I described the Property and Casualty Industry’s Reg 68 proposal to the Department a few weeks ago and, at the time, I did not realize how timely that article would be. On November 24th the Department announced that it was issuing a “draft” of revised rules covering no-fault automobile insurance (Reg 68). This is not a formal promulgation, but the circulation of a number of changes that the Department has said would “help reduce fraud and abuse associated with no-fault claims, while making the no-fault system more user friendly.”

I believe that it is very unusual for the Department to publicly announce the issuance of a “draft” regulation. My experience has been that when the Department wants to float some regulatory ideas it will informally hand a draft regulation around to interested parties and seek input at a series of meetings. I imagine that the unusual public announcement may have something to do with the pressure being put on the Department to permit increases in auto insurance premiums, which the Department described in its newsletter as “skyrocketing”. I can speak from personal experience that the Department is not a fun place to work when auto insurance rates are increasing – especially on the eve of an election year.

As I wrote in the earlier article, the Department has attributed the increase in costs to auto insurers to fraudulent activities. Superintendent Wrynn said, “Especially in these difficult times, we have to be vigilant in protecting the pocketbooks of consumers. New Yorkers should not have to pay a fraud and abuse tax in their auto insurance premiums. The cost of each no-fault claim has gone up by more than half in the past five years, and all New Yorkers with auto insurance are paying the tab.” The Superintendent went on to say, “Protecting consumers means stopping those who would exploit the system for personal gain and unnecessarily drive up costs for all New Yorkers. No-fault reform is desperately needed, and this proposed regulatory reform is a step toward that goal.”

The Department identified one particular area of increase costs, in what it described as an “explosion of filings in the court system of disputed no-fault claims by providers of health services. This has overwhelmed the courts and led to long delays in the resolution of these disputes and to the payment of unnecessary claims, undermining the very purpose of the no-fault system.” An initial read of the draft rule indicates that the Department has adopted only a few of the concepts contained in the industry proposal which was the subject of the previous article. However, the new draft approaches the problem in a different way than the one suggested by the industry. The key points of the draft are:

• Modification of prescribed forms to require more information, helping to ensure that claims paid are medically necessary.
• Simplification of procedures required for insurers to suspend all payments for claims submitted by the owner or owners of medical clinics suspected of fraud while an investigation of the clinics’ licensing status is underway.
• Insurers would have to schedule medical examinations they request so as not to overly burden the insured. The exam must be geographically convenient and multiple exams must not be scheduled on the same day.
• An increase of the maximum attorney fee to reflect inflation and to help ensure adequate representation for applicants and assignees and an elimination of the minimum attorney fee to encourage the consolidation of claims in arbitration and litigation.

The Department is also urging the legislature to address additional reforms to the no-fault system. Namely the Department would like legislature to curtail the activities of unscrupulous health providers from flooding insurers with multiple claims knowing that the insurer has only 30 days to review and decide whether or not to pay them. Further, the Department would like to see legislation providing better tools to combat “steering” and other illegal activities, such as staging accidents. “We stand ready to work with interested parties and with the legislature to protect New York drivers from waste and fraud”, said Superintendent Wrynn, “the Department has stepped up the fight against no-fault fraud, and we will continue to fight fraud with all the tools at our disposal.”

In addition, the Department announced the formation of a specialized unit within the Frauds Bureau which will deal exclusively with no-fault fraud. The special unit was formed due to the fact that no-fault fraud is perpetrated by highly organized criminal entities that can include corrupt medical clinics and corrupt attorneys, and that type of activity has increased over the past few years. In fact, no-fault complaints filed with the Frauds Bureau are up seven percent over last year, totaling over 11,000 to date – and the year isn’t over yet. The Department has breathed new life into the no-fault debate by putting out this “draft” regulation. However, the draft falls far short of adopting the extensive anti-fraud proposals submitted by an insurance industry coalition. The Department has also taken the unusual step of amending the contents of no-fault claims forms to attempt to achieve some of the goals of the industry’s proposal without actually changing the regulatory language. This is apparent in the changes proposed to the health provider forms to require more medical support for a claim. However, the Department has not included a “medical necessity” standard in the proposed “draft”.

The “draft” also contains restrictions on the scheduling of claimant medical exams and an increase in fees for claimant’s attorneys. It is almost as if the Department is attempting to walk the tightrope between satisfying the insurer’s requests without drawing the ire (or even attention) of the trial lawyers’ or physicians’ groups. During our time at the Department we learned all too well that you may not achieve meaningful reform in the no-fault area without upsetting those groups.

So the Department has cautiously waded into the complex and challenging no-fault swamp with a relatively non-controversial first “draft”. Given the quickly escalating problems in the no-fault insurance area, the only way to really attack the problem is to jump in all the way.

The Department will be entertaining comments on the draft on its website, www.ins.state.ny.us or e-mailed to NoFaultDraftReg@ins.state.ny.us .

Department Begins Transition To Electronic Fingerprinting

Beginning December 15th, the New York Insurance Department will be dispensing with the old paper fingerprint cards for new licensees in certain categories and will require the submission of electronic fingerprints. The new requirement affects applicants with New York State addresses who are seeking new licenses in the following categories:

• Insurance company officers and directors
• Public and independent insurance adjusters
• Professional bail bondsman
• Viatical settlement brokers

Applicants residing outside New York may continue to submit paper fingerprint cards. Superintendent Wrynn announced, “Electronic fingerprinting will streamline the processing of background checks and enhance the Insurance Department’s ability to issue licenses more quickly. Electronic fingerprinting is now available at nearly 100 locations across the state so it will be convenient for applicants to have their fingerprints taken.”

The State Division of Criminal Justice Services has selected the contractor L-1 Identity Solutions to make the electronic fingerprinting available. Applicants may make appointments to be processed for electronic fingerprinting by using the company’s website, www.L1ID.com, or by calling L-1 Enrollment Services at 877-472-6915. Electronic fingerprinting will be necessary for life settlement brokers, providers and intermediaries when they become subject to licensing requirements under the provisions of a new law approved last month.

This move by the Department is based upon its participation in the national licensing uniformity standards adopted by the National Association of Insurance Commissioners (NAIC). While insurance agents and brokers are not currently required to submit fingerprints for background checks as part of their license applications, the Department is recommending legislative action which would require such fingerprinting.