Surging Fraud and Abuse in Auto Insurance Pushing New York State Costs to Highest in Nation

    NEW YORK, March 29 Organized crime rings along with a
small number of unscrupulous medical providers and attorneys are causing an
unprecedented surge in medical no-fault auto insurance costs in New York
State, according to a study released today by the Insurance Information
Institute (I.I.I.)
    "These elements are actually imposing a tax on every honest driver in New
York State," said the I.I.I. report, No-Fault Medical Fraud in New York
State: Problems and Solutions.  "Sadly and ironically, it is New York's own
no-fault laws that encourage this explosion of abuse."
    No-fault (PIP) claim costs are rising faster in New York-by far-than
anywhere else in the country and are accelerating.  Last year claim costs in
the state rose by almost one-third, more than twice the 15 percent increase in
second-place Florida.  In 1998, the increase in New York claim costs was only
4.5 percent. In addition, the average bodily injury claim in New York is
64 percent higher than any other state, even taking into consideration the
higher cost of medical treatment in New York.
    "Evidence of major fraud in New York's no-fault system is irrefutable,"
said Dr. Robert Hartwig, chief economist of the I.I.I.  "These increases are
entirely fraud driven," he said.  "They cannot be explained by any economic
factors such as increases in medical inflation."
    The report pointed out that number of auto no-fault fraud reports received
by the New York Insurance Fraud Bureau (IFB) has nearly tripled in recent
years, from 4,393 in 1995 to 12,372 last year.  The National Insurance Crime
Bureau (NICB) reported that last year 90 percent of its referrals in New York
involved auto insurance fraud.
    "Auto insurers on average are paying out almost twice as much in PIP
claims as they collect in premiums," said the report, which will be presented
Friday at a fraud conference to be held at the Marriott Financial Center
Hotel.  "For every $100 in premiums insurers took in during the first nine
months of 2000, they paid out more than $177 in claims."
    Another consequence of the rapid increase in PIP claim costs is the
explosive growth in the New York Auto Insurance Plan (NYAIP), the state's
market of last resort for high-risk drivers.  In 2000, NYAIP applications
increased 62 percent over 1999.  Through the first nine weeks of 2001,
applications were up 277 percent over the same period last year.
Examples of common crimes associated with no-fault fraud are staged accidents,
billings for fictitious or unnecessary medical treatments and supplies,
falsified police reports and identity theft, according to the report.
These fraudulent activities are aimed at creating an accident scenario from
which costly and fraudulently contrived medical claim payments can be forced
from auto insurers.
    Participants in the fraud ring are paid to feign injuries and receive
bogus treatments from "medical mills" that specialize in insurance fraud.
Medical bills often reach $10,000 to $20,000 per passenger and can go as high
as $50,000 per passenger under the New York no-fault law.
    A single staged accident with multiple claimants generally results in
billings for hundreds of treatments, including many types of treatment of
dubious medical value such as aromatherapy, biofeedback, massage and
psychotherapy.
    Insurance companies, the NICB and law enforcement agencies have spent
millions of dollars to battle medical no-fault fraud in New York through
investigations and prosecutions, but the problem remains overwhelming.
Reform of New York's no-fault statute, along with the continued efforts of
insurers and law enforcement agencies are necessary to effectively resolve the
fraud problem, the report said.
    A number of legislative and regulatory reforms have been advanced that
will level out the playing field between auto insurers and law enforcement on
the one hand and perpetrators of staged accidents and medical mills on the
other, the report pointed out.  "None of the suggested reforms would in any
way reduce benefits to truly injured parties or slow down payments to honest
policyholders, medical providers or attorneys," Hartwig said.
    The paper is available on the I.I.I. web site, http://www.iii.org.