Your NY Connection Magazine - Q3 2019 (summer 27)

NYYour Connection
magazine
Third Quarter 2019 • Issue 27

SDUFRSVCIVYIBNEGRAEXAM

Macro -vs- Micro

How Economics Affects Your
Recruitment Strategy

Innovation Has
Always Been a
Driving Force
for Insurance
Has New York No-Fault
Law Met its Goals?

Part 2: the Implementation of the Law

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10 07 Contents
34 26
FEATURES

07 New York Insurance
Scholarship Foundation
Scholarship Recipients

10 Has New York No-Fault
Law Met its Goals?
Part 2: The Implementation of the Law

26 Macro -vs- Micro
How Economics Affects Your
Recruitment Strategy

34 Innovation Has Always Been a
Driving Force for Insurance

44 Surviving a DFS Cyber Exam

44 IN EVERY ISSUE

04 Chair’s Message
06 President’s Remarks
08 Futuristic View
23 Q&A
40 Out & About
42 Giving Back
52 New & Noteworthy
54 Upcoming Events

www.nyia.org • Third Quarter 2019 • 3

NYIA OFFICERS & DIRECTORS Chair’s Message

Elizabeth Heck, Chair Late August/early September is a time that is significant
President & CEO for many as we ready our children for the new school
Greater New York Mutual Insurance Company year. As summer fades into fall, there is also renewed
energy in the workplace as we all work toward a strong
Mark Prechtl, First Vice Chair finish to the calendar year.
Executive Vice President/CEO
Chautauqua Patrons Insurance Company The legislative session in Albany works on the same
schedule as the school calendar and according to
Charles Makey, Second Vice Chair the same cadence. Many events are planned in advance, which allows for
Senior Vice President, Insurance Operations preparation, but there are always last-minute changes and challenges that
Merchants Insurance Group disrupt the normal sequence of events.

Norman Orlowski, Treasurer While the association is actively engaged in Albany all year, the legislative
President/CEO session dictates how we spend our time. When the Legislature returns in
Erie and Niagara Insurance Association January the issues start to heat up. February and March are consumed by the
budget with March turning the process into a full sprint to meet the April 1
Ellen Melchionni, President budget deadline. Portions of April and all of May are key times to engage with
President legislators, and June is a critical month as the closing days of session loom.
New York Insurance Association, Inc.
There is talk of the session calendar changing next year with the election
Stacey Orlando, Secretary primaries scheduled for June. The Wall Street Journal reported that one
Director of Design & Technology proposed calendar under consideration is to move the end of the legislative
New York Insurance Association, Inc. session forward to sometime before Memorial Day. A truncated session could
either result in fewer bills or even possibly bills passing at a faster rate.
Matthew Benedict Another very likely scenario is that more policy issues will be taken up within
President & CEO the context of the budget.
Midstate Mutual Insurance Company
While the Legislature is currently adjourned, NYIA has already begun preparing
Jennifer Cavolo for the next session. The association has been meeting with legislators and
Product Manager legislative staff and engaging with our insurance company members to gain
Progressive greater perspective. NYIA is also making plans for the Legislative and Regulatory
Committee meeting that will take place as part of our Annual Meeting on
Marc Craw November 14th. I highly encourage you to attend this important event as we
Senior Counsel discuss key issues and determine the association’s strategy for the coming year.
MLMIC Insurance Company
I also ask you to consider engaging with your legislators at the local level to
Mark Gardner the extent possible. Grassroots advocacy has become even more important as
New York Regional Counsel we look to educate public policymakers about property and casualty insurance
Allstate Insurance Company and what are often the unintended consequences of legislation. Similar to the
school year, the adjournment of session does not stop the need for continued
Edward Harper learning. There is a need for education all year long.
President & CEO
Statewide Underwriting Services Elizabeth Heck
NYIA Chair
Stephen Harris
President & CEO
Sterling Insurance Company

Kristofer Snader
Senior Director, Government Relations
Nationwide Insurance

Jaynine Warner
Legislative Affairs, North Atlantic
Farmers Group, Inc.

4 • Your NY Connection Magazine

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NYIA STAFF President’s Remarks

Ellen Melchionni If you could invite any three people to dinner, dead or
President alive, who would you invite? I’ve heard some very witty
[email protected] and heartfelt answers to this question over the years.
Cassandra Anderson, CAE Some cite a historic President or leader, a literary figure,
Vice President a philosopher, a genius, an artist, or perhaps a comedian
[email protected] or musician. Some would simply prefer one last meal
Stacey Orlando with a lost family member.
Director of Design & Technology
[email protected] Let’s put our personal lives out of the equation for the moment. If you could sit
Javier R. Tapia, Esq. and talk with anyone in our industry, who might that be? Would it be Warren
Director of Government Affairs Buffet, Brian Duperrault, Tricia Griffith or perhaps Hank Greenberg? What a
[email protected] great opportunity to learn from some of the most notable folks in the business.
Susan Dawes If you had this opportunity, you would take time beforehand to create a list of
Account Services Coordinator questions. What are your secrets to success, what qualities do you think make a
[email protected] good leader, how do you balance professional and personal life, etc.
Kaitlyn Emory
Administrative Assistant NYIA is creating a unique opportunity for the association leadership to sit at
[email protected] a table with one of the insurance industry’s most talked about leaders. We are
hosting a Property and Casualty Roundtable with the Superintendent. Somewhat
NYIA OFFICE similar to our Supper with the Super event in 2017, we will be sitting down with
Linda Lacewell later this year for an in-depth discussion about the property and
130 Washington Avenue casualty industry. We will do our due diligence to prepare and will be seeking
Albany, New York 12210 input from all members about which questions to pose. We will identify and
518.432.4227 prioritize member company concerns and present the most overarching and
518.432.4220 fax critical message points that the members feel need to be relayed.
[email protected]
www.nyia.org The table will be filled with individuals with varying perspectives and represent
companies of differing size, lines of business and experience. We will assemble
Visit Us Online a broad cross-section of members that embody the great diversity of the
association membership. The goal is to demonstrate the industry’s willingness
www.nyia.org to collaborate with our regulators. We hope to leave the meeting with a greater
facebook.com/ sense of how the industry can partner with DFS and ideally through action items
newyorkinsurance that are concrete and achievable. This event will not be a lobbying opportunity
association to discuss specific regulations or legislation, but rather a big picture view of
twitter.com/nyinsuranceassn the New York market emphasizing concepts like modernization, innovation, the
linkedin.com/company/new- importance of financial literacy and fostering growth of the industry.
york-insurance-
association In case you were wondering who my three invites would go to … my mother,
my sister and Robin Williams. I think it would be amazing if we could all have
6 • Your NY Connection Magazine one last laugh together.

Ellen D. Melchionni
NYIA President

Sylvia DeMarree Elizabeth Liu Editor-in-Chief
Cassandra Anderson
Sodus, NY Melville, NY
Creative Director
DeMarree is a senior at Rochester Institute of Technology majoring in Stacey Orlando
applied statistics and actuarial science and minoring in advertising and
public relations. Liu is a junior at Northeastern University majoring in Managing Editor
mathematics and finance and minoring in data science. Kaitlyn Emory

“The New York Insurance Scholarship Foundation is proud to recognize Contributing Writers
exemplary scholars with a passion for the insurance and risk management Susan Dawes
industry like Sylvia and Elizabeth.” Ellen Melchionni, president of NYISF Brandon Finton
said. “Both students have already made notable accomplishments in their Marc Gyimesi
academic careers, it is apparent that their potential contributions to the John D. Reiersen
next chapter of insurance are boundless.” Jim Shea
Paul Tetrault
Fostering and investing in the development of our future leaders has a
direct correlation to the success of the insurance and risk management Looking to advertise?
industry of tomorrow. NYISF addresses the great need to attract emerging Please contact Stacey Orlando at
professionals. “The insurance industry has been and will remain a steadfast 518.432.4227 or [email protected]
and essential field of employment,” Melchionni said. “Encouraging and for advertising information.
supporting future professionals to explore their potential in the workforce
is the keynote of the New York Insurance Scholarship Foundation.” No part of this publication may be
reproduced, stored in a retrieval
Know a student interested in a career in insurance? system or transmitted in any form,
electronic, photocopying, recording,
If so, be sure to encourage them to apply for a scholarship with the New York mechanical, or otherwise without prior
Insurance Scholarship Foundation! Any individual pursuing a bachelor’s or written permission of the publisher.
advanced degree is eligible. Additional info is available at www.nyia.org/nyisf.
Copyright 2019 by New York Insurance
www.nyia.org/nyisf Association, Inc. All rights reserved.

www.nyia.org • Third Quarter 2019 • 7

BEAM ME UP FUTURISTIC
VIEW
BACK TO THE FUTURE
OF INSURANCE A slightly different take on
P&C insurance issues

by Susan Dawes
New York Insurance Association, Inc.

