Fraud and abuse in New York’s no-fault auto insurance system cost the state’s honest drivers and their insurers $204 million in 2010, constituting a ‘fraud tax’ of $1,311 per claim, a figure equal to 15 percent of every no-fault claim, according to Dr. Robert Hartwig, CPCU, an economist and president of the Insurance Information Institute (I.I.I.).
The average cost of a no-fault auto insurance claim in New York State stood at $8,664 in 2010, up $2,791, or 48 percent, from $5,873, the average cost of a New York no-fault claim in 2004, according to the I.I.I. Due to the absence in New York of safeguards, such as medical treatment guidelines or utilization reviews and controls, the cost of the average no-fault Personal Injury Protection (PIP) claim soared 48 percent between 2004 and 2010, a time frame during which medical costs in the U.S. rose by 25 percent. PIP is the portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.
“The scale of fraud and abuse in New York State’s no-fault auto insurance system today remains at crisis levels,” Dr. Hartwig stated in remarks scheduled for delivery tomorrow (Tuesday, April 26) in lower Manhattan to the New York State Senate’s insurance committee. “Not only are New York’s courtrooms filled with no-fault cases but an Insurance Research Council (IRC) study found that over one in five of all downstate New York no-fault closed claims showed signs of fraud and more than one in three appeared to be inflated.”
If New York’s auto insurers are paying out more than they should in no-fault claims, their policyholders are paying out more in premiums, Dr. Hartwig observed. Moreover, if the status quo is allowed to continue throughout 2011, these fraud and abuse trends could worsen in part because the number of no-fault claims is up 22 percent over the past two years.
The term no-fault auto insurance is often used to denote any auto insurance program that allows policyholders to recover financial losses from their own insurance company, regardless of who was at fault in an accident. Besides New York, 11 other states and Puerto Rico have no-fault auto insurance laws, with most of them aimed at facilitating quick payment of insured losses related to personal injuries and keeping accident disputes out of the courts.
Released in January 2011, the IRC report, New York’s No-Fault System: Preliminary Findings From Closed Auto Injury Claims, found that elements of fraud appeared in 22 percent of all New York City metropolitan area no-fault auto insurance claims paid out by insurers in the fall of 2010. From 2007 to 2010, the percentage of New York City area no-fault claims with the appearance of abuse rose to 35 percent from 29 percent, according to IRC.
“Public policymakers need to act now to substantially strengthen the law to rein in auto accident fraud and stop criminals from taking money out of the pockets of hardworking New Yorkers,” said Ellen Melchionni, president of the New York Insurance Association. “If there is not comprehensive reform, the present crisis will only become progressively worse, leading to a no-fault system that is not only broken, but also beyond repair.”
The average policyholder in New York spent $1,044 in 2008 to insure their vehicle, compared to $789 nationally, a difference of $255, or 32 percent, according to the National Association of Insurance Commissioners; 2008 is the most recent year for which definitive figures are available. New York ranks as the fourth most expensive state in the country in which to buy auto insurance.
“While the cost drivers influencing the price of auto insurance in New York are similar to those in other states in most respects, there is one glaring exception—its $50,000 threshold for PIP claims is the most generous in the United States. It should come as no surprise that some of the richest benefits in the country generate the highest costs,” Dr. Hartwig said.
“Because New York State has the highest no-fault dollar threshold in the country, it remains attractive to those who perpetrate fraud based on the perception that the auto insurers who pay the bills have deep pockets,” Dr. Hartwig concluded.