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Senator Bruno explains that insurance fraud is on the rise at a press conference in the Capitol Building. |
Senate Bill Increases Penalties, Targets Insurance Scam �Runners� & Other Reforms
Tuesday, March 19, 2002
The New York State Senate today introduced comprehensive legislation to target auto fraud that is driving up auto insurance costs. The Senate�s eight-point plan includes tougher penalties against scam artists, more time to challenge potentially fraudulent insurance claims, greater antifraud enforcement, and measures to ensure that consumers receive a savings as a result of the fraud crackdown.
"Insurance fraud is growing at an alarming rate and it affects everyone who has to pay for auto insurance," Senate Majority Leader Joseph L. Bruno said. "It�s estimated that as many as one-third of all auto insurance claims contain some element of fraud. We need to change our laws to make it tougher to commit fraud and increase criminal penalties on those who do. Passing the Senate�s plan will keep the lid on auto insurance costs."
According to the Insurance Information Institute, auto insurance fraud adds $124 to each consumer�s annual premium -- an amount that is expected to grow to $300 a year without immediate legislative action.
"Auto fraud is the number one cause of upward pressure on insurance rates in New York State," said Stephen Ihm, regional counsel for Allstate, the state�s largest auto insurance company. "These are often sophisticated schemes and they require comprehensive action in order to address the root causes of the problem of higher auto insurance costs."
INCREASING PENALTIES FOR INSURANCE FRAUD
"Fraudulent and abusive claims cost New Yorkers close to $1 billion each year," Senator James L. Seward (R-C, Oneonta), Chairman of the Senate Insurance Committee, said. "By boosting penalties for insurance fraud, the Senate is declaring war on fraud and on the scam artists who belong in jail for ripping off consumers and insurers. Our goals are to deter people from committing fraud and to lower insurance costs."
James Potts, the top anti-fraud official for New York Central Mutual Insurance Co. said, "As the head of the special investigations unit of the fifth largest insurance company in New York State, I can attest to the fact that fraud is a very serious problem and the Senate�s plan would go a long way toward addressing this problem."
To ease insurance fraud prosecutions and ensure punishment better fits the crimes, the legislation would cut in half the value of property obtained through a fraudulent insurance act in order to be convicted of insurance fraud:
Insurance fraud in the 4th degree, a Class E Felony: Value reduced from $1,000 to $500
3rd degree, a Class D Felony: from $3,000 to $1,500
2nd degree, a Class C Felony: from $50,000 to $25,000
1st degree, a Class B Felony: from $1 million to $500,000
In addition, the bill would crack down on repeat offenders by establishing three levels of the crime of aggravated insurance fraud for people who commit fraud more than once in a five year period.
MAKING USE OF INSURANCE FRAUD �RUNNERS� ILLEGAL
The Senate will act on a bill, sponsored by Senator Dean G. Skelos (R, Rockville Centre), that would make the use of "runners" illegal in New York.
A "runner" is a person who receives money for obtaining clients or patients to participate in insurance fraud. Runners are commonly used in the New York City metropolitan area to steer accident victims towards unnecessary medical treatments. Insurance companies have to pay the fraudulent claims and must make up the cost through higher auto insurance premiums.
"Because most fraud schemes depend on a large volume of patients, health care providers and attorneys engaged in fraud will often pay third parties for recruiting clients, patients and customers," Senator Skelos said. "Often the client, patient or customer receives inadequate or inappropriate care and services.
The bill (S.123) makes it a class E felony to act as a runner or hiring another person to act as a runner.
News reports in New York City have described the operations of medical mills that submit fraudulent medical claims for unnecessary tests for phony accident victims. Under the state�s no-fault insurance law, accident victims can build up $50,000 worth of medical bills that must be paid by insurance companies. Sometimes clinics steal identities and policy numbers to commit fraud, even using information of people who are deceased.
MORE TIME TO CHALLENGE FRAUD
As a result of a recent court decision, insurers must now pay or deny a claim within 30 days and may not use fraud as a defense for not paying the bill unless alleged within that time frame. It is often difficult for insurers to determine within a month whether fraud exists.
