No-Fault States Paying Hundreds of Millions Extra Due to Abuse

Motorists in Florida and New York are paying a combined $800 million more than they should be on premiums this year because of state no-fault auto insurance systems that are vulnerable to abuse, according to the Insurance Information Institute (III).

Unscrupulous policyholders, lawyers and medical providers in both states are taking advantage of legal and regulatory loopholes in those systems, which allow policyholders to recover financial losses from their own coverage providers, no matter who caused an accident, the III says.

No-fault systems in a dozen states were established to provide for efficient claims payment and to cut down on the number of lawsuits resulting from vehicle crashes. But according to III President Robert Hartwig, dishonest tactics including staged crashes, padded claims and unnecessary medical treatment are being used to game the system in no-fault states.

Industry experts say such dubious behavior has direct financial implications for consumers, as insurers facing higher costs are forced to increase policy rates in order to turn a profit. That makes affordable coverage hard to find for consumers getting auto insurance comparisons in Florida, New York and other states in which abuse is rampant.

According to the National Association of Insurance Commissioners, Floridians paid $1,055 a year and New Yorkers forked over $1,044 to insure a private vehicle in 2008, the most recent year for which complete statistics were available. That made the two states the fourth and fifth costliest nationwide in which to buy coverage.

III estimates that the average cost of a no-fault claim in the Sunshine State is $8,529 this year, up 28 percent from 2004. The state’s drivers are paying about $658 more for coverage this year because of dishonest claims, Hartwig said.

NY no fault claim sizeThe average cost of a no-fault claim in New York is about $8,421 in 2011, up 43 percent from seven years ago, the III reports. Vehicle policyholders in the state will pay roughly $136 million due to insurers trying to recoup losses attributable to bogus claims, III found.

The III analysis is based on information from ISO and the Property Casualty Insurers Association of America (PCI) that was compiled through June 30. It supports other recent research that has found states with systems set up to minimize lawsuits are prone to abuse that is costing consumers.

A recent Insurance Research Council (IRC) study found that insurer losses for medical expenses, lost wages and other costs on claims filed by New York City vehicle policyholders have risen 70 percent over the past decade.

That increase outpaced medical care inflation of 49 percent over the same time frame, according to IRC. Researchers attributed the increase to questionable claims filing and rampant overbilling by medical providers.

Personal injury protection (PIP) claims filed in the Big Apple were more than four times as likely to involve apparent abuse than those filed throughout the rest of the state. Researchers say that drove the statewide average for apparent claims abuse up to 23 percent.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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