The insurance industry is applauding the introduction of a bill that could corral costs related to fraud and abuse of New York's no-fault automobile insurance system.
The measure, Senate bill 2816, was introduced by state Senator James Seward, R-Oneonta. It would implement tougher penalties on cheaters of the system, modify rules to allow insurers to investigate claims, prevent excessive and unnecessary medical costs, and mandate the use of an arbitrator for disputed claims.
The proposed legislation would "finally close the loopholes that criminals and unscrupulous medical providers routinely slip through, causing insurance premiums to skyrocket and unnecessarily costing New Yorkers hundreds of millions of dollars annually," said Kristina Baldwin, assistant vice president for the Property Casualty Insurers Association of America (PCI).
PCI is a partner in Fraud Costs NY, a coalition of consumers, small businesses, elected officials and insurance trade associations committed to reforming the state's no-fault system.
A report from the Insurance Research Council (IRC) at the start of the year said claim abuse appeared to be involved in 35 percent of claims in the New York City area. More than 20 percent appear to be fraudulent, the IRC said.
No-fault fraud cost New Yorkers more than $241 million in 2010, according to Fraud Costs NY.
Ellen Melchionni, president of the New York Insurance Association, said, "Abuse of no-fault auto insurance is rampant in the state, and this legislation will go a long way in helping to stop the fraud. Criminals are stealing money from New York drivers—to the tune of $628,000 a day. The laws need to be changed now before an already grave situation only gets worse."
The no-fault auto insurance systems in New York and Florida were highlighted recently in Allstate's fourth-quarter earnings report. Auto bodily injury and damage frequencies were at their highest levels in six years, mainly due to conditions in New York and Florida.
Allstate, with about 20 percent market share, is second to Berkshire Hathaway among the largest writers of the private passenger auto insurance in New York, according to Highline Data.
The bill looks to make sure insurers are not forced to pay abusive claims and to make burden-of-proof requirements more equitable. Currently the burden falls on insurers, who have just 30 days to pay or deny a claim, while medical providers merely provide a bill for services as proof.
Sen. Seward's measure would require medical providers to give additional information to prove that the billed services were medically necessary and billed in line with the fee schedule.
Ms. Baldwin of PCI said another important provision mandates arbitration for disputed claims. Hundreds of thousands of claims are flooding New York City courts, driving up litigation expenses for insurers.
No-Fault Push in Florida
Simultaneously in Florida, a movement led by the newly formed Sunshine Alliance to Erase Fraud has begun to draft a bill to introduce during the legislative session in March.
The Sunshine Alliance to Erase Fraud was initiated by the Florida Insurance Council, Consumer Federation of the Southeast and the Coalition Against Insurance Fraud. The alliance claims to have more than a dozen participating organizations.
The group is writing provisions in its bill to give insurers more ability to deny fraudulent claims. The measure aims to allow insurers to question claimants under oath and give independent medical exams.
Fraud in the Florida no-fault system costs Florida drivers $853 million since 2008, according to the Insurance Information Institute, and the state ranks first for questionable claims involving staged accidents.
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