Much has been written, litigated, and discussed about autoinsurance rates in New York state and the role of no-faultinsurance in pushing in into the realm of luxury for the averageconsumer.

Several news services have been consistent in covering theindictments and investigations conducted in the fight againstperpetrators of fraud. Emphasis has been placed on certain medicalproviders, who have become the faces of no-fault fraud, thevillains in this scheme to defraud the public. Although most peoplefamiliar with the current situation would agree that, on the whole,the medical providers have been the single most influential groupin moving the system toward its present state, they have not beenalone in their culpability.

New York State's automobile insurance laws are among the mostcomprehensive in the country, providing relief for insureds,innocent third parties, and all other classes of claimants. Theregulation governing no-fault benefits is just as encompassing, tothe extent that benefits are provided, in certain circumstances,for family members who were injured while in vehicles other thanthe ones owned by the households (e.g., passengers on a bus). It isthis very comprehensive nature, the emphasis on making sure thateligible injured parties can obtain relief, that makes no-faultsusceptible to the type of fraud being perpetrated today.

The no-fault system is viewed by opportunistic claimants as akind of macabre, modern day lottery: get into a fender bender, goto a doctor for a few months, get paid. Any insurance company doingbusiness in New York — non-standard, standard, high risk, whateverthe criteria — has to be cognizant of this influx of fraudulentclaims, a large number of which can be attributed to publicperception of the insurance industry.

From the individual who initiates a claim for minor injuries,seeing it as easy money and not a crime because, “It's theinsurance company's money,” to the highly organized rings that mayinclude street runners, medical clinics, law enforcement personnel,and attorneys, insurance fraud is a major industry. These rings maystage accidents, inflate treatment, and falsify diagnoses andofficial reports to get as much as possible out of the $50,000 perclaimant allotted for medical treatment or to achieve a higherpayout on the inevitable third party claim.

Fraud Adds Up

The mathematics of this problem are straightforward enough: aninsured gets into an accident with another vehicle. The insured hasfour passengers; the other vehicle has three, including the driver.In vehicle number one, all of the occupants are claiming softtissue-injuries and seeing medical providers in their neighborhood.That is five claims with a ceiling of $50,000 each.

The medical provider initiates a regimen of treatment thatincludes visits to chiropractors, neurologists, acupuncturists,orthopedists, physical therapists, and psychiatrists. The claimantalso undergoes a series of tests: multiple MRIs, X-rays, and nerveconduction tests. This does not include the medical supplies andtransportation provided to each claimant.

Whether all this is necessary is moot. It may be necessary forsome but, when it occurs on 97 percent of the claims coming in,even the most sanguine person would have to concede that this couldnot be legitimate.

On these five claims, let's suppose that each of the claimantsseeks treatment for three months, just enough to meet the legalthreshold. Their medical bills can average $15,000 each. That is$75,000, and we have not factored in the costs to the carrier forIMEs, peer reviews, investigations, and, if it goes that far,defending no-fault lawsuits or arbitration. And let us not forgetthe occupants of the other vehicle and their third partyclaims.

One of the big obstacles is that the regulations are so tiltedtoward claimants that insurers can only react to the deluge ofpaperwork generated by each claim. Insurance companies have 30 daysto deny or pay submitted bills. Claimants have 90 days to submitfirst notices of no-fault claims. Beyond the obvious silliness ofneeding three months to inform the insurance company that injurieshave occurred, the company is now playing catch-up, as most of that97 percent mentioned before have been having treatments since theaccident.

In such an environment, when a company has a loss ratio of 20,30, or even 50 percent, that company is not going to survive. It isa scary thought, but is it happening? Absolutely. Don't take myword. The rolls of the New York State Liquidation Bureau show theshells of the companies who have buckled under the onslaught.

We are now poised on the brink of a two-tier system. One tiercomprises those few companies large enough to weather this climate,while the second is those companies who modify their underwritingpolicies to only collision/comprehensive coverage or, if they writeliability and PIP, leave the non-standard market alone, refusing torenew any drivers involved in accidents. This hurts everyone, butespecially legitimate consumers who are forced to pay higherpremiums with large carriers or to forego insurance coverage.

Finding Answers

The solution to the problems faced by the insurance industry isnot readily evident. Eliminate no-fault and create another system?In its defense, the no-fault system helps cover the costs ofmedical care to those who are truly injured and need extendedmedical treatment. A serious motor vehicle accident can bedevastating for the entire family. The expenses can be incredible,in some instances quickly exhausting the $50,000 limit, leaving thepatient to apply for some type of government aid to offset thecontinued costs of medical care. This is by no means the norm, butit happens too frequently to make anyone feel comfortable claimingthat no-fault should be eliminated.

Another more extreme, but workable, answer is to eliminate ormodify the threshold requirement for presenting third party claims.No-fault is a means to an end, not an end in itself. When the triallawyer association and claimants are complaining about the systemand fighting against restructuring no-fault, they are not trying tomake sure that doctors are fully paid and injuries are treatedadequately. They are fighting because of that clause in thethreshold requirement, the one loophole through which about 97percent of the claims pass, the one that states that a personalinjury action meets the legal standard if the claimant needsmedical treatment for at least 90 of the first 180 days.

That solution is straightforward, but it is not popular. Takeaway the incentive to pad medical treatment, and a lot of what ishappening now would be eliminated. On the other hand, taking awaythe threshold requirement or adjusting it so that a monetary ortime limit for treatment is not the standard, would cause amajority of the claims being represented by the plaintiff bar todisappear. It is an idea that not many have proposed, but one thatshould be given serious consideration.

What next? Insurance companies in general and claim personnel inparticular have to be more aggressive in their approaches tosuspicious claims. To their credit, a few are. More often than not,however, carriers are not actively investigating claims as they arereported and, when they do get around to looking closely, it is toolate to do the basic investigation that could help them. That mostlikely has more to do with the fact that the volume of mail comingin for each claimant/patient is more than claim staff can handle.

The intention is not to create an adversarial relationship withinsureds, claimants, or other involved parties. The intention is togather as much information as possible so that legitimate claimscan be handled quickly and suspicious claims can be investigated.This can be done within the regulations by requiring insureds andall other parties to comply with requests for statements,photographs, records, or examinations.

Amending Regulation 68 by reducing the time for notice of claimis a great idea, but whether it is 30 days, 90 days, or one week,if a suspicious claim is not addressed quickly, it does not matterwhen the company receives notice. The onslaught of bills and phonecalls is right around the corner and the clock to deny or paystarts ticking.

Until a decision is made and finalized, the only viable optionfor insurers is to work within the present system to identify andmitigate their exposures on claims that are deemed suspicious.Statements, examinations under oath, and peer reviews are methodsthat carriers and TPAs use, some more than others and some withmore success than others. I have conducted examinations under oathon behalf of insurance carriers and had claimants say, “No, I don'tlike needles. I never did acupuncture,” when the no-fault rep islooking at a stack of acupuncture bills, or, “Yeah, I treated withall of these guys on the same day for 15 minutes each,” althoughthe doctor has spread out the visits over several days, so as notto have them denied for concurrent care. In many instances,claimants give such ridiculous testimony that their attorneys dropthe cases.

I do not propose to have the answer to solving the presentproblem with the no-fault system, but I think that the questionsand suggestions raised here should be explored. Changes are needed,and a happy medium must be reached. The system can work if enoughpeople calling the shots decide to go after the problems in aconsistent manner, and make the idea of filing frivolous claims notworth it to the people presently taking the system for a ride.

Dwight Geddes is president of Metropolitan Claims Managementin New York. He can be contacted [email protected].