve. 25 We can make it safer with more resiliency. 147 1 We have the standards. 2 They have been proven effective. 3 We need to get those to the builders. 4 We need to get them to consumers early in the 5 process. 6 We need to create incentive programs whether 7 it's tax incentives or grants. 8 Or we see a lot of credit unions now offering 9 HELOC loans for mitigation. 10 Lots of solutions we are working on but we 11 have to get people more resilient to make them safe 12 and reduce their costs. 13 ERIN COLLINS: Senator, if I could connect 14 one more dot there. 15 This is an area where accurate risk-based 16 pricing really assists the market. 17 So I mention how insurance companies really 18 want to write insurance. Well, to the extent in 19 this part of the state over here, I can be as 20 accurate as possible through risk-based pricing. 21 That leaves me capital available to write 22 property in other parts of the state where risk may 23 be higher. 24 So the ability to write more insurance in 25 more places, and for different risk profiles is 148 1 directly impacted by the ability to use the most 2 accurate tools in the market at the time. 3 SENATOR FERNANDEZ: Thank you. 4 SENATOR BAILEY: Round two. 5 Senator Skoufis will start us off. 6 SENATOR SKOUFIS: Thank you, Senator Bailey. 7 First, Mr. Gordon, the Starbucks 8 $50 million payout that you referenced before, what 9 state was that award granted in? 10 ROBERT GORDON: I don't remember, Senator. 11 I wasn't using that as a New York specific 12 example. 13 Just an example how the cost -- it's not just 14 fraud it's the escalation of the cost -- 15 SENATOR SKOUFIS: I just wanted the record to 16 reflect that that did not occur in New York. It 17 occurred in California. 18 My first question is what percent of claims 19 would you all characterize as being fraudulent? 20 We've talked a lot about fraud. And I echo a 21 lot of what Senator Kavanagh mentioned, where there 22 is clearly a lot of anecdotal evidence. I have yet 23 to see any harder evidence. 24 I'm trying to get an understanding -- we all 25 are -- of just how pervasive this is. 149 1 In your estimation, what percent of claims 2 are fraudulent? 3 CASSANDRA ANDERSON: The New York State 4 Department of Financial Services issues a report 5 every year on fraud. So that is one indicator. 6 Fraud is something that is not always easy to 7 identify. 8 And as I mentioned, it's hard to be able to 9 tell when there are certain elements of it. 10 On the litigation side with their 11 pre-litigation funding, because there is not the 12 transparency in discovery, we are not always aware 13 of what the role is there as well. 14 SENATOR SKOUFIS: Understood. This is 15 strictly an opinion question I'm asking. 16 Is it 1 percent, 5 percent, 10 percent? 17 CASSANDRA ANDERSON: I wouldn't want to 18 speculate. I can't say with absolute certainly in 19 this moment so I want to get back to you. 20 But the National Insurance Crime Bureau works 21 very closely with law enforcement and there are some 22 statistics there as well and we are happy to get 23 back to you on this. 24 But I do think the issue with fraud is, you 25 know, we have individual state -- excuse me, 150 1 investigative units with special investigative units 2 in our companies. 3 We, you know, engage in all sorts of 4 different efforts to fight fraud but it is something 5 that you are not always going to be able to 6 determine every piece of fraud, which is why we are 7 trying to strengthen the laws and get closer and 8 closer to be able to determine all the fraud that 9 exists and try to address it better. 10 SENATOR SKOUFIS: I don't think you are going 11 to find any disagreement from anyone up here or our 12 colleagues that fraud does, on some level, exist. 13 And we want to do whatever we can to try and 14 rein it in as you have described. 15 But clearly you have all thought about the 16 issue of fraud and understandably so. 17 You must have some opinion as to ballpark how 18 pervasive it is in New York or at least nationally. 19 Is it a fraction of 1 percent? Is it 20 1 percent? Is it double digits? Ballpark? 21 ERIN COLLINS: Senator, we are going to have 22 to get back to you because candidly I feel like I 23 might underestimate the amount. 24 SENATOR SKOUFIS: What is a conservative 25 estimate? 151 1 What is your most very conservative estimate? 2 ERIN COLLINS: We'll commit to the following 3 up. 4 But let me give you a practical application 5 of how I think this is pervasive in New York and in 6 other places. 7 SENATOR SKOUFIS: I have a few other 8 questions. 9 I don't think I'll get an answer to that 10 question so I'll move on. I'll ask another sort of 11 percent question. 12 Whatever that denominator is that you are 13 going get back to us with that represents the 14 percent of claims that you believe are fraudulent, 15 what percent of those claims actually wind up in 16 court? 17 ROBERT GORDON: Senator, I think there is a 18 little bit of a disconnect. 19 We are not just talking about fraudulent 20 insurance claims, but rather the whole realm of 21 fraud committed against businesses that insurance 22 ends up having to pay for. 23 SENATOR SKOUFIS: I understand that, but I'm 24 specifically asking about claims. 25 So what percent of the fraudulent claims -- 152 1 you are going to get back to us with what you think 2 that percent is -- what percent of those claims wind 3 up in court? 4 ERIN COLLINS: You mean criminal court? 5 SENATOR SKOUFIS: No, I do not mean criminal 6 court. 7 ERIN COLLINS: Again, we'll follow up with 8 more information. 9 But I think a lot of fraud ends in 10 litigation. Whether or not that ends in a court, is 11 a different situation. 12 I think part of the challenge -- 13 SENATOR SKOUFIS: That's really what I mean. 14 What percent winds up in litigation? 15 ERIN COLLINS: I think it's a lot. I think 16 it's very high. 17 SENATOR SKOUFIS: Three quarters? Almost 18 1 percent. Almost all of them? 19 ERIN COLLINS: I don't have those 20 figure percent available. Obviously, that would be 21 largely circumstantial. 22 But I think anecdotally speaking, what we see 23 from the SIU units Cassandra mentioned and from how 24 litigation trends, what we see is a lot of 25 litigation is filed in cases where there is 153 1 suspected fraud and then it moves into, you know, 2 the legal standard of how those two entities 3 interact. 4 I think the exposure for that case on the 5 litigation side because of this legal system 6 abuse -- 7 SENATOR SKOUFIS: So I'm getting to that 8 piece. 9 This is sort of a three-step question here. 10 So, is it safe to say a majority ends in 11 litigation? 12 A majority of the claims you suspect as 13 fraudulent end in litigation? I think the words you 14 used was it is very high. I'm trying to understand 15 what that means. 16 Is it at least a majority or can you not, 17 with confidence, even say that? 18 ERIN COLLINS: I can't with confidence give 19 you a number. 20 What I can tell you is that we have seen both 21 an anecdotal and some independent research from, you 22 know, these antifraud organizations. 23 SENATOR SKOUFIS: Okay. 24 So you can't even say that at least half, 25 more than half of these claims you believe are 154 1 fraudulent -- whatever number that is -- winds up in 2 litigation and being challenged. 3 That raises a whole series of additional 4 questions in my mind. 5 ERIN COLLINS: I'll answer it this way. 6 We have seen a drastically increasing -- and 7 I will get you the number -- drastically increasing 8 number of cases that involve retention of an 9 attorney and filing of litigation even prior to 10 communication with the insurance companies. 11 SENATOR SKOUFIS: Understood. I'd love to 12 see those numbers. We would all love to see those 13 numbers. 14 I have another question and I'm almost out of 15 time. I apologize. 16 Now, whatever that number is, that second 17 percent, what percent of those claims that wind up 18 in litigation ultimately see a verdict, not a 19 settlement? 20 CASSANDRA ANDERSON: We are still trying to 21 establish the first numbers and I think that that's 22 the challenge, trying to -- 23 SENATOR SKOUFIS: Give me a sense, just a 24 sense. Is it a tiny -- is it a fraction of 25 1 percent? 155 1 CASSANDRA ANDERSON: Part of the issue is to 2 prove fraud is not always easy. 3 So how much do we suspect versus how much 4 there is to whole scheme versus an element. 5 There is a lot of variation. 6 SENATOR SKOUFIS: No doubt but if you don't 7 even see it through the process, it strikes me as 8 odd that this is such an enormous concern on your 9 end. 10 My concern is that whatever number of claims 11 are actually fraudulent, you all make a 12 determination that is just easier to sort of bake 13 that into your next rate application instead of 14 seeing it through to a verdict and fighting it and 15 creating case law. 16 That's my concern because that takes time and 17 energy and costs. 18 It's just easier, we'll add a couple points 19 to our next application. 20 So I would love to see those number when you 21 do circle back. 22 CASSANDRA ANDERSON: We are happy to provide 23 more information about all of what we do to fight 24 fraud. 25 SENATOR BAILEY: I have a second round of 156 1 questions and I want to start off with where 2 Mr. Gordon left off with Senator O'Mara. 3 You talked about the side of nuclear verdict. 4 Nuclear verdict is a definition of is it just 5 $10 million more? It has nothing do with the 6 portion of possible loss. 7 So even if the losses were 9.99 million, we 8 refer to it as a nuclear verdict if it is exactly 9 $10 million? 10 ROBERT GORDON: If it is 10 million or more, 11 then it's a nuclear verdict. 12 SENATOR BAILEY: So the nomenclature has 13 nothing to do with the excessive nature above the 14 laws, it's just the number of the dollar amount? 15 ROBERT GORDON: The issue is just how much it 16 is increasing cost for society. 17 You can argue with each case whether it's 18 reasonable or not but what we are seeing, again, is 19 spilling hot liquid on your lap went up from 20 2.7 million to 50 million, those costs get added 21 into the costs of all sorts of consumer products 22 ultimately. 23 SENATOR BAILEY: I agree with that 24 assessment. 25 I just want to make sure that we are clear 157 1 about not painting a broad brush because when one 2 hears the phrase "nuclear verdict," it sounds as if 3 it's well beyond the, you know, any loss. 4 And if somebody's reasonable losses were 5 9.9 million, that nuclear verdict is not nuclear. 6 It is just -- it is on par. 7 ROBERT GORDON: Although what we are seeing 8 is the driving factor appears to be the non-economic 9 damages. 10 So it's not that the economic losses have 11 scaled up as much in terms of, you know, the cost of 12 a knee injury or a back injury, but rather what the 13 jury decides or a judge decides is an appropriate 14 pain and suffering award. 15 And for whatever reason in society, those 16 numbers have escalated very significantly and so 17 it's taking more money out of the system. 18 SENATOR BAILEY: I think that's a number 19 of -- factor of things that are not the subject 20 matter of this hearing about how people are feeling 21 about the world in general, how they want to give 22 someone else a break so to speak. 23 If we could talk about juries and jury pools 24 at a different time. 25 And I believe in representation. The people 158 1 should be represented. I'm sick and tired of the 2 top dog law, commercials on the radio just like you 3 are. But I do believe that people deserve fair and 4 adequate representation. 5 So I think that we should get more data 6 around what these litigation costs are so we can 7 have a concrete conversation together. Because I 8 understand how you are seeing it. 9 But on the other side, you wouldn't want to 10 send somebody into a court unrepresented going as a 11 Pro Se litigant for a possible loss of $50 million. 12 The two are not -- we want to make sure that that's 13 happening properly. 14 ROBERT GORDON: But I think the key there, 15 Senator, is we're not seeing more people getting 16 justice. 17 We are just seeing a small number of these 18 very high verdicts that then drive up costs broadly 19 in society. 20 SENATOR BAILEY: I would love for us to have 21 that data. 22 To that point, we talked about factors, I 23 want to talk about solutions. Let's talk about 24 solutions. 25 From the relative -- from the perspective of 159 1 each of your associations, what are the solutions? 2 What are the tangible takeaways that we can 3 walk into session, at the state level in January, 4 and have a reasonable conversation about doing 5 something about it. 6 I want to talk about solutions. 7 ROBERT GORDON: I think, overall, we have all 8 talked about resiliency is the most important 9 solution. 10 It's building codes, mitigation incentives: 11 Whether those are grants, loans, waiver of fees, tax 12 credits, encouraging free inspections. 13 A lot of states have had success with all of 14 those. 15 Infrastructure is important, education, 16 having more risk disclosures. Those can be 17 targeted. 18 You can say all right, for affordable housing 19 we are going to create more mitigation incentives to 20 help affordable housing. 21 That's really the key long-term to bending 22 the cost curve and making housing more affordable. 23 SENATOR BAILEY: Anyone else? 24 CASSANDRA ANDERSON: Certainly modernizing 25 the regulatory environment and making sure that DFS 160 1 has the regulatory capacity. 2 There is a bill for them to be able to use 3 consultants, to be able to get through that process. 4 Loss mitigation efforts. Insurance is very 5 involved in this space. But it's very hard for us 6 to be able to engage with our policyholders and to 7 be able to give them the tools or to provide them 8 with the service that would go with detecting fires, 9 for example. 10 There are devices that will do that. Water 11 sensors, as Erin mentioned earlier. Something we 12 really want to see more and more of. 13 I've talked about third-party litigation 14 funding and to be able to address the transparency 15 and discovery that needs to happen. 16 There's a lot in the litigation space. 17 We talked about, not only capping 18 non-economic damages in a reasonable way, but 19 potentially capping attorneys fees. I certainly 20 think that that's something that could be discussed 21 as well. 22 So we are happy to have a conversation on a 23 wide range. That's just a sampling of things we 24 would be happy to talk about. 25 SENATOR BAILEY: Ms. Collins. 161 1 ERIN COLLINS: I would agree with all those 2 things. 3 I would also add this, and I think this is in 4 part an answer to Senator Skoufis, your question 5 about fraud and the resolution of the court cases. 6 So I want to make sure that there is a distinction. 7 When we are talking about a civil case, it 8 would be, you know, one party versus another party 9 and a finding of liability. 10 And it's either a go or no go. And that's 11 what is reported about that case. That's not a 12 finding of fraud. 13 So, I think a positive thing for us to look 14 at here, and to your point, is to incentivize and 15 empower law enforcement to really go after and 16 investigate fraud and then prosecute it. 17 And so I think, you know, in terms of 18 measures that are actionable that you can do in 19 states, and we are very anxious to continue this 20 conversation, states that have seen higher 21 conviction and interest from law enforcement and 22 insurance fraud have seen some of those loss curves 23 bend down. 24 SENATOR BAILEY: Those of my colleagues who 25 know me from coded committee days know that I do not 162 1 believe in incarceration as a societal method of 2 improving people's lives at large. 3 But I'm always happy to have a conversation 4 about making sure that people who are bad actors and 5 are proven to be bad actors -- the proof is in the 6 proof, not proof is in the pudding -- and making 7 sure that those folks are held accountable. 8 And the last thing I'll say is this: 9 Mr. Gordon, you mentioned previously that the 10 non-tendering of policy takes roughly 3 years. 11 If a policy is not going to be tendered, it 12 takes about 3 years. 13 Was that something that you said earlier? 14 ROBERT GORDON: So there is a general 15 prohibition on non-renewals after the -- that lasts 16 for 3 years. 17 So that's one of the things insurers have to 18 worry about is you know that inflation is 19 increasing. 20 You know climate losses are increasing. But 21 it's going to take you a couple of years potentially 22 to get a rate increase through the system. 23 And at the end of that approval, you have to 24 wait for the policy, 12-month policy to renew. 25 So if you can't reprice it quickly and you 163 1 can't non-renew, then you are very exposed to those 2 increasing losses. And that's one of the friction 3 points in New York. 4 SENATOR BAILEY: Thank you for that 5 clarification. 6 As I close, I look forward to having many 7 conversations about this and consumer awareness. 8 I'll just make this point, like I said to 9 DFS, maybe they're not as -- maybe your hands are 10 not as tied as the regulators are. 11 I would implore you to please make sure that 12 the policyholders within the State of New York have 13 the information about all of the discounts and 14 things that they possibly may have. 15 My time is up. Thank you. 16 CASSANDRA ANDERSON: I will say we have a 17 thank goodness for insurance website that provides a 18 lot of tips and information. 19 Our goal is to increase financial literacy 20 and we welcome working with all of you in that 21 space. 22 SENATOR BAILEY: Thank you very much. 23 SENATOR KAVANAGH: For the record, we all 24 thank goodness for insurance. 25 Just a couple of followup questions. 164 1 First of all, so you mentioned litigation 2 costs. 3 Do you have data that distinguishes the cost 4 of litigating, the cost of your attorneys and 5 investigations versus the cost of paying out claims 6 or settlements after that are litigated? 7 ROBERT GORDON: We have what is called the 8 defense cost and containment expense ratio, where 9 essentially they look at your -- how much you are 10 spending on lawyers in the system and then as a 11 percentage of your payout and that's something that 12 we track generally nationwide. And we can get that 13 on a state by state basis. 14 SENATOR KAVANAGH: I think I followed that. 15 You have data for how much is spent on 16 lawyers and the cost of actually engaging in the 17 litigation versus what gets paid out at the end? 18 ROBERT GORDON: Yes. 19 And that's one of the concerns is the amount 20 of money society is paying on -- the legal system is 21 increasing and the U.S. is an outlier in the world 22 in terms of how much we spend. 23 SENATOR KAVANAGH: We are also an outlier in 24 the world in not having people have their medical 25 costs covered when they are injured. 165 1 So the McDonald's case, it's odd -- I was a 2 law student in a foreign country in 1997 and the 3 case happened in 1994. 4 It's all lawyers and law students from 5 outside the U.S. wanted to talk about at the time. 6 But my understanding of the case is that 7 somebody was injured and had $20,000 in medical 8 bills and McDonald's flatly refused to pay 9 anything and so then it went to court and resulted 10 in a verdict that was something in today's dollars 11 as 5 or $6 million. 12 But we digress. 13 Do you have data the extent to which the 14 assertion of the insurance company in litigation was 15 about the claim being falsified or fraudulent in 16 some way versus a dispute about how much to pay? 17 Like, if my home -- presumably if my roof is 18 ripped off by a storm, you are not going to assert 19 that there was a fraudulent storm. 20 But you might say we don't owe you as much as 21 you think, you know, as much as you are trying to 22 claim for the roof versus a situation where you are 23 asserting that the claim itself was defective or 24 false in some way? 25 ROBERT GORDON: I have not seen a national 166 1 database on that. There may be some individual 2 insurers who track that. We would have to go back. 3 SENATOR KAVANAGH: I know this has been a bit 4 contentious here. 5 We really are trying to get to the bottom of 6 what is actually known because if we are going to 7 act on this, we need to understand the dynamic. 8 Shifting gears a bit. Robert, you mentioned 9 a number of ways we might incentivize to people to 10 engage in behavior that would reduce harm to people, 11 reduce property damage, reduce risk. None of those 12 incentives involve discounts from insurers. 13 And your list -- I'm not saying that that may 14 have been an oversight -- but I mean, insurers are 15 engaging in discounting in this. 16 Is it in your view, all of you, would it be 17 useful to have a more systematic approach to make 18 sure that all the people we talked about -- we 19 talked about contractors and property owners and 20 agents -- are aware of the behaviors that diminish 21 risk and are incentivized to diminish those risks by 22 actual reductions in premiums? 23 ROBERT GORDON: So that information is 24 generally available through the IBHS website. 25 But what we have been talking with the 167 1 builders and realtors and others about doing is 2 trying to help them with essentially more cost 3 benefit analysis; how much of those different 4 techniques in different states going to help, not 5 only save money with insurance but reduce losses, 6 protect people and enhance resale value. 7 So we are trying to package that together 8 with some education. So this is a project we are 9 all working on together. 10 SENATOR KAVANAGH: We would very much like 11 that. 12 CASSANDRA ANDERSON: We are happy to discuss 13 what discounts would look like. 14 As I mentioned before, there are currently 15 five fortified roofs in the entire state of New York 16 so fortified hasn't even come here yet. 17 How we determine the discounts is if there is 18 actuarial significance. 19 So we need to see what that looks like in 20 New York State. 21 We believe in the science but we need to be 22 able to determine what that would look like in the 23 state. 24 We are actively working with state agencies 25 right now to bring fortified to the state and to 168 1 encourage it, and I think the insurance industry 2 will be more than happy to continue to be part of 3 that conversation. 4 SENATOR KAVANAGH: Fortified is obviously a 5 newer -- it does seems from other states there's 6 some evidence that it's effective and I think there 7 have been some studies that have noted reduced costs 8 both to insurers and in terms of deductibles. 9 Some of the things you mentioned -- Sandra, I 10 think you mentioned this before -- much more routine 11 technology that is not about, you know, climate 12 disaster and other extreme weather but just more 13 routine disasters in individual homes. 14 Some of these technologies have been around 15 for quite sometime. 16 Water sensors to make sure you don't have a 17 catastrophic pipe burst. Fire guards, fire 18 detectors, smoke detectors. 19 Again, is there a systematic approach within 20 the industry to determining whether a discount 21 should occur for the presence of those things? 22 Cameras, by the way, for litigation we 23 mentioned before. Presumably if there are cameras 24 present, that might diminish the risk you are going 25 to make a payout on that property. 169 1 I mean, how do you price and -- how do you 2 price those things and how do we explain what 3 appears to be quite different approaches by 4 different insurers to those, you know, those 5 features that have been around for a long time? 6 CASSANDRA ANDERSON: Again, each insurer is 7 figuring out what that meaning is for them. 8 They're coming up with an actuarially 9 analysis -- an actuarial analysis, what that looks 10 like. 11 What I will say, though, is we actually, as 12 an insurance industry, are very interested in 13 increasing the amount of devices that people have; 14 whether it's water sensors, and it's very difficult 15 for us to even provide that device to a 16 policyholder. 17 We have to file for it right now as it 18 stands. 19 We have actually sought legislation when 20 trying to work with DFS to increase or to create 21 more flexibility so insurance companies can offer 22 those types of devices to their policyholders before 23 we can even get to the discount part of the whole 24 equation. 25 But we like to be more engaged with our 170 1 policyholders in that space and carriers would 2 welcome that flexibility. 3 SENATOR KAVANAGH: We would like to engage 4 and just to note -- I'm not going to have time to 5 explain this -- but it is perplexing that, I mean 6 actuarial science should not vary that widely from, 7 you know, if you are talking about whether a, you 8 know, a water sensor is likely to diminish risk. 9 Presumably there is quite a bit of data on 10 that at this point in the industry. 11 It is perplexing that, you know, discounts 12 are offered by some companies and not others for 13 some features and not others. 14 So I think this is an issue we're going to 15 want to explore on an ongoing basis. 16 One more question. Do any of your 17 associations dispute that climate change is driven 18 by, at least substantially, by human activity on 19 this planet? 20 ERIN COLLINS: I think in terms of our 21 association, what we are focused on is the response 22 to climate change and extreme weather and how to 23 mitigate against it. 24 SENATOR KAVANAGH: Your association is not 25 sure whether climate change is caused by, you know, 171 1 increased greenhouses in the environment? 2 ERIN COLLINS: What I'm saying is that we 3 don't have a position on that as that is not our 4 area of expertise. 5 What is our area of expertise is how to 6 harden ourselves against extreme weather. 7 We can recognize the pattern of change in the 8 weather, but we don't employ scientists for causes 9 and I'm not -- as a trade association, that is not 10 our area of expertise. 11 SENATOR KAVANAGH: I'm aware that I am over 12 time here. 13 But just to be clear, you don't -- for 14 example, if the federal government pulls back on 15 policy that is likely to dramatically increase the 16 greenhouse gas content of the atmosphere, you don't 17 consider whether that will increase the likelihood 18 of bad weather events? 19 ERIN COLLINS: Senator, I'm happy to give you 20 my personal opinion. 21 SENATOR KAVANAGH: No, I'm not asking for 22 your personal opinion. 23 Again, I'm surprised; I thought this was a 24 throw away question. 25 CASSANDRA ANDERSON: I think what Erin is 172 1 saying and it's important to recognize, is we look 2 at it from the effect on the extreme weather. 3 The industry doesn't have experts who are 4 engaged in how that occurs. I'm not disputing it. 5 I'm just saying that we have our area of 6 expertise and we stay in that lane. 7 SENATOR KAVANAGH: Again, I'm very surprised 8 if your industry is taking -- if your organization 9 is taking a position that you don't assess whether 10 policy and industrial activity are increasing or 11 decreasing the amount of greenhouse gases in the 12 environment and whether that is likely to lead to 13 greater or lesser risk, I think -- I mean, that 14 strikes me a policy that would constitute putting 15 your head in the sand. 16 Again, I wasn't trying -- this wasn't a 17 gotcha. 18 ERIN COLLINS: Senator, if the question is do 19 you dispute it, the answer is no. 20 SENATOR KAVANAGH: So again, maybe I asked or 21 phrased the questions incorrectly. 22 And I do want to wrap here, but you, as an 23 industry, your associations and your companies, 24 assess the likely increase in greenhouse gases in 25 the environment based on human activity as a factor 173 1 that will have an effect on risk, on future risk. 2 Is that a fair statement? 3 ERIN COLLINS: I think so. 4 SENATOR KAVANAGH: Okay. All right. I'm 5 over time so I will leave it there. But thank you 6 for -- and a follow-up. 7 Thank you. 8 SENATOR FERNANDEZ: Very quick, out of 9 curiosity, because rates are going up, we are paying 10 more, the average person is not getting paid more. 11 The members of your -- well, your members, 12 their executive pay, has that gone up in recent 13 years or down? 14 ERIN COLLINS: We don't track payment. What 15 I would say is this: Every insurance company has a 16 Board of Directors that is representative of their 17 policyholders. 18 And they establish their, you know, overhead 19 for all levels of operation to be substantial 20 representation of their policyholders and their 21 needs in order to remain competitive in the market 22 and deliver the best products. 23 SENATOR FERNANDEZ: Okay. 24 ROBERT GORDON: Senator, I can give you a 25 couple of quick data points. 174 1 For the top 350 public firms, the realized 2 compensation averaged nearly $23 million last year. 3 Average property casualty CEO compensation 4 was under $10 million and there were only four to 5 five property casualty CEOs who had compensation 6 exceeding that average, most of which are CEOs of 7 global companies. 8 SENATOR FERNANDEZ: I'm glad you had that 9 information. Thank you. 10 I yield my time. 11 SENATOR KAVANAGH: I think that wraps up. 12 Again, thank you all for your testimony, for 13 all the information you provided and including 14 written, and we look forward to a continued 15 conversation. We appreciate you. 16 We are going to take a 5-minute break before 17 the next panel, literally only 5 minutes. So at 18 1:11 we will reconvene. 19 Thank you all. 20 (The hearing stands in recess.) 21 So at 1:11 we will reconvene. Thank you all. 22 (The hearing resumes.) 23 SENATOR SKOUFIS: All right. We are going to 24 get back to it here. 25 Welcome to the Acting Commissioner and Deputy 175 1 Commissioner. Appreciate you both being here. 2 Before we get to your testimony, if we can 3 swear you in, please raise your right hand. 4 Do you solemnly swear that you will tell the 5 truth, the whole truth and nothing but the truth? 6 COMMISSIONER AHMED TIGANI: I do. 7 SENATOR SKOUFIS: Great, thank you. Please 8 proceed. 9 COMMISSIONER AHMED TIGANI: Good afternoon, 10 Chair Bailey, Chair Skoufis, Chair Kavanagh, members 11 of the Senate Committee on Insurance, the Standing 12 Committee on Investigations and Government 13 Operations and the Standing Committee on Housing, 14 Construction and Community Development. 15 My name is Ahmed Tigani. I'm the Acting 16 Commissioner of the New York City Department of 17 Housing Preservation and Development. 18 I'm testifying alongside my colleague 19 Lucy Joffe, Deputy Commissioner for Policy and 20 Strategy. 21 Thank you for the opportunity to testify 22 today on the impact of insurance markets in 23 preserving and developing affordable housing for 24 New Yorkers. 25 HPD’s mission is to promote quality and 176 1 affordability in the city's housing, and diversity 2 and strength in the city’s neighborhoods. 3 In service of that mission, we dedicate 4 significant time and resources to studying the 5 housing market, examining indicators that place at 6 risk our ability to create and sustain New York’s 7 housing market and neighborhood vitality. 8 Unfortunately, the current challenges are 9 abundant: Supply chain and labor shortages, 10 elevated interest rates and operating costs, federal 11 uncertainty, and persistent rent arrears since the 12 pandemic. 13 Each of these conditions has the capacity to 14 harm building viability individually; collectively, 15 they can create havoc on the market. 16 Tenants themselves have not been immune and 17 are also struggling to keep up with costs. 18 We collectively need to commit to protecting 19 homes, and this is critical for both the occupants 20 and the owner’s well-being. 21 One way to do so is to examine the regulatory 22 and administrative burdens that weigh on our housing 23 stock, as well as focus on lowering the cost of 24 operating existing housing to keep buildings stable 25 without significant rent increases. 177 1 Among the various rising costs, we see a 2 particularly disturbing trend in the cost of 3 insurance, and we are not the only ones sounding an 4 alarm. 5 For many in the housing sector, these trends 6 present a complex and growing problem for our 7 housing preservation efforts. 8 For public agencies focused on maximizing 9 resources to make impactful, sizable, and efficient 10 investments, these costs, including insurance, are 11 one factor that is diminishing the stability and the 12 building health we strive to achieve. 13 We work carefully with development partners 14 to structure loan packages and financing that 15 balance public policy goals -- such as 16 aging-in-place improvements and homeless 17 set-asides -- while still ensuring that buildings 18 are self-sufficient and that existing projects can 19 be recapitalized to meet new needs and maintain 20 stronger fiscal foundations. 21 Meanwhile, escalation of insurance costs have 22 made those guardrails much more difficult to 23 maintain. 24 Some of the ways this has been evident 25 include: Seeing insurance premiums are generally -- 178 1 seeing that they are generally increasing rapidly, 2 while coverage is decreasing or can be difficult to 3 find; estimates suggest recent average annual 4 increases around 25 percent for existing affordable 5 housing and 100 percent over the last four-year 6 period. 7 Among the list of rising costs, insurance has 8 been the biggest increase for many housing 9 providers. 10 Housing providers report finding limited 11 options and rapidly growing premiums, indicating 12 particular challenges with recent pricing of 13 liability insurance. 14 While we know that rising insurance costs are 15 a national problem, liability insurance appears to 16 be a comparatively bigger challenge in New York. 17 Insurance costs are uneven across the market 18 and across HPD’s portfolio, with significant 19 variation between projects, even for those in the 20 same loan program. 21 As insurance costs rise, it costs HPD more to 22 build and preserve each new home, reducing our 23 impact. 24 And when costs increase for buildings already 25 in HPD’s portfolio, those buildings can struggle to 179 1 meet their monthly obligations and can experience 2 significant instability. 3 While we have the most direct involvement 4 with buildings in HPD’s portfolio, increases even 5 nearing these levels are risky and destabilizing for 6 our entire housing market. 7 HPD maintains insurance requirements for 8 preservation, new construction, and our Mitchell 9 Lama projects and developments. 10 These include comprehensive property and 11 liability coverage during the property’s operating 12 period. 13 Simply put, buildings cannot operate and we 14 cannot create and preserve affordable housing if 15 that housing is not insured. 16 This steep and rapid cost escalation not only 17 strains HPD’s ability to build, renovate, and 18 finance, it also places existing affordable housing 19 under serious financial strain and becomes a growing 20 threat to affordability. 21 These conditions impact owners, tenants, and 22 communities, and the harm is increasing. 23 We thank the State Senate for taking up this 24 issue, including by passing legislation in the FY25 25 budget prohibiting insurance carriers from 180 1 discriminating against affordable housing with steep 2 penalties for failure to comply. 3 We hope, though, this is only the first of 4 many interventions to stem this tide. 5 We look forward to answering your questions 6 today and continuing to partner with you to identify 7 solutions to this pressing issue. 8 SENATOR SKOUFIS: Senator Fernandez is going 9 to lead us off. 10 SENATOR FERNANDEZ: Thank you so much. You 11 ended off with the anti-discriminatory laws that we 12 implemented. How are you seeing that being 13 affected? Like, are we seeing the intention 14 happening or not? 15 COMMISSIONER AHMED TIGANI: I know that once 16 the bill was passed, there was a great amount of 17 interest from the housing sector and those who were 18 working with us in our project loan packaging, both 19 in new construction and preservation, there was a 20 lot of education work that we did in our individual 21 conversations, so we made sure that at least the 22 sector and the industry was well informed. 23 In our conversations with DFS -- and I'm 24 sorry I wasn't here this morning to hear their 25 testimony -- we understand that they are still, you 181 1 know, looking and evaluating what impact this is 2 having on the provider side. 3 There has been some information out there 4 about national trends that show, sort of 5 stabilizing. But we are still seeing, I guess in 6 our portfolio, increase in liability. 7 SENATOR FERNANDEZ: Are we seeing our 8 enforcement working? 9 COMMISSIONER AHMED TIGANI: At this point, 10 insurance costs are continuing to increase in our 11 portfolio. Like I said, we are seeing a lot -- we 12 are concerned about the rise in our liability 13 insurance particularly. 14 And we are still worried about how this 15 impacts our costs. 16 We have talked to -- there are different 17 attorneys and representatives in the legal world 18 that are looking to see -- 19 SENATOR FERNANDEZ: Have any penalties been 20 paid? 21 COMMISSIONER AHMED TIGANI: Again, I would 22 defer to DFS as to whether that. 23 HPD is, in many cases, like other housing 24 operators, we are a provider, right? 25 We are funding projects and then we are 182 1 looking at the underwriting and we are trying to 2 make sure that they are out there competing for 3 their best options. 4 The fact that our developers are not seeing 5 best options are the reason why we are concerned and 6 we are pushing for more tools to see that insurance 7 premiums are brought down. 8 SENATOR FERNANDEZ: Okay, because I do hear 9 from property owners, developers that they are 10 seeing terrible options. 11 COMMISSIONER AHMED TIGANI: Yeah. 12 SENATOR FERNANDEZ: I want to switch to a new 13 program. I brought it up earlier, the New York City 14 Community Insurance Pilot Program. This was created 15 in '23 in response to the storm surges that have 16 happened and the damage to communities and for 17 insurance that won't give flood coverage. This is a 18 pilot program to help pay for immediate repairs. 19 But, in '23 and '24, we haven't had a big 20 enough storm, that to my knowledge, these payments 21 haven't gone to anybody. 22 Could you speak about this program and if you 23 see it going into effect? And what criteria of a 24 storm and damage do we need to have for people to be 25 able to get some funds? 183 1 COMMISSIONER AHMED TIGANI: So there is a 2 number of different pilots around climate resiliency 3 and flood response that don't operate through HPD. 4 I can talk to our colleagues at the Mayor's 5 Office of Climate and Environmental Justice and get 6 back to you with answers about that program. 7 I will say proactively, what we have been 8 trying to do over the last couple of years is design 9 projects from the start, which, through our new 10 construction work, so that they're flood resilient, 11 that they're climate resilient. 12 In our preservation work, we had the 13 opportunity to get about $800,000 of federal money 14 where we are looking at about eight or nine 15 different Mitchell-Lama campuses. 16 And doing technical assistance reviews so 17 that we can map out new construction -- I mean, new 18 capital improvements so that they can make 19 improvements in the building using capital dollars 20 and hopefully use that to bring down insurance 21 costs. 22 We also have a pilot out in Howard Beach with 23 one to four-family homes. 24 SENATOR FERNANDEZ: Has there been a 25 successful building that insurance costs have gone 184 1 down because of your assistance? 2 COMMISSIONER AHMED TIGANI: Where we are 3 seeing the ability to control for costs, really 4 comes from the fact that there are a number of 5 different ways that people are out there competing 6 for insurance, whether it's through bulk purchasing 7 or being part of the existing captive options. 8 We are seeing there are developers -- 9 particularly those who have an economy of scale, a 10 larger footprint -- able to compete and get better 11 rates. But it's not uniform. It's not a general 12 market solution. The general market issue is that 13 we are seeing premiums increase. But individually, 14 either because of scale of your building, your 15 participation -- 16 SENATOR FERNANDEZ: That's an oxymoron that 17 we are seeing solutions because premiums increase. 18 COMMISSIONER AHMED TIGANI: We are seeing 19 solutions because of the scale of your building, 20 because of the fact that you participate in either a 21 national or local captives, because you are using 22 the ability to ensure among a group that is also the 23 providers of that housing, like the captive 24 discussion. They're able to control and make 25 different decisions about the premiums that they're 185 1 charging. So one of the -- a lot of the 2 conversation over the last couple of years -- 3 SENATOR FERNANDEZ: Okay, a decision as to 4 why they're putting certain premiums -- they're 5 making decisions as to what premiums they're giving. 6 And I mentioned it before that Section 8 tenants is 7 a reason why premiums tend to go very high. And to 8 the discrimination laws that we've seen, again, I've 9 heard many times that it is still happening. 10 COMMISSIONER AHMED TIGANI: So I think the 11 misinformation about buildings that rent to 12 individuals who have vouchers, which is something 13 that is disastrous for HPD, we oversee 43,000 14 households, nearly 8200 individuals, who benefit 15 from and contribute to the city in an incredible 16 way. And they're able to live in New York City 17 because of housing vouchers. 18 So we are aggressively pushing to make sure 19 that they're protected, not only by making sure the 20 buildings that they are in have financing if they're 21 available, but as they bring those issues about 22 insurance to them, we are in a position where we 23 have to fund those insurance premiums higher, making 24 it less possible to use that money to do more 25 projects or we are bringing that information to our 186 1 state partners since insurance is regulated at the 2 state level and the federal level and not the city 3 level. 4 DEP. COMMISSIONER LUCY JOFFE: If I could 5 add. 6 We share your concern about the impacts of 7 discrimination on insurance, not just for the 8 buildings that are within our portfolio or 9 generally. So, you know, I think nothing that we 10 are saying is disagreeing with that point. 11 We would certainly expect, based on our 12 experience -- we don't enforce any discrimination 13 laws, but we work closely with partners at the city 14 level who do. Oftentimes, we are looking for two 15 different effects. 16 One is the change in behavior that happens 17 just as a result of the passing of the law if people 18 fear enforcement. And then there is the actual 19 enforcement itself. 20 The second one can take longer in our 21 experience. 22 So while we are not able to talk about today, 23 speak to whatever enforcement has happened because 24 we are not necessarily directly involved, though we 25 remain open and willing to work with anyone who is 187 1 interested, we see that is what is happening. 2 SENATOR FERNANDEZ: Increases are happening 3 based on voucher number and buildings. 4 DEP. COMMISSIONER LUCY JOFFE: So what we 5 are seeing is a range of factors that we see are 6 driving them and we are definitely concerned about 7 the way that discrimination is impacting playing 8 into that. So we are hoping that the law that you 9 all passed will help us deal with that piece. And 10 that that is hopefully happening now and will 11 continue to grow as the law really takes hold and 12 lawyers and other folks figure out how to really 13 best capitalize on the law. 14 And then we are also hoping that we can work 15 together to find solutions to the other parts of the 16 other challenges that we are seeing. We are hearing 17 from building owners like you that are also driving 18 up costs so we think it is going to need to be a 19 multipronged approach. 20 SENATOR FERNANDEZ: Thank you. Thank you for 21 the time. 22 SENATOR KAVANAGH: Thank you, Senator 23 Fernandez. And thank you both for testifying and 24 for -- HPD is really a remarkable institution, 25 having such a large and sophisticated agency at the 188 1 city level, it really is a blessing for New Yorkers 2 and we appreciate all the work you do and your time 3 here today and your testimony. 4 I just first just want to highlight something 5 you said and make sure I understand it. You are 6 saying that over a four-year period, the cost -- the 7 average cost of insurance over an entire portfolio 8 of affordable housing doubled? 9 COMMISSIONER AHMED TIGANI: So some of the 10 factors that we are seeing in terms of numbers over 11 the last couple of years, so since 2020, estimates 12 for increases in new buildings have been around 13 15 percent annually, while in existing buildings, we 14 have seen about 25 percent annual increase. This is 15 based on a number of different things. 16 But specifically, you know, we are 17 requiring -- we have to require comprehensive 18 insurance on our buildings to make sure that they're 19 protected. And as we start seeing that come in 20 through the loan packaging process, we are noticing 21 and we are recognizing its impact since it's taking 22 money that otherwise would go to build more 23 affordable housing. 24 SENATOR KAVANAGH: Right. But it's a 25 doubling of costs. Do you have any indication of 189 1 the extent to which that is driven? I mean, a lot 2 of these buildings are probably insured as sort of 3 packages of different insurances bundled together. 4 But do you have any indication of how much of 5 that is driven by increases in concern about 6 liability, which we have been discussing this 7 morning, and increases and concern about replacement 8 costs and extreme weather and those things? 9 COMMISSIONER AHMED TIGANI: We don't have 10 that break down for you. We can see what 11 information we can put together. 12 But generally speaking, we have tried to 13 recognize that in the standards that we have set and 14 we have seen a total increase in that period around 15 94 percent. 16 And then also when we talked to our lenders 17 who are also looking for that information, we are 18 comparing notes with them. 19 So right now, from the -- and again, because 20 there are five or six different models of insurance 21 that we see our providers use, it gets a little bit 22 hard to do apples to apples. So we are taking the 23 best information that we have to set our baseline 24 standard. 25 And then when we look at where they're having 190 1 difficulty finding that insurance and where the 2 costs have been the highest, it has been around 3 liability insurance. 4 DEP. COMMISSIONER LUCY JOFFE: These 5 estimates are not a measure of changes within our 6 portfolio. They're how we are -- we are 7 underwriting projects how we are seeing other folks 8 report on that. And there is very wide variation 9 between buildings even within the same program. 10 So certainly there are going to be some 11 buildings that don't have significant increases of 12 this amount and some for whom it has been even 13 larger. 14 SENATOR KAVANAGH: Do you, as an agency with 15 kind of a bird's eye view of lots of different 16 projects going on, you mentioned a couple of times 17 that there is sort of variations from one building 18 to another, even within the same program, which 19 means presumably they're broadly speaking the same 20 kinds of housing. They're multifamily, rental, 21 being funded in a particular way. 22 Do you see different outcomes when property 23 owners are getting insurance that are kind of hard 24 to explain? Or do you see, well, this one is higher 25 and it's easier to understand why that's higher and 191 1 this one is lower? 2 COMMISSIONER AHMED TIGANI: I think in 3 situations where we see a strong property management 4 framework; where there is a risk assessment process 5 in place, where the building is kept in strong and 6 good state of working order. 7 And again, going to the idea where there are 8 collaborations, portfolio-wide economies of scale, 9 we are seeing those factors contribute positively to 10 getting, you know, better quotes and better 11 insurance offerings. 12 It's really -- it's really about the state -- 13 you know, state of the building that we are seeing 14 opportunities to save money on insurance. 15 SENATOR KAVANAGH: But in terms of the 16 overall -- like the cost drivers are presumably not 17 because all those factors you just mentioned. Those 18 factors are ways of mitigating otherwise increasing 19 costs. You are not suggesting that buildings have 20 gotten worse on those measures over the... 21 COMMISSIONER AHMED TIGANI: No, no, I'm 22 suggesting there are two pieces. 