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Senator Bruno discusses his plan to combat auto insurance fraud at a Capitol news conference in Albany. |
Assembly’s Failure To Act Has Caused Rates To Increase
Wednesday, January 22, 2003
Senate Majority Leader Joseph L. Bruno and members of the Senate Majority Conference today proposed tough legislation to combat auto insurance fraud, which costs New Yorkers more than one billion dollars a year, and called on the Assembly to act on important insurance laws that expired in 2001. The Assembly's failure to act has caused significant increases in the cost of auto insurance in New York State for drivers throughout the state.
"Auto insurance fraud is more prevalent in New York State than anywhere in the nation and it's costing every driver in New York State more money," Senator Bruno said. "It's estimated that as many as one-third of all auto insurance claims contain some element of fraud and is a major reason why auto rates in New York are the fourth highest in the country. The Senate plan would help to reduce premiums by making it tougher to commit fraud and increasing penalties on people who commit fraud."
"In addition, the Senate plans to act again on bills that would extend important provisions in the Insurance Law that helped stabilize rates, and that the Assembly allowed to expire a year and a half ago," Senator Bruno said. "The Assembly has not made renewal a priority. They chose to ignore the deadline for action and the consequence is that drivers all over the state are paying higher auto insurance premiums."
The Senate auto insurance fraud package 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.
There were almost 15,000 reports of auto insurance fraud in New York State in 2002, or more than 41 fraud reports every single day. According to the Insurance Information Institute, auto insurance fraud adds $124 to the cost of each consumer's personal injury protection costs -- an amount that is expected to grow to $300 a year without immediate legislative action.
The Assembly has proposed creating a costly new consumer advocate bureaucracy that would duplicate what's in place in the Insurance Department, the Attorney General's Office and the Consumer Protection Board. In addition, the Assembly does not support making it a felony to stage an accident, bilk an insurance company and its' premium payers. The Assembly has also proposed government-mandated price controls that would drive insurers out of New York, reduce competition and result in higher rates.
INCREASING PENALTIES FOR INSURANCE FRAUD
"Fraudulent and abusive claims cost New Yorkers more than one billion each year," Senator James L. Seward (R-C-I, 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."
To ease insurance fraud prosecutions and ensure punishment better fits the crimes, the legislation (S.683) the Senate will act on 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 (S.555), 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 would make it a class E felony to act as a runner or hiring another person to act as a runner.
Medicaid mills 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 plan 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 plan complements a regulation issued by the State Insurance Department 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 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. The Senate bill would put the regulation into state law.
"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 45 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 the 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 2002-03 budget included $4.7 million for this purpose, the Senate is proposing increasing the distribution of funds 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."
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 initiative would 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 bill 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.
RENEWING EXPIRED LAWS
The Senate will act on legislation (S.632) to extend important insurance laws that help stabilize auto insurance rates.
Prior to August of 2001, the state law allowed insurance companies to not renew up to two percent of policy holders per year in any region. This enabled companies to write policies for high risk drivers. Since the law expired, auto insurance has become less accessible to hundreds of thousands of drivers who have been pushed into the high-cost "assigned risk pool" that is subsidized by all drivers. The number of drivers in the assigned risk pool doubled in 2001 to almost 400,000 drivers and the rates they pay for auto insurance increased by 20 percent last year.
Also in August 2001, a law expired that allowed insurers to decrease or increase rates by up to seven percent without prior approval by the state Insurance Department, however, any rate change must still be reviewed and approved by the department.
Known as "flex rating," this law allowed insurers to stay competitive, respond to market conditions and adjust their rates, up or down, in a timely manner. In effect, flex rating helps moderate rate adjustments because without the timeliness of flex rating insurers tend to seek larger rate hikes.
Both of these laws were first enacted in 1995. The Senate previously passed extensions of these laws in 2001 and 2002.
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