We are all aware that insurance is an ever evolving and changing industry. As new technology is introduced into
our lives our insurance needs change. I thought it would be fun to go on a bit of a sci-fi adventure and imagine
what needs might exist 300 years from now.

Please join me in my DeLorean as I time travel to the year 2319. Take note of the many changes to the world
and the insurance industry, one of them being the need for time travel and time machine insurance. A popular
insurance option known as the “Doc Brown” policy is available in case the machine isn’t working properly and
sends the traveler to an incorrect destination or year and then breaks down. This type of insurance claim could
be a problem for many parties involved. Who wants to end up in year 1732 when they expect to go to the year
2532? I, for one, would not be a happy traveler.

In the year 2319 I have found that there are several new methods of getting from point A to point B. Cars,
as we know them are a thing of the past, including self-driving autos. Flying cars are now a normal mode
of transportation. Similar methods of car insurance are still in place, but there are also new elements of risk
that need to be considered. Another popular method of day-to-day transportation is teleporting. The “Scotty”
policy, also known as “particle” or “splinching” insurance, has become available in the event that the teleporting
process malfunctions. Ouch, beam me outta here!

Popular vacation destinations are now located all over the Universe. I just saw an advertisement at a local
travel agency for Gateway Resort - Blackhole Crater on the Dwarf Planet, Eris. Yes, a vacation on Eris. I ventured
inside the agency and discovered that an intergalactic travel insurance policy would be required due to the
distance and method of travel used. Travel insurance plans include many of the same things that are covered
today: trip cancellation, trip interruption, trip delay, and/or lost or delayed baggage, etc. Apparently, it doesn’t
matter what planet or year you travel to, you can still encounter the same types of complications.

As we travel back in time to the year 2019, I am encouraged to purchase time meddling insurance, popularly
known as the “Marty McFly” clause. By traveling through time, both to the future and to the past, there could be
unforeseen changes to the course of events.

Since I don’t have a crystal ball, nor am I psychic, I have no way of knowing how the future will impact the
insurance industry. But I believe there will always be a need for insurance and maybe, just maybe, it will involve
time travel.

8 • Your NY Connection Magazine

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BEFORE 1974 1974 –1977

The department formed two committees. The The worst fears of the insurance department no-
Industry No-Fault Implementation Advisory fault team were realized during the first four years
Group and Insurance Department No-Fault of its operation. Rate increases of 30 to 40 percent a
Interpretations Committee which helped in the year starting in 1975 through 1977 were necessary
implementation and monitoring of the no-fault to pay for the first party benefits (PIP benefits).

10 • Your NY Connection Magazine

HAS NEW YORK NO-FAULT LAW MET ITS GOALS?

Part 2: the Implementation of the Law

by John D. Reiersen, CPCU, CFE, CIE
Kingstone Insurance Company

T NO-FAULT LAW

here was a lot going on in 1974 that AF TER 45 YEARS OF EXPERIENCE
captured all the headlines, including UNDER THE L AW I WILL AT TEMPT TO
the Nixon impeachment proceedings, EVALUATE WHETHER THE L AW HAS
the oil embargo and the attempts MET THE GOALS OF ITS CREATORS.
to end the Vietnam war. However, I
hearings related to the enactment of Regulation 68
along with a dedicated group of folks (11 NYCRR 65). In January 1974, I joined the newly
formed Automobile and Compensation Bureau where
at the New York State Insurance Department were I headed the Policyholder Service Division. This
division was charged with monitoring and enforcing
most excited about the launching of a brand-new the new no-fault law.

concept, no-fault motor vehicle insurance. The new

law took effect on February 1, 1974. In preparation

for the launch, the insurance department had many

meetings with the insurance industry including

1977

The Automobile Insurance Reform Act of 1977 becaome effective on
December 1. Under this act the law, among other changes, converted
the dollar threshold for a “serious injury” to a completely verbal
threshold and provided that the workers’ compensation fee schedule
would govern the payment of most health service treatments.

www.nyia.org • Third Quarter 2019 • 11

The department architects of the new law, chief actuary,
actuaries Stan Dorf and assistant general counsel,
estimated that Milton Freedman along with Sandra Siegal,
80 percent of me, and several attorneys from the Office of
the bodily injury General Counsel. This committee remained
lawsuits would intact for 14 years after implementation of
need to be the law as novel questions regarding the
eliminated to law and Regulation 68 continued to arise.
pay for the first This committee was responsible for the 24
party benefits. amendments to Regulation 68 promulgated
to fix ongoing issues.
Circumstances Surrounding the New Law
In order to get the no-fault law enacted,
Prior to the effective date of the law, the insurance department agreed to a
the department formed two committees mandatory 15 percent discount on
that helped in the implementation and automobile insurance rates despite the
monitoring of the no-fault law. The first significant watering down of the bill
committee was the Industry No-Fault from what was originally proposed by the
Implementation Advisory Group, which department. The no-fault policy provided
consisted of senior claim and underwriting up to $50,000 of first party benefits for
officers of the major motor vehicle insurance virtually all accident victims, which was
writers in New York. This committee worked going to be paid for by restricting the
diligently to implement the new law and right to sue for non-economic loss (pain
it stayed together through the Automobile and suffering) for non-serious injuries.
Insurance Reform Act of 1977. The second The department actuaries estimated that
committee was the Insurance Department 80 percent of the bodily injury lawsuits
No-Fault Interpretations Committee. This would need to be eliminated to pay for the
committee included two of the principal first party benefits. Considering the very
weak definition of serious injury in the
law where the mere accumulation of $500
in diagnostic medical bills would qualify
a person as having suffered a “serious
injury,” it was extremely doubtful or even
possible that the 80 percent number could
be achieved. In addition, while virtually all
medical treatment was reimbursable, there
were no fee schedules or limitations which
meant that health providers could score a
windfall from treating a no-fault patient.
So, requiring a 15 percent reduction in
premiums despite a huge expansion in
coverage left the department wondering
how bad the loss experience would turn out.

12 • Your NY Connection Magazine

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MAJOR CONCERNS

THE DEPARTMENT & LEGISLATURE’S CONCERNS GOING INTO ENACTMENT OF NEW LAW

1. 2. 3. 4. 5.

Would claims Would the weak The law Would the Would the no-
examiners definition of provided arbitration fault law survive
be able to “serious injury” coverage for system a test of its
transition from result in a all reasonable established constitutionality
the adversarial reduction of and necessary provide prompt, in the Court of
fault system to 80 percent in health service inexpensive and Appeals?
providing first the amount of practitioners fair resolutions
party coverage? bodily injury with no of disputes?
claims filed in limitations
1973? on treatment
nor any fee
schedules.

Major Concerns of the Department and claimant obtain prompt payment of
Legislature medical expenses and lost earnings.
To enforce the transition, the no-fault
There were a number of concerns going into law and regulations provided for
the enactment of the new law by not only the a 26.4 percent annual interest
insurance department, but also the New York payment for claims not paid within
State Legislature. I have enumerated below 30 days of proof of claim, when
these specific concerns and the questions the prevailing interest rate in 1974
that were being raised at the time to give was 7 percent. In addition, only the
you a sense of the uncertainty. claimant was given the option for
submitting any dispute involving the
1. The fault system was an adversarial payment of first party benefits to
system prone to excessive mandatory arbitration, with virtually
investigation and delays in claim all the costs paid for by the insurer
payments. No-fault essentially including the claimant’s reasonable
converted the adversarial tort system attorney’s fees. In retrospect, these
to an accident and health first party measures went too far, and the
coverage. The question was raised as overreaction has unfortunately led
to whether claims examiners would to the significant amount of first
be able to transition to helping the party benefits litigation today.

