Proposed New York No-Fault Auto Reforms Would Tackle Fraud

New York lawmakers are considering a bill designed to reduce fraud and other types of abuse in the state’s no-fault automobile insurance system.

The bill, introduced by State Sen. James Seward, would modify a rule that requires insurers to pay no-fault claims in 30 days, said Kristina Baldwin, assistant vice president for the Property Casualty Insurers Association of America.

Under current rules, insurers who miss the 30-day deadline are subject to a 2% interest per month penalty, plus they can’t raise any defense as to why they did not pay the claim.

“No matter what fraud is involved, they have to pay the claim in 30 days,” Baldwin said. Under the proposed bill, insurers would still face the 2% interest per month penalty, but could defend their action in not paying the claim in 30 days due to fraud.

Also, the bill would block medical providers who commit insurance fraud from continuing to receive payment under the no-fault system.

There’s a law on the books already that aims to do that, but it was dependent on the state insurance and health departments working together to create the regulations necessary to carry out the law. Under the proposed change, doctors who commit fraud would not lose their medical licenses, but would not longer be able to receive payment under the no-fault system.

“It’s a good step in getting these few bad apples, these crooked doctors that are plaguing the system, to stop committing fraud,” Baldwin said.

Fraud Costs New York, a statewide coalition that seeks to reduce auto fraud, praised Seward for introducing the legislation.

New Yorkers now pay the fourth-highest premiums in the nation for auto insurance due in large part to an outdated system that is rife with fraud and abuse, the group said. In 2010, no-fault fraud cost New Yorkers more than $241 million, a cost absorbed by all drivers in the form of higher premiums.

“New York’s no-fault auto insurance system is broken and needs to be fixed now,” Seward, chairman of the Senate’s insurance committee, said in a statement. Attempts to reach him for additional comment were not immediately successful.

The proposed bill also includes: tougher penalties on criminals who cheat the no-fault system; provisions to combat excessive and unnecessary medical charges; and would require medical providers to submit disputed claims to an arbitrator.

Last year, the New York State Insurance Department reported a 24% increase in fraud-related convictions, with rises in all types of fraud investigated by the department’s Frauds Bureau, but especially no-fault automobile insurance (BestWire, March 22, 2010).

The top five writers of private passenger auto insurance in New York, ranked by 2009 direct premiums written, were: Berkshire Hathaway Insurance Group, with 23.5% market share; Allstate Insurance Group, with 18.8%; State Farm Group, with 11.7%; Progressive Insurance Group, with 6.1%; and Liberty Mutual Insurance Cos., with 6%, according to BestLink, which provides online access to A.M. Best’s database of insurance information.

(By Meg Green, senior associate editor, BestWeek: