DOBI Department ResponsesThe FY 2017 Budget Recommendation anticipates that DOBI will collect a...

Department of Banking and Insurance FY 2016-2017

Discussion Points

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1. The mission of the Department of Banking and Insurance (DOBI) is to regulate the banking, insurance, and real estate industries in a professional and timely manner that protects and educates consumers and promotes the growth, financial stability, and efficiency of those industries. The funding used to support the department is generated primarily through the collection of assessments and premiums taxes on the industries that it regulates. The FY 2017 Budget Recommendation anticipates that DOBI will collect a total of $147.5 million in State, dedicated, and federal revenue in FY 2016 and $146.3 million in FY 2017 (pages C-3, C-9, and C-16).

The FY 2017 Budget Recommendation (pages D-23 to D-29) also recommends $64.5 million in State, dedicated, and federal funds be appropriated for the department’s operations in FY 2017, which is a $930,000 decrease from the current year’s adjusted appropriations.

Questions: a. Please provide for the most current fiscal year for which the data are

available a summary of all revenue collected through the department and specify the total amount that is dedicated to the department, the total amount transferred to other departments for their operations, and the total remaining in the General Fund for other State purposes unrelated to the department’s scope of activities.

Response: Below is a summary of revenue for FY 2015, the last year with complete information.

Revenue Category FY 2015 Dedicated $ 73,509,561 Statutory Fees and Fines $ 58,726,787 Transferred to other Departments Motor Vehicle Commission $ 21,661,975 Department of Health $159,046,823 Subtotal Transfers $180,708,798 Grand Total $307,945,146

b. Please detail the amounts transferred to other departments, by department and

purpose. Response: Transferred to Other Departments Motor Vehicle Commission $ 21,661,975 Motor Vehicle Security Responsibility Fund Department of Health Health Care Subsidy Fund $159,046,823


Discussion Points (Cont’d)

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2a. The Division of Banking imposes two assessments on financial entities on or around October 1 of each year: a Banking Licensing Assessment and a Banking Depositor Assessment (N.J.S.A.17:1C-33 et seq.). The assessments are based on calendar year business for each company and fiscal year expenditures incurred by or on behalf of the Division of Banking, as certified by the Director of the Division of Budget and Accounting in the Department of the Treasury. These certified expenses include, in addition to the direct cost of personal service, the cost of maintenance and operation, the cost of employee benefits and workers' compensation, rentals for space occupied in State-owned or State-leased buildings and all other direct and indirect costs of the administration of those functions, as well as any amounts remaining uncollected from the assessment of the previous fiscal year (N.J.S.A.17:1C-35).

Questions: a. Please provide the total Banking Licensing Assessment charged and

revenue collected for FY 2015 and estimated to be charged and collected for FY 2016 and FY 2017. Please provide the total Banking Depositor Assessment charged and revenue collected for FY 2015 and estimated to be charged and collected for FY 2016 and FY 2017. Please provide the number of payers of each assessment.

Response: Banking Licensing Assessment

FY 2015

FY 2016

Estimated FY 2017

Charged $7,064,478.26 $8,383,000 $8,824,000 Collected $6,679,509.72 N/A N/A Payers 3226 Banking Depositor Assessment

FY 2015

FY 2016

Estimated FY 2017

Charged $4,479,012.41 $5,588,000 $5,883,200 Collected $4,525,753.69 N/A N/A

b. Please provide the expenses of the division detailed in N.J.S.A.17:1C-35 and

approved by the Director of the Division of Budget and Accounting in the Department of the Treasury, as well as the number of employees dedicated to the division for FY 2015.

Response: Depositories

FY 2015 Salaries and Wages $2,763,466.38

Materials and Supplies $10,088.80

Services other than Personnel $429,680.72

Maintenance and Fixed Charges $19,137.96

Equipment 144.58

Subtotal $3,222,518.44

Other Expenses



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Administration Adjustments – ($7,614.32)

Fringe Benefits $1,023,822.71

Indirect costs $20,251.98 Building Operations and

Maintenance $172,605.06

Debt Service – Roebling Building $36,801.20

Cancelled Obligations ($404.88)

Warren Street Parking Costs $7,500

Bank Street Parking Costs $1,647.94

Rent Calculation $1,884.27

Subtotal $1,256,493.96

Banking – Depository Total Expenses $4,479,012.40 Licensing



Services other than Personnel $562,888.70

Subtotal $5,015,699.56

Administration Adjustments –

Salaries/Fringe $7,614.32


Indirect costs $20,251.98 Building Operations and

Maintenance

$172,605.06


Cancelled Obligations ($126.34)

Warren Street Parking Costs $6,000

Bank Street Parking Costs $7,415.73

Rent Calculation $60,296.69

Write-Off $91,965.53

Subtotal $2,048,778.70

Banking-Licensing Expenses $7,064,478.26

The total number of Division of Banking staff:

FY 2015 87

2b. The department imposes a special purpose apportionment for funding expenses incurred by the Division of Insurance (N.J.S.A.17:1C-19 et seq.). The apportionment is charged



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to all insurers writing most classes of insurance in the State (including, but not limited to: property; fire; flood; motor vehicle; life and health; accident; title; credit; personal liability; malpractice; homeowners; and any other specified kinds of insurance) and those health maintenance organizations (HMOs) granted a certificate of authority to operate in New Jersey pursuant to P.L.1973, c.337 (N.J.S.A.26:2J-1 et seq.). This assessment is used for funding the activities of the division in regulating, monitoring and supervising these carriers. The apportionment of each carrier is based on the proportion that its net written premiums for the preceding calendar year bear to the combined net written premiums of all carriers in the preceding year, except that no carrier is required to pay an apportionment that exceeds 0.10 percent of its net written premiums. Each year, the Director of the Division of Budget and Accounting in the Department of the Treasury certifies to the Commissioner of Banking and Insurance, by category, the total amount of expenses incurred by or on behalf of the division. These expenses include, in addition to the direct cost of personal service, the cost of maintenance and operation, the cost of employee benefits and workers' compensation, rentals for space occupied in State-owned or State-leased buildings and all other direct and indirect costs of the administration of those functions, as well as any amounts remaining uncollected from the special purpose apportionment of the previous fiscal year (N.J.S.A.17:1C-20). Questions: a. Please provide the amount of the total insurance special purpose

apportionment for FY 2015 and estimated to be charged and collected for FY 2016 and FY 2017.

Response: Special Purpose Assessment Estimated Estimated FY 2015 FY 2016 FY 2017

$34,349,785 $39,987,000 $42,022,000 b. How many companies reached the individual maximum apportionment in FY

2015? Response: One company reached the individual maximum apportionment for FY 2015. c. Please provide the expenses of the division detailed in N.J.S.A.17:1C-20 and

approved by the Director of the Division of Budget and Accounting in the Department of the Treasury and provide the number of employees dedicated to the division in FY 2015.




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Services other than Personnel $3,162,267.72

Maintenance and Fixed Charges $56,281.42

Equipment $25,777.47

Subtotal $24,098,592.42

Other Expenses

Administration Adjustments – Salaries/Fringe 0


Indirect costs $142,552.90

Building Operations and Maintenance

Roebling Building $1,214,960.32


Warren Street Parking Costs $42,000.00

Cancelled Obligations ($26,372.81)

Lockbox $2,100.00

Parking Costs – Bank Street $83,632.96

Rent Calculation for Leased Office Space $628.09

Subtotal $10,530,951.11

Total Expenses $34,629,543.53

Revenue $279,758.47

Write-offs $0.00

Net Revenue $279,758.47

Total Insurance Expenses $34,349,785.06

The total number of Division of Insurance staff:

FY 2015

274

2c. In addition to the special purpose apportionment, several different statutes subject insurance carriers to additional assessments to reimburse the department for operating expenses, including the following:

1) An assessment on insurers for the department’s fraud prevention services, pursuant to P.L.1983, c.320 (N.J.S.A.17:33A-1 et seq.). This assessment is billed and collected by the department, but is used to reimburse the Department of Law and Public Safety for the operating costs of its Office of the Insurance Fraud Prosecutor.



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2) An assessment on all Small Employer Health Benefits Plan (SEH) carriers for the reasonable and necessary organizational and operating expenses of the SEH board of directors, pursuant to section 16 of P.L.1992, c.162 (N.J.S.A.17B:27A-32).

3) A biennial assessment on all Individual Health Coverage (IHC) Program carriers for the reasonable and necessary organizational and operating expenses of the IHC Program board of directors, pursuant to section 10 of P.L.1992, c.162 (N.J.S.A.17B:27A-11).

4) An assessment on companies writing motor vehicle liability insurance or motor vehicle liability bonds for the Motor Vehicle Security Responsibility Fund, pursuant to section 1 of P.L.1952, c.176 (N.J.S.A.39:6-58). The assessment is billed and collected by the department but used to reimburse the New Jersey Motor Vehicle Commission for eligible expenses.

5) An assessment on lines of insurance subject to the jurisdiction of the Division of Rate

Counsel, an in-but-not-of agency in the Department of Treasury, pursuant to subsection b. of section 48 of P.L.2005, c.155 (N.J.S.A.52:27EE-48). This assessment is billed and collected by the department, but is used to reimburse the Division of Rate Counsel for expenses in connection with the administration of insurance rate cases pursuant to section 53 of P.L.2005, c.155 (N.J.S.A.52:27EE-53).

Questions: Please provide an accounting of all assessments collected by the

department for FY 2015 and estimated to be collected for FY 2016 and FY 2017. Please detail this information by source, as numbered above.

Response:

1) Fraud Assessment

Estimated Estimated

FY 2015 FY 2016 FY 2017

Charged $27,397,342 $30,389,000 $31,639,000

Collected $27,397,342 N/A N/A

2) Small Employer Health Insurance

Estimated Estimated

FY 2015 FY 2016 FY 2017

$353,514 $289,000 $263,000

3) Individual Health Insurance Coverage

Estimated Estimated

FY 2015 FY 2016 FY 2017

$82,391 $622,000 $ 0

Note: The IHC program assessments occur on a 2-year cycle.