14 • Your NY Connection Magazine

2. Would the weak definition of “serious In short, the new law was a disaster for the
injury” result in a reduction of 80 following reasons:
percent in the amount of bodily
injury claims filed in 1973? If this 1. The $500 qualifier for being seriously
target was not met then the result injured proved to be the “Achilles heel”
would be a significant increase in as injured parties in large numbers
premiums that would threaten the obtained $500 in diagnostic tests
existence of the law. and physical therapy to meet the
threshold to sue for non-economic
3. The law provided coverage for all loss. Only 40 percent of the tort suits
reasonable and necessary health were eliminated, far short of the
service practitioners with no 80 percent required. Also, the $500
limitations on treatment nor any fee threshold resulted in overutilization
schedules. All health care providers of benefits so a lawsuit could be filed
were eligible for benefits including for pain and suffering.
Christian Science Practitioners.
2. Health service providers, including
4. Would the arbitration system set hospitals, had a field day with PIP
up in the American Arbitration insurers as no-fault was one of the
Association (AAA) to adjudicate few sources of reimbursement that
disputes involving the payment of had no limitations as to treatment,
benefits provide prompt, inexpensive no fee schedules nor any co-pays
and fair resolutions of disputes? and deductibles other than the
optional family $200 deductible. The
5. Would the no-fault law survive a test result was unreasonable charges
of its constitutionality in the Court and unnecessary treatment, just the
of Appeals? opposite of what was expected. Thus,
PIP costs far exceeded expectations.
Experience Under the Law 1974–1977
3. The AAA arbitration system utilized
Despite best efforts, the worst fears of volunteer arbitrators who received a
the insurance department no-fault team small stipend of $50 per case. Virtually
were realized during the first four years all the arbitrators were plaintiff
of its operation. Rate increases of 30 to counsel resulting in insurers losing 95
40 percent a year starting in 1975 through percent of the cases. As a result, some
1977 were necessary to pay for the first insurers just paid the amount billed
party benefits (PIP benefits). Over 20,000 or some other compromised amount.
complaints a year about unaffordable
automobile insurance were made to the 4. The intercompany loss transfer on
department with many more being made all claims proved to be expensive
to the legislators and the Governor. Efforts requiring an investigation of most
were made to repeal the law, led by claims and the filing of an arbitration.
Assemblymen Sheldon Silver and Mel Miller. As a result, insurers overall won as

www.nyia.org • Third Quarter 2019 • 15

REASONS much in claims as they lost with the
only result being the increased costs
THE NEW LAW to pursue these claims.

6WAS A DISASTER 5. It was not possible to fine insurers
1974–1977 for violations of Regulation 68 as
1. Serious Injury Qualifier there were no precise time frames
other than 30 days from proof of
2. A $500 serious injury qualifier resulted in over claim. I tried to fine an insurer based
3. utilization of benefits and easily allowed for lawsuits on a market conduct investigation
4. to be filed for non-economic loss. for violating the claim practice
5. provisions of Regulation 68. That
6. No Limits, No Fee Schedule insurer requested a hearing at the
insurance department and believe
PIP costs far exceeded expectations due to it or not I lost the hearing. The
unreasonable charges and unnecessary treatment. hearing officer correctly ruled that
the department could not make up
Arbitration System time frames to define what was
prompt and reasonable and then
Arbitrators were plaintiff counsel resulting in penalize insurers for not following
insurers losing 95 percent of the cases. them. What was needed was more
precise regulations governing the
Intercompany Loss Transfer processing of claims.

Insurers won as much in the claims as they lost 6. Fraud on the part of medical
resulting in increased costs to pursue the claims. providers was rampant as plaintiff
counsel sought out doctors to
No Precise Timeframes provide $500 in health service bills
so their clients could sue for non-
It was not possible to fine insurers for violations of economic loss. As an example, the
Regulation 68 as there were no precise timeframes. insurance department was receiving
many complaints about a particular
Medical Provider Fraud doctor (Doctor X). I asked the Industry
Advisory Committee to send me all
Medical provider fraud was rampant as plaintiff the bills they received from the doctor.
counsel sought out doctors to provide $500 in The department was provided a lot of
health service bills so their clients could sue for bills submitted by this doctor and
non-economic loss. was able to determine from these
bills that he was seeing 80 to 100
patients a day with physical therapy
being rendered by his 13-year old
son. We successfully prosecuted this
doctor and the New York Post carried

16 • Your NY Connection Magazine

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With offices in; New Jersey Connecticut

Newburgh,
New York

a front-page article on the exploits Automobile Insurance Reform Act of 1977
of Doctor X and how this activity was
driving up auto premiums. Governor Carey directed the department
to fix the problems causing the huge
In 1975, the New York Court of Appeals in premium increases. It was clear that
Montgomery v. Daniels (38NY 2d 41) found no-fault was not working and that either
the no-fault law to be constitutional. The changes needed to be made to the law or
court decided that the elimination of tort it needed to be repealed. The trial lawyers
rights for non-serious injuries was counter and several legislators called for repeal of
balanced by the providing of $50,000 in the law. The no-fault team and I spent
first party benefits to virtually all accident almost every week of the 1977 legislative
victims without regard to fault. session in Albany negotiating with the trial
lawyers and the medical society trying to
reach a compromise. Assembly Speaker
Stanley Steingut, Assembly Majority Leader
Stanley Fink and Senate Majority Leader
Warren Anderson were able to get Chapter
892 of the Laws of 1977 enacted. This
law converted the dollar threshold for
a “serious injury” to a completely verbal
threshold and provided that the workers’
compensation fee schedule would govern
the payment of most health service
treatments. The reforms carried an effective
date of December 1, 1977.

Getting the verbal threshold enacted was
the key ingredient to making no-fault work,
as at least 80 percent of the bodily injury
liability claims needed to be eliminated
to pay almost every accident victim up
to $50,000 in benefits. The department
still had doubts that the verbal threshold
would be effective, as the word permanent
was not placed in front of every qualifier.
The qualifier “significant limitation of a
body function or system” was worrisome
as how would the word significant be
interpreted by the courts. Fortunately, the
courts insisted that an injury must be
serious to qualify, and the courts did not
qualify most soft tissue injuries. The verbal
threshold eliminated 80 to 85 percent of

18 • Your NY Connection Magazine

the bodily injury lawsuits as compared to to file a program with the department
the number of suits filed in 1973. Most that in return for a premium discount the
importantly, the dollar threshold was gone insured’s health insurance could be made
thus eliminating the need to build up primary to no-fault. Unfortunately, while
medical bills to qualify as seriously injured. this provision is still in the law, no insurer
to date has enacted a program to coordinate
Over the objections of the Medical Society no-fault with an insured’s health insurance.
of the State of New York, the New York
State Chiropractic Association and the Experience After the Automobile Insurance
Hospital Association of New York, we Reform Act of 1977
were able to get medical fees schedules
enacted for the payment of no-fault health The reform act saved the no-fault law
service benefits. The key to getting this from being repealed. The verbal threshold
accomplished was a study undertaken by defining “serious injury” did reduce bodily
the Industry No-Fault Advisory Committee injury tort claims by over 80 percent
to compare actual medical bills paid under compared to the number of claims in
no-fault to the workers’ compensation 1973. This was essential to finance first
fee schedule. Several thousand bills were party benefits to virtually all accident
reviewed and compiled by the committee victims without regard to fault. While the
with the result being that no-fault insurers department was worried about certain
were billed about 50 percent more than qualifiers becoming a loophole, the courts
what would have been paid for the same for the most part have disallowed most
treatment by the workers’ compensation non-serious injuries from qualifying to sue
insurer. Why should treatment of an for non-economic loss (pain and suffering).
automobile accident victim be so much
more than an injured worker for the same In addition, the elimination of the $500
injury? In the end the medical society qualifier eliminated the practice of accident
could not refute the findings of the study victims getting $500 of diagnostic care
and the no-fault medical fee schedules whether they needed the treatment or not.
became a reality. The limitation of reimbursement for most
health services to a maximum of the workers’
The reform act eliminated intercompany loss compensation fee schedules worked very
transfer for most no-fault claims restricting successfully to contain first party health
these claims to accidents involving a for- services costs under no-fault. Experience
hire vehicle or a vehicle weighing 6,500 under the law improved dramatically.
pounds or more unloaded. After enactment
of Chapter 892, the department’s no-fault The elimination of loss transfer claims for all
team worked very hard to redo Regulation accidents except those involving a for-hire
68, implement the medical fee schedules vehicle or a vehicle weighing over 6,500
and reform the arbitration system. pounds also made a big difference. This
change resulted in a significant savings on
The new law also added a provision to investigations and the cost of disputing
Article 51 giving no-fault insurers the right these claims.

www.nyia.org • Third Quarter 2019 • 19

The insurance department pursuant to reduced the growth in arbitrations, Under
Section 675 of the law (5105 today) the former system filings were growing
made a dramatic change in the arbitration over 50 percent a year. The new system
system for disputes involving the payment also accomplished the following:
of first party benefits. Regulations were
adopted that significantly revised the 1. Insurers may have been more
system. As previously noted, the prior motivated to pay claims when
system resulted in insurers losing about speaking to a department examiner
95 percent of the arbitrations resulting during the conciliation process. The
in them paying a lot of claims where conciliation unit was located right
payment was not warranted. Under the next to the market conduct unit, so
revised system all arbitration requests were if the conciliators noted a pattern
filed directly with the department. The of improper non-payments then
department had received enough budget the market conduct unit would be
to hire about 30 examiners to supervise notified and sometimes it resulted
and enforce the no-fault law as well as in an examination.
supervising the arbitration system. We set
up 12 examiners as conciliators and two 2. Regulation 68 claim practice
examiners as arbitrators. Minor claims rules were significantly revised to
involving interest only were arbitrated by establish clear time limits for every
the department. Under the prior system the phase of the claim process. This
AAA was receiving about 12,000 requests helped the conciliators and the
for arbitration per year with no conciliation arbitrators in deciding cases and
procedure in place. gave clear-cut rules for market
conduct examiners to determine
The revised arbitration mechanism was a violations.
huge success. The department received
about 10,000 requests for arbitration per 3. The insurance department was able
year and about 70 percent of these cases to quickly determine abuses by so
were successfully conciliated. All cases called “PIP attorneys” and regulation
but those involving solely the payment 68 was amended multiple times to
of interest were forwarded to the AAA cure these abuses. For example,
for adjudication. The cases at the AAA the assignee attorneys would
were ultimately handled by full-time, deliberately mail the no-fault forms
paid arbitrators who were approved by a to the home office of major insurers
committee, which included representation rather than the local claim office as
from the insurance department. Arbitrator’s this could delay payment by two
decisions could be appealed under some weeks or more. Regulation 68 was
circumstances to a master arbitrator. The amended to state that the 30-day
decisions in arbitration became more even- clock started to run when the forms
handed despite the insurance industry were received by the proper claim
still losing the majority of the decisions. processing office of the insurer.
The revised arbitration system dramatically

20 • Your NY Connection Magazine

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an option.