23 We are concerned about information, both 24 anecdotal and research that is done that's impacting 25 the affordable housing portfolio or the larger 192 1 housing market, where as the Senator suggested, 2 there is affordable housing connection to it. 3 And then we are looking through our 4 processing of either new construction or 5 preservation projects, we are looking at the factors 6 that contribute to the quotes that our providers are 7 getting. 8 And we are seeing that we do have a wide 9 variety of projects from supportive to multifamily 10 to HDFC co-op, et cetera. 11 And these baseline factors about property 12 management, risk assessment, condition of building, 13 that all feeds into their ability to get quotes in 14 their particular work streams. 15 SENATOR KAVANAGH: I mentioned earlier in 16 this hearing -- I think you weren't in the room 17 yet -- but that the state has taken a step to 18 encourage captive insurance, basically smaller -- I 19 mean, we have been aware there are very large 20 housing providers that are kind of effectively 21 self-insuring, but we have a notice of funding 22 availability out on the street that this HDR has put 23 out to allocate $5 million that was in last year's 24 budget to subsidize companies in joining captives. 25 Can you just talk about your perspective on 193 1 how captive insurance operators might play a role in 2 the affordable housing sector? 3 COMMISSIONER AHMED TIGANI: I think one 4 thing -- one top line highlight is that with some of 5 the ones that we've seen in particular, it involves 6 the individuals who are also providing the housing 7 that is being built and being maintained and 8 preserved. 9 They have firsthand knowledge as operators of 10 that housing, they have history with that housing, 11 to talk about what the situation day to day is and 12 what the outcomes are of situations that occur. 13 So that firsthand knowledge is unique to them 14 and they're able to really move forward with that. 15 We are open and very interested in seeing as 16 many different ideas that can be tested or explored 17 to see what will drive down the ability to save on 18 insurance premiums; particularly in our housing 19 stock, you know, and our affordable housing stock. 20 I think some of the things that we have seen 21 come up as questions about viability is getting that 22 initial capital investment, making sure that the 23 pool is large enough in order to deal with things 24 that come up or maintain the costs of 25 administratively making that continue, the technical 194 1 expertise that is required. 2 Again HPD, we are not insurance experts, but 3 in talking to those who have formed them or looking 4 to form them, and members of the insurance 5 community, that technical expertise is key, being 6 able to assess what the future is and make sure that 7 they're solvent. And then there is the idea of how 8 do you approach different housing stock types. 9 And so how do you approach, you know, sort of 10 general market versus supportive housing project, 11 Mitchell-Lama projects have other standards and 12 requirements. Their formation might be different. 13 And so ensuring that we have different types is 14 important. Making sure that we have different types 15 that are available and can match up with the 16 different types of housing that we organize and 17 create in New York State, also important. 18 SENATOR KAVANAGH: You mentioned requirements 19 that you have as part of underwriting. For 20 instance, HPD and HTC have -- basically are 21 requiring insurance to secure the asset that you are 22 financing against. 23 Is there -- I mean, presumably those have to 24 be adjusted as replacement costs go up and other 25 factors. But has there been any recent change in 195 1 kind of the way you think about those requirements? 2 Like, have those requirements become more stringent? 3 Or is there any aspect of that that might be driving 4 changes in cost of insurance? 5 COMMISSIONER AHMED TIGANI: I think first and 6 foremost, like many people, we are concerned about 7 the rising impact of climate change and want to make 8 sure that our buildings are secure for that. 9 The leading angle on that is making sure that 10 we are addressing it through any capital rehab work 11 that we do and doing the examination as part of our 12 discussions with them. 13 Sustainability, energy efficiency, all of 14 these factor in to the larger operating costs and 15 management of these buildings. 16 So, you know, while not directly related to 17 insurance, there is this bigger picture of just 18 making sure our stock can maintain the operating 19 costs that they're enduring now; which we note here 20 in testimony and we have talked about before, we are 21 seeing operating costs increase across the board. 22 So by trying to maintain and solve for in 23 other areas, it allows us to free up the cash flow 24 that may need to go to increasing insurance 25 premiums. 196 1 But on the insurance premium side, we are 2 definitely concerned about things like climate 3 change; however, property insurance, general 4 liability, worker's comp, you know, flood coverage, 5 disability benefits, all of that remains the same. 6 And we do absolutely evaluate regularly 7 whether the management and operating standards we 8 set for projects that are coming in and gets 9 approved can meet that standard. 10 DEP. COMMISSIONER LUCY JOFFE: We have not 11 made any changes in recent years so we can't trace 12 that to a general cause here. 13 SENATOR KAVANAGH: Time is up. Thank you, 14 both. 15 SENATOR BAILEY: Thank you very much. I want 16 to thank you for your testimony and for your time. 17 I want to start from the year 2022. I don't know if 18 either of you were in your roles or with the 19 administration but I want to say that this was a 20 catalyst in the way that I started thinking about 21 this as a problem. 22 Tracey Towers, which is an HPD Mitchell-Lama, 23 had a significant insurance increase of roughly what 24 I recall to be 500 percent. That insurance increase 25 priced a lot of residents, even out of Tracey 197 1 Towers, which is supposed to be affordable housing. 2 It's a beacon of affordability in the borough of the 3 Bronx. And that priced a lot of people out because 4 they were no longer able to live there. 5 When things like that happen, there becomes a 6 societal domino effect of unfortunate things. I 7 don't want to make it too dramatic, but of 8 unfortunate things. Back to what HPD's role is in 9 this. R.Y. Management is the management company at 10 Tracey Towers, I've had good relationships with 11 them. This is not to target them specifically but 12 what is the relationship between the management 13 companies that are subcontracted under some of these 14 Mitchell-Lamas -- and you mentioned some of the 15 formations are different -- how can we figure out 16 like, if risks are coming down the pike, and we 17 possibly have seen that they may see this as a major 18 increase, what can we do to be responsive as opposed 19 to reactive like in the event of the next Tracey 20 Towers' 500 percent increase? 21 I know that was a lot and was a really 22 nebulous question. I can narrow it if you want. 23 COMMISSIONER AHMED TIGANI: No, no, it's the 24 right question, Senator. 25 So, we have our housing supervision team that 198 1 has multiple parts but one of which does maintain 2 a -- sort of an asset manager, which each of the 3 city oversight -- overseeing Mitchell-Lama 4 properties. They're the ones who would be talking 5 with R.Y. or any property manager about what is 6 coming up down the pike. We have both annual 7 information that we collect. 8 But there is also specifically ongoing 9 discussions about the state of their property. 10 Often they are looking at maybe meeting the 11 obligation of a local law, like local law 11 or 12 local law 97. Or they have a board because they're 13 a co-op and they see that they want to advance 14 capital improvements. So then they come in to start 15 discussing that with our preservation and finance 16 team. 17 And in those conversations, we are looking at 18 their operating costs now, we look at the past and 19 we project what they might look like in the future 20 because their vendors are giving them estimates 21 about what increases might look like. 22 So there is a proactive point in where we are 23 asking questions about their ability to meet their 24 obligations on their local law requirements. 25 There is a point -- I wouldn't call it 199 1 reactive, but where they're coming to us because 2 they're planning proactively and need financial 3 assistance from the city in order to plan for those 4 repairs. 5 And then there is reactive ways, where there 6 are issues that come up, maybe brought by an elected 7 official. Or you are talking to them because you 8 are providing reso-a or you're providing funding for 9 a project. 10 And then we package that into something and 11 say if the elected official wants to give money, we 12 want to be able to come in and do a real full 13 substantial scope, how do we work with you? 14 That said, on the insurance piece, I think 15 that's something where we regularly recommend to our 16 property managers and the owners of these buildings, 17 if you are seeing issues, please come to us. 18 We want to have a productive discussion about 19 all the tools that are on the table so that both 20 them and the tenants that they're trying to serve 21 are not caught by surprise. 22 SENATOR BAILEY: I know you said that you are 23 not insurance experts, so I'm not going to ask you 24 to specifically opine on the very specific granular 25 data. But I will ask the question about -- and I'm 200 1 going to use the Tracey Towers example again. 2 It was said that the increase was based upon 3 certain statistics of certain risks that became 4 higher than not in that area. And we are wondering, 5 you know, does HPD take a position on how these 6 insurance companies are assessing risks? 7 Because if you specifically look at Tracey 8 Towers, it's two hospitals, you know, DeWitt Clinton 9 High School, Lehman College and the Bronx Science 10 High School where lots of trouble happens, right, 11 and wondering, this area is not a bad area, but yet 12 the conversation was that risk was significantly 13 increased. 14 Is there a position that you are having about 15 how these insurance companies are arriving at the 16 manner in which they are assessing risk for HPD 17 properties? 18 DEP. COMMISSIONER LUCY JOFFE: To your 19 point -- or you said it for us. We are not experts. 20 We are also looking at the patterns across our 21 portfolio and attempting to try to derive what is 22 going on. 23 You know, the Commissioner talked a lot about 24 what we can do to help when it happens. I think we 25 are actually coming to a similar conclusion that you 201 1 are, which is we don't know how to explain and would 2 defer to other people about how to explain why the 3 increases are happening. 4 What we are best able to say is this is an 5 unsustainable place. It is very hard for us to do 6 our jobs. It's very hard for the management 7 companies, the owners, the impacts are trickling 8 down to the residents and the occupants so long as 9 this is happening. 10 So we would defer to others who have 11 testified so far today as to why, what the factors 12 are. But there has been a number of questions -- 13 and we are not able to explain it as sort of the 14 regular course of, you know, because this and this 15 is happening. 16 COMMISSIONER AHMED TIGANI: The only thing I 17 would add is that we have made clear that we are 18 available to talk with entities in the insurance 19 world or our partners at the state level about how 20 we work and support our buildings so that they're 21 safe, that they are running well. And that they are 22 in a condition that warrant being able to work with 23 them to come up with reasonable expectations and 24 solutions. 25 So that's something that HPD is very 202 1 interested in continuing that conversation. 2 SENATOR BAILEY: And we're speaking about 3 affordability, again, the topic du jour of the day. 4 Mitchell-Lama and other housing stock like 5 that, it's supposed to be the beacon of 6 affordability. And when Mitchell-Lama housing 7 becomes unaffordable, we are having a larger 8 societal problem. 9 But about, not just the coverage of that, 10 it's fair to say that HPD's portfolio does include 11 certain Section 8 tenants. Is that fair to say? 12 COMMISSIONER AHMED TIGANI: We oversee about 13 43,000 federal vouchers. 38,000 of those federal 14 vouchers are specifically housing choice vouchers, 15 which is normally referred to as Section 8. 16 SENATOR BAILEY: So with that Section 8 or 17 those types of housing, are you seeing insurers 18 pulling out of those markets greater? Because we 19 are talking about declination of insurance. Less 20 people are looking to cover certain places in other 21 areas. 22 Are you seeing that they're coming out -- 23 that they're pulling out of that type of housing 24 stock more often than not or is it equal across the 25 board? If people are pulling out of the market, 203 1 they're pulling out of the market, or is it 2 happening more in lower income areas? 3 COMMISSIONER AHMED TIGANI: We are seeing 4 general difficulty with being able to access 5 insurance options. And a lot of our housing -- a 6 lot of housing in HPD's portfolio is both a 7 combination of subsidized buildings with city or 8 federal resources and vouchers. 9 So, you know, I can say that the folks who 10 are coming to us, either who are in our portfolio 11 and trying to re-up and extend their loans, or 12 individuals who are coming to us as part of projects 13 who want to come and be part of an HPD loan process, 14 both are seeing issues with availability, with 15 pricing. 16 And it's not so much that Section 8 is the 17 factor, but we are talking more generally in the 18 housing stock but particularly affordable housing. 19 SENATOR BAILEY: The reason I'm stating these 20 things is simply for the record. When people come 21 to us with certain complaints and we're reading in 22 the media about certain complaints, it's important 23 that we elevate these conversations. 24 Just, these are not accusations that anybody 25 is a bad actor but when people bring us stuff, it's 204 1 irresponsible if we don't bring it to those, 2 especially those in municipal government. 3 I guess the last thing I will say is this. 4 As you continue to strategize and look towards and 5 continue to look towards and do the great work that 6 you are doing, are there any state level 7 conversations that you would like us to be having 8 that we can work in complement with the city that -- 9 legislatively or otherwise? 10 COMMISSIONER AHMED TIGANI: I would say there 11 are a couple of things. Our continued collaboration 12 and I would say this in any room, you know, the HCR 13 Commissioner and the entire team works hand in hand 14 with us to make sure that we have resources, either 15 tax credits or capital, so that we are investing in 16 these buildings. The stronger we make our existing 17 portfolio, the better they can withstand any of 18 these issues that come up. 19 So continuing to be -- and the Senate and the 20 Assembly and the Governor's support of over a 21 billion dollars in housing funds, actually is going 22 to connect directly to what we are talking about 23 here and help us moving forward. 24 So more of that support is always great. And 25 then as far as the legislation that we are seeing 205 1 here, I think across the board we are very 2 interested in seeing if there are different 3 alternative methods that either create new pathways 4 to better premium options, better quotes. Or if 5 there are other things we can do with the standard 6 way. 7 So we are interested in talking about all the 8 options that are on the table. We defer to our 9 colleagues at the state level, especially about the 10 mechanics of the insurance industry. 11 But as far as an operator and funder of 12 housing, we would like to be in the conversation on 13 all of these. 14 SENATOR BAILEY: Thank you, Commissioner and 15 Deputy Commissioner. 16 Senator Kavanagh. 17 SENATOR KAVANAGH: In recognition of your 18 time and your staff's excellent work reminding us 19 that you have other things to do today, I think I'll 20 forego the opportunity to ask another round of 21 questions. But just again, thank you for your 22 testimony and for all that you do. And we will be 23 in touch about some of the followup. Thank you. 24 COMMISSIONER AHMED TIGANI: Thank you guys 25 for the opportunity. 206 1 SENATOR KAVANAGH: Andrew Finkelstein is 2 next. 3 SENATOR SKOUFIS: Thanks for joining us, 4 Mr. Finkelstein. Can I swear you in? 5 ANDREW FINKELSTEIN: Sure. 6 SENATOR SKOUFIS: Do you solemnly swear that 7 you will tell the truth, the whole truth and nothing 8 but the truth? 9 ANDREW FINKELSTEIN: I do. 10 SENATOR SKOUFIS: Thanks very much. Go right 11 ahead. 12 ANDREW FINKELSTEIN: Chair Bailey, Skoufis, 13 Kavanagh and members of the committee, thank you for 14 the opportunity to testify today. My name is Andrew 15 Finkelstein. I'm president of the New York State 16 Trial Lawyers Association. 17 NYSTLA represents New Yorkers injured through 18 unsafe property conditions; tenants, workers and 19 community members, who rely on property owners 20 liability insurance to obtain the protection and 21 compensation those policies are meant to provide. 22 Residential insurance is prohibitively 23 expensive in New York because the system rewards 24 delay, secrecy and profit sharing instead of 25 protecting policyholders. At the same time, 207 1 industry profits have never been higher. The 2 property and casualty insurance industry earned 3 $88 billion in 2023, it's most profitable year of 4 all time, even as insurance executives claimed the 5 sky was falling and insurance companies jacked up 6 rates with these great profits. 7 In addition, AM Best reports that 2024 saw 8 profitability continue to surge with net income 9 reaching $130 billion in the first quarter of the 10 year -- 148 percent increase, putting the industry 11 on pace to shatter 2023 records. The major driver 12 of this imbalance is the rise of illusory insurance. 13 These policies look like insurance on paper but 14 offer little or no useable protection in practice. 15 Families pay premium believing they're 16 covered, yet when they need the insurance company, 17 they evaporate and deny the claim. The result is 18 simple: New Yorkers think they are insured, but 19 when disaster strikes, they find out they are 20 effectively on their own. 21 Trial lawyers see this reality every day, 22 particularly in affordable housing communities that 23 are hit first and hardest by climate disasters. 24 These households take two or three times longer to 25 recover from storms, are twice as likely to suffer 208 1 heat-related harm, and are more likely to be 2 underinsured when catastrophe strikes. 3 To address these failures today, I'll focus 4 on three ways New York State can help affordability 5 of insurance. 6 First, sunlight. Sunlight laws are essential 7 because New York cannot fix or regulate what it 8 cannot see. We heard today from the Chair of DFS. 9 She specifically said they do not get claim level 10 data to rely on any increases. When she is blinded 11 as to what she is attempting to regulate, she cannot 12 properly regulate. And it's the industry that is 13 withholding that information. So if the legislature 14 was -- had the wisdom to actually put true sunshine 15 laws in place, we would be able to see why they 16 claim these premium increases without what appears 17 to be justification. 18 Secondly, New York urgently needs a strong 19 bad faith law, because it would protect 20 policyholders and significantly reduce the burdens 21 on our court. Today when an insurer wrongfully 22 delays or denies legitimate claims, the only 23 consequence is that they may eventually have to pay 24 what they owed from the start. The structure 25 rewards delay and encourages denials that individual 209 1 homeowners and affordable housing providers cannot 2 afford to fight. And when a property owner is 3 wrongly denied coverage, the ripple effects extend 4 further. Injured New Yorkers lose their only source 5 of recovery, their medical care does not disappear, 6 it only shifts to Medicaid and public hospitals. 7 That means taxpayers bear the cost that should have 8 been paid by the insurers who collected premiums 9 specifically for those losses. The state has a 10 direct financial interest in ensuring coverage is 11 honored and enacting bad faith law. 12 And third, New York must confront fraud 13 wherever it occurs, including widespread often 14 hidden fraud committed by the insurers themselves. 15 NYSTLA is unequivocal. Fraudulent claims by anyone 16 is unacceptable. But we cannot ignore the 17 documented misconduct within the industry. 18 After "Sandy," for example, multiple insurers 19 were sanctioned for manipulating engineering reports 20 to understate their own insured losses or deny 21 claims entirely. These practices mislead 22 policyholders, distort pricing, destabilize the 23 market. We have heard very quickly a lot about 24 fraudulent claims without any support or data. I'm 25 here to tell you there are far more fraudulent 210 1 defenses that are put forth than any fraudulent 2 claims that are brought. 3 In closing, insurance is a promise. A 4 promise that when disasters strike or when someone 5 is injured, the protection paid for will be there. 6 But a promise requires transparency, enforceability 7 and honesty. 8 I commend the committee for examining the 9 true cost drivers behind rising premiums, by 10 ensuring transparency, enacting a real bad faith law 11 and scrutinizing misconduct wherever it occurs, 12 New York can restore fairness and stability to its 13 insurance markets. 14 Thank you for the opportunity to present and 15 I welcome any questions you have. 16 SENATOR SKOUFIS: Thank you, 17 Mr. Finkelstein. You alluded to it. I think it's 18 fair to say that we were all non-plussed with the 19 lack of data that was provided by one of the 20 previous panels, the association, the trade 21 associations. 22 I'm curious, they made a lot of assertions 23 about how litigation has quote unquote exponentially 24 increased. Spoke a lot about nuclear payouts. I'm 25 wondering, they clearly didn't have the data at, 211 1 sort of, their finger tips. We will see if they 2 have the data at all, as they circle back. 3 Does NYSTLA have any data that speaks to the 4 volume of cases that have moved in this policy area, 5 in the property and casualty insurance? 6 Do you want to just generally respond to 7 those assertions that we heard before? 8 ANDREW FINKELSTEIN: Well, first, I want to 9 put context in the, frankly, flippant phrase of 10 nuclear verdicts. They define a nuclear verdict as 11 something in excess of $10 million. But what we did 12 not hear is how much is actually paid on that claim. 13 And what we did not hear is why did a jury 14 have to decide that. And most importantly, let's 15 not ever overlook the fact that six individuals from 16 our community sat and heard all of the evidence and 17 determined that that was fair and appropriate. 18 But what we also did not hear, importantly, 19 is that the structure in New York provides that the 20 trial court judge reduces those verdicts and the 21 appellate court judge reduces those verdicts. 22 But the most important comment about nuclear 23 verdicts and why it has no impact on the cost of 24 insurance is because at no point in time in New York 25 do insurance companies ever pay more than the policy 212 1 that they wrote. 2 So if there is a million dollars of insurance 3 and there was a nuclear verdict of whatever number, 4 $15 million, as they define it, doesn't affect the 5 insurance company in any way because that is a 6 policy of only a million dollars of which they would 7 have to pay; which they chose not to pay, to avoid a 8 trial. 9 And most importantly, that's for premiums 10 they've collected for 6, 7, 8 years previously. 11 It's not forward-looking, it's rear-looking. So the 12 whole disinformation related to nuclear verdicts is 13 just that: Disinformation. 14 With respect to the quantity of cases moving 15 forward, the challenge is that the insurance 16 companies often require, and for a settlement to 17 occur, confidentiality. So we don't have access to 18 the information to provide you. 19 I would love to be able to provide it all to 20 you, but they, in fact, create the cloud of secrecy 21 in their resolutions so as to then hide it from the 22 DFS and come in and, frankly, all I heard today was, 23 I remember when my kids were little and they were 24 like there is a monster in the closet, there is a 25 monster in the closet. And I would say what does 213 1 the monster look like? Oh, I don't know. There is 2 a monster there though and I'm really afraid. I 3 would open the door and there is no monster there. 4 Until they show me the monster and the numbers, I 5 can't accept any of it. 6 SENATOR SKOUFIS: So you talked about 7 sunshine or sunlight before. Do you think that 8 should extend to doing away with these 9 confidentiality agreements? 10 No doubt in a non-identifiable way for the 11 policyholder, but do you think we should 12 legislatively take action on that? 13 ANDREW FINKELSTEIN: I do. The only party 14 that is advantaged through confidentiality is the 15 insurance company. There is no reason why a person 16 who brings a claim ever seeks confidentiality. 17 It's always a part of a settlement that's 18 required when it is required. In order to resolve 19 this case, we must have confidentiality. Well, who 20 are they hiding that result from? They're not 21 hiding it from their shareholders. They're hiding 22 it from DFS. And they're hiding it from other 23 community members so they don't see how somebody 24 else was fairly compensated. 25 SENATOR SKOUFIS: You raised an interesting 214 1 point about the defensive fraud, the fraud, alleged 2 fraud on the side of the insurers. But I do want to 3 drill down on to the extent that it occurs, the 4 fraud that does happen by policyholders with claims. 5 They clearly did not want to opine. 6 I'm curious if you would like to opine on 7 what percent of claims you believe are ultimately 8 fraudulent. 9 ANDREW FINKELSTEIN: This is not supported by 10 anything other than my personal experience and I'm 11 happy to share it. I am an attorney 34 years now, 12 doing exclusively this type of work. Everybody in 13 my association does this type of work and we work on 14 what is called a contingency. We are only 15 successful if we -- we only get a legal fee if we 16 are successful. If we are not successful, we do not 17 get a legal fee. 18 I, personally, do not know an attorney who 19 brings forward claims that don't have merit and are 20 fraudulent. Now, can I suggest that in any 21 structure where the net outcome is money, that there 22 is not some element of fraud? I personally have not 23 seen it, but I will accept that some of it exists. 24 But if I had to venture a guess as to a percentage, 25 less than one half of 1 percent. 215 1 SENATOR SKOUFIS: Okay. That's more than 2 what we got from the other panel, so I appreciate 3 that. Now, of, sort of, the pool of claims that 4 leads to litigation, what percent of that pool, 5 litigated claims, winds up moving to a trial and has 6 a verdict rendered? Ballpark. 7 ANDREW FINKELSTEIN: Here, too, I would, in 8 my personal experience and the attorneys I know, I 9 would suggest it's one half of 1 percent of cases 10 actually go to a verdict. 11 SENATOR SKOUFIS: Why do you think the 12 insurance companies settle 99 plus percent of those 13 litigated claims? 14 ANDREW FINKELSTEIN: Well, I think it's the 15 business model. And it's the business model that I 16 call the 5Ds, which is deny, delay, defend, defraud 17 and disinform. That's the business model that I 18 have experienced of insurance companies. 19 So part of the deny is they are holding, in 20 reserves, anything that they ultimately would pay 21 out. And the longer that they can extend the 22 litigation, the more they earn on their reserves. 23 That's exactly what happens. 24 So if they put in -- I will define them as 25 fraudulent defenses that then require motions and 216 1 delays the litigation, rather than handle the case 2 properly up front -- because the defense lawyers 3 know, the vast majority of them, they know what the 4 ultimate outcome will be but they also know that 5 their job is, you know, is to delay that case. So 6 that's the litigation problem that we have. 7 Now that would go away in large part -- 8 certainly not entirely -- if we had some teeth to a 9 bad faith law. 10 Because all of that is acting in bad faith in 11 delaying meritorious cases. 12 SENATOR SKOUFIS: And how many states have a 13 bad faith law? 14 ANDREW FINKELSTEIN: I don't know in total. 15 I didn't do that study but I know more than 16 20. 17 SENATOR SKOUFIS: So roughly at least half? 18 ANDREW FINKELSTEIN: Yes. 19 SENATOR SKOUFIS: In those states, do you 20 have a sense -- I assume the way it works is if an 21 insurer is found to have been acting in bad faith, 22 there is some sizeable financial penalty. Is that 23 generally how it works? 24 ANDREW FINKELSTEIN: This is generally how it 25 works. The claimant puts forth in clear unambiguous 217 1 terms, why the case has merit, why the case should 2 be resolved now and why it's worth in excess of the 3 policy amount. In every state that has bad faith, 4 they then give the insurance company an opportunity 5 to comply. It's not an automatic we just say you 6 are in bad faith. They have been given the 7 opportunity to comply. 8 If they choose to not comply, and they're 9 wrong, they're then on the hook for anything in 10 excess, and would have exposure to those nuclear 11 verdicts. 12 SENATOR SKOUFIS: So in your experience in 13 these other states, does having a bad faith law 14 deter the bad faith? Or do we wind up with outcomes 15 where there are just an enormous volume of penalties 16 for bad faith? 17 ANDREW FINKELSTEIN: It deters the bad faith. 18 SENATOR SKOUFIS: It does. 19 ANDREW FINKELSTEIN: Absolutely. And then 20 those cases resolve as they should, timely. 21 SENATOR SKOUFIS: And in those states that 22 have more recently adopted bad faith laws, do you 23 have any sense as to what the impact on premiums 24 have been in those states? 25 ANDREW FINKELSTEIN: I don't but I can try to 218 1 find that out. 2 SENATOR SKOUFIS: All right. Great, thank 3 you. 4 SENATOR BAILEY: Thank you, Mr. Finkelstein 5 for your testimony. Just a couple of brief 6 questions. I just want to underline a finer point 7 about what you said about the willingness of an 8 attorney to bring a fraudulent claim. Would that be 9 a disbarrable offense? If someone knowingly and 10 intentionally filed a false claim, is that 11 attorney -- could that attorney be brought before 12 the grievance committee and be disbarred? 13 ANDREW FINKELSTEIN: Right, they would lose 14 their license if they knowingly filed a fraudulent 15 claim. 16 SENATOR BAILEY: I just want to set the 17 foundation for that because that's important to know 18 that while fraud does occur, that, one, to risk 19 their livelihood on setting a fraudulent claim 20 doesn't seem like it's the smartest thing to do. 21 And bad faith laws you just mentioned -- 22 ANDREW FINKELSTEIN: And I just want to 23 follow up on that -- 24 SENATOR BAILEY: Sure. 25 ANDREW FINKELSTEIN: -- because there was 219 1 some testimony, well, these claims have been 2 brought. They've all been dismissed. Every claim 3 where there was these theory of fraudulent claims, 4 they -- and where the attorney was involved, they 5 have been litigated and dismissed. 6 SENATOR BAILEY: I bring that up, not as an 7 attack on the insurance companies but as an attorney 8 myself knowing that I know what Rule 1.1 is, you 9 know. And you have to make sure you comport 10 yourself like a lawyer at all times and that's 11 grounds for disbarment. 12 I want to talk about the bad faith laws again 13 that Senator Skoufis was talking about. Roughly 20 14 states may have it. Could you talk to us about what 15 you think operationally it would do in New York? 16 From what you described, it seems like it 17 operates like a de facto motion for summary 18 judgment. But if you could describe what you would 19 want the bad faith law to look like in 20 New York State. 21 ANDREW FINKELSTEIN: I would want it to 22 require a notice provision by the claimant, the 23 attorney, a clear delineation as to why the damages 24 are far in excess of the policy limits. That bad 25 faith triggers once liability is generally secure. 220 1 We are a comparative liability state. We need not 2 have 100 percent liability. So even if the 3 liability is generally secure, and the damages are 4 far in excess of the policy limits, it's clearly 5 communicated. Then there is a 30-day window to 6 review and decide. And the insurance company has to 7 own that decision. Right now there is no teeth to 8 that. They can just say we deny, we delay and we 9 are going to defend. And there are no consequences 10 for that. 11 When they know those are cases that should be 12 resolved and ultimately we know when we show up for 13 jury selection they pay the policy. 14 And the only person who suffered is the 15 injured claimant and the insured, the policyholder 16 who has gone through many sleepless nights, worried 17 and concerned that their insurance company is not 18 protecting them the way that they paid the policy 19 premium for them to do so. 20 SENATOR BAILEY: Let's switch gears a little 21 bit. While it was necessarily stated -- it might 22 have been mentioned briefly -- the concept of tort 23 reform is something that is brought to us as 24 legislators and me, as the chair of the Insurance 25 Committee, quite frequently as a way to possibly 221 1 defray costs, as a way to lower costs for 2 policyholders. 3 Can you talk to me about the association's 4 thought process on what tort reform -- would that 5 lead to that type of declination of a premium or 6 what would that do in general in your opinion? 7 ANDREW FINKELSTEIN: All it would do is take 8 away individual's rights without any proven benefit 9 because they -- there is no sunshine laws, right? 10 I'll give you a perfect example. We heard a little 11 comment about construction and labor law 240. 12 Several years ago there was a study that was done by 13 the Empire Center for Public Policy where there was 14 a discussion as to whether or not 240 was the reason 15 why construction insurance premiums were high. 16 And the DFS was involved in an investigation 17 and when they asked the insurers -- and I'm going to 18 quote directly from our FOIL response. When they 19 asked insurers, can you identify your claims that 20 you have paid 240 claims out on to justify it, their 21 response is no company tracks the requested 22 individual features. We receive no meaningful 23 response to the questions requesting comparison to 24 other jurisdictions. 25 So again, I'll just refer to my monster in 222 1 the closet that 240 and these construction liability 2 costs are out of control without any justification 3 or support. 4 So to answer your question specifically, the 5 suggestion of tort reform just means taking away 6 individual rights to the benefit of insurance 7 companies. 8 SENATOR BAILEY: I think it's important to 9 put a finer point on that and what it would mean 10 from the trial lawyer perspective, not just the 11 insurance company perspective. I think that your 12 testimony to Senator Skoufis' questions I think have 13 been sufficient to me, so I will defer the rest of 14 my time. 15 Senator Kavanagh. 16 SENATOR KAVANAGH: Thank you. 17 My colleagues have asked both Senator Bailey 18 who is a lawyer and Senator Skoufis who sometimes 19 plays one, and I'm a recovering lawyer myself. But 20 I think we've covered a lot of ground and your 21 testimony was very clear and helpful. 22 I want to raise just one issue that was 23 raised earlier, which is there were a couple of 24 allusions in testimony earlier to the notion that 25 litigation financing is something that incentivizes 223 1 bad behavior on the part of lawyers -- plaintiffs 2 lawyers, property owners making claims. Do you have 3 a perspective on, you know, sort of organizations 4 that finance litigation in advance? 5 ANDREW FINKELSTEIN: I do. 6 First, there is a current bill that the 7 Senate has passed, the Assembly has passed and we 8 are waiting, hopefully the Governor will sign, that 9 is supported by NYSTLA; which caps litigation 10 funding at 25 percent of any recovery, requires 11 regulation of the entities and I think it will go a 12 long way to regulating the industry. 13 But the position related to litigation 14 financing is one that it is -- and the reason why 15 insurance companies don't like it is because it 16 levels the playing field. It gives -- when somebody 17 has suffered a catastrophic or traumatic event and 18 they can't work, and they have medical bills coming 19 in, and they have no resources to pay their rent, 20 pay their insurance coverage, they are left with no 21 choice but to borrow against a future recovery. And 22 this industry, the litigation finance, gives people 23 a bridge to get from the catastrophic event to the 24 resolution. 25 Now we would never need the litigation 224 1 finance company if insurance companies did what is 2 embedded in their policy premiums, which is to act 3 in good faith. Having litigated against insurance 4 companies for 34 years, I have yet to see that. 5 So now the necessity of these litigation 6 companies, to give the bridge for injured people to 7 get from the event to the resolution, I will just 8 define it as a necessary evil. 9 SENATOR KAVANAGH: I think, again, with great 10 appreciation for your testimony, but I think given 11 the passage of time here we will wrap up. Thank you 12 so much. 13 ANDREW FINKELSTEIN: Thank you. 14 SENATOR KAVANAGH: So next up we have 15 Robert Hartwig. 16 SENATOR SKOUFIS: If you wouldn't mind 17 raising your right hand. 18 Do you solemnly swear that you will tell the 19 truth, the whole truth and nothing but the truth? 20 PROFESSOR HARTWIG: I do. 21 SENATOR SKOUFIS: Thanks very much. 22 PROFESSOR HARTWIG: Thank you. Good 23 afternoon, Mr. Chairman and Senators and thank you 24 very much for the opportunity to testify before the 25 committee today. My name is Robert Hartwig and I'm 225 1 a Professor of Risk Management Insurance and Finance 2 at the University of South Carolina. But prior to 3 joining the university, I spent 23 years in the 4 property casualty insurance and reinsurance worlds, 5 mostly right here in Manhattan as the president and 6 economist of the Insurance Information Institute. 7 So I'm going to speak to you about some of 8 the drivers of residential property insurance costs 9 and more or less from the perspective of an 10 economist here, which I am. 11 So for the purposes of this testimony, I will 12 be focusing on four principle factors driving costs 13 and thus premiums upward in recent years, inflation, 14 demographics, climate risk and a bit about legal 15 system abuse. 16 First on inflation. Inflation in the 17 aftermath of the COVID-19 pandemic surged to a 18 40-year high. And inflation, as experienced by 19 property insurers, however, was materially higher 20 than the general level of inflation. 21 From January 2020 through mid 2025, the cost 22 of construction materials rose 45 percent, nearly 23 double the 24 percent increase in the overall 24 Consumer Price Index over the same period. Likewise 25 the cost of residential construction trade services 226 1 was up 42 percent. 2 And more broadly, home values here in 3 New York State are up 94 percent over the past 4 decade and the trajectory of home insurance premiums 5 logically tracks the increasing costs of the homes 6 themselves. And you will see this in Exhibits 1 and 7 2. 8 In fact, you will see sharp increases even 9 for some of the most mundane of construction 10 materials: Plastic pipes up almost 100 percent 11 compared to about 24 percent for the CPI overall. 12 Now tariffs are the latest in terms of adding 13 cost pressures and builders point to the 10 percent 14 tariff on lumber, 50 percent tariffs on steel, 15 aluminum, copper products, as particular challenges. 16 And the National Association of Home Builders 17 estimates that a new home nowadays would cost nearly 18 $11,000 more to build than it would prior to the 19 tariffs. 20 And the National Association of Home Builders 21 also makes clear that current immigration policy 22 threatens to increase home prices. They're very 23 clear about that. 24 Now in terms of population and urbanization 25 and such. Since 1970, the U.S. population has 227 1 increased by 65 percent and rising population leads 2 directly to the accumulation of property values and 3 property asset values and increases concentrations 4 of risk in vulnerable areas. 5 And while New York State's population growth 6 has been much slower over the past half century than 7 most south -- in states in the south and west, the 8 same fundamental demographic principles apply. 9 New York's exposure to climate risk 10 accumulated over the course of centuries is 11 enormous. New York is the nations's fourth most 12 populous state and New York City remains by far the 13 nation's most populous city. It is also the most 14 densely populated city in the country by far. 15 Thus what New York State lacks in terms of 16 the frequency of exposure to extreme climate events, 17 it makes up for in the aggregate value of exposed 18 property, which is highly concentrated in the 19 state's most vulnerable areas. 20 Now, along those lines, recent models -- and 21 I think you heard of this in some earlier 22 testimony -- recent models suggest that a category 3 23 hurricane making land fall in Queens or Long Beach, 24 New York, could result in a loss -- insured losses 25 exceeding $100 billion with 40 to $50 billion in 228 1 insured losses in areas for a similar event out on 2 Long Island. 3 Now, you will see that in Exhibit 3, in my 4 testimony, you will see it's a vivid illustration of 5 the economic toll of climate-driven risks in 6 New York as the number of billion-dollar events that 7 have affected New York State has been increasing 8 rapidly. Reinsurance costs are another important 9 driver of property insurance premiums. And that is 10 displayed in Exhibit 4, where you can see that the 11 price of reinsurance is very sensitive to the 12 frequency but especially to the severity of 13 catastrophe losses. And that impacts every insurer 14 in every state. 15 On the issue of litigation, and legal system 16 abuse, we've heard quite a bit about this but this 17 is certainly a cost driver. It is an element in 18 driving property insurance upward. 19 According to the U.S. Chamber of Commerce, 20 liability costs associated with homeowners' 21 insurance policies increased at a 5.1 percent annual 22 clip in recent years. 23 And multi-unit dwellings which carry 24 liability insurance coverage, usually with much 25 higher limits of course, in 2024 insurers writing 229 1 commercial multi-peril liability policies paid out 2 nearly $115 in claims and expenses for every $100 3 they earned in premiums. 4 Now let me talk to you about some market 5 forces that are at work in New York State. In terms 6 of residual market shares, markets of last resort. 7 Legal system abuse and fraud brought Florida's 8 homeowners' insurance markets to the brink of 9 collapse in 2022. And in California an archaic 10 regulatory structure made offering private insurance 11 coverage amid rising wildfire risk economically 12 unfeasible. 13 So consequently, the population of each 14 state's residual market grew rapidly, doubling or 15 tripling in size. 16 But in stark contrast to Florida and 17 California, New York's markets of last resort 18 accounted for a shrinking share of the property 19 insurance market. 20 New York's favorable residual market 21 experience in recent years compared to other large 22 states and the nation as a whole indicate the 23 property insurance market conditions in the state 24 are relatively stable. 25 Just one more point on this. In terms of 230 1 another, I would call it sort of success story in 2 New York, data on homeowners' insurance non-renewal 3 rates also highlight the relative stability of 4 New York's property insurance markets. 5 Not only are non-renewal rates in New York a 6 fraction of those in troubled states like Florida 7 and California, but they are consistently about half 8 the non-renewal rate for the country overall and the 9 average non-renewal rate in New York from 2018 to 10 2023 was 0.49 percent, which implies that 11 approximately 99.5 percent of homeowners' insurance 12 policies in the state were renewed each year. 13 I will simply conclude there. My time has 14 elapsed. I would be happy to answer any questions 15 that you have. Thank you very much. 16 SENATOR BAILEY: Thank you, Dr. Hartwig, I 17 appreciate your testimony. Just a couple of 18 questions. 19 First question I guess I will start where you 20 left off briefly about the excess markets so to 21 speak, right? 22 PROFESSOR HARTWIG: Residual market. 23 SENATOR BAILEY: Residual market. Are you 24 referring to the excess market in New York State? 25 PROFESSOR HARTWIG: No, I'm not. I'm talking 231 1 about the market of last resort for property 2 insurance. So excess, in my interpretation of it, 3 would be for high-level liability claims, unusual 4 sorts of risks like that, which have to be insured 5 outside the so-called admitted market. 6 SENATOR BAILEY: I just wanted to make sure 7 because I want to talk about, like, whether DFS -- 8 because DFS does not regulate the excess market. 9 PROFESSOR HARTWIG: That's a different 10 market. 11 SENATOR BAILEY: So I was wondering if there 12 was a correlation with that. 13 PROFESSOR HARTWIG: They are completely 14 different. 15 SENATOR BAILEY: I'll ask you the question 16 about the -- the fraud question that we've asked I 17 think everybody here. 18 Do you have requisite data that would show us 19 that fraud is a significant cost driver? And if so, 20 where does that data come from? 21 PROFESSOR HARTWIG: No, I do not. During my 22 time here in New York State when I was president of 23 the Insurance Information Institute, I did work 24 coincidently on some fraud issues here in New York. 25 We really dug into the issues. They were with 232 1 respect to no fault auto insurance very, very 2 specifically. 3 And we have very, very hard numbers 4 associated with that that measured in the hundreds 5 of millions of dollars in terms of the fraud that 6 was associated with that. We were able to determine 7 that through very hard work working with the largest 8 automobile insurance companies in this state, 9 digging into thousands and thousands of individual 10 claims. 11 We were able to essentially map networks 12 between what we would call crooked medical 13 providers, gangs or rings that were actually 14 orchestrating these sorts of accidents. And they 15 were doing it for payment. There were attorneys who 16 were associated with them. 17 And we would put this all together and 18 essentially hand this on a silver platter to 19 district attorneys for prosecution. 20 SENATOR BAILEY: I believe I found my 21 question that I'm going to be asking to everyone, so 22 everyone please be forewarned. 23 The tort reform question. What is your 24 opinion on the tort reform question? And does it, 25 is it a significant cost driver of insurance rates 233 1 in the State of New York? And I'll -- let me just 2 ask the question first. 3 PROFESSOR HARTWIG: Right. 4 So the tort environment in every state is 5 idiosyncratic, okay, because many of the laws which 6 govern the tort environment arise or originate in 7 state legislature. 8 So, but I would say that many in cases, in 9 most states, in fact there is probably some role for 10 tort reform; for example, we can think of very 11 reasonable reforms such as caps on non-economic 12 damage awards; all right? The sky should not be the 13 limit on those sorts of things. 14 We've heard different things about approaches 15 towards third-party litigation funding. For 16 instance, the insurance industry is pushing towards 17 mandatory disclosure there. Is there some reason 18 why judges and juries should not know that a third 19 party potentially stands to profit off the 20 misfortune of another individual? It fundamentally 21 violates the principle of what we call insurable 22 interests in an insurance policy. 