4) Motor Vehicle Assessment

Estimated Estimated

FY 2015 FY 2016 FY 2017



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Charged $21,661,975 $21,780,000 $21,313,000

Collected $21,661,975 $ N/A $ N/A

5) Rate Counsel

Estimated Estimated

FY 2015 FY 2016 FY 2017

Charged $28,838 $0 $0

Collected $27,816 $0 $0 2d. The New Jersey Real Estate Commission (REC) was created to administer and enforce New Jersey's real estate licensing law, N.J.S.A. 45:15-1 et seq. The REC issues licenses to real estate brokers and salespersons, real estate schools, and course instructors, and also establishes standards of practice for the real estate brokerage profession. The REC collects revenue from the issuance of licenses on a biennial basis as well as various other fees. Questions: a. Please provide the amount of revenue collected by the REC for FY 2015

and estimated to be collected for FY 2016 and FY 2017. Please detail the source of this revenue by type of transaction; for example, fines, license renewal or other regulatory fees.

Response: Real Estate Commission

FY 2016 FY 2017 FY 2015 As of 3/31/2016 Estimated

License Fees $10,877,940 $3,136,355 $10,900,000 Fines $63,991 $58,760 $100,000 b. Please detail the REC’s organizational structure, number of employees within each

job title, and budget. Does the REC have an adequate number of investigators to properly monitor the industry? If not, how many additional investigators would be needed, and at what additional cost?

Response: The Real Estate Commission is divided into five units:

Subdivided Land Sales Investigations Hearings and Regulations Education Licensing

The listing of employees by job title is below.

Real Estate Commission Staff Employee



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Title Count

ADMINISTRATIVE ASSISTANT 1 1


AGENCY SERVICE REPRESENTATIVE 4 1

AGENCY SERVICE REPRESENTATIVE 3 2

CLERK TYPIST 1

DEPUTY EXECUTIVE DIRECTOR 1

EDUCATION PLANNER 2

EXECUTIVE DIRECTOR 1

GOVERNMENT REPRESENTATIVE 1 3

INVESTIGATOR 1 4

INVESTIGATOR 2 4

INVESTIGATOR 3 6

PRINCIPAL CLERK TYPIST 1

PROGRAM TECHNICIAN 3

REGULATORY OFFICER 3 1

SENIOR CLERK 1

SUPERVISOR OF INVESTIGATIONS 1

SUPERVISOR OF LICENSING 2

The Real Estate Commission has an adequate number of investigators to monitor the industry.

3. Each insurance company is liable for a maximum total assessment as follows: “the total amount assessable to companies in any fiscal year for all special purpose assessments made pursuant to applicable law as of the effective date of this act, including the special purpose apportionment established by this act, shall not exceed 0.25 percent of the combined net written premiums received, as defined in subsection b. of section 2 of this act, by all companies for the previous year,” (N.J.S.A.17:1C-31). P.L.2010, c.21 increased the allowable percentage from 0.20 percent to 0.25 percent. In response to an FY 2016 OLS Discussion Point, the department noted that combined net written premiums for FY 2014 were $46 billion and estimated the total to rise to $47 billion in FY 2015. Questions: a. What are the actual FY 2015 and the estimated FY 2016 combined net

written premiums for all insurers? Response: Combined Net Written Premiums Estimated



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FY 2015 FY 2016

$50,405,969,964 $52,500,000,000 b. What were the total amounts assessed to, and collected from, companies in FY 2015? What are the estimates for FY 2016? Is there any concern by the department that this number might exceed the “cap” in the near future? Response: The total amount assessed to companies in FY 2015 is $61.7 million and

estimated for FY 2016 is $70.4 million. FY 2015 assessments paid of $61.9 million include the

Fraud Assessment ($27 million) and the Special Purpose Assessment ($34 million).

The Department has no concern that this number might exceed the cap in the near future.

4a. In addition to its responsibility to regulate and provide oversight to the insurance and banking industries, the department is responsible for the oversight of the mortgage lending system and various other regulated professions discussed in more detail below. The federal “Housing and Economic Recovery Act of 2008” (Pub.L.110-289) was signed into law in July, 2008. Among other initiatives, this act included the “Secure and Fair Enforcement for Mortgage Licensing Act of 2008” (S.A.F.E. Act). The S.A.F.E. Act defines a loan originator as an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. The act requires the states to participate in the Nationwide Mortgage Licensing System (NMLS), established by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. Each state’s system must include, at a minimum, requirements that meet the established national standards for licensing loan originators. These requirements include, among other things, minimum education requirements, ethics training, background checks, proof of financial responsibility, bonding requirements and the successful completion of a written exam. The State complied with these new federal standards by enacting the “New Jersey Residential Mortgage Lending Act,” (NJRMLA), sections 1 through 39 of P.L.2009, c.53 (N.J.S.A.17:11C-51 et seq.), which updated the prior regulatory scheme, and replaced the “New Jersey Licensed Lenders Act” (NJLLA) (N.J.S.A.17:11C-1 et seq.) as the statutory framework for mortgage lenders. The NMLS collects all fees authorized under the NJRMLA for the department. Questions: a. Please provide the number of individuals who were regulated,

registered, and licensed by the State for FY 2015 as participating in the mortgage lending business pursuant to the NJRMLA. What is the year-to-date total for FY 2016?

Response:

FY 2015 FY 2016 as of 3/28/2016

Residential Mortgage Lenders 388 403



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Correspondent Residential Mortgage Lenders 140 137

Residential Mortgage Brokers 243 247

Mortgage Loan Originators 10,234 11,170

b. Please detail the number of financial institutions participating in the mortgage lending business that were licensed by the State for FY 2015 pursuant to the NJRLMA. What is the year-to-date FY 2016 total?

Response: Companies FY 2015 FY 2016 as of 3/28/2016

Residential Mortgage Lenders 350 363



Branches FY 2015 FY 2016 as of 3/28/2016

Residential Mortgage Lenders 1,015 1,074



c. Please indicate how much revenue was collected from each type of fee authorized

under the NJRMLA by the NMLS in FY 2015 and how much is anticipated to be collected in FY 2016. How much of this revenue supports the administration of the NMLS database, and how much is payable to the department?

Response: FY 2015 FY 2016 as of March 31, 2016 $1,262,365 $945,125 None of the revenue supports the administration of the NMLS database. d. Please detail, by job title, how many staff are dedicated to the oversight of the

mortgage lending system. Does the department have an adequate number of staff to properly monitor the mortgage lending system? If not, how many additional staff would be needed, and at what additional cost?

Response: The staff dedicated to oversight of the mortgage lending system are listed below:

Consumer Finance Section



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Title Count



AGENCY SERVICES REPRESENTATIVE 3 2



ASSISTANT DIVISION DIRECTOR 1

CHIEF OF INVESTIGATIONS 1

FINANCIAL EXAMINER 1 2




GOVERNMENT REPRESENTATIVE 1 3

INVESTIGATOR 1 5

INVESTIGATOR 2 1

INVESTIGATOR 3 3

INVESTIGATOR TRAINEE 1

PROGRAM TECHNICIAN 1

SECRETARIAL ASSISTANT 3 1

SECRETARIAL ASSISTANT 2 1

SUPERVISOR OF INVESTIGATIONS 1

SUPERVISOR OF LICENSING 1

The Department has an adequate number of staff to properly monitor the mortgage lending system.

4b. The department also licenses and regulates several other professional groups, including: debt adjusters (P.L.1979, c.16 (N.J.S.A.17:16G-1 et seq.)); home repair contractors (P.L.1968, c.224 (N.J.S.A.17:16C-95 et seq.)); insurance producers (P.L.2001, c. 210 (N.J.S.A.17:22A-26 et seq.)); pawnbrokers (N.J.S.A.45:22-1 et seq.); and public adjusters (P.L.1993, c.66 (N.J.S.A.17:22B-1 et seq.)). Each of these individuals pays a fee to be licensed, and in some cases, to renew that license. These fees are intended to fund the administrative costs of providing oversight of these professions. Questions: a. Please provide the current initial fee and the renewal fee for each of

these professions.



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Response: Initial Renewal License Type Application Fee Fee Motor Vehicle Installment Seller $ 300 $ 0 Home Repair Contractor $ 300 $ 0 Home Financing Agency $ 400 $ 0 Pawnbroker $ 500 $ 0 Check Casher $ 700 $ 0 Insurance Premium Finance Company $ 500 $ 0 Debt Adjuster $ 300 $ 0 Foreign Money Transmitter $ 700 $ 0 Money Transmitter $ 700 $ 0 Sales Finance Company $ 100 $ 0 Agency (Registration not license) Residential Mortgage Lender $1,200 $ 0 Correspondent Residential Mortgage Lender $1,200 $ 0 Residential Mortgage Broker $1,200 $ 0 Branches of each mortgage type $1,000 $ 0 Qualified Individual of each mortgage type $ 500 $ 0 Mortgage Loan Originator (Individuals) $ 150 $ 0 Insurance Producer $ 150* $150 Limited Lines Insurance Producer $ 75* $ 75 Public Adjuster $ 75** $ 75 *additional $20 for electronic filing or $40 for paper filing **additional $40 filing (paper only)

b. Please provide the revenue collected from each of these fees for FY 2015 and FY

2016 to date. Response: National Mortgage Licensing System FY 2015 FY 2016 (as of March 31, 2016) $1,262,365 $945,125

FY 2015 FY 2016 as of March 31, 2016 Insurance Producers $40,609,986 $17,114,313 Public Adjusters $ 27,010 $ 8,730 Non-NMLS Licensees $ 212,939 $ 140,160

c. Please provide the cost to administer these programs for FY 2015 and FY 2016 to date. Response: FY 2015 FY 2016 as of 3/31/2016



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Insurance Licensing $1,176,316 $937,527 Full time Staff 21 18 All Insurance Licensing staff handles a variety of activities involved in the review and

processing of initial and renewal paper and electronic filings for licensure, the maintenance of

licensing records, and the handling of telephone calls, e-mail inquiries, and written

correspondence that relate to the licensure of insurance producers and public

adjusters.

d. Please detail, by job title, how many staff are dedicated to these programs. Does

the department have an adequate number of employees to properly monitor these professional groups? If not, how many additional staff would be needed, and at what additional cost?