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and not for Baker Tilly.

We have combined with leading global
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bakertilly.com/insurance
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Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal
entities. © 2019 Baker Tilly Virchow Krause, LLP.

WAYS A FAIRER, LESS 4. In 1988, the department received
EXPENSIVE DISPUTE about 10,000 requests for arbitration
RESOLUTION and over 70 percent of these requests
were conciliated. Only 2,800 cases
4 MECHANISM WAS were transmitted to the AAA for
CREATED an arbitration. The revised system
was fairer to insurers and dispute
1. Department Examiners resolution costs were kept to a
2. minimum.
3. Insurers may have been more motivated to pay
claims when speaking to a department examiner While it is not possible to detail in this
4. during the conciliation process. article all of the activities of the department
and the industry from 1977 to 1989, the
Established Clear Time Limits efforts of those who wanted the no-fault
concept to be a success paid off and in
Regulation 68 claim practice rules were 1988 insurance trade associations labeled
significantly revised to establish clear time limits the New York law as the best no-fault law
for every phase of the claim process. in the country. Over 80 percent of bodily
injury lawsuits had been eliminated and
Cured Abuses by “PIP Attorneys” combined with the controls on health
service costs and a fair arbitration system,
The insurance department was able to quickly about 50 cents of the automobile premium
determine abuses by so called “PIP attorneys” dollar was being paid in economic benefits
and regulation 68 was amended quite a few to accident victims. Benefits were being
times to cure these abuses. paid promptly by no-fault insurers. So, what
happened after 1989?
Dispute Resolution
The last part of this three-part article will
Over 70 percent of requests in 1988 were cover the developments in the law from
conciliated. The revised system was fairer to 1989 to present. I will provide my opinion
insurers and dispute resolution costs were kept on whether the law is meeting the goals
to a minimum. of its creators and look at some possible
alternatives to improve the system.

John Reiersen serves on the board of
directors of Kingstone Insurance Company
and previously served as president
and CEO of the company before his
retirement. John spent the first part of
his insurance career at the New York
Insurance Department for a total of 25
years. You can reach John at 631.965.9661
or [email protected].

22 • Your NY Connection Magazine

was asking employees to relocate. I wasn’t interested in
being told were I was going to live, so I stumbled upon
an opportunity with a small company named Dryden
Mutual. They were in need of a senior casualty adjuster
,and I ended up being the person to fill that need.

Q&A Q: What do you like best about working in insurance?
A: The premise of insurance is to make people whole
Peter Vercillo after a loss and to me it is a great environment to be
in. It is a vast and diverse work environment with many
by Cassandra Anderson, CAE specialties to match the varying talents of its workforce.

PNew York Insurance Association, Inc. Q: What do you like best about working for Dryden?
eter Vercillo, president and CEO of Dryden A: I appreciate having an identity with my employer
Mutual Insurance Company, defines the especially in today’s consolidated, technology driven
meaning of a thoughtful approach. He was world. I have appreciated this characteristic of Dryden
the perfect person to lead Dryden Mutual, a Mutual since day one, and I still feel the same way today.
company with an already rich corporate culture. Pete is Interns, full time employees and management have the
open and honest and always in a measured and insightful ability to ask questions or make suggestions on a daily
manner. You will undoubtedly enjoy reading his insights basis, which many times improve the organization. If I
and how he applies his philosophies on life to insurance. am concerned or excited about some aspect of Dryden’s
operations, everyone here knows about it, and that type
Q: What drew you to work in the insurance industry? of transparency is not common in today’s business world.
A: A paying job, as I was unsure of my career path after
working in my family business straight out of college. Q: What is Dryden’s greatest strength?
A: Our greatest strength is Dryden’s corporate culture. We
Q: Where did your career take you before this role? do a lot of nontraditional things in our employee practices,
A: I entered the insurance industry 25 years ago as an business operations and product portfolio. The fact that
auto appraiser with the State Farm insurance claims we have a pension, employee bonus plan, no performance
office in Central New York. I quickly moved to an reviews, willingness to write nontraditional risks, no-fear
auto property claims adjuster and then casualty claims work environment and a shared understanding of our
adjuster. I found my niche with casualty claims as I common goal, are just a few of the practices that have
enjoyed the investigation, creative thinking, negotiating supported our long term success. We take care of our
with attorneys and ultimately making people whole once employees and they take care of our customers.
a loss had occurred. I did not view plaintiff attorneys
as adversaries, but rather someone doing their job just Q: What do you view as the greatest opportunity for the
as I was. I viewed the process as a negotiation working industry over the next 5–10 years?
towards the truth, and if we couldn’t agree, then a jury A: I am not a futurist, but rather a realist with a focus
would decide. Due to corporate consolidation, State Farm on future challenges. I see drastic changes coming in
the auto market with the daily advances in autonomous
driving vehicles. These changes will cause significant
ripple effects throughout the industry. One might think
since Dryden does not write auto insurance the effect

www.nyia.org • Third Quarter 2019 • 23

will be minimal. I see the opposite. The large auto person in their lives. This was certainly unexpected, at
carriers are already preparing and entering new markets least in the amount of people who voiced this to me, but
in an effort to minimize the effects of this change. it helped me understand and appreciate his leadership
Therefore we need to continue to evolve our markets style, which in-turn influenced me. Servant leadership
and products and the industry must do the same. is a trendy term lately, but I would classify myself
within this style. Leading with others in mind is the
Q: How long have you been affiliated with NYIA? focus with this type of leadership. Nurturing trust and
A: I have been attending meetings for the past six years, being there when your people really need help are two
when I began my mentoring with my predecessor Bob additional characteristics I value within this philosophy.
Baxter. I still remember attending my first NYIA meeting This style of leadership, if successful, ultimately leads to
alone and thinking I am not going to know anyone and a collection of people who put the good of the group
probably sit by myself, just like my first day as a freshman before themselves, and that is when great things happen.
in college. A funny thing happened as I walked into the
Century House banquet room, the first person I saw was Q: How would your colleagues describe you?
one of my best friends growing up, Joe Cogliandro, who A: I am not sure, but I think they would say I am honest
is an attorney with Nationwide Insurance. and sincere in what I communicate, I care about their
wellbeing and growth as people and that I talk too much.
Q: What is the greatest opportunity for the association?
A: I believe NYIA is currently seizing the opportunity to Q: If you weren’t in insurance, what would you be doing?
be a valued service to carriers. We operate in a highly A: I would be an attorney, as I enjoy seeking the truth and
regulated industry and state. Having NYIA as a resource the struggle that goes along with finding it.
of information and action is valued by Dryden Mutual.
Q: What would people be surprised to learn about you?
Q: What prepared you for your current role? A: I managed a family owned tavern/restaurant for seven
A: Struggles, failure, education, humility, curiosity and years just after college.
perseverance, have all played a role in my development.
Q: How do you like to spend your free time?
Q: What is your greatest professional accomplishment? A: I enjoy spending time with my family, fixing things
A: In my effort to evolve as a person, I am constantly at home, working on cars, following Syracuse Orange
struggling with my daily commitment to kaizen, the sports, and as an empty nester, traveling with my wife.
Japanese word for continuous improvement. At times,
this struggle will lead to a short term feeling of Q: What do you like best about living in Syracuse?
disappointment, but this sense of struggle is usually A: I love three seasons and dislike one.
followed by progress and satisfaction. My long term
commitment to this practice has certainly helped me Q: If you could live anywhere where would it be?
evolve as a person, parent and professional. A: I think my wife and I will keep our roots in Syracuse,
but I would love to have a winter getaway in Scottsdale,
Q: How would you describe your leadership style? Arizona or Hermosa Beach, California, but those are
A: I am the son of a coach, a football coach, a very possibilities in the distant future as I have many
successful football coach. He recently passed away challenges with my role at Dryden Mutual to focus on.
and I can count more times than I have fingers when
former players approached me and stated that other Q: If you could have any super power, what would it be?
than their parents, my father was the most influential A: I would grow my hair back …

24 • Your NY Connection Magazine www.nyia.org • Second Quarter 2019 • 24

A full-service law firm defending insureds and insurers
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Macro -VS-Micro

HOW ECONOMICS AFFECTS YOUR RECRUITMENT STRATEGY
by Marc Gyimesi
The Carlisle Group
... IT IS IMPERATIVE TO UNDERSTAND THAT THE
CANDIDATE YOU DESIRE MAY COME TO THE ORGANIZATION
WITH MORE FINANCIAL PRESSURE THAN EVER BEFORE.

W e live in very unique times from an economic perspective. That is why it’s
important to keep abreast of how the economy is directly impacting your
ability to recruit the best talent possible for your organization.
With household debt in the United States topping $13.5 trillion (due to student loans,
auto loans, credit card balances, and other forms of revolving credit), it is imperative
to understand that the candidate you desire may come to the organization with more
financial pressure than ever before. Building a plan now to ease that stress will not
only help you achieve a successful recruitment strategy, but more importantly, it
could help ensure the retention of that employee for many years.

26 • Your NY Connection Magazine

1 Dual Income
Households

2 Financial
Literacy Classes

3 Customizable
Benefit Options

4 Relocation or
Telecommute
Environment

4 Key Areas of
Consideration

www.nyia.org • Third Quarter 2019 • 27

Let’s start with some real facts due (record high), and 7 percent Why are these numbers growing?
that haven’t quite gotten the of all credit card debt was also We are being told daily that
attention they deserve. 90 days past due (you guessed inflation is practically nonexistent,
it: record high). Data from the but this simply isn’t true. Google
In 2018, household debt reached Federal Reserve Bank of New the cost of basic goods bought
a record high. (Yes, higher than York on December 31, 2018 typically on a regular basis,
in 2008, which is quite scary!) showed household debt grew 3 and you’ll see that the cost
In 2018, 4.5 percent of all auto percent that year, and with a of living across the U.S. has
loans were 90 days past due macro economy driven on debt, increased dramatically. I have
(record high), 11 percent of all it appears these numbers will included a few key examples in
student loans were 90 days past continue to grow year after year. the accompanying chart below.

COST OF LIVING INCREASE

1990 2019 InPcrreicaese

$2.78 $3.75 35%

per gallon of milk per gallon of milk125%

$1.16 $2.61 196%

per gallon of gas per gallon of gas 120%

$1.00 $2.96 117%

per dozen eggs per dozen eggs 107%

$0.25 $0.55

postage stamp postage stamp

$16,950 $36,843

new car new car

$149,800 $310,400

new house new house

28 • Your NY Connection Magazine

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access to the latest information, insights and trends in the insurance industry. Our
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And the webinars we offer give your teams a chance to sharpen their skills whenever
it’s convenient for them.

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Customized Rating and Statistical Services.

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From these examples you can easily Oddly enough, if we were to isolate However, in today’s macroeconomic
discern that inflation is, in fact, very simply credit card debt for the environment, financial growth may
real. And while many families are purpose of this article, per the be one of the biggest factors for
still recuperating from the great Federal Reserve of New York in your selected candidate to consider
financial crisis in 2008, the average 2018, households making in excess before they take the risk of switching
income increase has not kept up of $160,000 annually also held companies.
with the rate of inflation. Take the the largest credit card balances
above numbers and add the rising averaging $11,200. Bear in mind, Key Areas of Consideration
cost of health care and the rising this is not including mortgage debt,
cost of post high school education, student loan debt, auto loans, home Now that we have discussed the
and it is not hard to see that the equity lines of credit or any other impact of the economy here in the
average pay check in the U.S. does form of debt such as medical bills. U.S., I would like to address how
not go nearly as far in today’s you–the employer–can take steps
market. With the United States The bottom line: your potential to help attract your next hire. The
Federal Reserve further lowering candidate may be stretched biggest secret here is that many of
interest rates to spur on even more financially. In our very tight labor these ideas (already implemented
debt, printing money to infinity and market, which is currently 3.7 by other clients of mine), will not
denying inflation really exists, the percent unemployment nationally break the bank!
problem is made even worse. or 1.6 percent unemployment in
the insurance carrier subset (per Dual Income Households
What Does All This Mean? the Bureau of Labor Statistics), it
is imperative to understand that After reading the material covered
Most clients with whom I have your potential new hire may heavily here, it should come as no surprise
discussed this information weigh items such as benefit costs, to anyone that dual income
unfortunately tend to respond,“I pay salary, incentive pay and relocation households are growing rapidly in
my employees well–these numbers assistance when considering your the U.S. In 2018, as reported by
are for other people,” or, “I get what offer. In an idealistic world, every the Bureau of Labor Statistics, the
you are saying, Marc, but the debt person considering a career change number hit 63 percent (record high).
numbers you are showing are for will move for culture, a family With the average household in the
lower income brackets.” oriented environment or stability. U.S. currently having 1.9 children

30 • Your NY Connection Magazine

and knowing the predominate and additionally the benefit shows with candidates during your
portion of the labor force is in fact the company truly cares about work- recruitment process as another way
a dual income household, day care life balance. to show the company truly cares for
continues to be an ever rising cost the financial health of the staff. You
to the family. Financial Literacy Classes will find that by implementing this
great benefit in your organization,
With the average cost of day It would be easy to blame the you will empower your employees
care running $733/month for rapidly growing debt problem in the to make wise decisions. Often, a
preschoolers ($8,796/year per U.S. strictly on inflation. But simply financially healthy employee is a
child), the cost is significant and blaming inflation ignores another productive employee.
will only continue to rise. One area key factor. Individuals do have
of opportunity clients have begun accountability for their own bank Customizable Benefit Options
to explore is offering a day care accounts, how they manage their
subsidy. Even a few hundred dollars money and the ultimate choices they Have you ever gone shopping for a
a month as an additional employer make for spending their hard-earned pair of pants to find only one color,
contribution can dramatically ease dollar. However, it is clear that while one size and one brand in the store?
this heavy financial burden. For your inflation is a big contributor, lack Of course not. And, in fact, I would
potential new recruit in this very of financial education is certainly be willing to bet that if that were
situation, the benefit could easily further accentuating the problem. the case, you would most likely
sway their decision to work for you, leave the store quickly for another
Many clients have begun to offer option that offered you a selection
free financial health seminars that made sense for your individual
to their staff. This very simple size, style and need.
employee perk can be held once
a month over a lunch period or Believe it or not, your staff
can be customized to accommodate views benefits offered by your
your organization’s own individual organization in a similar way. Many
needs. I am quite certain there is a clients are pursuing an a la carte
highly skilled financial planner in option with a few carefully selected
your local market who would love items, which aren’t very expensive
a captive audience (a great way for but could add great benefit. In this
the selected financial professional instance, the employee can select
to potentially take on new clients). one, or two, in a given year. Some
This professional could spend a options clients have used: two (2)
couple of hours a month discussing extra days off, titled “family days,”
debt management, saving for which promotes dedicated time
college via a 529 plan, addressing with family that MUST be taken if
large ticket purchases like a car selected; clothing allowance, which
or just be a sounding board for is especially fantastic for marketing
individual questions as unique staff who are in front of your agents
needs surface. This service can add daily; dinner for two, up to a specific
significant value for your current dollar amount; or one option a
employees and can be discussed client just implemented on their

www.nyia.org • Third Quarter 2019 • 31

If the selected If the selected candidate has a In Closing
candidate currently working spouse, which
is highly critical to the financial As discussed in this article, the state
needs certain health of the household, it is of the union at the household level
fairly minor imperative that your area provide is not nearly as positive as the stock
similar employment opportunities. market. To position themselves to
considerations (in If your area does not offer similar win, employers need to understand
the big picture), employment opportunities, you that we are fighting a massive debt
does the cost could do as one client I have problem and an extremely tight
really matter as worked with did. This client is based labor market and need to create
long as it solves in a rural geographic area and in customizable solutions.
this very situation has retained a
your larger issue? reasonably local professional temp I challenge you to look at
staffing firm. If/when a situation compensation (salary, bonus and
customizable menu was a specified has arisen, this firm has worked benefits) as an entrepreneur who
amount allocated for theme park with the trailing spouse to find is trying to solve a critical problem
tickets so the employee and family them at least temporary local in your organization. Finding the
could receive free admission to a employment until an opportunity right talent to solve this issue in
theme park on the company. in their specific field surfaces. your organization can be priceless.
While possibly not the most ideal
The options you could offer are solution, going this route does If the selected candidate needs
endless, but if you are craving a provide income during the interim certain fairly minor considerations
unique talking point while attracting period, which can be extremely (in the big picture), does the
your next recruit, imagine being important during the transition. cost really matter as long as
able to share a variety of potential it solves your larger issue? Do
options the company offers during Of course, no option is better than you create an environment that
the conversation. I promise you will trying to avoid relocation when creates solutions accommodating
stand out, and in turn, also help the possible. Embracing a telecommute to market conditions, or do you
candidate’s wallet. (work-from-home) environment can remain stagnant while your position
drastically help all parties avoid remains open? If the problem this
Relocation or Telecommute costs and risks, and it can help employee can solve will further
Environment you find the perfect candidate who the organization, be flexible. Take
might not have been in a position the risk because, in this current
Relocation is a topic that has to relocate otherwise. There are labor market, being flexible could
become significantly more complex many creative ways to acclimate a be your golden ticket.
as dual income households have work-from-home employee (even in
increased. Imagine, not only does management). Doing so could drive Marc Gyimesi is a senior search
the employer need to assess your company to hire the best talent consultant for The Carlisle
technical competency, cultural fit for the role you are seeking to fill Group. You can reach Marc
and personal fit to the geographic versus the best available candidate at 717.249.2626 x3007 or
area of interest, but now more than who would be willing to relocate. [email protected].
ever, a significant area of focus
has become replacing spousal
income needs.

