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IRC: New York No-Fault Abuse Exceeds $200 Million Annually

Source: A.M. Best

Posted on 28 Nov 2011

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New York City continues to make bad insurance news due to relentless fraud and abuse of its no-fault automobile system, according to a report from the Insurance Research Council.

The council, part of the Property Casualty Insurers Association of America, finds that no-fault abuse adds more than $200 million each year to the premiums paid by New York state drivers.

"In essence it's a fraud tax that all New Yorkers are paying because these criminals are committing this activity," according to Kristina Baldwin, assistant vice president of PCI.

"New York City has always been the epicenter where the medical mills and the organized crime rings are located," Baldwin added. "But recently we've really seen a resurgence of the fraud problem in New York, and once again it is reaching crisis proportions."

The study reported soaring no-fault fraud costs cause New York City drivers to pay as much as 272% more than the statewide average. In Queens, drivers pay 167% more than the statewide average, and in Brooklyn drivers pay 185% more, the study found.

Auto insurance claims for medical expenses, lost wages and other expenses related to injuries from auto accidents in the New York City area have risen 70% over the past decade, surpassing the 49% increase in medical care inflation over the same period, the report noted.

The types of fraud vary. "It could be a suspicious or staged accident where then the occupants of the car claim to be injured and bill the insurance company for treatments that were never received," Baldwin said. "Or in some cases, there actually were individuals who were in the accident and were injured and then so-called 'runners' follow them to the hospital and steer them to medical mills, which bill for unnecessary treatment."

Current insurance laws and regulations sometimes enable these fraudulent activities to continue, Baldwin noted.

"For example, right now an insurer has 30 days to pay or deny a claim and if they don't discover fraud within that time, then they are prohibited from raising it at a later date," she said. "So it's that type of thing that we need to see changed, where insurers have the opportunity to investigate and to fight no-fault fraud."

She added. "We really need some changes in the laws to both give law enforcement the tools that it needs to go after these medical mills and shut them down once and for all and put these criminals in jail where they belong. And we also need changes in the law to give insurance companies the tools that they need so that they have the opportunity to detect no-fault fraud and fight no-fault fraud."

The top five writers of private-passenger auto no-fault insurance in New York State are Berkshire Hathaway, with 27.7% of the market; Allstate, 19.9%; State Farm, 11.7%; Progressive, 6.6%; and Liberty Mutual, 5.2%, according to BestLink.