Response: Staff assigned to the Banking and Insurance licensing sections are not assigned by license type but work on a variety of licenses. Below is a listing of the staff by title. Title Number of

Employees Banking Agency Services Representative 2 1 Agency Services Representative 3 2 Agency Services Representative 4 1 Government Representative 1 1 Investigator 3 3 Program Technician 1 Supervisor of Licensing Banking and Insurance 1 Insurance Supervisor of Licensing Banking and Insurance 1 Administrative Assistant 2 1 Agency Services Representative 3 4 Agency Services Representative 2 3 Agency Services Representative 1 1 Program Technician 2 Clerk Typist 1

5. Surplus Lines Insurance is insurance coverage that is not available from insurers licensed in the State and which must be purchased from a non-admitted carrier. The methods for the regulation and collection of surplus lines insurance premium taxes were revised by P.L.2011, c. 119. These revisions brought “the surplus lines law,” P.L.1960, c.32 (N.J.S.A.17:22-6.40 et seq.), into compliance with the federal “Nonadmitted and Reinsurance Reform Act of 2010” (NRRA), which was passed by Congress as part of the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” Prior to the enactment of NRRA, states shared



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surplus lines premium tax revenue based on the location of the insured’s various risks. Under NRRA, this ability to share surplus lines premium tax revenue was suspended in July 2011 until such time as states enter into a multi-state compact or agreement with one or more other states. NRRA provides that if a state does not join such an agreement, it may collect 100 percent of the taxes due from insureds located in its state, otherwise known as “home-state” insureds. This includes the continued ability to collect all premium taxes owed by “home-state” insureds for their risks located in other states. However, as established under NRRA, a state that does not participate in a compact or agreement is precluded from collecting surplus lines premium taxes attributable to risks situated in its state that belong to the home-state insureds of other jurisdictions. The Commissioner of Banking and Insurance was authorized pursuant to P.L.2011, c. 119 to enter into compacts or agreements with other states with respect to the collection of surplus lines premium taxes in order to maximize State tax revenue. In response to FY 2016 OLS Discussion Points, the department stated that it was not in negotiations with any other states regarding participation in an agreement or compact to collect surplus lines premium taxes and that the department had determined it was not advantageous for both consumer protection and the State to contemplate negotiations to participate in such an agreement or compact. In the absence of an interstate compact regarding future surplus lines tax collections, all insurers for whom New Jersey qualifies as their “home state” are assessed the 5 percent surplus lines premium tax on all surplus lines insurance premiums, even if the premiums are on risks located out of the State. At the time of enactment, it was unclear as to what effect P.L.2011, c. 119 would have on revenue collected by the State from surplus lines insurance premiums. According to DOBI, the State collected $76.2 million in revenue from the surplus lines premium tax in 2014, of which approximately 10 percent was attributable to “multi-state” insureds.

Questions: a. Please report the revenue collected from the surplus lines tax in 2015.

How much of that revenue was collected from “multi-state” insureds?

Response: The amount of 2015 surplus lines tax is $79.8 million. The Department has

calculated that ten percent of the total premium written in the New Jersey surplus lines market

is derived from policies with multi-state exposures. The exact amount of out-of-state premium

cannot be determined.

b. Please provide the surplus lines tax rate assessed in the states that are in the

vicinity of New Jersey, including: Pennsylvania, Maryland, Delaware, New York and Connecticut, if it has changed in the last two years.

Response: The surplus lines tax for neighboring states is:

Pennsylvania 3 percent, plus a $25 stamping fee

Maryland 3 percent

Delaware 3 percent (increased from 2 percent)



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Connecticut 4 percent

New York 3.6 percent, plus a 0.2 percent stamping fee

6. The New Jersey Surplus Lines Insurance Guaranty Fund, P.L.1984, c.101 (N.J.S.A.17:22-6.70 et seq.), administers the claims of insolvent surplus lines insurers that provided medical malpractice and homeowners coverage as eligible non-admitted insurers in New Jersey. All surplus lines companies in New Jersey are required to be members of the fund and to contribute funds for its operation. The fund is managed and administered by the New Jersey Property-Liability Insurance Guaranty Association (PLIGA). PLIGA is a “private, nonprofit, unincorporated, legal entity” given certain statutory obligations to act as a safety net for policyholders and claimants in the property and casualty insurance marketplace pursuant to N.J.S.A.17:30A-1 et seq. As an independent entity, PLIGA’s budget is not included in the State budget.

Each member insurer was responsible for making an initial one-time payment of $25,000 into the fund. Additionally, a surcharge, in an amount determined by DOBI, is collected on any surplus lines coverage policy issued in New Jersey. The surcharge is collected by the surplus lines agent and forwarded to the fund on a quarterly basis. The amount may be adjusted annually to meet projected expenses of the fund, but it may not exceed 4 percent of the policy premium pursuant to section 6 of P.L.1984, c.101 (N.J.S.A.17:22-6.75).

However, the surcharge has not been collected since 1993 and, according to DOBI FY 2016 OLS Discussion Point responses, the Commissioner has not found reinstatement of the surcharge to be necessary to meet the current and projected obligations and expenses of the fund. Furthermore, according to FY 2016 OLS Discussion Point responses, the department ceased to collect the initial $25,000 payment as of July 21, 2011 due to limits imposed by the federal “Dodd-Frank Wall Street Reform and Consumer Protection Act.” At the end of FY 2014, the fund carried a balance of $11.2 million. Questions: a. Please provide an update on the status of the New Jersey Surplus Lines

Insurance Guaranty Fund, including: balances and disbursements made from the fund in FY 2015; and estimates thereof for FY 2016 and FY 2017.

Response: Please note, on July 21, 2011, the New Jersey Department of Banking and

Insurance ceased collecting the one-time $25,000 assessment from surplus line companies due

to limits imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, 15

U.S.C. 8201 et seq.

The balances and disbursements for the past 10 years and estimates for calendar years 2016

and 2017 are listed below:



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New Jersey Surplus Lines Insurance Guaranty Fund

Schedule of Balances and Disbursements For Calendar Years Ended 2005 thru 2017

Total Year End Year Disbursements Fund Balance

2005 916,429 40,514,728 2006 768,630 42,673,743 2007 125,549 45,630,566 2008 113,852 48,849,080 2009 60,094,052* 13,317,585 2010 5,588,444 10,484,881 2011 501,897 10,107,767 2012 101,432 10,081,593 2013 (45,803) 11,091,646 2014 (15,633) 11,161,625 2015 108,624 12,202,960 2016 (est) 110,000 12,175,000 2017 (est) 110,000 12,125,000

*$60 million of the disbursements in 2009 was the result of the enactment of P.L.2009, c.75, which Governor Corzine transferred from the surplus lines insurance guaranty fund to balance the FY 2010 Budget. As of March 28, 2016, the Fund Balance is $12,228,100.00.

b. Please indicate the remaining revenue sources for the fund. Does the department

recommend any legislative action in regard to the fund?

Response: The Commissioner has the power pursuant to N.J.S.A. 17:22-6.75a(2) to impose

a surcharge of four percent of the gross premium for all surplus lines insurance issued in this

State. Effective August 1, 1993, this surcharge was suspended; however, it is subject to

reinstatement by the Commissioner if necessary. To date, the Commissioner has not found

reinstatement of the surcharge to be necessary to meet the current and projected obligations

and expenses of the fund.

7. The Workers Compensation Security Fund (WCSF) (N.J.S.A.34:15-105) is a depository for monies received from assessments levied against mutual and stock insurance carriers writing workers’ compensation insurance in the State. The revenue in the fund is disbursed to persons entitled to receive workers’ compensation from a carrier when that mutual or stock carrier is determined to be insolvent.

In January 2010, P.L.2009, c.327 (N.J.S.A.34:15-105.1 et al.) was enacted, transferring responsibility for the administration and claims activities of the WCSF from DOBI to the New



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Jersey PLIGA. As an independent entity, PLIGA’s budget is not included in the State budget, and the WCSF is no longer a State-administered fund.

In response to FY 2016 OLS Discussion Points, the department estimated that the WCSF would receive $38.0 million in income from assessments, liquidation dividends, interest, and other sources in FY 2015 and would have total expenditures of $22.8 million, with an ending balance in the WCSF of $132.1 million. Questions: a. Please provide an accounting of all resources and expenditures for the

WCSF for FY 2015 and estimates thereof for FY 2016, including, with respect to revenues: services and assessments and investment earnings; and with respect to expenditures: claim disbursement, economic planning, development and security expenses and transfers to other funds (both State and PLIGA held). Please include the balance of the fund, both at the beginning of each fiscal year and projected for the end of each fiscal year.

Response:

New Jersey Workers' Compensation Security Fund Schedule of Balances, Receipts and Disbursements

For Fiscal Years 2014, 2015 and 2016 estimated Estimated

FY2014 FY2015 FY2016

Beginning Balance $99,001,100 $116,892,593 $133,895,302

Receipts

Assessments 18,513,801 21,381,376 23,331,106

Liquidation Dividend 21,828,525 16,522,933 25,258,468

Interest/Other Income 637,267

768,700 963,341

Claim Disbursements 23,088,100 21,670,300 21,808,717

Ending Balance $116,892,593 $133,895,302 $161,639,500

b. Please provide details for the dividend in FY 2015 and FY 2016. Response: Please see Attachment 5 - Liquidation Dividends January 2014 – March 2016 pdf. c. Please provide the outstanding loss reserves for the most recent year available, and

for the previous year. Response: Outstanding Loss Reserves as of March 28, 2016 - $258,068,556

Outstanding Loss Reserves as of March 30, 2015 - $272,877,074



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8. P.L.2011, c.25 (N.J.S.A. 17:47B-1 et seq.), more commonly known as the “Captive Insurers Act,” took effect in May 2011 and permits a captive insurance company licensed by the department to do business in the State in any of the lines of insurance in subtitle 3 of Title 17 of the Revised Statutes (N.J.S.A.17:17-1 et seq.) or Title 17B of the New Jersey Statutes (N.J.S.A.17B:17 1et seq.), generally including contracts or policies of life insurance, health insurance, annuities, indemnity, property and casualty, fidelity, guaranty and title insurance, and reinsurance, so long as the captive meets certain requirements. “Captive insurance companies are insurance companies established with the specific objective of financing risk emanating from their parent group or groups.” (DOBI PRN 2011-192) The act regulates captive insurance companies, which include pure captive insurance companies, association captive insurance companies, sponsored captive insurance companies, and industrial insured captive insurance companies. Prior to enactment of P.L.2011, c.25, captive insurance companies were not permitted to be domiciled in New Jersey.

Pursuant to the act, a premiums tax is collected from captive insurance companies, but the companies are excluded from the requirement to pay the special purpose apportionment. The tax is collected at the following rate on direct premiums for all lines of insurance, except reinsurance premiums: 0.0038 percent on the first $20,000,000 and 0.00285 percent on the next $20,000,000 and 0.0019 percent on the next $20,000,000 and 0.00072 percent on each dollar thereafter. Companies are required to pay the following tax rate on reinsurance premiums: 0.00214 percent on the first $20,000,000, and 0.00143 percent on the next $20,000,000 and 0.00048 percent on the next $20,000,000 and 0.00024 percent on each dollar thereafter. The tax is due on March 1 each year on the premiums the company earned in the previous calendar year. The minimum aggregate premiums tax to be paid by a company is $7,500 and the maximum is $200,000.

Section 13 of P.L.2011 c.25 (N.J.S.A.17:47B-13) established the "Captive Insurance Regulation and Supervision Fund" to provide the department with a funding source to administer the Captive Insurers Act. The commissioner is responsible for establishing the fees and assessments necessary for the administration of the act and all fees and assessments established in the act must be deposited into the fund. The department promulgated regulations implementing the act (N.J.A.C.11:28-1.1 to 1.23) in 2012. The regulations provide for a maximum $4,000 fee for the initial application review required for licensing a captive insurance company, and a $300 license renewal fee.

Questions: a. Please provide the number of captive insurers, by name, type, by lines of insurance (health, life, annuities, indemnity, property and casualty, guaranty, and title), and by date of approval, that have been approved to be licensed in New Jersey in 2015 and thus far in 2016. How many applications has the department received in total in FY 2016? How many applications are pending? How many applications has the department rejected?

Response: Captive Insurers 2015 2016 Totals All Years

Applications submitted P&C

Pure 0 6 19



19

Association 0 0 1

Industrial 0 0 1

Sponsored Cell 0 0 1

L&H

Pure 1 0 2


Total 26

Licensed

Pure 0 6 17

Industrial 0 0 1

Association 0 0 1


L&H

Pure 0 0 1


Total 22

One application is being processed at present. We have declined 4 applications. b. Please provide the number of other professionals--i.e., accountants, auditors and

managers--that have registered with the department to be service providers for the captive market in 2015 and thus far in 2016.

Response:

Service Providers 2015 2016 Totals All

Years

Accountants 2 3 19 Actuaries 7 2 39 Captive Managers 2 4 22 Total

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c. Please provide the amount of premiums tax revenues, registration fees, and license and license renewal fees received or anticipated to be received from captive insurers in FY 2015 and FY 2016.



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Response: Registration and Premium Tax

FY 2015 FY 2016

Est. Totals All Years

Registration fees $ 4,200.00 $ 5,700.00 $15,300.00 Premium taxes $631,696.00 $1,017,413.00 $2,581,240.00

d. Please detail the expenditures made by the department for the administration of

the Captive Insurers Act in FY 2015 and thus far in FY 2016. Response: The cost to administer the Captive Insurers Act primarily consists of salaries, fringe benefits and overhead.

FY 2015 $293,855 FY 2016 to date $192,187

e. Please provide an accounting of the Captive Insurance Regulation and Supervision

Fund, including opening and closing balances, revenues and disbursements, since inception. Is the department utilizing the Captive Insurance Regulation Supervision Fund to pay for administrative costs of the “Captive Insurers Act?”

Response: Listed below is an accounting of the Captive Insurance Regulation and Supervision fund since inception in FY 2012.

Beginning balance $ 0 Revenue Collected $2,422,154 Expenses Paid $ 23,414 Balance $2,397,275

f. Please indicate how many captive insurance companies have re-domesticated to

New Jersey, pursuant to N.J.A.C.11:28-1.4. Response: Four captive insurance companies have re-domesticated to New Jersey pursuant

to N.J.A.C. 11:28-1.4.

9. Industry experts, such as the National Climate Assessment and Development Advisory Committee, predict that the Northeast is likely to endure more catastrophic weather events in the future. The experts’ warnings combined with the existence of extreme weather events have led insurance companies to exercise increased caution in writing new policies in coastal areas and to apply stricter standards to the type and condition of homes they would insure.

Questions: a. Please provide the 2015 New Jersey Market Share for Homeowners

Insurance report and indicate: which companies are writing new business in the State and where; which companies are not writing in coastal areas; which companies only



21

write in the surplus market; and, which companies are only writing renewal policies, and are not accepting new homeowners policies.

Response: Please refer to Attachment 1–HO Market Share for the 2015 market share

information for admitted companies. Please refer to Attachment 2 for Insurers that write

homeowners. This will indicate which companies are writing new or renewal business in New

Jersey. The Department cannot provide individual data, but included information in response

4b on this matter.

Please refer to Attachment 3-HO Surplus Lines Market Share for a listing of companies who

write homeowners policies. We only get information on domestic (New Jersey) and foreign

(United States) companies. We do not have information on alien (foreign country) companies

since they do not report such information to us.

b. Please provide collected data on where homeowners’ insurance carriers are writing

business in the State. Response: As of December 31, 2015, there were a total of 507,824 Coastal policies

written and 85,367 Barrier Island policies out of a total of 2,620,048 state wide policies

written.

As of December 31, 2015, 33 percent of the market has no restrictions on coastal writings, 19

percent of the market will not write risks within two miles from the coast, 15 percent of the

market will not write risks within five miles from the coast, 18 percent of the market has

various restrictions based on specific zip codes and seven percent of the market is not writing

new business.

10. The Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program (NFIP) is responsible for reviewing claims filed by NFIP policyholders affected by Hurricane Sandy. Although the NFIP is a federal program, it is not contrary to federal law for the department to advocate for or assist New Jersey citizens in purchasing flood insurance or in mediating their claims.

In March of 2015, FEMA announced that it would reopen flood insurance claims amid accusations that Hurricane Sandy victims may have received flood insurance payments based upon false or altered reports. In FY 2016 budget hearing follow-up responses, the department indicated that it would track the progress of FEMA in resolving this issue.



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Questions: Please report on the status of reopened NFIP flood claims in the State. How many claims have been reopened, and what is the status of those claims? How much additional money have Hurricane Sandy victims received?

Response: The Department has requested additional and updated data from the NFIP now

that the program to reopen federal flood claims has matured to the point that FEMA has begun

making determinations on the appeals and issuing additional payments. It is important to note

that the Department has no jurisdiction over these federal flood claims and the NFIP is the only

source for such data. Additionally, the Department has no ability to mediate these disputes

through our Superstorm Sandy Mediation Program because the NFIP declined our request to

participate in the program.

11a. The “Patient Protection and Affordable Care Act,” Pub.L.111-148, and the “Health Care and Education Reconciliation Act of 2010,” Pub.L.111-152, collectively more commonly known as the “Affordable Care Act” (ACA), were comprehensive pieces of federal legislation enacted in March 2010 to facilitate the availability and affordability of health insurance nationally.

Since the passage of the ACA, the State has received federal funding for consumer outreach, health insurance rate review and investigating the possibility of establishing a State-based health care exchange, or marketplace. More details on the funding received and spent thus far can be accessed in FY 2011 through FY 2016 OLS Discussion Points.

Questions: a. Please provide a full accounting of federal ACA grants received, grant

amounts expended, remaining grant balances, and unspent grant funds that reverted back to the federal government.

Response: Summary of Rate Review Grant Funding

Grant Time Period Amount Budgeted Amount Spent Net Difference Cycle I 08/09/2010 – 09/30/2011 $1,000,000 $861,068 $138,932 Cycle II 10/01/2011 – 09/30/2015 $4,146,261 $2,512,982 $1,633,279 Cycle IV 09/19/2014 – 09/18/2016 $1,179,000 $79,692 $1,099,308*

Totals $6,325,261 $3,453,742 $2,871,519 *The Department anticipates that CMS will give States the opportunity to file for a No Cost

Extension (NCE) with respect to the Cycle IV Grant which will extend the time to expend Cycle

IV Grant funds through September 18, 2017. Since the final year for Cycle II and the initial



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year for Cycle IV overlapped, expenditures for 10/01/2014 – 09/30/2015 were debited to the

Cycle II Grant.

Consumer Assistance Grant The Department was also awarded a grant of $982,000 for Federal FY 2011 for the Consumer

Assistance Program (CAP), which was a federally funded program that enhances and expands

many of the services currently provided by the Department’s Office of Consumer Protection

Services. The Department expended and received reimbursement for $265,019 (27 percent of

original grant) to hire two new consumer assistance staff members, who developed resource

lists for members of the public, trained department employees and assisted in setting up the

data reporting system required of CAP grant recipients. The enhancements to the system

implemented by these employees were needed due to the changes required as a result of the

ACA.

b. Has the department applied for any new ACA grants in FY 2016 and does the

department intend to apply for any new ACA grants in the remainder of FY 2016 or FY 2017?

Response: The Department anticipates CMS will give States the opportunity to apply for a

Cycle IV NCE prior to June 30, 2016. This would extend the timeframe to expend funds for

one additional year through September 18, 2017. The Department will analyze other

opportunities as grants become available.

11b. The ACA established a minimum of health care benefits that all qualified health plans (QHPs) must offer and required that a state which chooses to mandate health care benefits beyond the minimum must pay for these mandated benefits. Federal regulations, effective December 30, 2013, promulgated this part of the ACA (45 CFR Parts 147, 155 and 156).

Section 1302 of the ACA provides for the establishment of a minimum level of benefits,

referred to as the Essential Health Benefits (EHB) package. The EHB must be equal in scope to benefits covered by a typical employer plan and cover at least the following 10 general categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. All QHPs offered through the State-based health care exchange must offer the EHBs. States then selected a “benchmark plan” that offers all of these benefits as the standard for plans offered in the state. New Jersey’s benchmark plan is the Horizon HMO Access HSA Compatible.