32 • Your NY Connection Magazine

Pastel & Rosen, LLP

Engaging in the general practice of law
with an emphasis on representing
property/casualty insurance

companies for legislative, regulatory,
and compliance work.

Robert S. Pastel, Esq. and Michael E. Rosen, Esq.

258 State Street, Albany, NY 12210 (518) 462-4715 PastelandRosen.com

INNOVATION

Has Always Been a Driving
Force for Insurance

by Paul Tetrault, JD, CPCU, ARM, AIM
The Insurance Library

Upon learning that A.M. Best was considering An Innovative Industry
explicitly incorporating an evaluation of
innovation into its insurer rating mechanism, It would be difficult for one who
I was inclined to offer perspective on behalf has spent any appreciable amount
of The Insurance Library, an institution that of time accessing the library’s
has collected and curated information about collection to avoid being mindful
the risk management and insurance industry of the fact that the history of risk
for over 130 years. As is often the case, it can management and insurance is a
be useful to look at the history of insurance, story of innovation. Organizational
and in this case the innovative nature of histories, treatises describing
our industry, to better understand where we complex coverages, and volumes
are today. This article is largely based on of periodicals recording contemporaneous
comments submitted to A.M. Best to offer accounts of industry developments all
a historical perspective to be considered reflect the history of an industry that
for the proposed Scoring and Assessing was founded in innovation and has never
Innovation Draft Criteria. stopped innovating.

34 • Your NY Connection Magazine

It would be difficult for

one who has spent any appreciable
amount of time accessing the
library’s collection to avoid being
mindful of the fact that the history
of risk management and insurance
is a story of innovation.

www.nyia.org • Third Quarter 2019 • 35

INSURANCE IS, AT THE MOST
FUNDAMENTAL LEVEL, AN

INNOVATIVE CONCEPT.

Insurance is, at the most fundamental level, by swift exchanges of
an innovative concept. The ubiquity of information and devotion
insurance arrangements in modern society of time and energy to questions regarding
can make it hard to appreciate that the idea the adequacy of the insurance industry
that the risk of loss could be managed and collectively, as well as individual insurance
made tolerable by spreading risk through a industry participants, when it comes to
financial mechanism supported by contractual innovation. Is the industry behind in some
obligations was at one time a novel concept. way, or can it keep up or catch up with some
unspecified level of innovation, are among
Once initiated as a commercial enterprise, the queries made.
insurance has never taken a pause from
innovation. The industry has constantly We have seen such questions asked by
innovated internally, adopting and applying insurance regulators, along with the
newer and more refined business processes associated question of whether they are able
and methodologies to its operations. And to sufficiently keep abreast of innovative
it has constantly, not merely, kept pace developments to fulfill their mission of
with the innovations taking place in society protecting consumers. In response, the
over a remarkable era of human ingenuity, National Association of Insurance
insurance has enabled such creativity to Commissioners, the policy development and
occur by providing the security and certainty standardization organization consisting of
necessary to allow ventures to move from all of the states’ insurance commissioners,
ideas to reality. established an Innovation and Technology
Task Force. And there has been discussion
But while the collection at The Insurance regarding the potential need for legislation
Library reflects an industry in a constant state to promote a “regulatory sandbox” to
of innovation, certainly recent continuing promote the development of innovation.
additions to the body of information stored
here demonstrates an intense focus on the Explicit Proposal
concept of innovation itself. The past few
years have seen the development of a new In this context it is not surprising to see a
brand of activity, sometimes referred to as proposal to create a new explicit mechanism
an “ecosystem,” including in an article that to assess and evaluate insurers’ strengths,
appeared in The Standard entitled The Digital weaknesses, abilities and failings when it
Advantage. This time has been characterized comes to innovation.

36 • Your NY Connection Magazine

The March 14 press release seeking comment
on the proposal states that “Historically,
A.M. Best has captured innovation indirectly
through the various building blocks of its
rating process,” and acknowledge that
“Innovation always has been important for the
success of an insurance company,” but goes on
the suggest that, “with the increased pace of
change in society, climate and technology, it
is becoming increasingly critical to the long-
term success of all insurers.”

These statements seem to possess a degree
of internal conflict that may be heightened by
a broader consideration of the history of the
insurance industry. It is worth noting that now
is not the first time there has been a developed
sense of urgency for the industry to accept and
adopt change. Just in the past few decades
there have been calls for insurance agents to
adopt what was often referred to simply as
automation, like what was outlined in Agency
Automation: A Minute Manual, which appeared
in The Journal of Insurance, and sometimes to
become a paperless office, as was questioned
in another article, The Paperless Office: Dream
or Reality as penned by Gina Bellovich in
Supergrowth. There was a movement that
anticipated the need for insurers to go through
a fairly radical procedure of “reengineering”
in order to meet customer demands, which
has been raised on a number of occasions,
including by Ronald E. Compton in the
article Reengineering and Insurance: Solving
Problems, Seizing Opportunities. An example
of reengineering would be the converging
of insurance with other financial services to
establish a marketplace. Pamela Yip in The
Dallas Morning News in the article One-Stop
Shopping for Financial Services explored the
idea of “one-stop shopping” for a range of
banking, credit and insurance products as the
dominant form of delivery.

www.nyia.org • Third Quarter 2019 • 37

QUESTIONS FOR Questions for Consideration including residences and businesses,
CONSIDERATION would have been found in any fire
Recalling these points of emphasis insurer’s offices in the early part of
Recalling these points of and prediction may reasonably prompt the last century. They are a continual
emphasis and prediction questions regarding the sentiments reminder to library visitors not only that
may reasonably prompt of the current moment regardless of the industry has evolved but also that,
questions regarding the how intensely or broadly emphasized. prior to the introduction of modern
sentiments of the current Among the questions that might be computers that are ever-present in
moment regardless of considered: every facet of the modern business
how intensely or broadly world, the industry was able to function
emphasized. Among the • Will the current intense focus well and in a sophisticated manner.
questions that might be on the value of innovation
considered: recede at some time in the Consideration of the use of such tools
not-to-distant future, and if so, (the “insurtech” of their day) can
• Will the current intense will it be replaced on other give rise to a thought exercise that
focus on the value of institutional values? while extreme could be enlightening.
innovation recede at What if an insurer several decades
some time in the not- • Is it possible for an excessive ago made a strategic decision not
to-distant future, and focus on innovation to cause to implement any technology but
if so, will it be replaced an observer to miss larger, to stick with the processes and
on other institutional perhaps more fundamental, methodologies that had served it and
values? points about an entity’s its agents and customers well? Could
operations? a company that today communicated
• Is it possible for an largely by mail and maintained a
excessive focus on • Could activities and even typing pool on the one hand but did
innovation to cause results that appear to be not have an IT staff or an annual
an observer to miss innovative and beneficial in expenditure on IT infrastructure and
larger, perhaps more the short term turn out, when maintenance on the other still be
fundamental, points viewed from a longer time good at underwriting and paying
about an entity’s horizon, to be distractions or claims? Perhaps not, but it is possible
operations? even impediments to success? that foregoing some changes for
others to adopt first and work out
• Could activities and even A Thought Exercise the problems at a higher cost, and
results that appear to be possibly even avoiding cycles of
innovative and beneficial One of the more notable items in adoption of short-lived technologies
in the short term turn the library’s collection, and always a could result in net efficiencies that
out, when viewed from highlight during tours of our premises, appear backward when others are
a longer time horizon, is a set of Sanborn Fire Insurance advancing but prescient in hindsight.
to be distractions or Maps that cover most of the New
even impediments to England region. Such maps, which Paul Tetrault is an executive director
success? contain address-specific information at The Insurance Library. You can
regarding the construction, occupancy, reach Paul at 617.227.2087 x201 or
38 • Your NY Connection Magazine exposure and protection of buildings [email protected]

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128-00035C (1/19)

JUNE 26 AUGUST 5

Finger Lakes Insurance American International

Council Annual Meeting Group’s 100th Anniversary
Ellen Melchionni, Cassandra
Anderson and Javier Tapia gave Celebration
a legislative and regulatory Ellen Melchionni attended
update at a gathering of the centennial celebration for
regional insurance companies member company American
focusing largely on the end International Group (AIG)
of the legislative session in New York, NY and learned
hosted in Auburn, NY. more about AIG’s rich history
in the insurance industry.

