Fraud Behind Worsening Claim Trends in Metro NYC Triggering Surge in New York No-Fault Costs, Study Reports
MALVERN, Pa.- Soaring injury claims in the New York metropolitan area, far exceeding those in the rest of New York State and the country, suggest an increase in no-fault auto insurance fraud that threatens to make New York auto insurance rates the nation's highest, according to a new study of personal injury protection (PIP) insurance claims in New York State prepared by the Insurance Research Council (IRC).
The average amount paid for personal injury protection claims jumped 20 percent in New York in the year 2000, in contrast to 6 percent in other states, including New Jersey, that also have no-fault systems. This increase is five times the medical care inflation rate for metropolitan New York. The frequency of claims rose 7 percent in New York, while declining 2 percent in other no-fault states.
According to the IRC study, one in four New York PIP claims appeared to involve some kind of fraud or buildup, either the exaggeration of medical expenses, unnecessary treatments, or padding claim-related costs. This report compares private passenger auto claim patterns for New York State and New York City with national no-fault trends and the results of previous IRC studies.
In every category, claim patterns within metropolitan New York City drove insurance costs significantly higher than in the rest of the state. Trends pointing to increased claims abuse and fraud were particularly high in Brooklyn and, to a lesser extent, in Queens and the Bronx.
The IRC study found that behavior patterns were dramatically different among New York City-area claimants than among their upstate counterparts. Compared with the rest of the state, New York City claimants:
- Reported more injuries, particularly neck and back sprains and strains. Forty-seven percent reported three or more injuries, twice the statewide average.
- Were more likely to seek treatment from a larger number of medical professionals, including chiropractors, neurologists, physical therapists, psychotherapists, and alternate treatment providers, and were less likely to be treated in hospitals.
- Received diagnostic procedures using magnetic resonance imaging (MRIs) and electromyography (EMGs) more often than their upstate counterparts - and more than once.
- Hired attorneys at nearly four times the rate of the rest of the state.
- Were two to three times more likely to wait more than 30 days before reporting injuries to insurance companies.
- Were two times more likely to have more than 45 days pass before medical bills were submitted to insurers for payment.
These last two patterns are potentially important contributors to no-fault auto fraud, since current rules within New York allow 90 days for claimants to report injuries and 180 days to submit medical bills. Insurance companies, on the other hand, have only 30 days to pay claims, even if fraud is suspected, or face legal action for bad-faith claims practices. Reforms to tighten New York's no-fault system and deter fraud and abuse are pending before the state legislature.
Not surprisingly, given these increases in medical utilization, average payments on behalf of New York PIP claimants have increased significantly since 1997, according to the new study. The average payment for New York City PIP claims in 2000 was $6,898 - up 17 percent on an annualized basis since 1997. That compares to just a 6 percent annualized increase in the rest of the state. These increases are both striking given the 3.9 percent annualized increase in the rate of medical care inflation.
"This data quantifies many of the sources of the dramatic run-up in New York claims costs in recent years," said Elizabeth A. Sprinkel, senior vice president of the IRC. "The extraordinarily high use of medical resources, especially in the New York City area, is creating a crisis in the New York no-fault system. Also, the data raise serious concerns about the extent of fraud among New York PIP claims."
These findings are contained in a recently completed IRC study, Claiming Behavior in New York's No-Fault Auto Insurance System: An Analysis of Closed PIP Claims, that examines detailed claim information from more than 2,800 claimants whose claims were closed with payment in 2000. Twelve insurers, representing more than half of the New York private passenger no-fault market, participated in the study.
For more information, contact Elizabeth Sprinkel by phone at (610) 644-2212, ext. 7568; by fax at (610) 640-5388; or by e-mail at irc@cpcuiia.org. Or visit IRC's Web site at www.ircweb.org. Copies of the study are available at $35 each in the U.S. ($50 elsewhere) postpaid from the Insurance Research Council, 718 Providence Rd., Malvern, Pa. 19355-0725. Phone: (610) 644-2212, ext. 7569. Fax: (610) 640-5388.
NOTE TO EDITORS: The Insurance Research Council is a division of the American Institute for CPCU and the Insurance Institute of America. The Institutes are independent, nonprofit organizations dedicated to providing educational programs, professional certification, and research for the property-casualty insurance business. The IRC provides timely and reliable research to all parties involved in public policy issues affecting insurance companies and their customers. The IRC does not lobby or advocate legislative positions. It is supported by leading property-casualty organizations.