INTRODUCED: 02.14.05
SPONSOR: Senator James L. Seward

PASSED BY THE SENATE: 06.08.05 [Aye-55, Nay-5];
session ended without an Assembly vote

The Legislation:
The Auto Insurance Fraud bill would use a number of measures to rein in false or inflated car insurance claims in an effort to reduce expenses for insurance companies: it would increase penalties for auto insurance fraud and suspend the small number of doctors who help to fabricate most false car insurance claims from participation in the system. In order to provide more time for insurance companies to investigate possible fraud, the bill would allow insurers to delay paying a claim past the current 30-day deadline if they pay claimants two percent interest per month on the delayed claims and cover their legal fees. The bill would also establish a temporary panel to study the medical care provided under New York's “no-fault” auto insurance system, which covers medical expenses and lost wages for injured drivers regardless of who caused the accident. Finally, the bill would direct the Insurance Superintendent to consider the extent to which fraud reduction efforts have lowered insurance companies' costs when deciding how much auto insurance companies may raise their rates in the future.

The middle-class position:
The Middle Class Opposes: This legislation would put New York drivers between a rock and a hard place when it comes to their auto insurance. On the one hand, the state's car insurance premiums are the second highest in the country, and fraud is part of the reason. When scam artists file false or inflated claims to defraud insurance companies, the companies pass on the costs to policyholders, resulting in higher premiums for everyone. On the other hand, after paying hundreds of dollars a month for insurance, New Yorkers need to know that when they're actually in an accident, insurance companies will promptly pay their legitimate claims. While this bill provides insurance companies with new tools to fight fraud, it also gives them a pretext to delay paying the claims that policyholders urgently need to reimburse their medical bills and make up for lost wages. Insurance companies have a powerful financial incentive to delay paying every claim for as long as possible, regardless of whether fraud is actually suspected, because they earn interest on the premiums they use to pay claims. Every month that companies delay paying claims can result in thousands of dollars of investment income towards their bottom line, even as their customers struggle to pay bills that should be covered by their insurance payout. Anti-fraud legislation should not include this loophole enabling insurance companies to cheat their customers.

from the experts:
“The problem is the 30-day period. When no-fault insurance was put into effect, there was a quid pro quo. The concept was you don't have a right to sue anymore, but you have a right to prompt payment. And that prompt payment includes wages, and it also includes medical care... Middle-class individuals would have to rely on these payments to pay their doctors and also to live on while this process is going on... What we're doing, basically, by that provision is hurting the honest person who has insurance that is following the rules... And I just think that's wrong.”

—NYS Senator John A. DeFrancisco, speaking on
an earlier version of this bill (March 4, 2003)

“There is the conflict between the insurance companies' principal mission — making money —and their responsibility to offer policies to those who must buy insurance and to pay legitimate claims... [This] provides incentives for insurance companies to avoid paying claims, or at least delay claims as much as possible, creating an inherently adversarial relationship with consumers. Add the record profits achieved by the auto insurance industry in recent years, and the result is an incendiary pocketbook issue fraught with billions of dollars in consequences for both the nation's consumers and its insurance industry.”

—Center for Taxpayer and Consumer Rights (2004)