23 So there are some -- and these are completely 24 disinterested third parties who, again are there 25 purely for the profit motive, which you have to ask 234 1 yourself. That doesn't quite -- if you are a member 2 of a jury, that's probably going to put a bad taste 3 in your mouth when you think about that. 4 But, yes, so in each and every state, we can 5 think about a way that tort reform could improve the 6 availability and affordability of various types of 7 insurance coverage. 8 I was recently involved in efforts in liquor 9 liability reform, okay, in another state because 10 it's a huge problem there. Restaurants were 11 actually closing down as a result of that. And so 12 you know, some sort of compromise was reached in the 13 state legislature that got us, I would say, part way 14 there. 15 So every single state has an issue that needs 16 to be addressed, could probably benefit from. But 17 ultimately the focus is what can you do to contain 18 or drive down the costs of certain types of 19 insurance and make it more available to whatever 20 segment of the insurance buying population is 21 affected? 22 So I mention in one state it's restaurant 23 owners. In another state it might be property 24 owners. In another state it might be doctors, okay? 25 Every single, you know, sector of the economy is 235 1 going to have an issue that they might feel that 2 might be able to be addressed through tort reform. 3 SENATOR BAILEY: And so based upon that 4 answer there, would that encapsulate what your 5 section on litigation and legal system abuse was on 6 page 8 of your testimony? 7 PROFESSOR HARTWIG: Let me just take a quick 8 look here. What I did here is I simply focused a 9 bit on the residential property element here. So I 10 didn't talk about commercial auto or doctors or 11 anything or liquor liability or anything here. So, 12 yes. I looked to see, well, okay. Your typical 13 homeowners policy, renters policy, they contain a 14 liability element to them. Your typical homeowners 15 policy, renters policies actually includes $100,000 16 of liability coverage. 17 Many people don't know that but it's actually 18 part of the sort of multi-peril package that you are 19 buying when you have these policies. And if you 20 look at the underlying increases associated with 21 costs there, you will see it is about 5 percent a 22 year. That isn't enormous in -- so this is for 23 homeowners, all right? 24 Where the problem really begins is when we 25 are talking about commercial liability policies. 236 1 And there we have more significant issues. Why? 2 Because the pockets are deeper, they're much, much 3 deeper. Oftentimes a million or multiple millions 4 of dollars of limits are potentially at stake there. 5 So it's not surprising that, you know, deep 6 pockets are a greater attraction. 7 SENATOR BAILEY: Certainly. Are there any 8 suggestions that you have in terms of New York 9 specific -- and I know your expertise is more vast 10 than just this state -- but are there New York 11 specific ideas or thoughts that you may have, things 12 that the state legislature can do to assist in 13 achieving this goal? 14 PROFESSOR HARTWIG: There are a couple. 15 Let me get back to this idea of looking at 16 non-economic damages again. I mean, that is a 17 significant problem across the country. I don't 18 know the magnitude of it specifically here in 19 New York State. But I can be quite certain that 20 that's going to be an element of it. 21 I should also suggest that in terms of the 22 prior -- you know, when you heard the panel from the 23 insurance industry speak earlier and you asked them 24 for suggestions about things they could do in terms 25 of improving availability and affordability of 237 1 insurance in this state, they talked about investing 2 in mitigation and resilience and these sorts of 3 things. 4 I have never heard in my life a solution to 5 affordability and availability that involved 6 encouraging more lawsuits. Okay? That's what we 7 just heard. We just heard that. Pass a bad faith 8 law, you get more litigation and that is going to 9 somehow solve availability and affordability issues 10 in this state? 11 I don't believe it. I don't think anybody 12 believes that. I think that proceeding very, very 13 carefully in the state legislature with advice like 14 that, I would certainly caution. 15 But I do think that if you were to solicit, 16 from insurers, where they believe, and also from 17 property owners themselves, where they believe they 18 are seeing the most, in terms of their exposure and 19 their vulnerability to these types of lawsuits. 20 Because remember, ultimately, yes, you are 21 talking about rising insurance rates. But the 22 reason why the insurance rates are rising, whether 23 it's on the property dimension or whether it's on 24 the liability dimension, is because of the 25 underlying claim activity. 238 1 It is the property owner that is being sued 2 here, it is not the insurer that is being sued. 3 It's the insurer is very much kind of a messenger of 4 this risk. And the insurer is attempting to try to 5 manage this risk in a way that will lead to the best 6 of outcomes for all parties that are involved here, 7 but particularly their policyholder. So it's a 8 complex issue. And like I say, it's very, very 9 idiosyncratic. 10 But I do believe that you would be able to 11 quite quickly find from property owners themselves 12 what they believe to be the leading issues that are 13 driving this. 14 You discussed this with their insurers and I 15 think from that you can develop real solutions that 16 can meaningfully contain the costs. 17 SENATOR BAILEY: The final question I have 18 for you -- and thank you for that answer -- is based 19 upon your expertise -- and you have a lot of great 20 data in here, very prospective forward looking. 21 I'm going to ask you -- and I'm not going to 22 ask you to have a crystal ball but I want to ask you 23 kind of a crystal ball-like question. 24 If this continues to happen and insurers 25 continue to pull out of markets and people are not 239 1 able to tender policies on places, are we going to 2 have certain zones, certain areas, certain 3 neighborhoods in our communities that will be, for 4 all intents and purposes, inhabitable because people 5 will not be able to get the proper coverage, the 6 proper insurance on their homes? Is that something 7 that we can foresee in the next 15, 20, 30 years? 8 PROFESSOR HARTWIG: You know, right now in 9 New York State, again, particularly compared to 10 other states, you don't really see it here, okay? 11 Are there periods in time when coverage 12 becomes more or less available and the terms and 13 conditions on which that coverage is offered may be 14 more stringent or more lax than others, absolutely. 15 But right now, particularly in the 16 residential property insurance market in 17 New York State, you are actually performing better 18 than many other states. 19 When you look -- again, as I already 20 mentioned -- states like Florida and California, you 21 are the fourth largest state. 22 Those are two of the three other largest ones 23 and Texas is the other. 24 Your markets are performing in some ways 25 better than those by -- in terms of whether I look 240 1 at non-renewal rates or whether I look at the size 2 of the residual markets. 3 What you don't have here is literally in the 4 State of Florida, you had hundreds of thousands -- 5 in fact more than a million at some point in 2023, I 6 believe, the State of Florida became the largest 7 home insurer in the state, superceding companies 8 like State Farm and so forth. That's not where you 9 want to be. So you are doing something right here 10 already. 11 SENATOR BAILEY: Thank you, Dr. Hartwig. 12 Senator Skoufis? 13 SENATOR SKOUFIS: Thank you, Senator Bailey. 14 Thank you, Dr. Hartwig for your testimony. I want 15 to ask you a few questions, versions of which I've 16 asked prior panels. 17 The first -- and I don't know if you were 18 here at the start of the hearing, but there was a 19 "New York Times" article from May of last year that 20 looked state by state, prior 10 years, specifically 21 at the homeowners' insurance space and how the 22 industry was fairing in each of those states in each 23 of the past 10 years. 24 Here is a sampling of some other states 25 around the country. And you can see, you know, the 241 1 bar graphs, they ebb and they flow. 2 In California, for example, the industry lost 3 money in six of the past 10 years. But that's not 4 an outlier. North Dakota, seven of the past 5 10 years they lost money. Many, many states, 6 they've lost money, 4, 5, 6 of the past 10 years. 7 This is the New York bar graph. What is your 8 immediate reaction to this? 9 PROFESSOR HARTWIG: I love it. I love it. I 10 love to see that New York State homeowners' 11 insurance business is consistently profitable. And 12 you reap the benefits of that every day. 13 99.5 percent of your policyholders are getting 14 renewed every year. It's not like that in Florida. 15 In fact, in the data you see in my testimony, 16 in Florida, for instance, the most recent number is 17 about 3 percent are non-renewed. In California, 18 it's closer to 2 percent are non-renewed. So you 19 are like one-fourth, one-sixth of those numbers. 20 And part of the reason why -- 21 SENATOR SKOUFIS: It also explains why there 22 are exponentially more carriers in New York than 23 some of those other states you just rattled off. 24 PROFESSOR HARTWIG: So you should have more 25 competition. You have fewer market disruptions in 242 1 terms of people being non-renewed. 2 SENATOR SKOUFIS: No question. 3 PROFESSOR HARTWIG: People will have, not the 4 chance of four insurers, but 40 insurers potentially 5 who are willing to underwrite their business. 6 That's a wonderful story to be able to sell. 7 I think sometimes it's hard to -- you can 8 look at the problems in a particular market. We 9 could have a hearing about why this market is good 10 as well. 11 SENATOR SKOUFIS: So you have no concern 12 whatsoever that the DFS, that regulators are 13 approving excessive rates? 14 PROFESSOR HARTWIG: No, I don't and here's 15 why. 16 I believe the data that appeared in "The New 17 York Times" showed the last 10 years or so of data, 18 okay? When we think about the major whether related 19 risks that New York is vulnerable to -- let's think 20 of, again, the cat 3 storm, barreling into Long 21 Island or God forbid into New York City. 22 We are talking about events that don't 23 necessarily occur on a decade by decade time scale. 24 I can pull out points in history where it looks like 25 the State of Florida homeowners' insurance market is 243 1 wildly -- is wildly profitable. Same thing in 2 Louisiana. 3 But even in those states, you can go a 4 decade, 15 years, without a major loss and then you 5 have it, okay, and then it occurs. So it's not a 6 matter of if. It's just a matter of when. 7 Even in this hearing notice, it concedes that 8 we here in New York State, you here in 9 New York State are more vulnerable than ever to 10 these sorts of events. So it's a matter of being 11 prepared. 12 And so insurers wake up every morning -- and 13 this is what I tell my students -- I say -- and I'm 14 sure this doesn't help recruit people to the 15 industry -- 16 SENATOR SKOUFIS: I have a number of other 17 questions. 18 PROFESSOR HARTWIG: They wake up every 19 morning as today is a potential dooms day. And I 20 worked down at the World Trade -- near the World 21 Trade Center site on September 11, 2001. I was 22 there. I watched one of those dooms days with my 23 own eyes. And I watched insurers pay $35 billion 24 for that event, an event that they hadn't even 25 planned for, okay? 244 1 So that's the sorts of things that -- that's 2 what is lying behind those numbers that you see 3 right there. 4 SENATOR SKOUFIS: Thank you for that 5 response. What percept of claims do you feel are 6 fraudulent? 7 PROFESSOR HARTWIG: It's a small number. 8 It's a small number. I don't have a specific 9 number. 10 SENATOR SKOUFIS: The rhetoric from the trade 11 association panel would suggest that it's not a 12 small number. 13 PROFESSOR HARTWIG: I think they may have 14 been referring to the fact that it's probably 15 pervasive, but it doesn't necessarily mean that it's 16 anywhere near the majority of claims, okay? Most 17 people are honest. 18 SENATOR SKOUFIS: Do you have an opinion as 19 to ballpark? Are we talking a fraction of 20 1 percent, 1 percent? 21 PROFESSOR HARTWIG: I know that from my 22 experience in the New York no fault issue, it was a 23 low single digits number. 24 But those actual claim numbers were very, 25 very large when they actually did occur. And that 245 1 fraud was actually orchestrated and there was 2 organized crime involved in that. 3 SENATOR SKOUFIS: So the insurance panel, 4 they were uncomfortable stating that they felt half 5 of those, or at least half of those allegedly 6 fraudulent claims actually went to litigation. 7 But putting that aside, the pool of claims 8 that are in litigation, why, in your opinion, why do 9 so, so, so few of them actually go to trial and 10 receive a verdict? 11 PROFESSOR HARTWIG: Well -- 12 SENATOR SKOUFIS: If the insurers are so 13 adamant that there is pervasive fraud; that this 14 pool that I'm talking about is riddled with fraud, 15 why aren't they going to trial and proving that 16 they're fraudulent? 17 PROFESSOR HARTWIG: So you are talking about 18 taking cases to trial that are specifically related 19 to fraud as opposed to going to trial for some other 20 reason. 21 SENATOR SKOUFIS: Yes. 22 PROFESSOR HARTWIG: As we all know, 23 litigation is a very long and very expensive and 24 very uncertain process, whether it's related to 25 fraud or whether it's related to other things. 246 1 SENATOR SKOUFIS: Wouldn't you agree that if 2 you are settling 99.5 percent of these allegedly 3 fraudulent claims, that is an incentive for others 4 to bring similar claims? 5 Whereas if you are actually going to trial 6 and the payout is zero, if there is actually fraud 7 associated, then people aren't going to bring those 8 fraudulent claims, don't you think? 9 PROFESSOR HARTWIG: What I know from my 10 experience, say for instance, working in the 11 New York fraud situation, for instance, is that the 12 threshold, okay, to prove the fraud in a court is a 13 very, very, very high bar, okay? 14 In my case, where we were referring cases for 15 criminal prosecution, I mentioned that we had to 16 bring these cases on a silver platter to the DA. 17 SENATOR SKOUFIS: Well, that's criminal and 18 it should be a higher bar than what we are talking 19 about. 20 PROFESSOR HARTWIG: Right. But it's still 21 going to be an uncertain process, okay? And so I 22 think that's largely the reason behind it. 23 You know, what is the magnitude of the fraud? 24 Is it a few thousand dollars or is it 30, 40, 50, or 25 $100,000? It depends on what type of cases we're 247 1 talking about here. 2 But it's a pervasive problem, in an aggregate 3 it's an expensive problem. It's also illegal. But 4 it is very difficult to observe. No one raises 5 their hand and says hey, I'm committing insurance 6 fraud. So it's difficult to observe and it's very, 7 very costly to root out and even more costly to 8 prosecute. 9 I would say that is the -- that would be the 10 ultimate, if we could bring everyone who we 11 suspected of fraud, ultimately charge them 12 criminally, in a way that would be expeditious but 13 there is just no way to actually do that in reality. 14 SENATOR SKOUFIS: Do you think that some 15 insurers prefer to settle, even if they have a very 16 high level of certainty that there is fraud just 17 simply because it's easier to setter, it's less time 18 consuming to settle? 19 And by the way, you can just bake those 20 settlements into your next rate application. 21 PROFESSOR HARTWIG: I'm not involved in those 22 discussions so I can't really say. I would say that 23 insurers do their best to identify and to root out 24 the fraud, even before you get to the point where, 25 you know, you are thinking about a trial, insurers 248 1 are working to identify fraud. 2 For instance, there is a lot of hope that new 3 technologies will help insurers identify fraud, you 4 know, more readily than in the past. And that 5 potentially could help lower the costs associated 6 with that as well. But it's a problem. But it is 7 one element of everything we have been talking about 8 here today but I would not say that it is the major 9 driver associated with the availability and 10 affordability issues across the country in terms of 11 property insurance. 12 SENATOR SKOUFIS: Okay, fair enough. We 13 heard a little bit from NYSTLA about confidentiality 14 agreements. I'm curious if you have a position on 15 whether the legislature should take some action to 16 either make it more difficult or impossible to enter 17 into confidentiality agreements as it relates to 18 settlements and payouts in this space. 19 PROFESSOR HARTWIG: I would say I have not 20 really thought about that issue at all. It's not 21 specifically an economic issue, which is where I 22 would say my expertise is. So I couldn't really 23 comment on that. 24 SENATOR SKOUFIS: Okay. You suggested in one 25 of your answers to Senator Bailey's questioning, 249 1 that adopting a bad faith law would lead to an 2 increased volume of cases being brought in this 3 space. Why do you think that? 4 PROFESSOR HARTWIG: Well, typically in a bad 5 faith situation -- I don't know what the law would 6 be here in New York State -- but oftentimes it might 7 be something like the plaintiff would receive triple 8 damages or something like this in that particular 9 case, so it clearly creates an incentive to try to 10 gin up these cases on the part of trial lawyers. 11 They have a greater economic incentive to try 12 to convert a case into one where they could 13 potentially make a bad -- 14 SENATOR SKOUFIS: Do insurers have an 15 incentive to delay cases? 16 PROFESSOR HARTWIG: No, they do not. There 17 are -- in all 50 states there are already laws that 18 require insurers to adhere to I think very, very 19 stringent rules and regulations with respect to 20 treating everyone in a fair and expeditious manner 21 with respect to claims. 22 And if there is -- if it seems that there is 23 any failure to do so or an insurer seems to be 24 falling short in that respect, the DFS, the 25 regulator in any state, has the right and the 250 1 ability to go in and conduct, for instance, a market 2 conduct exam, which would allow it to go through 3 individual claims files and see, is there something 4 systematic going on here? 5 Is an insurer dragging its feet with a 6 specific type of claim or is there taking a long 7 time to try to settle or whatever it is. 8 The DFS has every single bit of authority 9 that it needs today -- 10 SENATOR SKOUFIS: Have they ever engaged in 11 that kind of practice? 12 PROFESSOR HARTWIG: I don't know if DFS has 13 specifically. But I do know that regulators around 14 the country do engage in market conduct exams from 15 time to time and some of those involve claims 16 handling practices. 17 But by and large, you don't hear a lot about 18 this being a problem, okay? Insurers are settling 19 the claims fairly and expeditiously for the vast, 20 vast majority of policyholders, even after very 21 complex events like major hurricanes. 22 SENATOR SKOUFIS: Thanks very much. 23 SENATOR KAVANAGH: Thank you. I am enjoying 24 going third because lots of great questions are 25 being asked and covered. I also understand you have 251 1 a plane to catch back to South Carolina. So just a 2 few questions here. 3 First -- so, first of all, thank you for your 4 testimony and for being here. 5 PROFESSOR HARTWIG: My pleasure. 6 SENATOR KAVANAGH: You very succinctly 7 articulated a lot of the factors that are going into 8 increasing insurance costs to address extreme 9 weather events and other events that might be driven 10 by climate change. 11 I want to just -- I want to just continue a 12 little bit of the conversation about liability. 13 So you said -- if I understood your testimony 14 when you were speaking with Senator Skoufis 15 correctly -- you were saying that you do not believe 16 that fraudulent claims and how they're being handled 17 could be a primary driver of really large increases 18 in liability insurance costs; is that right? 19 PROFESSOR HARTWIG: I would say that is not 20 the principal driver associated with it. 21 SENATOR KAVANAGH: So this is -- I think you 22 were here for some of the testimony earlier -- but 23 this is one of these things that I think is still 24 mystifying. 25 We had HPD come and testify, which, again 252 1 they're responsible for many thousands of -- they're 2 involved in developing housing but they're also 3 involved in overseeing very large amounts of 4 affordable housing. We are going to hear other 5 people, I think, who have submitted written 6 testimony and will testify to this effect. But we 7 are seeing very large increases in liability 8 insurance, in many cases doubling over the course of 9 3 or 4 years. And we are seeing that in the 10 affordable housing sector. 11 We are seeing it in the -- you know, we are 12 going to have folks testifying from the for-profit 13 sector that they're seeing similar phenomena. 14 Are you aware of any explanation of what 15 might cause those rates to double in the course of a 16 four-year period, from, you know, 2019-20 through... 17 PROFESSOR HARTWIG: Right. So what you are 18 experiencing in New York is not unique, 19 unfortunately. And it's not confined to property 20 liability insurance either. We see it in commercial 21 auto insurance. We see it in medical professional 22 liability. We see it in a variety of other areas. 23 And so that is part of this phenomena that I heard 24 in earlier testimony referred to as social 25 inflation. And sometimes that's used as a synonym 253 1 for legal system abuse. 2 But what it does illustrate is the fact that 3 there is a social element to it in the sense that, 4 in society today, for a variety of reasons, we see 5 plaintiffs -- we see plaintiffs being viewed more 6 sympathetically in the eyes of juries, for instance. 7 There is an increased propensity to sue. And part 8 of that is due to what is record amounts of spending 9 on legal services advertising. 10 You literally can't go down the road in most 11 parts of the country without seeing numerous trial 12 lawyer billboards and advertisements and social 13 media, TV radio or these sorts of things. 14 So we are surrounded by it everywhere that we 15 are. So in many ways, it has been normalized. And 16 I would say that, unfortunately, what has happened 17 here is that many people have come to believe that 18 if you are involved in an automobile accident or you 19 are in a slip and fall, that your first call 20 shouldn't be to your insurer, to file a claim, it 21 ought to be to the guy on the most recent billboard 22 that you saw. 23 That's problematic because what is going to 24 happen there is, even if you are successful, a chunk 25 of that, 30 to 40 percent of that is going to wind 254 1 up going in the pockets of the lawyer. 2 That process is likely going to take longer. 3 There are more frictions in that system than if you 4 just kind of go direct. 5 Now are there times when someone might need 6 some legal assistance and some redress in that 7 matter? Sure. No one is not saying that. 8 But the problem is, is that we've added a 9 frictional cost into the system. And the incentives 10 on that part, on that element that have been added 11 to kind of throw the spaghetti against the wall and 12 see what sticks but also go for the sky is the limit 13 sort of a situation. 14 I'll tell you another area we are seeing it. 15 For instance, we have heard about liability costs 16 rising for affordable housing and we've seen it 17 everywhere else. We see other insurers that offer 18 what is called commercial umbrella coverage. 19 That is the type of liability coverage that 20 actually sits at a high level on top of the 21 liability coverage that you might have on a 22 residential structure, or that you might have on 23 motor vehicles that you operate for a business. 24 That part of the business, too, is actually being 25 hit very hard. 255 1 Those -- that is actually the line of 2 commercial insurance today that is seeing the 3 largest increases of all others. And what that says 4 to me is that we are seeing the complete 5 penetration, through the liability limits that many 6 organizations carry, like affordable housing, and 7 like anybody else, and into those, what we would 8 typically think of non-working layers, layers of 9 insurance that are not normally dinged. That is 10 something that is adding to costs as well. 11 So it is a societal issue. And it's -- it's 12 one that is very, very difficult to address. Like I 13 said, essentially, it has been normalized in 14 culture. 15 I think it's somewhat consistent with some 16 populous sentiments today as well that the big guy 17 is against you. You should go after him, you should 18 punish him. Generally people don't make the 19 connection between the fact that, you know, if there 20 is $100 million award against the pharmaceutical 21 company or a $50 million award against Starbucks, or 22 a $5 million award against a local hospital, that 23 that ultimately raises the price of housing and 24 raises the cost of medical care or raises the cost 25 of everything that you service and commodity and 256 1 good that you buy. 2 And there have been various efforts to try to 3 quantify this. You hear New York State, I think you 4 heard a number about a so called tort tax of about 5 $7,000 per household. Nationally that number is 6 about $4,000 per household. You can argue about 7 what the number might be, but it does very much 8 function like an albatross around the neck of the 9 economy. It's a dead weight loss. 10 SENATOR KAVANAGH: Thank you for the thorough 11 answer. But is there a reason to think that that -- 12 that those factors would cause a doubling of the 13 cost of this in a 4-year period? Like social change 14 generally takes longer... 15 PROFESSOR HARTWIG: If you take about 16 20 percent per year compounded, and you also -- you 17 heard some testimony earlier that these trends most 18 likely began before that. So the insurers began to 19 observe these trends. They record these trends. 20 They analyze these trends. They make new rates with 21 these trends. 22 So what happens is, is the insurer is 23 automatically 2 to 3 years behind the curve when 24 these things begin. And so it's going to take a 25 number of years for them to catch up. 257 1 SENATOR KAVANAGH: And are you aware -- we've 2 talked about this and you were asked this a little 3 bit by one of my colleagues a minute ago -- but hard 4 data on the extent to which these phenomena are 5 driving. 6 We talked about how DFS doesn't -- they may 7 have the ability to investigate particular market 8 behavior, but generally when they're reviewing 9 rates, they're not actually looking at claim data 10 and other things. Are you aware of data sets that 11 would demonstrate -- 12 PROFESSOR HARTWIG: Let me give you one I'm 13 familiar with. Commercial auto is one of the most 14 problematic areas here. Auto insurance bought by 15 businesses, right? And it has a gigantic target on 16 its back literally. Even the billboards down the 17 highway advertise for you to file a claim against 18 truckers and so forth. 19 So what is happened here, insurers have many, 20 many years of data and they have a good sense of how 21 much these claims are typically going to occur and 22 actuaries at the companies will make adjustments 23 based on ordinary economic inflation and these sorts 24 of things and any inherent trends that were in the 25 data generally speaking. 258 1 Now, in the last decade or so, we begin to 2 see numbers that can't be explained by actual 3 historical inflation trends or the inflation that we 4 are seeing today. 5 And so what we are seeing is that insurers 6 are having to pay more on these claims than they 7 expect. So they have to set aside a reserve for 8 these claims. 9 The claims ultimately cost far more than the 10 reserves so they can observe the fact that the 11 reserves are inadequate by a certain amount. 12 So an exact number, a specific number is that 13 the latest actuarial analysis and commercial auto is 14 that this kind of social inflation is costing about 15 $8 billion a year. 16 SENATOR KAVANAGH: It has been interesting to 17 me that whenever we talk about this, the insurance 18 industry or experts who have spent time in the 19 insurance industry, that we immediately go to other 20 kinds of insurance and, you know, McDonald's 21 getting coffee spilled in your lap. Are you aware 22 of data about this trend specifically as it relates 23 to property insurance? 24 PROFESSOR HARTWIG: Right. So in my 25 testimony, I did cite, I think a commercial 259 1 multi-peril liability component in that the most 2 recent year, 2024, insurers paid out about $115 for 3 every $100 they earned in premium. 4 SENATOR KAVANAGH: And multi-peril was by 5 definition something that a property owner would 6 have that covers many -- 7 PROFESSOR HARTWIG: The liability component 8 of it. So it's kind of like your homeowners policy 9 which is the liability piece. This is just the 10 liability piece of the equivalent for a business, 11 right? It was about $110 being paid out for every 12 $100 they earned in 2023. 13 In fact, there has not been a break even 14 number in that type of insurance since 2016, I 15 believe. 16 SENATOR KAVANAGH: That's nationwide. 17 PROFESSOR HARTWIG: That's a nationwide 18 number. 19 SENATOR KAVANAGH: Are you aware of any 20 comparable data at the state level? 21 PROFESSOR HARTWIG: I don't have that at my 22 fingertips. 23 I would have to check on that. 24 SENATOR KAVANAGH: We're running out of time 25 but if you would, I would appreciate it. And again, 260 1 I appreciate you taking the time and testifying far 2 from home today, your former home. 3 PROFESSOR HARTWIG: My students are glad I'm 4 not there right now. 5 SENATOR KAVANAGH: Again, I will end there, 6 but thank you very much. 7 PROFESSOR HARTWIG: Thank you. 8 SENATOR BAILEY: Thank you, Dr. Hartwig. 9 SENATOR SKOUFIS: I would love to ask a 10 followup, if I can -- well, two, actually. 11 First, and again, thank you for your 12 testimony. The $115 - $100 sort of dichotomy that 13 you have referenced a couple of times, how much on 14 average does an insurer make on the investment side 15 with that $100 they collect in premiums? 16 PROFESSOR HARTWIG: Depends on the year. 17 Depends on interest rates. 18 SENATOR SKOUFIS: Give me a sense. 19 PROFESSOR HARTWIG: Let me give you a sense, 20 I think in typical years over the past decade, 21 somewhere around 6 to 8 percent on that. 22 SENATOR SKOUFIS: And how much of -- 23 PROFESSOR HARTWIG: Now mind you, I should 24 qualify here. It depends on the type of insurance 25 as well. Some types of insurance, the money may be 261 1 invested for a longer period of time than other 2 types of insurance. In property insurance, it's 3 typically shorter than it would be in something like 4 workers' compensation insurance. 5 SENATOR SKOUFIS: And roughly on average, 6 what percent of an insurer's profit is made up of 7 the investment side of the ledger? 8 PROFESSOR HARTWIG: Well, you know, that's 9 not quite an easy question to answer because 10 sometimes there might be no profit at all in a given 11 year and in some years there might be profit both 12 generated from the investment income side as well as 13 from the underwriting side, from the sale of the 14 insurance itself. It will vary extensively. 15 In a year, when an insurer has, for instance, 16 where it pays out pretty much exactly what it takes 17 in, you could argue in that case that -- and apart 18 from some other accounting issues that can happen -- 19 that all of it's profit in that year was generated 20 by its investment side of the equation, okay? 21 In a year when the insurer is paying out $115 22 for every $100 it took in in premium, even if you 23 assume they earned 8 percent, they still recorded a 24 loss in that type of insurance. 25 So what is earned on the investment income 262 1 component is independent of what is earned on the 2 underwriting component. The investment income 3 component can potentially be the only source of 4 profit in some years. And in some years, it can 5 offset a net loss to some extent. 6 SENATOR SKOUFIS: Got it. My last question. 7 I'd love for you to respond -- I would like 8 to give you the opportunity to respond to something 9 that the trial lawyers, the president of the Trial 10 Lawyers Association mentioned. 11 And that is that he almost sort of diminished 12 the consequence as it relates to escalating premiums 13 of these nuclear payouts, because if you have a 14 $15 million payout or settlement, or verdict, I 15 guess, as rare as those may be, but your policy is 16 for, you know, capped at a million dollars in 17 liability, then the insurer is not liable for the 18 other 14, the subsequent $14 million of that 19 $15 million payout, according to them. And so 20 why -- are they wrong? 21 PROFESSOR HARTWIG: Yes, they're wrong. 22 SENATOR SKOUFIS: Explain your perspective. 23 PROFESSOR HARTWIG: The reason why they're 24 wrong is because typically when we are talking about 25 large commercial risks, there are many insurers, 263 1 numerous insurers on that liability program. 2 There might be one insurer that has the first 3 million and then there's another insurer that has 4 the next two million and a third insurer that has 5 the next two million and that will take you up to 6 $5 million. That might be the total limits that 7 that particular entity has purchased. 8 So it winds up frequently or it winds in what 9 we call the excess layers, okay? 10 This is the high level liability coverage 11 that sits above a commercial property policy but 12 also simultaneously sits above your commercial auto 13 policy. 14 So very often, yes, the primary insurers 15 limit might be exhausted in one of these cases, but 16 some part of the residual, the remaining amount is 17 going to be absorbed by one or more additional 18 insurers. 19 SENATOR SKOUFIS: How common is that? 20 PROFESSOR HARTWIG: Very common. 21 SENATOR SKOUFIS: Roughly how common? 22 PROFESSOR HARTWIG: It depends on the size of 23 the enterprise. So if we are talking about a large, 24 a large commercial enterprise, it would be virtually 25 100 percent. 264 1 SENATOR SKOUFIS: We are talking residential 2 here. Give me a sense of you have a large 3 multi-family building here in Manhattan, and there 4 is a slip and fall. How often are there multiple 5 policies associated with that property? 6 PROFESSOR HARTWIG: I would say it would be 7 frequent for there to be multiple insurers on a 8 single liability program. 9 SENATOR SKOUFIS: Okay. 10 PROFESSOR HARTWIG: And/or for there to be a 11 commercial umbrella policy sitting above the primary 12 policy. 13 SENATOR SKOUFIS: Is it fair to say that, 14 absent multiple insurers, that the trial lawyer's 15 point stands that this is not a driver of premiums, 16 given that, again, using the same example for that 17 $15 million payout, insurers are only liable for 18 $1 million of the 15 and so why are we talking about 19 nuclear payouts. 20 PROFESSOR HARTWIG: What you are seeing here 21 is -- so we have a million dollars. Suppose that if 22 we went 10 years ago and there was only a 5 percent 23 chance, a 10 percent that you would exhaust or 24 $1 million limit. 25 Now here we are in 2025 and there is an 265 1 80 percent chance you are going to exhaust your $1 2 million limit. That alone is going to drive up 3 rates. Exhausting your million dollar limits didn't 4 used to be the norm, okay? Now it is. So instead 5 of that being a rarity, it's a common event. 6 And so whether we are talking about one 7 million or two million, the probability of reaching 8 somewhere higher -- 9 SENATOR SKOUFIS: Regardless of how common it 10 is, if you don't have that multiple policy scenario 11 that you outlined, why is it relevant? 12 PROFESSOR HARTWIG: Because you are 13 exhausting the limits more frequently than you did 14 in the past. 10 years ago if I were an owner of a 15 condo complex here in New York City, it would be 16 maybe a rarity to see a million dollar claim, maybe 17 one out of 100 claims might wind up in the million 18 dollar area, maybe even less than that. If this 19 year it's 5 percent, that's an enormous difference 20 from an actuarial perspective. That's an enormous 21 difference. 22 SENATOR SKOUFIS: So you are arguing that the 23 relevance is whether it's a half million coming in 24 versus a million. Not relevant whether it's above a 25 million. 266 1 PROFESSOR HARTWIG: That part is going to be 2 relevant, too, because you can see why policyholders 3 are going to want to carry more coverage if the 4 probability of exhausting your $1 million limit is 5 much higher today than it was 10 years ago. 6 If I'm their insurance broker and I'm looking 7 at the data and I say 10 years ago, you know what, 8 there was a 1 percent chance you would exhaust your 9 million dollar limit, today it's a 5 percent chance. 10 My recommendation as the broker is going to 11 be you're going to want to raise your limits. 12 SENATOR SKOUFIS: Okay, thank you. 13 SENATOR BAILEY: I'm all set. 14 Dr. Hartwig, safe travels. 15 SENATOR SKOUFIS: Go catch your flight. 16 Thanks for your time. 17 PROFESSOR HARTWIG: My pleasure, thank you. 18 SENATOR SKOUFIS: Next up we'll have Panel 6, 19 affordable housing providers. We have the Honorable 20 Carlina Rivera who is now president and CEO of 21 NYSAFAH; Wilson Kimball, Executive Director of the 22 state's Public Housing Authority Directors 23 Association; Perry Perlmutter, President and CEO of 24 Services for the UnderServed; and Rebecca Zangen, 25 Chief Policy Officer for Supportive Housing Network 267 1 of New York. 2 If you could all raise your right hand for 3 me, please. Do you solemnly swear to tell the 4 truth, the whole truth and nothing but the truth? 5 (All were sworn.) 6 You are excused and someone else can provide 7 testimony. 8 CARLINA RIVERA: Thank you, Chairs for your 9 graciousness and members of the committee for the 10 opportunity to testify. I'm Carlina Rivera, 11 recovering councilwoman, but now president and CEO, 12 proudly of the New York State Association for 13 Affordable Housing, representing the owners, 14 developers and managers of affordable rental housing 15 as well as insurance brokers across New York State. 16 Affordable housing providers in every region 17 are raising the same alarm. Insurance costs have 18 escalated to crisis levels, threatening both new 19 development and the long-term stability of existing 20 affordable housing. Premiums are rising rapidly. 21 Coverage is harder to secure. And operating budgets 22 are being stretched past the breaking point. I'll 23 give you one example. 24 Kennedy Plaza Apartments in Utica, recently 25 their insurance policy was not renewed. The 268 1 292-unit family housing complex was able to secure 2 coverage from only one carrier, which offered 3 reduced protection at a premium that was 44 percent 4 higher, rising from approximately $168,000 from 2022 5 to 2023, to $298,000 for 2025 to 2026. The per unit 6 cost jumped from $575 to $1019. To cover the 7 increased premiums, the owner has been forced to 8 draw down reserve funds that will likely be 9 exhausted by next year and Kennedy Plaza is working 10 with HCR to find a resolution and clearly there are 11 more stories like this statewide. 12 Kennedy Plaza is, of course, just one of the 13 many affordable housing properties struggling to 14 secure coverage in an unregulated market. 15 Additional data percent attached to my written 16 testimony that illustrates the scale of this 17 challenge and gives more background to this example. 18 Unfortunately, this pattern is consistent 19 statewide. A 2022 HCR DFS report documented a 20 43 percent average increase in insurance costs 21 between 2019 and 2021. And a 2024 New York housing 22 conference report -- you will hear from them 23 later -- report shows that per unit premiums are 24 doubling from $869 to $1,770. Today insurance can 25 account for as much as 22 percent of monthly rent in 269 1 a typical LIHTC apartment, a low income housing tax 2 credit. 3 Combined with declining rent collection rates 4 and rising repair costs, many properties are now 5 facing shrinking net operating income, depleted 6 reserves, deferred maintenance and, in some cases, 7 negative cash flow. Key drivers include high 8 litigation costs, inflated settlements and 9 construction inflation, all factors you have heard 10 about at length today. 11 And to address these challenges, NYSOFA has 12 met with various stakeholders including the New York 13 Insurance Association and we recommend six 14 initiatives, six proposals. 15 1: Create a safe housing incentive program. 16 Offer insurance premium discounts to developments 17 that provide brief tenant-focused safety courses 18 covering fire safety, water damage prevention, slip 19 and fall risk and renters insurance education. 20 2: Create a New York State insurance 21 investment program, incentivize insurers to serve 22 affordable housing in underserved communities 23 through a public rating system. Rewarding high 24 performing companies with regulatory and contracting 25 benefits. 270 1 3: Establish an affordable housing 2 reinsurance trust. Establish a state administered 3 program to share catastrophic or high layer losses, 4 stabilize the market, attract more insurers and 5 lower premiums. 6 4: Expand and codify the risk reduction and 7 insurance affordability pilot program. Increase 8 funding to $25 million, broaden eligibility to 9 include for-profit developers, and in addition to 10 supporting participation in captives, fund risk 11 mitigation measures such as water sensors, cameras 12 and slip and fall prevention to reduce claims 13 exposure and insurance costs. 14 Finally, I'll say 5. Here is the fifth one. 15 Affordable housing relief fund. Expand a 16 housing program created as part of the City of Yes 17 to provide targeted financial support for preserving 18 and maintaining existing affordable housing 19 statewide. 20 This fund would offer grants or low interest 21 loans for emergency repairs, compliance upgrades and 22 critical operating shortfalls that threaten property 23 viability. While it would not address the insurance 24 cost drivers discussed above, it would help 25 stabilize existing projects as we work toward 271 1 long-term solutions. And the details for this 2 program have been introduced in a bill by Senator 3 Kavanagh, and Assembly member Rosenthal. 4 And lastly NYSOFA supports Senator Kavanagh's 5 newly introduced bill 8583A, which would require 6 insurers to provide critical data to DFS and offer 7 premium discounts for property owners who undertake 8 meaningful mitigation measures. 9 Together, these actions would reduce risks, 10 stabilize the insurance market, protect existing 11 affordable housing and support New York's long-term 12 housing goals. 13 With that I take any questions that you might 14 have. 15 WILSON KIMBALL: Good afternoon. I come 16 before you today to raise the alarm on the 17 escalating cost of insurance for public housing 18 authorities across New York State. This is a major 19 issue crippling -- 20 SENATOR KAVANAGH: Can you just for the 21 record identify yourself? 22 WILSON KIMBALL: Sure. Wilson Kimball from 23 NYSPHADA. I'm also Executive Director of the 24 Yonkers Housing Authority. 25 SENATOR KAVANAGH: Thank you. 272 1 WILSON KIMBALL: Thank you, Senator Kavanagh. 2 This is a major issue crippling our public 3 housing authorities. NYSPHADA along with many of 4 our valued partners in the affordable housing 5 movement, including NYSAFAH, Enterprise and the New 6 York Housing Conference meet regularly to discuss 7 possible solutions to mitigate the highs cost of 8 property, casualty and liability insurance. 9 There are many factors contributing to the 10 high cost of insurance, and we applaud the 11 legislature for taking a hard look at this issue. 12 Over the last couple of years, NYSPHADA has surveyed 13 our members and openly engaged them in the 14 challenges of finding, procuring and paying for 15 insurance. Many of our authorities have seen nearly 16 40 percent increase in insurance costs. (Please the 17 graph attached.) 18 In Yonkers, for instance, our insurance on 19 our biggest development went from $800,000 to $1.2M 20 in one year. We were very encouraged that the state 21 budget included funding for technical assistance for 22 affordable housing developers who are interested in 23 undertaking risk mitigation to lower their insurance 24 premiums. To that end, we will be collaborating 25 with partners to secure funding through New York 273 1 State’s Risk Reduction and Insurance Affordability 2 Pilot, which will assist non-profit affordable 3 housing providers who want to join captives. 4 In addition, we are partnering with NYSAFAH 5 and other industry partners to seek capital funding 6 to purchase equipment and other resources, which 7 will mitigate the risks of natural disasters and 8 safety issues like FireAvert and security cameras. 9 NYSPHADA is very grateful to the legislature 10 and the Executive for the incredible financial 11 support in the past several budget cycles to help 12 modernize and rehabilitate our aging facilities, 13 including last year’s $75 million for upstate 14 capital improvements. 15 Over the last several years, 30 to 40 of our 16 members have utilized this funding to pursue 17 modernization projects. We are expecting more 18 housing authorities to pursue major upgrades through 19 Rental Assistance Demonstration (RAD) projects in 20 the coming years. 21 However, the high cost of insurance has 22 drained the coffers of New York State Housing 23 Authorities. That is why we are asking New York 24 State to implement new policies and laws which will 25 help housing authorities continue to build safe and 274 1 quality housing for New York’s low-income families. 2 PERRY PERLMUTTER: Good afternoon, thank you, 3 Senators, for having me here today. I'm Perry 4 Perlmutter, president and CEO of Services for the 5 UnderServed or S:US. 6 S:US is a leading not-for-profit working to 7 end homelessness in New York City. Housing is our 8 core mission. We operate thousands of units of 9 permanent supportive and affordable housing across 10 Brooklyn, Queens, Manhattan and the Bronx, for 11 New Yorkers with serious mental illness, 12 intellectual and developmental disabilities, 13 substance use challenges, veterans, and formerly 14 homeless families. On any given night, S:US 15 provides housing and shelter for more than 5200 16 New Yorkers. 17 For the people we serve, housing is 18 healthcare and prevention. When housing fails, 19 costs don't disappear. They shift into emergency 20 rooms, shelters, policing and hospitalizations. 21 The cost of insurance has grown dramatically 22 for us. 3 years ago S:US paid under $6 million a 23 year for property and casualty insurance. Today we 24 are paying over $16 million, with lower liability 25 limits. We have had to turn to non-admitted 275 1 carriers and patched together coverage from multiple 2 insurers just to meet lender requirements. 3 Independent analysis have shown insurance is 4 now the fastest growing operating cost in affordable 5 housing, growing faster than utilities and 6 maintenance and more than doubling in just the last 7 few years. S:US already has about $4 million in 8 unrecoverable costs due to the high cost of property 9 and casualty insurance. Dollars we cannot put into 10 staff, services or repairs. 11 We can't pass these costs along in rent to 12 extremely low income tenants. So the only leavers 13 are cuts, deferring maintenance, delaying 14 renovations, reducing programming or, in worst 15 cases, contemplating selling buildings just to get 16 out from under insurance costs. These are huge 17 risks. 18 If insurance is unaffordable or unavailable, 19 buildings become financially inviolable and 20 sometimes uninsurable. That means fewer safe stable 21 units for people with complex needs. 22 Nationwide, similar pressures have already 23 contributed to losses in supportive housing units, 24 even as homelessness rises. We are deeply concerned 25 that New York could see the same pattern. 276 1 As I mentioned, our tenants are people with 2 serious mental illness, developmental disabilities, 3 trauma histories and chronic health conditions. If 4 a building closes or a project never gets built, 5 they cannot easily relocate. They fall back into 6 shelters, hospitals or the street. So this is not 7 just about line items in a budget. It's about 8 whether thousands of vulnerable New Yorkers can keep 9 their homes. 