Senate Bill S5329

                                 
BILL NUMBER: S5329

SPONSOR: BAILEY
 
TITLE OF BILL:

An act to amend the insurance law, in relation to expanding authori-
zation for certain exemptions from filing requirements

 
PURPOSE:

This bill would extend the authority for a domestic medical malpractice
insurer to secure a license to use the Free Trade Zone (FTZ) and would
also expand this authorization to properly allow these insurers to
assume reinsurance without any limit.

 
SUMMARY OF PROVISIONS:

Section 1 of the bill amends section 6302 (c)(3) of the insurance law to
extend the authority of a domestic medical malpractice insurance company
meeting the requisite surplus to policyholder ratio to write in the FTZ
from June 30, 2025 to June 30, 2030. In addition, the bill would remove
the current law's prohibition on a domestic medical malpractice insurer
              

assuming reinsurance in an amount that exceeds 5 percent of such insur-
er's total direct premiums written.

 
EXISTING LAW:

The current law expires on June 30, 2025.

 
JUSTIFICATION:

In 2011, the Legislature adopted the New York ("NY") version of "commer-
cial deregulation" by adding a new Class 3 as a type of risks that may
be written in NY's FTZ with the Governor signing this bill into law as
Chapter 490. Part of that chapter included a prohibition against medical
malpractice insurers writing Class 3 risks and also substantially
amended then-Insurance Law section 6302 (c)(3) to expressly codify the
already-existing authority for domestic med mal insurers to write in the
FTZ, provided they meet the following criteria: 1) maintain a surplus of
at least twice the minimum surplus required to be maintained for the
types of insurance that the med mal insurer is authorized to write in
NY; 2) has total direct premiums comprised of at least 90 percent med
mal insurance; 3) assume reinsurance premiums of less than 5 percent of
total direct written premium; and 4) write 90 percent of its total
direct premium in NY.

Prior to 2011, and since 1984, NY domestic med mal insurers were author-
ized to write med mal insurance in the FTZ. During those years, the only
restriction on NY med mal insurers seeking to write med mal FTZ policies
was 1 above, namely that they had to maintain the surplus of 2X the
minimum required by law for their company. There was no limit regarding
the type of insurance they wrote that did not consist of med mal insur-
ance, there was no requirement that they write at least 90 percent of
their total direct premium in NY, and there was no prohibition on the
domestic med mal insurers assuming more than 5 percent of their total
direct written premium in reinsurance premiums.

This bill would not affect three of the criteria listed above in order
to ensure minimum financial safeguards remain in place. However, for the
following reasons, the limit on the amount of reinsurance a domestic med
mal insurer can assume in order to continue to write policies in the FTZ
is a needless and archaic competitive hindrance for all NY domestic med
mal insurers.

There were only 5 MPLI insurers in 1985 (and furthermore there were no
RRGs since that law was not passed until 1986); now there are approxi-
mately 40 MPLI insurers with numerous RRGs vying for business with
admitted carriers.

The NY MPLI market no longer small and noncompetitive as it was from
1985 through 2011; it is now large, growing and extremely competitive.
For example, one good indicator of an insurance market's competitiveness
is its residual market, i.e., the market of last resort after a health
provider is unable to obtain MPLI from an admitted company.  NY's resi-
dual market for MPLI is the Medical Malpractice Insurance Pool ("MMIP").
The MMIP's earned premium has decreased from over $110 million to under
$40 million in the last ten years. In addition, an excellent quantita-
tive indicator of an insurance market's competitiveness is application
of the US Justice Department's commonly used measure of competition in
markets, the Herfindahl-Hirschman Index("HHI"). The HHI for the NY MPLI
market demonstrates that in 2007 the NY MPLI market had an HHI of 2,527
(any HHI score over 2,500 is a highly concentrated market). In 2017 the
HHI score for the NY MPLI market was 1,250 (any market with a score from
0 to 1,500 is a highly competitive market). Finally, looking at the
number of competitors in the NY MPLI market, in 2020 the NY MPLI market
consisted of 78 admitted insurers writing MPLI and 43 RRGs writing MPLI.

As for the changes in the NY Healthcare marketplace, according to the
American Medical Association employed physicians were 50.2% of all
patient care physicians in 2020 in the US, up from 47.4% in 2018 and
41.8% in 2012. In contrast, self-employed physicians were 44% of all
patient care physicians in 2020, down from 45.9% in 2018 and 53.2% in
2012. The percentage of physicians who were independent contractors has
been steady, fluctuating in the narrow band between 5% (2012) and 6.7%
(2018). While these are US figures, MSSNY and other NY medical groups do
not dispute that there is a large and growing trend of physicians becom-
ing employed by an entity other than themselves in New York State.

This trend of larger and larger hospitals and health systems consolidat-
ing and self-insuring themselves and increasingly their employed physi-
cians is borne out in the official numbers from the New York Department
of Financial Services ("DFS") regarding NY MPLI premiums. According to
the DFS Annual Reports, in 2015 NY MPLI premiums were $1.1 billion. In
2021, NY MPLI premiums were $853 million. This represents a 23 percent
decline during those years and a 9 percent decline in MPLI premiums from
2017 to 2021. The rise in self-insurance is fueled in large part by the
ever-increasing concentration of fewer companies in the hospital and
large physician group space and increased acquisitions and mergers among
health care providers.

What this means for NY domestic med mal insurers such as MLMIC and
others is that opportunities to insure individual physicians are shrink-
ing but the need of these large hospitals and health systems/large
physician groups for reinsurance is growing. Sound NY public policy
would dictate that NY domestic insurers should not be disadvantaged from
competing for these reinsurance opportunities due to an arbitrary limit
on the amount of reinsurance they can write in order to also write in
the FTZ. The other restrictions in the current law, especially the
requirement that any such domestic med mal insurer must maintain a
surplus of at least 2X the minimum legally required surplus, will fully
and more than adequately provide solvency and fiscal safeguards for
these insurers and their customers. This proposal merely levels the
playing field for NY domestic med mal insurers.

 
LEGISLATIVE HISTORY:

2023-24: S9136 - Passed Senate

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately.