While costs and claims are increasing in the state, the actual number of reported automobile accidents is on the decline, an indicator of fraud, says Lynn McChristian, Florida’s representative for the III.
“There are more auto insurance claims and a higher percentage of them seem to require extensive medical treatment,” McChristian says.
Meanwhile in New York, the Insurance Research Council reports in its study: “New York’s No-Fault System: Preliminary Findings from Closed Auto Injury Claims” found that one in every five no-fault auto insurance claims closed in the New York City area in 2010 had elements of fraud with as many as one in three claims appearing to be inflated.
“The apparent amount of fraud and excessive billing by some health care providers in the New York City metropolitan area is truly stunning when compared to the rest of the state,” says Elizabeth Sprinkel, senior vice president of the IRC. Elements of fraud appeared in 22 percent of all New York City metropolitan area no-fault auto insurance claims closed in the fall of 2010.
While the problem is not unique, it exists at some level in every state — investigators say the very nature of no-fault legislation lends itself to increased instances of abuse.
The Insurance Information Institute describes no-fault auto insurance as a program that allows policyholders to recover financial losses from their own insurer, also known as personal injury protection, regardless of fault. In its strictest form, the term applies only to state laws provide no-fault first-party benefits and restrict the right to sue.
Under current no-fault laws, a motorist may only sue if their injuries meet a certain threshold, either monetarily or verbally descriptive, relating to the severity of injury. Those verbal thresholds eliminate the incentive to inflate claims that may exist when there is a dollar target for medical expenses. In some states though, court rulings in auto insurance cases have not upheld the verbal threshold language, setting precedence for awards above the established limits. This creates an opening for fraudulent claims as an unscrupulous attempt to obtain as much money from phony or inflated medical claims as possible.
Twelve states and Puerto Rico have no-fault auto insurance laws. Florida, Michigan, New Jersey, New York and Pennsylvania have verbal thresholds. The other seven states —Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah — use a monetary threshold. In New Jersey, Pennsylvania and Kentucky, motorists have a “choice law” and may reject the lawsuit threshold and retain the right to sue for any auto-related injury.
Frank Scafidi, director of public affairs for the National Insurance Crime Bureau, says when no-fault insurance came about it was with all the right intentions, to keep litigation down and make sure everybody comes away from an accident with no problems. Now that there is a specific amount of money for fraudsters to target phony accidents and phony injuries are on the climb.
“In a word (no-fault) just creates an atmosphere for fraud,” Scafidi says.