10 Insurers have pulled back sharply from 11 multifamily and supportive housing. We have seen 12 that directly where insurers have pulled out of the 13 city. Cutting liability limits, for example, 14 dropping excess coverage from $100 million to 15 $50 million. Our limits are lower but they have 16 been cut dramatically also. Providers are being 17 treated as higher risk, simply because they serve 18 low income or voucher tenants, even though state law 19 now explicitly bans this kind of discrimination. 20 The result is fragmented. High cost market that 21 resembles modern red lining, affordable and 22 supportive housing. 23 I have a few suggestions for the legislature, 24 potential policy solutions. 25 First: We need transparencies. Bills like 277 1 a-0196 would require Annual Reporting on 2 availability, pricing and terms of insurance for 3 multifamily and social service providers. Data will 4 help identify where insurers are pulling back, where 5 pricing is discriminatory, and what targeted 6 solutions are needed. 7 Secondly: We urge to establish a state-run 8 excess liability insurance fund for affordable 9 supportive housing and social service providers, 10 attaching above the $1 million/$3 million aggregate 11 primary limit. Premiums would be based on actuarial 12 losses, not inflated by profit margins of 150 to 13 300 percent that insurers take. This fund would 14 provide the high limit umbrella coverage lenders 15 require as private markets retreat. 16 Third: Support the creation and scaling of 17 non-profit insurance pools, captives and reciprocals 18 that let providers ban together. The state can help 19 you about ceding a statewide non-profit captive. I 20 know there was some money in the budget last year, 21 connecting us with existing municipal or public 22 pools and providing technical assistance so smaller 23 non-profits can participate. 24 Fourth: Fully enforce New York's updated 25 insurance law 3462 which prohibits charging higher 278 1 rates or denying coverage. 2 I'll just finish. If we don't act now, we 3 will see more deferred maintenance, stalled projects 4 and potentially the loss of supportive housing units 5 just when New Yorkers need them most. 6 Thank you so much for the opportunity to 7 testify today. 8 REBECCA ZANGEN: Good afternoon. Thank you, 9 Chairs for this urgently needed hearing. My name is 10 Rebecca Zangen. I'm the Chief Policy Officer of the 11 Supportive Housing Network of New York. We are a 12 membership organization representing 200 non-profits 13 that develop, own and operate supportive housing 14 statewide, including S:US. 15 You are going to hear in my testimony a lot 16 of what my colleagues have already testified to so 17 I'll try to keep it high level. I just want to note 18 that, as you all know very well, supportive housing 19 is deeply affordable housing with embedded social 20 services for formerly homeless households. As of 21 May 2025, there were 64,000 units of supportive 22 housing across every county in the state with nearly 23 5,000 additional under construction and 53 percent 24 of these are located in subsidized affordable 25 multi-family residences. 279 1 Supportive housing is one of our state's 2 strongest tools to address homelessness, reduce 3 costly reliance on shelters, emergency rooms, 4 hospitals and jails and ensure long-term housing 5 stability for some of our neighbors with the most 6 complex challenges. 7 New York City and state are each 8 approximately 10 years into their own 15-year 9 initiatives to develop a collective total of 35,000 10 new units. New York State has a separate goal to 11 preserve 3,000 units of supportive housing over 12 5 years. 13 But today, the ability of non-profits to 14 develop, to operate and preserve this housing is in 15 jeopardy due to rapid destabilizing increases in 16 insurance. You've heard a lot about the rising 17 costs, the limits, in terms of coverage and higher 18 deductibles. That's also something our members are 19 experiencing. I just want to say that is happening 20 to our members, large and small, those that are in 21 urban and rural communities, and also to brand new 22 buildings and buildings that are decades old. You 23 have heard about some of the increases to premiums. 24 And I would say that the supportive housing 25 community's experience really tracks that of the 280 1 larger affordable housing community and you have 2 heard the statistics. 3 The last network survey that we did of our 4 members was in 2021. But we found an average 5 44 percent premium increase in just one year. 6 I would say in supportive housing, unexpected 7 increases in operating costs, pull resources away 8 from vital services that make the model so 9 effective. Staff salaries and retention, case 10 manage many ratios and robust on-site services are 11 all put at risk which can impact tenant stability. 12 Across New York, non-profit and affordable housing 13 owners are facing operating deficits, deferred 14 maintenance and capital deterioration, cuts to 15 essential services, borrowing at high interest rates 16 to coverage insurance gaps and the risk of selling 17 buildings to stay solvent. 18 I also want to mention that since the early 19 1980s, the state has invested billions of dollars 20 into creating supportive housing residences, 21 transforming lives and communities and creating 22 jobs. Risking that now and paying more annually to 23 provide temporary shelter or emergency services 24 would be a tragic outcome. 25 We appreciate the legislature and the 281 1 Governor's early work to address this crisis. 2 The DFS HCR affordable housing and insurance 3 report confirmed that carriers were asking 4 discriminatory underwriting questions about 5 subsidized housing leading to the 2024 statutory ban 6 on discriminatory practices. And last year's budget 7 set aside $5 million to help non-profit owners join 8 group insurance captives, which is an important 9 first step, but it's just that. A first step. 10 The scale and urgency of this crisis require 11 a more comprehensive multipronged strategy. The 12 network's recommendations again are in line with a 13 lot of our colleagues and rather than go into 14 detail, I'll just name kind of the five categories 15 that we would recommend action in. 16 The first is improving transparency and data 17 access. The second is funding and incentivizing 18 risk mitigation upgrades. The third is addressing 19 New York's liability environment. And just to 20 mention a little bit more about this... a five-year 21 pilot creating an affordable housing carve-out from 22 the strict liability provisions of the Scaffold Law 23 that would allow DFS and policymakers to evaluate 24 the impact on pricing and carrier participation as 25 well as mandate disclosure of third-party litigation 282 1 funding to increase transparency. 2 The fourth area is provide short-term relief 3 and long-term risk sharing. And the fifth is to 4 rigorously enforce the antidiscrimination 5 protections that are already in place. 6 With that, I will wrap up and we welcome your 7 questions. 8 SENATOR BAILEY: I just want to say thank you 9 for all of your service. And I want to say to my 10 friend, the former -- always honorable but the 11 former Council Member, we miss your service in the 12 city but NYSAFAH has certainly gained an incredible 13 ally. And I want to thank you for all the work that 14 you do and I want to address something from the top. 15 I think Mr. Perlmutter mentioned it mostly. What 16 you are doing in housing has a domino effect on 17 society. When constituents come to all of our 18 offices, if they have a housing issue, it's never 19 just a housing issue. It is always a totality of 20 circumstances that stems from a lack of safe and 21 secure housing. 22 So I just want to thank you for recognizing 23 that and we are censoring people first in what we 24 do. I know we talk about a lot of money and a lot 25 of lawsuits, and a lot of this and a lot of that but 283 1 we are censoring people in the conversation and I'm 2 glad that we have been able to bring that back to a 3 point of gravity. 4 Before I get to the question that you know 5 I'm going to ask. I already tee'd it up for you, 6 you now I'm going to ask it, I want to ask you a 7 couple more questions. 8 You mentioned that there is less growth. Do 9 you have -- I don't know -- you have a lot of data. 10 I don't know if this is parsed through yet, but if 11 you don't have it, could you get data that can show 12 what the percentage loss growth in developing 13 affordable housing is that specifically related to 14 insurance? Is there a way to put that in a bucket? 15 PERRY PERLMUTTER: We could get some data 16 from S:US, just us, I mean, maybe we could work to 17 put it through network? 18 REBECCA ZANGEN: It's a bit hard to quantify, 19 but there could be a way to look at the increased 20 insurance costs and what that does to the per unit 21 cost of developing affordable and supportive 22 housing. And of course since we have a limited pool 23 of subsidy to develop those increased cost of 24 developing minimize how many units we can do. 25 SENATOR BAILEY: I know there is no specific 284 1 factor that triggers this that triggers that. I 2 understand that. But I'm trying to get a handle on 3 it because I want to be able to be able to prove 4 things by data. And I think as Mr. Finkelstein 5 earlier mentioned, I don't want to talk about the 6 monsters in the closet. I want us to be able to use 7 things that are quantifiable. And as such, I want 8 to figure out if there is clearly a defined loss of 9 growth in affordable housing that people need to 10 survive that is specifically related to insurance, 11 then we have to figure out a way to do that. I know 12 causation isn't exact but we should be thinking 13 about that data set if we can. Go right ahead, 14 Ms. Zangen. I'm sorry. 15 REBECCA ZANGEN: Not at all. I think another 16 thing to be aware of, and this may be where you are 17 going with it, but in addition to that, it's on your 18 existing portfolio, if you are in a situation with 19 negative cash flow, on a building that you already 20 operate, you are much less likely to want to develop 21 more. 22 PERRY PERLMUTTER: That's what we are facing. 23 Like I said, we have $4 million excess insurance 24 that we have no place to recover it from. So that's 25 really impacting the agency's ability to operate. 285 1 So what we are really looking closely at, all other 2 costs and how we can operate these types of 3 buildings. 4 WILSON KIMBALL: And in Yonkers, that project 5 that I mentioned where our insurance went from 800 6 to $1.2 million is also the development that lost 7 its gas. So our tenants have been without stoves 8 for over a year because we didn't have the money to 9 bring in and go to electrification because we're 10 tasked with the choice of a $30 million 11 electrification or $100 million gas, return to gas. 12 And we are having to make tough choices, including 13 staffing choices, which are 456 Teamsters. 14 So it does exactly as you say. Have a 15 trickle down effect. 16 SENATOR BAILEY: Certainly. 17 CARLINA RIVERA: And also I want to tell you 18 with the example I gave Kennedy Plaza in Utica, 19 there is actually a chart attached to my written 20 testimony, where they really tried to break down how 21 the insurance costs added overall to their 22 operational cost and what that means for them. To 23 really illustrate the scale of the problem. 24 SENATOR BAILEY: I've asked this of other 25 folks and maybe you might have a different 286 1 perspective. Not the tort reform question yet. You 2 are dealing with supportive housing, deeply 3 affordable housing, unhoused individuals, homeless 4 housing. Have you seen where insurers are walking 5 away from these areas specifically as opposed to 6 others? Are you seeing that happening? Other folks 7 are saying they're not seeing it. I just want to 8 see is it happening from in your world view? 9 PERRY PERLMUTTER: In my world, yes. 10 We have seen it. We had an insurer, I 11 believe 2 years ago walk away. My understanding was 12 from all New York City risks like this. And we had 13 to switch insurers, which we were already in a bad 14 place. So, yes, we did see that happen. And they 15 left New York City and they wouldn't insure us. So 16 we are seeing that. 17 WILSON KIMBALL: And we've had one insurer -- 18 well, our main insurer, which is HAI Group, tell us 19 they won't ensure our new property, which is eight 20 stories, because it's a high rise. 21 SENATOR BAILEY: You mentioned the state 22 covering certain loss mitigation methods. Is that 23 something that you think the state should be doing 24 at large? Should it be on projects that there is a 25 portion of state funding? I think each of you 287 1 mentioned that in your testimony and I think it's a 2 fair concept. But how do we get the state to 3 assume -- I guess you are asking the state to assume 4 some sort of risk, not exactly but you are asking 5 the state to provide something that is a loss 6 mitigation tool. Was would the metric be for that? 7 WILSON KIMBALL: Well, the two that I think 8 of the most would be like a FireAvert type system 9 because what we find is that most of the problems in 10 our housing come from seniors who forget to turn off 11 the stove or the oven. And so fire tends to be a 12 very big driver in the damages area. But an even 13 bigger driver is the water that then comes down 14 through from the ceiling, the fire or sprinkler 15 system to turn off those things. So FireAvert 16 system would be fine. A pilot program is always 17 better than trying to do a blanket program. Maybe 18 that would be the best way to do it. 19 And then cameras, we have found, have been 20 incredibly helpful for the slip and fall that really 21 isn't a slip and fall where the person sees a hole 22 and actually walks to the hole and falls into it. 23 And we have had that camera, you know, footage, help 24 us get out of that situation. 25 SENATOR BAILEY: So more of a direct infusion 288 1 of capital or capital-like discretionary funds to 2 your buildings to arm them with the necessary bells 3 and whistles. Would that be a fair assessment? 4 WILSON KIMBALL: Yes. 5 PERRY PERLMUTTER: That would be helpful. 6 SENATOR BAILEY: And you mentioned the pilot 7 program. So now we are getting to the tort reform 8 question, your thoughts about tort reform. And you 9 mentioned something -- and I will give you credit -- 10 I have not yet heard, which is why you saw my -- 11 which is why I was like I've always heard tort 12 reform but I've never heard it piloted. Can you 13 talk to me more about that pilot program that you 14 are thinking about? And if I could hear from 15 everybody if you so choose, about what your feelings 16 are about what tort reform would possibly mean for 17 rates and lowering things, so to speak. 18 CARLINA RIVERA: I think it's a bit of a 19 rabbit hole, but we are trying to address some of 20 the issues associated with the costs of affordable 21 housing. I would say it sometimes detracts from the 22 issue a bit but I know my colleagues have a lot to 23 say about it. 24 PERRY PERLMUTTER: I think there should be 25 some sort of tort reform. There are some runaway 289 1 verdicts, you know, payouts that really that go into 2 the excess layers, which is where I know someone 3 just before us testified about that's where the big 4 increases are. 5 So some sort of tort reform -- I'm not an 6 expert in it -- would be helpful. I mean, people 7 need to be paid for their losses when there are true 8 losses. But it seems like insurance companies are 9 willing to settle because they're worried about 10 large jury verdicts in the city. 11 REBECCA ZANGEN: The notion of affordable 12 housing carve-out that's a pilot that would be 13 temporary would be one way to test what the impact 14 actually would be. We hear from many experts in the 15 field that this Scaffold Law is unique to 16 New York State and certainly I am not an expert in 17 this at all. And before 2 or 3 years ago, I had 18 never heard of Scaffold Law or tort reform. These 19 are things that I'm just scratching the surface and 20 beginning to understand. But, given how much we 21 hear from experts and from the insurance industry 22 that this is the driver of costs, it seems that a 23 modest pilot program, specifically carving out our 24 industry that I think the state has invested the 25 most in, that provides such a public good, that we 290 1 need to make sure remains stable, could be a way to 2 test what really is the impact and how can we, you 3 know, move forward. 4 WILSON KIMBALL: And I think having a sunset 5 would help bring on board other members of the 6 legislature who might have doubts about whether 7 there is an impact. I think one of the things I did 8 not hear discussed today is the replacement cost of 9 affordable housing, and that tends to be from our 10 insurance providers, carriers since one of the 11 driving forces of insurance and maybe the dirty 12 little secret in New York State is that our 13 affordable housing in Westchester cost about 14 $950,000 a unit for a one bedroom to build. That's 15 an incredible cost. And therefore the replacement 16 cost and the insurance cost on that is very high. 17 SENATOR BAILEY: As the proud representative 18 of Mount Vernon, I understand the dual jurisdictions 19 issues that we often have and how it's not uniform 20 across the board. 21 Crystal ball. Same question I asked before. 22 Based upon these possible pullouts and possible 23 areas that you are doing, if something isn't done, 24 whatever that something is -- are there areas in 25 New York City where people are living right now that 291 1 need the most help that could be theoretically 2 uninhabitable because of insurance costs? 3 PERRY PERLMUTTER: We are in difficult 4 neighborhoods and if we were forced -- if it got to 5 the point where we were forced not to be able to 6 offer affordable housing, or supportive housing, 7 yes, that could be an issue. 8 I mean, we are not there. Luckily we are 9 financially strong, but this is really stressing 10 S:US. I can speak for us. 11 SENATOR BAILEY: I appreciate that. Anything 12 else before we go to Senator Skoufis? Thank you for 13 your time. 14 SENATOR SKOUFIS: Yes, thank you all for your 15 time. I don't have too many questions beyond what 16 Senator Bailey asked. 17 But I want to probe one thing, Ms. Kimball 18 you touched on it a little bit ago. 19 Now doubt all of you deploy and utilize, I 20 would imagine, robust security systems, cctv 21 systems. There has been a lot made about fraud 22 today by other panels. And I'm curious, how often 23 do you see it happening within your portfolios? 24 PERRY PERLMUTTER: In terms of fraudulent 25 claims? 292 1 SENATOR SKOUFIS: Yes. 2 PERRY PERLMUTTER: What I see more are like 3 claims without real merit and that they actually 4 drive up costs. I'm not sure -- there is probably 5 some fraud but I think more like without merit that 6 force us to defend them and it actually adds a lot 7 of costs. And a lot of times it's a business 8 decision, just like it is for the insurance 9 companies, it's a business decision for us. Do we 10 want to litigate or do we want to settle earlier? 11 So I think there are a lot of cases -- 12 SENATOR SKOUFIS: And are you making that 13 call or is your carrier making that call? 14 PERRY PERLMUTTER: Generally it's the carrier 15 unless it is within the deductible. Generally it's 16 the carrier. 17 SENATOR SKOUFIS: And you cited I think you 18 were paying $6 million several years ago and now 19 it's up to $16 million, you mentioned. 20 PERRY PERLMUTTER: 16, yeah. 21 SENATOR SKOUFIS: Did your previous carrier 22 cite any of this fraud as one of the reasons they 23 either pulled out or the new carrier why the policy 24 is so expensive? 25 PERRY PERLMUTTER: No, they didn't cite 293 1 fraud, no. 2 SENATOR SKOUFIS: What did they cite? 3 PERRY PERLMUTTER: Our claims. The claims 4 that we paid and they do -- they do their actuarial 5 analysis. To me, it seems like we are paying a lot 6 in their profits as opposed to our losses. 7 SENATOR SKOUFIS: What I'm getting at with 8 these questions is I'm curious -- and you touched on 9 it a little bit ago, Mr. Perlmutter -- I wonder if 10 you have seen your carrier settle claims that you 11 feel they should not have settled. 12 PERRY PERLMUTTER: 100 percent. 13 CARLINA RIVERA: The membership brings that 14 up consistently, yes. 15 WILSON KIMBALL: Yes, but it's not like the 16 million dollar claims, at least in my experience. 17 It will be a $200,000 claim, which then our attorney 18 says is worth $6,000, but the insurance company 19 wants us to settle for whatever because they 20 understand that the time in court with the lawyer 21 and my time and taking depositions and blah blah 22 blah is going to be so much more expensive than 23 whatever the settlement is. So I mean, in that 24 case, that's the most appalling and galling, as a 25 CEO, when you are told that this case is worth x and 294 1 they want x times 200,000, right? 2 PERRY PERLMUTTER: We've seen the same thing 3 and it's very difficult. It's frustrating at times 4 where we see cases without merit and they're 5 settling for two, 3, $400,000 and it really, it ends 6 up in our loss experience and that causes the 7 premiums to go up dramatically because it's not just 8 one time. We are not just paying for the loss. We 9 are paying two to three times the amount... 10 SENATOR SKOUFIS: I want to get back to your 11 point before or the question and answer before, 12 which is do you ultimately have final say as the 13 policyholder as to whether they settle or whether 14 they go to trial? 15 PERRY PERLMUTTER: No, we don't. 16 SENATOR SKOUFIS: You don't. 17 PERRY PERLMUTTER: The only time we do but 18 not in the property and casualty is our employment 19 law where the first 100,000 is ours. Otherwise we 20 really don't. 21 SENATOR SKOUFIS: But it sounds like for all 22 of you, there are numerous instances where, if you 23 did have sort of that final arbitration, you had 24 veto power, you would have compelled your carrier to 25 take something to trial. 295 1 PERRY PERLMUTTER: Yes. 2 WILSON KIMBALL: Yes, because as you I think 3 raised earlier, you don't want to send a message to 4 the public that suing a housing authority is a good 5 idea or a lucrative idea. So we want to fight these 6 tenaciously, especially when we know we are right. 7 But that's where the confidentiality clause comes 8 in. It does help housing authorities to not have 9 all the settlements bandied about, especially 10 settlements that we didn't want ourselves, that we 11 took. 12 SENATOR SKOUFIS: And do you imagine that the 13 reason why carriers do this is just it's easier? 14 WILSON KIMBALL: I think it's the bean 15 counting, right? It's a cost benefit analysis of 16 the cost of a deposition, the cost of a time away 17 for staff, the staff of whatever goes into a 18 lawsuit. I'm a recovering attorney, also, so, yes, 19 it's all that. 20 SENATOR SKOUFIS: Is that short-term 21 thinking? Because as you mentioned, as I mention 22 the earlier, I would imagine that if a carrier was 23 taking these types of cases to trial, and were 24 winning verdicts or dismissing these cases, I would 25 imagine there would probably be fewer fraudulent 296 1 cases brought forward, no? 2 WILSON KIMBALL: You know, I don't know. 3 SENATOR SKOUFIS: Which would save the 4 carrier money. 5 WILSON KIMBALL: You know, they have a 6 broader portfolio experience, like our carrier is 7 national, so they would know what goes on. I mean, 8 I do think our insurance in New York is on the rise 9 also because we are covering states like California 10 and Florida, that have had epic, epic 11 weather-related losses. I mean, if you look at the 12 statistics from the HAI Group, New York has had none 13 of the major catastrophic weather events the last 14 couple of years that drive costs in insurance. 15 I mean, it's kind of shocking because we had 16 "Sandy." But subsequent to that, we haven't been 17 the ones driving the weather-related costs. 18 SENATOR SKOUFIS: They're adamant, for the 19 record, because I share your suspicion. They're 20 adamant that that cross subsidization is not 21 happening but I share your suspicion. Go ahead. 22 You were going to say something, sir? 23 PERRY PERLMUTTER: Sometimes when you leave a 24 carrier, they want to close out the claims so 25 they'll settle them really easily and we have had to 297 1 jump around because we were, you know, one of the 2 carriers left New York City. So we have seen that 3 even worse where they just want to settle whatever 4 is sitting on their books and they close them out, 5 which is really frustrating for us because it still 6 does sit in our loss history. 7 SENATOR SKOUFIS: I imagine you all work with 8 peers in other states. Are there any other states 9 where the policyholder does have final say as to 10 whether a case is brought to trial? 11 PERRY PERLMUTTER: I don't know. 12 SENATOR SKOUFIS: Does that mechanism exist 13 anywhere? 14 CARLINA RIVERA: I try to speak to colleagues 15 and allies in like New Jersey, Connecticut, mostly 16 tristate area, Pennsylvania. I haven't really found 17 that. 18 SENATOR SKOUFIS: Because it is strange. You 19 are paying the premium. 20 PERRY PERLMUTTER: Well, there are policies 21 where you can have the ability, but if you lose, 22 then you have to pay up. You have to pay some of 23 the loss. So we don't have that type of policy. 24 But there is like a hammer clause I think in some 25 policies. We don't have that ability. 298 1 SENATOR SKOUFIS: You mentioned, 2 Ms. Kimball, that you support these 3 confidentiality agreements and sort of the concept? 4 WILSON KIMBALL: Yes, because we have seen 5 different individuals who have sued the housing 6 authority try to compare notes, well, she got or he 7 got or I should get. And so the less information 8 that is in the public domain, the better for us, I 9 would say. 10 SENATOR SKOUFIS: What if they were 11 non-identifiable, they were disclosed but you 12 couldn't identify, they were redacted or through 13 some other means, you couldn't identify the names, 14 address, et cetera, but we at least had the data in 15 the public how many claims, how many payouts. 16 WILSON KIMBALL: Okay. 17 SENATOR SKOUFIS: That's something you think 18 would address your concern? 19 WILSON KIMBALL: I think there is always a 20 way to meet in the middle, right? It should never 21 be too far left or too far right. There is always 22 an idea in the middle that is probably the right 23 answer, like a pilot with a sunset. 24 CARLINA RIVERA: Transparency. 25 WILSON KIMBALL: Transparency to the extent 299 1 possible. 2 SENATOR SKOUFIS: Thank you all. 3 SENATOR KAVANAGH: Thank you. And let me 4 just begin by saying however much Senator Bailey 5 misses Carlina Rivera and her service, we miss her 6 more on the lower east side, as my neighbor and 7 friend. But it's great to see you here. We have 8 bequeathed you to the statewide role now. 9 CARLINA RIVERA: Thank you for having me. 10 SENATOR KAVANAGH: I'm going to ask a 11 smattering of questions on sort of components of 12 each of your testimony. 13 So I just want to start with this idea of a 14 public excess liability fund. Are any of you aware 15 of a model that currently exists where a government 16 is sort of stepping in and creating that kind of 17 structure in other states or other jurisdictions? 18 PERRY PERLMUTTER: I know there was in 19 New York, a medical indemnity fund for babies born 20 with disabilities. That originally it was supposed 21 to be funded by hospitals in the state. I know that 22 the fund didn't do so well many, many years later. 23 But if it was funded correctly, I know 24 New York State did have that fund. And so what we 25 are proposing is an excess liability. And everybody 300 1 who joins would pay an actuarial amount but just for 2 the losses and not for a profit. So I know that 3 that worked for a number of years, many years in 4 New York and now I think it's, for whatever reason, 5 I don't know the details. 6 SENATOR KAVANAGH: If I'm not mistaken, you 7 have some experience in the insurance industry. 8 PERRY PERLMUTTER: I worked in insurance, 9 yeah, yeah, yeah. 10 SENATOR KAVANAGH: Any examples in the 11 property space that you are aware of? 12 PERRY PERLMUTTER: What's that? 13 SENATOR KAVANAGH: The medical indemnity fund 14 is helpful as an analogous situation, but are you 15 aware of any instances of somebody trying that in 16 excess in the property -- 17 PERRY PERLMUTTER: I don't know. I'm not 18 sure. 19 SENATOR KAVANAGH: Okay. 20 A couple of you testified about the incentive 21 program we created or the subsidy program we created 22 for people to join captives. It's a $5 million fund 23 in last year's budget. There is a notice of funding 24 availability that is out, I think due the first week 25 of December. I think at least one of your 301 1 testimonies suggested $25 million would be a number 2 that would be appropriate for that. Just -- I mean, 3 can you talk a little bit about the interest among 4 affordable housing providers in joining that kind of 5 mechanism. 6 PERRY PERLMUTTER: I could talk to it a 7 little bit. I would be interested. I'm doing a 8 little research on captives, reciprocals in the 9 state. And there is definitely interest among many 10 non-profit and affordable housing providers. I 11 could tell you for sure because as I've done a 12 little research and trying to put something 13 together, a lot of providers say they're interested. 14 SENATOR KAVANAGH: So you think there would 15 be demand. 16 CARLINA RIVERA: I was going to agree with 17 that. We brought up $25 million in terms of our 18 discussion with our membership. We want 19 organizations to create their own captives or 20 self-insurance mechanisms. I mentioned some of the 21 things that they would be able to do. Fund risk 22 mitigation measures like water sensors, cameras, 23 slip and fall prevention. That's all to reduce 24 operating costs and insurance claims. This has come 25 up multiple times. It was certainly something that 302 1 was featured in recent campaigns, Millford Street 2 specifically, but other organizations are doing it, 3 too. One of our members, L & M has created their 4 own captive. They're a bit different. They have 5 18,000 units that they can start with. But putting 6 it to scale and having state support, I think, would 7 make a difference. It really trickles down to the 8 reinsurance sort of level, but it's a start in the 9 right direction. 10 SENATOR KAVANAGH: And we have had 11 conversations throughout the day about the kinds of 12 actions that property owners can take to reduce risk 13 and how that relates to insurance premium rates. 14 And I want to get to a specific proposal in 15 Carlina's testimony. But just more generally, to 16 the extent you are in discussions with insurers, how 17 clear is it to you what, sort of, what aspects of 18 your property might result in discounts in premiums? 19 WILSON KIMBALL: Cameras seem to be a 20 favorite for sure. There was a bill in Florida at 21 one point where housing authorities would be 22 exempted from sort of torts that were the result of 23 mass shootings, if they did x, y and z, part of 24 which included, you know, cameras, lighting, fencing 25 et cetera, et cetera. So cameras are always very 303 1 vital and important. We try to stay away from 2 fencing. 3 SENATOR KAVANAGH: And I will refrain from 4 commenting on other steps Florida could take to 5 reduce the likeliness of mass shootings. 6 WILSON KIMBALL: Agreed. 7 SENATOR KAVANAGH: But in terms of your -- 8 you mentioned a bunch of actors. Leak sensors that 9 prevent -- our understanding is that a lot of 10 catastrophic losses are about much more routine 11 things than hurricanes and storms. 12 WILSON KIMBALL: Yes, fire and the resulting 13 sprinkler system, which drenches multiple units and 14 causes more damage, which I believe the insurance 15 industry asked us to put in. So maybe they should 16 rethink that. 17 SENATOR KAVANAGH: Right. To your knowledge, 18 are there changes in the way properties are built or 19 kind of features that seem sensible to be added that 20 would reduce the risk of loss that are not currently 21 resulting in premium discounts? 22 WILSON KIMBALL: We are building all passive 23 house so that we can have everybody shelter in place 24 should there be another catastrophic, you know, 25 weather situation. There is even things as small as 304 1 fire blankets and other things because fire 2 extinguishers cause a lot of damage. It's small 3 things like that, which might be the biggest 4 improvement. So we are trying all that stuff. 5 CARLINA RIVERA: But that's a good question 6 because -- and over the past few weeks, I have been 7 obviously downstate is a place I have spent most of 8 my time. But Albany, Schenectady, Troy, Rochester, 9 Buffalo, Newburgh, Poughkeepsie, Syracuse, Utica, it 10 all comes down to the same issue, this insurance 11 idea. But they are trying things to add 12 preventative measures inside homes. Whether or not 13 any of that is being rewarded so to speak, that's a 14 really good question and I'll try to get some 15 details for you on particular things they're doing 16 around stoves and fire suppression to see if it is 17 as rewarding for the investment. 18 WILSON KIMBALL: The other thing that is lost 19 that we are a medium sized housing authority, like 20 2800 units and 5,000 vouchers so we can afford 21 cameras and we can afford these items and we can try 22 to afford these. If you are looking at Herkimer, 23 they have 248 units. They're not really in a 24 position, although they need the cameras, to do that 25 investment. 305 1 SENATOR KAVANAGH: I won't share with them 2 that their local elected officials might consider 3 doing that with discretionary funding as we 4 frequently do on the lower east side. But no, it is 5 an important point. And that, I mean that question, 6 that's something we have been asking a lot of 7 contacts is to what extent should we be subsidizing 8 changes people can be making in property, especially 9 to the extent it's publicly subsidized property 10 anyway. 11 WILSON KIMBALL: The smaller the housing 12 authority, the more they need your help. 13 SENATOR KAVANAGH: Right. But having said 14 that, if we could close the loop and ensure that 15 those short-term investments are then leading to 16 longer term savings in insurance, it would probably 17 be easier to justify. 18 PERRY PERLMUTTER: So just in general, I feel 19 our insurance is based on our losses, no matter what 20 we do. I mean, what we do will hopefully reduce 21 losses and claims. But I don't see if I have, you 22 know, whatever it is, that is to prevent fires or 23 whatever it is, I don't see getting credit for that 24 in my insurance premiums. Today, hopefully it will 25 prevent losses. 306 1 REBECCA ZANGEN: I just want to raise perhaps 2 there is a role for DFS in creating some standards 3 around certain practices and, you know, actuarial 4 data around which practices can create, you know, 5 minimize risk and loss. And because I think a lot 6 of our members do put a lot of these best practices 7 into place and don't necessarily see a reduction in 8 premium. I think there is a role for DFS to come in 9 with some data and provide some standards around 10 credits that insurers can give. 11 SENATOR KAVANAGH: I think that there have 12 been a couple of features that DFS has gone out and 13 encouraged insurers through regulations to do but it 14 is pretty limited so far. We heard from the 15 superintendent earlier that they are -- the agency 16 is attempting to kind of catalog the various things 17 that, you know, might be appropriate for discounts 18 and what different insurers are doing, but I think 19 that this is an area we want to have a continuing 20 conversation. 21 Carlina, in your testimony you mentioned the 22 possibility of discounts for kind of more behavioral 23 changes. Like training people, tenants on fire 24 safety and avoiding the risk. Can you talk a little 25 about that. 307 1 CARLINA RIVERA: What we are calling safe 2 housing courses. So it would be the Safe Housing 3 Incentive Program. And that's to receive insurance 4 premium discounts for offering these courses. So 5 the idea would be that tenants -- or we're looking 6 at property owners, because I realize that tenant 7 compliance can always be an issue. But it is to 8 include fire safety and extinguisher basics. I know 9 we are trying to get away from that. But preventing 10 water damage and reporting leaks, reducing trip and 11 fall hazards. Understanding basic lease terms. 12 Responsible use of appliances and utility, renter 13 insurance education. These are all ideas where, you 14 know, as we are discussing insurance, I mean things 15 like defensive driving for car insurance, not the 16 perfect example. I realize that. But it's how do 17 we try to share some of the responsibility and be 18 collective on this effort. And in exchange, an 19 insurer would reduce liability and/or property 20 premiums for participating development. So it's an 21 idea we have that we are working on in coalition and 22 we obviously would really love to hear constructive 23 criticism. 24 SENATOR BAILEY: Just want to refollow that. 25 That's an incredible idea. Would that potential 308 1 idea be predicated upon the tenant, the management 2 company, the association? Because you know, like 3 there are different levels of liability and 4 responsibility. And so like if you get a tenant to 5 go, you get 5 percent. If you get the tenant and 6 the management company to you, you get 10 percent. 7 You get everybody to go, you get 15 percent, just 8 throwing it out there. Like I'm curious because now 9 my interest is peaked about some sort of like 10 program like that. I'm just wondering like how 11 would a program like that look in your eyes. 12 CARLINA RIVERA: I appreciate your interest 13 because I knew once I said defensive driving, that 14 people start paying attention and it's only because 15 I have been on that side, that I think, how can I 16 explain this in a way to get people's attention. 17 When gas goes up, you see it at the pump, right? 18 When eggs go up, you see it at the checkout. When 19 insurance goes up, it doesn't exactly show up on 20 your itemized receipt. So how are we creating some 21 sort of action or idea or innovation. And so when 22 we brought this to the Insurance Association, among 23 many, many other stakeholders, maybe the tenant is 24 not the person. Maybe it's the property owner. But 25 we are trying to figure out how you take an idea 309 1 that has existed for a long time that has seemingly 2 worked and apply that to residential properties. 3 So, you know, we are working it out and we are 4 conferring with our partners. 5 WILSON KIMBALL: Other members from across 6 the country incentivize tenants with gift cards or 7 whatever for reporting leaks because really an 8 unreported leak is so much worse on the third day 9 than it was on the first day. So calling into the 10 emergency call center and reporting leaks or, you 11 know, fires or whatever they might be seeing, and 12 some of our tenants are doing it for free because 13 they enjoy calling us and reporting on things that 14 are happening in our yard. 15 But that is an excellent program. And our 16 staff currently takes a Know Before program which is 17 all online. And it's everything from fire 18 prevention, to sexual harassment prevention, to a 19 number of other classes. It can all be done online 20 through our insurance carrier. 21 SENATOR BAILEY: Everybody operates based on 22 incentive, right? Like there is no person in this 23 world that is not incentivized by something. If you 24 are hungry, you are incentivized to go find some 25 food, right, it can be as basic as that. So I think 310 1 incentivizing people to be better actors. We know 2 we can't legislate kindness but if we can figure out 3 how to get people to be better actors, that may be 4 able to keep things in a better state of repair. I 5 like that. I would love to flesh it out a little 6 bit further. Sorry to interrupt. 7 SENATOR KAVANAGH: If you are done, just a 8 couple of quick followup. 9 First, just for NYSPHADA particularly, there 10 is this HAI Group insurance mechanism. Can you talk 11 a little bit about that? 12 WILSON KIMBALL: HAI is a Housing Authority 13 Insurance Group. 14 It's out of Connecticut. It started off as a 15 captive and is now probably the largest insurer of 16 affordable housing across the country. 17 SENATOR KAVANAGH: To what extent are members 18 in New York participating in that? 19 WILSON KIMBALL: I don't know what percentage 20 of our members are in HAI. I believe it is a large 21 portion of our members. 22 And they do incentivize us by having us take 23 these Know Before classes online. My entire staff 24 has to take it, from the maintenance workers to the 25 white collar Teamsters. And also they do 311 1 incentivize us for having like no slips and falls. 2 We get incentives for having a good quarter. That 3 kind of thing. 4 SENATOR KAVANAGH: And that covers, in sort 5 of the insurance that is required by HUD for public 6 housing to have; is that right? 7 WILSON KIMBALL: It came up and was created 8 by a number of people who had formerly been at HUD. 9 SENATOR KAVANAGH: If you have that product, 10 are you also seeking insurance in addition to that? 11 WILSON KIMBALL: Depending on how your RAD 12 deal works, it could be. One of our partners in our 13 RAD deal is L & M. They're in their own captive and 14 one of our other partners is the Community Builders 15 because these are RAD deals and I believe they might 16 be in their own captive as well. So it kind of 17 depends on the mix and match. 18 With the community partners, we are relying 19 on their insurance for this eight-story building. 20 Since when we did talk HAI, they said they don't 21 insure high rises, having been in Manhattan for many 22 years before I went to Yonkers, I don't consider an 23 eight stories a high rise but in any event, that's 24 where we are. 25 SENATOR KAVANAGH: That is very helpful. I 312 1 am going to wrap just because I have various 2 opportunities to talk with all of you in various 3 context. But to appreciate your testimony, all the 4 work you do to make sure we have affordable housing 5 available throughout the state. And just to note, a 6 couple of you cited a-9016 which is a transparency 7 in reporting bill. Just to note, there will be a 8 revised and more comprehensive version of that that 9 will be kind of same as that bill soon. So we would 10 like feedback on that as we go forward. But thank 11 you. 12 CARLINA RIVERA: I just want to say to you 13 all thank you because this is not an easy topic and 14 we all have been working on this for many, many 15 years. 16 And just the last anecdote is that while I 17 was in Utica, one of the property owners said that 18 liability insurance is going up for snow plowing. 19 And when they asked their vendor why, they said 20 because your block has affordable housing, for snow 21 plowing. So it's unfortunately, it feels like a 22 modern day red lining and I know neighborhoods are 23 disproportionately affected so thank you for taking 24 on this topic and for the time and thoughtfulness 25 you brought to it. 313 1 SENATOR BAILEY: Thank you all. 2 SENATOR SKOUFIS: Moving right along, 3 Panel 7, Property Owners Associations; 4 Kathleen Irwin Policy Director of the New York 5 Apartment Association; Tim Foley, CEO and Executive 6 Vice President of the Building & Realty Institute of 7 the Hudson Valley, BRI; and Ann Korchak, president 8 of the Small Property Owners of New York. 9 While folks are shuffling a little bit. If I 10 could swear you all in if you are ready for that. 11 Please raise your right hand. Do you 12 solemnly swear that you will tell the truth, the 13 whole truth and nothing but the truth? 14 (Witnesses sworn.) 15 SENATOR SKOUFIS: Thanks very much. Who will 16 be going first? Whoever it is, take it away. 17 KATHLEEN IRWIN: Thank you, Chairs and 18 members of the Housing Insurance and Investigations 19 Committees for the opportunity to testify. My name 20 is Kathleen Irwin and I'm a policy director with the 21 New York Apartment Association. 22 Our members own and operate more than 400,000 23 units of pre-1974 rent stabilized housing, a 24 critical and endangered segment of the city's 25 housing stock. 314 1 Today we face an insurance crisis that 2 threatens the viability of rent stabilized housing 3 both privately owned and non-profit. To capture the 4 impact of this crisis, we conducted a member survey 5 in October of 2025 of over 60,000 units of housing. 6 Our survey data shows that total insurance 7 costs including property, liability and umbrella 8 coverage rose 113 percent citywide in just 5-years 9 from annual average of $703 per unit in 2020 to 10 $1501 in 2024. Premiums in the Bronx and northern 11 Manhattan specifically rose 134 percent during that 12 same period with some buildings paying more than 13 $3300 per unit per year. 14 Rent guidelines per data show a 52 percent 15 increase in the share of costs consumed by insurance 16 from 5.4 percent of total operating costs in 2019 to 17 8.2 percent in 2023. Our survey also found that 18 87 percent of owners have been forced to take on 19 more risk through higher deductibles or cutting back 20 on coverage. 21 In one case, a portfolio of 100 to 500 units 22 had to increase their per property deductible from 23 5,000 up to $25,000. At the same time, their per 24 unit annual premiums climbed from $901 in 2019 to 25 $1602 in 2025. 315 1 Another member with fewer than 100 units 2 increased their deductible from $10,000 to $50,000 3 and cut umbrella coverage back from $5 million to 4 $1 million. Still their annual per unit premiums 5 grew from $1140 in 2022 to $2334 in 2025. It's 6 important to note that this acceptance of risk is 7 not reflected in the costs submitted to the Rent 8 Guidelines Board even though higher risk creates the 9 possibility of major unexpected expenses. 10 Considering premium costs alone obscures the depth 11 of the insurance crisis. 12 Equally troubling, the majority of survey 13 respondents reported being denied insurance 14 coverage. 74 percent of owners with fewer than 100 15 units and all survey respondents with portfolios 16 over 5,000 units had experienced denial of coverage. 17 Common insurer explanations reported in the 18 survey included refused to insure rent stabilized 19 housing, refused to cover Bronx buildings, or 20 carriers stopped writing multifamily coverage in 21 New York City. Liability costs and fraud further 22 compound this problem. 23 According to the national insurance crime 24 bureau, New York City ranks number 1 in the U.S. for 25 questionable slip and fall claims. Fraudulent 316 1 claims have become routine, often involving staged 2 accidents, exaggerated injuries or false claims of 3 building negligence when people behave 4 irresponsibly. In one example claim, security video 5 captured a person descending the stairs, distracted 6 by their phone and not holding the railing who then 7 fell and brought a claim alleging the stairs were 8 defective. 9 According to our survey, 70 percent of owners 10 with video evidence disproving a slip and fall claim 11 still saw insurers settle rather than fight. Faced 12 with the prospect of drawn out investigations, 13 litigation and the risk of jury awards more than 14 eight times higher than the national average, 15 insurers choose to save themselves money by settling 16 despite the evidence. 17 This practice drives up premiums while 18 rewarding bad actors. This dynamic especially harms 19 tenants in buildings with rent stabilized units. 20 Fraudulent claimants and their attorneys profit, 21 insurers protect themselves through higher rates or 22 leaving the marketplace and owners are left 23 observing massive cost increases. 24 This is reflected in higher rents and 25 building with market units but in fully stabilized 317 1 buildings, premium costs increases cannot be offset. 2 Every dollar diverted to inflated insurance costs is 3 a dollar that cannot be spent on maintenance, safety 4 upgrades or energy efficiency. 5 We urge the committees gathered to act. 6 First: Create a state-backed reinsurance 7 program to stabilize premiums for affordable and 8 rent regulated housing. This intervention would 9 bring in more competition by protecting insurers, 10 moderating their risk exposure and lowering rates. 