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Fraud Racket Drives Insurance Rates Up


Fraud Racket Drives Insurance Rates Up

August 7, 2001
Urban PolicyCrime

It's a weekday morning, and Mike Russell is out cruising the crowded streets of Brooklyn. A New York Police Department detective for 16 years, Russell once tracked down Jamaican drug dealers and pursued cop killers on these same streets. But today Russell, who now works as a private investigator for Geico insurance, is on the trail of insurance fraud and he knows that neighborhoods such as Sheepshead Bay and Brighton Beach in Brooklyn are good places to hunt for it.

Street gangs have been staging accidents throughout these and other neighborhoods in Brooklyn and Queens, then sending "victims" for "treatment" to the phony clinics that have sprung up like weeds in the area. When Russell sees a particularly suspicious new clinic—one, say, with no doctor's name or office hours listed on the door—he'll park his car and saunter into the lobby to investigate, sending clerks and receptionists scrambling.

"Once, I walked in and there was a whole bunch of people in the lobby filling out police accident reports," he recalls. "You thought you were in a precinct."

As Mike Russell will tell you, auto insurance fraud has become an epidemic in New York—especially in Brooklyn and Queens—because of these street gangs and the phony clinics. They have been taking advantage of loopholes in New York's no-fault law that requires a driver's insurance company to pay the first $50,000 in medical bills for an accident, regardless of who is at fault.

Designed to cut down on expensive lawsuits, the law allows drivers to wait up to six months after an accident to file medical claims. To exploit the law, con artists are staging fake accidents—then waiting until just before the six-month deadline to file a raft of medical bills, making it difficult for insurers to investigate these cases.

The result has been a steep increase in payouts for personal-injury claims in New York. Here, payments for such claims have risen at about double the national rate of increase over the past five years. The number of fraudulent cases reported to New York during that time has almost tripled from 4,393 in 1995 to 12,372 last year.

The fraud has had a devastating effect on car insurance rates in New York City—especially in Queens and Brooklyn, which now have the highest rates in the state. In Queens, for instance, rates set by the New York Automobile Insurance Plan jumped 9 percent this year to $1,776 per car, pushed up by a 35-percent increase in the personal-injury portion of the premium. In Brooklyn, premiums soared 15 percent to $3,019 per car, propelled by a 45-percent increase in personal-injury premiums. Even with the increases, personal-injury coverage is a loser for insurers. For every $100 in premiums they collect on this part of auto insurance, the firms are paying out $177 in claims.

Some legislators and prosecutors have pushed for new laws to help contain the fraud. Prosecutors want tougher penalties for insurance fraud, which is often treated as only a misdemeanor. They are also seeking to amend the no-fault law to require accident victims to inform their insurer within 90 days that they have been in an accident and intend to file claims for medical bills.

Lawmakers also want limits on the kinds of treatments covered by no-fault. Currently, anything doctors order up, including such dubious treatments as aromatherapy and massage therapy, must be paid for under no-fault insurance policies, and that is helping drive bills sky-high.

But now reform efforts are hung up in Albany.

Doctors and lawyers, who can file lawsuits in these cases when medical bills surge past the $50,000 no-fault limit, have both lobbied against restrictions on the kinds of treatments insurers must cover. And other proposals for reform have fallen victim to the state's deadlocked budget process, which is producing gridlock in the capital.

But, while Albany fiddles, fraud rages.

Private investigators such as Mike Russell say the fraud is taking a toll on policyholders beyond the high premiums. In the latest twist, for instance, gangs have started using stolen identities to file claims under the names of innocent policyholders for staged accidents.

In one case, Russell labored for a year and a half to clear a Geico client whose driving record contained a raft of accidents others had actually staged. Finally, he tracked down a trucker who had taken a picture of the driver of the car who hit him. Russell could see for himself that the driver was not Russell's real client.

Russell is now working to clear the name of a bus driver with multiple crashes to his name—all caused by someone else. The man has been unemployed for a year because of the blemishes on his record.

"The poor guy's wife wants to divorce him," says Russell. "I tell her, it's not his fault. He really didn't cause these accidents. Sooner or later we'll prove it."