Auto Insurance Rates Continue to be Among Highest in Nation; Increased Penalties for Fraud Will Save Consumers

By Assemblyman Will Barclay
New York state 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 the NYS Department of Financial Services, the agency that oversees insurance in our state, it is estimated that as many as 36% of all auto insurance claims contain some element of fraud, resulting in 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 that provides for no-fault coverage.  Because this insurance is mandatory, I believe that the state has a special interest in ensuring NYS motorists’ rates accurately reflect an insurance company’s underlying costs.

When fraud is added into 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 approximately $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% of the cost.

According to the NYS Department of Financial Services, no-fault insurance fraud takes many forms.  Fraud occurs when (i) a driver and a body shop worker agree to inflate the auto damage claim and share the “profit,” (ii) a doctor bills an insurer for services that were not provided, or (iii) 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 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 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.

Earlier this month, 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.

If you have any questions or comments or if you would like to be added to my mailing list or receive my newsletter, please contact my office by mail at 200 N. Second St., Fulton, NY 13069, by e-mail at [email protected] or by calling (315) 598-5185.