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Additionally, Section 1311(d)(3)(B) of the ACA authorizes states to require a QHP to

cover additional mandated benefits beyond those in the EHB, provided that the state defrays the costs of such mandated benefits. However, the regulations (45 CFR Parts 147, 155 and 156) provide that states may include, as part of their “benchmark plan,” state benefit mandates that were enacted before December 31, 2011. Only if a state requires issuers to cover additional benefits mandated after December 31, 2011, must the State defray the costs of these benefits in the QHPs. New Jersey has enacted three laws which mandate certain health care benefits since December 31, 2011: P.L.2011, c.188 requiring coverage for oral anticancer medication under certain circumstances; P.L.2011, c.210 requiring coverage for sickle cell anemia; and P.L.2013, c.50 requiring coverage for refills of prescription eye drops in certain circumstances.

Although the ACA requires states to defray the costs of these mandated benefits in the

QHPs, the regulations permit states flexibility in determining the method of payment. The calculations of the cost of additional benefits are to be made by a member of the American Academy of Actuaries, in accordance with generally accepted actuarial principles and methodologies. The calculations should also be made “prospectively to allow for the offset of an enrollee’s share of premium and for purposes of calculating the premium tax credit and reduced cost sharing.” However, states may choose to either make payments to individuals or issuers. Additionally, the payments may be based on the statewide average cost of the additional state mandated benefits or the issuer’s actual cost. Questions: a. What department is responsible for providing the mandated benefits

payments? If there is no designated department, please indicate how the State plans to implement this requirement of the ACA.

Response: Recent amendments by CMS to 45 C.F.R. 155.170 adopted in late February

2016 have changed the manner in which post-2011 benefit mandates that are in addition to the

ACA’s essential health benefits (EHBs) and therefore require defrayment are identified and

reported. Previously, § 155.170(a)(3) required the Exchange to identify such non-EHB benefit

mandates; now, the rule requires states to identify the benefits that are in addition to the EHBs

for which defrayment is required and directs the carriers to calculate the costs of such benefits

and report same to the State. Discussions regarding this change to the federal rules are

underway in New Jersey.

b. What is the department’s estimate for the costs for QHPs to provide the benefits

mandated pursuant to P.L.2011, c.188; P.L.2011, c.210; and P.L.2013, c.50?

Response: The public laws listed above do not require defrayment under Federal law as

discussed below.

P.L. 2011, c. 188 addresses coverage for oral anti-cancer medication. The law requires

that the cost sharing applied to the medication be determined based on whether the

cost sharing is less if paid as a medical benefit or as a pharmacy benefit. As explained



25

above, cost sharing requirements are not considered to be new mandates for which the

state would have an obligation to defray the cost.

P.L.2011, c.210 requires that prescription drugs to treat sickle cell anemia must be

covered under any plan that covers outpatient prescription drugs. As fully-insured

plans issued in New Jersey that cover prescription drugs did not contain an exclusion

for treatment of sickle cell anemia, the prescription drugs to cover this condition were

already covered. Thus the State would not have an obligation to defray any costs.

P.L.2013, c.50 requires coverage for refills of prescription eye drops. Prescription eye

drops were already covered. The law addresses the opportunity for refills of an already

covered prescription drug. Thus the State would not have an obligation to defray any

cost.

c. What is the process the department will use to pay for the costs of these mandated benefits? Will the department pay individuals or insurers? Will the payments be based on the Statewide average cost or the issuer’s actual cost?

Response: As discussed above, no defrayment is triggered by the above-referenced laws

because no new benefits were required. To date, no defrayment requests or decisions with

regard to process have been made.

11c. Pursuant to the ACA, individuals are now supposed to be able to access information regarding health insurance carrier requests for rate increases on the federal website devoted to the ACA, www.healthcare.gov. Rate increase requests that meet the threshold of 10 percent or more are required to be on the website. The department has the responsibility to disapprove rates in the Individual Health Care and Small Employer Health Care markets. (Please see the OLS background paper, “Health Insurance Rate Review; Federal Health Care Reform Law Requirements” in the FY 2013 OLS budget analysis of the department for more information.) Questions: a. Please describe the rate review process the department employs and

any changes that have been made to this process in the last year. Please describe any instance in the last year in which a rate has been deemed excessive and the insurance carrier has been instructed to re-evaluate its proposal or been disapproved.

Response: The rate review process is largely unchanged from last year. It involves scrutiny

of plan designs with particular attention to cost sharing to ensure compliance with minimum

standards. Rate review includes URRT analysis which is relevant in judging the relative



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relationships of rates charged for different plans, but provides little insight into the overall rate

levels.

Last year, our review confirmed the filed increases were in compliance with the requirements

of State and Federal law and the premiums were not inadequate, excessive or unfairly

discriminatory. This has not always been the case and there have been times in prior years

when carriers were required to lower proposed premiums.

b. Please provide the filed rate increase or decrease requests for FY 2015 and thus far

in FY 2016. Response: 2015 Rate Actions -- IHC Starting in 2015, all individual rates change annually on January 1. During calendar year 2015,

AmeriHealth, Health Republic, Horizon and Oxford all had significant enrollment. For

calendar year 2015, AmeriHealth increased rates approximately 12 percent. Health Republic

decreased rates approximately six percent. Horizon’s rates were almost unchanged. Oxford

decreased rates as much as 15 percent. Among carriers with relatively low enrollment, CIGNA

did not change rates, and Aetna increased rates approximately 17 percent, and Oscar had no

reported rate change because it was new to the IHC market.

For calendar year 2016 plans, carriers filed rate changes ranging from -3.6 percent to 29.8

percent. Disregarding carriers that had less than 1 percent of the IHC market share (based on

enrollment for 2nd Quarter 2015), increases were in the range of 0.7 percent to 17.7

percent.

2015 Rate Actions -- SEH

New ACA requirements became effective in 2014. Consequently, many plans non-renewed

and were replaced with ACA-compliant plans as of the anniversary dates in 2014. Adjustments

to rating factors affected many employers. This made it difficult to estimate the percentage rate

increase experienced by an employer on a “same plan” basis. However, we estimated in

spring of 2014 that the average increase was approximately 12 percent. ACA-related fees

probably contributed to this increase.



27

The way in which small groups are rated changed significantly in 2014 because of the ACA.

The gender composition of a small group no longer enters into the calculation. The ACA limits

(through the single risk pool concept) the amount by which rates for plans with high cost

sharing and plans with low cost sharing can vary. As a consequence, small employers with a

high percentage of young male or older female employees, or small employers with low cost

plans, probably experienced increases much higher than the average in 2014. (Conversely,

some employers experienced very modest increases if they had the opposite composition or

had high cost plans).

Annual rate increases effective January 1, 2015 were moderate, often less than 10 percent.

Horizon increased rates approximately six percent, AmeriHealth approximately nine percent,

and Aetna approximately 12 percent. Oxford was less than two percent, and Health Republic

less than one percent. CIGNA’s rates stayed the same.

For 2016 plans, carriers included rate changes ranging between -14.6 percent to 9.3 percent.

Disregarding carriers that had less than 1 percent of the SEH market share (based on number of

plans for 4th Quarter 2015), increases were in the range of -4.1 percent to 9.0 percent.

SEH carriers are permitted to change new business rates quarterly. Since rates for inforce plans

are guaranteed for 12 months from the effective date of the plan, the rates for a small employer

change annually.

c. Has the department identified any trends in rate increases since the ACA’s changes

to the rate review process? Response: Please note that the ACA has not introduced fundamental changes to the

Department’s rate review process. The Department continues to review rate filings for

compliance with all applicable State and Federal laws and, as always, reviews proposed

premium increases to confirm that the increases are not inadequate, excessive, or unfairly

discriminatory.

However, the Department has taken advantage of Federal grant funds to help make our existing

effective rate review process even more efficient. For example, using grant funds, we designed

a rate filing template to capture specific rate details in a standardized Excel format. The data in



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the Excel file is being stored in a new relational database that allows the reviewing actuary to

make quick and easy rate comparisons. The Department hasn’t realized any discernable trends

in rates.

The drivers of premium increases continue to be largely unchanged: medical costs, ACA taxes

and fees, plan designs, competition, and buyers.

11d. New Jersey's Health Maintenance Organizations (HMO) Act (N.J.S.A.26:2J-1 et seq.) and Health Care Quality Act (HCQA) (N.J.S.A.26:2S-1 et seq.) provide protections to patients covered under health benefits plans by requiring carriers' health plans and HMOs to meet minimum standards, including network access and adequacy standards. Network access and adequacy standards ensure that a health plan can provide health care services to all of its subscribers. For example, N.J.A.C. 11:24A-4.10 provides that health carriers under the HCQA must provide at least two eligible primary care physicians within 10 miles or 30 minutes driving or public transit time of 90 percent of the carrier’s covered persons. The department has adopted similar provisions for HMOs pursuant to N.J.A.C. 11:24-6.2. In addition, the United States Department of Health and Human Services issued final rules (45 CFR 156.230 and 156.235) in March 2012 elaborating on the ACA requirement that all QHP provider networks are sufficient in number and types of providers. Questions: a. Once the department has issued a health insurance carrier or HMO a

certificate of authority to operate, what efforts does the department deploy to ensure continued compliance with network access and adequacy standards?

Response: The Department enforces N.J.S.A. 26:2S-18, N.J.A.C. 11:24-6.1 et seq., and

N.J.A.C. 11:24A-4.10. This includes review at the establishment of a new network by a carrier

and the review of annual updates of multiple tables of data on a county service area basis on

primary care physicians, specialty care physicians, acute care hospitals and ancillary and

specialty providers, as well as information on provider turnover throughout the year.

Additionally, the Department continually monitors other sources of information such as

consumer complaints and the decisions of the Independent Health Care Appeals Program

(IHCAP) to identify potential issues with network adequacy by provider type and/or carrier. If a

carrier does not have a qualified and accessible provider to treat the condition of a particular

member, the Department and/or the IHCAP will require the carrier to allow the member to

receive the needed services from an out-of-network provider and limit the member’s

responsibility to payment of network cost sharing. This is referred to as granting an in-plan

exception.



29

b. Once the department has approved a provider network, what efforts does the

department deploy to ensure continued compliance with network access and adequacy standards as providers may join or leave the network or as certain providers may discontinue offering certain healthcare services?