11 Secondly: We encourage the state to pursue 12 targeted tort reform that would rebalance the 13 current liability landscape while maintaining the 14 core intent of those protections. Regardless of how 15 robustly the state works to support the insurance 16 market, the current liability environment leaves 17 insurers and building owners extremely exposed to 18 fraud and abuse. So as long as it is a lucrative 19 practice to bring suspect fact patterns and inflated 20 claims, bad actors will enrich themselves at the 21 expense of New York City's rent stabilized housing 22 and tenants. 23 The New York Apartment Association also 24 remains committed to collaborating with any elected 25 official working towards real solutions on this 318 1 issue. Without insurance reform, we risk losing the 2 very buildings that keep New York affordable for 3 working families. 4 Thank you for your attention and for your 5 commitment to protecting New York's housing. 6 TIM FOLEY: Good afternoon, Chairs. Thank 7 you so much for convening this very important 8 hearing and a special note of appreciation to your 9 respective staffs for such thorough and organized 10 preparation. 11 My name is Tim Foley. I'm the CEO and of the 12 Building & Realty Institute of the Hudson Valley. 13 We represent home builders, developers, property 14 owners and managing agents across Westchester, 15 Rockland and Putnam Counties covering everything 16 from affordable housing to co-ops and condos. 17 And no matter where we look in the insurance 18 market for residential housing, the story is the 19 same: Sticker shock. We have seen double digit 20 renewal increases across the board for the last 21 2-years. In extreme cases, particularly for high 22 limit umbrella liability policies, increases have 23 reached as high as 100 to 200 percent. Although it 24 is true across the board, there is no doubt that 25 older housing stock has been hit the hardest, 319 1 including co-ops, rent stabilized buildings and 2 subsidized affordable housing. 3 And the data tells a devastating story. 4 Westchester rent stabilized property owners reported 5 a 22.5 percent insurance increase over the last 6 2-years. Nassau saw 25.1 percent and Rockland 7 experienced a staggering 67.2 percent. The New York 8 Housing Conference found that insuring an affordable 9 apartment now costs $1770. According to their 10 numbers, 103 percent increase from just 4-years ago. 11 ANHD stated in their most recent report 12 insurance has been the fastest growing expense 13 category with double digit annual increases in 14 multiple years, while Enterprise Community Partners 15 reported insurance has risen 110 percent since 2017, 16 more than double any other expense. 17 The national causes of this surge in costs 18 are clear. Climate change has driven an increase in 19 damage related to extreme weather events. 20 Nationally, catastrophic claims rose 32 percent 21 between 2019 and 2022. Replacement and repair costs 22 have soared over this timeframe; first due to the 23 pandemic supply chain disruptions, then due to 24 inflation and now tariffs on building materials. 25 The reinsurance market is, as you have heard, 320 1 is fundamentally broken. Many carriers have 2 withdrawn entirely from high risk markets including 3 New York, leaving property owners with higher costs 4 and worse coverage. 5 While the state has taken important steps to 6 crackdown on insurance discrimination, we need more 7 comprehensive action to protect our oldest most 8 affordable and most likely to be financially 9 distressed properties. We respectfully urge you to 10 consider four policy solutions. 11 First: As many have said, we need a state 12 excess liability fund, a public or state-backed 13 reinsurance program. The reinsurance market is 14 broken for older housing stock and affordable 15 housing and a state-backed safety net could 16 immediately reduce risk, lower costs and improve 17 terms for both subsidized and naturally occurring 18 affordable housing. This could be limited to 19 financially distressed properties or it could be a 20 broader pool. Though of course the broader the 21 better to stabilize costs for both the insurers and 22 taxpayers. 23 Second: We strongly recommend regulations or 24 incentives for longer term insurance contracts 25 specifically for affordable and financially 321 1 distressed properties to make them viable. 2 These properties face predictable restrained 3 income year over year, but unpredictable expenses. 4 Insurance used to be one of the more modest and 5 stable cost increases but that world is gone. 6 The next best thing is longer term contracts 7 that provide some predictability and some planning 8 with more years between major rate shocks. 9 And third: New York should reduce insurance 10 premiums for climate resilient construction through 11 discounts and other incentives. Since climate 12 change and extreme weather are the primary drivers 13 of the rise in premiums we see today, we should 14 offer relief to property owners who build or 15 renovate to modern energy efficient codes and higher 16 resilient standards. 17 There is a model in existing law Chapter 28 18 Article 23 Section 2346, already allows premium 19 reductions for hurricane resistant windows and 20 doors. We can expand this to reward properties 21 meeting standards like HUD Green and Resilient 22 Retrofit Program, the National Green Building 23 Standard or Fortified Standard. This would provide 24 cost relief while at least minorly addressing some 25 of these root causes. 322 1 Fourth: We need increased transparency 2 through increased reporting requirements. While the 3 trends are clear, the exact mechanisms insurers use 4 to balance risk and cost remain opaque. A public 5 reinsurance actor would provide valuable 6 transparency but additional reporting or 7 requirements similar to what NYSIF workers' 8 compensation safety groups provide would improve our 9 ability to manage future changes and crises. 10 We appreciate the opportunity to share our 11 perspective and commend your willingness to tackle a 12 problem that is worsening the financial outlook for 13 our most affordable housing options in the midst of 14 a severe affordable housing shortage. Thank you. 15 ANN KORCHAK: My name is Ann Korchak and I 16 serve as the board president for SPONY, the Small 17 Property Owners of New York. We are an all 18 volunteer organization of small rental building 19 owners, which means we have firsthand experience 20 with the rising costs and shrinking coverage. 21 Insurance is one of the largest expenses we 22 face, second only to property taxes. It's an 23 expense that we cannot delay and one where we can 24 easily find a more affordable option. 25 Earlier this year we did a survey of our 323 1 members and that showed that insurance costs were 2 increasing about 37 percent for small buildings 3 under 11 units. The increase was slightly lower for 4 the larger buildings. My own family's experience 5 reflects this. Our combined total insurance cost 6 for commercial and liability coverage for a 10-unit 7 building on the upper west side has increased 8 43 percent in recent years. 9 This steepest increase was for the liability, 10 which we saw a 95 percent increase. In the past, we 11 paid as little as $56 a unit for liability coverage. 12 And today it's more than a thousand dollars. Our 13 liability coverage was once a fraction of our total 14 insurance bill. It now exceeds our commercial 15 package. 16 And while we once carried $100 million in 17 umbrella liability, we can now only be given 18 $15 million in coverage and our deductible has also 19 doubled. 20 The drop in coverage isn't a choice. In the 21 past we always had multiple offers when our 22 insurance policy came up for renewal. Last year, 23 the day before our policy expired, we had just one. 24 Our long time insurer had dropped us. Getting that 25 close to the expiration date was extremely nerve 324 1 racking and the only offer was a three-year 2 commercial package. 3 We hadn't seen that in many, many years. But 4 it came with a twist. We had to pay all 3 years up 5 front. It was this time last year because I was 6 facing a huge tax bill coming in December, so we 7 didn't have the cash on hand. And the only reason 8 we were able to pay both our taxes on time and this 9 insurance bill is because a long time contractor 10 waited, like another 60 days for us to pay him the 11 $20,000 bill for a job he had just done. 12 Just want to add a few other things. 13 Yesterday I saw some comments, insurance related 14 comments in a SPONY WhatsApp chat. One owner was 15 attempting to negotiate a payment plan because the 16 cost was so high, they couldn't afford it. Another 17 was at housing court with a tenant who had not paid 18 rent since June of 2023. It was $63,000 in 19 rental arrears and this person has to pay a big 20 insurance premium later this month. So cash is a 21 problem when have you a $63,000 in rental arrears. 22 Another owner was denied a renewal for filing 23 a claim that was covered by a sewer backup rider 24 that the carrier had encouraged her to purchase six 25 years prior. So when she used the rider, then she 325 1 got her insurance canceled. 2 Several years ago I asked my broker why our 3 costs were rising so quickly. And her answer was, 4 you own a building in New York City. So you are in 5 the construction business. And she is right. 6 Buildings all over the city doing facade repairs, 7 boiler replacements, electrification upgrades and 8 just ordinary maintenance repairs. And every 9 contractor who works in our buildings is also paying 10 more for their insurance. And those costs come 11 right back to us with higher construction costs. 12 We pay for this reality on both sides. Our 13 own insurance coverage and then that extra charge 14 from the contractors. I have learned one of the 15 drivers of this is the large amount of personal 16 injury litigation, including fraudulent claims and 17 lawsuits. Insurance fraud is an area where perhaps 18 the government could take action by prioritizing 19 fraud prevention and enforcement, legislators can 20 help reduce unnecessary claim costs, stabilize the 21 insurance market and provide real relief for small 22 property owners who supply much of New York's 23 affordable housing. The city itself could also 24 reduce risks especially around flooding by properly 25 maintaining and regularly cleaning the sewers and 326 1 catch basins. Of the 2024 DEP storm analysis 2 outlines several concrete steps to improve drainage. 3 We are paying very large water and sewer fees. We 4 would like to make sure that that money is being 5 used properly to help mitigate some of those 6 problems. 7 High crime rates are another reason for 8 rising costs or denied coverage. Another owner I 9 know shared with me that she was told her policy 10 would not be renewed because the crime score exceeds 11 our threshold for acceptable risks established 12 through our underwriting guidance. So lowering 13 crime rates could also help property owners. 14 And I just thank you, you know, for including 15 us here today. And appreciate, you know, anything 16 you could do. We are on the front lines here and 17 it's getting more and more difficult for us to cover 18 our operating expenses. 19 SENATOR SKOUFIS: Thanks to each of you for 20 your testimony. And you know, I think we all work 21 with all of your organizations over the course of 22 session and know that you are in the trenches and 23 know that it is difficult and your insight today, 24 and generally, is really appreciated. I want to ask 25 a question that I asked the previous panel. Your 327 1 members, I imagine the large majority of your 2 members, use video surveillance, have cctv systems. 3 And I'm curious to what extent are your members 4 seeing claims without merit or even fraudulent 5 claims caught on video but nevertheless -- and I 6 think one of you mentioned it before -- how often 7 are nevertheless your carriers, your members' 8 carriers still settling those claims? 9 KATHLEEN IRWIN: We asked that specific 10 question -- I don't know if I'm on. We asked that 11 specific question in our survey. And for those who 12 reported that they had had fraudulent claims, 13 70 percent of those with video, their insurers still 14 chose to settle. 15 SENATOR SKOUFIS: And the other two of you? 16 TIM FOLEY: We don't have data on that. We 17 certainly do have anecdotes because we cover a broad 18 spectrum of housing; for example, some areas that 19 are particularly crime ridden may be more inclined 20 to have cameras than others. 21 We do certainly have anecdotes, particularly 22 on new construction, where some of the surveillance 23 cameras have caught fraudulent slip and falls. 24 There was one video that I actually got to watch 25 myself of a worker walking down an alley way who was 328 1 unaware that there was a camera there and quite 2 literally lying down as if to simulate a fall that 3 had just transpired. There was pressure to settle 4 that claim. I believe they did not, in that 5 particular instance. But that is just one anecdote 6 in that systematic data. 7 SENATOR SKOUFIS: How was that resolved, do 8 you know? 9 TIM FOLEY: I believe ultimately, when they 10 brought that specific video in, that particular 11 plaintiff backed away. But I do know that there are 12 many occasions where the insurers, again, as was 13 previously testified through whatever bean counting 14 they're doing, determined that the risk of going to 15 trial, the risk of additional costs of going to 16 trial, the legal costs of going to trial are greater 17 than whatever is being asked for by the individual 18 plaintiff. 19 ANN KORCHAK: I would just add that I know of 20 no owner who has ever gone to trial. 21 SENATOR SKOUFIS: Not a single one? 22 ANN KORCHAK: Not a single one. 23 SENATOR SKOUFIS: How much of that do you 24 think has to do with whatever actuary they're 25 conducting or risk that you are referencing versus 329 1 it just being easy to settle? And you don't have to 2 use up personnel and bandwidth -- and yes, there is 3 certainly a cost to seeing a case to trial. But at 4 the end of the day, just settling, you just tuck 5 that into your next rate application, no? 6 TIM FOLEY: Well, there are two factors that 7 our members feel, which is that this is not an 8 isolation. So any incident that is involving their 9 insurance, whether it's directors and officers 10 insurance within the co-op, whether it's something 11 that is an alleged fair housing violation, so on and 12 so forth. The pressure to settle is omnipresent no 13 matter what channel of insurance you are 14 particularly talking about. Particularly, you know, 15 within certain ranges within costs. So it is no 16 more remarkable in the context of the type of 17 liability and construction insurance that we are 18 talking about than it is in any other context. If 19 there is a claim, they're looking at it. 20 But the second factor is that the number one 21 determining factor between whether you will have a 22 reasonable increase in your premiums or not is your 23 claims history. 24 SENATOR SKOUFIS: Of course. 25 TIM FOLEY: So if there is any claim of any 330 1 sort, the insured is so desperate to mitigate their 2 losses, that even if they feel that there is some 3 injustice, and often they do feel that quite 4 strongly. They have done nothing wrong. They ought 5 to go to trial, they also are very concerned about 6 what is going to happen the next time they're up for 7 renewal. 8 KATHLEEN IRWIN: I think, as far as our best 9 understanding, it's more of a cost question than 10 like a laziness question. I think it's more the 11 risk-reward. Like if you spend all this money 12 investigating, defending a claim, litigating a claim 13 and even imagine that it still does get an award 14 given against it, there is always the risk of that 15 regardless of what the fact pattern is. All of that 16 comes together to say at the end of the day, this is 17 a nuisance. At the end of the day, we are going to 18 settle. It costs less money to settle and that's 19 what we are going to do. 20 SENATOR SKOUFIS: Do you think they're 21 evaluating that risk properly? Obviously none of 22 you are actuaries. I understand that. But as a lay 23 person, my sense is that there is really no downside 24 for the insurer to settle. 25 It sort of gets this situation off their 331 1 plate, right? Whereas you absorb, your members 2 absorb that downside because yes, it's not a payout. 3 It's not a verdict. It's not, you know, a jury 4 award, but that settlement still appears on your 5 claims history and drives up your premiums, which 6 again, then is to the benefit of the carrier we are 7 talking about. 8 And so I don't want to make it seem as though 9 I'm suggesting they're doing this because they're 10 lazy, but in my mind, the risk equation is very 11 different for the insured versus the insurer. There 12 is very little downside for them. You absorb all 13 that downside. You absorb that risk. 14 ANN KORCHAK: Right. And it's so frustrating 15 because you are paying such high premiums and you 16 know, so many people have video cameras now, right? 17 So you know if somebody has made a fraudulent claim. 18 Like this story you just told about the guy 19 laying down. You are paying for this coverage that 20 never materializes because when they go and settle, 21 you never have a chance to say, hey, my camera 22 footage here is showing that what they're claiming 23 is not what actually happened. And you just have to 24 accept it. It's just because, right, the insurers 25 have decided that that is the preferred way for them 332 1 to go. 2 SENATOR SKOUFIS: I'm not nearly as familiar 3 as likely Senator Bailey is with how the penal code 4 speaks to insurance fraud, but I imagine there is 5 some criminal conduct that is in our penal code 6 having to do with insurance fraud like we are 7 talking about. In your experience, have you ever 8 seen anyone prosecuted for what you believed to be 9 insurance fraud? 10 KATHLEEN IRWIN: I know we had a member who 11 had enough cases that they were able to start 12 looking at it as an organized kind of effort. I 13 don't know that they were ultimately prosecuted and 14 I think that was a capacity issue. But I think, 15 too, what the point that you are bringing up is sort 16 of leads me to two of the specific asks that we are 17 sort of shopping around in the world of tort reform. 18 And one of those being to make it easier to recover 19 attorneys fees when building owners and insurers 20 successfully, you know, beat back a fraudulent 21 claim. Because right now they do not. 22 And also to broaden the set of circumstances 23 that would entitle an insured to bring their own 24 independent counsel, to basically override and say 25 no, we are going to fight this because right now... 333 1 SENATOR SKOUFIS: Are there circumstances now 2 that exist where you can do that? 3 KATHLEEN IRWIN: My understanding is you 4 would have to sue your insurer. 5 That doesn't seem like a great option. Those 6 are ideas we have. Because as you are bringing it 7 up, the benefit -- 8 SENATOR SKOUFIS: Do any other states do 9 that, what you just suggested? 10 KATHLEEN IRWIN: I looked it up in the back 11 when you asked before. 12 It doesn't seem that there is any state that 13 gives that as a blanket entitlement but it is more 14 case by case. 15 SENATOR SKOUFIS: And you think that both of 16 those reforms would have a positive impact on 17 premiums? 18 KATHLEEN IRWIN: Those are a couple of the 19 ideas that we have. 20 SENATOR SKOUFIS: Okay. All right. Thank 21 you. 22 SENATOR KAVANAGH: First of all, thank you 23 all for your testimony and thank you for the hard 24 work of managing real estate in this environment. 25 We know it's not easy. I want to start by just 334 1 talking about a little clarity by what we mean by 2 fraud. Because we have two different examples from 3 this panel. One is about somebody walking down the 4 stairs and using their phone and maybe be being 5 distracted and then falling and then asserting that 6 the stairs are defective. And the other is 7 somebody, you know, lying down and pretending to 8 have fallen on the ground. 9 I do think that just conceptually those are 10 pretty different things. Like when somebody is 11 walking down the stairs -- if somebody is walking 12 down defective stairs and falls and they're using 13 their phone, the insurance company is entitled or 14 the property owner is entitled to say well, it 15 wasn't the defect in the stairs. It was the phone 16 call and the distraction and vice versa. 17 I just -- I'm not sure that's what we usually 18 think about when we think -- sort of a dispute about 19 what was the actual cause, I think, is different 20 than what the kind of fraud we have been talking 21 about today where people are fabricating incidents 22 or causes of things that happened. 23 So I just want to -- to the extent that I'm 24 asking about fraud, I'm asking about the case where, 25 you know -- and Ms. Irwin, we had some 335 1 conversations with some of your members that were 2 talking about people, you know, walking by a few 3 times, checking the place out and then, you know, 4 dropping on the sidewalk. 5 So, you know, as I think as I've said, I 6 don't think there is anybody here or anywhere that I 7 know of that wants to sort of support that kind of 8 activity continuing. 9 In terms of reforms, we have had a lot of 10 talk today about tort reform and with limited time, 11 I want to ask you a couple of questions on it but I 12 want to focus on some of the other ideas here. 13 First of all, the idea that somebody is -- an 14 insurer is stating that they're refusing coverage 15 because housing is rent stabilized. Do you have 16 sort of specific documentation of that? 17 KATHLEEN IRWIN: The examples that I cited in 18 my testimony were the ones that people were able to 19 provide to us. Granted this is their reporting of 20 what their insurer told them. I don't know if they 21 kept or would be willing to provide, if it happened 22 in writing or happened over the phone. But it 23 wasn't, you know, three people who answered those 24 three things. Those were common answers that we 25 were hearing from our membership. 336 1 SENATOR KAVANAGH: Again, we are trying to, 2 as much as possible, pin down, you know, evidence of 3 behavior. So I mean, obviously anecdotes and verbal 4 assertions are useful evidence. But if you had a 5 notice from an insurance company that said we are 6 declining because it's rent stabilized status. I 7 think we would be very much interested in seeing 8 that. 9 TIM FOLEY: If I can just answer. We have 10 not had any particular documentation either for 11 being rent stabilized or being a co-op or being 12 otherwise subsidized affordable housing. The only 13 thing that we are looking at ultimately is the 14 impact. And when we look at those classes and where 15 their increases are, there is a pattern of whether 16 it is specifically targeted for them based on that 17 factor or because they tend to be over buildings 50, 18 75 years old or because they're in Mount Vernon as 19 opposed to Scarsdale. 20 At a certain point, you don't need a lot of 21 brilliant deduction to figure out where the higher 22 risk buildings are and they are certainly being 23 priced accordingly. 24 SENATOR KAVANAGH: Again, we took pains a 25 couple years ago to require an investigation of 337 1 whether affordable housing per se was being 2 discriminated against. There was a lot of anecdotal 3 evidence that it was. We passed a law banning that. 4 I am wondering why the New York Apartment 5 Association today, which represents pretty much 6 entirely rent stabilized landlords, why, among your 7 recommendations, is that we restrict the ability of 8 insurers to discriminate against rent stabilized 9 housing? Is that something that -- do you think 10 insurers ought to be allowed to discriminate against 11 rent stabilized housing in making insurance 12 decisions? 13 KATHLEEN IRWIN: I don't. No. 14 SENATOR KAVANAGH: Okay, I think we might 15 want to consider whether, you know, rent stabilized 16 housing is a prevalent form of housing, that's a lot 17 more affordable than other housing. I think we'd 18 probably consider whether there might be some 19 categorical discrimination that's going on that we 20 might want to consider. So we would like to follow 21 up again. And again, specific evidence of it 22 occurring. 23 To my challenge, the insurance industry did 24 not significantly oppose our efforts to ban 25 discrimination against affordable housing. So I 338 1 think it would be an interesting question, what the 2 position would be on something like that. 3 ANN KORCHAK: Oftentimes the non-renewal 4 notification -- just a few short words. The one I 5 read about the crime score was the lengthiest 6 non-renewal message I've ever seen. 7 SENATOR KAVANAGH: Right. We have been 8 talking to the regulator this morning. I mean, to 9 the extent that they are providing model -- that 10 insurers are providing models and saying this is how 11 we are pricing things and this is how we are making 12 decisions in the marketplace, specifying what 13 factors they can and cannot consider, would seem to 14 be, at least one thing we can try to get right. So 15 I would like to follow up with you about that. 16 In terms of, again, I'll ask you all the 17 question I asked before. Are you aware of any 18 state-backed reinsurance mechanism -- or 19 government-backed reinsurance mechanism in the 20 property space that exists in other jurisdictions? 21 ANN KORCHAK: I'm not. 22 TIM FOLEY: I have not specifically seen it. 23 It does come up in all the literature, which is why 24 we made it part of our recommendations as well. 25 From the Urban Institute on down, it seems to be the 339 1 go-to methodology. 2 SENATOR KAVANAGH: And it's come up a lot 3 today in a lot of the literature we have been 4 reviewing during the course of this hearing. 5 Another question I asked previous panel of 6 people managing property, but to the extent your 7 insurers are offering discounts -- and I may 8 mention, too, that are statutory or regulatory now, 9 you know, the windows and the storm shutters -- but 10 do you think that insurers of properties are 11 transparent and sort of proactively informing 12 property owners of what -- what aspects of their 13 property or what behaviors might get them discounts 14 on their premiums? 15 TIM FOLEY: We are seeing a lot of the 16 reverse. The advice that we give to all of our 17 members is, if upon renewal, they come up with a 18 list of suggestions, those are not suggestions. 19 Those are you absolutely have to do this or you will 20 be non-renewed the next time it comes around. And 21 that can vary from, as the previous panel was 22 talking about, things that have to do with fire 23 mitigation and other measures. That can be 24 something as simple as we walked around your 25 building and we saw three barbecues on three 340 1 balconies in your 100-unit building. If those are 2 here next year, you are getting non-renewed. 3 So there is a tremendous amount of negative 4 feedback about the qualities and factors that you 5 cannot have. What we do not at all have and this is 6 part of the reason why we think this would be a 7 productive step forward, is a sense of the types of 8 discounts that could be applied in such a way that 9 would actually get you benefit within -- that would 10 move you in the right direction. 11 So we think in many ways, that's an untapped 12 field. And to be perfectly honest, it solves a 13 couple of different problems at the same time. 14 It creates a mechanism to make insurance a 15 little bit more affordable. We are certainly 16 nowhere near the level of incentives that we need to 17 invest in retrofitting, particularly for energy 18 efficiency or improved building codes or a whole 19 host of other mitigating factors. It gives another 20 tool within that tool box. 21 And oftentimes, again, if we are trying to 22 move in the direction of making these more 23 sustainable long-term, if something is more energy 24 efficient, it will be more cost efficient over term. 25 It's often hard to balance that long-term investment 341 1 with the short-term expenses that are in front of 2 people. This helps move us in that direction. 3 So because it does all three, it seems like a 4 natural place to go. 5 SENATOR KAVANAGH: And just to be clear. 6 Your proposal is that we expand the range of 7 discounts that are available if people take certain 8 actions that DFS or somebody else determines to be 9 actuarially appropriate. 10 TIM FOLEY: Correct. My review of the law is 11 that only for the hurricane glass. That is the only 12 resiliency feature that is statutorily required to 13 have DFS come up with an actuarially appropriate 14 discount. We would trust DFS on this, obviously 15 rather than, you know, to come up with a fair number 16 for a lot of these other features as well. 17 ANN KORCHAK: One of the toughest things that 18 a lot of small owners face is when you do get the 19 renewal, the list of things you need to address at 20 the building. Like you said, you gave the example 21 of the barbecues, the most common one we see is 22 sidewalk repair. And you know, that never comes on 23 the cheap. 24 It's expensive to get a Mason to come in and, 25 you know, you have to get the permit also from DOT 342 1 and get all that. So in my case, I had that large 2 three-year premium I had to pay up front and also a 3 demand to replace some portions of the sidewalk. 4 SENATOR KAVANAGH: I just have a little bit 5 of time left. But, Tim, you mentioned regulations 6 to require longer term insurance contracts. Can you 7 just talk about how that would work? 8 TIM FOLEY: Actually, that dovetails very 9 well with Ann's anecdote. Where she was able to get 10 the longer term rate lock but only with a pretty 11 severe threshold that she had to meet in terms of 12 payment up front. We know there are some insurance 13 programs that might offer you, say, a two-year 14 contract as opposed to a one-year contract. 15 Part of the reason why we saw such a huge 16 increase in Rockland is their largest rent 17 stabilized landlord did have one of those multiyear 18 things and it came due and there was a huge increase 19 as a direct result. But if it was spread out over a 20 larger number of years, or if there was some way of 21 accomplishing that without the negatives, we think 22 that would help rate lock people. 23 They're doing the same thing with regard to 24 utilities and a whole host of other things. So it's 25 a common tactic to help mitigate some of the more 343 1 unpredictable cost swings. 2 ANN KORCHAK: My three-year plan policy was 3 actually a little bit lower than what I had paid 4 last year. So I actually saw a bit of a decrease in 5 2024 from 2023. It was nominal, maybe $150, but it 6 was -- but, you know, now I have a three-year rate 7 lock. 8 SENATOR KAVANAGH: But in order to get that, 9 you needed to pay up front for the three-year. 10 ANN KORCHAK: Correct. 11 SENATOR KAVANAGH: So you would be suggesting 12 that through regulation or statute we effectively 13 require insurers to all offer multiyear policies 14 where the payments are spread out throughout the 15 term. 16 TIM FOLEY: It is a little bit more sketchy 17 but I think regulation is needed to figure out what 18 is an appropriate tradeoff between the security of 19 the rate lock, short of paying for the whole thing 20 up front. 21 I'm sure there are some policies that could 22 be developed that would make that a little bit more 23 sustainable, particularly for smaller property 24 owners. 25 SENATOR KAVANAGH: I'm past my time. So 344 1 thank you all. 2 SENATOR BAILEY: Thank you very much. So, 3 when you are batting third after these two guys 4 there is not really too much else to say. So I'm 5 not going to ask questions just to ask questions. 6 Senator Kavanagh did ask the tort reform 7 question that you knew was coming. 8 I just want to point to something in your 9 testimony as New York Apartment Association about 10 specifically highlighting the Bronx and other 11 Manhattan's premiums rose 134 percent with some 12 buildings paying more than 3300 per apartment per 13 year. I've asked this question I think to the last 14 couple of panelists. 15 Do you see -- do you or anybody -- see that 16 insurers are walking from certain types of 17 neighborhoods at higher clips than other 18 neighborhoods? 19 SUPERINTENDENT ASROW: Anecdotally, yes, we 20 are seeing that. 21 TIM FOLEY: It is more complicated in 22 Westchester because it would tend to be the entire 23 region rather than a specific neighborhood. We are 24 certainly seeing flight from affordability for sure, 25 even if it is not named as such. We are not seeing 345 1 quite as much migration from specific 2 municipalities. 3 SENATOR BAILEY: Is there a way to parse that 4 data out in Westchester? Is there a way we can 5 collect data? Is that working with the county 6 executive? Is it working with county legislators? 7 Because as you know, I represent the City of Mount 8 Vernon, and you mentioned that some of the higher 9 loss risk buildings in the City of Mount Vernon as 10 opposed to Scarsdale. This is the common AMI 11 reference, the same AMI as in Scarsdale than it is 12 in Mount Vernon, despite the incomes being vastly 13 different. 14 Do you have an idea about data collection? 15 Is that something that we can do at the state or 16 should we be talking with our friends at the county 17 level and how we can parse that data out better? 18 TIM FOLEY: We don't have specific statistics 19 on it because you are right, we don't, generally 20 speaking, have a large reservoir that would percent 21 across different housing types. Part of the reason 22 that we know is just from immediate similar to their 23 owner surveys, from the immediate feedback from our 24 members. And when it is multiple different types of 25 housing -- so when we're talking to co-ops, as well 346 1 as affordable housing, as well as rent stabilized in 2 Mount Vernon and all three of them are seeing the 3 same thing, that's how we know it's geographically 4 inclined. 5 I don't believe that the county has any data 6 collection that is going on within that regard. I 7 would actually see if this was something that 8 perhaps, through DFS or at the state level, we could 9 start to look at particular types of communities 10 versus others. 11 SENATOR BAILEY: Certainly. I'm not trying 12 to make Ken do anymore work. Ken has a lot of work 13 already. 14 TIM FOLEY: I don't think he has the data at 15 his beck and call. I could be mistaken. 16 SENATOR BAILEY: I'm a big fan of our county 17 executive doing great work there. I really don't 18 have much else. Your testimony has been 19 self-explanatory. I don't like to ask perfunctory 20 questions. Thank you for your time and for your 21 testimony. 22 TIM FOLEY: Thank you. 23 SENATOR SKOUFIS: All right. We are going to 24 do some shuffling here of our panels. So due to 25 some time constraints from folks on Panel 10, we are 347 1 going to move them next. And then subsequent to 2 Panel 10, we are going to merge Panels 8 and 9 3 together. So Panel 10 is next. 4 It is made up of Iyla Shornstein, Political 5 Director, Center for Climate Integrity; 6 Elizabeth Derbes, Director Financial Regulation & 7 Climate Risk, Natural Resources Defense Council. 8 And then we will be joined remotely by Dave Jones, 9 Director Climate Risk Initiative, Center for Law, 10 Energy & Environment at the University of 11 California, Berkeley School of Law. And he is also 12 the former insurance Commissioner of California. 13 And last but not least, also joining remotely is 14 Jordan Haedtler, Climate Financial Strategist at the 15 Climate Cabinet Action. 16 Do we have our folks remotely? 17 We are going to swear everybody in, including 18 the couple of folks remotely. So if everyone could 19 please raise their right hand. 20 Do you solemnly swear that you will tell the 21 truth, the whole truth and nothing but the truth? 22 (Witnesses are sworn.) 23 SENATOR SKOUFIS: Thank you very much. Who 24 would like to go first? 25 SENATOR KAVANAGH: I think we will have these 348 1 people go first and then the online and then 2 questions for online and back pending any further 3 questions for these folks. Technical reasons. 4 SENATOR SKOUFIS: Take it away. 5 IYLA SHORNSTEIN: Can you hear me okay? Hi, 6 I'm Iyla Shornstein. Thank you so much for the 7 opportunity to testify in front of your joint 8 committees today. I'm the political director at the 9 Center for Climate Integrity and we are a national 10 non-profit that empowers communities and officials 11 with the knowledge and the tools that they need to 12 hold fossil fuel companies accountable for their 13 deception and for the damage they've caused. 14 So I will be speaking from a slightly 15 different perspective today. 16 And you know, has already been discussed here 17 and from, I know, I think the first testimony today, 18 the DFS acting director said the number one 19 challenge right now is climate risk. So I'm going 20 to speak a lot to the who-is-responsible part of 21 that problem. 22 You know, there is a growing crisis. We 23 don't have to mention it in detail again. But 24 including here in New York, home insurance premiums 25 are going up every year. Twice as fast as the rate 349 1 of inflation. Another disturbing trend is that 2 insurers are canceling people's policies and 3 refusing to issue new ones, citing the risk of 4 worsening extreme weather disasters, like, of course 5 "Hurricane Ida," "Sandy," "Irene." 6 It's not just homeowners being impacted like 7 we've heard. Landlords are paying more to insure 8 their buildings and passing those costs on to 9 renters in the form of higher rents. Rates are also 10 rising for commercial properties, making it even 11 more expensive to operate a small business. And all 12 of this feeds into the growing affordability crisis 13 facing so many New Yorkers today. 14 There is no mystery what is driving this. 15 Insurance companies are having to pay out more and 16 more money to policyholders due to damage from 17 extreme weather disasters that are getting worse 18 with each passing year. 19 There is also no mystery as who is at fault 20 for these harms. Decades of scientific research has 21 shown that fossil fuel pollution is warming the 22 atmosphere and super charging deadly wildfires, 23 floods and storms that are causing billions of 24 dollars in economic damage. 25 The companies responsible for that pollution 350 1 knew decades ago that their products could cause 2 potentially catastrophic events. Those are their 3 own words. But rather than change their business 4 model, they engage in a decades-long campaign to 5 deceive the public about the danger of fossil fuels 6 in order to keep us hooked on them. 7 How is it fair that everyday New Yorkers are 8 shouldering the cost of extreme weather disasters 9 through higher insurance rates, while the companies 10 that cause the problem pay nothing? While there has 11 been a lot of good suggestions here today about how 12 to treat the symptoms of the climate change driven 13 insurance crisis, we are never going to bend the 14 curve of -- we are never going to bend the curve of 15 rising insurance costs without addressing the core 16 driver of higher prices. Worsening climate 17 disasters and extreme weather that big oil knew 18 would be costly and destructive. 19 Senate Bill 8585, sponsored by Senator 20 Kavanagh, would help keep home insurance affordable 21 and available for New York residents by allowing the 22 Attorney General to take the largest oil and gas 23 companies to court to recover the costs stemming 24 from an extreme weather disaster made worse by 25 climate change. Money recovered through litigation 351 1 could be used to bolster the New York Property 2 Insurance Underwriting Association, which is the 3 insurer of last resort for New Yorkers who can't get 4 coverage on the private market. 5 The association currently covers over 22,000 6 homeowners, and represents almost $8 billion in 7 property. Numbers that could quickly balloon 8 following the next climate disaster. We have 9 already seen this in states like Florida and 10 California. 11 Following devastating hurricanes and 12 wildfires, there have been massive spikes in the 13 number of people who can't secure home insurance on 14 the private market and must move to the insurer of 15 last resort plans, AKA, the FAIR Plans. When FAIR 16 Plans are threatened with insolvency, private 17 insurers raise rates or impose surcharges on the 18 rest of their policyholders in the state, raising 19 the cost of insurance for everybody. 20 California's FAIR Plan is right now in the 21 midst of raising its rates on the average 22 policyholder by more than 35 percent. While the 23 rest of the state's homeowners are covering the cost 24 of a billion-dollar emergency bailout needed to keep 25 the plan solvent following LA's wildfires. 352 1 While New York has not yet reached a 2 California or Florida level of crisis, it is one 3 "Hurricane Ida"-level storm away from having the 4 same problem. Huge rate hikes across the state and 5 insurers refusing to cover high-risk properties. 6 According to insurance industry data, the New York 7 metro area is the riskiest location in the country 8 for financial damages from storm surges and 9 hurricane winds. 10 Senate Bill 8585 is a commonsense step to 11 address the growing polycrisis of climate change and 12 affordability by ensuring that the state has every 13 tool in the tool box available to protect New York 14 families from massive insurance rate hikes in the 15 coming years. 16 Instead of allowing the insurance crisis to 17 be born on the backs of everyday people, it would 18 empower the Attorney General to recover the costs of 19 climate disasters from the at-fault companies that 20 knowingly made them worse. There is clear precedent 21 for third parties that cause insurance losses to be 22 held financially accountable for them. 23 When you get rear ended in a traffic 24 collision, your insurance company goes after the 25 other driver in court. When utilities fail to 353 1 maintain their power lines and ignite a wildfire 2 that destroys communities, insurance companies take 3 them to court. 4 This bill would empower the Attorney General 5 to similarly hold the companies fueling climate 6 disasters accountable and defend the interests of 7 everyday New Yorkers following the next disasters. 8 This bill is an important step to ensure that these 9 companies share the financial burden of the climate 10 disasters they know they are fueling. Thank you for 11 the opportunity to testify today. 12 ELIZABETH DERBES: Thank you as well for the 13 opportunity to provide information to the 14 committees. My name is Elizabeth Derbes, I'm 15 Director of Financial Regulation & Climate Risk at 16 the Natural Resources Defense Council, an 17 international non-profit environmental organization. 18 Since 1970 our lawyers, scientists and 19 environmental specialists have worked to protect the 20 world's natural resources, public health and 21 environment. 22 To ensure that insurance remains available 23 and affordable, policymakers and insurers must play 24 a larger role in supporting and incentivizing risk 25 reduction before damage from increasingly frequent 354 1 and severe weather events can lead to insurance 2 claims. 3 By promoting disaster resistant construction, 4 land use standards and infrastructure improvements, 5 insurers and state and local governments can reduce 6 risks of property damage, displacement and long-term 7 housing instability for policyholders. 8 As the committee members know, this issue has 9 broader importance for New Yorkers. What happens 10 when property insurance becomes unavailable or 11 unaffordable? Mortgages, in turn, also can become 12 unavailable as they depend on mortgage property 13 being insured as Federal Reserve Chairman Jerome 14 Powell told Congress earlier this year, if you fast 15 forward 10 or 15 years, there are going to be 16 regions of the country where you can't get a 17 mortgage. If insurance is no longer available, 18 other financial services will also become 19 unavailable. Economic consequences can include 20 increased mortgage defaults and foreclosures, 21 declining property values and declining property tax 22 revenues. 23 As you know, the crisis has already begun in 24 states like California, Louisiana and Florida, where 25 insurance companies have deemed many high risk 355 1 properties to be uninsurable. This can lead to a 2 downward spiral for state insurers of last resort or 3 FAIR Plans as my colleague here mentioned. 4 Mounting losses from extreme weather events 5 leave private insurers to retreat from high risk 6 areas and raise premiums for everyone else. When 7 private insurers decline to renew higher risk 8 policyholders, many of those consumers are forced to 9 move to the state created insurer of last resort or 10 FAIR Plan. These are backed by the private insurers 11 admitted in the state. The states mentioned have 12 seen dramatic increases in FAIR Plan enrollment. 13 Newly enrolled high-risk properties tend to incur 14 more damage than the average property leading to 15 increased claims against the FAIR Plan. These costs 16 are often passed through to the private insurers 17 that back the plan. 18 Where underwriting becomes less profitable, 19 this can prompt private insurers to exit the state. 20 When fewer private insurers remain to back the FAIR 21 Plan, this further concentrates the costs of 22 weather-related property damage in the plan. 23 The cycle continues. Growing enrollment at 24 the FAIR Plan, rising costs passed through to 25 private insurers, and further retreats from the 356 1 state insurance market. 2 We thus feel that risk reduction and hazard 3 mitigation are essential for FAIR Plans and 4 insurance markets more broadly to operate 5 sustainably. Our more detailed written submission 6 references a report on studies showing how 7 properties can be retrofitted for increased 8 resilience to floods, hurricanes and high winds, 9 earthquake and wildfire with analysis showing that 10 the financial benefits of risk reduction efforts far 11 outweigh the costs. 12 States are on the front lines of 13 climate-related catastrophe preparedness and 14 response and many states are introducing innovative 15 programs to reduce physical exposure of housing 16 through regulatory and financial incentives. 17 Some of these have been mentioned in other 18 testimony today. These programs may be funded 19 through general revenue or by contribution from 20 insurers. They can offer cost sharing for physical 21 upgrades to properties, and require insurers to 22 account for these risk reductions in their 23 underwriting models with premium discounts for 24 upgraded properties. Several state insurance 25 regulators have begun collaborating with private 357 1 insurers to harden homes using certified 2 consensus-based standards. 3 Among these, some of these have been 4 mentioned, are the Strengthen Alabama Homes Program 5 which uses the IBHS wind mitigation fortified roof 6 standard that has retrofitted 17,000 homes in 7 Alabama. There are additional fortified state grant 8 programs in Louisiana and North Carolina for 9 upgrading existing roofs to the fortified standard. 10 Florida's My Safe Home Program, to protect homes 11 against wind and hurricanes, which also requires 12 that policyholders be offered discounted insurance 13 rates if they have upgraded their homes. And 14 California's Safe from Wildfires Initiative. 15 New York's Clean Water, Clean Air and Green 16 Jobs Environmental Bond Act of 2022 authorized up to 17 $4.2 billion in state-backed bonds to fund 18 environmental and climate resilience projects 19 statewide. It earmarks funds across four broad 20 categories: Climate change mitigation, restoration 21 and flood risk reduction, water quality 22 infrastructure and land conservation and recreation, 23 with at least 35 percent of its benefits directed to 24 disadvantaged communities. New York must continue 25 to accelerate these programs with an eye to avoiding 358 1 the kind of insurability crisis that has arisen in 2 other states. Insurance will not solve the climate 3 crisis but it can provide a leaver to incentivize 4 the protection of New York communities through more 5 resilient building. This can reduce the 6 vulnerability of homes and neighborhoods leading to 7 safer communities, reduced financial strain on 8 insurers and more affordable access to insurance. 9 Thank you for the opportunity to testify. 10 SENATOR KAVANAGH: We will go to our online 11 testimony now. Jordan, it seems like you just 12 volunteered. 