Minnesota Officials Gather to Talk No-Fault Insurance Crime

Minnesota officials met this week in continued efforts to stamp out fraudulent auto insurance activity that a recent industry report noted has seen a recent boom in the state.

Senators on the state Commerce Committee received testimony during a Monday hearing titled, “Impact of Insurance Fraud on Minnesota Consumers.” In his address to committee members, Commerce commissioner Mike Rothman said estimates place the cost of fraud to American consumers at $80 billion annually, amounting to about $950 per family.

In terms of auto coverage claims, much of the activity—ranging from staged accidents to bogus injuries—is backed by organized groups targeting states with no-fault laws.

Such no-fault systems in New York, Florida, Michigan and Minnesota require personal injury protection coverage in which an insurer compensates its own policyholder for injuries, regardless of who causes the crash.

Steep spikes in illegitimate claims under no-fault laws in those states hurt insurers who initially bear the added costs of those claims before broadly passing those costs onto policyholders. Rothman said that such crimes do “have an impact on insurance premiums” and make it harder for consumer to find affordable auto coverage.

The “direct and indirect costs of insurance fraud are nearly impossible to calculate but for sure will result in higher premiums,” Rothman told committee members.

Report: Crime Relocating to Minnesota

The National Insurance Crime Bureau (NICB) published a report last month on illegitimate claims linked to organized groups, finding that many of those groups’ operations are in states with no-fault auto insurance systems like New York and Florida.

But that activity has been pushed out of those states by lawmakers there who have confronted exploitation of their no-fault systems with reform measures. The resulting “reverse migration” has seen the number of Minnesota’s shady claims linked to organized groups jump by 231 percent between 2008 and 2011.

It was the sixth-largest spike for any state in the U.S. during that time period, according to the report. Minnesota’s totals are still low compared with other states, however. Florida, the leader of the pack, saw 781 questionable claim reports in 2011. Minnesota had 53.

The NICB also offered testimony at the Senate committee hearing, following up on a summit hosted in 2012 in which the bureau highlighted Minnesota as the future front in the fight against no-fault fraud.

At the summit, Charlie Worsham, the NICB’s Midwest director of field operations, said that shady medical clinicians and service providers are “coming out of Florida and New York and are now moving into Minnesota to set up their operations here.”

“So we have the opportunity to get ahead of those people,” he said at the gathering of about 200 law enforcement officials, insurance investigators and lawmakers. “We know they’re coming, we’ve got the intelligence so now we got the opportunity to get ahead of them and fight that issue before it gets too large here.”

Brad Doty, of law firm Stemple & Doty’s, told Senate committee members that he had seen the migration personally through cases in which he represented insurers fighting phony no-fault claims.

“What we see when we look behind these clinics and the folks that are in charge of them is that they do migrate from the East Coast,” he said at the hearing. “They’re following the no-fault money… it’s just following, essentially, the easy pickings of the no-fault act.”

Under Minn. No-Fault, Chiropractic Treatments Have Gotten Pricier

The state’s no-fault laws currently enforce $20,000 limits on both medical and wage benefits that claimants can seek in settlements.

The Insurance Information Institute (III) attributed much of the growing cost of auto coverage in Minnesota to a parallel rise in treatment costs sought in no-fault claims. According to the Institute, the average charge for chiropractic treatments increased 30 percent, from $122 to $158 between 2002 and 2007.

Most of the Minnesota no-fault claims under PIP coverage are for such increasingly costly charges, with 58 percent of those settlements for medical care going to chiropractors, according to a report from the Insurance Research Council based on 2007 data.

In an anecdote offered to committee members, Doty said that criminal operations can be as subtle as street advertisements and billboards.

In one case, according to Doty, a Spanish-language advertisement using the phrase “obtain dollars for your accident” for an “accident hotline” targeted injured motorists.

“If you were involved in a car accident … you would call this help line and a representative from the help line would come to the accident scene, would ask if you are injured,” Doty said at the hearing. “Oftentimes we had testimony where the person said, ‘I just wanted my car fixed.’ But the person kind of convinces them that they might be injured; ‘if you’re not injured today you might be tomorrow.’”

Others participating in the scheme would then visit the victims at their homes, according to Doty.

“Eventually a chiropractor and a lawyer would show up at the house, so within an hour or two of the accident there’s a claim being made and a lawsuit being commenced,” he said.

Legislative efforts in Minnesota to cap benefits for less serious, “soft tissue” injuries like muscle strains and stiffen requirements for injured motorists who file lawsuits were proposed in 2011 but never made it out of state Senate committees.

There was even a Senate bill proposed that year to repeal the state’s no-fault laws, but it too stalled in a committee.

At Hearing, Officials Applaud Heavier Focus on No-Fault Fraud

Much of Minnesota’s law enforcement fight against fraudulent no-fault activity centers on the Department of Commerce’s Division of Insurance Fraud Prevention (DIFP) that was established in 2004.

Ramsey County attorney John Choi told Senate committee members that he was pleased with a rise in the number of cases brought against criminals behind insurance-related crimes. Last year, the Commerce Department’s focus on such cases brought six defendants up for prosecution, according to Choi, after the Ramsey County Attorney’s Office received only one referral for such prosecutions in 2008 and 2011.

“I expect that number to increase with the attention that’s been given at Commerce with respect to insurance fraud,” he said.

While one prosecutor has been assigned to fraud from his office, Choi said that more will have to be done to fund law enforcement efforts. He suggested that a part of the $1 premium surcharge that Minnesotan drivers pay for auto theft prevention be redirected.

“The scope of that fund could increase to include insurance fraud,” he said. “If there’s a way to fund more investigators and prosecutors I think that would be very welcome.”

Legislators, litigators and investigators will be among those at a roundtable hosted by the DIFP on Wednesday.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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