The Senate bill would allow insurers to allege fraud after this 30-day period. Claims not paid within 30 days would bear interest at two percent a month and claimants would be entitled to recover attorney�s fees for securing payment of overdue claims, if no fraud is subsequently found.
The Senate plans would complement a regulation issued last year by the State Insurance Department issued that, among other things, reduced the six month time period during which health care providers must submit proof of the claim to an insurer, down to 45 days.
The regulation, which was recently upheld by a state court, was in response to concerns that the existing time frames facilitated no-fault insurance fraud because the length of time to submit a claim was too long.
"Scam artists manipulate insurance companies into paying for unnecessary medical treatments, often staging car accidents and steering phony victims towards medical mills that generate up to $50,000 worth of medical bills for a single accident victim," Senator Seward said. "The claims are submitted just under the 180 day time limit and insurance companies only have 30 days to investigate all the claims. The combination of this regulation and the Senate�s plan to give insurers more time to pursue potentially fraudulent claims, goes after both sides of the problem by giving less time to develop fraudulent claims and more time to investigate them."
PROVIDER DECERTIFICATION FOR FRAUD
In addition, the Senate bill would include knowingly making false statements in medical reports in connection with a no-fault claim, as grounds for a health care provider to be decertified by the state Insurance Department.
"Most health care providers do not commit no-fault fraud, but this proposal would ferret out that few bad apples who participate in scams and are helping to drive up auto insurance rates," Senator Seward said.
INCREASING LOCAL LAW ENFORCEMENT ASSISTANCE TO FIGHT FRAUD
The Senate Majority is also proposing increasing the amount of money distributed to local law enforcement agencies and prosecutors to combat auto theft and insurance fraud. The 2001-02 budget included $4.7 million for this purpose, the Senate is proposing increasing the amount to $6.7 million.
"Local law enforcement officers are the front lines against insurance fraud," said Senator Guy J. Velella (R, Bronx/Westchester), who originated the New York State Motor Vehicle and Insurance Fraud Prevention Fund while serving as Chairman of the Senate Insurance Committee. "As the problem of insurance fraud grows, we must increase state assistance to police and prosecutors so they have the resources necessary to fight insurance scam mills that are driving up auto insurance premiums. This, combined with toughening our laws against insurance fraud, is the best way to attack the problem and reduce premium rates for drivers in New York State, particularly in New York City, where my constituents pay some of the highest rates in the nation."
The State currently assesses all commercial and passenger vehicle insurance policies a $1 surcharge that is deposited into the New York State Motor Vehicle and Insurance Fraud Prevention Fund. Up to $9.1 million from the surcharge goes to the State Police. Receipts in excess of the $9.1 million are distributed to local law enforcement agencies and prosecutors to combat auto theft and insurance fraud. The account currently has a fund balance in excess of $8 million and a projected balance of $8 million at the end of the 2001-02 fiscal year, about half of the balance has not been appropriated.
EXPANDING THE INSURANCE FRAUDS BUREAU
The Senate is proposing adding 10 new insurance fraud investigators to the state Insurance Department�s existing 50 investigators. The increased enforcement staff would be paid for entirely from the assessments on insurance companies that are used to finance the state Insurance Department.
The Senate would also propose increasing the powers of insurance fraud investigators to make them more effective by giving them the authority to independently execute search and arrest warrants. The investigators currently have to coordinate with local law enforcement agencies, resulting in delays and hindering their ability to apprehend individuals committing insurance fraud.
TASK FORCE ON HEALTH CARE DELIVERY UNDER "NO-FAULT"
The Senate will establish a task force comprising insurance, medical, legal and consumer representatives to study issues relating to medical treatment under the state�s no-fault system and recommend improvements to the system to reduce fraud and abuse, eliminate disputes and speed payments for legitimate injuries.
PASSING ALONG THE SAVINGS TO CONSUMERS
The Senate majority would require the Superintendent of Insurance to consider the impact of these fraud fighting measures when making determinations about future rate filings for no-fault insurance and require that savings resulting from these measures be reflected in auto insurance rates.
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