The result is a "fraud tax" of $1,561, or about 22% of the average no-fault claim, said Robert Hartwig, president of the Insurance Information Institute. The average cost of a no-fault automobile insurance claim increased 55% from 2004 to 2009, Hartwig said, a surge he attributed to padded and fraudulent bills submitted by dishonest medical providers.
The New York Senate Insurance Committee heard a litany of complaints from the insurance industry about the no-fault system, which is the subject of several legislative and regulatory proposals. In late 2008, New York proposed a series of changes to the state's no-fault automobile insurance rules that Superintendent James J. Wrynn said are aimed at preventing and rooting out fraud, hastening claims processing and simplifying procedures. No-fault insurance rules were first promulgated in 1974 and last significantly revised in 2002, according to the insurance department.
More than four in 10 no-fault claims result in litigation, according to a study conducted by the Property Casualty Insurers Association of America. Of these, more than 99% were filed on behalf of medical providers, not those who were injured in auto accidents. PCI attributed much of the blame for contested suits to what it said is the unique way the state handles "assignment of benefits" for no-fault claimants. Patients in New York sign over to medical professionals "all rights and privileges and remedies" to pursue benefits under the no-fault law. This allows them to contest all issues, resulting in added litigation, testified Paul C. Blume Jr., PCI's senior vice president of state government affairs.
The burden falls mostly on the southern parts of the state, with no-fault cases causing a doubling of New York City's civil case load over the past five years, said Ellen Melchionni, president of the New York Insurance Association. As a result, she said, courts are currently scheduling cases for trial beginning in 2011.
Changes proposed by state regulators include requiring more information on prescribed forms to better gauge medical necessity; allowing insurers flexibility to deny coverage for health services that are not provided or are not billed in compliance with the fee schedule; and implementing simplified procedures for suspending payments to medical clinics when fraud is suspected and a licensing status investigation is under way. Companies would be required to schedule medical examinations in a way that is not overly burdensome to policyholders and other insureds.
Moves that would require legislative action include revising a current mandate that requires automatic payment of claims not denied within 30 days, regardless of merit, which Wrynn said encourages the filing of fraudulent claims. Another would provide new tools for law enforcement to address fraudulent acts like staged accidents, which insurers and regulators say are on the rise, he said.
Gary Henning, northeast region assistant vice president for the American Insurance Association, recommended cutting the no-fault threshold from $50,000, the highest in the United States, to as low as $5,000. New York's average no-fault personal injury protection claim costs $8,690, 64% above the U.S. median figure of $5,289, according to PCI.
Several lawmakers questioned the implication of such a cut, particularly for accident victims without adequate health insurance. "You're going to hit that threshold very quickly, then in a couple of years we're going to be here with a hearing from the health insurance industry," said state Sen. Craig Johnson, D-Nassau.
The insurance industry is overstating the impact of fraud and seeking remedies that would put an unfair burden on consumers and accident victims, said Richard Binko, president of the New York State Trial Lawyers Association. Fraud accounts for just 3% of each insurance premium, he said.
The top five writers of private passenger automobile insurance in New York in 2008, according to BestLink, were: Berkshire Hathaway Insurance Group, with a 23.0% market share; Allstate Insurance Group, with 18.9%; State Farm Group, with 10.8%; Progressive Insurance Group, with 6.6%; and Liberty Mutual Insurance Cos., with 5.7%.