JULY 1 JULY 24

The NYS Workers’ Guy Carpenter Symposium
Compensation Board Ellen Melchionni attended
Summer 2019 Conference member company, Guy
Javier Tapia attended this Carpenter’s annual symposium
event hosted in Albany, NY in Cooperstown, NY and
and learned about the connected with many NYIA
important advances in workers’ members and industry affiliates.
compensation and how the
board is striving to do more
for workers and businesses.

40 • Your NY Connection Magazine

Out &
AbOut

AUGUST 7 AUGUST 27 SEPTEMBER 5

2019 NAIC National Meeting Member Company NYAAIF Board Meeting
Ellen Melchionni attended the Ellen Melchionni attended
summer meeting and heard Visit at Allstate the New York Alliance Against
the latest in regulatory news Ellen Melchionni, Cassandra Insurance Fraud board
from the National Association Anderson and Javier Tapia meeting in New York, NY
of Insurance Commissioners spent the day at Allstate’s and spoke with fellow board
in New York, NY. New York headquaters in members about the 2020
Hauppauge, NY and learned public relations campaign.
about their company’s
day-to-day operations.

AUGUST 22

Senator Breslin Fundraiser
Ellen Melchionni and Javier
Tapia participated in the
the annual golf tournament
in support of chairman of
the Insurance Committee,
Senator Neil Breslin.

www.nyia.org • Third Quarter 2019 • 41

givingback by Kaitlyn Emory
New York Insurance Association, Inc.
The United Wayne
Cooperative STehcisuritpyasMt uMtuaayl WInasyunraenceCooCpoemraptaivney cInosnusriadnecrse
tChoemmpsaenlvyesp“oanrteicbipigatfeadmiliyn.” Tthheey hUanvietebdeenWadyoinogf
42 • Your NY Connection Magazine bWuasyinessCoinunthtye’sFiDnagyeroLfakCeasrianrge,aafnoreovveenrt 1i3n0wyehaicrhs
acnodmmtaukneitpireisdecoimn ethteoigre“tohneer btoigenfagmagiley”thgoivuisnagndbsacokf
tvoolluonctaelefrasminilcieosmimn uthneitycosemrvmicuenpitryo.jSeecvtsetrhalrooufgthhoeuirt
ethmeplcooyuenetsrya. r“eWee’riteheinr stuhrevivbourssinaenssd/ofr ihnasvueranlocset,”
fKarmisitleyn mReicme,bemrasrkteotincagnacedrm. iTnhisetraCtaivnecearssRisetsaonutrcaet
CWeanytneer oCfotohpeeFraintigveer sLaaikde. s“Oisuranjoobrgisantoizattriyontowmhaekree
looucrallpyorlaicisyehdofldunerdss blievneesfitwthoelleocagl bairnancahftedriretchtelyy,
seoxppeariretinccipeaatinlogssi.nButht etior uWsa, iltkarethaollny/5shKouisldan’tgsretoapt
wthaeyrefo. rDtohneateimngpltoimyeeestotochbaarnitdy tgoigvetshuesr ftohreacchaaunscee
tthoagt oisbcelyoosnedtowthhaetirohuerajrotbs wis;hitloe dgoivminogrebaacnkd. help
individuals other than just our policyholders.”
The 2017 Walkathon/5K was the third year that
SSeocmuerityWMayuntuealstcahfof semteomsbpeornssovrolaucnoterpeorerdateateatmhe.
HFaematihlyerCoHunasrerilsinogn,SearvSiceecoufritthye MFiungtuearlLaekmespwlohyeree,
hthaedyahnelipnesdtrummaeknetadlecpoarrattionnos ragnadnizsitnugff athtaenakmyoouf
1c8ardesmpfolor yaeelsocaanld/LoGrBfTaQmiPlyridmeemevbeenrts.. OEathcehr testaamff
mmemberstdoonkatheed tthimeier ttiomeratiosethfeunVdicst,impaRrteiscoipuartce
aCnedntcehreewrheearceh tohtehyerhoenlpdeudrinsogrthetherovuength. donated
items, removed old furniture from the building and
“oTrhgeanSizeecduraitnydMpauitnutaeldemmepeltoinyegersoofimnds. that coming
together to support those facing cancer in the
cInomadmduitniiotny mtootshtereUwnaitreddinWg,”aLyiDsaayKaonf eClalirsi,nCgo, pWoaryantee
SCeocorpeetararyt,ivseaida.ls“oIn paadrdtitciiopna,teths eyinfinthdecoInmsfuorratncine
kIndouwsitnryg tChheayraitraebsleuppForutnindgateioanch’s oWtheeerkinoafnGeivveingt
tihnaOt chtaosbehra. dOvaedr itrhecet pimasptascetvoenralthyeemarsi,ndthiveiyduhaalvlye
ohradasthae gorpopuopr.t”uSneitcyurtoityvoMluuntuteaelr wwilitlhcothnetinRuoenatlod
pMacrDticoinpaaltde iHnouthse CCahnacreitrieRsesSoaulrece aCnedntSerojofurtnheer
FHionmgeer, LwahkiecshWaarelkabtohtohni/n5KRofocrhmesatenry ayseawrseltlo acsomthee.
Samaritan Center in Syracuse. “We find volunteering
StoecbueristuychMauthuuaml btlrinegs etxopefirniedncwe,aaynsdtwoegrievaellybfaecekl
ttohathietirheclposmmaukneityusablletyterarinldoivnigd,uathlsi.s” Riinccelusdaeids.
p“Jruosvtidbiyndgoiang“Mailriatctllee, wCeh’rviestbmeaesn aDbalye” tobymadkoepatibnigg
ldoicffaelrefnacmeitlioes,omdoenoantei.nTghabt’lsowodhatomathtteersAmtoeurisc.”an
Red Cross and participating in United Way’s “Day
oTfheCaUrninitge.”d TWhaeyseenevviseinotnss baricnogmmthuenirityemwhpeloreyeaelsl
tiongdeivtihdeuraolsutasnidefaomf tihlieesofcfaicne,aaclhloiewviengthtehiermpottoengtiviael
btharcokutgohtheeducocamtimonu,niftiny,aanlcl itahleswtahbiilleityleaarnndinghemalothrey
alibvoeus.tWeacyhneotChoeorp. erative has a similar mission and
provides products and services that aim to improve
Kpaeiotlpylne’sEwmaoysryofislifNe.YIA’s administrative assistant.
You can reach Kaitlyn at [email protected] or
5K1a8it.4ly3n2.4E2m2o7.ry is NYIA’s administrative assistant.
You can reach Kaitlyn at [email protected] or
518.432.4227.

Reinsurance Association of America
Reinsurance Education Institute

www.reinsurance.org

SDUFRSVCIVYIBNEGRAEXAMbCyybJiemr DSehfeeansaenIdnsBtritauntdeon Finton
TAHTRHEEACMTYUBWECERHREEMXCOAOMRNESDRTUOACBKTUINESDGT PPTRLHAEAVCNIEOTTUHOSODLSYA.EY

44 • Your NY Connection Magazine

The four management processes consist
of: Align, Plan and Organize; Build, Acquire and
Implement; Deliver, Service and Support; Monitor,
Evaluate and Assess.

M any carriers will be the DFS regulation. The audit framework
experiencing a cyber security being used appears to be a hybrid of
exam as part of their regular specific DFS requirements outlined in the
five year DFS financial regulation and an audit standard called
COBIT 5. COBIT 5 is a widely used IT
examination or as an audit control audit standard developed by an
organization called ISACA (Information
attached to a market conduct exam within Systems Audit and Control Association) for
IT professionals and auditors. Many other
the next year or two. Many companies may IT control standards exist throughout the
world (ISO 27001, HIPAA, PCI-DSS, GDPR,
not know what to expect as part of this etc.) and there is considerable overlap
among the various standards.
process and how to prepare.The cyber exams
COBIT stands for Control Objectives for
taking place today are much more robust Information and Related Technologies and
COBIT 5 was the last edition at the time
than those that were conducted previously. the DFS audits we were involved with were
conducted. There is a new COBIT 2019
Cyber Defense Institute has had experience standard as of December 31, 2018, but it not
yet known if and when DFS will be utilizing
helping clients with several exams at this this new standard. A lengthy discussion
of COBIT 5 is complex and beyond the
point and are working with additional clients scope of what you really need to know to
pass a DFS cyber audit. Basically COBIT 5
as they gear up for their exam. In addition, we defines governance areas and management
processes. Within each governance area
engage in other regulatory cyber compliance Evaluate, Direct and Monitor (EDM) practices
are defined. The four management processes
audits (HIPAA, PCI-DSS, FFIEC, etc.). Based consist of: Align, Plan and Organize; Build,
Acquire and Implement; Deliver, Service and
on our experiences in the cyber regulatory Support; Monitor, Evaluate and Assess.

environment and audit process, we offer To help you prepare, we will give some
examples of what types of questions you
some guidance and tips in this article to help may be asked that are related to each
area of the COBIT 5 standard in addition
DFS covered entities know what to expect

and provide some guidance in preparing for

a cyber audit.

