Hochul Says She’ll Rein in Big Insurance With ‘Excess Profit’ Law; Experts Call That A ‘Joke’

Is this consumer protection — or a protection racket?

Gov. Hochul claims that the state’s “excess profits” law will prevent auto insurance companies from pocketing the savings from her Uber-backed proposals to erode crash victims’ rights to sue for damages, but that law is a “joke” that has ever actually been used, lawmakers said.

As part of their multi-pronged attack on the governor’s effort to cut expenses for motorists at the cost of victims’ rights, senior Albany pols are questioning whether any savings will be passed on to ratepayers under the “excess profits” law, given that it allows insurers to keep profits of up to 21 percent – a cap so high that no company has ever had to return funds.

“Our excess profit law is a joke, and to my understanding, it’s never been used,” state Senate Deputy Leader Michael Gianaris (D–Astoria) told Streetsblog. “It’s not serving its purpose, at the very least.”

By comparison, Florida’s version of the law caps profits at 5 percent. Gov. Hochul often refers to her proposals as similar to what was achieved in the so-called Sunshine State, but she has never mentioned the much lower cap.

The governor’s proposals to reduce the ability for some crash victims to sue drivers for pain and suffering will bring in “significant operational savings” for the insurance industry, the governor has said, which she believes will be passed onto policy-holders.

“That is all going to – I insist – will be going back into the pockets of the ratepayers, just as it has in other states,” Hochul told Streetsblog at a press conference for her proposal, fittingly, at the New York Auto Show earlier this month.

That’s another claim that isn’t holding much water with state pols, who pointed out that Hochul has only said she will review the excess profits law threshold after her reforms take effect.

The state’s threshold is nearly seven times the amount of profits New York’s private passenger auto insurers reported to the National Association of Insurance Commissioners, or 3.8 percent, according to the latest annual reporting from 2023.

The national profit rate was 4.2 percent, and most of the 50 states and territories had profit rates in the single digits (it’s unclear what’s going on in the North Mariana Islands, however; profits there are 20.1).

A 21-percent cap “does not do anything for anyone,” said Douglas Heller, a California-based, nationally recognized insurance expert with the Consumer Federation of America, a consumer-interest research and advocacy group. “If this is what we’re relying on to ensure that insurance companies don’t gouge New Yorkers, there will be no end to the gouging. This is not a consumer protection.”

New York’s excess profits law dates back to the early 1970s, when then-Gov. Nelson Rockefeller signed a package of insurance reforms that also brought no-fault insurance to the Empire State, which provides up to $50,000 for medical costs and lost wages, regardless who’s at fault in a crash.

Florida, which Hochul has frequently cited as a model for reforming its insurance regulations, set a profit threshold at 5 percent over three years, and Progressive announced rebates of $300 triggered by those regulations, nearly three years after the law went into effect. In Georgia, a bill would require rate cuts if an insurance company has profits of 5 percent or more for three years in a row.

Hochul wants to disqualify compensation for people found by a jury to be more than 51 percent at fault in a crash, and she also seeks to narrow the state’s definition of serious injury, and limit damages for the uninsured and people under the influence of drugs or alcohol or caught committing a felony at the time of the crash.

She has claimed this will reduce supposed fraud and lower premiums for New Yorkers, but she has so far failed to convince legislative leaders, as they negotiate the weeks-late state budget. Even companies who lobbied for her agenda have refused to commit to lowering premiums.

Lawmakers, consumer watchdogs and trial lawyers opposed to her agenda have questioned the effectiveness of the Empire State’s opaque oversight over the industry by its insurance regulator, the Department of Financial Services, which approved increases of as much as 22 percent less than two years ago, when Hochul was governor. So even if insurers send out one-time rebates, that won’t stop them from claiming small profits and jacking up premiums the next time around.

“Unless there are structural changes to the regulatory law, it’s all going to jump back up again,” said Joanne Doroshow, the executive director of the Center For Justice & Democracy at New York Law School. “There’s a lot of accounting manipulation that goes on in the industry, which most people do not understand and lawmakers do not understand.”

A pending bill would require insurers submit more detailed data to the agency showing their streams of income, claim history and profits and losses, rather than just aggregate information about their premium prices and their payouts.

“The New York law requiring the rebate of excess profits has never been used and is defined at levels far more advantageous to [insurance companies] than in states like Florida or Georgia they point to as models for reform,” said Andrew Finkelstein, president of the New York State Trial Lawyers Association in a statement. “It underscores the fallacy at the heart of the governor’s so-called affordability agenda: affordable for whom?”

Heller said Hochul should take a page out of California’s book, where voters approved a ballot measure in 1988 that allowed the public to weigh in on insurance rate increases, much like New York already allows for utility price hikes.

The Golden State’s Insurance Department posts proposed changes weekly, which are then reviewed by consumer advocacy groups.

In the nearly three decades since, Californians’ insurance costs have increased by 12.5 percent compared to 61.1 percent in the rest of the country, according to a 2019 report by the Consumer Federation of America.

The report estimates that a California-style consumer protection would have saved American motorists $60 billion in one year along and nearly $1 trillion over the past 30 years.

“The insurance industry hates it,” said Heller. “We’re not hoping for some consumer windfall somewhere down the line, we’re trying to prevent a corporate windfall [at the beginning].”

These outside checks are far more powerful at keeping prices down than leaving it up to obscure government bodies that rely on averages over six years, as they do in New York, Heller added.

“The laws should make sure that the insurance companies can’t squeeze every last dollar,” Heller said. “Why are we so afraid of the insurance companies that the best we can do is ask them to give back their gouging some years later?”

A spokesperson for the governor said that the state’s insurance rate filings already follow a “rigorous” process that includes “extremely detailed financial information,” audited by certified public accountants.

“Gov. Hochul has been clear that as part of her broader effort to bring down the cost of car insurance, New York’s Excess Profits Law should be examined and improved to ensure that ratepayers, not insurance companies, feel relief from these reforms,” Sean Butler said in a statement.