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Amid high auto-insurance rates in NY, higher fraud penalties could help

By Will Barclay

Date:

New York state (NYS) has the unfortunate distinction of being a high cost-of-living state, and when it comes to auto insurance, New York lives up to its reputation. Our auto-insurance rates are among the highest in the nation. Although there are several reasons for our high rates, fraud plays a large part. Indeed, according to estimates from the NYS Department of Financial Services, the agency that oversees insurance in our state, as many as 36 percent of all auto-insurance claims in New York contain some element of fraud. That leads to higher insurance premiums for everyone.

New York state requires that motorists carry a minimum amount of auto insurance that covers bodily injury and property damage and provides for no-fault coverage. Because this insurance is mandatory, I believe that the state has a special interest in ensuring NYS motorists’ insurance rates accurately reflect an insurance company’s underlying costs.

When fraud is added to the formula, however, it perverts this calculation and creates higher insurance costs for all motorists. According to the Insurance Information Institute, no-fault fraud and abuse in New York state cost consumers and insurers about $229 million in 2009. The institute further reports that when this extra cost of fraud is calculated on a per-claim basis, it adds $1,644 per claim, or 22.4 percent of the cost.

According to the NYS Department of Financial Services, no-fault insurance fraud takes many forms. Fraud occurs when: (a) a driver and a body-shop worker agree to inflate the auto-damage claim and share the “profit;” (b) a doctor bills an insurer for services that were not provided; or (c) a driver stages a fake accident, and unscrupulous doctors and lawyers help “handle” associated medical claims and lawsuits.

To combat this fraud and, hopefully as a result, reduce auto-insurance premiums for policyholders, I have introduced the New York Automobile Insurance Fraud and Premium Reduction Act.

This legislation provides a comprehensive solution to no-fault auto fraud by addressing the issue from all sides. While there are many facets of this legislation, four of the legislation’s major provisions are as follows.

First, in effort to combat fictitious or unnecessary medical treatment usually emanating from a staged accident, my legislation would direct the establishment of medical guidelines to be employed in the evaluation and treatment of injuries sustained in any auto accident. It also requires pre-certification for certain treatments and equipment to curb fraudulent over-utilization of medical treatments.

Second, the legislation creates a monetary incentive of between 15 percent and 25 percent of an amount recovered (up to $25,000) for persons who report suspected insurance fraud to law-enforcement authorities.

Third, to make people think twice before committing no-fault fraud, my legislation expands the definition of insurance fraud and increases penalties for insurance-fraud violations.

Finally, to ensure that whatever reduced costs that insurers receive as a result of the enactment of this legislation are passed on to the policyholders, my legislation requires the state superintendent of insurance recommend an appropriate one-time, no-fault premium reduction for every insurer, by rating territory, equivalent to the insurers’ cost savings. This recommendation would be binding on insurers unless the insurer can show that such a reduction would result in an underwriting loss.

Recently, I participated in an Assembly Insurance Committee hearing in Albany regarding auto insurance in New York. Many who testified at the hearing, including those from the insurance industry and representatives from consumer groups, complained about the high costs of auto insurance. It is my hope that they will get on board with my legislation and together we can work to get it passed so that New Yorkers can at last begin to see a decrease in their auto-insurance premiums.

William (Will) A. Barclay is the Republican representative of the 120th New York Assembly District, which encompasses most of Oswego County, including the cities of Oswego and Fulton, as well as the town of Lysander in Onondaga County and town of Ellisburg in Jefferson County. Contact him at barclaw@assembly.state.ny.us, or (315) 598-5185.

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