The Cyber Audit Process

All carriers have been through the traditional
DFS audits and financial accounting audits,
so the general audit process is well known.
All compliance audits are conducted against
a set of standards and DFS cyber audits
are no different. In our experience the DFS
cybersecurity regulation (also referred to
as DFS Regulation 500) and the DFS cyber
audit standards are somewhat different.
By that we mean that some of the audit
questions are not specific requirements in

www.nyia.org • Third Quarter 2019 • 45

Document and
Formalize IT
Management

The audit process will force
carriers to document and
formalize the IT management
processes in order to
successfully pass a cyber
audit with DFS.

to the DFS Regulation 500 related audit Monitor, Evaluate, and Assess Audit Question:
questions. There is some overlap between Can you provide evidence of the policies and
the two standards, but the COBIT 5 procedures over IT performance monitoring
example questions presented below are including key performance indicator metrics
not specifically part of the DFS regulation (KPIs) and a listing of the reports used to
or cyber security related standards in our monitor IT performance?
opinion (although they may be considered
best practice for IT management). The examples presented above demonstrate
that the DFS cyber audit process is broader
Align, Plan and Organize Audit Question: in scope than just what the DFS regulation
Can you provide IT related strategic plans specifies,and this will present a challenge for
and evidence of strategic planning meetings many small and medium size organizations.
including membership, attendance, agendas The COBIT 5 control standards represent
and minutes? IT management best practices that even
larger organizations with large IT staffs find
Build,Acquire and Implement Audit Question: challenging to adhere to. Most small and
Can you describe the organizations quality midsize carriers or agencies have minimal
assurance process to ensure that business IT staff or contract out for IT managed
requirements are being met? services. The IT management processes
in place are often not documented at all
Deliver, Service and Support Audit Question: and are typically very informal. The audit
Can you provide policy and procedures process will force carriers to document and
for the service function, a listing of open formalize the IT management processes
and closed user reported incident records, in order to successfully pass a cyber audit
documentation on the workflow used to with DFS. Documenting and creating formal
handle incidents and information on how processes are not necessarily bad things, but
the performance of the service function will require additional expertise, time and
is monitored? effort on the part of DFS covered entities.

46 • Your NY Connection Magazine

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DFS 500 Cybersecurity Audit Questions have to provide the documentation to verify
compliance. Below we present several
Most of the DFS audit questions we examples of the kind of audit questions you
have encountered related to Reg 500 are can expect related to several sections of the
pretty straightforward and reasonable (in regulations. Each section of the regulation
our opinion). If your company has done will have numerous audit questions, but
your due diligence in meeting all of the the examples presented here will give the
compliance requirements, then you basically reader an idea of what to expect.

AUDIT QUESTIONS

YOU CAN EXPECT
XX500.03 XX500.04 XX500.05 (a)(1)

Implement and Chief Information Conduct Annual
Maintain a Security Officer Penetration Testing
Cybersecurity Policy (CISO) Must Provide
Annual Report to Can you provide copies of
Can you provide the data Board or Governing the penetration test reports
retention policy, including Body Of Agency performed under the period
policies and procedures for under examination? This
the secure disposal of any Can you provide the annual information should include
nonpublic information? reports by the CISO to the the findings along with
board of directors? the company’s actions to
address the findings (sic).

XX500.05 (b)(1) XX500.10 XX500.14 (b)

Conduct Bi-Annual Utilize Qualified Provide Regular
Vulnerability Testing Cybersecurity Cybersecurity
Personnel Awareness Training
Can you provide copies of for All Personnel
the vulnerability test reports Can you provide a resume/
performed under the period job description of key Can you provide copies
under examination? This IT executives and of the security awareness
information should include organizational charts and IT training program
the findings along with the including Chief Information documentation?
company’s actions to address Security Officer (inhouse or
the findings (sic). outsourced)?

48 • Your NY Connection Magazine

Section 500.03 – These Regulation 500
Implement and maintain a sample questions
cyber security policy represent the kinds
Can you provide the data of documentation your
retention policy, including company will be required to
policies and procedures for the secure prepare and present during the
disposal of any nonpublic information? DFS cyber audit process. If your company
has maintained compliance with the DFS
Section 500.04 – Chief Information Security cyber regulation, then preparation for the
Officer (CISO) must provide annual report to DFS 500 audit questions will not involve
board or governing body of agency creating and documenting any new process
Can you provide the annual reports by the or procedures, but simply organizing and
CISCO to the board of directors? locating the information required (which
can be time consuming).
Section 500.05 (a)(1) – Conduct annual
penetration testing Summary and Tips
Can you provide copies of the penetration
test reports performed under the period Each organization will be given a pre-audit
under examination? This information questionnaire and some time to organize
should include the findings along with and put together the information required.
the company’s actions to address the For most organizations, this may require
findings (sic). documenting and creating new policies
and procedures that are not specifically
Section 500.05 (b)(1) – Conduct bi-annual addressed in DFS Regulation 500. At this
vulnerability assessment point the preparation and work begins and
Can you provide copies of the vulnerability you will need to decide if you have the
test reports performed under the period internal resources and time to put together
under examination? This information should the information and documentation required.
include the findings along with the company’s
actions to address the findings (sic). The major part of the audit questions can
be addressed if you have a comprehensive
Section 500.10 – Utilize qualified security policy that addresses both the DFS
cybersecurity personnel regulation and IT management best practice
Can you provide a resume/job description of controls. In our experience the free policies
key IT executives and organizational charts offered by several different organizations
including Chief Information Security Officer do not meet the DFS audit standards and
(inhouse or outsourced)? will require considerable effort to modify or
rewrite in preparation for a DFS audit.
Section 500.14 (b) – Provide regular cyber
security awareness training for all personnel A copy of the formal risk assessment will be
Can you provide copies of the security requested. Keep in mind that this assessment
awareness and IT training program should be updated at least annually, or as
documentation? additional risks are identified throughout

www.nyia.org • Third Quarter 2019 • 49

One recent change we have already heard
about is that the auditors are no longer considering

staff, management, or contractors as qualified
CISOs unless they have current cyber security

certifications (e.g. CISSP, CISM, etc.).

the year. So, if your last risk assessment devote roughly the same amount of time
was two years ago, remember to update for internal resources (management and IT
that before submitting it to the auditors. staff) in preparing documentation required
You may also use the risk assessment to for the audit.
challenge some of the requirements the
auditors are requesting. Although we do not It is important to note that with the
recommend this approach unless there is a appointment of a new Superintendent at the
good business case for accepting a risk. beginning of this year and with an executive
deputy superintendent being named to head
The onsite part of the audit should be a new Cybersecurity Division, cyber security
coordinated with your IT staff and/or audits may change even more going forward,
IT vendor as well as any cyber security including the frequency of audits. As the
consulting firm that you work with. We sit media release announcing the development
with our clients and answer the auditor’s states, “the new Cybersecurity Division will
questions and point them to or review enforce the Department’s cybersecurity
the documentation they request in face-to- regulations, advise on cyber security
face meetings. These face-to-face meetings examinations, and conduct cyber-related
build trust and rapport with the auditors, investigations.” One recent change we have
conveying that the company has the already heard about is that the auditors are
knowledge and resources (internally and/ no longer considering staff, management, or
or externally) to manage cyber security and contractors as qualified CISOs unless they
protect confidential information. have current cyber security certifications
(e.g. CISSP, CISM, etc.). We anticipate that the
The auditors will also ask to see the cyber examinations will continue to evolve
network active directory permissions and and companies being examined even in the
security settings, so unless you have an near future may have a different experience
internal IT staff you will need to have your than those who were recently audited.
vendor present for at least several hours.
As consultants, we typically spend about Jim Shea is the president of Cyber Defense
4-6 hours of face time with the auditors Institute and Brandon Finton is the senior
during each audit and about 15-30 hours security engineer. They can be reached
preparing or creating documentation the at 315.632.4848 or [email protected] and
auditor requires. Companies can expect to [email protected].

50 • Your NY Connection Magazine