13 JORDAN HAEDTLER: Good afternoon, Chairs 14 Bailey, Kavanagh and Skoufis. My name is Jordan 15 Haedtler and I work on insurance policy at Climate 16 Cabinet Action. 17 Climate change is making insurance less 18 affordable and available throughout the country. 19 Last week, my colleagues and I released a report 20 with nine recommendations for state policymakers to 21 better integrate climate risk into insurance 22 regulation. I would like to highlight several areas 23 where legislation introduced this week, s-8583, is 24 responsive to those recommendations: 25 Number 1: We recommended that states should 359 1 integrate climate resilience into insurance pricing 2 and underwriting. Numerous studies have shown 3 insurance becomes more cost effective with adoption 4 of climate-resilient practices such as ecological 5 forest management and ecological flood plain 6 management. Those can bring down insurance losses 7 substantially. Many expert organizations have 8 recommended that climate adaptation measures be 9 accounted for through insurers' pricing and 10 underwriting practices. 11 Earlier this year, Colorado became the first 12 state in the U.S. to act on this recommendation when 13 it passed legislation requiring insurers to factor 14 community and household mitigation measures into 15 insurance modeling. 16 Passing similar legislation in New York can 17 help foster healthier insurance markets. Homeowners 18 want a clear picture of what mitigation steps will 19 result in more affordable insurance. Compelling 20 greater transparency and risk modeling and 21 clarifying that hazard mitigation is a factor in 22 that modeling will likely yield more responsible 23 actions from governments, insurance companies, and 24 policyholders alike. 25 Secondly: We recommended states should 360 1 collect data to improve our understanding of how 2 climate risk is affecting insurance markets. In 3 January, the Federal Insurance Office published 4 findings from a nationwide climate-related data 5 collection on insurance markets. It is vital that 6 data like this is collected on an ongoing basis and 7 that that data is collected and made more granular 8 and widely available. States can help with this and 9 S-8583 would do exactly that. 10 This legislation specifically addresses one 11 of the most critical gaps in this policy area: How 12 the insurance crisis is impacting renters and 13 hampering the development of more affordable 14 housing. 15 A survey released in March by the Federal 16 Reserve Bank of Minneapolis confirmed that insurance 17 costs are causing stress for multifamily housing. 18 We know this has been a challenge in New York, and 19 in a 2022 report from New York DFS, confirmed that 20 affordable housing owners were asked by insurance 21 companies whether buildings contained subsidized or 22 Section 8 units. The data compelled by s-8583 23 should shed light on what more can be done to 24 support more affordable housing in the midst of our 25 nationwide insurance crisis. 361 1 Finally, our report made a number of 2 recommendations for states to reform their insurer 3 of last resort programs. When the protection gap -- 4 the difference between insured and uninsured 5 losses -- grows, disaster recovery costs borne by 6 governments, businesses and households go up and the 7 economy as a whole can suffer. In order to fulfill 8 the task of stabilizing insurance marks, we need to 9 close the protection gap. 10 There are three major pieces to this puzzle: 11 First: There's the admitted market, where 12 insurers licensed to do business in the state are 13 subject to rate review and solvency regulations. 14 Then there is the residual market, provided by the 15 New York Property Insurance Association, and finally 16 there is the non-admitted market, where surplus 17 lines are not subject to the same regulatory and 18 consumer protections as admitted market policies. 19 Climate change is placing pressure on all 20 three pieces of this puzzle. The data collection 21 that I mentioned before showed a 50 percent increase 22 in the number of residual policies nationally from 23 2018-2022; however, the same data set showed that 24 residual line coverage in the New York PIUA had 25 declined over the same time period. 362 1 Although residual line growth can be a sign 2 of an unhealthy insurance market, shrinking 3 enrollment, like we have seen in the New York PIUA, 4 can also be a bad development. When that happens, 5 policyholders get pushed on to surplus lines or go 6 without insurance entirely which can cause the 7 protection gap to grow. 8 We have data confirming that New Yorkers are 9 becoming more reliant on surplus lines. A recent 10 paper from a Georgetown law professor found that 11 surplus line growth nearly doubled between 2018 and 12 2022 and that New York has consistently ranked in 13 the top four states for surplus line growth. To 14 guard against this trend, better management of the 15 New York PIUA is needed. 16 State insurers of last resort are often 17 characterized as "State run" but they're typically 18 operated with minimal governmental oversight. 19 Because questions of how to close the protection gap 20 and stabilize insurance markets in New York are 21 fundamentally public policy questions, public 22 officials should have a say in how they're decided. 23 S-8583 helps fulfill that objective by increasing 24 the number of public appointees serving on the board 25 of the NYPIUA. I urge the New York Senate to 363 1 support s-8583. Thank you. 2 SENATOR KAVANAGH: Thank you. Dave Jones. 3 DAVE JONES: First, let me see if you can 4 hear me. Are you able to hear me? Terrific. 5 Well, Chairpersons, and members of the Senate 6 Committee, thanks for the opportunity to testify. 7 My name is Dave Jones. I'm the director of the 8 Climate Risk Initiative of the Center for Law, 9 Energy and the Environment. I served as 10 California's Insurance Commissioner from 2011-2018. 11 Insurance is the canary in the coal mine for 12 the climate crisis. And the canary is dying. 13 Climate change is increasing the frequency and 14 severity of natural catastrophes which, in turn, 15 damage and destroy homes and businesses at an 16 unprecedented level. 17 Globally and in the United States, insurance 18 losses from climate driven natural catastrophes 19 continue to climb astronomically. While climate 20 driven catastrophes vary in severity and frequency 21 across the United States, there is virtually no 22 place in the United States that is not experiencing 23 worsening weather-related events. 24 Insurers respond to increased losses in two 25 ways: 364 1 First: They increase the price of insurance. 2 And second and contemporaneously: They 3 reduce their exposure to losses by not renewing 4 insurance policies and not writing new insurance 5 policies. 6 U.S. insurers are doing both. In the last 7 3 years alone home insurance premiums on average 8 rose 24 percent across the country and across the 9 country insurers are not renewing home and small 10 business owners property insurance and they're 11 reducing the issuance of new insurance policies. 12 Now, there is no magic wand that we can wave 13 or regulatory dial that we can turn to keep private 14 insurance available in the long run in the face of 15 rising global temperatures. We need to combat 16 climate change itself, which requires a major 17 transition away from burning fossil fuels and from 18 other greenhouse gas emitting sectors of the 19 economy. At the same time, states like New York can 20 and should take a number of additional steps to help 21 keep insurance available and affordable in the short 22 and mid term. 23 First: One important policy solution to help 24 keep insurance available is to hold the major oil 25 and gas companies accountable for their emissions 365 1 which contribute to the increased frequency and 2 severity of weather-related disasters which are 3 contributing to the increase in insurance company 4 losses and causing insurers to raise rates and 5 decline to write and renew insurance. 6 The writ of subrogation, as was testified to 7 earlier, exists in all insurance contracts and under 8 state law. Insurers have the right to bring suits 9 against third parties whose actions or inactions 10 cause damage or injury to the insured policyholders, 11 which, in turn, causes the insurance company to pay 12 the policyholder. 13 Incentivizing or requiring private insurers 14 in FAIR Plans in residual markets, like the New York 15 Property Insurance Underwriting Association, to 16 pursue subrogation claims against fossil fuel 17 companies, who are creating a new cause of action 18 and enabling them to recover insurance losses from 19 fossil fuel companies who help stabilize insurance 20 markets. And states should also enact legislation 21 authorizing their Attorneys General to bring these 22 claims against fossil fuel companies to recover 23 insurers losses when private insurers decline to 24 bring suit after some reasonable period of time. 25 New York Senate Bill s-8585, sponsored by 366 1 Senator Kavanagh, does exactly that. It establishes 2 a right for insurers through the New York 3 Property Insurance Underwriters Association and the 4 Attorney General to recover from major oil and gas 5 companies for insurance losses resulting from major 6 climatic disasters. 7 In addition, and currently, insurers in the 8 United States are investing over half a trillion 9 dollars in the fossil fuel industry whose emissions 10 are creating an existential challenges for the home 11 and business property insurance market. Globally, 12 28 major property and casualty insurers collect 13 $11.3 billion annually in premiums from insuring the 14 fossil fuel industry. 15 Insurers should end their support through 16 investments in insurance for the very industry that 17 poses a critical threat to their ability to write 18 insurance. Such a move would be far from symbolic. 19 A recent study found that insurers restricting 20 coverage for coal enterprises contributed to a 21 reduction in coal production and burning with 22 essentially no financial impact on the insurers. 23 States should enact legislation to require 24 insurers to transition from insuring and investing 25 in the fossil fuel industry. 367 1 The Insurer Communities Act, New York Senate 2 Bill S-186A, sponsored by Senator Brad 3 Hoylman-Sigal, would do exactly that, by requiring 4 insurers in New York to transition from investments 5 in and writing insurance for the fossil fuel 6 industry. 7 The third policy recommendation I make is 8 that New York should enact laws to require insurers 9 to account for the risk reduction benefits of 10 mitigation in their pricing and underwriting. As 11 Jordan testified to, there is substantial empirical 12 and scientific evidence and a broad-based consensus 13 that adaptation and resilience measures taken at the 14 property, community and landscape scale can reduce 15 the risk and magnitude of lost from climate-driven 16 perils. 17 The Insurance Business Institute for Business 18 and Home Safety, the empirical research arm of the 19 property and casualty insurers, has developed 20 standards for home which reduced the risk of loss 21 due to wildfire, hail, wind and rain. Community and 22 landscape scale resilience measures, including 23 forest management used to prescribe fire and 24 thinning to reduce wildfire risk and nature-based 25 solutions to river and coastal flooding, also reduce 368 1 the risk of loss. 2 However, insurers across the United States 3 are not taking these property, community and 4 landscape scale risk mitigation measures into 5 account and the computer models they use for pricing 6 and deciding whether to write or renew home and 7 small business property insurance, which is 8 extremely frustrating for homeowners, small business 9 property owners, communities and states like 10 New York, which are making investments in adaptation 11 resilience. 12 As Jordan just testified to, just this past 13 year, the State of Colorado grew tired of waiting 14 for insurers to account for risk reduction measures 15 in their pricing and underwriting models and took 16 action. With the support of Colorado Insurance 17 Commissioner Mike Conway, the state enacted 18 HB-25-1182, which requires insurers in Colorado to 19 account for property, community and landscape scale 20 mitigation and the computer models they use to set 21 prices and to decide whether to write or renew 22 insurance. This is the most important property 23 insurance law to be enacted this year and should 24 serve as a model for other states. 25 New York's Senate Bill 8585 -- 8583A 369 1 sponsored by Senator Kavanagh, does exactly this by 2 requiring the models used by insurers in New York to 3 take into account property and community level 4 mitigation measures and requires those models to be 5 provided to the New York Department of Financial 6 Services for review. This bill makes sure that 7 investments made by homeowners, business owners and 8 state are taken into account in insurance pricing 9 and underwriting. 10 Thanks for the opportunity to testify and I 11 submitted more comprehensive remarks in writing. 12 SENATOR KAVANAGH: Thank you both. Thank you 13 all four of you, including our in-person testimony. 14 We are going to, for technical reasons, we're 15 going to address any questions that people on the 16 panel have to the online. And if you have further 17 answers in response to the questions we've asked 18 these folks, you will have an opportunity to answer 19 and also make direct additional questions to the 20 in-person witnesses. 21 So just first, can you -- there are a lot of 22 different mechanisms that states, including 23 New York, have been using to kind of assign the risk 24 and the damage that results from climate change to 25 the fossil fuel industry that caused it, including, 370 1 you know, we passed the Climate Super Fund Act last 2 year. 3 Can you talk about why the insurance system 4 is, among various options, there is also just 5 straight out litigation saying, you know, companies 6 have cost to states and they should pay for it. Can 7 you talk about why embedding these kinds of 8 provisions in the insurance system makes 9 particularly good sense? 10 DAVE JONES: Yes. So the important steps 11 that New York has taken, either through legislation 12 or through litigation to hold the oil and gas 13 industry accountable, are important and are 14 extremely helpful. But they don't go to the losses 15 that insurance companies are incurring as a result 16 of these climate-driven natural catastrophes. And 17 as a result, while laudable, those efforts are not 18 going to contribute to stabilizing the insurance 19 market and helping to reduce the acceleration of 20 rates and reduce the acceleration of non-renewals. 21 So insurance companies do have a right to 22 bring lawsuits against third parties whose actions 23 or inactions cause them damages, as Iyla testified 24 to, but they're not doing so. 25 And so I think the policy challenge then for 371 1 policymakers such as yourselves, is to enact 2 legislation that encourages them to do so, but in 3 the event they don't do so, confers on the Attorney 4 General, the ability to bring those lawsuits, if the 5 insurers are disinclined to do so. 6 And that's the most direct way of making sure 7 that there is some ability to recover from the very 8 industries whose emissions are a major driver of 9 these losses. Some portion of the losses, which can 10 then go towards reducing the acceleration of rates 11 and reducing the tendency to non-renew or not write 12 new insurance. 13 SENATOR KAVANAGH: And for either of you. As 14 we've noted, subrogation is a concept that is not 15 new in insurance law or contract law, but is 16 there -- has there been a reluctance in the past by 17 insurance companies to use subrogation in other 18 context, like one of the witnesses in the room 19 mentioned, or is the reluctance particularly around, 20 kind of, weather and climate events? 21 DAVE JONES: There has been no reluctance to 22 bring subrogation claims in other context. So if 23 you recall, health insurers brought subrogation 24 claims against big opioid for health insurance 25 payments associated with opioid addiction treatment. 372 1 Health insurers brought subrogation claims against 2 big tobacco for health insurance payments associated 3 with respiratory illness treatment. And property 4 and casualty insurers have brought subrogation 5 claims against utilities whose equipment started 6 wildfires or caused other damages. In 2018, the 7 campfire was started by the California utility 8 Pacific Gas & Electric and subrogation claims were 9 brought to recover 11 billion of the $12.6 billion 10 paid out by insurers for the campfire which 11 destroyed about 18,000 structures. So there has 12 been no lack of appetite to bring subrogation claims 13 in other context. It's just not happening in this 14 context. 15 And so, I think that's why there is a need 16 for state law to further encourage, incentivize or 17 create a clear pathway for insurers to bring these 18 claims, to create duties on the insurers of last 19 resort, the FAIR Plans and residual markets, which 20 are state created entities to bring these claims. 21 And also to empower your Attorneys General to 22 bring the claims in the event that the insurers are 23 not bringing the claims. 24 SENATOR KAVANAGH: And just shifting gears a 25 little bit. On the issue of activities that or 373 1 aspects of property that can be retrofitted or 2 installed, that reduce risk, you know, as you note, 3 there are some states that have begun to mandate 4 that. We have a couple of mandates in New York 5 around shatterproof glass and storm shutters and we 6 have been talking, including through proposed 7 legislation, about expanding that. We had our 8 superintendent earlier today talking about an effort 9 that is currently underway with DFS to kind of 10 catalog the different incentives that are offered 11 and the discounts that are offered by various 12 companies and kind of play a greater role in 13 ensuring that property owners and policyholders are 14 aware of those. 15 Are you aware of, from your work, you know, 16 reviewing insurance systems in other states -- aware 17 of any state that does that particularly well that 18 makes sure that policyholders or property owners 19 have clear information about what discounts are 20 being offered? 21 DAVE JONES: Well, I think the best example 22 of this is the law that was recently passed in 23 Colorado that will both require more transparency, 24 as well as requiring the computer models themselves 25 to account for property level, community level and 374 1 landscape scale mitigation both in pricing and in 2 underwriting. 3 Now there are some states that have also 4 implemented discounts. California has a discount 5 for home hardening and defensible space and for 6 being in a firewise community related to the 7 wildfire peril. Alabama has a mandated discount for 8 the fortified home standard associated with wind and 9 a couple of other states have also, you know, moved 10 down the road of discounts. 11 Discounts are terrific, but what you also 12 want, is you want to make sure that the models that 13 are used to decide whether to write and renew 14 insurance also account for the mitigation measures. 15 Because getting a discount is great, but if the 16 insurer won't write or renew the insurance for you 17 because the risk score model they're using doesn't 18 account for mitigation, then the discount is 19 meaningless. 20 And even within the context of discounts, 21 because in most states -- and I think this is true 22 in New York as well -- when insurers file their 23 rates, they basically come forward with a base rate. 24 But they're also entitled to provide for what is 25 called rate segmentation or rate relativities across 375 1 different classes of exposure based on risk. And 2 they do that based on models. So while the discount 3 might be offered, it's not necessarily the case that 4 the discount is fully capturing the risk reduction 5 benefit that would be afforded if the models 6 accounted for it and if the rate relativities were 7 required to account for it, too. 8 So even in the context of pricing, getting it 9 into the models is, you know, a supplement to and an 10 additional benefit in addition to the discount. But 11 really you want it in both and that's what Colorado 12 has done and that's what you are proposing in your 13 legislation, in both the models for underwriting and 14 for pricing. The models used to decide whether to 15 write and renew and to price have to take into 16 account property, community and landscape scale 17 mitigation. 18 SENATOR KAVANAGH: I think I will end there 19 asking questions of all of you because we are very 20 tight on time. Let me just ask Jordan if you have 21 anything else to add to any of the questions we have 22 discussed so far. 23 JORDAN HAEDTLER: I will answer two quick 24 additions to everything Dave went over. First on 25 the second question that you asked. 376 1 Colorado was investing hundreds of millions 2 of dollars in mitigation. And Boulder County alone 3 was spending $9 million annually to make communities 4 safer from wildfires. But Coloradans were not 5 really seeing the benefits of that in a more 6 affordable or accessible insurance market and 7 Coloradans were paying nearly $2,000 above the 8 national average. 9 That's why county governments and even some 10 rural counties were some of the strongest advocates 11 for making this change. 12 We also heard, to your point, there aren't 13 really states that catalog those discounts well, 14 although I would also add that community-level 15 investments go a lot further than individual 16 fortification measures. And we need to be 17 incentivizing those by governments more than ever, 18 especially in the wake of this federal retreat that 19 we are seeing. 20 But what we heard throughout the process of 21 passing the bill in Colorado was that homeowners 22 really weren't getting the information that they 23 needed to take the mitigation steps that they wanted 24 to take. And that in some cases, they were seeing 25 that their neighbors wildfire risk score was vastly 377 1 different from theirs, even though they obviously 2 lived in the same neighborhood and in some cases had 3 made very similar steps to harden their home. So 4 that's why more transparency in these models is 5 crucial. 6 And then to go back to the very first 7 question that you asked, I would say that the 8 biggest reason why we're seeing climate risk serve 9 as the key channel -- or insurance, rather, serving 10 as the key channel spreading climate risk throughout 11 the financial system, is that insurance companies 12 are massive institutional investors. They're some 13 of the biggest players in corporate muni bond 14 markets, et cetera, which make them hugely 15 interconnected to the rest of the financial systems. 16 So that's why it's really crucial to incorporate 17 climate risk management into their role as players 18 in the economy. 19 And so a plug also to the Insure Our 20 Communities Act which Dave mentioned which has also 21 been introduced in New York because insurance -- the 22 insurance industry has known about the risks that 23 climate change poses for decades. About as long as 24 the fossil fuel industry has. And really has not 25 pared back their investments and underwriting in 378 1 fossil fuels. And the Insure Our Communities Act 2 would require insurance companies to adopt 3 science-based targets for how they're -- how they're 4 involved in both the underwriting and investment 5 side. 6 SENATOR KAVANAGH: I don't know if you guys 7 can see the clock. My time is up. So I think 8 Senator Skoufis is good. So I think we have no 9 further questions for our online participants. But 10 thank you for appearing remotely and thank you for 11 all the work you are doing around the country on 12 these issues. We appreciate it. 13 So I guess this technically counts as 14 Kavanagh overtime now. But just let me just start 15 with the few questions on the table if you just want 16 to... 17 ELIZABETH DERBES: I wanted to add that, to 18 your question about states that are doing it 19 particularly well -- and I don't have the details to 20 hand -- but your excellent staff may already have 21 them or we are happy to look into it for you. But I 22 think North Carolina's FAIR Plan has been kind of a 23 leader in a number of these things. And I thought I 24 would just offer a gloss, too, that with respect to 25 the fortified roofs, I think they found that it was 379 1 challenging to get uptake on discounts for new roofs 2 because a new roof is still a big expense. And one 3 program that they found successful is to offer, in 4 their policies, an endorsement for a new roof once 5 you lose your roof. So at the point that you need 6 to replace your roof, and you have an insurance 7 payout, at that point, you get the financial support 8 to put in a fortified roof and they have found that 9 quite successful. 10 SENATOR KAVANAGH: Great. 11 IYLA SHORNSTEIN: To the question about, sort 12 of, inferring if there is some precedent for 13 insurers to bring claims against other responsible 14 parties, why have they not yet brought claims 15 against fossil fuel producers. And I would never, 16 you know, pretend to speak for the insurers 17 themselves but I think this is probably a little bit 18 of a simple case of follow the money. It has been 19 reported that the insurance industry has over half a 20 trillion dollars invested in fossil fuels. So I 21 think if we follow the money trail, we might get 22 some answers there, too. 23 SENATOR KAVANAGH: They might be suing 24 themselves. Interesting. Just -- you mentioned 25 Elizabeth you mentioned the Florida -- I forget 380 1 happy homes or something. 2 ELIZABETH DERBES: Florida, yes, My Safe 3 Home. 4 SENATOR KAVANAGH: That's why they don't let 5 me name things. That was something that was enacted 6 by the Florida State legislature? 7 ELIZABETH DERBES: Yes. My understanding is 8 it requires insurance companies who operate in 9 Florida to offer policyholders a discount on their 10 wind insurance rates if they have upgraded their 11 homes to the standard. 12 SENATOR KAVANAGH: So just to note, this 13 isn't happening just in places where we have, you 14 know, otherwise a strong commitment and climate and 15 other... 16 ELIZABETH DERBES: Yes. 17 SENATOR KAVANAGH: Again, I appreciate all of 18 your testimony and expertise and we have lots of 19 written material including your testimony today. 20 But I think we'll end here since I'm, you know, into 21 my overtime. But, again, thank you very much for 22 your input and for all your testimony and thank you 23 to our online folks as well. 24 SENATOR SKOUFIS: So next up we have our 25 consolidated super panel, 8 and 9. Housing policy 381 1 organizations, made up of Patrick Boyle, Senior 2 Director Policies and Communications at Enterprise 3 Community Partners; Rachel Fee, Executive Director 4 of the New York Housing Conference; Emily Klein, 5 Assistant Vice President, Deputy Director for Policy 6 and Public Affairs at the Community Preservation 7 Corporation. 8 And from Panel 9, John Crotty, President of 9 Milford Street Association Insurance Company. 10 Thank you all for joining us. Once you get 11 settled, I will swear you all in. All the placards 12 are set. Nice to see all of you. If you could 13 please raise your right hands for me. 14 Do you solemnly swear that you'll tell the 15 truth, the whole truth, and nothing but the truth? 16 (Witnesses sworn.) 17 SENATOR SKOUFIS: Thank you very much. Who 18 wants to bat leadoff here? Take it away. 19 PATRICK BOYLE: Thank you so much. My name 20 is Patrick Boyle and I'm the Senior Director Policy 21 Communications for the New York Office of Enterprise 22 Community Partners. Since our New York office 23 opened in 1987, we have committed more than 24 $5.7 billion in equity loans and grants to 25 affordable housing and community organizations to 382 1 create or preserve nearly 84,000 affordable homes 2 across New York State. On behalf of Enterprise, we 3 would like to thank the Chairs for holding this 4 important hearing and for the opportunity to testify 5 today. 6 Over the past 2-years, Enterprise has been 7 leading a diverse working group focused on insurance 8 challenges and affordable housing. The group is 9 made up of affordable housing developers and owners 10 operators, brokers, policy and advocacy 11 organizations and risk management experts. We 12 organized this group because we have seen firsthand 13 the crisis in multifamily insurance in the realm of 14 affordable housing. 15 What was once considered a predictable and 16 steady project expense has seen rapid escalations in 17 price. Brokers working to get bids on insurance 18 policies for projects are getting fewer and fewer 19 responses. Projects are being dropped at renewal 20 and carriers willing to write policies for 21 affordable housing are insisting on higher 22 deductibles and more exclusions than what they're 23 willing to cover. 24 What we have learned over the 2 years of 25 convening this working group is that for an issue as 383 1 complex as multifamily insurance, there is no single 2 solution. 3 The state must advance a package of 4 solutions percent achieve better data and 5 transparency, reduce runaway cost drivers on the 6 liability front, bolster insurance participation in 7 low income communities and fund risk mitigation 8 measures while ensuring that these measures are 9 credited by insurance carriers. 10 A little bit about the data and the impact. 11 Last month, Enterprise released an important report 12 on expense challenges in affordable housing. We 13 combined our asset management portfolios with our 14 counterparts at the National Equity Fund, LISC, 15 leading to a data set of 428, 100 percent affordable 16 housing projects and over 37,000 affordable units 17 statewide. We assessed these projects' expenses and 18 financial performance from 2017 to 2024. 19 The results were pretty striking. A lot of 20 what we have heard from other panelists today. 21 Insurance costs have risen 110 percent overall on 22 the 100 percent affordable portfolio since 2017. 23 And along with other rising expenses, reduced income 24 on the rent collection side, the major takeaway from 25 this report was that 57 percent of the affordable 384 1 housing projects that we study and that are under 2 our asset management are running operating deficits 3 or cash flowing negatively. So this is a major 4 uptick over the years prior to the pandemic, driven 5 kind of most centrally by that rapid increase in 6 insurance alongside other challenges. 7 So this is what has led us to really be 8 focus percent around insurance, as a number of the 9 other panelists have said today from kind of coming 10 from the affordable housing space, we are not 11 insurance experts. We are newer to this issue. 12 We're driven to the issue based on the fact that it 13 has become so prominent and such a cost driver for 14 us. But over these past few years of conversation, 15 talking to people who are experts, talking to those 16 in the affordable housing space and what they see, 17 we wanted to propose some solutions, a lot of which 18 have been highlighted by other groups in different 19 ways. 20 We really need to improve data and 21 transparency. That has been really clear throughout 22 today. Regardless of the report that was released 23 by DFS in 2022, and a number of other attempts to 24 study this issue, we still have really fundamental 25 questions that I think we have kind of heard 385 1 threaded throughout today's testimony. 2 How much of the rise in insurance rates for 3 multifamily housing is due to global factors like 4 climate-related losses, versus tangible and sort of 5 local factors to the project bases, like claims and 6 losses. How do insurance rates for subsidized 7 affordable housing compare with market rate 8 multifamily housing in similar geographies and 9 building profiles and what has been the impact of 10 the 2024 change in the law banning insurance 11 carriers from discriminating against affordable 12 housing? How many complaints have been brought? 13 How many enforcement actions have been taken? Has 14 there been an expansion of the insurance carrier 15 marketplace as a result? 16 So, you know, a lot more data is needed for 17 us to be making the most sound policy decisions and 18 in our testimony we call out some existing 19 legislation on the Assembly side, which would do 20 some of that. 21 We have heard a lot today about risk 22 mitigation strategies. And we agree it's important 23 to fund those and then to ensure that those risk 24 mitigation strategies are credited by insurance 25 companies. 386 1 So, you know, we've heard a lot from owners 2 that are doing creative things around fire 3 suppressants, water detection. The biggest drivers 4 of losses on the property side, as well as things on 5 the liability side. Investing in cameras, coverage, 6 lighting, camera storage. So cameras that are 7 storing data for longer periods of time that allow 8 you to challenge claims. 9 Owners that do this, you know, report to us 10 that they don't really see in a direct way that 11 being credited by companies. 12 The rest of our testimony points to some of 13 the other solutions that we highlight. 14 SENATOR SKOUFIS: Thank you very much. 15 We will definitely take a look at them. Next 16 up, Ms. Fee. We'll go down the line. 17 RACHEL FEE: Hi, everybody. My name is 18 Rachel Fee. I'm the Executive Director of the 19 New York Housing Conference, an affordable housing 20 policy and advocacy organization. Thank you for 21 this opportunity to testify on this really important 22 topic. 23 Much of my testimony aligns with Patrick. 24 I'm a member of his working group. Also have been 25 working with CPC and John Crotty for the past couple 387 1 of years. So maybe I'll emphasize more on why this 2 issue is so important and some of the, you know, 3 solutions I think we have agreement on. 4 Data shows that about half of affordable 5 housing nearly is -- buildings in New York City are 6 experiencing operating deficits where rents are not 7 covering expenses, including insurance costs. 8 Policy interventions are required to prevent these 9 buildings from defaulting on their loans. So there 10 is a lot at risk if we are not solving this problem. 11 In 2024, we released a policy brief. The 12 alarming risk of rising insurance costs for 13 affordable housing, it was referenced many times by 14 other witnesses today. And we showed that that 15 brief examined property and liability insurance data 16 from 18 partners covering 130,000 units of 17 affordable housing and mixed income housing. We 18 found that costs have skyrocketed while coverage has 19 decreased. This was particularly true for 20 affordable housing units where premiums increased 21 103 percent between 2019 and 2023. 22 Rising insurance rates impact a building's 23 cash flow. Our data shows that costs have increased 24 on average by 900 per unit over the last 4-years, 25 decreasing cash flow by about 60 percent in a 388 1 100-unit building that we modeled. If left 2 unchecked, skyrocketing premiums will make rental 3 housing even more unaffordable for New Yorkers and 4 put the existing affordable housing at financial 5 risk. I would argue it is already at risk when half 6 of the buildings are running operating deficits. 7 For new affordable housing development, and 8 this came up from a question from Senator Bailey 9 earlier, we found that rising insurance costs are 10 being absorbed by higher subsidy rates at initial 11 underwriting. So this 900 increase per unit that we 12 had calculated over a four-year period, translates 13 into $10,700 of additional subsidy for each new 14 construction of affordable housing unit. So the 15 City of New York or the state housing program, they 16 are subsidizing these rising costs. And then once 17 the buildings are operating, building operators 18 cannot keep up with the rising costs that they were 19 underwritten to, which are, you know, these 20 increases are far beyond the 3 percent in expenses 21 anticipated of total cost growth each year. So that 22 poses a significant policy problem. 23 I also want to point out it's impacting how 24 we are addressing the preservation of affordable 25 housing. One of our non-profit partners in the 389 1 Bronx, leading on preservation for 40 years -- this 2 is like the work that they do -- they said that they 3 are reluctant to take on another preservation 4 project with code violations, an existing occupied 5 building in need of rehab work because it will 6 impact their insurance rates. And they just can't 7 afford it. So what does that mean for housing 8 quality in our city and the preservation of housing 9 in distress? 10 So we support policy interventions, a package 11 like Patrick said. We don't think it's one thing 12 that is going to fix this. We are supportive of 13 immediate relief through an affordable housing 14 relief fund. Thank you to Senator Bailey and 15 Assembly Member Torres for that. We also support 16 more transparency and accountability around data 17 collection. Two bills in the Assembly that were 18 already mentioned. We also support an exemption of 19 affordable housing from Scaffold Law and we are also 20 interested in how tort reform can fit into this 21 picture. 22 You know, some of these short-term measures 23 of relief, if they don't come fix the structural 24 problems we have, we still have the same problem. 25 We also are supportive of disclosing Third Party 390 1 Litigation Funding. Getting to some of the 2 advertising that was discussed earlier, as well. 3 And we think generally this market needs to be more 4 competitive and more attractive to insurance 5 companies, so that we have more competition and 6 pricing can come down. We are supportive of risk 7 share models, excess liability fund. We are also 8 supportive of public investment in Milford Street 9 insurance captive for affordable housing and... 10 we'll hear more solutions but I think a package of 11 solutions is what we are interested in. 12 SENATOR SKOUFIS: Thank you, Ms. Klein. 13 EMILY KLEIN: Thank you, Senators Bailey, 14 Kavanagh and Skoufis for convening this hearing and 15 providing the opportunity to speak today. My name 16 is Emily Klein. I'm the assistant Vice President 17 and Deputy Director for Policy and Public Affairs at 18 the Community Preservation Corporation, a 19 51-year-old non-profit community development finance 20 institution that has invested over $16 billion to 21 finance the creation and preservation of 275,000 22 units of housing through our lending and investing 23 platforms. 24 As has been mentioned many times today, 25 according to a 2022 study by the New York State 391 1 Department of Financial Services, the U.S. insurance 2 market has experienced a significant hardening in 3 recent years, characterized by an increased demand 4 for insurance, fewer coverage options and steady and 5 significant rate increases. Through CPC's annual 6 survey of borrowers expenses, we clearly see the 7 dynamic playing out across the properties that we 8 finance in New York State. 9 Our most recent survey collected 2024 10 expenses from 12,650 rent stabilized units in 11 New York City. Since 2020, insurance has risen 12 61 percent cumulatively, reaching an average cost of 13 $1636 per unit in 2024 with a 23 percent jump from 14 2022 to 2023 alone. This escalation has been 15 particularly acute in the Bronx, where premium 16 amounts per unit average $200 greater than the other 17 boroughs. Similarly, buildings in our servicing 18 portfolio in New York State, excluding 19 New York City, have seen a 76 percent increase in 20 insurance costs from 2020 to 2024, reaching an 21 average of $1005 per unit in 2024. Both upstate and 22 downstate, insurance costs now account for 23 16 percent of the total per unit expenses. 24 There are numerous factors that contribute to 25 the cost and availability of insurance in a given 392 1 geography which make it hard to holistically 2 diagnose the causes of this problem. 3 Influencing factors can include both 4 legitimate challenges, like climate change and price 5 inflation, and other more intangible and potentially 6 nefarious factors like Third Party Litigation 7 Funding, insurance provider withdrawal, burdensome 8 regulatory environments and intractable 9 discrimination. These factors combined have led to 10 the unchecked escalation of insurance costs 11 throughout New York State and specifically in parts 12 of New York City. 13 Without regulatory frameworks, like the 14 Community Reinvestment Act which requires financial 15 institutions to invest across geographies regardless 16 of a community's financial strength, insurance 17 providers have no mandate to provide coverage 18 equitably across communities. If they determine a 19 state, city, neighborhood, block or building too 20 risky for any reason, they can charge exorbitant 21 rates or refuse to provide coverage all together. 22 And since multifamily buildings are required to have 23 insurance nonetheless, remaining providers can 24 charge high rates because there is no competition. 25 These compounding inequities leave the most 393 1 vulnerable with the least comprehensive and most 2 costly protection. 3 In light of the challenges of continuous cost 4 escalation and the growing consensus around the need 5 for tactical policy responses, we recommend 6 exploring the following solutions: 7 First: Reward risk mitigation with premium 8 relief. Similar to how car insurance rewards good 9 driving behavior by lowering premiums as mentioned 10 earlier by NYSAFAH, the state should encourage 11 insurance providers to factor risk mitigation 12 efforts into pricing and offer lower premiums 13 contingent upon certain risk mitigation efforts. 14 Second: Require disclosure of Third Party 15 Litigation Funding, or TPLF. TPLF allows third 16 parties such as hedge funds and other financiers to 17 provide funding for a plaintiff's case in exchange 18 for a percentage of the settlement or judgment. 19 While this practice is relatively new in the U.S., 20 TPLF is already impacting the insurance industry, 21 enabling prolonged legal battles and increasing the 22 frequency and size of very large or "Nuclear 23 verdicts" which then drive up premiums. 24 Disclosure of and data on TPLF should be 25 required in New York so that relevant oversight 394 1 bodies can dimension, monitor, and if needed, 2 interrupt the impact of this practice. 3 Third: Create a Scaffold Law carve-out for 4 affordable housing. New York State's regulatory 5 environment around risk and liability is incredibly 6 complex with entrenched parties on all sides that 7 make comprehensive reform difficult. In the absence 8 of such state tort reform, the state should explore 9 avenues for a Scaffold Law carve-out for affordable 10 housing projects. 11 And lastly: Explore public insurance program 12 for affordable housing. Similar to how the National 13 Flood Insurance Program has stepped in to provide 14 insurance to properties that would otherwise 15 struggle to find sufficient and affordable coverage, 16 so, too, can New York State step in to create a 17 publicly funded property insurance program. We 18 recommend the state undertake a feasibility study to 19 assess the role, cost and potential impacts of a 20 public insurance program for affordable multifamily 21 housing. 22 These recommendations and others shared today 23 provide pathways to better understanding the drivers 24 and impacts of the insurance cost escalation and 25 will be essential to inform the solutions. Thank 395 1 you for the opportunity to testify and I'm happy to 2 answer any questions. 3 SENATOR SKOUFIS: Perfect timing. 4 Last but not least, Mr. Crotty. 5 JOHN CROTTY: Thank you all for having me 6 here. And I can say it is a great honor to testify 7 with these people on this panel. They have all been 8 very helpful in what has been a long and arduous 9 thing. Their support has meant a lot to me and to 10 the effort in general. So it's fitting that we are 11 all here together. Thank you all very much for 12 having us here. 13 The issue here will determine whether 14 affordable housing in New York remains economically 15 viable and will shape our shared priorities for the 16 years ahead. 17 We started the Milford Street Association to 18 confront what is the single biggest operational 19 threat to affordable housing. Insurance costs 20 driven by unimaginable and increasingly aggressive 21 liability environment. 22 If affordable housing is a priority, then we 23 must confront this issue directly and with full 24 clarity. Affordable housing relies on slow rents 25 and relatively stable expenses. Yet across the 396 1 board, expenses have increased. Insurance has grown 2 far beyond the pace of rental increases. 3 They have absorbed the entire operating 4 margins. A few years ago, as you have heard before, 5 insurance for an affordable building cost about $500 6 a unit. You are now at 1500 plus a unit, and you've 7 heard stories significantly higher than that. It's 8 about 21 percent per year. If you look at the Rent 9 Guidelines Board, which is a largely unpolitical 10 document, and put those increases in, you will see 11 the number is closer to 540 percent. 12 That's not me telling you. It's the preocc 13 (sic). Right? 14 Milford came about as a creation of a number 15 of operators sitting around and complaining. We are 16 very good at it. So just ask me any issue and we'll 17 tell you what is wrong with it. But at this point, 18 it was really kind of a traumatic experience for all 19 of us and we were looking forward and not 20 understanding what the future was going to look 21 like. 22 So we took this all and we went to Dick 23 Ravitch, who is one of the great New Yorkers of all 24 time and said Dick, we have this problem. And in 25 typical Dick fashion, he said, boy, you know, that 397 1 sounds tough. Prove it. 2 So what we did was we got our losses 3 together. We went out to an actuary and gave them 4 our losses. A world-renowned actuary in New Jersey. 5 And they came back and said you are paying more than 6 you should. 7 We took that information as proof of the 8 hypothesis. And went out to create this captive. 9 It was created in a certain way to address a certain 10 need, namely affordable housing. So we built 11 partnerships with regulators, brokers, actuaries, 12 accountants, politicians, thought leaders, whoever 13 would listen and put this group together. And 14 something government probably should have done and 15 frankly that was my first instinct because I didn't 16 really want to do this but was to go to HFA and say 17 this is something you should do. And some old 18 colleagues there said you should go do it. I said, 19 okay, well, you know, I'm going to. And when I do, 20 you better help. And they have come through on that 21 somewhat. 22 But the city and state, as you already know, 23 have invested more than $3 billion a year every year 24 for the last 20 plus years in this. I don't know 25 what the total size of the investment is. Someone 398 1 at OMB could tell you. It exceeds $100 billion. 2 But if we don't get this under control, we 3 will have wasted all that money. And we are seeing 4 it happen now. You have heard from a variety of 5 other operators. The spikes in premium, the need 6 for capital repairs that are going unfunded and a 7 variety of other issues associated with spending an 8 ever increasing amount of your budget on insurance. 9 I also shared with you, Senators, today, we 10 teamed up with an AI company, and that AI company 11 took every claim and case in the New York State 12 system and produced some really meaningful data. In 13 there you will see the aggregation of the data by 14 category and by court. And what you will notice in 15 there, is that on the third or fourth page -- I 16 forget which -- using an estimate of about $50,000 a 17 case, we have at least $4 billion worth of liability 18 to manage. That's just a fact. You want to say 19 50,000 is wrong. The trial lawyers were here. They 20 can come up with a number. You can go ask them. 21 But you know, it's a number. I don't think it's a 22 bad number. 23 As part of running Milford, we have now 24 gotten to see a lot of loss runs from different 25 carriers. We only do affordable. So we've gotten 399 1 some trends and understood some stuff. 2 So the combination of the data you have in 3 front of you, some of the other data we put 4 together, clearly highlight the problem and what is 5 needed to sort of do it. You have heard a lot of 6 good suggestions here today. Most of them I agree 7 with. I think they make a lot sense. But the key 8 driver of this cost is really what we end up paying 9 for what we do. 10 And you have to think about what that means. 