Response: The Department engages in continual monitoring of network adequacy, as

referenced in the response to a. above. Where that monitoring identifies insufficiencies, the

Department requires the carrier to cure the deficiency and make any necessary corrections to

its Provider Directory. The in-plan exception referenced above is used to ensure that the

consumer is held harmless during a period of deficiency.

c. Please detail, by job title, how many staff are dedicated to enforcing network

access and adequacy standards. Does the department have a sufficient number of staff to properly monitor network access and adequacy standards? If not, how many additional staff would be needed, and at what additional cost?

Response: Network adequacy review is performed by two Department employees – Manager,

Office of Managed Care and Supervising Health Care Facilities Evaluator -- and that work is

checked and supervised by a third employee, the Assistant Commissioner for Consumer

Protection. The Department is also in the process of hiring two insurance analyst trainees and

augmenting its computer capabilities to reduce the time needed to perform this function.

11e. The New Jersey Individual Health Coverage Program (IHCP), P.L.1992, c.161 (N.J.S.A.17B:27A-2 et seq.), was established to provide access to a broad choice of private health insurance products to any New Jersey resident who does not have access to employer-based or other group health benefits coverage. At first, the IHCP market was robust, but starting in the mid 1990’s, several changes to the program resulted in a steady increase in the premium and a change in participation toward older and potentially higher risk insureds.

P.L.2008, c.38 (N.J.S.A.26:15-1 et al) then modified the requirements on policies

available under IHCP to make them more affordable and therefore attractive to younger uninsured persons. These modifications, including a modified community rating; a reduction in the number of plans required to be offered; and an addition of optional riders on the policies, were intended to control policy costs.

Additionally, the Small Employer Health Benefits Program (SEH), enacted pursuant to P.L.1992, c.162 (N.J.S.A.17B:27A -17 et seq.), was established to provide small employers (those with 2 to 50 employees) with the option to purchase standardized health benefits plans. The plans can be modified based on the age, gender and family status of the employees and location of the business. However, the ratio for the highest rates for a SEH plan to the lowest rates may not exceed 2:1.



30

In 2014, the department enacted regulations to amend the IHCP and the SEH plans to

ensure compliance with federal law. Notably, section 1302 of the ACA requires that all health coverage products must provide certain essential health benefits.

Questions: a. Please provide sample policy costs for individuals purchasing policies

through the IHCP, for the two most recent years available. Please explain the difference in the cost of policies over the previous years.

Response:

Sample Monthly Premiums (for age 50) for 2014-2015-2016 IHC

Plan Type 2014 2015 2016

HMO (Gold)

$778.45 $764.25 $842.56

EPO (Silver)

$549.93 $539.61 $621.06

Changes in plan costs: For purposes of comparison, we used the same plan types and the same

age (50). The sample HMO monthly premium in 2016 ($842.56) is approximately 10 percent

above the monthly premium in 2015 ($764.25), which was approximately 2 percent lower

than the monthly premium in 2014 ($778.45). The sample Silver monthly premium in 2016

($621.06) is approximately 15 percent above the monthly premium in 2015 ($539.61), which

was approximately 2 percent lower than the monthly premium in 2014 ($549.93).

There is no one explanation for the premium differences year-to-year. There have been multi-

faceted changes to the IHC market between 2014 and 2016. Some of the factors that continue

to have an impact on premiums are: medical costs; ACA taxes and fees; plan designs;

competition; buyers. The number of carriers in the IHC market has increased from 6 in 2014 to

7 in 2016. The number of plans available for sale among the carriers has increased 43 percent

from 2014 (61) to 2016 (98). However, it is important to note that prospective pricing to an 80

percent loss ratio has been consistent over the years for New Jersey’s markets and carriers

continue to make refunds if actual experience produces better results.

b. Please provide sample policy costs for businesses purchasing insurance through the SEH program for the two most recent years available. Please explain the difference in the cost of policies over the previous years.



31

Response: Below is a summary of monthly premiums for a hypothetical small employer.

Premium comparisons are provided for the most recent years. Precise comparison between

years is not possible because of subtle changes in product offerings. However, we believe the

table makes a fair comparison by carriers and by years.

The Department now posts SEH rate charts as well as a rate calculator on the SEH website.

Employers have the option to look at the rate charts for the base (age 21) premium for each

plan or they can use the calculator to enter the specifics for their employee group for an

estimate of total premium for the group. This carrier-specific data is now available on the web

site rather than the Premium Comparison Survey which listed only generic premiums for a

sample group.

2014-2015-2016 SEH Monthly Premium (for hypothetical group)

Carrier Name

Plan Name 2014 2015 2016

Aetna Life Insurance NJ Silver QPOS 2000 70/50 $4,711 $5,523 $5,575

Aetna Life Insurance NJ Silver OAEPO 2000 70 percent $5,063 $5,311 $5,629

AmeriHealth Ins. Co. Gold EPO Regional Preferred $30/$50 $6,022 $6,062 $7,059

AmeriHealth Ins. Co. Silver EPO HSA Local Value 100 percent/100 percent

$5,489 $4,747 $4,293

Health Republic Ins. Co.

Solid Silver NA

$5,109 $6,141

Health Republic Ins. Co.

Core Silver $4,990 $5,998

Horizon BCBS Advantage EPO HSA Bronze 100 Compatible $5,530 $4,803 $5,337

Horizon BCBS Advantage EPO HSA Silver 100 Compatible $750 Contrib

$4,929 $4,899 $5,444

Oxford Health Ins. EPO 30/50 $1000 L Gated OHI w/ $25/$50/$75 (Gold)

$4,909 $6,161 $7,366

Oxford Health Ins. PPO Flex 25/40 L Non-Gated OHI w/ $15/$35/$75 (Gold)

$6,579 $7,037 $8,355

AVERAGES

$4,323 $5,464 $6,120

Changes in plan costs: Note that for purposes of comparison, we used a hypothetical small

group comprised of six employees some of whom have dependents. The results show the

average monthly premium in 2016 ($6,120) is approximately 12 percent above the average



32

monthly premium in 2015 ($5,464) which was approximately 26 percent above the average

monthly premium in 2014 ($4,323).

There is no one explanation for the premium differences year-to-year. There have been multi-

faceted changes to the marketplace between 2014 and 2016. Some of the factors that continue

to have an impact on premiums are: medical costs; ACA taxes and fees; plan designs;

competition; buyers. The number of plans available for sale among the carriers has increased

51 percent from 2014 (221) to 2016 (333). However, it is important to note that prospective

pricing to an 80 percent loss ratio has been consistent over the years for New Jersey’s markets

and carriers continue to make refunds if actual experience produces better results

Small Employer coverage is employment based. Employment was reduced during the

recession, and despite the more robust economy and recovery of jobs in the small employer

market, a concomitant increase in enrollment has not occurred. Reports suggest that employers

are continuing to require greater contributions from employees (under the New Jersey small

employer law employers must contribute at least 10 percent of the overall group premium),

reducing the take-up rate of employer-offered coverage. In addition, as of 2014, Federal law

required an amendment to the definition of small employer such that businesses that are

husband-wife businesses with no full-time employees in addition to the husband-wife or that

are sole proprietorships or partnerships cannot purchase coverage in the small employer

market unless the business has at least one other, unrelated common law employee. Thus,

since 2014 many of the smallest small employers are ineligible to buy coverage in the small

employer market.

As would be expected, enrollment decreases when premiums increase because of

cost/affordability issues. Premiums increase for a number of reasons:

The workforce is aging, and the take-up rate of employer-offered coverage is greater

among older employees, as coverage options for younger employees have changed and

increased in recent years. For example, dependents may remain on a parent’s coverage

up to age 26 with the potential to remain until age 31. Individuals under age 30 may

purchase individual catastrophic coverage. Some employees may qualify for an

exemption from the requirement to maintain coverage if the employer-offered coverage

is too costly. An older risk pool for rating purposes results in increased rates even when



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medical costs are stable, because there is increased utilization of medical services

associated with age.

Employers and employees may determine that it is more advantageous for employees to

purchase coverage in the Federally Facilitated Marketplace because of subsidies and the

possibility of cost-share reductions that are available with individual plans. This may be

particularly true if the group tends to have employees that are younger or receive lower

wages/salaries. As already noted, movement of younger workers out of the group risk

pool tends to have an adverse impact on group rates, making group premiums less

attractive in general.

Several insurance companies developed and are aggressively marketing “self-funding”

options to small employers. Because self-funded arrangements do not have to comply

with the same State and Federal requirements and protections as the insured small

employer plans they can offer plan designs and use underwriting and rating

requirements that encourage participation by groups with more favorable risks. These

arrangements tend to take the youngest and healthiest groups out of the SEH program,

reducing enrollment and increasing premiums for those that remain. Because small

employer plans have been and continue to be subject to the guaranteed issue

requirement, businesses that elect to move to self-funded programs can later return to

the small employer market when they find the claims costs make self-funding too great

of a financial risk or when they find their employees and dependents require coverage

of services that may not be covered under the self-funded arrangement. The fully-

insured small employer market thus experiences further adverse selection which drives

up premiums.

