“It’s getting out of control”

“It’s over the top”

“We get the feeling sometimes that the bad guys are winning”

 

These are just three quotes from different individuals we surveyed in the hall of the LaGuardia Marriott, following the recent NYIA NICB conference on insurance fraud. The feeling in the air was that something must be done soon and that it must be done decisively. In fact, statistics demonstrate that New York No Fault claims continue to drain the system and continue to stress insurers. The very fact of the Fraud Summit activities demonstrates the industry coming to grip, although we are not sure if the extent of the problem is thoroughly understood, appreciated and grasped all across the industry spectrum.

 

Essentially, the NYIA and NICB have raised awareness and have brought together leaders to identify and fight problems. From this writers point-of-view however, it seems that every time our good people find ways to identify and attack eradicate insurance fraud, the crooks come up with new and creative mechanisms, ranging from the use of high technology, to a form of gang warfare in certain quarters that uses insurance fraud as its weapon of choice to extort and shakedown carriers and ultimately insureds. New York’s no-fault auto insurance system is beset by fraud, at 20 percent of every nofault claim paid, according to Dr. Steven Weisbart, chief economist at the Insurance Information Institute (I.I.I.).

 

This “tax” works out to about $1,561 per claim, a figure which, spread out statewide, totaled nearly $230 million in 2009 alone, the I.I.I. analysis found. Since 2005, New York no-fault fraud and abuse has cost the state’s consumers and insurers more than $600 million, Dr. Weisbart estimated, in remarks to the 300 professionals attending the Summit, held April 21 at the Marriott LaGuardia, pointing out that the average cost of a no-fault auto insurance claim in New York State soared 58 percent between 2004 and 2009 as dishonest medical providers submitted inflated and sometimes bogus bills for services rendered to insurers.

 

“The scale of fraud and abuse in New York State’s no-fault auto insurance system is so severe that claims payouts are at their second-highest level since we started tracking this issue in the late 1990s,” Dr. Weisbart stated. “For too long, the cost of auto insurance in this state has been driven upward by unethical medical providers who have partnered with equally unscrupulous lawyers to sue the auto insurers who dare challenge their bogus claims. This stand-off has clogged New York’s court system, too.”

 

If auto insurers are paying out more than they should in no-fault claims, their policyholders are paying out more in premiums, Dr. Weisbart observed. This “fraud tax”, namely what New York’s insurers are billed by medical providers versus what other pricing benchmarks indicate they should be charged, totaled nearly $1,600 per claim in 2009, an unacceptable surcharge medical providers are extracting from the system for every single accident.

 

The average cost of a no-fault auto insurance claim skyrocketed to $8,862 in the fourth quarter of 2009, up $3,247, or 58 percent, from $5,615, the average cost of a no-fault claim in the third quarter of 2004. Only Michigan and New Jersey auto insurers, which also operate in deeply troubled no-fault states, paid higher average no-fault claims as of year-end 2009, according to an I.I.I. analysis.

 

“While the cost drivers influencing the price of auto insurance in New York are simrespects, there is one glaring exception— its $50,000 threshold for no-fault auto insurance claims is the highest dollar threshold in the United States. It should come as no surprise that the richest benefits in the country come with the highest costs,” Dr. Weisbart said.

 

Recognizing the generosity of this state’s $50,000 cap, and the absence in New York of safeguards such as medical treatment guidelines or utilization reviews and controls, Dr. Weisbart noted that the cost of the average no-fault Personal Injury Protection (PIP) claim rose at a rate more than twice that of overall medical cost growth (47 percent, as compared to 21 percent, between 2004 and 2009). 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.

 

“Solutions for containing New York’s emerging crisis must necessarily focus on no-fault’s cost drivers,” Dr. Weisbart concluded. “But 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 insurers who pay the bills are a ‘deep pocket.’”

 

The New York Insurance Association (NYIA) and the National Insurance Crime Bureau (NICB) co-sponsors of the Summit deserve the industry’s thanks for bringing this issue out in the industry and in Albany.

 

And Albany has gotten some of the message. Assembly Insurance Committee Chairman Joe Morelle, D-132, recently introduced a companion bill to a proposal earlier introduced in the Senate by Sen. Jeffrey D. Klein, D-34, designed to reduce the incidence of fraud. The proposal (A.10877/S.7091) would grant the superintendent of insurance the authority to investigate fraudulent activities, such as motor vehicle operators who drive with no insurance coverage, and those who misrepresent their principal place of residence or where their motor vehicle is principally garaged and operated. It also would authorize the insurance frauds bureau to accept reports of suspected fraudulent insurance actions; require insurance companies and self-insurers to report incidents of insurance fraud to the NYSID; provide for compensation to law enforcement agencies for the prosecution of insurance fraud; direct the superintendent of state police to establish an insurance fraud reward program to those who report insurance fraud, and; direct the division of criminal justice services to collect and analyze information on insurance fraud.