11 Tort reform is a big word. But the practical 12 execution of it is really significant. I talk a 13 little bit as well in here about third party 14 financing, which is also big. You will notice in 15 your packet that I gave you, there is some data 16 around that and some impacts of what happened, two 17 different court cases, two moments I would like to 18 share with you. I can tell my time is getting short 19 here. 20 Government has been somewhat supportive. 21 Governor Hochul has given the captive $2 million 22 which I was hoping to say was executed by here. It 23 wasn't. But it will be shortly. And Mayor-Elect 24 Mamdani has also talked quite a bit about working 25 with groups like Milford and we are very excited 400 1 about that because we are right. People have 2 mistaken over time that somehow this is my thing or 3 our thing. We created it as an open-ended 4 association captive so call could participate. This 5 is not a John Crotty problem. I have many, this is 6 not only one of them; however, the industry really 7 has to deal with this. And we are going to need 8 your help to come up with a comprehensive solution 9 that will not only work today but work going forward 10 that we are in a major pickle. And there is not a 11 very easy way out of it. So with that, I'll thank 12 you. 13 SENATOR SKOUFIS: Thank you very much, 14 Mr. Crotty. I will kick things off and I want to 15 kick things off by not speaking about a John Crotty 16 problem but a John Crotty solution. How much is 17 your captive saving you and your colleagues? 18 JOHN CROTTY: That's a hard question to 19 answer. Up front -- the best way to answer it is 20 this and I'll explain why. 21 Figure the P&L, the profit motivation on 22 insurers is north of probably 35 percent. The 23 reason I say that, is the structure of insurance is 24 finance. 25 The broker is good for about 10 percent. The 401 1 regional broker, the sort of the larger wholesaler 2 is good for 7. That's 17. And then the insurance 3 company, the people writing the paper, you know, 4 they want 10 to 15 to 20 percent. 5 So off the bat, you are sort of at a number 6 of about 20 percent. But that would be only half of 7 the story because in a captive, you pay money in for 8 year one. There is a three-year liability period 9 that extends after that initial period, where a 10 claim can be brought. At the end of that period, 11 you can assess, within the captive, what has been 12 spent based on that first year's worth of premium. 13 If there is an example of no claims, and they 14 paid $100 in, you could probably apply a large 15 majority of that $100 to the fourth year renewal and 16 then I could answer more accurately what are you 17 saving. 18 Up front 15 to 20 percent. Overall, could be 19 as high as 50 and 60. We just don't know. 20 SENATOR SKOUFIS: Those are big numbers. 21 JOHN CROTTY: They're meaningful. It is 22 stability to the operator and it is why I have put 23 in all this time and others have put in all this 24 time to get to this point. We're not going to 25 survive without a significantly better solution. 402 1 SENATOR SKOUFIS: I know we put a couple 2 of -- and you mentioned it -- a couple of dollars 3 with HCR to sort of, and I think it's out for bid 4 right now. 5 SENATOR KAVANAGH: Two different things. 6 JOHN CROTTY: There are two numbers. ESDC 7 voted upon and gave us $2 million for the captive. 8 SENATOR SKOUFIS: That's separate from what 9 I'm talking about. 10 JOHN CROTTY: Separate, yes. 11 SENATOR SKOUFIS: So why haven't we seen more 12 captives? These are big numbers. Is it just that 13 it's really hard to do? And if that is the case, 14 what can we do as legislators to make it less hard 15 to do? 16 JOHN CROTTY: So, you know, I read 17 sometimes, mostly I listen to books on tape. And 18 one of the great stories I've read is, you know, 19 Martin Luther King wrote this speech called The But 20 If. And it's about the young boys when they got 21 killed down there and he was talking about their 22 faith. And towards the end of it, he gives a speech 23 about how you have to stand up for what's right. 24 And what is going on. We run an affordable housing 25 company. We have done some very difficult projects. 403 1 As someone was saying earlier -- I think it was 2 Rachel -- but forgive me if it wasn't. Operators 3 that go in to take broken properties will not look 4 at new stuff because they can't afford the 5 liability. We weren't that smart. We had no idea 6 and it might not have been that big an issue at that 7 time. 8 But I will tell you, because we were willing 9 to do that, amongst the things we've saved, up in 10 the Bronx quite a bit, one of which is the 11 birthplace of hip-hop, which have been lost to 12 history if not for us going in and doing something 13 about it. And it has been a very meaningful 14 development. 15 So the long-winded answer is, if you see a 16 problem and you think you have the capacity to fix 17 it, you should do it. And you should do it no 18 matter what the cost. 19 SENATOR SKOUFIS: Were there statutory 20 barriers, were there regulatory barriers that we 21 should be looking at? 22 JOHN CROTTY: Yes. Statutory, regulatory, 23 systematic, people wise, overall mentality. 24 SENATOR SKOUFIS: In the interest of time, 25 can you follow up with us and identify what those 404 1 barriers are that we can try and address? 2 JOHN CROTTY: 100 percent. That would be 3 great. 4 SENATOR SKOUFIS: For all of you, I suppose, 5 a lot has been talked about regarding discounts 6 today and whether we should require them, whether 7 carriers are offering them. I remain very concerned 8 that there are many, many discounts that are 9 available that people have no idea know exist. And 10 I'm curious, your members, your peers, can you give 11 me a sense of what your sense is regarding their 12 awareness of discounts that do exist with some of 13 the common carriers that your members are 14 policyholders of? 15 PATRICK BOYLE: Yes. I think one thing that 16 has been clear to us in our conversation with 17 affordable housing owners, is a lot depends on the 18 strength of your relationship with your broker, the 19 capacity you have to really dedicate time and effort 20 into kind of studying your own insurance and what 21 benefits might be available to you. And a lot of 22 affordable housing owners are so strapped in their 23 time and in their resources that I think they lack 24 the capacity to kind of be able to do that research. 25 We had not understood that there were a lot 405 1 of existing -- or really any significant existing 2 discounts out there. We have known -- I've seen the 3 checklist on the single-family homeowner side. 4 For multifamily, I understood it to be a much 5 sort of shorter list of kind of DFS mandated actions 6 on discounts. And to the extent that there are 7 others out there that might depend on the carrier, 8 it probably would depend a lot on the relationship 9 owners have with their brokers and their ability to 10 chase that down. But anything to bring those more 11 out into the open would be great. 12 RACHEL FEE: We interviewed 18 different 13 affordable housing owner and operators, and many of 14 them reported that they were required to increase in 15 investment in risk mitigation efforts, just to get a 16 renewal policy. So we have not heard of, you know, 17 do x, y and z and you get a 20 percent discount. 18 It's there are no other market options and this is 19 what you need to do just to renew. 20 JOHN CROTTY: It's worth noting the process. 21 When you drive down the street and you go by a gas 22 station, if they don't produce the pricing at the 23 front of it, there are laws against that. They say 24 hey, you want this level of fuel, this much a 25 gallon. Insurance thinks that is a joke because 406 1 what they do is, quite often, the broker -- you only 2 are allowed one broker. A broker of record. It's a 3 signed document. Without that signed document, you 4 can't get bidding, you can't get pricing. So when 5 the singular broker goes out to shop for you, you 6 are then beholden to that broker with what they come 7 back with. 8 As they come back, which they often do, 9 usually not with the best news over the last five or 10 six years, they will come back to you with a number. 11 You generally have between 48 to 72 hours to bind 12 it. And that is where you are at. You are not 13 allowed to shop that offer. The broker will or will 14 not have done that for you. 15 So the existence of discounts that may or may 16 not be available, has, in our experience, not really 17 been part of the process. And that's not a lack of 18 understanding. That is a process that will not 19 allow that to occur. 20 SENATOR SKOUFIS: Got it. Last question that 21 I've got. If any of you have maybe 30 or 40-second 22 opinions on bad faith laws. I'm curious, do you all 23 feel that it would help unclog the court system, it 24 would move things more quickly? It would have, even 25 if on the margins, positive impact on premiums or do 407 1 you think it induces more folks to bring weak cases 2 and claims and would make the situation worse? 3 JOHN CROTTY: I'm not exactly sure what the 4 law means. But I did share with you and I don't 5 know if my colleagues have seen this. You know, 6 New York City on premises of slip and fall cases has 7 something north of 50,000 cases plus. If you put an 8 aggregate in there of 50 -- and you can argue that 9 that is a good or bad number. I'm not saying it's 10 either. I think it's probably about right. If you 11 want to say it's more or less, okay, fine. It's 12 about $3.8 billion worth of stuff to offset. 13 SENATOR SKOUFIS: Let me ask you on that, 14 though, do you feel it has the length of time to 15 resolve these cases, which it sounds like a large 16 majority of them are settlements, does that have a 17 deleterious impact on premiums? 18 JOHN CROTTY: The length of time to settle a 19 case? 20 SENATOR SKOUFIS: Yes. 21 JOHN CROTTY: Yes, it's not a debate. 22 SENATOR SKOUFIS: So does bad faith help with 23 that? 24 JOHN CROTTY: I'm not 100 percent sure what 25 you mean by bad faith. I just don't know. What do 408 1 you mean? 2 SENATOR SKOUFIS: It was discussed on a 3 couple of panels. But in effect, as I understand it 4 as it has been explained, if you can demonstrate 5 that an insurer is effectively delaying the 6 resolution of a case and is dragging their feet, and 7 whereas they wind up settling 18 months down the 8 road. They could have settled a month down the 9 road. Then there is a financial penalty levied 10 against the insurer. 11 JOHN CROTTY: I mean, there is no penalty 12 against the insurer ever. It is always against the 13 affordable housing operator. The insurer is nothing 14 but a... 15 SENATOR SKOUFIS: The argument is that this 16 kind of law would compel the insurer to not be in 17 court litigating for 18 months, 24 months and it 18 would be resolved much, much quicker. 19 JOHN CROTTY: I think that would be helpful 20 but I'm not entirely sure who would be to blame for 21 that. You know, the third party litigation guys, 22 they're more than happy with collecting what is an 23 88 percent guaranteed return by lending you money 24 well below what the settlement is going to be and 25 waiting it out because the longer time goes on, the 409 1 more money they make. 2 So, you know, I don't have a solid answer for 3 you. But there is a lot of people making money on 4 that delay. And all of it is being paid by the 5 affordable housing provider. 6 SENATOR SKOUFIS: The insurers, too. They 7 invest the money during those 18 months that they're 8 not paying it out. 9 JOHN CROTTY: No, they're not. I don't know 10 how much they're making -- yes, the cash that they 11 would otherwise pay out is getting a 6 percent 12 return. But when they get hit, it's not 6 percent 13 they're worried about, right? 14 SENATOR SKOUFIS: Okay, thank you. 15 SENATOR BAILEY: I just want to say a couple 16 of things. I want to do it while Senator Skoufis is 17 still here, I'm going to do something out of the 18 Senator Skoufis book and I'm going to illustrate how 19 important this graphic is and I'm a Bronxite through 20 and through. And each of the 62 counties in this 21 great state are special. But I am from one. And 22 when I see that, the amount of premium in the Bronx, 23 in a borough where -- that contains the poorest 24 congressional district. They always talk about how 25 bad it is, that lowest wages, that the premiums are 410 1 higher. And so I am asking -- I'm going to ask the 2 same question, a two-part question. Despite what 3 has been said about, you know, hey, it's people 4 aren't walking away. In your estimation, in the 5 units that you operate and the things that you have 6 seen, especially you, John, are conditions different 7 based upon communities? And as far as what kind of 8 insurance is tendered and are insurers pulling out 9 of the market, away from property owners? 10 EMILY KLEIN: I think that the data we 11 provided helps to paint that picture. As much as 12 possible, we like to rely on the facts that we see. 13 CPC has very strong underwriting standards for the 14 projects that we lend to, and that does not vary, 15 depending on the borough. 16 Those are standard across our portfolio. And 17 when we then disaggregate our expense data and see 18 that in actuality, these expenses across properties 19 that generally speaking should all be of a similar 20 quality are -- insurance is on average $200 higher 21 in one borough than the others and increasing 22 rapidly in a way that departs from the other 23 boroughs, that leaves us with some questions about 24 is there something different happening based on 25 geography. I think we have heard a lot of anecdotal 411 1 expresses of that. I think it is really hard to 2 quantify because this is a really complicated world 3 of insurance and place-based decision making. But I 4 think the data that we provided suggests that there 5 is a real problem and it is worse in certain areas 6 of the city than others. 7 SENATOR BAILEY: I know it's not exactly 8 apples to apples but is it fair to say that in this 9 chart that you have provided, that I could make the 10 logical assumption -- and it is an assumption, I 11 will admit -- that you are speaking about the same 12 property types, like let's say a three-bedroom, 13 single-family owner occupied home, just for, in each 14 borough. And that same exact residence, square 15 footage, to a degree, location, building type, all 16 of these different things, it's more expensive to 17 insure that building in the Bronx than it is these 18 other counties? 19 EMILY KLEIN: I think that's correct. I 20 think it's important to look as well at, you know, 21 these are all multifamily affordable buildings so 22 that's sort of our baseline. We have also broken 23 that data down by building size and building age, 24 which are two other factors that I think we do see 25 impacting certain expense lines. But those didn't 412 1 actually draw as much of a conclusion as the borough 2 data did. 3 SENATOR BAILEY: Look, I'm not pointing 4 fingers without data. Making accusations that are 5 threadbare do no one good. But I will say that 6 things like this illuminate what my constituents are 7 feeling. 8 I want to ask a question about tort reform. 9 And I know that it was touched on briefly by each of 10 you. What measures -- like we have heard pilot 11 programs. We've heard get rid of the Scaffold Law. 12 What would help each of you in your estimation, in 13 what a tort reform change would look like? 14 PATRICK BOYLE: What's attractive about 15 piloting some changes to things like the Scaffold 16 Law or other kind of liability laws, is it allows 17 you to kind of study the impact in a controlled way 18 between this set of housing versus another set of 19 housing and kind of see what the impacts are of 20 changes you make and, you know, Scaffold Law, 21 liability law, it goes beyond, you know, affordable 22 housing. And these are major issues of 23 consideration of businesses are very impacted. 24 There was just an article on bars and restaurants 25 and they can't afford insurance. So this is way 413 1 beyond housing. 2 But, you know, we are here speaking for 3 affordable housing. So any changes we can make that 4 would, you know, have a sunset provision, we are not 5 committing to it forever but it would allow us to 6 study the impacts of it is -- I think is an 7 attractive approach. 8 And then on the Third Party Litigation 9 Funding, this is something new. Everything we have 10 heard about it is kind of very anecdotal. There are 11 groups calling attention to this kind of new player 12 in the, sort of, litigation realm. So, again, just 13 more transparency, more data to kind of understand 14 what is going on. Seems like a reasonable first 15 step in terms of, you know, how is this impacting 16 court cases? How is this impacting affordable 17 housing? Are these funding mechanisms in affordable 18 or multifamily housing at a disproportionate rate to 19 other types of things that they look to fund. So 20 just kind of understanding the issue better seems 21 like kind of a reasonable first step. 22 SENATOR BAILEY: Anyone else? 23 JOHN CROTTY: I have a document put together 24 on suggestions to do it. My only fear with sharing 25 it is, I would like it to be a little more 414 1 collaborative. When we pass tort reform in 2 New York City back when Brian or Senator Kavanagh 3 was a top aide to hopefully the borough president 4 for life or almost borough president for life, Gail. 5 We did tort reform in '03. Remember this? 6 It was a long, long time ago. And we had great 7 lawyers there who were able to carve the city out of 8 that piece and knock down a pretty significant cost 9 element for the city. There are suggestions, they 10 are good. I would rather if we had a little bit 11 more of a group focusing in to make sure that they 12 work for everyone. In my mind, you would want to do 13 affordable right now. 14 You know, the labor unions have a lot to say 15 about this. At JFK, they have a PLA for work. The 16 unions do, to guarantee the rate. As part of that 17 rate, what they were able to get -- and you should 18 ask them about this -- is a very deliberate specific 19 set of accident claims, doctors that are not 20 allowed, procedures to be followed for all 21 accidents. The amount of savings from that, I'm 22 told from them, anecdotally and again ask them, is 23 about 7 percent on $6 billion. So you could do the 24 math of what that is worth to them, right? 25 And so, you know, there is a lot of ways to 415 1 sort of look at this problem. I have a couple 2 suggestions. But I do think it would be better, 3 from a broader group, sort of opining on it. You 4 know, just try to create these answers and they're 5 not quite perfect until a couple people beat them 6 up, right? 7 SENATOR BAILEY: Last question I have as the 8 shot clock expires is, I see the information about 9 the claims. And this is something maybe to think 10 about. Should there be a special part in the 11 courts -- should we have a conversation with the OCA 12 about these specific types of cases so that the 13 docket can be possibly streamlined? Is that 14 something that has been -- just spit balling as I 15 looked at your data, John. 16 JOHN CROTTY: I'm not a lawyer. You can 17 talk to the lawyers to figure out what does and 18 doesn't make sense. Those boys got their own 19 ecosystem up there that they sort of exist in. I 20 know -- I could tell you what the problem is and I 21 think I've tried to do that. The solution could 22 look a couple different ways. But if we don't 23 change it, I could also, with some level of 24 accuracy, predict the future. 25 SENATOR BAILEY: Thank you. Senator 416 1 Kavanagh. 2 SENATOR KAVANAGH: Thank you. This panel has 3 been substantially the John Crotty show. We 4 appreciate... 5 JOHN CROTTY: It shouldn't be. I have to 6 tell you, Patrick and Rachel have been so critical, 7 and CPC generally in doing this. I wasn't kidding 8 when I said that before. It really has been a group 9 effort. We would be almost nowhere without Rachel. 10 And she has to put up with me so -- 11 SENATOR KAVANAGH: Which I personally know 12 from experience is challenging. I just would remind 13 you not to tell Brad Hoylman-Sigal who is the 14 borough president for life. 15 Just a question and I'm aware that there is a 16 lot of collaborative efforts that has gone into your 17 work and this is a panel of people who have really a 18 singular role in, you know, our housing system, 19 studying it, maintaining it, building it. So each 20 of your organizations really plays a fantastic role. 21 Can you just, back to, like, stepping back 22 from this, we have had a long day here. We have a 23 few more panels. 24 But just talk about the significance of 25 insurance, escalating insurance costs as a threat to 417 1 our ability to do what we need to do in housing. 2 RACHEL FEE: Our analysis shows that $148 of 3 rent for an affordable housing tenant is going 4 towards insurance. $148. Think about the average 5 income -- 6 SENATOR KAVANAGH: Per month. 7 RACHEL FEE: Per month, all of the families 8 trying to leave shelter with a city voucher because 9 they cannot afford rent and $148 is going towards 10 insurance in that building. 11 And that rate keeps going up and keeps going 12 up. And is threatening the viability of our 13 affordable housing stock right now. So action is 14 imperative. It's urgent. It's also impacting our 15 city and state housing plans. So we know we have a 16 supply shortage. And our estimates show that almost 17 $11,000 dollars per unit in capital subsidy has been 18 added just being over the four-year period where 19 insurance costs spiked. 20 So if the city for their new construction 21 program is investing $150,000, right? 10 has been 22 added just because of insurance costs, subsidizing 23 those higher costs of carrying that building. 24 So that means that every year, as costs go 25 up, we are building fewer affordable housing units. 418 1 It's a larger share of rent. And it is not 2 sustainable for our existing stock. So thank you 3 for the opportunity to testify today and your 4 attention to the issue. We really do think it is an 5 urgent one that is impacting renters across the 6 state. 7 EMILY KLEIN: And just to speak a little bit 8 to the quality of existing housing. CPC put out a 9 data brief that opened up our books to explore the 10 expense data coming out of our rent stabilized stock 11 here in New York City last May. And in that 12 document, we talk about how expenses across the -- 13 so cumulative, the full expense budget -- we show an 14 increase of 22 percent from 2020 to 2024. 15 But within that 22 percent, the budget line 16 for insurance is up, as I said before, that increase 17 is in the 60 percent. So that is by far the largest 18 driver by expense line in that stack of expenses. 19 And the only expense line that we see that has gone 20 down is repair and maintenance. So when we see year 21 over year over year expenses being driven higher and 22 higher, in large part due to insurance costs, where 23 building owners are making their -- their ends meet 24 is by skimping on what they can, what they don't 25 have to pay. And a lot of times that comes down to 419 1 building maintenance and repairs. And so 2 ultimately, as that continues year over year, you 3 see quality of housing fall and much needed repairs 4 go undone. 5 And that ultimately trickles down to the 6 quality of housing that tenants in these units have 7 to then experience. 8 We see this as part of a holistic issue that 9 really trickles down to affect housing quality. 10 PATRICK BOYLE: I agree with all of that and 11 they really summarized well. 12 I think the longer that this becomes a 13 problem and we see these distress indicators in 14 affordable housing continue to grow, that's just 15 going to be a ballooning problem and groups are 16 going to be coming in with bigger and bigger asks 17 that are more along the lines of bailouts and 18 capital needs to preserve and sort of maintain the 19 stock we have when we need to be preserving but also 20 keeping the momentum on building. 21 SENATOR KAVANAGH: This was set at 5 and it 22 should have been 10. I have been denied 5 minutes 23 by my own people. 24 JOHN CROTTY: One thing I would add, I 25 agree, the city and state do not have the money to 420 1 pay for what's coming if they don't fix it. There 2 is just not enough subsidy to correct the issue. So 3 the question really just becomes who is going to do 4 with less? And I think we are here to tell you that 5 affordable housing on its current trajectory is 6 over. Not hyperbole. Reality. And the trial 7 lawyers can tell you a lot of stuff. And other 8 people could tell you a lot of things. But you now 9 have some facts in front of you as to what exists. 10 SENATOR KAVANAGH: Obviously this effort -- 11 is an attempt... 12 JOHN CROTTY: I thanked you at the 13 beginning. I meant it. 14 SENATOR KAVANAGH: And we haven't even 15 discussed your hot sauce, your side career in hot 16 sauce. 17 JOHN CROTTY: One hearing at a time. 18 SENATOR KAVANAGH: Can you just, in response 19 to Senator Skoufis, you alluded to this, but we 20 heard from the superintendent, that some, you know, 21 in some cases, captives are set up under the laws of 22 other states and then working here, which isn't 23 necessarily, you know, a problem from our 24 perspective. But are there -- I mean, are there 25 sort of obstacles you can highlight for beyond more 421 1 people joining and paying and, again, we're trying 2 to subsidize that. But are there obstacles you can 3 highlight about how to expand your particular model? 4 JOHN CROTTY: Do you remember going to the 5 butcher back in the day? It doesn't exist anymore. 6 But the proverbial thumb on the scale. 7 The City and State of New York finance this 8 stuff. And they take certain opinions about what 9 they can and can't insist on. And others seemingly, 10 they say they can't do. It is nonsensical. They 11 can insist on who is working on the project, color, 12 creed and race. They can insist on materials and 13 not lack of materials. And then when it comes to 14 insurance, they're complete free market operators. 15 It's nonsense. They could encourage participation 16 in a captive in a number of ways. 17 In another world, this should be theirs. One 18 logical reason why it's not is you would want to 19 keep that liability away from -- you don't want the 20 pot of gold to exist. That is the problem. It is 21 not optimal to set up in another state. It's been 22 difficult. Of course it would have been impossible 23 to do what we are doing in this state. And I have a 24 lot of questions about what is going on at DFS. If 25 you'll recall, with Stiverson town, there was a 422 1 provision that previously HCR had taken as it 2 related to J-51. Turned out that was drawn up by a 3 staffer inside. No one really knew what was going 4 on. And when challenged in the court, it looked 5 very different than the reality they had been 6 posing. 7 My only point to you is if you think no one 8 knows anything about housing, no one knows anything 9 about insurance, especially as it relates to state 10 law. It's very complex. It's arcane and people 11 aren't engaged with it. 12 SENATOR KAVANAGH: I followed that analogy. 13 One thing we have heard -- we have heard anecdotes 14 that some people are being discouraged from -- your 15 enterprise doesn't cover the full range of property 16 insurance, at least at the moment. We have heard 17 stories of property owners being discouraged from 18 joining captive by other insurers by saying well, if 19 you join that, we won't give you insurance for other 20 purposes. 21 JOHN CROTTY: Correct. 22 SENATOR KAVANAGH: That would seem like 23 legally questionable behavior but can you talk a 24 little bit about to the extent that might be 25 happening. 423 1 JOHN CROTTY: That is absolutely happened. 2 Look, we are new. So we are clear, it is owned by 3 the members and the insureds. It is not owned by an 4 individual. It is set up for the benefit of 5 affordable housing. There is a two-step test to 6 becoming a member. You have to be financed by the 7 city, state or federal government and have a 8 regulatory agreement. We think that covers the 9 universe we want it to cover. We have been around 10 for about a year and a couple of months. So it's a 11 little bit new and there has been buy in. 12 If you'll recall, the Bible provides a decent 13 analogy. I think it was 12 pieces of silver that 14 Judas got, right? It happens. And, you know, it 15 happens with others as well, and so, you know, you 16 have to get through that. And then you have to, you 17 know, figure out how to appeal to everyone. It's 18 still a small operation. What I am really excited 19 about is the governor has given us a couple million 20 dollars. This is REFI. I'm not kidding when I say 21 the people at this table have been very 22 informative -- sorry about that. Very informative 23 and helpful in making this a reality. They have 24 pitched in in a variety of ways. 25 We are here individually I guess but I feel 424 1 very collective with them because of it. So it's 2 day by day. It's block and tackle. Mayor-Elect 3 Mamdani has talked about Milford excessively. We 4 look forward to working with him about it. So, you 5 know, nothing is perfect right away, and it takes a 6 little bit to get there and there has been some 7 limitations. But as it keeps growing, I think the 8 odds of making it a work all solution for affordable 9 housing is where it ends up. 10 The CPC's origins really kind of point to a 11 little bit of what should be practical. I don't 12 know if you remember this, but CPC came out of the 13 Tax Reform Act of '84, '86 was it? And no one 14 really knew what to do with those tax credits. They 15 wanted to invest in the inner city but they didn't 16 want any of the tag with it. So CPC gets created 17 because it's not Chase. Rockefeller was a big fan. 18 He wanted it to go away from him but to exist. 19 Liability is not unlike that. No one wants 20 the liability but they want this vehicle to exist, 21 which is why it was created the way it was, is to 22 make sure that everyone could have a seat at the 23 table. We think it's important. And it will be a 24 strength, not a weakness. 25 SENATOR KAVANAGH: And I think we'll leave it 425 1 there. Thank you all for all your work and your 2 testimony tonight. 3 So next up we have a panel of Kevin Wolfe, 4 Rebecca Poole, Sara Enright and Monroe Shannon. 5 Do you want to do the swearing in? In the 6 absence of Senator Skoufis, our official bailiff, 7 raise your right hand. 8 Do you swear to tell the truth, the whole 9 truth and nothing but the truth to the best of your 10 ability? 11 (Witnesses sworn.) 12 SENATOR KAVANAGH: First of all, I just want 13 to express some appreciation for your being here at 14 this late hour. It was a long hearing and we had 15 many different constraints, various people 16 testifying. So we appreciate you are here at this 17 late hour and your perspective is very important to 18 us. So I don't know if you have an order that is 19 preferable. 20 MARY ANN ROTHMAN: My name is 21 Mary Ann Rothman, and it is actually my colleague 22 Rebecca Poole who has done the work on this and who 23 should be testifying tonight. But we had a class to 24 give tonight, so I'm the pinch-hitter. And I thank 25 you three Senators, first of all, for holding this 426 1 hearing, and secondly for moving it along so nicely. 2 I left at 3:00 when you were on Panel 6, and I came 3 back in time for this. 4 I'm Executive Director of the Council of 5 New York Cooperatives and Condominiums and we 6 enormously appreciate the opportunity to participate 7 in this hearing, and in future discussions on 8 actions New York State can take to strengthen the 9 residential property insurance market percent 10 address the specific hardships facing cooperatives 11 and condominiums. 12 Our organization was formed in the mid 90s, 13 as a not-for-profit membership organization designed 14 to provide education, advocacy and information to 15 and for housing cooperatives and later for 16 condominiums. We instruct boards on best practices. 17 We hold regular evening classes, which is where 18 Rebecca is tonight; host an all day annual 19 conference, which was three weeks ago, our 45th; 20 prepares an annual comparative study of operating 21 costs that analyzes the major expenses of over 1,000 22 cooperatives and condominiums; shares pertinent 23 information and advocates on behalf of co-ops, 24 condos and their homeowners. 25 Co-op and condo homeowners span the full 427 1 economic spectrum. They include first-time buyers, 2 established professionals, municipal workers, 3 seniors on fixed incomes and disabled homeowners. 4 In total, there are over 750,000 co-operative and 5 condominium apartments in New York City, which 6 provide a home to over 1.4 million, New Yorkers. 7 Regardless of location and homeowner 8 demographic, each homeowner's apartment generally 9 represents their largest investment, expense, 10 liability, asset and their home. For most 11 New York City residents, co-operatives and 12 condominiums provide the only affordable route to 13 sustainable homeownership. According to the 14 New York City comptroller's March 2024 spotlight on 15 New York City homeownership housing market, co-ops 16 and condos made up 99.1 percent of all homes 17 available for sale in the city, with an asking price 18 below $400,000. Co-ops were 84 percent of all homes 19 available for sale between 400 and $$800,000. 20 If New York City is to continue attracting 21 and holding first-time homeowners, it's essential 22 that co-ops and condos remain viable options. It's 23 not enough to ensure homes are affordable at the 24 point of purchase. They must remain so over the 25 course of the life of each homeowner. But long-term 428 1 affordability is in decline. 2 Co-ops, condos and their managing agents have 3 self-reported annual insurance increases ranging 4 from 15 percent to over 300 percent annually. In 5 addition to an excessive number of non-renewals, an 6 expansive list of demands that carriers are making 7 to place insurance and reduced coverage. 8 Further, aggressive risk subrogation and 9 insurance requirements have limited the pool of 10 available vendors and increased the cost of 11 performing both major capital work and more minor 12 building repairs and maintenance. Across New York, 13 co-operative and condominium homeowners are 14 suffering. 15 Foremost among concerns expressed by co-op 16 and condo boards, is the increase in non-renewals. 17 Based on the notices of non-renewals shared with our 18 organization, co-ops and condos have been denied 19 continuing coverage due to potential litigation and 20 slip and fall concerns; apartment-to-apartment water 21 leaks; refusal to ban lithium ion battery e-mobility 22 devices; failure of existing buildings to meet new 23 building codes. May I go on a bit? 24 SENATOR KAVANAGH: A short bit, if you would. 25 MARY ANN ROTHMAN: Okay. Some statistics 429 1 that I think you will be happy with. Well, you 2 won't be happy with them but they're specific. 3 Those co-ops and condos that are lucky enough to 4 receive renewals face impossible premium hikes. 5 Here is a sampling of data provided to CNYC. A 6 Bronx co-op with 141 units saw its insurance 7 increase from $174,000 per year to $595,000 per 8 year. That 242 percent increase will cost each 9 homeowner $2985 a year. 10 A small self-managed Brooklyn co-op, with 31 11 units saw its insurance increase from $26,000 per 12 year to $43,000. This 65 percent increase will cost 13 each homeowner $548 more per year. 14 Another Brooklyn co-op saw premiums rise from 15 $629,369 per year to $1394 -- 16 SENATOR KAVANAGH: Ms. Rothman, these are 17 very interesting stats but I am going to have to ask 18 you to wrap up. 19 MARY ANN ROTHMAN: That was last one. 20 SENATOR KAVANAGH: I appreciate it because we 21 do have one more panel that has been even more 22 patient than this panel. So thank you. 23 Mr. Shannon. 24 MONROE SHANNON: Good evening. Thank you for 25 the opportunity to testify on behalf of Tonya Ores, 430 1 CEO of Neighborhood Housing Services of 2 New York City. My name is Monroe Shannon. I'm the 3 program manager for Insurance and Resiliency 4 Services at NHS NYC. 5 For 43 years, NHS in New York City has 6 promoted and preserved affordable homeownership for 7 low and moderate income New Yorkers. Each year, we 8 reach more than 50,000 people across all five 9 boroughs through our home buyer workshops, homeowner 10 education and community outreach. 11 In our direct programming, which includes 12 home repair programs, foreclosure prevention, and 13 insurance and resiliency counseling, we work closely 14 with thousands of homeowners to help them access and 15 maintain stable and secure housing. Through 16 workshops and one-on-one counseling, we have 17 assisted dozens of homeowners this year with 18 insurance-related problems. 19 We are regularly seeing sharp premium 20 increases, in some cases thousands of dollars. 21 Non-renewals unless homeowners make repairs they 22 cannot afford, difficulty in finding insurers 23 willing to cover older homes, reduced coverage of 24 higher deductibles as costs climb. 25 More homeowners consider going uninsured once 431 1 their mortgage is paid off. For low and modest 2 income homeowners, particularly seniors, these 3 pressures are creating real instability. Some are 4 stretching already thin budgets, others are reducing 5 coverage or facing the risk of losing their homes if 6 insurance becomes unaffordable. 7 I have two recent examples to illustrate this 8 reality. A two-family homeowner in Brooklyn had 9 gone more than 10 years without homeowners 10 insurance. When she applied for repair grants, she 11 learned she needed coverage but feared the cost. We 12 helped her compare five quotes and understand her 13 options. She ultimately secured a policy within her 14 budget and is now better protected. 15 The second is Ms. L, another homeowner who 16 received notice that her premium would rise by more 17 than $2,000. Living on a fixed income and 18 recovering from surgery, she feared she could not 19 afford this increase along with her mortgage 20 payments. After reviewing her policy with us, she 21 was able to return to her insurer and negotiate, not 22 just avoiding to 2,000 increase but reducing her 23 premium by more than $250, all while maintaining 24 robust coverage. We are seeing situations like this 25 regularly across New York City. 432 1 As you consider policy responses, we urge you 2 to focus on the needs of small, low and moderate 3 income homeowners who are struggling to stay 4 insured. We respectfully ask that you. 5 1: Support solutions that help small 6 homeowners remain insured, including assistance for 7 repairs and upgrades, required for coverage. 8 Second: Strengthen consumer protections 9 around non-renewals, excessive premium increases and 10 ensure driven repair demands. 11 And third: Support the non-profits that 12 provide direct homeowner services who play a 13 critical role in helping families understand their 14 options and avoid financial harm. 15 These supports are essential to keeping 16 families safely housed. 17 Thank you for the opportunity to testify. 18 NHS of New York City stands ready to work with you 19 to protect small homeowners, particularly low and 20 moderate income families so that they can maintain 21 safe, stable and properly insured homes in every 22 neighborhood across our city. I welcome questions. 23 Thank you. 24 SENATOR KAVANAGH: Thank you. 25 SARA ENRIGHT: Good evening, Senators. My 433 1 name is Sara Enright, I'm Senior Director of Safety 2 and Sustainability with Consumer Reports. We are a 3 non-profit non-partisan organization based up here 4 in Yonkers, New York; where we employ hundreds of 5 people who test products, report findings and 6 advocate for consumer rights. For nearly 90 years 7 we have worked side-by-side by consumers to create a 8 fair and just marketplace for all. As part of our 9 safety sustainability and financial fairness 10 advocacy work, we represent consumers who are 11 navigating the insurance -- the homeowners insurance 12 system. A system that, as we have heard today, has 13 become increasingly unstable as premium costs rise. 14 We commend this legislature's joint 15 investigation into the residential insurance market 16 and are here to underline the concerns of consumers, 17 urging reforms that safeguard, not only 18 affordability, but also transparency and fairness 19 for all policyholders. We encourage insurers also 20 to partner more closely with the communities that 21 they serve to strengthen household preparedness and 22 resilience for extreme weather events; steps that 23 can further reduce risks and stabilize the market, 24 controlling costs over time. 25 In 2024, directly following the devastation 434 1 of "Hurricane Helene" in North Carolina, we heard a 2 wave of consumer complaints about the rising cost of 3 insurance and the lack of availability of sufficient 4 insurance. We collected nearly 600 consumer stories 5 nationwide about premium hikes, cancellations and 6 coverage denials. And since, we have engaged over 7 50,000 consumers around the country who have engaged 8 with us to co-create a Bill of Rights as well as to 9 petition the home insurance industry to do better. 10 As noted by this joint investigation, we are 11 concerned that in New York, homeowners have faced 12 average premium increases of over $1000 since 2020, 13 far above the national average, which is 14 particularly challenging for low income households. 15 And nearly half a million New Yorkers are now 16 completely uninsured and going it alone. This 17 crisis extends beyond homeowners. Renters face 18 higher costs as landlords are passing premium 19 increases on. And first-time homebuyers are locked 20 out of their mortgages where insurers have withdrawn 21 from high risk areas or are raising the premiums. 22 Just a few examples from your constituents 23 here in New York. Linda, a Manhattan co-op owner 24 saw her premium jump 60 percent in 2-years despite 25 making no claims and experiencing no disasters. 435 1 "Helene," who lives in a flood zone community 2 fears she cannot shop for better insurance for fear 3 that she will lose her current coverage permanently. 4 Robert, from Upstate New York reports he 5 hasn't filed any claims in the last 10 years he has 6 owned his home but has seen his premiums rise by 7 300 percent in that time. 8 And Beth, a new homeowner in Endwell, 9 New York, fears that she is locked in with her 10 insurer because of her roof's age. 11 She has been told that she is unable to 12 switch providers without investing in a full 13 replacement despite making repairs that have 14 extended her current roof's life. 15 Consumer Reports investigations show that 16 these are not isolated cases but are part of a 17 national pattern. Steep, unexplained rate 18 increases, inadequate notice before cancellations or 19 hikes, fear of losing affordable coverage even among 20 responsible homeowners. 21 Many of these harms can be addressed through 22 stronger state regulations that require insurer 23 transparency, fairness and accountability in rate 24 setting, renewals and claims, while also supporting 25 community resilience. 436 1 These principles are reflected in the 2 Consumer Reports Homeowners' Insurance Bill of 3 Rights developed this year with input from insurance 4 experts, academics and homeowners nationwide. We 5 outline nine essential protections every 6 policyholder should have. When applying for 7 insurance, we believe policyholders should be able 8 to receive a clear, plain language explanation of 9 what is and is not covered before they purchase or 10 are renewed. They should have the right to know 11 which risk factors are used to determine eligibility 12 and set their rates; to have fair access to 13 coverage, based on property risk and not their 14 finances. While covered, they should have the right 15 to adequate notice before cancellations, 16 non-renewals or steep premium hikes giving them the 17 chance to shop around and find other coverage. 18 They should have meaningful incentives for 19 homeowners who take steps to harden their homes; 20 protections against cancellations or non-renewals in 21 the aftermath of declared states of emergency. And 22 when making a claim, they should have the freedom to 23 make inquiries of their home insurance providers or 24 to make inquiries that result in no payout without 25 being penalized. 437 1 Prompt, full and fair claim payments with 2 accountability for delays. And finally, immediate 3 financial assistance for emergency housing and 4 essential needs after a disaster with limited 5 paperwork requirements. 6 Since the release in October, over 43,000 7 consumers have signed our petition urging major 8 insurers to adopt these protections and to restore 9 fairness to the marketplace. New York State has 10 long led the nation in consumer protection and by 11 advancing the principles of the homeowners insurance 12 Bill of Rights, we believe we can help residents 13 make more informed decisions about where they live 14 and what coverage they need and ensure they 15 understand how to best protect their homes, their 16 most valuable assets and hold insurers accountable 17 to their promises through clear enforceable 18 standards. 19 Thank you for the opportunity to testify. 20 KEVIN WOLFE: Good evening. And thank you to 21 Chair Bailey and thank you, Chair Kavanagh, for the 22 opportunity to testify on this very important 23 subject of property insurance premiums and the 24 impact, the adverse impact that the increases have 25 been having on New York's homeowners in particular. 438 1 My name is Kevin Wolfe. I'm with the Center 2 for New York City Neighborhoods and we are one of 3 the largest homeowner service non-profits in 4 New York City. We promote and protect affordable 5 homeownership, particularly for middle and working 6 class families in this state. Since 2008, we have 7 co-anchored the Homeowner Protection Program, which 8 I know both of you have supported and have been huge 9 champions of. That's assisted over 380,000 percent 10 avoid foreclosure and it's preserved $10 billion in 11 equity and wealth in the State of New York. 12 percent across the state are facing steep 13 increases in insurance premiums. Not only that, 14 they're facing shrinking coverage options and 15 cancellations, which may cause them to lose coverage 16 all together. A growing number of insurers are 17 leaving high risk areas of the state and are raising 18 premiums. And these increases are having a direct 19 impact on the stability of housing in this state. 20 Analysis from the Americans for Financial Reform 21 found that for every $100-dollar increase in an 22 insurance premium, the homeowner becomes 5 percent 23 more likely to experience mortgage delinquency. 24 When families are stretched thin, rising 25 insurance premiums can be the tipping point into a 439 1 crisis. In addition, when controlling for property 2 characteristics, and geographic hazards, homeowners 3 with sub-prime credit pay roughly 30 percent more 4 for homeowners insurance than those with super-prime 5 credit. This disparity compounds the financial 6 strain for families with the least ability to pay 7 the increased expenditures. 8 Through the homeowner protection network, we 9 are seeing more homeowners push towards foreclosure 10 because they cannot absorb the increase in insurance 11 cost. 12 I want to just move on briefly to the 13 climate-driven disasters, which are now a major 14 driver of mortgage distress. Flooding in both 15 coastal and inland is the leading driver of 16 climate foreclosure risk. And we saw this 17 firsthand in "Hurricane Sandy" and "Ida" and 18 "Tropical Storm Henry" and when many of the homes 19 outside the FEMA flood zone suffered severe damage, 20 and they did not have the adequate insurance 21 coverage. 22 We see that about 7 percent of homeowners in 23 this state do not carry insurance at all. And 24 roughly a third of those live in majority black zip 25 codes in the state. So what we are seeing is that 440 1 some of the most vulnerable families are exposed to 2 climate disasters and it deepens the racial 3 disparities in homeowner stability that are present 4 already. 