Rules of the SEH program require carriers to pays claims for the voluntary use of out-of-

network providers at the 80th percentile of PHCS, which is generally more generous

than the out of network allowances used in the large employer market, whether the

large employer is insured or self-funded. The added medical costs are reflected in

premiums, as well as restrictions in plan design. As a result, only 28 percent of the

inforce small employer plans include coverage of out of network benefits.

c. What influence has the ACA had thus far on the number of lives covered through

the IHCP and the SEH? Response:



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Total lives

4Q13 146,095 1Q14 186,402 2Q14 259,449 3Q14 259,000 4Q14 241,850 1Q15 356,797 2Q15 316,113 3Q15 306,574 4Q15 290,913 Total Lives (employees and dependents): 4Q13 647,374 1Q14 599,037 2Q14 562,398 3Q14 521,146 4Q14 503,018 1Q15 491,888 2Q15 482,023 3Q15 473,551 4Q15 463,762 12a. The National Association of Insurance Commissioners recently reported that New Jersey drivers paid on average $1,254 on auto insurance in 2013, the last year for which figures were available, marking the fourth straight year that New Jersey has topped the list of all 50 states and the District of Columbia. Various efforts have been made to increase the availability and affordability of automobile insurance; such as, the “Fair Automobile Insurance Reform Act of 1990,“ P.L.1990, c.8 (N.J.S.A.17:33B-1 et al.); the “Automobile Insurance Cost Reduction Act,” P.L.1998, c.21 (N.J.S.A.39:6A-1.1 et al.); and P.L.2003, c.89 (N.J.S.A.17:30A-2.1 et al). The laws have been successful to varying degrees in containing costs. However, some requirements established pursuant to these reforms, such as “take-all-comers,“ which required all private-passenger auto insurers to provide coverage to all eligible persons, have expired, while others have been amended since enactment, such as medical fee schedules for the reimbursement of health care providers under the medical expense benefit of the Personal Injury Protection coverage. Questions: a. Please provide the number of automobile insurers offering automobile

insurance in the State in 2015 and thus far in 2016? Response:

Year Number of Insurers

2015 81 2016 80



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b. Please provide the rate increases filed by these companies in 2015 and thus far in 2016. Please comment on the reasons stated for these rate increases and provide an estimate for automobile insurance rates for 2017 in New Jersey.

Response: Please see Attachment 4 for the rate increases filed by these companies from 2015

through 2016. The average PPA rate increase for 2015 was 3.65 percent, which is in line with

changes from the two prior years. The moderate size of these increases is mostly driven by a

reduction in the PIP indication. Effective November 15, 2012, the Department adopted

regulations designed to contain the rising cost of PIP. We believe these regulations are helping

to control costs. The Department believes that this improved trend may moderate through

2016 and 2017. A factor here is that lower gasoline prices usually result in a rise in average

miles driven which will drive up claims costs.

The size of the residual market continues to decline. As of December 31, 2015 there are

16,704 Personal Auto Insurance Plan (PAIP) exposures, which is 0.30 percent of the market.

This is down from 48,684 PAIP exposures in 2011, which was 0.91 percent of the market.

12b. Over time, the Legislature has expanded the options available for automobile insurance coverage by establishing the “standard,” “basic,” and “special” coverage options:

Standard coverage is the original and most common no-fault coverage and provides the most coverage, as well as the most options for additional coverage, and is the most expensive of the three options.

Basic coverage is more limited than standard coverage but is typically more affordable. Special coverage is available through a special automobile insurance policy, as

explained in more detail below, offers very limited benefits, is less costly than standard or basic coverage, and is only available to certain low-income drivers eligible and enrolled in the federal Medicaid program.

The least-expensive special policy option was introduced to encourage more drivers to maintain insurance coverage and thereby address an ongoing situation in the State in which many drivers violate the automobile insurance mandate and drive without coverage, presumably due to the high cost of insurance coverage. In other words, the special policy provided a more affordable opportunity to become “street legal.” One of the policy goals was to help provide low-income individuals with transportation to employment, with the hope that if these individuals became employed, they would improve their economic situation generally and also possibly purchase better automobile insurance coverage going forward.

Motorists driving under a special policy do not have liability insurance coverage to compensate third parties suffering property damage as a result of an accident with a special policy motorist. These motorists are nevertheless considered to be insured for the purposes of the mandatory insurance requirement for automobiles registered in the State (or “street legal”). However, they are considered uninsured motorists for purposes of determining whether an



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insured motorist with whom they are involved in an accident may recover via uninsured motorist (UM) coverage. Accordingly, a motorist who is insured under a standard automobile policy and who is involved in an accident with a special policy driver who is at-fault may recover from the UM part of their own policy, if they purchased UM coverage. Only Standard coverage includes UM coverage. Questions: a. What was the total number of vehicles insured, by type of insurance

policy, with a special automobile insurance policy, a standard automobile insurance policy, and a basic automobile insurance policy in 2015?

Response: See below. The amount is for year end. Standard Policy

In-force vehicles 2015 5,491,202 Basic Policy

In-force vehicles 2015 61,570 Special Automobile Insurance Policy (SAIP)

In-force vehicles 2015 45,462 b. How many complaints did the department receive regarding special automobile

insurance policies in 2015? Please specify, to the extent possible, the reasons behind these complaints.

Response: The Department received a total of six inquiries (calls), and seven complaints

regarding the Special Automobile Insurance Policy (SAIP) during 2015. A total of nine, (four

inquiries and five complaints), centered mostly on 3rd party claims against the alleged at-fault

SAIP policyholder. The remaining two inquiries and three complaint files involved initial

underwriting issues, including the insured’s failure to provide mandatory documentation,

eligibility, or payment of the proper premium all resulting in cancellation of the policy.

12c. Pursuant to section 10 of P.L.1988, c.119 (N.J.S.A.39:6a-4.6), the Commissioner of Banking and Insurance is responsible for the promulgation of medical fee schedules to be used in the reimbursement of health care providers for medical expense benefits under the personal injury protection (PIP) coverage of automobile insurance policies. Additionally, “the commissioner may contract with a proprietary purveyor of fee schedules for the maintenance of the fee schedule, which shall be adjusted biennially for inflation and for the addition of new medical procedures.”



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On January 4, 2013, the department revised the regulatory framework for the provision

and payment of PIP benefits. The changes, among other things, amended the alternate dispute resolution process and expanded the PIP medical fee schedules, which was intended to lessen the reliance of providers and insurers on determining reimbursement for procedures on the “usual, customary and reasonable fee” (UCR) in those instances in which a procedure is not included in the PIP medical fee schedule. The expansion to include many more procedures on the PIP medical fee schedules is intended to standardize the cost of procedures for both providers and insurers. Standardization leads to certainty in the marketplace and less administration and cost incurred by both parties in establishing payment for a service. Questions: a. Please comment on the impact of the 2013 PIP fee schedules on the

cost of private passenger automobile insurance to consumers in New Jersey. Response: Data suggests we have achieved downward pressure on PIP costs and the

indicated rate need since adoption of the new fee schedules and rules, which absent other

developments should put downward pressure on rates generally. However, historically, billing

practices and medical utilization change over time, sometimes in response to adjustments to

the schedules. Thus, future conditions may vary. The Department continues to monitor PIP rate

indications and company experience to assist in evaluating the impact of the schedules.

b. Please provide specific information on the effects of the 2013 changes to the

alternate dispute resolution process. Have the changes resulted in a shorter time frame, and thus lower cost, associated with dispute resolution? Has this had a measurable impact on PIP costs overall?

Response: The change made to the alternate dispute resolution process in the

amendments that became effective on January 4, 2013, was the initiation of an on-the-papers

(no in-person hearing) procedure for disputes of $1,000 or less (where no future medical

treatment is at issue). On-the-papers (OTP) cases began to be filed on March 1, 2013.

Forthright, the arbitration administrator, reported that 20 percent of arbitrations filed were OTP.

It is clear at this time that the OTP process is proving to be more efficient than the in-person

hearing process. Data submitted by Forthright indicates that OTP cases are resolved

significantly more quickly than for similar cases that go to an in-person hearing. Additionally,

insurers have expressed satisfaction with this additional arbitration option.

c. Please provide information on the use of UCR fees for services not included in the

PIP medical fee schedule. Has there been a significant decrease in the reliance on the UCR fees due to the inclusion of more procedures on the fee schedule? Does the department anticipate changing any aspect of this process in the next year?



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Response: The Department believes that an increase in the number of fees on the fee

schedules will decrease reliance on UCR fees. One of the purposes of reducing such reliance is

to reduce disputes about the appropriate size of payments and thus put downward pressure on

both the number of arbitrations filed and overall costs to providers, insurers and consumers.

Insurers report an increase in the number of claims subject to the fee schedule instead of UCR

as a result of the changes to the rule, and the Department is seeing indications of a decrease in

the number of arbitrations. It may be too early to draw absolute conclusions about the causes

of this decrease, however, because other factors may be involved. Historically, billing practices

and arbitration filings evolve over time, often in response to adjustments to the schedules or

changes to CPT codes. The Department will continue to collect information to evaluate the

impact of these changes.

13a. The department’s Bureau of Fraud Deterrence is responsible for investigating fraud committed by licensees of the Banking and Insurance divisions. In certain insurance fraud cases, the bureau investigates in coordination with the Office of the Insurance Fraud Prosecutor in the Department of Law and Public Safety. These investigations may result in consumer recoveries and fines imposed on the industries DOBI regulates. All fines collections are designated for the General Fund.

In responding to prior OLS Discussion Points, the department has provided a broad summary of the types of fines it collects from the different industries. Insurance companies are typically fined for improper claim denials or underpayments, use of unapproved policy forms or rates, transacting business without a license and failing to file required reports. Insurance producers are generally fined for misappropriation of premiums, failure to secure coverage, and forgery. Licensed financial entities and State chartered credit unions are usually fined as a result of examinations, consumer complaint handling and enforcement actions. Questions: a. Please provide an inventory of all recoveries for consumers collected

by the department for FY 2015 and thus far in FY 2016. Please detail this information by division.

Response: Consumer Recoveries FY 2015 FY 2016 (as of March 31, 2016) Banking $ 457,371 $ 426,558 Insurance $15,059,131 $ 8,162,611 Real Estate $ 227,467 $ 174,493 Total $15,743,969 $ 8,763,662

b. Please provide a detailed inventory of the fines levied and fines collected by the

department for FY 2015 and thus far in FY 2016. Please detail this information by



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division and by cause by industry. Please provide the collection rate for fines levied. Based on this information, does the department conclude that there are any significant increases in industry behavior punishable by fines that warrant attention by the Legislature?

Response: The Department typically fines insurance companies for improper claim denials

or underpayments, use of unapproved policy forms and/or rates, transacting business without a

license and failing to file required reports. The Department generally fines insurance producers

for misappropriation of premium, failure to secure coverage and forgery. The Department fines

state licensed financial entities and state chartered credit unions as a result of examinations,

consumer complaint handling and enforcement actions.

