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ISSUED: 5/9/2001 FOR IMMEDIATE RELEASE

SWEEPING AUTO INSURANCE REFORM CALLS FOR END TO "FRAUD TAX"

Targets No-fault Insurance Fraud, Establishes Special Prosecutor and Coordinates State’s Investigatory Efforts, Increases Consumer Options, Expands Consumer Rights

Acting New York Insurance Superintendent Gregory V. Serio today proposed the most comprehensive overhaul of auto insurance in New York State in almost 30 years to combat fraud and reduce auto insurance premiums.

The sweeping legislative and regulatory package includes an Executive Order issued by Governor George E. Pataki naming the Attorney General as Special Prosecutor to coordinate investigatory and prosecutorial efforts at the State level to combat auto insurance fraud. By marshaling the State’s resources and coordinating the State’s efforts to combat auto insurance fraud, the Special Prosecutor will complement the efforts of local district attorneys to reduce fraud.

In addition, the package provides a variety of new options that will result in lower premiums for New York’s auto insurance consumers, as well as a comprehensive set of new consumer rights and protections concerning the no-fault independent medical examination system. If fully implemented, the package will ensure that all New Yorkers will have access to comprehensive auto insurance protection at an affordable cost.

"By putting an end to the ‘fraud tax’ and providing consumers with more choice, this package will reduce auto insurance premiums," Serio said. "We must put an end to the rising incidence of insurance fraud and abuse. Fraud rings, staged accidents, medical mills, and bogus health treatment claims take hard earned money out of every insurance policyholder’s pocket.

"This comprehensive package will protect honest New Yorkers from the mounting costs of fraud and abuse by putting insurance crooks out of business. Consumers must be confident that they are paying for the insurance coverage they need, not subsidizing the fraudulent activities of scam artists, unscrupulous lawyers, doctors, and medical providers," said Serio. "At the same time, New Yorkers should have a range of options to choose from that will allow them to reduce their auto insurance premiums."

As part of the Governor’s Executive Order, the Governor has directed the New York State Police and the Insurance Department to authorize the Special Prosecutor to undertake investigations and prosecutions directly. The Special Prosecutor will also work with local prosecutors and law enforcement officials to augment their efforts to stop fraud and abuse by putting criminals behind bars. No-fault insurance fraud alone is estimated to cost New York drivers $1 billion dollars a year.

In addition, Governor Pataki has directed the Insurance Department, the Division of State Police, the Division of Criminal Justice Services, and other State agencies and bodies to cooperate with and assist the Special Prosecutor, the State’s District Attorneys and other law enforcement agencies to root out insurance fraud. An annual report will be prepared by the Division of Criminal Justice Services to monitor the progress of this initiative.

"This meaningful reform package will give our law enforcement officers and district attorneys much-needed tools to investigate, prosecute, and convict criminals involved in insurance fraud," said Katherine N. Lapp, Commissioner of Division of Criminal Justice Services. "Working in conjunction with the Attorney General’s Office we will be able to create a state-wide team to weed out the crime that costs every New York driver."

A critical component of the Department’s Auto Insurance Reform package is a newly revised proposed regulation which will ensure that legitimate claims are paid on a timely basis, while fraud and abuse in the current no-fault system is reduced.

Under the plan, accident victims will now have up to 30 days to report a claim and medical providers will have 45 days from each treatment to submit claims for payment -- eliminating existing loopholes that have been exploited as opportunities for fraud and abuse.

At the same time, significant consumer safeguards are included by excusing noncompliance with the time frames where there is a clear and reasonable justification. In the past, failure to comply could be excused only in cases where it could be demonstrated that compliance was impossible. Moreover, insurers are required to implement objective criteria to guide reviews of late requests and an expedited arbitration process has been established to resolve disputed claims expeditiously.

The new package also cracks down on fraud rings, forged insurance documents, and false and inflated automobile repair and medical service bills. The legislation would create a new felony crime for acting as, or soliciting the service of, a "runner." A "runner" is a person who obtains clients, patients or customers for health care providers and attorneys that file fraudulent insurance claims. Currently, while the fraudulent activity of runners could be prosecuted, no statute explicitly sanctions this insidious practice that fuels fraud rings, bilking consumers out of millions of dollars.

Insurance costs will be further reduced by barring damage recoveries by those who engage in certain criminal activities or those who own or operate an uninsured vehicle. This change will put a stop to the free ride that law-breakers currently enjoy at the expense of New York’s law-abiding drivers.

In addition, the proposed regulation provides important consumer protections for accident victims seeking benefits in the no-fault system. For the first time, New York’s auto insurance consumers will enjoy a comprehensive set of consumer rights when an insurer requests an independent medical examination.