5 Outdated FEMA maps, which is obviously a 6 federal issue, they have intensified the problems 7 and many of the areas that are currently labeled as 8 low risk would qualify as high risk due to an 9 increase in sea level rise, as well as an increase 10 in intense rainfall. Obviously, we would like to 11 see the federal government modernize those maps. 12 To fill the gaps from the federal government 13 and lack of action, we have piloted what is called 14 the Flood Recovery Fund, which is the first in the 15 nation model that uses a parametric insurance policy 16 to deliver fast and unrestricted cash grants to low 17 to moderate homeowners after severe rainfall and 18 flooding. This model eliminates the adjustor 19 process which can be slow and allows families to 20 make repairs immediately, strengthening financial 21 resilience and climate resilience as well as 22 reducing foreclosure risks. It also demonstrates 23 how there can be an innovative public and private 24 partnership that can close the affordability gaps in 25 climate vulnerable communities. 441 1 I did want to also mention that we applaud 2 the work of the legislature of the Senate and 3 Governor Hochul and the $50 million -- providing 4 $50 million for the climate resilient retrofit 5 program which supports low to moderate income 6 homeowners with climate-related repairs. And 7 through our partnership with HCR, we are helping 8 homeowners strengthen their properties from future 9 disasters. 10 To craft effective policy from our 11 standpoint, one of the most important things we feel 12 we need is clear and transparent statewide data 13 specific to one to four-family homeowners. And I 14 just have one more line and I will be done. So 15 specific to one to four-family homeowners. We 16 commend HCR for collecting the data for multifamily 17 buildings and we encourage expanding this approach 18 to smaller homeowners. 19 I would also like to mention that we support 20 the Insurer Communities Act and thank Senator 21 Skoufis -- I know he had to run -- for sponsoring 22 that legislation. 23 So those are those items. The last thing 24 that I would like to mention is that we are at a 25 critical moment. We are seeing rising premiums. We 442 1 are seeing climate become even greater, a greater 2 risk. And we are seeing hundreds of thousands of -- 3 tens of thousands of homeowners destabilize due to 4 this. So we would like to see both the legislature 5 and the governor prioritize transparency and data as 6 well as strengthen investments in resiliency, in 7 order to ensure that homeowners in this state are 8 able to weather the rising cost and preserve their 9 homeownership. 10 So I thank you for the opportunity to testify 11 and welcome your questions. 12 SENATOR KAVANAGH: Thank you. 13 SENATOR BAILEY: I want to thank you all for 14 your testimony and I want to start where you left 15 off, Mr. Wolfe. My district are those majority 16 black homeowners in the northeast Bronx and the City 17 of Mount Vernon who come to the office and I will 18 redact the name but they willingly know that they 19 don't have the requisite coverage. But they're 20 afraid of losing that generational wealth because 21 it's the only chance that they have of being able to 22 pass something down to their children. So they take 23 that risk. And these are things that we should be 24 trying to figure out. 25 I'm very much open to these solutions. I 443 1 have a question for you and everybody on the panel. 2 Excuse me. 3 Based upon the rise, the increase in 4 insurance, do you believe that homeownership has 5 been disincentivized? Are New Yorkers more willing 6 to get rid of that asset and go do the reverse 7 migration back to North Carolina as opposed to 8 keeping that asset in their family? Are you seeing 9 that happen in your respective areas? 10 KEVIN WOLFE: I can say that it is a major 11 disincentive. There has been an increase of cost of 12 living generally, so insurance and property taxes. 13 One of the things that we see about insurance is 14 that because it's lender driven usually, the lenders 15 are requiring the homeowners to have some form of 16 property insurance. Those who have paid off their 17 homes, those who have that generational wealth that 18 has been in the family, it's an expense that they 19 can drop. No one is requiring it. And so it's less 20 of a displacement pressure but then at the same 21 time, what we are seeing is that for those 22 homeowners, including in the Bronx, who thought, 23 hey, we're not at risk, you know, from things like 24 flooding, when that catastrophe does strike, they're 25 very vulnerable. They don't have access to capital 444 1 to make those repairs and they don't have that 2 insurance coverage. 3 And so that is one of those drivers into 4 foreclosure because now they're in a situation where 5 the home is dilapidated, maybe they're not able to 6 live in it and then that may drive them, displace 7 them from the state all together. 8 SENATOR BAILEY: Mr. Shannon. 9 MONROE SHANNON: Insurance is definitely 10 affecting affordable housing, not just from a renter 11 perspective, but from homeownership as well. 12 Entering the market, margins are extremely 13 tight in terms of affordability, but we have an 14 aging community, an aging housing -- so two pieces. 15 You got to maintain your home. You know, and that's 16 part of insurance coverage and the cost of that. 17 But then the cost of increased insurance coverage. 18 So that idea of moving to another market, while 19 maybe the housing is newer, and requires less 20 maintenance and investment. Insurance costs are 21 cheaper because of various factors. 22 So it makes it less attractive to pass that 23 property on, especially if maintenance has been an 24 issue if insuring that property is an issue. And we 25 won't get into the whole conversation about having 445 1 the conversation about the property and transferring 2 that generational wealth. So that's another piece. 3 But the insurance cost and restrictions makes it 4 less attractive. 5 SENATOR BAILEY: Did you have something on 6 that point, Ms. Rothman? 7 MARY ANN ROTHMAN: A very important point. 8 There is a full gamut of economic ability within 9 most co-ops because some people who bought years ago 10 are now seniors on fixed incomes and every time 11 there is more money that has to be sent, every time 12 the board has to raise the maintenance, they have to 13 worry about those people who may not any longer be 14 able to afford to live in the co-op that has been 15 their home since forever or since a good long time. 16 So we are tremendously concerned about the 17 new families coming in who think that they're going 18 to be fine, but compliance costs get them. And then 19 most particularly, the long-term residents. 20 MONROE SHANNON: I just want to add. Dealing 21 with a client and where we are with rainfall and 22 changing flood maps, that the need for flood 23 insurance, even in areas that are not coastal, that 24 may not show up on our current flood maps as high to 25 moderate risk, the reality is that risk is 446 1 everywhere. We saw, back on October 30, you know, 2 Flat Bush, Fulton Avenue and areas in Queens 3 suffered a tremendous loss due to flood. People can 4 no longer use historical information to make 5 decisions. 6 We have to use information that we, as 7 persons in the industry, can educate. Education has 8 been a big conversation, not only about 9 weather-related coverage, but also understanding 10 your coverage limits and understanding the pages 11 beyond your declarations page. What is on those 12 other 17 pages? What is excluded? What isn't 13 excluded? The importance of shopping around. 14 And I won't take up any more time, but the 15 market has changed. People, for 30 years, never 16 really concerned themselves with their insurance. 17 They did business with the same person. They never 18 filed a claim. They thought they were fine. The 19 only reason why they took a look at that policy is 20 because last year they saw it go up by $100. This 21 year it went up by $1,000 and it's like, what is 22 going on. I didn't file a claim. Nothing has 23 changed. That's where the inquiry about insurance 24 and the instability and the marketplace comes about. 25 SENATOR BAILEY: You really dovetailed nicely 447 1 into my next question which was going to be about 2 policy limits. And do your organizations counsel 3 people on whether their policy limits are 4 appropriate? 5 MONROE SHANNON: Yes. It's a huge piece. I 6 won't take up any more time. But people use price 7 as a decision making -- as a part of their decision 8 making. 9 And that is challenging because it usually 10 leads to being underinsured and not properly 11 covered. It could also be that you are over insured 12 and your dwelling coverage, which drives your other 13 coverage limits, drives the cost of your premium 14 being higher than it needs to be and your insurance 15 is excessive. So also dealing with what is included 16 and what is excluded from your coverage. So 17 shopping around, and not just focusing on price, but 18 all of those components: Exclusions, inclusions, 19 dwelling coverage, and the whole gamut. 20 SENATOR BAILEY: That's very helpful. So I 21 know that there is 30 days to cancel the policy in 22 New York by state law. But I think you as well as 23 Ms. Enright mentioned something happening where 24 the cancellation of policies and people that need to 25 be able to make the requisite repairs before a 448 1 policy is not renewed. How much time, in your 2 collective expertise -- anybody can answer this -- 3 is a homeowner given to cure a defect that could 4 potentially result in a non-renewal? How often -- 5 does it vary? Is it context specific? 6 MONROE SHANNON: I just want to say it's not 7 just people who have long-term policies. I've seen 8 people that get a new policy, and because the 9 property is inspected, which is -- happens more -- 10 it happens more now because insurance companies 11 don't want to take on existing risk. So even if you 12 have successfully gotten a new policy, I have seen 13 that cancellation notices come 30 days or so after 14 you have received a new policy. So it's a challenge 15 for existing policyholders and it's also 16 policyholders that are newly acquiring policies 17 because of the restrictions on the risk that 18 insurance companies are willing to take on. 19 Roofs, handrails, cracks in sidewalks, so on 20 and so forth, which is real. But it affects those 21 margins. 22 SARA ENRIGHT: Thank you, and obviously this 23 is -- it varies state by state. We've seen some 24 states have as low as 10 days requirement for 25 insurers to inform their policyholders that they're 449 1 canceling, up to I think California requires 75 2 days. We estimate about 60 days would be an 3 appropriate amount of time for people to be able to 4 contest, and to also review and request information 5 from their insurers about why they have been dropped 6 and have the opportunity to have that dialogue and 7 remediate if possible. 8 SENATOR BAILEY: Along with the information 9 that you provided about the consumer Bill of Rights 10 and how we can have a conversation about how do we 11 figure out to -- figure out how we can have a 12 constructive conversation about that being in a 13 legislative form where that can make a difference. 14 Last thing I'll say is this: I not just 15 represent Wakefield and Mount Vernon, I live in 16 Wakefield. And I have seen my neighbors leave 17 because they can no longer afford the water bill, 18 the possible tax liens and the insurance there. My 19 overarching concern is not necessarily just with the 20 insurance companies. It's about what we're doing to 21 stop people from remaining in their homes and it is 22 about the person inside the home as opposed to the 23 societal impact -- and the societal impact. 24 So I just want to thank you all for helping 25 homeowners who often feel, at the margins they feel 450 1 ignored and they feel like they're not valued. And 2 I want to thank you for helping them out. 3 Senator Kavanagh. 4 SENATOR KAVANAGH: Thank you. I think I will 5 be relatively brief given the late hour here. But a 6 couple of particular questions. First, Kevin Wolfe, 7 you described this flood insurance product 8 parametric insurance policy, which sounded too good 9 to be true, right? The flood happens and people get 10 paid and everybody is, you know, happy and adjustors 11 don't have to step in. Can you just describe -- 12 that was -- I think it was done in part in 13 cooperation with the City of New York, the mayor's 14 office. And was there -- did you -- you created a 15 product in collaboration with a private insurer. 16 How did that work? 17 KEVIN WOLFE: We got grant funding to do it. 18 So, we created the product, and essentially the 19 insurance is against an unforeseen event happening. 20 So if there is a flood, if there is a hurricane, 21 then the way that it worked, is the sponsor would 22 give us a payment when that happened. And it could 23 be up to a million dollars or as low as $50,000. 24 And then what we would do is that the homeowners 25 that were in that coverage zone, we would give them 451 1 bonds in order to -- whatever the damage was, in 2 order for them to repair that damage to their homes. 3 So it was really a pilot project and designed to say 4 here is a model for how to provide insurance for 5 areas that may be at risk, but then that risk is a 6 little bit unknown, given, you know, we don't have a 7 lot of the data that we need from FEMA and so on and 8 so forth. 9 SENATOR KAVANAGH: And that, so far, I guess 10 my understanding is that maybe there haven't been 11 catastrophic events in that area yet; is that right? 12 KEVIN WOLFE: No. Yeah, in the areas that we 13 are covering, no, we have not had an opportunity to 14 receive a grant and then distribute it out to the 15 homeowners. 16 SENATOR KAVANAGH: I see. But it's an 17 interesting -- certainly interesting model. 18 Ms. Enright, so your Bill of Rights, which 19 we have had a little opportunity to talk about, but 20 my understanding is that it is sort of -- it's your 21 assessment of the rights people ought to have. It's 22 not necessarily proposed as a sort of regulatory 23 package that could be adopted per se, but to the 24 extent that we are looking at either encouraging our 25 state regulators to require sort of a stronger set 452 1 of rights for property owners or, perhaps, 2 statutorily doing so, would you be available to sort 3 of bring your organization's experience to bear on 4 that and make recommendations about how we might 5 structure some of those obligations? 6 SARA ENRIGHT: I would be very happy to work 7 with you all on this. 8 SENATOR KAVANAGH: We are interested in 9 having those conversations. 10 I think, even though I have great interest in 11 what all of you have said today, I think I will wrap 12 it up there just because again we have one more 13 panel that is very patiently waiting. Again, thank 14 you. We will be in touch with each of you and 15 really do appreciate your patience and all the work 16 you do all year round as well as your testimony 17 today. 18 Our final panel of the evening, we have Lisa 19 Lounsbury, Bradford Lachut, and Joseph Culver. 20 Thank you. I appreciate that. 21 SENATOR BAILEY: I will take Senator Skoufis' 22 final swearing in role for the evening. 23 If you could please raise your right hand. 24 Do you solemnly swear that you will tell the truth, 25 the whole truth and nothing but the truth? 453 1 (Witnesses sworn.) 2 SENATOR BAILEY: Thank you very much. 3 You may begin in the order that you wish to 4 begin in. Maybe we can start with Travis. 5 TRAVIS WATTIE: Fantastic. Much to your 6 disappointment, I am not Lisa Lounsbury, president 7 and CEO of Big I New York. She was unable to be 8 here today and sends her regards. I'm 9 Travis Wattie, AVP of Government Relations at Big I 10 New York. Big I New York represents independent 11 insurance agents and brokers across the state. 12 So rather than read the oral testimony, let 13 me just share some top line thoughts this evening. 14 So, for starters, I don't have some of the hard data 15 that we have been talking about with respect to 16 fraud and litigation challenges, et cetera. There 17 is a lot of that out there that you all have seen, 18 that we've seen. But what I do have is the 19 perspective and feedback that I get from our 20 1500-member agencies across New York State, agents 21 and brokers and the 13,000 plus employees. 22 And when I talk to them, what I hear from 23 them on a daily basis is about the challenges in the 24 insurance marketplace. As they sit down with their 25 customers, with your constituents, dare I say 454 1 literally 24/7, it is a demanding job that really 2 never ends, especially when there are claims and 3 there are opportunities and need for those agents to 4 be there to support their customers. What I hear 5 from them is that it's tough out there, as you know. 6 It's challenging to find coverage at times, and 7 then, of course, the affordability challenges are 8 something that everyone in this room and all 9 New Yorkers, I think, are feeling at the moment. 10 What I heard today is that I think there is 11 strong agreement around many of the elements that 12 are putting upward pressure on rates. Climate, 13 labor, materials, supply chain challenges. Those 14 are affecting New York State. I would argue that 15 those same challenges are felt in probably every 16 single state at the moment. So carriers are 17 confronting that across their lines of business and 18 then the states that they operate in. What I think 19 is different though and what I hear specifically 20 from our New York members -- and I do have the 21 privilege of serving other states, and so I kind of 22 get that northeast perspective -- the anecdotal 23 examples of fraud and settling cases that shouldn't 24 be settled, where they see that there's something 25 not quite right with a claim, something not quite 455 1 right with perhaps a labor law claim where, gee, 2 that person shouldn't have even been on that work 3 site. It was their day off. What happened there? 4 And so these are the anecdotal evidence that I'm 5 getting from my members and I think that's being 6 confirmed in many of the reports that are out there 7 and news stories. 8 And so the other thing that I see, that I 9 hear from my members is that when they hear from 10 their carrier partners, that there is brand new 11 fancy products in 49 states and not in New York. 12 And I'll talk in a moment about some of the 13 challenges at DFS. They also come to me and say, 14 look what is happening in this state where they had 15 some major tort reform, where they had some 16 challenges in their legal system. They addressed 17 it. And now they're actually talking about rate 18 reductions in some states. Why not New York is what 19 they ask me. 20 We are seeing carriers that are excluding 21 New York in coverage for their customers in 22 surrounding states. Why is that? And so let me 23 give just the top line points. 24 Labor law. We heard a lot about it today. 25 It's 140-year-old law that severely restricts 456 1 someone's ability to defend themselves. Imagine 2 restricting an ability to defend yourself in any 3 other context and I think there would be outrage. 4 TPLF, Third Party Litigation Funding. I'm 5 glad you are sitting because I'm going to agree with 6 our friend at the Trial Lawyers Association and I 7 would say that yes, sunlight is the best option 8 there. It's the disinfectant we need on Third Party 9 Litigation Funding. Thank you to the state 10 legislature for passing important guard rails on 11 TPLF. We missed a little piece there, which is the 12 disclosure, during litigation during proceedings in 13 discovery. We can still change that. That bill is 14 not yet been sent to the governor. So that is 15 something -- that's the sunlight we need on Third 16 Party Litigation Funding to really put the cherry on 17 top of that important bill. 18 Fraud. Regardless of the frequency, whether 19 it's one or 10,000 times someone is committing 20 fraud, it's wrong. It needs to stop, and we should 21 give people the tools and resources to stop. 22 And finally Department of Financial Services, 23 we know there are challenges there. We have been 24 supportive, Senator Bailey, of the DFS consultant 25 bill. Thank you for carrying that. And we want to 457 1 continue to work with them to get them the resources 2 and support they need to move rate filings through 3 and put new products through and help right the 4 course. 5 BRADFORD LACHUT: Yeah, so I will do the 6 same. I won't read my entire testimony because 7 you've already seen it and you've heard a lot of it. 8 I really appreciate you guys putting us at the end. 9 It's like a concert. Right, the headliner at 10 the end, like the headliners. Don't tell DFS that. 11 SENATOR KAVANAGH: You're the rebuttal. 12 BRADFORD LACHUT: I would ditto literally 13 everything that Travis said I think is absolutely 14 right. But I do want to mention what a lot of other 15 groups have mentioned and that is risk mitigation. 16 Ultimately people want to be protected not 17 just compensated. Even the best insurance policies 18 cannot replace the loss of a home or belongings or 19 that sense of safety that you have. So everything 20 that we are talking about is great but it's not 21 going to keep people safer. So anything that we can 22 do to do that I think is beneficial. 23 You know, too many New Yorkers right now, 24 especially in coastal urban communities, as you've 25 heard, are facing skyrocketing premiums and 458 1 shrinking coverage. 2 So, you know, if we could concentrate on risk 3 reduction, one real world example, many insurers are 4 reluctant to write or renew homes with roofs over 20 5 years. We hear that all the time. I'm sure Travis 6 can relate. All the time from members. All the 7 time. 8 One response would be to mandate insurance 9 carriers to cover those roofs but that's going to 10 have an impact, right? Increased premiums, perhaps 11 reduction in participation. If we incentivize a 12 program to make safer homes, make safer roofs, that 13 not only leaves people safer but reduces rates as 14 well. 15 We already have programs like that in the 16 state. So this is not a matter of creating 17 something out of old cloth. It's a matter of taking 18 something we already have and amending it to add new 19 protections. 20 With that, I'll end. You have heard a lot of 21 everything I've said so in the interest of time, 22 thank you very much. 23 JOSEPH CULVER: My name is Joe Culver, I'm 24 the Executive Director and Chief Operating Officer 25 of the New York Mortgage Bankers Association. 459 1 Appreciate the opportunity to testify today. 2 I'm also a 45-year veteran of the residential 3 mortgage banking industry here in New York. I have 4 held management and senior management positions with 5 banks, in addition to the role of leading the 6 New York Mortgage Bankers since 2024. 7 The MBA is a 108 corporate member 8 association. We represent both lenders and 9 non-lenders across all facets of the industry, 10 including title insurance, private mortgage 11 insurance and then today's topics, which are 12 property and casualty insurance. The market 13 dynamics in New York and across the U.S. in the past 14 3 years, as you all know, we have seen a once in a 15 40-year dynamic. 1981, interest rates were 16 18 percent. 2021, they hit 2.75 percent on a 17 30-year fixed rate mortgage. And then have popped 18 back up into the 6 percent range. 19 Quite an interesting time for anyone that was 20 a homeowner during that time period as well. The 21 cost of homeownership has also been impacted by the 22 continuous influences impacting affordability and 23 that includes property and casualty insurance. 24 Borrowers applying for residential mortgage quickly 25 learn the term PITI, right -- principal, interest, 460 1 taxes and insurances -- which is one of the key 2 components that we make sure there is proper 3 coverage for both the lender and the borrower as the 4 homeowner. New York, here as you know is very 5 specific with the market dynamics, mostly one to 6 four family owner occupied and rental properties in 7 Upstate New York, and then the dynamics that you 8 have Downstate here with a large number of co-ops, 9 condos and apartments. They all require various 10 insurance coverage and risk. Private insurers write 11 most of the homeowners business, as you know. And 12 there has been a lot of talk today about FAIR Plan 13 insurance and also properties that individuals, 14 unfortunately, cannot find insurance for. 15 The drivers of the affordability, again, 16 which you have heard a lot today, climate and 17 catastrophic risk. You have heard about the 18 reinsurance mortgage volatility that is happening 19 not only here in New York, but the United States and 20 around the world. Inflation and replacement costs, 21 construction labor also a big piece that I don't 22 think anybody has really felt yet but we know we are 23 going to is the tariff component that comes into 24 play obviously for the cost of construction, right? 25 We are going to all learn more about that over the 461 1 next several years. 2 So how do we balance the risk pricing with 3 affordability? The insurers strive for access for 4 broad availability, for affordability, for risk 5 sensitivity, for market stability and then equity 6 and transparency. And protect consumers from some 7 of these unfair practices and the educational 8 components that I think you have heard a lot about 9 today, that should be happening much more than they 10 do in the industry. 11 Three quick things. We have a short, medium 12 and long-term recommendation that we have put out 13 there for the short-term, establish time-limited 14 state subsidies or vouchers for low and moderate 15 income homeowners in the areas have a means testing 16 and a phase down of that over a potentially three to 17 five-year period. 18 And the medium term, state-backed reinsurance 19 or partial risk sharing pool. And I know, Senator, 20 you were asking some questions about it. I have 21 noted that here as well. 22 The recently authorized, I think it was 23 either a year or 2-years ago for the parametric 24 options in insurance law. We think that could be 25 very important. Extend and establish that public 462 1 reinsurance facility or parametric reinsurance 2 backstop here in New York. Formalize building level 3 mitigation, crediting whether it's elevation, wind 4 proofing, retrofitting, create low cost grants for 5 resilient upgrades, targeting those vulnerable 6 households in your market areas. This could be 7 achieved, we think, through coordination with the 8 New York State DFS, with housing agencies that have 9 spoken here today, utility companies as well can 10 integrate mitigation metrics into some of these 11 premium calculations. 12 And then longer term, raise the minimum 13 building standards in some of the high risk areas 14 near the waterfronts, right? Require resilience 15 measures for new construction, align some of the 16 mortgage underwriting also with the insurance 17 availability that is out there. 18 And then access for the publicly available 19 high resolution hazard maps. And again to the 20 education, require mandatory disclosure at sale to 21 ensure the borrowers truly understand those 22 additional eight pages of what is included, 23 excluded, all those different things that impact it. 24 So just to wrap it up quickly. Many of 25 today's market pressures originate from these risks 463 1 that you have heard about. Climate, cost 2 construction, tariffs, global markets with 3 reinsurance. So the key to sustain affordability 4 requires reducing any physical risk, right? Land 5 mitigation, diversifying insurance and large 6 targeted financial help for the vulnerable 7 households. And I will wrap up with that. Thank 8 you, gentlemen. 9 SENATOR BAILEY: So I just want to thank you 10 for your patience, first and foremost. No, no, you 11 have been here for quite a long time, and you have 12 been absorbing the rest of the testimony and I do -- 13 I know this is a long arduous day. I just want to 14 really legitimately thank you for sticking around 15 and listening. 16 So with that being said, I don't have a lot 17 of questions, but because you are at the end, you 18 have heard a lot of conversation about the insurance 19 industry and about things from a number of different 20 folks. I just want to give you the opportunity, if 21 you would like to respond to anything -- and I don't 22 mean this like a rap battle or anything like that. 23 I don't want this to go back and forth. Though if 24 you want to rap, it's 7:00 and the people that are 25 watching, you know, my constituents are watching 464 1 channel 116 right now. This is like, you know, they 2 are watching right now. 3 But in all seriousness, if there is a 4 rebuttal that you would like to have, just something 5 that has been articulated throughout the day, I 6 would just like to give you the opportunity to do so 7 because you are the members of the industry and you 8 have heard a lot. I just want to make sure that we 9 have equal time and equal conversation. So if there 10 is nothing, then great, but if there is something, I 11 would like to hear it. 12 TRAVIS WATTIE: I will share some -- not a 13 rebuttal but a lot of conversation about insurance 14 discounts today. Good conversation. It would be 15 interesting to see what the department has on file 16 in terms of what discounts are out there, what 17 discounts are allowable. I would say a few things. 18 Insurance agents and brokers are really in that 19 position -- and it was mentioned by a couple of 20 panelists about having a strong working relationship 21 with your broker. Very important, as we know, when 22 you are protecting against loss in this environment 23 and the amount of money we are talking about, work 24 with your broker. Understand the products. I was 25 maybe a little confused or concerned by some of the 465 1 comments around just, well, we get the number and 2 that's the premium and that's that. I'm not -- I 3 don't think that's how this works. You have a 4 relationship with your insurance broker. They can 5 work with you on what are the available discounts? 6 I would say that not having a claim is a pretty good 7 incentive, without discounts. You really want to 8 avoid having claims. We are risk managers. We are 9 there to help prevent loss. But insurance is not a 10 home warranty program. 11 Insurance is not a home maintenance program. 12 It's not there to help you do things to -- that are 13 not necessarily covered perils. Homeowners, 14 building owners, should be incentivized to just keep 15 their properties safe from loss generally. And if 16 there are discounts that carriers see are 17 significant in terms of reducing or preventing loss, 18 then that's fantastic, and they should be working 19 with the department to get those approved; working 20 with their agents and brokers to make sure that the 21 customers understand what those options look like. 22 BRADFORD LACHUT: I guess I'll just, one 23 clarification, mention that New York law already 24 provides 45 to 60 days for cancellation, not 25 30 days. Just to give you a heads up on that. 466 1 JOSEPH CULVER: Nothing additional for me but 2 again, thank you for giving us this opportunity. As 3 you said, we have been here a while. But our 4 takeaways obviously are what we learn from the 5 conversations, from the questions you asked of some 6 of the different panelists and what we can take and 7 share. So appreciate the opportunity very, very 8 much and for you guys staying as late as you do. 9 SENATOR BAILEY: This is the job and we are 10 happy to do it. I'll certainly pontificate a little 11 bit further in my closing remarks but I do have, I 12 guess, just one last question from my perspective. 13 Is there something that the legislature can 14 do -- I've asked a number of different folks here -- 15 that we can increase the overall information and 16 knowledge that people have about insurance and what 17 it does. I believe -- and Travis, I think you have 18 heard me say this -- I think the two most 19 fundamentally misunderstood things in America today 20 are insurance and taxation. Everybody has to pay 21 both of them. What can we do to make sure people 22 understand insurance -- even if they don't agree 23 with the policy, even if they don't agree with the 24 rate, what can we do to make New Yorkers understand 25 insurance law better? 467 1 BRADFORD LACHUT: Shameless promotion. Work 2 with an agent or broker. Honestly, that's really 3 helpful. A lot of people will go direct and they're 4 only going to get the information that's in front of 5 them on the computer screen. They're going to look 6 at the limits and somebody earlier talked about 7 price. Price sensitive. All right. That's the 8 lowest price. That's what I'm going to get. But 9 you don't realize what is not in that policy, right? 10 You are getting what you pay for. 11 So working with an agent or broker doesn't 12 cost a person anything and they're going to get all 13 of that information that they don't really care 14 about because nobody cares about insurance unless 15 they're paying their premium, right? That's what I 16 would say, totally self-interested but I think it 17 would be hugely helpful. 18 SENATOR BAILEY: So if you are Nike, as a 19 reversed check, you should be mindful of whether 20 it's really a pair of Nikes or not. I'm guessing 21 the conversation of you get what you pay for, as my 22 grandparents would tell me, resonates very true. 23 Rings true in the insurance business. 24 TRAVIS WATTIE: Senator, I would add, the 25 State of New York is now -- and I don't know what 468 1 the word is exactly but I do believe we are finally 2 moving along in terms of requiring elements of 3 financial literacy in our schools at various stages 4 throughout middle school and high school. That's 5 incredibly important, but it's incredibly important. 6 And let's add in -- let's make sure that we are 7 talking about insurance, particularly the basics, 8 auto insurance, renters, homeowners, life insurance. 9 Let's get that baked into the curriculum so that 10 students are hearing about it from an early age. 11 SENATOR BAILEY: Thank you very much. 12 I appreciate your time. Senator Kavanagh. 13 SENATOR KAVANAGH: Just a couple of 14 questions. And again, thank you again for being 15 here still. 16 We are also going to ask anyone else who is 17 here -- we don't know why you're still here but we 18 are going to give an open mic opportunity to testify 19 if you are still in the room in a minute but thank 20 you all for being here. 21 I just want to clarify this question of 22 discounts. I'm just going to lay out a perspective 23 and get your reactions to it. So I don't know if 24 you were here in the room when I mentioned earlier, 25 but there was an insurance industry association 469 1 executive who was, you know, meeting with us to be 2 helpful and educate us as we were preparing for 3 this. 4 And he works in a state that has, you know, 5 discounts for roofs. And he said it works great, 6 you know, I had my roof repaired and then I called 7 them up and asked is there a discount and was told 8 indeed there is a discount and he got a discount. 9 And that struck me as, first of all, it's nice that 10 that discount is available and he got it. But it 11 strikes me as odd that as somebody that's actually 12 in the insurance industry has to sort of wonder 13 whether this thing that they're doing to diminish 14 the vulnerability of their home is going provide 15 them with a discount. 16 And it seems to me that those of us in 17 government that are going to spend a great deal of 18 public money in the near future on figuring out 19 what -- and I chair the Committee on Housing, 20 Construction and Community Development, which is 21 residential -- it's about housing. But it's also 22 about how everything is constructed and codes and 23 all of that. But we are already spending a lot of 24 money subsidizing resiliency improvements at the 25 community level. We are spending at least 470 1 $5 billion already authorized just in my district on 2 coastal resiliency. And we are also going to spend 3 a lot of money providing subsidies for people to 4 improve conditions of their buildings. So in order 5 to do that well, we are going to have to make 6 choices about what is cost effective. What is 7 likely if we invest in it, will it have a payoff in 8 terms of reduced risk. 9 It seems to me DFS has to do the same thing 10 with respect to any discount that is proposed by an 11 insurer. And it seems, of course, insurers have to 12 do that as well. If they're going to voluntarily 13 give a discount, they only want to do it if it is 14 likely to reduce payouts in the long run. 15 It seems to me that that analysis ought to be 16 something that we are kind of doing collectively, 17 kind of doing jointly. If an insurance company, if 18 we are going to try to get them to do a discount for 19 something and they're going to tell us that it's not 20 actuarially sound, it seems like we should have the 21 debate whether it's actuarially sound with DFS, with 22 the regulators, with the insurers and with those of 23 us who are going to have to subsidize some of this 24 stuff, especially with affordable housing. And then 25 make choices, and they're policy choices about how 471 1 resources are going in. 2 All of that suggests to me that right now 3 there are two kinds of discounts that you get more 4 or less automatically in New York, from testimony 5 from today. It seems to me that there are other, 6 you know, fortified roofs. We were told there were 7 only five of them anywhere in the state at the 8 moment. That seems like we are behind the curve on 9 that, given that convective storms are a thing here. 10 Wouldn't it be logical to -- and I think the way Joe 11 put it, formalize building level mitigation 12 crediting in rate filings. But formalizing in rate 13 filings and then formalize it for customers to say 14 if you do x, you will get a discount. And you know, 15 the pricing of the discount may vary depending on 16 geography or other things. 17 But doesn't creating a much broader range of 18 discounts, figure out which ones make sense and then 19 effectively require them through regulation or 20 statute? Doesn't that make some sense? 21 TRAVIS WATTIE: Let's remember that we talk a 22 lot about competition in the insurance marketplace. 23 And if you -- if a carrier decides that they found 24 that doing x will reduce claims severity, and they 25 decide that they're going to buy into that, and they 472 1 want to offer a certain discount and get that 2 approved in New York State, that may become a 3 competitive advantage for that carrier and for those 4 brokers and agents as they're talking with the 5 customer and they say, hey, you know, we have these 6 three options. But you know, we can do x with this 7 carrier and get a discount. So I think -- I'm 8 certain carriers will bristle at any sort of 9 mandatory discounts. 10 I think we want to keep an open mind around 11 freeing up that process with carriers and the 12 department moving things along a little faster there 13 and let the free market work. 14 SENATOR KAVANAGH: I agree about bristle but 15 why as a public policymaker should I be hoping that 16 the free market stumbles on to the right mix of 17 incentives to prevent the destruction of people's 18 homes, especially if the public is going to end up 19 subsidizing the cost? Shouldn't we be -- first of 20 all, New York is not going to operate in a vacuum. 21 There are going to be best practices that are 22 developing. We mentioned Florida has mandatory 23 discounts for wind and Colorado for some things. 24 Shouldn't we be trying to figure out what the best 25 practices are and then -- again, we can have a 473 1 debate about what the appropriate pricing of it is. 2 And maybe we could have a system where insurers can 3 vary in terms of how much of a discount they get 4 based on their own actuary analysis. 5 But shouldn't we be trying to create a 6 structure where incentivizing the best practices and 7 incentivizing all property owners to minimize the 8 harm that we know is coming as extreme weather gets 9 worse? 10 BRADFORD LACHUT: I'll say, yes, I like what 11 you said at the beginning there. A lot of what you 12 said. But in terms of bringing everybody together 13 at the beginning and having that conversation, 14 right? Because I think that's really important. A 15 lot of times you have these mandates, right? But if 16 you have everybody together at the beginning talking 17 about, okay, this makes sense, this doesn't make 18 sense, that it makes it a little bit more palatable. 19 At least in my mind. So, yes, I think we absolutely 20 should bring everybody together to figure out what 21 makes sense for everybody across the state. 22 SENATOR KAVANAGH: So the way we do that, 23 since we are legislators, the way we do that is 24 propose legislation and then get lots of input. And 25 again, we also know DFS is looking at the question 474 1 of discounts in a sort of hopefully holistic way. 2 But again, I appreciate your perspective on that. 3 Do you think generally speaking, you know, 4 customers are aware of kind of what behaviors might 5 get them a discount and what might not? 6 BRADFORD LACHUT: I don't think as a 7 general -- it kind of goes back to what we talked 8 about earlier with insurance literacy. They're 9 relying on a professional, if they have one, for 10 that information. 11 SENATOR KAVANAGH: So maybe a greater need 12 for education, public education and agents, as I 13 heard. 14 BRADFORD LACHUT: Absolutely. And agents 15 play a huge role in making sure that they get that 16 information to their clients. 17 TRAVIS WATTIE: We are not alone in this -- 18 whether it's insurance or whether it's in 19 New York State, educating the public on products, 20 services, opportunities. It is a challenge and I 21 hear in other states, too, you know, around 22 conversations like flood insurance. So it is not a 23 unique challenge, but it's certainly one that I 24 think from the agent/broker perspective -- and I 25 don't mean to speak for Brad -- but I think we are 475 1 both committed to educational opportunities for 2 consumers. It is extremely important. 3 SENATOR KAVANAGH: Just one more question, 4 Joseph. Just we've heard Jerome Powell being quoted 5 as entire segments of the country potentially not 6 being insurable, which means it will be difficult to 7 borrow -- how concerned are you about insurance 8 costs as a threat to the health of the mortgage 9 markets? 10 JOSEPH CULVER: Well, it's an extremely 11 important part, right, because not only lenders, 12 right, want the insurance in place. They're going 13 to force place the insurance if it's not there and 14 available if the consumer doesn't pay for it. 15 So, you know, it's a component of the 16 industry. It's a primary component, especially when 17 you put it in perspective, as we all know, 18 purchasing a home is the largest individual 19 investment an individual is going to make. So why? 20 Why would there be any discussion about not making 21 sure, whatever the sacrifice has to be that your 22 property is insured, knowing the climate change, 23 knowing all these different things that are 24 occurring, that certainly could have some effect on 25 your property. The days of, you know, it's not 476 1 going to happen to me, or I hope it doesn't -- 2 that's part of the education piece that starts early 3 on and making sure young children and young adults 4 are aware, you know, whether you think you want this 5 or not, this is not a want. This is a need. And 6 there are certain needs in life that you have to 7 prepare for, right? Put down that cup of $8 coffee 8 and put that $8 over in another container to help 9 save up for the needs that you have in life. So it 10 goes back to that great comment about financial 11 literacy for sure, Brian. 12 SENATOR KAVANAGH: Okay. Again, I think with 13 great appreciation for both your patience and your, 14 you know, your testimony which we also have in 15 writing and I think I'll leave it there and also 16 because my colleague has promised to pontificate a 17 little bit and he is very good at that. So we will 18 adjourn this panel but thank you very much. 19 SENATOR BAILEY: Thank you. So as we come to 20 a close, I just want to thank everybody, everybody 21 that came to testify, your voices are important. 22 The greatest thing about democracy, I believe, is 23 the ability to dissent respectfully. The more that 24 we know that we don't know everything, the better we 25 are at knowing things. And I think today's hearing 477 1 was instructive of that. Everybody's perspective is 2 valuable, albeit different, but valuable. 3 And we take those things to heart percents we 4 go into a legislative session. And this was great 5 cross training for budget season. And you know, we 6 have been sitting here for a little bit. Now we are 7 ready for budget season. We are ready to sit in the 8 chairs and do the good work of the people that have 9 sent us to do. I just want to thank all of the 10 staff here today. Our legislative staff, central 11 staff, STS building staff. Thank you for keeping 12 the lights on literally and allowing us to be able 13 to do this work. We often get the credit, we get 14 the honorables, we get the titles, but you do a lot 15 of the work and we sincerely thank you for all that 16 you do to truly shape New York's policy. 17 I want to thank my predecessor Neil Breslin. 18 The Celtics are coming on shortly so he is probably 19 not watching, he's probably watching the Celtics. 20 But I want to thank Neil for guiding me and thank 21 you for your patience to the industry and everybody 22 around it. You know I am not Neil. I have not been 23 able to learn it just yet but I'm hopefully well on 24 my way to doing so. 25 And to everybody that testified today and to 478 1 my colleagues in government, most importantly I 2 would say Senators Kavanagh and Skoufis, we have 3 been speaking about this hearing for quite sometime 4 and I'm glad we were able to do it. So I just want 5 to send good wishes and wish you a happy 6 Thanksgiving. Happy Hanukkah, Happy Festivus if you 7 observe, a Merry Christmas, a Happy Kwanza, a Happy 8 Boxing Day, for Caribbeans, Big up. Three Kings 9 Day, Happy New Year. 10 And if you can just do one thing for me, do 11 something nice for someone. We have spoken a lot 12 about costs. Do something nice for someone. 13 Doesn't cost you a dollar. Take care. 14 SENATOR KAVANAGH: I will follow that tough 15 act by just, first of all, echoing the thanks. I 16 want to thank Andrew Goldstein who just walked into 17 the room for facilitating this. And also I want to 18 note that we are only 2 minutes past the time we 19 scheduled. I want to thank -- I'm actually not 20 going to name the names of the many staffers that 21 have worked so closely on this, maybe take the 22 prerogative of saying thank you to Hally who has 23 been sitting behind us all day who is our housing 24 committee director, and Coco, my Deputy Chief of 25 Staff, and Emily Fuentes of Senator Skoufis' staff 479 1 since he is not here, not to mention your 2 extraordinary work, and Emily Lang, Chief of Staff. 3 And again, the central staffers of multiple 4 committees and the finance committee who have been 5 working very hard to process an enormous amount of 6 information we have already gathered and will no 7 doubt be processing the testimony and the 8 information that was provided orally today. And 9 just to say this is, as my colleague Senator Skoufis 10 mentioned at the beginning of the day, this is 11 another step in a process that began in August and 12 will continue. We are going to be looking to craft, 13 you know, solutions to some of the problems that 14 have been addressed. And that will also involve, as 15 I just mentioned, lots of discussion with all of the 16 stakeholders about what works and what does not. 17 There are some pending pieces of legislation that 18 have been mentioned today. But, you know, all of 19 that is going to be an ongoing process and we do 20 hope ultimately to distill this into a report that 21 will reflect a consensus of these three committees 22 and hopefully allow us to move forward as a state. 23 Again, just thank you to everyone who has 24 participated in this today. All the witnesses, even 25 the ones that we had a little contentious back and 480 1 forth on because that's part of the way we get to 2 understand the truth. And again, this conversation 3 is to be continued going forward. 4 But thank you all. 5 (Whereupon, the public hearing concluded, 6 and adjourned.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

HOUSING, CONSTRUCTION AND COMMUNITY DEVELOPMENT

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