 

“We supported the new law signed by Governor Paterson designed to address fraud committed by those who misrepresent where they live, operate their automobile, and garage such vehicle for insurance coverage purposes,” says Kevin Ryan, President of PIANY. “However, we wished that the law went further. By misrepresenting where such automobile operators truly live and operate their motor vehicle, these persons obtain inappropriate reductions in their auto insurance premium rates and such costs are shifted to other law abiding automobile owners. This is patently unfair to our honest policyholders, who often end up paying more for their coverages. The comprehensive proposal introduced by Senator Klan and Assemblyman Morelle appears to fill the gaps of this new law by explicitly expanding the authority of the Superintendent of Insurance, under the Insurance Fraud Prevention Article, to investigate fraudulent activities with regard to motor vehicle operators who have not secured automobile insurance coverage or who misrepresent the principle place where such automobiles are garaged and operated.”

 

In his remarks at the Summit, New York State Insurance Department Superintendent James Wrynn emphasized the importance of additional legislative reforms to fix the broken no-fault system. The Superintendent outlined the insurance department’s three-pronged approach to tackle the problems with the no-fault system: aggressively investigating no-fault fraud cases with the expectation of prosecution, major revisions to no-fault regulation 68, and last but certainly not least legislative reforms. The first two prongs are already in place, and the Superintendent said he is currently meeting with legislators to stress the importance of enacting tougher no-fault laws, including Assembly Speaker Sheldon Silver, who the Superintendent said “gets it.”

 

In addition to Superintendent Wrynn, speakers included Queens County District Attorney Richard Brown and a host of others from law enforcement, the insurance industry and the private sector.

 

Following the conference more than 100 insurance industry professionals met with lawmakers this week in Albany to highlight the need for legislative action on key issues such as no-fault auto insurance reform, tort reform, coastal homeowners issues and repeal of the New York Board of Fire Underwriters (NYBFU), while emphasizing the important role that the property/casualty insurance industry plays in the state.

 

Members of the American Insurance Association (AIA), National Association of Mutual Insurance Companies (NAMIC), New York Insurance Association (NYIA) and Property Casualty Insurers Association of America (PCI) came together for the industry’s legislative action day.

 

The event featured Senate Insurance Committee Chair Neil Breslin, Assembly Insurance Committee Chair Joseph Morelle, Senate Insurance Committee Ranking Member James Seward and Assembly Insurance Committee Ranking Member William Barclay on a panel to discuss the top property/casualty insurance issues before the Legislature.

 

The panel addressed the industry’s concerns, paying particular attention to the need for reform to the state’s broken nofault system. “The insurance department has done what they can do administratively,” Sen. James Seward said. “Now we need to act legislatively to toughen the laws.” “One of the top issues this session is the urgent need to enact meaningful, comprehensive reform of the no-fault system,” said Ellen Melchionni, president of NYIA. “Dishonest medical providers and unscrupulous collections attorneys are taking advantage of the broken no-fault system and racking up millions of dollars in unjustified insurance claims. No-fault fraud cost New Yorkers approximately $229 million last year. Given the scope of the problem, reforms are necessary to crack down on no-fault fraud.”

 

The industry also made it clear to lawmakers that the coastal homeowners insurance marketplace has stabilized in recent years. “The New York Property Insurance Underwriting Association, the insurer of last resort, has decreased its statewide policy count in each of the last five years,” said Gary Henning, assistant vice president for AIA. “This is strong evidence of a healthy homeowners’ insurance market in New York. We caution against any legislation that in an attempt to ‘fix’ the coastal market, would in fact only exacerbate problems.” Tort reform is another priority issue that it is crucial to improving New York’s business climate. According to the Pacific Research Institute’s recent, comprehensive report, New York’s tort system is ranked nearly dead last, 48th out of 50 states, in overall civil liability systems. “Liability defense costs, adjusted for inflation, have risen 485 percent since 1977 and New York jury awards generally are 600 percent above the U.S. norm,” said Paul Tetrault, state affairs manager for NAMIC. “Sensible tort reform would strengthen our state’s economy, create new job opportunities and reduce New York’s crushing income tax, business tax and property tax burdens.” Another priority cost control issues is the repeal of the New York Board of Fire Underwriters. Created more than 100 years ago to fund the activities of a fire patrol, NYBFU is an outmoded, unnecessary and archaic quasi-governmental unit.

 

In 2006 NYBFU members voted to dissolve the fire patrol, but NYBFU’s authorizing statutes are still on the books, which include imposition of a costly assessment on all property/casualty insurers writing fire insurance in New York City. “We support legislation to repeal NYBFU,” said Melchionni. “These bills are consistent with the recent trend in state government of consolidation and dissolution of governmental and quasi-governmental units that are deemed no longer necessary.”

 

No-Fault Reform:

As part of the no-fault reforms NYIA supports legislation (A-4348/S-6448) that would modify the current “30 day preclusion” rule and allow more time to investigate suspicious claims and eliminate the preclusion of a no-fault carrier’s defenses to a claim on the basis of nonsubstantive technical issues.

 

Insurers are also supporting A-8798, which would reduce excessive litigation costs by mandating arbitration for no-fault claims, A-7128/S-3552 which would allow for the decertification of fraudulent health providers from the no-fault system and S- 1335 which makes the practice of “running” a felony