Such rights include: requiring that an examination be performed by a health care provider that has been authorized by the Superintendent, mandating that exams be held at a time and place reasonably convenient to the person being examined, providing written notice of such examination at least seven days in advance by mail, requiring that the independent medical examiner provide a sworn statement as to the accuracy of the medical examination report, and assuring that copies of any and all independent medical examination reports are provided to the injured person and their legal representative on a timely basis.

"Currently New York’s auto insurance consumers do not have real options when purchasing auto insurance coverage. They simply have to buy the standard package of services," Serio said. "Under this new legislation, consumers will have new alternatives leading to reduced premiums."

The Department’s proposed legislation provides extensive consumer choice for policyholders in the no-fault system. Consumers will be offered additional product options to reduce premiums.

These options include: participation in Preferred Provider plans for auto-related medical treatments, additional deductible alternatives that are similar to what is currently available to New Yorkers when they purchase homeowner’s coverage, and optional co-payments. Managed auto repair will also be made available in which the consumer agrees to have their vehicle repaired by designated repair shops in return for a reduced premium. All of these alternatives are proven means to reduce the cost of auto insurance coverage.

The package includes:

New Special Prosecutor to Coordinate Investigative Efforts at State level:

  • Appoints the Attorney General of the State of New York as Special Prosecutor, coordinating the investigatory and prosecutorial efforts at the State level relating to any indictable offense involving motor vehicle insurance claims. The Special Prosecutor will be authorized by the New York State Police and Insurance Department to undertake investigations and prosecutions directly.
  • The Special Prosecutor will work with the State’s District Attorneys and law enforcement officials to stop auto insurance fraud and abuse. The Division of Criminal Justice Services, the Insurance Department, the Division of State Police and other State agencies, divisions, boards, bureaus, and commissions will cooperate and assist the Special Prosecutor, district attorneys, and law enforcement.
  • The Division of Criminal Justice Services, in consultation with the Special Prosecutor, the Department, and the Division of State Police, will prepare an annual report on efficacy of the investigatory and prosecutorial efforts of motor vehicle insurance fraud cases.

Tough on Fraud:

  • Establishes a new crime of no-fault insurance fraud.
  • Makes acting as a runner--a person who, for a fee, procures a claimant to unlawfully obtain benefits--a crime punishable as a class E felony.
  • Establishes the crimes of insurance fraud against a regulatory official relating to making false statements to a regulatory official to influence his or her actions or those actions of an insurance regulatory agency or one of its agents or examiners.
  • Establishes the crimes of insurance fraud against an insurance business relating to knowingly misappropriating money or property from a person engaged in the business of insurance.
  • Reduces notice of claim to 30 days while implementing significant consumer safeguards. Insurers are required to establish objective standards of review when notice is given after 30 days to determine whether the delay was reasonable. The objective standard must include consideration as to whether there is difficulty establishing the identity of the correct insurer to which timely notice should be submitted. Special consideration must also be given to pedestrians or non-related occupants of a car who may have difficulty identifying an insurer, as well as emergency care providers who may have difficulty identifying the insurer to which a proof of claim should be submitted. Such standards must be made available for Department review.
  • A revised No-Fault cover letter will be sent with the application for benefits, highlighting new notice requirements and the opportunity to submit justification for late notice.
  • Creation of right to special expedited arbitration dedicated to the resolution of cases where an insurer rejects reasonable justification for failure to give timely notice. Denial of claim form for late notice specifically advises right to expedited arbitration.
  • Requires insurers to establish reasonable objective standards for the use of an examination under oath and standards must be available for Department review.
  • Limits the assignment of benefits to licensed health care providers. Assignments may be made to all health care providers where there are no statewide or local licensing requirements and suppliers of durable medical equipment and prosthetics may still accept assignments.

New Consumer Rights:

  • Independent medical examinations are to be performed by health care providers that have been authorized by the Superintendent of Insurance.
  • The examination is required to be held at a time and place reasonably convenient to the person being examined, written notice of the examination must be given by mail at least seven days in advance, the independent medical examiner must provide sworn statements as to the accuracy of the medical examination report, and copies of all independent medical examinations must be provided to the injured person or their legal representative on a timely basis whenever a claim is denied.

New Consumer Choices:

  • New options for reduced premiums, including participation in Preferred Provider plans for auto-related medical treatments, additional deductible alternatives that are similar to what is currently available when purchasing homeowner’s coverage, and optional co-payments. Managed auto repair will also be made available in which the consumer agrees to have their vehicle repaired by designated repair shops in return for a reduced premium.
  • Requires motor vehicle insurers to reduce insurance premiums to reflect the cost savings that can be attributed to the use of preferred providers for the delivery of health care services.
  • Requires insurers to appropriately reduce insurance premiums for motor vehicle comprehensive and collision insurance to reflect the cost savings that can be attributed to an insured’s election to use specified motor vehicle repair shops.

 

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