Cutting Down on Auto Insurance Fraud in New York

With an uptick in auto insurance fraud nationwide over the past few years, it comes as no surprise that lawmakers are scurrying to pass laws that will make consequences more serious for offenders. In New York State, US Senator Charles Schumer is trying to reduce fraud with the Cheaper Car Insurance Act of 2010.

What the Act Covers
If this act is passed, a judge could determine what the fine would be for car insurance fraud, up to $100,000. If the cost of the fraud is more than $100,000, the fines incurred would be for the amount of the fraud.

The act also calls for jail time for all offenders. In New York, says Schumer, the state is seeing auto insurance fraud rings, much like drug rings. His goal is to catch not only the “small fry” but also the leaders of the crime ring. Leaders can get up to 15 years in prison for being charged with auto insurance fraud.

Additionally, the act would allow auto insurance companies to inspect vehicles they suspect could be used for fraud before they insure them. This would keep criminals from buying cars that are already in bad condition and claiming that the vehicles were damaged in an accident.

The Goal
With car insurance fraud costing drivers 13 to 18% more for car insurance, comparing 2002 to 2007 (Insurance Research Council, Nov. 2008), it’s no wonder states like New York are working to reduce or eliminate fraud altogether. In 2002, 9% of all claims were estimated fraudulent claims, and in 2007, that number rose to 11%. Since then, we as a nation have suffered a depression, so that number, while not yet reported officially, has risen significantly.

In New York, according to insurance regulators, fraud has risen 33% since 2006. Insurance premiums have gone up 6.3% as a result. Fraud is the most prevalent in Upstate New York.

In developing serious consequences for New York car insurance fraud criminals, the state (and others) hope to deter these thieves from attempting fraud. The few thousand dollars a criminal might gain in succeeding at auto insurance fraud is likely not worth the risk of getting caught and paying $100,000 in fines, as well as spending time in jail.

Fraud affects anyone who drives a car. While costs for car insurance policies go up with the cost of inflation, the United States has seen an unprecedented rise in rates over the last five to ten years, due to the cost of fraud. When an insurance company has to pay to cover the expense of fraud, the company has to recoup its expenses by raising rates of all policyholders. It’s sad but true: fraud is a selfish act that affects far more people than a criminal may realize.

When insurance companies raise rates for premiums, many drivers cannot afford the increase, and drive without car insurance. This runs the risk of their having to pay out of pocket if they cause an accident, and possibly file bankruptcy, since they usually cannot afford thousands of dollars in expenses.

By reducing the instances of fraud in New York, or even nationwide, auto insurers are able to reduce rates across the board as they save money on paying fraudulent claims. In this way, insurers can save money for all drivers, and more drivers can afford car insurance.