Coming To N.Y.: America’s Costliest Car Insurance

NEW York car owners are facing a stiff hike in insurance premiums because of soaring fraud and a surge in payments in accident cases. With other states enacting reforms to restrain the growth of lawsuits and cut down on insurance scams, New York drivers will almost certainly soon be paying the highest premiums in the country. And they’ve got lawyers, rip-off artists and legislators to thank for that.

Here’s why.

The state’s no-fault law requires a driver’s insurance company to pay the first $50,000 in medical bills for an accident, regardless of who’s at fault. But it’s virtually impossible for insurers to investigate fraudulent claims - because the law lets drivers wait up to six months after an accident to file medical claims.

Scam artists are having a field day with fake accidents, and payments from accident claims are going through the roof in the state. Fake auto-insurance claims uncovered by regulators nearly tripled in New York to 12,372 last year, from 4,393 in 1995, according to Robert Hartwig, chief economist with the Insurance Information Institute.

Even so, many bogus claims are clearly going undiscovered. Total personal-injury payments in New York have risen 64 percent since 1995, compared to a 33 percent rise nationally.

With the state’s costs soaring, the institute recently warned that New York is on the verge of surpassing New Jersey as the state with the nation’s highest average auto-insurance premium. In 1998, the Garden State passed reforms that studies estimate have cut the average annual cost of a premium by more than $200, to below $1,000. New York’s average rate, meanwhile, was about $1,110 in 1999, the last full year for which data are available, but is now clearly heading upward.

In the Empire State, insurers can raise rates up to 7 percent without asking permission from the state Insurance Department, and that could mean increases of more than $100 on premiums this year, especially in New York City, where the average premium is already close to $2,000 a year.

The Insurance Department has tried to put the breaks on fraud by adopting regulations to shorten the time required to file a medical claim, but trial lawyers successfully defeated the measure in court. They want consumers to have as much time as possible to build up medical bills - because, after the first $50,000 in expenses, an accident victim can sue for more damages.

The state is going to try again with another version of the anti-fraud regulations. But what is really needed is broader reform of the state’s insurance law and its civil-justice system. Right now, for instance, the no-fault law requires insurers to cover any medical expenses, including questionable procedures like aromatherapy and massage therapy. That helps the bills mount quickly, which the lawyers also like. New Jersey, by contrast, is eliminating payments for dubious medical treatments.

New Jersey also lets consumers opt out of the litigation lottery. Drivers there can get lower insurance rates by agreeing not to sue except in cases resulting in permanent disability.

At the heart of this crisis is the power of the state’s trial lawyers, who consistently use their influence garnered through political contributions to block reforms that would restrain the growth of insurance premiums, because those reforms would also end the litigation gravy train for them.

Everyone who pays an auto-insurance bill in New York is the worse off because of it.