Fines Levied FY 2015 FY 2016 (as of March 31, 2016) Banking $ 1,133,250 $ 184,000 Insurance $ 5,387,475 $3,787,350 Real Estate $ 125,800 $ 107,797 Bureau of Fraud Deterrence $ 3,552,250 $2,810,320 Total $10,198,775 $6,889,467 Fines Collected FY 2015 FY 2016 (as of March 31, 2016) Banking $ 366,945 $ 447,239 Insurance $2,430,518 $2,199,181 Real Estate $ 63,991 $ 58,860 Bureau of Fraud Deterrence $2,201,086 $1,046,417 Total $5,062,540 $3,751,697

13b. The functions of the Bureau of Fraud Deterrence and the Office of the Insurance Fraud Prosecutor (OIFP) are funded through the Insurance Fraud Prevention assessment, which is estimated to yield $31.6 million in FY 2017 (page C-3, FY 2017 Budget Recommendation). The Insurance Fraud Prevention assessment is levied on certain insurers for reimbursement of all costs related to the activities and responsibilities of the OIFP and the Bureau. Pursuant to N.J.S.A.17:33A-8, the Director of the Division of Budget and Accounting in the Department of the Treasury shall, on or before September 1 in each year, certify the total amount of expenses incurred by the State in connection with the administration of insurance fraud prevention in the previous fiscal year. This amount is then apportioned among the insurance companies by the department and an assessment is paid by the insurance companies prior to December 31 of each calendar year for expenses accrued in the previous fiscal year.

The County Prosecutors’ Reimbursement Program is administered by the OIFP and also funded through the Insurance Fraud Prevention assessment. The program was established pursuant to section 44 of P.L.1998, c.21 (N.J.S.A.17:33A-28) to provide reimbursement to the



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County Prosecutors’ offices for their activities undertaken in connection with investigating and prosecuting insurance fraud. Questions: a. Please report on the activities of the Bureau of Fraud Deterrence,

including the number of cases being investigated and the types of fraud discovered.

Response: On June 30, 2010, pursuant to P.L.2010, c.32 the former Division of Insurance

Fraud Prevention (DIFP) was renamed and reconstituted as the Bureau of Fraud Deterrence (the

Bureau) within the Department of Banking and Insurance. The law transferred the civil

component of insurance fraud back to the Department of Banking and Insurance, naming it the

Bureau of Fraud Deterrence. The criminal component remained with the Office of the

Insurance Fraud Prosecutor (OIFP) in the Department of Law and Public Safety. The law

mandated collaboration between the criminal and civil components, citing specific

requirements such as regular formal meetings, dual insurance industry fraud referrals, and

coordination, related to administrative subpoenas, etc.

Five and one half years since the transfer, post-transition results reflect an increase of civil

penalties and restitution from those obtained prior to the creation of the Bureau in 2010.

Additionally, since the transfer the Bureau has begun to place a greater emphasis on larger,

complex, multi-transactional fraud schemes and has become more aggressive in joining

insurers in lawsuits brought under N.J.S.A 17:33A-7 of the New Jersey Insurance Fraud

Prevention Act (the Act). The Act allows any company damaged as a result of violations of the

Act, to sue to recover compulsory damages which can include investigative costs, costs of the

suit and attorney fees. Section 7d of the Act allows the Commissioner to join these suits and

seek payment of civil penalties as authorized by the Act, which is being done on selective

matters through the Office of the Attorney General Division of Law.

Also since the transfer, the Bureau and OIFP have successfully prosecuted a number of

significant cases, through negotiated settlements. In these circumstances, the OIFP and the

Bureau have independently, yet concurrently, exercised their authority, with defense counsel

who have requested that the civil fraud prosecution and penalties be addressed in a global

resolution with the criminal prosecution.



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In FY 2015 the Bureau opened 4715 investigations, levied $3,522,250.00 in fines and secured

$586,223.05 in restitution. In FY 2016 from July 1, 2015 – March 31, 2016 the Bureau

opened 2845 investigations, levied $2,810,223.00 in fines and secured $688,606.00

Of the 4715 cases opened in FY 2015, 75 percent of the cases opened involved auto

insurance, nine percent health insurance, four percent homeowners insurance, four percent

commercial insurance, four percent workers compensation insurance, two percent disability

insurance, one percent dental insurance, and the remaining one percent involved all others.

The Bureau has continued a close working relationship with insurance carrier Special

Investigative Units (SIUs). Bureau investigators personally discuss each carrier-referred case

with their respective SIU counterpart. Bureau and SIU leadership maintain close professional

relationships with one another and meet regularly. Overall, the SIU community has been very

supportive and collaborative with the Bureau in their joint anti-fraud mission.

In the five years since its creation, the Bureau, working in coordination with the OIFP, County

Prosecutors and New Jersey’s insurance industry, has established a solid foundation which

positions itself to confront the ever changing world of insurance fraud going forward. In the

coming year the Bureau will look to improve efficiencies and adapt to the digital age by

receiving electronic referrals form the insurance industry and the maintaining of electronic

investigative files by our staff. Additionally, in FY17, the Bureau will establish a Complex Case

Unit. This specialized Unit will concentrate solely on detecting, investigating and prosecuting

large scale, complex, multi transactional insurance fraud cases particularly in the area of auto

injury/PIP.

b. Please provide expenses as they were certified by the Department of the Treasury

pursuant to N.J.S.A.17:33A-8 for FY 2015. Please break the expenses down to include, at a minimum, the direct cost of personal service, the cost of maintenance and operation, the cost of retirement contributions made, workers’ compensation paid for and on account of personnel, rentals for space and all other indirect or direct costs of administration.



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Response: FY 2015 Salaries and Wages $ 6,869,923.12

Materials and Supplies $ 40,220.07

Services other than Personnel $ 1,442,885.40

Maintenance and Fixed Charges $ 281,627.60

Equipment $ 244,599.88 Special Purpose Insurance Fraud Prosecutor

$12,502,596.15

Subtotal

$21,381,852.22

Other Expenses

Fringe Benefits $ 5,123,050.62

Indirect costs $ 44,168.14 Building Operations and Maintenance

$ 376,592.87

Debt Service – Roebling Building $ 70,502.21

Debt Service – Justice Complex $ 25,013.91

Warren Street Parking $ 3,000.00

Cancelled Obligations FY 2010-2011 $ (208.10)

Lockbox $ 600.00

Bank Street Parking Costs $ 10,711.61

Rent Calculation for Leased $ 362,040.62

Office Space

Subtotal

$ 6,015,489.88

Total Fraud Expenses 2015 $27,397,342.10

c. Please provide, by county, the CY 2015 awards under the County Prosecutors’

Reimbursement Program and the program’s estimated cost for CY 2016. The County Prosecutor Program is administered by the Office of the Insurance Fraud Prosecutor who provided the response below: Response: A budget summary for Cycle 15 (January 1, 2015-December 31, 2015) and

Cycle 16 (January 1, 2016-December 31, 2016) is provided below. The estimated cost for FY



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2017 is anticipated to be at the same level as FY 2016 for a total of $3,530,469. The precise

number will depend on: (1) the exact amount expended by the counties (this is a

reimbursement program), and (2) whether any currently non-funded counties apply for CY 17

funds, which is likely.

Since 2004, the program has operated on a calendar year basis instead of a fiscal year basis.

This period difference is moot however, because the awards are made on an annual basis, that

is, that the awards would be the same size were they made on a fiscal year basis.

County Prosecutor Insurance Fraud Reimbursement Program – Annual Awards

Cycle 15 Cycle 16

January 1, 2015 –

December 31, 2015 January 1, 2016 –

December 31, 2016

Atlantic $107,580 0

Bergen 0 0

Burlington 243,484 206,118

Camden 250,000 250,000

Cape May 90,211 100,644

Cumberland 0 0

Essex 250,000 250,000

Gloucester 123,789 131,405

Hudson 264,500 250,000

Hunterdon 0 0

Mercer 250,000 250,000

Middlesex 250,000 261,250

Monmouth 100,000 102,000

Morris 250,000 250,000

Ocean 250,000 250,000

Passaic 250,000 261,250

Salem 150,240 226,551

Somerset 250,000 250,000

Sussex 114,452 89,891

Union 250,000 261,250

Warren 137,059 140,110

Total award $3,581,315 $3,530,469

14. The Office of the Insurance Claims Ombudsman (Ombudsman) in the department is charged with investigating insurance consumer complaints regarding policies of auto, health, life, property and casualty insurance, except for claims for personal injury protection (PIP)



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coverage under automobile insurance (N.J.S.A.17:29E-2 et seq.). PIP claims are handled separately under an arbitration system established pursuant to P.L.1972, c. 70 (N.J.S.A.39:6A-1 et seq.).

Regulations (N.J.A.C.11:25-1.1 et seq.) provide that the Ombudsman may conduct a review of any disputed insurance claim settlements, if certain circumstances are met, and that all complaints must be entered into a data tracking system. The Ombudsman may hold hearings for disputes between all insurers and consumers. Life, property and casualty insurers are required by law (N.J.S.A.17:29E-9) to establish an internal appeals system for consumers, which must include notification to the claimant that they may contact the Ombudsman if they are dissatisfied by the internal appeals process.

The Ombudsman is required to report to the Governor and the Legislature on or before

September 30 of each year, summarizing the office’s activities for the preceding year, documenting any significant industry-wide problems regarding claims settlement practices in any line of insurance, and setting forth any recommendations for statutory or regulatory change which will further the State's capacity to resolve claims disputes (N.J.S.A.17:29E-15). However, the last report received by the Legislature was the 1999-2000 annual report. Furthermore, the department, in OLS Discussion Point responses during the FY 2015 budget process, indicated that the function and duties of the Ombudsman were absorbed by the Consumer Protection Services and Solvency Regulation program.

Questions: a. How many complaints were filed with the Consumer Protection

Services and Solvency Regulation program in 2015 and thus far in 2016. Please categorize by line of insurance.

Response: 2015 2016

Total 1724 2001

Accident & Health 628 762 Auto 181 212

Fire, Allied Lines & CMP 22 21 Homeowners 124 102 Liability 8 6 Life & Annuity 34 65 Miscellaneous 16 98 Unknown* 711 735

** Some are unknown because the file is still open and closing codes have not been entered to identify the line of insurance b. Has the department identified any significant industry-wide problems regarding

claims settlement practices in any line of insurance that require statutory or regulatory attention to further the State's capacity to resolve claims disputes?

Response: No.

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