All About Report Cards

Report cards are everywhere in life. Report cards let us know how we are doing in the eyes of our overseers and peers, whether they be our bosses, co-workers, teachers, coaches, administrators, regulators or even sports analysts and fans. Report cards are an acceptable way for society to hold a group or individuals accountable for their activities based on some pre-determined criteria, goals or rules.

Politicians particularly love report cards. Not for themselves—with the possible exception of Ed “How am I Doing” Koch —but as a way of demonstrating to their constituents that they are doing the public’s bidding by holding others accountable. Hence it should have been no surprise when Governor Cuomo announced a month after Sandy that he had ordered the Department of Financial Services to establish an online report card of insurance companies responses to claims. The November 29, 2012 press release states that the report card “. . . will hold insurance companies accountable to consumers and allow New Yorkers to see the performance of their insurance company compared to other companies.” The press release identifies 24 companies that write most of the business in the affected areas and the following categories on which those companies are to be graded:

• Number of claims and dollar amount of claims;

• Average time for an adjuster to inspect;

• Number of claims closed with and without payment so far;

• Total number of consumer complaints;

• Number of complaints as a percentage of number of claims.

So let’s take a look at the report card, which can be accessed at www.NYinsure. ny.gov, and see what it tells us about the performance of the 24 companies included in the report.

The most interesting thing about the report card is that there are no guiding benchmarks or grades! The 24 companies are listed alphabetically with the data relating to each category (while the data includes the number of claims, it does not include the promised dollar amount of claims or the amount of payments – an interesting omission). The data was as of December 20, 2012, the last update as of this writing. There are some interesting notes to a number of the listings. For instance, the first three items are number of claims, claims closed with payment and claims closed without payment. Notes were added to the data for several companies indicating the total number of claims on which payments were made whether closed or not. The data categories also do not distinguish by type of business, whether homeowner or commercial, or the nature and complexity of the claim, leading some companies to add notes such as “These estimates encompass a wide array of claims and vary based on the complexity of the loss and damage severity.”

There is also a link on the website to an Excel spreadsheet that places the listed data into tabular form, which I hoped would provide a better means of comparison and analysis. While the spreadsheet makes it easier to compare the data among the 24 companies, it still does not include any guidelines for determining performance, and does not overcome the problem of comparing apples to oranges inherent in the listed categories. One of the first things I noticed about the spreadsheet was that it does not include any totals. However, because it is in spreadsheet format, I was able to calculate the following totals on the 24 companies included in the report card as of December 20, 2012:

Total number of claims…………………………………………………………………… 372,785

Total number of complaints…………………………………………………………………..1492

Complaints as a % of claims……………………………………………………………….0.40%

Claims closed with payment …………………………………………………………….187,235

Claims closed with payment as a % of total ………………………………………….50.2%

Claims closed without payment ………………………………………………………….56,887

Claims closed without payment as a % of total ……………………………………..15.3%

Average time in days, claims report to payment ………………………………………….19

Total number of adjusters working on Sandy losses………………………………..5,417

Only two companies had a claim ratio in excess of 1%. One was a company with few claims and the other—with the highest ratio of 1.93%—is the New York Property Insurance Underwriting Association, New York’s statutory insurer of last resort. I have recently seen a GEICO commercial in which the Gecko touts the company’s 97% customer approval rating. Does that mean that if “only” 3% of your customers are dissatisfied that is a good thing? If that is an acceptable yardstick, then the 24 companies should be receiving very high marks for their performance post-Sandy (including GEICO at one of the lowest complaint to claims ratios at 0.14%!).

Without benchmarks, however, the company summaries and the spreadsheet, although interesting, do not tell whether or not a company is doing a good, poor or indifferent job, even when compared to one another. But what does the DFS conclude? Is it satisfied with the companies’ response to Sandy or not? If not, why not?

For a report card to be meaningful, it needs two things: (1) a set of goals or standards; and (2) clear consequences for failure to meet the goals or standards. The DFS report card has neither. Although Governor Cuomo’s press release cites “hold[ing] insurance companies accountable to consumers” as a principal purpose of the report card, it does not indicate how this is to be done. It does not indicate what it considers to be acceptable, and it does not state what, if anything, will be done if a company does not meet acceptable standards. Collecting and analyzing data on claims processing in an historic event like Sandy can be a very useful exercise for the companies and the regulators to determine how responses can be improved for future events. But if accountability is the goal, then the DFS report card is not very useful.

One hopes that the purpose of the report card was not simply to create a public perception that without it the insurance companies would not have performed nearly as well. Historically the insurance industry has performed quite well in past crises. From what I have seen, and as confirmed by the data in the DFS report card to date, Sandy seems to be further evidence of this excellent record. It would be nice to know whether the Governor and the DFS agree, and if they do, whether they would say so publicly.