Auto insurance fraud: Big problem in the Big Apple

New York City is the American center of fashion, finance and theater. It’s also now one of the country’s centers of auto insurance fraud.

Experts say no-fault auto insurance fraud cost New Yorkers more than $241 million in 2010, a cost absorbed by all drivers in the form of higher premiums — a so-called “fraud tax.” Much of that fraud occurred in the Big Apple.

A study published in January 2011 by the Insurance Research Council estimated that one of every five no-fault insurance claims in New York City is tainted by fraud. In addition, the council says one in three auto insurance claims in the Big Apple appears to be inflated.

No-fault auto insurance claims in the New York City area that had the “appearance of claims abuse” rose from 29 percent in 2007 to 35 percent in 2010, according to the Insurance Research Council.

Auto insurance fraud in New York City pushes up premiums for all drivers in the form of a “fraud tax.”

“There is a great deal of fraud going on in New York City,” says David Corum, vice president of the Insurance Research Council. “In general, it’s hard to say that a claim is fraudulent. But there are clues, like instances of people going to pain clinics or the use of lawyers for insurance claims.”

Corum adds: “It’s those situations that help drive up the cost of auto insurance up in New York.”

Help on the way?

State Sen. James Seward, chairman of the Senate’s Insurance Committee, introduced legislation in February 2011 aimed at combating the fraud and reducing auto insurance premiums in the Empire State. Currently, New Yorkers pay the fourth highest auto insurance premiums in the country, in large part because of an outdated no-fault system riddled with fraud and abuse, the senator says.

“New York’s no-fault auto insurance system is broken and needs to be fixed now,” Seward said when his bill was introduced.

In 2010 testimony before Seward’s committee, Robert Hartwig, president of the Insurance Information Institute, said the average cost of a no-fault auto insurance claim in New York had climbed 55 percent from 2004 to 2009.

Among other things, Seward’s bill would:

• Impose tougher penalties on criminals who rip off the no-fault auto insurance system.

• Pave the way for more thorough investigations of suspicious claims.

• Crack down on excessive and unnecessary medical charges tied to auto accidents.

According to the Insurance Information Institute, no-fault auto insurance generally refers to an auto insurance plan that lets policyholders recover financial losses from their own insurance company, regardless of who’s at fault.

Why New York?

So what’s the deal? Why is New York City such a hotbed of auto insurance fraud?

Theories abound, but some consensus is building around the notion that the state offers some generous benefits to auto accident victims – and that’s a huge magnet for scam artists.

“If an individual is hurt and an auto accident, and it is not serious, the individual has up to $50,000 in benefits under New York’s no-fault auto insurance laws,” says Ellen Melchionni, president of the New York Insurance Association. “Criminals see these benefits intended for legitimate accident victims as a blank check.”

Auto insurance fraud in New York City pushes up premiums for all drivers in the form of a “fraud tax.”

Melchionni notes the no-fault laws in New York are “incredibly weak” and that dishonest medical providers and attorneys have found ways to drive through the many loopholes.

“Costs are spiraling out of control to nearly unprecedented heights because of bogus medical mills and unscrupulous medical providers, predominantly in the New York City area — billing for treatments that were never performed, or are unnecessary or excessive,” Melchionni says.

Others say the tough economy, coupled with increased sophistication among auto insurance offenders, has helped light the fuse for fraud in New York.

“New York City is a vast metropolis that provides an almost limitless killing field for crooked medical clinics and staged-accident gangs to ply their trade,” says James Quiggle, a spokesman for the Coalition Against Insurance Fraud. Staged-accident gangs are criminal groups that fake auto accidents to collect on insurance claims. “Unfortunately, the state laws against insurance fraud are fraught with loopholes, which are being exploited by those staged-accident gangs.”

Howard Goldblatt, director of government affairs at the Coalition Against Insurance Fraud, does offer some good news, though. Prosecutions and convictions in auto insurance fraud cases are on the rise in New York, he says.

Still, some auto insurance fraud rings have shifted their focus from New York City to other cities across the state — merely relocating the problem rather than getting rid of it. “They’ll go wherever they think they can get away with the crime,” Goldblatt says.

–Brian O’Connell