Reforms Needed in NY Auto Fraud Crisis

New Yorkers, especially those who live in New York City, are being victimized by auto insurance fraud, which industry groups say has reached crisis levels. Yesterday, insurance industry proponents of reforms were scheduled to voice their concern about the ongoing problem.

On March 23, the New York State Senate passed a bill (S1685-2011), sponsored by Sen. James Seward, which would make it a felony to intentionally cause a vehicle collision. The legislation, now on its way to the New York State Assembly for consideration, is designed to be a deterrent for the criminals who prey on innocent motorists in an effort to benefit from insurance fraud.

At a New York Senate Insurance Committee meeting yesterday, several industry representatives, including insurers, were scheduled to come forward to call for reforms and examine ways to reduce the incidence of no-fault auto insurance fraud.

The Property Casualty Insurers Association of America (PCI) issued a statement that auto insurance fraud in New York cost drivers in the state more than $240 million last year alone. PCI maintains that New York ranks as one of the most expensive states in the nation for auto insurance due in large part to rampant insurance fraud. Fraud and lawsuit abuse by medical providers are the main reasons for the higher costs, says PCI.

While no-fault auto insurance fraud is a statewide problem, New York City is the epicenter of this activity, said PCI representatives, and it has caused auto insurance premiums for drivers in the city to skyrocket. For example, drivers in Brooklyn pay 185% more than the statewide average for no-fault coverage and in the Bronx, the situation is even more severe with drivers paying 272% more than the statewide average for no-fault coverage.

“New York drivers, particularly those in the New York City area, have suffered the effects of auto insurance fraud long enough and they deserve to have measures put in place to reduce fraud and contain their insurance premiums,” said Kristina Baldwin, AVP president for PCI. “The state’s no-fault auto insurance system is broken and needs to be fixed.”

The Insurance Information Institute also issued a statement, estimating that the ‘Efraud tax’ that New Yorkers paid in 2010 was $204 million--an amount exceeding $200 million for the second consecutive year. The no-fault auto insurance system remains at crisis levels, noted the organization.

"We agree with the Insurance Information Institute that the scale of fraud and abuse in New York State's no-fault auto insurance system today has reached crisis levels,” said Krista Conte, New York spokesperson for Allstate Insurance Co. “Not only is no-fault fraud (auto accident fraud) costing New York consumers and insurers hundreds of millions of dollars, it puts drivers at risk. Those who would commit this type of crime are taking advantage of the broken no-fault system and they are organized, calculating and part of a big business. In essence, the perpetrators of this crime are imposing a 'fraud tax' on honest, hard working New Yorkers by gaming the auto insurance system.”

Conte said that without the support of lawmakers, incidents of fraud will continue to increase. “Responsible citizens are the victims. We urge lawmakers to enact comprehensive, meaningful no-fault insurance reform that puts citizens of New York first," she said.

The New York Insurance Association (NYIA) also called for immediate reform of New York’s fraud-riddled no-fault automobile insurance. Indeed, a recent study by the Insurance Research Council (IRC) found that 35% of New York City claims have some element of fraud or abuse.

"Meaningful, comprehensive reform of the laws is necessary to fix the broken system that criminals are blatantly exploiting for their personal gain,” says Ellen Melchionni, president of NYIA. “There is not a silver bullet to solve this problem. Auto accident fraud is a moving target. The state needs to be vigilant in fighting this vast problem and cracking down on criminals who have created a 'big business' of fraud to cash in at the expense of New York residents."

PCI’s Baldwin agreed that legislation was necessary to stem the problem. “Although insurers will continue to employ great efforts to fight fraud, changes in the law are necessary to stem this growing problem,” she said. “We urge lawmakers to enact comprehensive, meaningful reforms that will combat excessive medical charges, encourage fast and fair settlements of claim disputes, provide adequate time for fraud investigations, and institute tough penalties for insurance fraud by making it possible to decertify health care providers who commit no-fault insurance fraud. We also want to protect public safety and control insurance costs by increasing penalties for so-called “runners” who stage accidents to enable fraudulent medical claims or steer accident victims towards unnecessary medical treatments.”