NY's assigned risk drivers hit with 20 percent insurance rate hike

Long Island Business News, Aug 15, 2003 by Ben Abelson

Drivers insured through New York's assigned-risk Automobile Insurance Plan should brace themselves for an average statewide 19.7 percent rate increase this year.

The rate hike, quietly approved by the state insurance department last month, is largely a result of rampant insurance fraud across the state and by members in the pool, industry experts said.

This is a pervasive problem - this is not a matter of any insurance company looking to grab money, said Barry Goldstein, CEO of the Hewlett-based DCAP Group and a member of the New York Auto Insurance Plan's Governing Committee. All this rate hike will do is mitigate their damages.

The only real solution to New York's perpetually high insurance rates, according to Goldstein, is to revamp state laws and regulations governing insurance fraud.

Consumer advocates, however, don't give the insurance industry a free pass. They've challenged the state and insurance providers to increase their fraud investigations and regulations rather than continuing to raise rates for the plan. In each of the past three years, average rates in the plan have climbed more than 18 percent.

Why aren't they rooting out fraud instead of socking it to poor people that get tossed in there? asked Bob Hunter, director of insurance for the Washington-based Consumer Federation of America.

According to Hunter, many drivers in the assigned-risk plan can't find insurance elsewhere due to limited driving experience or a poor credit history, not necessarily because of poor driving.

In 2001, the last year for which such data was available, New York had the second highest average overall auto insurance premium in country, according to the National Association of Insurance Commissioners.

Under current state law, anyone injured in a car accident can receive up to $50,000 in medical expenses, regardless of fault. This 'no-fault' law, and the fact that the state requires a minimum of $50,000 in personal injury coverage for all drivers, is helping to contribute to extensive insurance fraud in New York, according to Gerald Zimmerman, assistant general counsel to the National Association of Independent Insurers.

In New York we see people seeking much more medical treatment than in other states. That obviously is costly and gets factored into the rates &There's an abuse here. There's a free pot of $50,000 and everyone thinks that they're a chump if they don't grab it.

According to Zimmerman, many states have abandoned no-fault coverage specifically because it invites abuse.

Auto insurance companies that operate in New York state are required by law to take part in the assigned-risk plan, and any shortfall within the plan is passed on to these companies in amounts based upon their overall market share.

Even with the hike in rates, New York's plan - which covers drivers that cannot find insurance in the voluntary market - is still expected to run a $388 million deficit for its coming fiscal year, according to data from AIPSO, a Johnston, R.I.-based company that helps manage the majority of the assigned risk plans throughout the country. Had the rates not been increased, an AIPSO spokesman said, the shortfall would have been $723 million.

This shortfall is eventually passed on to drivers in the general insurance market, Zimmerman said. With the current rates and expected shortfall, he noted, every driver is effectively paying a $46 subsidy to fund the assigned-risk plan.

Locally, the effects of the rate hike will be somewhat muted. Average Nassau County rates for drivers in the assigned-risk plan are expected to increase 16 percent, while Suffolk County will only see an 8 percent average increase.

Of the 386,000 vehicles currently covered under the assigned-risk plan, about 30,000 are in Nassau County and about 54,000 are in Suffolk County.

A spokesman for the state Insurance Department, which approved the rate hike, agreed that fraud is contributing to the climb in rates statewide.

Eradicating insurance fraud is certainly a priority for the department and the governor, the spokesman said. We just need the Assembly and the Senate to take action.

This past year, bills aimed at targeting fraud passed in both the Assembly and Senate. However, the two bills - which were significantly different from each other - were never reconciled in conference committee.

The Senate bill, sponsored by state Sen. James L. Seward, R- Oneonta, chair of the Senate Insurance Committee, would have increased criminal penalties for fraud, given insurance companies a longer time period to challenge claims, and provided more resources to district attorneys to prosecute fraud.

However, according to state Assemblyman Alexander Pete Grannis, D- Manhattan, sponsor of the Assembly bill and chair of the Assembly Insurance Committee, the Senate proposal only addresses the concerns of the insurance industry.

The Senate bill mainly focuses on criminal penalties. Our bill is a much more balanced approach, Grannis said. Their bill just carries the insurance industry's agenda - raise the penalties, make it harder for people to raise claims, go back to the old days where insurers jerked people around unmercifully in the claims settlement process. The vast of majority of claims every year are not associated with fraud or abuse.