New York Insurance

With New York on track to overtake New Jersey as the most expensive state in the nation for auto insurance, politicians in Albany are scrambling to find legislative remedies that would defuse what could become an explosive issue in next year’s elections.

Many of the state’s insurance companies are seeking large rate increases, which they say they need to cover the costs of extensive fraud by swindlers in major cities taking advantage of holes in the insurance laws. But part of the reason behind the requests, says the acting state insurance commissioner, is a poor decision by the insurers themselves, who set artificially low rates to attract customers.

”We think this is a time bomb,” said Assemblyman Alexander B. Grannis, a Manhattan Democrat and the Assembly Insurance Committee chairman. ”If current trends continue, this will mean a 25 percent hike statewide.”

Today, the Assembly speaker, Sheldon Silver, released a Democratic plan to combat fraud and called for a two-year freeze on rates. A month ago, the Senate majority leader, Joseph L. Bruno, introduced a Republican package of bills to raise penalties for insurance fraud. And Gov. George E. Pataki, a Republican who is expected to seek re-election next year, is working on a raft of regulatory changes and legislative measures that would crack down on insurance fraud and cut automobile rates, though his administration would not release details this afternoon.

The new legislative campaign against fraud is similar to one New Jersey carried out after its last governor’s race, when auto insurance costs nearly thwarted the re-election effort of Gov. Christie Whitman.

Insurance executives maintain that the heart of the problem in New York is abuse of no-fault auto insurance, under which the law requires a driver’s insurance company to pay the first $50,000 in medical bills from injuries in an accident, no matter who is at fault. Medical providers have six months to submit claims to the insurance companies, and the companies have 30 days to investigate and raise objections, if they suspect fraud. If the insurers miss the 30-day deadline, they are required to pay the claim.

Swindlers, mostly in urban areas, have been taking advantage of the no-fault system, staging accidents and sending people to phony or dishonest medical clinics that bill for unnecessary tests and treatments, some of which are never performed, insurers and law enforcement officials say. These schemers often dump the claims on the insurance company just as the six-month deadline is about to expire, making it difficult for investigators to prove that the claims are fraudulent.

Few doubt that fraud has grown in New York. Reports to the state about fraud in no-fault insurance have tripled since 1995, to 12,372 last year.

The cost of each claim has also been surging, according to the Insurance Information Institute, a national trade group. In 2000, New York insurers’ no-fault payments rose 32 percent over the previous year, to about $7,950 per car, the highest in the nation and far above the national average of $5,400. That fraud, the industry has been working hard to convince legislators, translates into higher premiums for consumers. In 1998, the last year for which figures are available, the average car premium in New York was $959. It was $1,138 in New Jersey.

Insurers say the main reason for the spike is the proliferation of fraud rings, operated by organized crime, mostly in New York City, where they say fraud costs them $1 billion a year. Much of the increase came after New Jersey passed legislation in 1998 making it harder to file bogus claims there, leading some law enforcement officials and insurers to conclude that the fraud rings merely moved across the Hudson.